ODA BULTUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
ENTREPRENEURSHIP

Anuwar M.
WHAT IS ENTREPRENEURSHIP?

WHAT IS ENTREPRENEURSHIP?
BILL GATES
• Topping in the list of top 10 richest entrepreneurs in the
world with a net worth of $76 billion is Bill Gates. No doubt,
he is always included in the list of top 10 successful
entrepreneurs in the world. He is an American business
magnate, philanthropist, entrepreneur, programmer, and
investor. Gates is one of the best-known entrepreneurs of
the personal computer revolution.
Mark Zuckerberg
• Mark Zuckerberg is an American programmer, philanthropist, and Internet
entrepreneur. He is the chairman, chief executive, and co-founder of the social
networking website Facebook. Together with his college roommates and fellow
Harvard University students Eduardo Saverin, Andrew McCollum, Dustin Moskovitz,
and Chris Hughes, he launched Facebook from Harvard‟s dormitory rooms.
• Sir Richard Charles Nicholas Branson is an English
business magnate, investor, and philanthropist. He is
best known as the founder of Virgin Group, which
comprises more than 400 companies. Branson expressed
his desire to become an entrepreneur at a young age. At
the age of sixteen, his first business venture was a
magazine called Student.
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 CHAPTER ONE

THE NATURE OF
ENTREPRENEURSHIP

05/04/2025 Entrepreneurship Ch 1 -7
 Chapter One: The Nature Of
Entrepreneurship
1.1.Definition and philosophy of Entrepreneurship Vs
Entrepreneurs
1.Historical origin of entrepreneurship
1.2.Role of entr-ship within the economy
1.3.Entrepreneurial Competence and Environment
1.Entrepreneurial Mindset
2.Demographic Factors
3.Entrepreneurial Environment
1.4.Entrepreneurship, creativity and innovation

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 1.INTRODUCTION

 The word ‘entrepreneur Is originated from a

French word, entreprender, was considered as
an individual commissioned to undertake a
particular commercial project.
 Entrepreneur is someone who undertakes
certain projects.
 Entrepreneurship is then what the
entrepreneur does.
 Entrepreneurial is an adjective describing how
the entrepreneur undertakes what he or she
does.

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 Con’t…
 In ancient period, the word entrepreneur was
used to refer to a person managing large
commercial projects through the resources
provided to him.
 In the 17th Century a person who has signed a
contractual agreement with the government
to provide products or service was
considered as entrepreneur.
 In the 18th Century the first theory of
entrepreneur has been developed by Richard
Cantillon and He said that an entrepreneur is
a risk taker.

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 Con’t…
 The other development during the 18th Century is the

differentiation of the entrepreneurial role from capital

providing role.
 In the late 19th and early 20th century, the entrepreneur was

defined as one who organizes and operates an enterprise

for personal gain.
 In the middle of the 20th Century, the notion of an

entrepreneur as an inventor was established.

 From the historical development it is possible to understand

the fact that the perception of the word entrepreneur was

evolved from managing commercial project to the
application
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(creativity) in the business idea.
 2. Definitions of Entrepreneurship and
Entrepreneur
 Entrepreneurship is a process of identifying opportunities and

investing the resources to exploit it for a profit.

 Is the processes through which individuals become aware of business

ownership, then develop ideas for, and initiate a business.

 Entrepreneurship is a process of creating something different and

better with value by devoting the necessary time and effort by

assuming the accompanying financial, psychic and social risks and

receiving the resulting monetary reward and personal satisfaction.

 Entrepreneurship is the art of identifying viable business opportunities

and mobilizing resources to convert those opportunities into a

successful enterprise through creativity, innovation, risk taking and

progressive imagination.
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 Con’t…ability to turn ideas
It refers to an individual’s:
into action involving and engaging in socially-
useful wealth creation through application of
innovative thinking and execution to meet
consumer needs, using one’s own labor, time
and ideas.
 In General, the process of entrepreneurship
includes five critical elements. i.e:
 The ability to perceive an opportunity.
 The ability to commercialize the perceived
opportunity i.e. innovation
 The ability to pursue it on a sustainable basis.
 The ability to pursue it through systematic means.
 The acceptance of risk or failure.
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Definition of Entrepreneur from different
perspectives i.e. from the economist, psychologist and
capitalist philosopher’s point of view.
• To an economist, one who brings resource, labor,
materials, and other assets into combination that
makes their value greater than before.
• To a psychologist, a person typically driven by
certain forces need to obtain or attain something, to
experiment, to accomplish or perhaps to escape the
authority of others.
• For capitalist philosopher, one who creates wealth
for others, who finds better way to utilize resources
and reduce waste and who produce job others are
glad to get.
• In general, entrepreneur refers to the person and
entrepreneurship defines the process.
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• All entrepreneurs are business persons, but not all
 In General an entrepreneur
is;

• Entrepreneur is one who identifies

and sensitizes the opportunities,
innovate the ideas, raises money,
assembles inputs and set and
manage the organization, and
assumes the responsibility for it.

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 An entrepreneur can be defined as
follows:

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3. Role of Entrepreneurs in Economic Development
 Improvement in per capita Income/Wealth
Generation
 Generation of Employment Opportunities
 Inspire others towards Entrepreneurship
 Balanced Regional Development
 Enhance the Number of Enterprise
 Provide Diversity in Firms
 Economic Independence
 Combine Economic factors
 Provide Market efficiency
 Accepting Risk
 Maximize Investor’s Return
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05/04/2025 Entrepreneurship
 Types of Entrepreneurs
1.The individual entrepreneur: owns his own
independent organization.
2.Intrapreneur: does entrepreneurial work within
large organization
Employee Entrapreneur: inside entrepreneur
who follows the goal of the organization and
gets support and resources from the
organization
Self-employed Entrapreneur: develops a
business based on a business format/model of
another company
Low risk alternative because he operates
within the set policies and procedures
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3. The Entrepreneurial
organization/Corporate entrepreneurship/
–create an internal environment in which all of
its members can be motivated to contribute in
some way to the entrepreneurial function.
–Intrapreneurship is the practice of using
entrepreneurial skills without taking off the risks
or accountability associated with
entrepreneurial activities.
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4. Entrepreneurial Competence and
Environment

1.4.1. Who Becomes an Entrepreneur?

• The Young Professional

• The Inventor

• The Excluded

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 1.4.2. Why becomes entrepreneur?

• Some of the reasons for the difficulties in

classifying those involved in entrepreneur are
the wide variety of motives for their
involvement in firms.
• The reason for entrepreneur firm formation
can be divided between “pull” and “push”
influences.

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 1. “Pull” Influences

• Some individuals are attracted towards small business

ownership by positive motives such as a specific idea which
they are convinced will work.
• “Pull” motives include:

A.Desire for Independence

The Bolton report singled out the need to gain and keep
independence as a distinguishing feature of small business
owner-managers.
A study of female entrepreneurs in Britain found that women
were motivated particularly by the need for autonomy, which had
been frustrated by the individuals’ prior training and background.
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 Cont’d….

B. Desire to Exploit an Opportunity

• The identification of a perceived gap in the market place
through personal observation or experience is also a
common reason for starting a business.
C. Turning a Hobby or Previous Work
Experience into a Business
Many new entrepreneurs seek fulfillment by spending
more time involved in a cherished hobby, or part of their
work that they particularly enjoy.
D. Financial Incentive
The rewards of starting a business can be high, and are
well publicized by those selling ‘how to’ information to
would-be entrepreneurs.
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 2. ‘Push’ Influences

• Many people are pushed into founding a new

enterprise by a variety of factors including:
A. Unemployment (or threat of)
• Job insecurity and unemployment varies in significance
by region, and by existing economic climate.
B. Disagreement With Previous Employer:
Uncomfortable relations at work have also pushed new
entrants into small business. The dividing line between
those ‘pulled’ and those ‘pushed’ is often blurred.

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 1.4.3. Characteristics of Successful
Entrepreneurs:
The following are characteristics that are found within
all successful entrepreneurs and without which most
people will fall short of what it takes to succeed in an
entrepreneurial enterprise.
1.Confident
2. Feel a Sense of Ownership
3. Able to Communicate
4. Passionate about Learning
5. System-Oriented:
6. Dedicated
7. Grateful
8. Optimistic
9. Gregarious
10.Leader by Example
11.Not Afraid of Risk
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 1.4.4 Qualities of an Entrepreneur
To be successful, an entrepreneur should have the
following qualities:
 Opportunity-seeking
 Persevering
 Risk Taking
 Demanding for efficiency and quality
 Information-seeking
 Goal Setting
 Planning
 Persuasion and networking
 Building self-confidence
 Listening to others
 Demonstrating leadership
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 1.4.5 Entrepreneurial Skills
 Skills is an ability to perform in a certain way.
 Two sorts of skills are required for entrepreneur,
these are:
I. General management skills and
II. People management skills
1. General Management Skills: are skills required to
organize the physical & financial resources needed to run the
venture. i.e:
 Strategy Skills
 Planning Skills
 Marketing Skills
 Financial Skills
 Project Management Skills
 Time Management Skills
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2. People Management Skills
 Communication Skills
 Leadership Skills
 Motivation Skills
 Delegation Skills
 Negotiation Skills
• All these different people skills are
interrelated.
• Here entrepreneurial performance results
from a combination of industry knowledge,
general management skills; people skills
and personal motivation.
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 1.4.6 The Entrepreneurial Tasks
A number of tasks have been associated
with the entrepreneur. Some of the more
important are:
 Owning Organizations
 Founding New Organizations
 Bringing Innovations to Market
 Identification of Market Opportunity
 Application of Expertise
 Provision of leadership
 The entrepreneur as manager
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 1.4.7 Wealth of the Entrepreneur
Wealth is money and anything that money can buy.
It includes money, knowledge and assets of the
entrepreneur.
Who Benefits from the entrepreneur’s
Wealth?
 Employees:
 Investors: stockholders/lenders.
 Suppliers
 Customers
 The local community
 Government
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 1.4.8 Entrepreneurship and
Environment
• Business environment refers to the
factors external to a business enterprise
which influence its operations and
determine its effectiveness.
• Business environment may be healthy or
unhealthy.
• Healthy business environment means the
conditions are favorable to the growth of
business whereas unhealthy environment
implies conditions hostile or unfavorable
to business operations.
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• Business and its environment interact
with each other.
• No business concern can ignore the
environment around it except at its
own peril.
• “The penalty of environmental
disregard is heavy.
• It not only reduces profit margins and
makes opportunities for expansion slip,
but it also arouses social hostility and
makes social environment growingly
inhospitable
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to business operations.”
Entrepreneurship
• A study of business environment offers the following benefits:

1) It provides information about environment which is essential for

successful operation of business firms.

2) It opens up fresh avenues for the expansion of new entrepreneurial

operations.

3) Knowledge about changing environment enables businessmen to

adopt a dynamic approach and maintain harmony of business

operations with the environment.

4) By studying the environment entrepreneurs can make it hospitable to the

growth of business and thereby earn popular support.

 Thus, the entrepreneur should continuously study the

nature of environment and its influence on business.

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 1.4. 8.1 Phases of Business Environment
Business environment may be classified into two
broad categories; namely external and internal
environment.
1. External Environment: It is the
environment which is external to the business
and hardly to influence independently.
The following are the components of external
environment:
 Economic Environment
 Legal Environment
 Political Environment
 Socio-Cultural Environment
 Demographic Environment
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2. Internal Environment;
Internal environment is the
environment which is under the control of
a given organization.
Following are the components of internal
environment of a business:
• Raw Material
• Production/Operation
• Finance
• Human Resource

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 Environmental Factors Affecting Entrepreneurship

Environmental factors which hinder

entrepreneurial growth are;
• Sudden changes in Government policy.
• Sudden political upsurge.
• Outbreak of war or regional conflicts.
• Political instability or hostile Government
attitude towards industry.
• Excessive corruption among
Government agencies.
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 con’t…
• Ideological and social conflicts.
• Unreliable supply of power, materials,
finance, labor and other inputs.
• Rise in the cost of inputs.
• Unfavorable market fluctuations.
• Non-cooperative attitude of banks and
financial institutions.
• Entrepreneurship is environmentally
determined.
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 1.5 Creativity, Innovation and
Entrepreneurship
1.5.1 Creativity; is a process of assembling
ideas by recombining elements already known but
wrongly assumed to be unrelated to each other.
key elements of this definition;
• Process: implies that, it is more likely a skill than
an attitude, and that you can get better at it
with practice.
• Ideas: creativity results in ideas that have
potential value.
• Recombining: the creative process is one of
putting things together in unexpected ways.

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 1.7.1.1 Steps in creativity
Process

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 Steps in the Creative Process

Step 1: Opportunity or problem

Recognition; A person discovers that a new
opportunity exists or a problem needs resolution.
Step 2: Immersion; the individual concentrates on
the problem and becomes immersed in it.
Step 3: Incubation; a person does not appear to be
working on the problem actively; however, the
subconscious mind is still engaged.
Step 4: Insight; the problem-conquering solution
flashes into the person’s mind at an unexpected time,
such as on the verge of sleep, during a shower, or while
running. Insight is also called the Aha! Experience.
Step 5: Verification and Application; the
individual sets out to prove that the creative solution has
merit.
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 1.7.1.2 Barriers to Creativity
There are a numerous barriers to creativity, i.e.
 Searching for the one ‘right’ answer
 Focusing on being logical
 Blindly following the rules
 Constantly being practical
 Viewing play as frivolous
 Becoming overly specialized
 Avoiding Ambiguity
 Fearing looking Foolish
 Fearing mistakes and failure
 Believing that ‘I’m not creative
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 1.7. 2 Innovation

 Innovation is the implementation of new idea at

the individual, group or organizational level.
 It is a process of intentional change made to rate
value by meeting opportunity and seeking advantage
 Types of Innovation; there are 4 types of
innovation.
1. Invention - the creation of a new product,
service or process
2. Extension - the expansion of a product, service or
process
3. Duplication - replication of already existing
product, service or process
4. Synthesis - the combination of existing concepts
and factors into a new formulation.
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 1.7.2.1 The Innovation Process
• Analytical planning: carefully identifying
the product or service features, design as
well as the resources that will be needed.
• Resources organization: obtaining the
required resources, materials, technology,
human or capital resources
• Implementation: applying the resources
in order to accomplish the plans
• Commercial application: the provision of
values to customers, reward employees and
satisfy the stakeholders.
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 1.7.2.2 Areas of Innovation
 New product

 New Services

 New Production Techniques

 New Way of Delivering the Product or Service to the

Customer
 New Operating Practices

 New Means of Informing the Customer about the Product

 New Means of Managing Relationship within the

Organization
 New Ways of Managing Relationships between
Organizations
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 1.7.3 From Creativity to
Entrepreneurship
 Creativity, is the ability to develop new
ideas and to discover new ways of looking
at problems and opportunities.

 Innovation, is the ability to apply

creative solution to those problems and
opportunities in order to enhance
people’s lives or to enrich society.

Entrepreneurship = creativity + innovat

ion.
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 Con’t…

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 CHAPTER TWO

BUSINESS PLANNING

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 Content of chapter
2.1. Opportunity Identification and Evaluation
2.2. Business Idea Development
2.2.1 Business Idea Identification
2.2.2 Sources of Business Ideas
2.2.3 Methods for generating Business Ideas
2.3. The Concept of Business Planning
2.4. Business Feasibility
2.5. The Business plan
2.6. Developing a business plan

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 2.1 INTRODUCTION

 To start / expand any type of business

needs to work on opportunity
identification and evaluation, business
idea development and then prepare
business plan.
 Lack of doing these are the most often
cited reasons for business failure.
 2.2 Opportunity Identification and
Evaluation
There are five main steps;
1. Getting the idea/scanning the environment
2. Identifying the opportunity
3. Developing the opportunity
 Timely adaptation of that opportunity to suit
actual market need is key to new venture
success. It involves combining resources to
pursue a market opportunity identified.
4. Evaluating the opportunity
 assess whether the specific product or
service has the returns needed for the
resources required.
5. Assessment of the Entrepreneurial Team
1. Scanning the Environment/ Getting the
Idea
Synonymous with “idea” are
the terms:
Thought
Intention
Suggestion
Proposal
Initiative
Brainwave
Insight
Concept and connotation.
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 2. Opportunity Identification
Ability to see and discover and exploit
opportunities
It is the process of seeking out better
ways of competing and Scanning the
information from business environment.
It is an ability to recognize and make
effective use of abstract, implicit and
changing information from the changing
external environments.

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 3. Opportunity Development

Timely adaptation of that opportunity to suit

actual market need is a key to new venture
success.
Process of combining resources required to
properly execute the available opportunities.
This involves systematic research to refine the
idea to the most promising high potential
opportunity that can be transformed into
marketable items.
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 4. Opportunity Evaluation

Looking at the creation and length of the

opportunity
Its real and perceived value
Its risks and returns
Its fit with the personal skills and goals of the
entrepreneur, and
 Its differential advantage in its competitive
environment.
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 5. Assessment of the
Entrepreneurial Team

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 2.3 Business Idea Development

A business idea is a short and precise

description of the basic operation of an
intended business.
Types of Business Idea
• Old Idea –an individual copies an existing
business idea from someone.
• Old Idea with Modification – the person
accepts an old idea from someone and
then modifies it in some way to fit a
potential customer’s demand.
• A New Idea – This one involves the
invention of something new for the first
time
 2.4 Business Idea Identification

You need to have a clear idea of the sort of

business you want to run & identify promising
business idea among others. Important
questions to answer are
 Which need will your business fulfill for
the customers and what kind of
customers will you attract?
 What good or service will your business
sell?
 How is your business going to sell its
goods or services?
 How much will your business depend
upon and impact the environment?
 2.5 Methods for Generating Business Ideas

1. Learn from successful business owners

2. Draw From Experience
i. Your own Experience
ii. Other People’s Experience
3. Survey Your Local Business Area
4. Scanning Your Environment
i. Natural Resources
ii. Characteristics and Skills of People in the Local Community
iii. Waste Products
iv. Import Substitution
v. Publications
vi. Trade Fairs and Exhibitions
 Con’t…
5. Brainstorming
 Opening up your mind and thinking about many different
ideas. You start with a word or a topic and then write down
everything that comes to mind relating to that subject.
6. Structured Brainstorming
 Think of the different processes that are involved in the
operation of a particular business and the goods/services
that can be offered with respect to those processes.
7. Focus Group
 Focus group is a group of individuals providing information
on a structured format which is led by moderators. It is
characterized by an open and in depth discussion: rather
than simply asking questions to solicit student response.
8. Problem Inventory Analysis
9. Free Association
10.Forced Relationships
11.Attribute Listing
 2.6 Business Idea Screening
Idea screening is the process to spot good ideas and
eliminate poor one.
i. Macro screening:
 Are my own competencies sufficient?
 Can I finance it to a large extent with my own
equity?
 Will people buy my product/service (i.e. is it
needed and can people afford it)?
ii. Micro Screening:
 Solvent demand
 Availability of raw materials
 Availability of personal skills
 Availability of financial resources
iii. Scoring the Suitability of Business Idea
 When there are more than one possible business
ideas and one needs to decide which one to
follow, we use score business ideas (e.g., BI1,
BI2, BI3) by assigning a rating from 1 to 3 for
each question, with 3 being the strongest.
 After we score the ideas we sum the total and
select the idea with the highest score.

(please refer to your handout)

 Con’t…
 While you answer the above questions,
there are four important groups that you
should talk to:
 Potential customers
 Competitors, suppliers and entities
with financial resources
 Financial institutions
 Key informants and opinion leaders
 2.7 Concept of Business Plan

• A business plan is a road map for starting and

running a business.
• A business plan identifies opportunities, scans
the external and internal environment to
assess the feasibility of business and allocates
resources in the best possible way.
• It is the blueprint of the step-by-step
procedure that would be followed to convert a
business idea into a successful business
The objectives of a Business Plan
① Gives direction to the vision formulated by
entrepreneur.
② Objectively evaluate the prospects of business.
③ Monitor the progress after implementing the plan.
④ Persuade others to join the business.
⑤ Seek loans from financial institutions.
⑥ Visualize the concept in terms of market
availability, organizational, operational and
financial feasibility.
⑦ Guide the entrepreneur in the actual
implementation of the plan.
① Identify the strengths and weakness of the plan.
② Identify challenges in terms of opportunities and
threats.
③ Clarify ideas and identify gaps in management info
about their business, competitors and the market.
④ Identify the resources that would be required to
implement the plan.
⑤ Shows future prospects and projected growths of
the business venture.
 2.8 Developing a Business Plan

2.8.1 Business Planning Process

The various steps involved in business
planning process are;
1. Preliminary Investigation
Before preparing the plan entrepreneur should:
 Review available business plans (if any).
 Draw key business assumptions on which the
plans will be based (e.g. inflation, exchange
rates, market growth, competitive pressures,
etc.).
 Scan the environment to assess the strengths,
weakness, opportunities and threats.
 Seek professional advice from a friend/relative
or a person who is already into similar business
(if any).
2. Opportunity Identification and Idea
Generation
3. Environmental Scanning
4. Feasibility Analysis
5. Report Preparation
 2.8.2 Essential Components of Business Plan

I. Cover Sheet: Cover sheet is like the cover page of the book. It mentions the
name of the project, address of the headquarters and name and address of the
promoters.
II. Executive Summary: Executive summary is the first impression about the
business proposal.
 Highlight concisely and convincingly the key points in the business plan
 Should stimulate the interest of the potential investor.
III. The Business: This will give details about the business concept.
 It will discuss the objective of the business, a brief history about the past
performance of the company
IV. Funding Requirement:
 Debt equity ratio should be prepared, which can give an indication
about how much finance would the company require and how it would
like to fund the project.
V. The Product or Services
 A brief description of product/services
 It includes the key features of the product, the product range that
would be provided to the customers and the advantages that the
product holds over and above the similar products/ substitute products
available in the market.
 details about the patents, trademarks, copyrights, franchises, and
licensing agreements.
 Con’t…
VI.The Plan:
1. Marketing Plan
 Marketing mix (4Ps) strategies are to be
drawn, based on the market research.
2. Operational Plan
 Gives information about (i) Plant location: (ii)
Plan for material requirements, inventory
management and quality control.
3. Organizational Plan
 Indicates the pattern of flow of
responsibilities and duties amongst people in
the organization (it provides details about
the manpower plan that would be required to
put life into the business)
4. Financial Plan
a. Projected Sales
b. Projected Income and Expenditure Statement
c. Projected Break Even Point
d. Projected Profit and Loss Statement
e. Projected Balance Sheet
f. Projected Cash Flows
g. Projected Funds Flow
h. Projected Ratios
VII. Critical Risks:

This can further give confidence to the investors as they can

calculate the risks involved in the business from their perspectives

as well.

VIII. Exit Strategy:

The exit strategies would provide details about how the

organization would be dissolved, what would be the share of each

stakeholder in case of winding-up of the organization.

IX. Appendix:

Provides information about the Curriculum Vitae of the owners,

Ownership Agreement and the like.

 CHAPTER THREE
BUSINESS FORMATION

05/04/2025 SM Ch 1 -77
 3.2 The Concept of Small Business Development

 Based on socio-economic conditions,

countries define small business differently.
 But all may use size and economic criteria
as a base to define small business.
• Size: Include number of employees and
startup capital and doesn’t always reflect the
true nature of an enterprise as qualitative
characteristics also used to differentiate
small business from other business.
• The economic/control covers market share,
independence and personalized
management.
 Con’t…
• Micro and small enterprises (MSEs) play
an important role in both developed and
developing economies.
• Ethiopia is no exception and MSEs could
occupy a prominent position in the
development of the Ethiopian economy.
• Less capital, enjoy quick returns and have
the flexibility to handle the vagaries
(change) of the market.
• , they have to face many problems like
lack of finance, poor operations
management, lack of experience, poor
financial management, etc,.
 3.3 Forms of Business organizations

There are three basic legal forms of

businesses.
 Proprietorship
 Partnership and
 Corporation
Description of Legal Forms of Business
• The legal forms are classified based on
• Ownership
• Liability
• Start-up costs
• Continuity
• Transferability of interest
• Capital requirements
• Management control
• Distribution of profits or losses
• Attractiveness for raising capital.
3.4 Definition and Role/Importance of SMEs
in Developing Countries
3.4.1 Definition of MSEs
1. Size Criteria approaches
 Though the criteria used to measure the
size (scale of operation) of businesses vary.
 The most widely used yardsticks are;
 The number of employees
 Volume, and value of sales turnover
 Asset size, and volume of deposits
 Total capital investment
 Volume/value of production, and
 A combination of the stated factors
 Con’t…
 The general criteria are suggested by
Small Business Administration (SBA).
 Owned and financed by one individual or a
small group/ 15 or 20 owners in a rare
case/.
 The firm’s operations are geographically
localized.
 The business is small Compared to the
biggest firms in the industry
 The number of employees in the business is
usually fewer than 100.
 2. Economic/control criteria
approach.
Covers five characteristics :
 Small market share: it is not large enough
and unable to influence the prices of national
quantities of goods sold to any significant
extent.
 Independence: ,the owner control the
business himself/herself.
 Personalized Management: little
delegation/ the owner actively participates in
all aspects of the management of the business
 Limited geographical area of operation;
The operation of a small firm is often local.
 Technology: - Small business is generally
labor intensive and only few are technology
 Characteristic of Small Business
– Closely held:
– Personal character
– Limited scale operations
– Indigenous resources
– Labor intensive
– Local area of operation
– Simple organization

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3.4.2 Role/Importance of MSEs in Developing
Countries

 Large Employment Opportunities:

 Balanced Regional Development/
Removing Regional Imbalance
 Equitable Distribution of Wealth and
Decentralization of Economic Power
 Unregulated Growth of Large-scale
industries
 Dispersal over Wide Areas
 Higher Standard of Living
 Mobilization of Locals
Resources/Symbols of National
Identity
 Con’t…
 Innovative and Productive /Simple
Technology
 Less Dependence on Foreign Capital/
Export Promotion
 Promotion of Self Employment
 Protection of Environment
 Shorter Gestation Period
 Facilitate Development of Large Scale
Enterprises
 Individual Tastes, Fashions, and
Personalized Services
 More Employment Creation Capacity
 3.5 Setting up Small Scale Business

The entrepreneurial process of launching a new venture can be

divided into three key stages of: Discovery; Evaluation; and
Implementation. These can be further sub-divided into seven
steps as shown below:
 Environmental Analysis
 For an analysis of the environment of
entrepreneurship you would be required
to develop an understanding of
macroeconomic and industry/sector
specific factors.
 Macro Environment
 Consists of the political, technological,
social, legal and economic environments.
 Sectoral Analysis
 Study the sector or industry conditions in
which the entrepreneur proposes to launch
a venture.
 SWOT Analysis
• A SWOT analysis helps the
entrepreneur to clearly identify
his/her own strengths and
weaknesses as well as the
opportunities and threats in the
environment.
 con’t…
Macro
Environmental Analysis

Sectoral Analysis

SWOT Analysis

Product/Service

Fig 3.2 Hierarchical Environmental Analysis

3.6 Classification of Micro and Small Enterprises
Table 1:3 MSE Definitions Employed in Ethiopia---
defined both in terms of paid up capital and number
of workers.
Table 3.2. Improved definition of MSE
• Priority Sectors and Sub-Sectors for
MSEs Engagement In Ethiopia
 Manufacturing Sector
 Construction Sectors
 Trade Sectors
 Service Sectors
 Agriculture Sector (Urban Agriculture)
 Levels of MSEs in Ethiopia

• Start-up
• Growth Level
• Maturity Level
• Growth- Medium Level
 3.6 Small Business Failure and Success Factors

3.6.1 Small Business Failure Factors

What Is Business Failure?

1) Actions such as bankruptcy, foreclosure,
or voluntary withdrawal from the
business with a financial loss to a
creditor or
2) A Court action such as receivership
(taken over involuntarily) or
reorganization (receiving protection
from creditors).
 Causes of Business Failure

 The most common causes are

inadequate management and financing.
I. Inadequate Management;
• 89 % of failure of the businesses is
internal factors (controllable factors)
 Adequate capital
 Cash flow
 Facilities/equipment
 Inventory control
 Human resources
 Leadership
 Organizational structure
 Accounting systems
II. Inadequate Financing:
 Includes improper managerial control
as well as shortage of capital.
 You don’t have adequate funds to begin
with, you will not be able to afford the
facilities or personnel you need to start
up the business correctly.
 You do possess adequate capital but do
not manage your resources wisely, you
may be unable to maintain adequate
inventory or keep the balance needed to
run the business.
 Con’t…
 In General, There are various causes of
failure ;
 Extend too
 Much credit
 Fail to plan for the future
 Overinvest in fixed assets
 Hire the wrong people.
 Business Termination VS Failure

• A termination occurs when a business

no longer exists for reasons of getting
opportunity to sell for a profit, to
move on to a new business , to retire,
or lost interest in the business.
• If market for product have changed or
become saturated, owner decided it
would be more appealing to work for
someone else.
• A business failure occurs when a
business closes with a financial loss to
a creditor.
Mistakes Leading to Business Failure
The most common mistakes are;
 Neglect to plan for the future
 Lack of commitment and hard work
 No delegation/ not hiring additional
employees
 Inaccurate estimates of cash flow
and capital requirements.
 3.6.2 Small Business Success Factors

• Identifying failure factors can discover

ways to tilt the scales towards success.
• These success factors are categorized
as:-
i. Conducive Environment;
ii. Adequate Credit Assistance;
iii. Markets and Marketing Support.
i. Conducive Environment
 Political, economic, technological and
socio-cultural factors
ii. Adequate Credit Assistance
 Adequate and timely supply of credit
 Special financing programs such as lower
interest rates; less collateral requirements and
lower equity ratio;
 Various assistance schemes such as preparing
the project study; etc.
iii.Markets and Marketing Support
 Small enterprises can sell their products as
one body through closely-knit associations or
organizations.
 The government assist small groups of
entrepreneurs in selling their products.
 3.8 Main Supporting Packages for MSEs Development in Ethiopia

In Ethiopia supporting packages for MSEs includes;

• Awareness creation about the sector;
• Provision of legal services to form legal
business enterprises;
• Providing technical and business management
training;
• Financial support based on personal saving,
20/80 (the beneficiaries are save 20% and the
MFIs provide Loan 80% of the projects);
• Facilitate working premises; industry extinction
services and BDS provision;
• Bookkeeping and audit services.
 3.9 Problems of Small Scale Business in Ethiopia

• Small-scale businesses have not been able

to contribute substantially to the economic
development, particularly because of
financial, production, and marketing
problems.
• These problems are still major handicaps
to their development. Lack of adequate
finance and credit has always been a major
problem of the Ethiopian small business.
• Small-scale units do not have easy access
to the capital because they mostly
organized on proprietary and partnership
basis and are of very small size.
 Con’t…
• Small scale enterprises find it difficult to get
raw materials of good quality at reasonable
prices in the field of production.
• Furthermore, the techniques of production,
which the enterprises have adopted, are
usually outdated. Because of their poor
financial position they are not able to buy new
equipment, consequently their productivity
suffers.
• How ever, Small business’s owner can avoid
some of the common by knowing the business
in depth; developing a solid business plan;
managing financial resources; understanding
financial statements; and learning to manage
 3.10 Organizational Structure
and Entrepreneurial Team
Formation
3.10.1 Introduction
• We can perceive from the experiences of companies the importance of employees and

their loyalty and commitment to the organization. Also significant to potential investors

is the management team and its ability and commitment to the new venture.

• Investors will usually demand that the management team not attempt to operate the

business as a sideline or part-time venture while employed full time elsewhere.

• It is assumed that the management team is prepared to operate the business full time and

at a modest salary. It is unacceptable for the entrepreneurs to try to draw a large salary

out of the new venture, and investors may perceive any attempt to do so as a lack of

psychological commitment to the business.

3.10.2 Designing the Organization
The design of the organization will be the
entrepreneur’s formal and explicit
indication to the members of the
organization as to what is expected of
them.
These expectations are grouped into five
areas:-
• Organization structure
• Planning, measurement, and evaluation
schemes
• Rewards
• Selection criteria
3.10.3 Building the Management Team and a Successful Organization Culture

There are some important issues to

address before assembling and building
the management team.
In essence, the team must be able to
accomplish three functions:-
 Execute the business plan;
 Identify fundamental changes in the
business as they occur; and
 Make adjustments to the plan based on
changes in the environment and market
that will maintain profitability.
 Con’t…
• Important considerations and
strategies in recruiting and assembling
an effective team and creating an
effective and positive organization
culture.
1. The entrepreneur’s desired culture must
match the business strategy outlined in
the business plan.
2. The leader of the organization must
create a workplace where employees are
motivated and rewarded for good work.
3. The entrepreneur should be flexible
enough to try different things.
 Con’t…
4. It is necessary to spend extra time in
the hiring process.

5. The entrepreneur needs to understand

the significance of leadership in the
organization.
Generally, finding the most effective team
and creating a positive organization
culture is a challenge for the entrepreneur
but is just as critical as having an
innovative, marketable product. It is an
important ingredient in an organization’s
 CHAPTER FOUR
PRODUCTS OR SERVICES
DEVELOPMENT

05/04/2025 SM Ch 1 -114
 4.1 INTRODUCTION
• Product/service development is the process of
bringing a new product or service in the market
• It's an ongoing practice in which the entire
business is looking for opportunities as new
products provide growth promise to businesses
that allow them to strengthen their market
position.
 The new product development process involves
the;
 Idea generation
 Product design
 Detail engineering
 Involves market research and marketing analysis.
 4.2. The Concept of Product/Service

• Organization's success is dependent on

customer satisfaction and delight.
• Customer satisfaction is achieved
through the development of product
and service, which have all attributes
required by the customer.
• A successful product or services do not
only have an attractive package design
but should be also able to provide
robust performance.
May 4, 2025 Sample Slide
 Con’t…

• The essence of product design is to

satisfy customer and maximizes the
value for the customer at minimum
cost.
• The merchandise or service should also
be able to meet primary needs and
desire of the customer.
• This may not require development of
new merchandise, but an enhancement
to existing merchandise or service.
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 4.3 Product/Service Development Process

• Product development is the process through

which companies react to market signals,
respond to changes in customer demand,
adopt new technologies, foray into new areas,
and ensure continuous growth.
• Product/service development process is
part of the overall new-venture creation
process.
• Even though there are many models that
advocate what the product/service generation
process should look like, for this purpose we
shall adopt four distinct stages.
• These stages can be referred to as:
May 4, 2025 Sample Slide
 Con’t…

1. Idea Generation
2. Incubation
3. Implementation
4. Diffusion

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05/04/2025 Entrepreneurship
 The various stages of new product
development process are explained next:
1. New Idea Generation
 Develop an idea that has a market for the new
product/service idea conceived
 Some of the more fruitful sources of ideas for
entrepreneurs include consumers, existing
products and services, distribution channels, the
federal government, and research and
development.

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05/04/2025 Entrepreneurship
 2. Idea screening

 Lessen the number of ideas to few

vital/valuable ideas.
 The ideas should be written down
and reviewed each week by an idea
committee who should sort the ideas
into three groups - Promising Ideas,
Marginal Ideas, and Rejects:
 Each promising idea should be
researched by committee member.

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05/04/2025 Entrepreneurship
 3. Concept Development and Testing

 Attractive ideas must be refined into fast able

product concepts since people do not purchase
ideas but they buy concepts.
 Any product idea can be turned into several
product concepts.
 The questions asked probably include:-
• Who will use the product?
• What benefits should the product provide?
• When will people consume the produced?
 Concept Testing: - calls for testing product
concepts with an appropriate group of target
consumers/customers, and then getting the
consumers’ reactions.
May 4, 2025 Sample Slide
4.Marketing Strategy
Development
 After testing the new product the concerned
body must develop a preliminary marketing
strategy plan for introducing the new product
into the market.
 The marketing strategy plan consists of three
parts:
1) Market size, structure, behavior ;
2) Planned price, distribution strategy, and
marketing budget of the 1 st year; and
3) Long run sales and profit goals, marketing
mix strategy.

May 4, 2025 Sample Slide

4. Business Analysis
 After management develops product
concept and marketing strategy, it can
evaluate the proposals’ business
attractiveness.
 Management needs to prepare sales, cost
and profit projections to determine whether
they satisfy the company's objective or not.
 Estimated Total Sales: - Management needs
to estimate whether sales will be high enough to
yield satisfactory profit.
 Estimating Cost and Profits: - After sales
forecast the management should estimate the
expected cost and profit at various levels of
sales volume.
6. Product Development
• If product concept passes the business test, it
moves to R&D or engineering to be
developed to one or more physical version of
the product concept
• Its goal is to find a prototype that the
consumers/customers see as embodying the
key attribute described in the product
concept statement,
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7.Market Testing
• After management is satisfied with the
products’ functional and psychological
performance, the product is ready to be
dressed up with the brand name.
• The goals are to test the new product is
more authentic consumer/customer
settings and to learn how large the
market is and how consumers/customers
and dealers react to handling, using and
repurchasing the actual product.

May 4, 2025 Sample Slide

8.Commercialization
• When (Timing):- In commercializing, market
entry timing is critical. If the company hears
about a competitor nearing the end of its
development work, it will face three choices.
 The 1st choice is First Entry. Under this
category, the firm usually enjoys the "first mover
advantage" of locking up key distributors &
gaining reputation.
 The 2nd choice goes with Late Entry Strategy-
which has three advantages include:-
 The competition will have borne the cost of educating
the market;
 The competing product may reveal fault that the late
entrant can avoid; and
The 3rd strategy- Parallel Entry- can
be also chosen by the company to
get in the market.
 The strategy to work, a prospective
businessman can take the advantage
of opting for the latest technology
and production process and operate
at higher volume of operation

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• Where (Geographical Strategy):- The company
must decide whether to launch the new product in
a single locality, a region/several regions, in the
national/international market.
• To Whom (Target-Market-Prospect):- Within the
rollout markets, the company must target its
distribution and promotion to the best prospect
group.
• How (Introductory Markets Strategy):- To
sequence and coordinate many actives involved in
launching a new product may/can use network-
planning techniques such as Critical Path
Scheduling (CPS).
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4.4. Legal and Regulatory Frameworks for
Entrepreneurs
 To operate as a legal businessperson and protect the
business from unnecessary suits and liabilities, the
entrepreneur needs to understand the various laws that
govern his/her business. Following are the key legal issues
for the entrepreneur.
 In setting up an organization, it will be necessary to
understand all the advantages and disadvantages of each
regarding such issues as liability, taxes, continuity,
transferability of interest, costs of setting up, and
attractiveness for raising capital.
 Legal advice for these agreements is necessary to ensure
May 4, 2025
that the most appropriateSample Slide
decisions have been made.
 4.5 Intellectual Property
Protection/Product/Service
Protection
4.5.1 What is Intellectual Property?
 Intellectual property is a legal definition of
ideas, inventions, artistic works and other
commercially viable products created out of
one's own mental processes
 In order to enjoy the benefits arising from the
exclusive ownership of these properties, the
entrepreneur needs to protect these assets by
the relevant law.
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 4.5.2. Patents
• An entrepreneur who invents a new thing or
improves an existing invention needs to get
legal protection for her invention through a
patent right.
• A patent is a contract between an inventor
and the government in which the
government, in exchange for disclosure of the
invention, grants the inventor the exclusive
right to enjoy the benefits resulting' from the
possession of the patent.
• A patent provides the owner with exclusive
rights to hold, transfer, and license the
production and sale of a product/process.
May 4, 2025 Sample Slide
 Cont’d

Utility Patent: A utility patent protects

any new invention or functional
improvements on existing inventions.
Design Patent: This patent protects the
appearance of an object and covers new,
original, ornamental, and unobvious
designs for articles of manufacture.
 Like utility patents, design patents provide
the inventor with-exclusive right to make,
use and/or sell an item having the
ornamental appearance protected by the
patent
May 4, 2025 Sample Slide
 What Can Be Patented Then?
• Processes: Methods of production,
research, testing, analysis, technologies
with new applications.
• Machines: Products, instruments,
physical objects.
• Manufactures: Combinations of physical
matter not naturally found.
• Composition of matter: Chemical
compounds, medicines, etc.

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 4.5.3. Trademarks
• A trademark may be a word, symbol,
design, or some combination of such,
or it could be a slogan or even a
particular sound that identifies the
source or sponsorship of certain goods
or services.
• These are distinctive names, marks,
symbols or motto identified with a
company’s product or service and
registered by government offices.
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05/04/2025 Entrepreneurship
 Benefits of a Registered Trademark
 It provides notice to everyone that you have
exclusive rights to the use of the mark throughout
the territorial limits of the country.
 It entitles you to sue in federal court for trademark
infringement, which can result in recovery of
profits, damages, and costs.
 It establishes incontestable rights regarding the
commercial use of the mark.
 It establishes the right to deposit registration with
customs to prevent importation of goods with a
similar mark.
May 4, 2025 Sample Slide
 4.5.4. Copyrights

• Copyright is a right given to prevent others

from printing, copying, or publishing any
original works of authorship.
• Copyrights provide exclusive rights to creative
individuals for the protection of literary or
artistic productions.
• It protects original works of authorship
including literary, dramatic, musical, and
artistic works, such as poetry, novels, movies,
songs, computer software, and architecture.
• They pertain to intellectual property.
• Usually copyrights are valid for the life of the
inventor plus a few decades.
05/04/2025 Entrepreneurship
 4.6 The Intellectual Property System in
Ethiopia

• The Ethiopian Government established the

Ethiopian Intellectual Property Office in the year
2003 containing the understated Objectives:-
1.To facilitate the provision of adequate legal
protection for and exploitation of intellectual
property in the country
2.To collect, organize and disseminate
technological information contained in patent
documents and encourage its utilization;
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3. To study, analyze and recommend
policies and legislation on intellectual
property to the government; and

4. To promote knowledge and

understanding of intellectual property
among the general public;

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To be granted a patent in
Ethiopia
Must fulfill three conditions:
 It must be new
 It should be capable of industrial
application
 It must be "non-obvious‖- it should
not be an invention which would
have occurred to any specialist
working in the relevant field.

05/04/2025 Entrepreneurship
 Ethiopian proclamation excludes
the following from patentability
1. Inventions contrary to public order or
morality;
2. Plant or animal varieties or essentially
biological processes for the production of
plants or animals; and
3. Schemes, rules or methods for playing
games or performing commercial and
industrial activities and computer
programs;

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4. Discoveries, scientific theories and
mathematical methods; and

5. Methods for treatment of the human

or animal body by surgery or therapy as
well as diagnostic methods practiced on
the human or animal body.

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Duration of a Patent In Ethiopia
• The duration of a patent is 15 years which
may be extended for a further period of 5
years if proof is furnished that the invention is
properly worked in Ethiopia.

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 Ethiopia‟s Trademark Directive
(Issued in the country in 1986)

1. To centrally deposit trademarks which are

used by local and foreign enterprises to
distinguish their goods or services;

2. To distinguish the products or services of one

enterprise from those of other enterprise from
those of other enterprises and prevent
consumers from being victims of unfair trade
practices;
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3. To provide information on trademark
ownership and right of use when
disputes arise between parties;
4. To provide required information on
trademarks to government and
individuals; and
5. Protection is granted after
publication of cautionary notice;

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 Ethiopian Copyright
Proclamation
Copyright is protected on the basis of the copyright and

related rights proclamation issued in 2004.

1. Works of authors who are nationals of or have their habitual

residence in Ethiopia;

2. Works first published in Ethiopia; or works first published in

another country and published within thirty days in Ethiopia;

3. Audio-visual works whose producer has his headquarter or

habitual residence in Ethiopia; and

4. Works of architecture erected in Ethiopia and other artistic

works incorporated in a building or other structure located in

Ethiopia
 CHAPTER FIVE
MARKETING

05/04/2025 SM Ch 1 -153
5.1 INTRODUCTION

5.2 Meaning and Definitions of Marketing

• Philip Kotler-“Marketing is a societal process by which individuals

and groups obtain what they need and want through creating,

offering and freely exchanging products and services of value with

others”

• American Marketing Association - “It is the process of planning

& executing the conception, pricing, promotion & distribution of

ideas, goods & services to create exchange that satisfy individual &

organizational goals”.

• The Chartered Institute of Marketing defines Marketing as

154
“Marketing is the management process for identifying, anticipating

& satisfying customer requirements profitably.”

• Marketing as a social and managerial
process by which individuals and groups
obtain what they need and want
through creating and exchanging
products and value with others.

155
5.3 Core Concepts of Marketing
5.3.1 Needs, Wants and Demand
• Needs , wants and demands
• Marketing offering- products and service,
experience
• Value, satisfaction and quality
• Exchange, transactions and relationships;
and
• markets. 156
Needs, wants and demands
Human needs are states of felt deprivation
(deficiency).
– basic physical needs for food, clothing, warmth and safety
– social needs for belonging and affection; and
– individual needs for knowledge and self-expression.

These needs were not created by marketers; they

are a basic part of the human make up (structure).

Wants are the form human needs take as they

are shaped by culture and individual
personality.
• Wants are shaped by one’s society and are
157
described in terms of objects that will satisfy
needs.
Demands – When wants backed by an ability and
willingness to pay – that is, buying power.

Product: Anything that can be offered to a market

to satisfy a need or want/can be tangible or
intangible.

Cost: is the amount of money that are going to be

expended or already incurred to acquire a
product.

Exchange: is the act of obtaining a desired

15
product from someone by offering something in 8
 Value : Customer value is the difference between
the values the customer gains from owning and using a
product and the costs of obtaining the product.

Costs Benefits

2-6
A transaction: consists of a trading of
values between two parties: one party
gives X to another party and gets Y in
return.

A market: is the set of actual and potential

buyers of a product.

160
 5.4 Importance of Marketing
•The money pays for designing the products to meet our needs, making products
readily available when and where we want them, and informing us about
producers. These activities add want satisfying ability or what is called utility, to
products.
•Marketing creates utility
• Utility- Value that comes from satisfying human needs.
• Form utility- is related to the change of form of inputs
convert in to outputs.
• Task utility- is provided when some one performs a task for
some one else
• Place utility- the role of distribution in marketing is mostly
attached with place utility
Place utility exists when a product is readily accessible to potential customers.
161
So physically moving the products to a store near the customers add to its value.
 Con’t
• Information Utility: Information utility is
created by informing prospective buyers
that a product exists.
• Time utility- it is created when products
are available to customers as they want
them.
• Possession utility- as selling is one major
activity in marketing it creates possession
utility by selling the products to the
customers (transfer of ownership)
162
5.5 Marketing Philosophies
The role that marketing plays within a company
varies according to the overall strategy and
philosophy of each firm.
 There are six alternative concepts under which
organizations conduct their marketing
activities:
1. Production concept
2. Product concept
3. Selling concept
4. Marketing concept
5. Societal marketing concepts
6. Relationship Marketing
163
 1. Production concept
• It is one of the oldest concept in business
• It holds that consumers prefer products
that are widely available and inexpensive.
• This concept is useful when:
– Demand for a product exceeds the supply
– When the product’s cost is to high and improve
the productivity in need to bring it down.
– In developing countries where consumers are
more interested in obtaining the product than
its features .
– When a company wants to expand its market.
164
 2. Product concept
The philosophy that consumers will favor
products that offer the most quality,
performance, and innovative features.
• Thus an organization should devote
energy to making continuous product
improvements
• This concept lead to marketing myopia (a
short sighted view of marketing, which
focuses on the product it self rather than
the customers benefits.
165
 3.Selling concept
• The idea that consumers will not buy
enough of the organization’s products
unless the organization undertakes a large
– scale selling and promotion effort.
• Common features of this concept are;
– Typically practiced unsought goods( goods that
buyers do not think of buying like
encyclopedia, insurance
– The organization must be good at tracking
down prospects and selling them on product
benefits
– Practiced when product is over capacity – 166
aim
is to sell what they make rather than make
 4. Marketing concept
The marketing management philosophy that
holds that achieving organizational goals depends
on determining the needs and wants of target
markets and delivering the desired satisfactions
more effectively and efficiently than competitors
do.
The company should be more effective than its
competitors in creating, delivering and
communicating, customer value to its chosen
target market Features
Meeting needs profitably
Find wants and fill gaps
Love the customer not the product
This2-7concept has target market, customer needs,
Exhibit
2-11
 Difference b/n selling and marketing
concepts
Selling – focuses on needs of sellers,
Inside-out perspective (focuses on
existing products and uses heavy
promotion and selling efforts),
Marketing – out side –in perspective
(focuses on customer needs, values, and
satisfaction),

Exhibit 2-8
2-12
 5. Societal Marketing Concept
The idea that the organization should determine
the needs, wants, and interests of target markets
and deliver the desired satisfactions more
effectively and efficiently than competitors in a
way that maintains or improves the consumer’s
and society’s well – being.
This concept is new marketing management
philosophy
It addresses the question of whether the pure
marketing concept is adequate in age of
environmental problems, resource shortages,
rapid population growth, world wide economic
problems, neglected social services
This concept pure marketing concept over looks
possible conflicts b/n consumer short run wants
and consumer long run welfare.
It calls upon marketers to balance
= company profit
= customers wants
= society’s interest
It asks if the firm that senses, serves,
and satisfies individual wants is always
doing what is best for consumers and
society in the long run.
This concept pure marketing concept over
looks possible conflicts b/n consumer
short run wants and consumer long run
welfare.
 6. Relationship Marketing
• Relationship marketing is the practice of
building long term satisfying relations with
key parties - customers, suppliers,
distributors- in order to retain their long term
preferences and business.
• The ultimate outcome of relationship
marketing is the building of a unique
company asset called a marketing network.
• In this case, customer experience rather than
customer satisfaction is the most critical
component in relationship marketing.
 Table 5.2: Summary of the Evolution of
Production
Marketing
§ Consumers favor products that are available and highly affordable
§ Improve production and distribution
§ ‘Availability and affordability is what the customer wants’

Product § Consumers favor products that offer the most quality, performance and
innovative features
§ ‘A good product will sell itself’

Sales § Consumers will buy products only if the company promotes/ sells these products
§ ‘Creative advertising and selling will overcome consumers’ resistance and
convince them to buy’

Marketing § Focuses on needs/ wants of target markets and delivering satisfaction better than
competitors
§ ‘The consumer is king! Find a need and fill it’

Relationship § Focuses on needs/ wants of target markets and delivering superior value
marketing § ‘Long-term relationships with customers and other partners lead to success’
5.6 Marketing Information Systems
A marketing information system consists of
people, equipment and procedure to
gather, sort, analyze, evaluate and
distribute needed timely and accurate
information to marketing decision makers.
The marketing managers to carry-out their analysis,
planning, implementation, and control responsibilities,
they need information about development in the
The role of the information system is to assess the
manager’s information needs, develop the needed
information, and distribute the information is a timely
fashion to the marketing managers.
The needed information is developed through
Internal company records, marketing intelligence
activities, marketing research, and marketing decision
support analysis.

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5.6.1 Marketing Research
Marketing research is the systematic way of setting
objective, collection , analysis, and dissemination of
information for the purpose of assisting management in
decision making.
5.6.1.1 The Role (Significance) Of Marketing
Research In Decision Making
There are three Functional Roles of Marketing Research.
These are:
Descriptive Function - the gathering and presentation
of statements of fact.
Diagnostic (analytical) Function - The explanation of
data.
Predictive Function - Specification of how to use the
descriptive and diagnostic research to predict the result of
a planned marketing decision.
5.6.1.2 Marketing Research
Components
Marketing researchers deal with many
aspects which includes;
Market size

Market Share

Market penetration

Brand equity research

Buyer decision processes research

5.6.1.3 Customer Satisfaction
Research
under this there are different types of
research that are used to assess about
customers.
1. Distribution channel audits
2. Marketing effectiveness and analytics
3. Mystery Consumer or Mystery shopping
4. Positioning research
5. Price elasticity testing
6. Sales forecasting
7. Segmentation research and Test
marketing
5.6.1.4 Marketing Research Process
Is a process which consists of a number of steps to
be accomplished in a logical and systematic
manner.i.e.
Step 1: Define the research purpose or
objectives
Step 2: Research Design Formulation
Step 3: Gather at this stage secondary
data,
Step 4: Gather Primary Data
Step 5: Data Processing and Analysis
Step 6: Report Preparations and
Presentation
 5.6.2 Marketing Intelligence
Is the systematic process of gathering,
analyzing, supplying and applying information
(both qualitative and quantitative) about the
external market environment.
Marketing intelligence is used to determine:
= Current and future market needs
= Changes in the business environment that
may affect the size and nature of the market
in the future.
= Environment that may affect the size and
nature of the market in the future.
5.6.2.1 The Importance of Marketing
Intelligence

a. It promote external focus.

b. Identification of new opportunities

c. Smart segmentation.
d. Early warning of competitor moves
e. Minimizing investment risks.
f. Quicker, more efficient and cost-effective
information
5.6.2.2 Ways to Undertake Marketing
Intelligence

I. Unfocused scanning

II. Semi-focused scanning

III. Informal search and Formal search:

5.6.3 Competitive Analysis
Competitive analysis refers to determining the
strengths and weaknesses of competitors and
designing ways to take opportunities or tackle
threats posed by competitors.
5.6.3.1 Uses of Competitive
Analysis
-Helps management understand its
competitive advantages
- Generates understanding of competitors’
past, present and future strategies.
- Provides an informed basis to develop
strategies to achieve competitive advantage
in the future.
- Helps to forecast the returns that may be
made from future investments.
5.6.3.3 Steps of Competitive Analysis

1) Identify your competitors

2) Gather information about competitors

3) Gathering Information on Competitors

4) Analysing the Competition

5) Develop a pricing
5.7 The Marketing Mix and Marketing
Strategies
5.7.1 The 4 P’s of Marketing/The Marketing
Mix
Is the set of marketing tools that the firm use’s to pursue
and achieve its marketing objectives in the target market.
According to Mc Carthy marketing mix are 4p’s
1. Product (product variability, quality, design, features,
brand name, packaging, sizes, services, warranties,
returns)
2. Price (least price, discounts, allowances, payments
period, credit terms,)
3. promotion ( sales promotion, advertisements, sales
force, public relations, direct marketing)
4. place (channels, coverage, assortment, location,
inventory, transport)
5.7.2 What Is Marketing Strategy?
Is a process that enable an organization to concentrate its
limited resources on the greatest opportunities to increase sales
and achieve a sustainable competitive advantage.
1. Pricing Strategy
I. Price Skimming; Many companies that invent new products
initially set high prices to 'skim' revenues from the market.
II. Penetration Pricing; Companies set a low initial price in
order to penetrate the market quickly and deeply to attract a
large number of buyers quickly and win a large market share.
III. Cost-plus pricing: adding a standard mark-up
to the cost of the product.
IV. Mark-up pricing: certain percentage of the
selling price is added to unit cost
V.Competition-Based Pricing: Also called going-
rate pricing .May price at the same level, above,
or below the competition
VI. Psychological Pricing; A pricing approach
that considers the psychology of prices and not
simply the economics; the price is used to say
something about the product.
2. Promotion Strategies
1. Advertising; Paid form of non personal
communication, about an organization or its products
transmitted to a target audience through a mass/broadcast
medium.

2. Personal Selling
Personal selling is a promotional method in which one
party (e.g., salesperson) uses skills and techniques for
building personal relationships with another party.
3. Public Relations/Publicity(PR),

Is a form of communication that seeks to

change the perceptions of customers,
shareholders, suppliers, employees and
other publics about a company and its
products.

4. Sales promotion;
Describes promotional methods using special short-
term techniques to persuade members of a target
market to respond or undertake certain activity.
3. Distribution Strategies
Marketing Channels are individuals/organizations involved in the
process of making the product available for use or consumption by
consumers.

Can be of two types;

= Direct channels: In this type of channel, producers and end
users directly interact.
= Indirect channels: In this type of channel intermediaries are
inserted between seller and buyer.
Condition put into consideration to use best distribution
strategies are;
Company Factors: financial, human and technological
capabilities of a company to do its business activities.
Market Characteristics: Geography, market density, market size,
target market
Product Attributes: perishability, value and sophistication of the
product
Environmental Forces: those forces that affect the business like
competition, technology and culture.
5.8 Selling and of Customer Service
5.8.1 The Concept of Service
It is any act or performance that one party can
offer to another that is intangible and does not
result in the ownership of anything.
Distinctive features of services includes,
intangibility, inseparability, variability, and
perishability as opposed to goods.
Services are highly variable, because they
depend on who provides.
Based on this concept, service is characterized
as; situational, difficult to measure, subjective
and influenced by the service provider.
5.8.2 The Concept of Customer
Customer is a person or organization that buys a
product or service either for use or for resale.
Customers can be internal (e.g. member of the
organization) or external (customers coming from
outside).
A thorough understanding of the concept of
customer service enables organizations to
provide quality service by using proper service
management approaches.
5.8.3 Strategic Activities needed for Quality Customer Service
Delivery
Plants should identify important strategic activities to ensure consistent,
efficient and excellent customer service delivery. i.e
1. Establishing a clear customer service strategy.
2. Ensuring that correct people are in place with correct skills to
deliver outstanding personal service.
3. Establishing clear service delivery processes.
4. Improving in terms of process improvement, quality monitoring and
recovery continuously.
5. Participatory Management.
5.8.4 Customer Handling and Satisfaction
Customer handling and satisfaction is a key for
successful and Managers and employees should work
hand-in-hand to improve their service delivery.
programs organizations.
Existing customers must be satisfied with the existing
service. As they are also means of potential customers.

The first most important principle here is not losing a

single customer.
Retaining existing customers, however, requires
systematic handling.
You have to make customer satisfaction your
religion. Understand the importance of satisfying
existing customers.
Customer retention and satisfaction comes not from
words, but from putting time, effort, and money to
satisfy customers.
05/04/2025 Entrepreneurship
Major reasons to lose customers are:
Poor service,
Poor quality and
Rude behaviour.
5.8.4.1 Considering Customers as an Invaluable Asset
The value of one customer is infinite, and you cannot possibly
calculate it.
This includes, sales to him in his lifetime as well as to customers he
generates for you through word of mouth.
This means, your most precious asset is your customer.
But We think of immediate profit and ignore the future profits
expected over the lifetime of the customer.
5.8.4.2 Reducing Customer Complaints
Every single complaint should be treated as an
opportunity to improve the quality of your products
and services.
Research findings about Customer satisfaction:
1. 91% of customers who have complaints decide
never come back. But if resolved quickly, 82% of
them will return.
2. There is no investment like investment in customer
satisfaction.
3. Treat the cost of satisfying a customer as an
investment rather than as an expense.
4. You will get unmatched returns through referrals,
repeat purchases decreased operational costs and
increased profits.
5.8.4.3 Place Yourself in The Customer’s
Shoes
You have the right to choose your customers
but not the luxury to compromise on your
level of service.
Get rid of the unwanted customer but do it
with tact.
Part with the unwanted customer with a
smile and a handshake.

Place yourself in the customer’s shoes.

‘Do unto your customer as you would
have done unto you’.
 CHAPTER SIX
Business Financing

05/04/2025 SM Ch 1 -200
 6.2 Financial Requirements
• All businesses need money to finance a
host of different requirements.
• In looking at the types and adequacy of
funds available, it is important to match
the use of the funds with appropriate
funding methods.
 Cont’d…

1. Permanent Capital
• The permanent capital base of a small firm
usually comes from equity investment in
shares in a limited company or share
company, or personal loans to form partners
or to invest in sole proprietorship.

• It is used to finance the start - up costs of an

enterprise, or major developments and
expansions in its life - cycle.
• Ideally, permanent capital is only serviced
when the firm can afford it; investment in
equity is rewarded by dividends from profits,
or a capital gain when shares are sold.
• It is not therefore a continual drain from the
cash flow of a company, such as a loan,
which needs interest and capital repayments
on a regular basis.
• Equity capital usually provides a stake in the
ownership of the business, and therefore the
investor accepts some element of risk in
that returns are not automatic, but only
made when the small firm has generated
surpluses.
2. Working Capital
• It is short-term finance.
• Most small firms need working capital to
bridge the gap between when they get
paid, and when they have to pay their
suppliers and their overhead costs.
• Requirements for this kind of short-term
finance will vary considerably by business
type. For example, a manufacturer or small
firm selling to other businesses will have to
offer credit terms, and the resulting debtors
will need to be financed; the faster the
growth, the more the debtors, and the
larger the financial requirement.
 Cont’d…

3. Asset Finance
• It is medium to long term finance. The
purchase of tangible assets is usually financed
on a longer-term basis, from 3 to 10 years, or
more depending on the useful life of the
asset.
• Plant, machinery, equipment, fixtures, and
fittings, company vehicles and buildings may
all be financed by medium or long-term loans
from a variety of lending bodies.
 6.3 Sources of Financing
 To get financing for a new business,
entrepreneurs must explore every option
available.
 Four basic questions must be answered
during initial financial planning.
 What types of capital do I need in my new
business?
 How can I estimate the amounts needed?
 Where can I obtain the required funds?
 What should my financing proposal include?
 Broadly speaking there are two main sources of
finance
 Equity, i.e., ownership capital
 Borrowed capital (debt)
6.3.1 Internal Sources (Equity
capital)
• Equity capital is money given for a share of ownership
of the company.
• The investor shares in the profits of the venture, as
well as any disposition of assets on a prorate basis.
 Key factors favoring the use of one type of financing
over another are:
 Availability of funds
 The assets of the venture and
 The prevailing interest rates.
 Equity capital is not therefore a continual drain from
the cash flow of a company, such as a loan, which
needs interest payment.
 1. Source of equity financing

1. Personal saving: The entrepreneur should

contribute at least 50% of the starting up capital.
• If an entrepreneur is not willing to risk his own
money potential investors are not likely to risk
their money in the business either.
2. Friends and relatives: After emptying their
own pockets, entrepreneurs should turn to friends
and relatives who might be willing to invest in the
business. The entrepreneur is expected to describe the
opportunities and threats of the business.
• Friends and relatives who believe in you are more
likely to invest in your business than are strangers.
3. Partners: An entrepreneur can choose to take on a
partner to expand the capital formation of the proposed
business.
 Cont’d…..
4. Public stock sale (going public): In some case,
entrepreneurs can go public by selling share of stock in
their corporation to outsiders. This is an effective
method of raising large amounts of capital.
5. Angels: These are private investors (or angles) who
are wealthy individuals, often entrepreneurs, who invest
in the startup business in exchange for equity stake
in these businesses.
6. Venture capital companies: Are private, for
profit organizations that purchase equity positions in
young business expecting high return and high growth
potential opportunity.
• They provide start -up capital, development funds or
expansion funds
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6.3.2 External Sources (Debt capital)
• Debt financing is a financing method involving an
interest-bearing instrument, usually a loan.
• The payment of which is only indirectly related to the
sales and profits of the venture.
• Debt financing (also called asset-based financing)
requires that some asset (such as car, house, plant,
machine, or land) be used as collateral.
• requires the entrepreneurs to pay back the amount of
funds borrowed, plus a fee expressed in terms of the
interest rate.
• The entrepreneur needs to be careful that the debt is
not so large.
 Sources of debt financing
I. Commercial banks
• Are by far the most frequently used source for short
term debt by the entrepreneur.
• Banks focus on a company’s capacity to create
positive cash flow because they know that’s where
the money to repay their loan will come from.
• Bank Lending Decision:-The small business owner needs to
be aware of the criteria bankers use in evaluating the credit
worthiness of loan applications.
• Most bankers refer to the five C’s of credit in
making lending decision.
• The five C’s are capital, capacity, collateral,
character, and conditions.
1. Capital: A small business must have a stable capital base
before a bank will grant a loan.
2. Capacity: The bank must be convinced of the firm’s ability to
meet its regular financial
3. obligations and to repay the bank loan.
4. Collateral: The collateral includes any assets the owner pledges
to the bank as security for repayment of the loan.
5. Character: Before approving a loan to a small business, the
banker must be satisfied with the owner’s character. The
evaluation of character frequently is based on intangible factors
such as honesty, competence, willingness to negotiate with the
bank.
6. Conditions: The conditions surrounding a loan request also
affect the owner’s chance of receiving funds. Banks consider the
factors relating to the business opera tion such as potential
growth in the market, competition,
05/04/2025 Entrepreneurship location, and loan purpose.
II) Trade Credit: It is credit given by suppliers who sell goods on
account. This credit is reflected on the entrepreneur’s balance sheet
as account payable and in most cases it must be paid in 30 to 90 or
more days.
III) Equipment Suppliers: Most equipment vendors encourage
business owners to purchase their equipment by offering to finance
the purchase.
IV) Account receivable financing: It is a short term financing that
involves either the pledge of receivables as collateral for a loan.
V) Credit unions: Credit unions are non-profit cooperatives that
promote savings and provide credit to their members. But credit
unions do not make loans to just any one; to qualify for a loan an
entrepreneur must be a member.
VI) Bonds: A bond is a long term contract in which the issuer, who is
the borrower, agrees to make principal and interest payments on
specific date to the holder o f the bond. Bonds have always been a
popular source of debt financing for large companies in the western
world.
 6.4 Lease Financing
• Lease financing is one of the important sources of
medium- and long-term financing where the
owner of an asset gives another person, the right
to use that asset against periodical payment s.
The owner of the asset is known as lessor and the
user is called lessee.
• The periodical payment made by the lessee to
the lessor is known as lease rental. Under lease
financing, lessee is given the right to use the
asset but the ownership lies with the lessor and
at the end of the lease contract, the asset is
returned to the lessor or an option is given to the
lessee either to purchase the asset or to renew
the lease agreement.
6.4.1 Types of Lease
• Depending upon the transfer of risk and
rewards to the lessee, the period of
lease and the number of parties to the
transaction, lease financing can be
classified into two categories. Finance
lease and operating lease.
1) Finance Lease
• It is the lease where the lessor transfers
substantially all the risks and rewa rds
of ownership of assets to the lessee for
lease rentals.
• The following features can be derived for
finance lease:
 A finance lease is a device that gives the lessee
a right to use an asset.
 The lease rental charged by the lessor during the
primary period of lease is sufficient to recover
his/her investment.
 The lease rental for the secondary period is
much smaller. This is often known as peppercorn
rental.
 Lessee is responsible for the maintenance of
asset.
 No asset-based risk and rewards are taken by
lessor.
 Such type of lease is non-cancellable; the
lessor’s investment is assured.
2) Operating Lease
• Lease other than finance lease is called operating lease. Here risks
and rewards incidental to the ownership of asset are not
transferred by the lessor to the lessee. The term of such lease is
much less than the economic life of the asset and thus the total
investment of the lessor is not recovered through lease rental
during the primary period of lease. In case of operating lease, the
lessor usually provides advice to the lessee for repair, maintenance
and technical knowhow of the leased asset and that is why this
type of lease is also known as service lease. Operating lease has
the following features:
 The lease term is much lower than the economic life of the
asset.
 The lessee has the right to terminate the lease by giving a
short notice and no penalty is charged for that.
 The lessor provides the technical knowhow of the leased asset
to the lessee.
 Risks and rewards incidental to the ownership of asset are
borne by the lessor.
 Lessor has to depend on leasing of an asset to different lessee
for recovery of his/her investment.
Advantages and Disadvantages of Lease Financing

At present leasing activity shows an increasing trend. Leasing appears to be

a cost -effective alternative for using an asset. However, it has certain
advantages as well as disadvantages.
The advantages of lease financing from the point of view of lessor are
summarized below:
Assured Regular Income: Lessor gets lease rental by leasing an asset
during the period of lease which is an assured and regular income.
 Preservation of Ownership: In case of finance lease, the lessor
transfers all the risk and rewards incidental to ownership to the lessee
without the transfer of ownership of asset. Hence the ownership lies with
the lessor.
 Benefit of Tax: As ownership lies with the lessor, tax benefit is enjoyed
by the lessor by way of depreciation in respect of leased asset.
 High Profitability: The business of leasing is highly profitable since the
rate of return based on lease rental, is much higher than the interest
payable on financing the asset.
 High Potentiality of Growth: The demand for leasing is steadily
increasing because it is one of the cost efficient forms of financing.
Economic growth can be maintained even during the period of
depression. Thus, the growth potentiality of leasing is much higher as
compared to other forms of business.
 Recovery of Investment: In case of finance lease, the lessor can
recover the total investment through lease rentals.
 Lessor suffers from certain limitations which are discussed below:

Unprofitable in Case of Inflation: Lessor gets fixed amount of

lease rental every year and they cannot increase this even if the
cost of asset goes up.

Double Taxation: Sales tax may be charged twice. First at the time
of purchase of asset and second at the time of leasing the asset.
Greater Chance of Damage of Asset: As ownership is not
transferred, the lessee uses the asset carelessly and there is a great
chance that asset cannot be useable after the expiry of primary
period of lease.

05/04/2025 Entrepreneurship
6.5 Traditional Financing in Ethiopian (Equib/Idir, Etc.)

(Reading Assignment )
 6.6 Crowd Funding

• Crowd funding is a method of raising capital

through the collective effort of friends, family,
customers, and individual investors or even
from the general public.
• This approach taps into the collective efforts of
a large pool of individuals primarily online via
social media and crowd funding platforms and
leverages their networks for greater reach and
exposure.
 6.6.1 How is Crowd Funding
Different?
• Crowd funding is essentially the opposite
of the mainstream approach to business
finance. Traditionally, if you want to raise
capital to start a business or launch a new
product, you would need to pack up your
business plan, market research, and
prototypes, and then shop your idea
around to a limited pool or wealthy
individuals or institutions. These funding
sources included banks, angel investors,
and venture capital firms, really limiting
your options to a few key players.
• Crowd funding platforms, on the other hand, turns
that funnels on -end. By giving you, the
entrepreneur, a single platform to build, showcase,
and share your pitch resou rces, this approach
dramatically streamlines the traditional model.
• Traditionally, you’d spend months sifting through
your personal network, vetting potential investors,
and spending your own time and money to get in
front of them.

05/04/2025 Entrepreneurship
6.6.2 The Benefits of Crowd funding
• From tapping into a wider investor pool to enjoying more flexible fund raising
options, there are a number of benefits to crowd funding over traditional
methods. Here are just a few of the many possible advantages:

• Reach: By using a crowd funding platform like Fundable, you have access to
thousands of accredited investors who can see, interact with, and share your
fund raising campaign. Presentation: By creating a crowd funding campaign,
you go through the invaluable process of looking at your business from the top
level its history, traction, offerings, addressable market, value proposition, and
more and boiling it down into a polished, easily digestible package.

• PR & Marketing: From launch to close, you can share and promote your
campaign through social media, email newsletters, and other online marketing
tactics. As you and other media outlets cover the progress of your fund raise,
you can double down by steering traffic to your website and other company
resources.
• Validation of Concept: Presenting your concept or
business to the masses affords an excellent
opportunity to validate and refine your offering. As
potential investors begin to express interest and ask
questions, you’ll quickly see if there’s something
missing that would make them more likely to buy in.
• Efficiency: One of the best things about online crowd
funding is its ability to centralize and streamline your
fund raising efforts. By building a single,
comprehensive profile to which you can funnel all your
prospects and potential investors, you eliminate the
need to pursue each of them individually. So instead
of duplicating efforts by printing documents, compiling
binders, and manually updating each one when
there’s an update, you can present everything on line
in a much more accessible format, leaving you with
more time to run yourEntrepreneurship
05/04/2025
business instead of fundraising.
 6.6.3 Types of Crowd Funding

• The 3 primary types are donation-based, rewards-based, and equity crow funding.

1) Donation-Based Crowd Funding

• Broadly speaking, you can think of any crowd funding campaign in which there is no financial

return to the investors or contributors as donation-based crowd funding. Common donation-

based crowd funding initiatives include fund raising for disaster relief, charities, nonprofits, and

medical bills.

2) Rewards-Based Crowd Funding

• Rewards-based crowd funding involves individuals contributing to your business in exchange for

a “reward,” typically a form of the product or service your company offers. Even thoug h this

method offers backers a reward, it’s still generally considered a subset of donation -based

crowd funding since there is no financial or equity return.

3) Equity-Based Crowd Funding

• Unlike the donation-based and rewards-based methods, equity-based crowd funding allows

contributors to become part-owners of your company by trading capital for equity shares. As

equity owners, your contributors receive a financial return on their investment and ultimately

receive a share of the profits in the form of a dividend or distribution.

 6.7 Micro Finances

6.7.1 What is Micro Finance?

• Microfinance is a term used to describe
financial services, such as loans, savings,
insurance and fund transfers to entrepreneurs,
small businesses and individuals who lack
access to banking services with high
collateral requirements. Essentially, it is
providing loans, credit, access to
savings accounts – even insurance policies and
money transfers to small business owners,
entrepreneurs (many of whom live in the
developing world), and those who would
otherwise not have access to these resources.
 6.7.2 Importance of MFIs
• Microfinance is important because it provides
resources and access to capital to the financially
underserved, such as those who are unable to get
checking accounts, lines of credit, or loans from
traditional banks. Without microfinance, these groups
may have to resort to using loans or payday advances
with extremely high interest rates or even borrow
money from family and friends. Microfinance helps
them invest in their businesses, and as a result, invest
in themselves.
 6.7.3 Micro Finances in Ethiopia
• Micro-finance in Ethiopia has its origin in
traditional informal method used to
accumulate saving and access credit by people
who lacked access to formal financial
institutions. Ethiopia has also more 38 MFIs (in
2018) and practice is one of the success stories
in Africa even though there are certain
limitations.
• The history of formal establishment of Ethiopia
Micro finance institution is limited to about le
ss than twenty years (since 2000). The first
groups of few MFIs were established in early
1997 following the issuance of Proclamation
• The objective of the MFIs is basically poverty alleviation
through the provision of sustainable financial services to
the poor who actually do not have access to the financial
support services of other formal financial institutions.
• The microfinance industry is growing in terms of number
and size. The MFIs in Ethiopia have been able to serve the
productive poor people mainly with savings, credit, money
transfer, micro- insurance and other related services.
Governmental and other developmental organizations
have played a vital role for impressive performance the
microfinance sector in the country.

05/04/2025 Entrepreneurship
• The known micro finance institutions in
different regions of Ethiopia with more than
90% market share are
1. Amhara Credit and Savings Ins. (ACSI) S.C.
2. Dedebit Credit and Savings Ins. (DECSI) S.C.
3. Oromiya Credit and Savings Ins. S.C
(OCSCO).
4. Omo Credit and Savings Ins. S.C.
5. Addis Credit and Savings Institution S.C.
(ADCSI)
 CHAPTER SEVEN
MANAGING STARTUP AND
GROWTH (MSMS IN FOCUS)

05/04/2025 SM Ch 1 -233
• Once companies reach to growth
stage, they must continue to grow
with proper management and
leadership.
• The success of an entrepreneur in
this process depends upon
controllable and uncontrollable
variables.
 7.2 Timmons Model of
Entrepreneurship
• What key aspects does an entrepreneur need to
manage to start and grow a business?
• Figure 7.1. This model identified the internal and external
factors that determine the growth of business.
• According to Timmons, success in creating a new venture
is driven by a few central themes that dominate the
dynamic entrepreneurial process: it takes opportunity, a
lead entrepreneur and an entrepreneurial team,
creativity, being careful with money, and an
integrated, holistic, sustainable and balanced
approach to the challenges ahead.
• These controllable components of the entrepreneurial
process can be assessed, influenced and altered. The
entrepreneur searches for an opportunity, and on finding it,
shapes the opportunity into a high-potential venture by
drawing up a team and gathering the required resources to
start a business that capitalizes on the opportunity, the
entrepreneur risks his or her career, personal cash flow and
net worth.
• According to the model, for an entrepreneur to create a
successful venture, they must balance three key
components changes in one factor have a strong influence
on the other factors.
 7.3 New Venture Expansion
Strategies
• 7.3.1 Introduction
• Business expansion is a stage of a company's life that is troubled
with both opportunities and perils. On the one hand, business
growth often carries with it a corresponding increase in financial
fortunes for owners and employees alike.
• But business expansion also presents the small business ow ner
with myriad issues that have to be addressed. Growth causes a
variety of changes, all of which present different managerial,
legal, and financial challenges.
– Growth means that new employees will be hired who will be looking to the top
management of the company for leadership.
– Growth means that market share will expand, calling for new strategies for
dealing with larger competitors. Growth also means that additional capital will
be required, creating new responsibilities to shareholders, investors, and
institutional lenders. Thus, growth brings with it a variety of changes in the
company's structure, needs, and objectives.
7.3.2 Methods of Growth
• The most commonplace methods by which small companies
increase their business are incremental in character, i.e.,
increasing product inventory or services rendered without
making wholesale changes to facilities or other operational
components. Common routes of small business expansion include
the following commo n options:
• Growth through acquisition of another existing business (almost always
smaller in size),
• Offering franchise ownership to other entrepreneurs,
• Licensing of intellectual property to third parties, (license for the use of
certain innovative models on fee basis may be given to certain companies).
This is very common for Software products.
• Establishment of business agreements with distributorships and/or
dealerships,
• Pursuing new marketing routes (such as catalogs),
• Joining industry cooperatives to achieve savings in certain common areas
of operation, including advertising and purchasing,
• Public stock offerings (selling shares to investors and to the general public),
• Employee stock ownership plans (entrepreneurs may give/sell shares to
employees as incentive for motivation.
 7.3.3 The Ansoff Matrix – Growth
Strategy
• What is our business growth strategy in relation
to new or existing markets and products?
• The Ansoff Matrix is a strategic-planning tool that
provides a framework to help executives, senior
managers, and marketers devise strategies for future
growth.
• Ansoff suggested that there were effectively only two
approaches to developing a growth strategy; through
varying what is sold (product growth) and who it is sold
to (market growth).
• “When we are in peak, we make a ton of money, as
soon as we make a ton of money; we are desperately
looking for ways to spend it. And we diversify into
areas that, frankly, we don’t know how to run very
well,”
• Igor Ansoff created the product/market matrix to illustrate the
inherent risks in four generic growth strategies as summarized
here below:
• Market penetration / consumption – the firm seeks to
achieve growth with existing products in their current market
segments, aiming to increase market share. This is a low risk
strategy because of the high experience of the entrepreneur with
the product and market.
• Market development – the firm seeks growth by pushing its
existing products into new market segments. Market
development has medium to high risk.
• Product development – the firm develops new products
targeted to its existing market segments. This alternative growth
strategy is characterized by medium to high risk due to lack of
experience about the new product.
• Diversification – the firm grows by developing new products for
new markets. This is high risk option as entrepreneurs do not
Figure 7.2 Ansoff’s Matrix
 7.3.3.1 Selecting a Product-Market Growth
Strategy

• I) Market penetration / consumption:

• further exploitation of the products without necessarily
changing the product or the outlook of the product. This will
be possible through the use of promotional methods,
putting various pricing policies that may attract more
customers, or one can make the distribution more
extensive.
• In market penetration / consumption, the risk involved is
usually the least since the products are already familiar to
the consumers and so is the established market.
 II) Market development
• The business sells its existing products to new
markets. This can be made possible through
further market segmentation to aid in identifying
a new clientele base. This strategy assumes that
the existing markets have been fully exploited
thus the need to venture int new markets.
• There are various approaches to this strategy,
which include: new geographical markets, new
distribution channels, new product packaging,
and different pricing policies.
 III) Product development
• a new product is introduced into existing
markets. Product development can be from the
introduction of a new product in an existing
market or it can involve the modification of an
existing product. By modifying the product one
could change its outlook or presentation,
increase the product’s performance or quality.
By doing so, it can be more appealing to the
existing market. A good example is car
manufacturers who offer a range of car parts so
as to target the car owners in purchasing
additional products.
 IV) Diversification
• This growth strategy involves an
organization marketing or selling new
products to new markets at the same
time. It is the most risky strategy as it
involves two unknowns:
 New products are being created and the
business does not know the development
problems that may occur in the process.
 There is also the fact that there is a new
market being targeted, which will bring the
problem of having unknown characteristics.
• There are two types of diversification – related
diversification and unrelated diversification.
• In related diversification, the business remains in
the same industry in which it is currently
operating. For example, a cake manufacturer
diversifies into fresh-juice manufacturing. This
diversification is within the food industry.
• In unrelated diversification, there are usually no
previous industry relations or market
experiences. One can diversify from a food
industry into the personal-care industry. A good
example of the unrelated diversification is
Richard Branson. He took advantage of the
Virgin brand and diversified into various fields
such as entertainment, air and rail travel, foods,
etc. Sir Branson has more than 400 companies.
 7.3.4 Expansion Issues
• Whatever method a company chooses to
utilize to expand—and whatever guiding
strategy it chooses to employ its owners
will likely face a combination of
potentially frustrating issues as they try
to grow their business in a smooth
and productive manner. Growth
means understanding, adjusting to, and
managing a whole new set of challenges
in essence, a very different business.
 VII) Growing Too Fast
• Companies growing at hyper-speed
sometimes pay a steep price for their
success. According to management experts,
controlling fast-track growth and the problems
that come with it can be one of the most
frightening tasks an entrepreneur will face. This
problem most often strikes on the operational
end of a business. Demand for a product will
outpace production capacity, for example.
Effective research and long range planning can
do a lot to relieve the problems often
associated with rapid business expansion.
• VIII) Recordkeeping and Other Infrastructure Needs
• It is essential for small businesses that are undergoing
expansion to establish or update systems for monitoring
cash flow, tracking inventories and deliveries, managing
finances, tracking human resources information, and myriad
other aspects of the rapidly expanding business operation. In
addition, growing enterprises often have to invest in more
sophisticated communication systems in order to provide
adequate support to various business operations.
•
IX) Expansion Capital
• Small businesses experiencing growth often require
additional financing. Finding expansion capital can be a
frustrating experience for the ill-prepared entrepreneur, but
for those who plan ahead, it can be far less painful.
Businesses should revise their business plan on an annual
basis and update marketing strategies accordingly so that
you are equipped to secure financing under the most
advantageous terms possible.
• X) Personnel Issues
• Growing companies will almost always have to hire new personnel to meet the demands
associated with new production, new marketing campaigns, new recordkeeping
and administrative requirements, etc. Careful hiring practices are always essential, but
they are even more so when a business is engaged in a sensitive period of expansion.
• Business expansion also brings with it increased opportunities for staff members who
were a part of the business in its early days. The entrepreneur who recognizes these
opportunities and delegates responsibilities appropriately can go far toward satisfying the
desires of employees who want to grow in both personal and professional capacities. But,
small business owners also need to recognize that business growth often triggers the
departure of workers who are either unable or unwilling to adjust to the changing
business environment. Indeed, some employees prefer the more relaxed, family-type
atmosphere that is prevalent at many small business establishments to the more
business-like environment that often accompanies periods of growth. Entrepreneurs who
pursue a course of ambitious expansion may find that some of their most valuable and
well-liked employees decide to instead take a different path with their lives.
• XI) Customer Service
• Good customer service is often a significant factor in small business success, but
ironically it is also one of the first things that tends to fall by the roadside when business
growth takes on a hectic flavor. When the workload increases tremendously,
there's a feeling of being overwhelmed. And sometimes you have a hard time getting
back to clients in a timely fashion. So the very customer service that caused your growth
in the first place becomes difficult to sustain. Under such scenarios, businesses not only
have greater difficulty retaining existing clients, but also become less effective at
securing new business. A key to minimizing such developments is to maintain
adequate staffing levels to ensure that customers receive the attention and service
they demand (and deserve).
•
XII) Disagreements among Ownership
• On many occasions, ownership arrangements that functioned fairly effectively during
the early stages of a company's life can become increasingly problematic as business
issues become more complex and divergent philosophies emerge. For example, one or
more of the cofo unders are unable to keep pace with the level of sophistication or
business wisdom that the company now requires. Such a cofounder is no longer making
a significant contribution to the business and in essence has become 'obsolete.' It's even
harder when the obsolete partner is a close friend or family member. In this case, you
need to ask: Will the obsolete cofounder's ego allow for a position of diminished
responsibility? Can our overhead continue to keep him or her on staff?" Another common
scenario that unfolds during times of business growth is that the owners realize that they
have profoundly different visions of the company's future direction. One founder may
want to devote resources to exploring new marketing niches, while the other may be
convinced that consolidation of the company's presence in existing markets is the way
to go. In such instances, the departure of one or more partners may be necessary to
establish a unified direction for the growing company.
• XIII) Family Issues
• Embarking on a strategy of aggressive business expansion typically entails an
extensive sacrifice of time and often of money on the part of the owner (or owners). But
as many growing companies especially those founded by younger entrepreneurs, are
established at a time when all of the cofounders are either unmarried or in the early
stages of a marriage. As the size of the company grows, so does the size of the
cofounder’s family. Cofounders with young children may feel pressure to spend more
time at home, but their absence will significantly cut their ability to make a continuous,
valuable contribution to the company's growth. Entrepreneurs thinking a strategy of
business growth, then, need to decide whether they are willing to make the sacrifices
that such initiatives often require.
• XIV) Transformation of Company Culture
• As companies grow, entrepreneurs often find it increasingly difficult for them
to keep the business grounded on the bedrock values that were instituted
in its early days. Owners are ultimately the people that are most responsible
for communicating those values to employees. But as staff size increases,
markets grow, and deadlines proliferate, that responsibility gradually falls by
the edge and the company culture becomes one that is far different from the
one that was
•
in place and enjoyed just a few short years ago. Entrepreneurs need to make
sure that they stay attentive to their obligations and role in shaping company
culture.
• XV) Changing Role of Owner At The Initial State
•
• You have few employees; you're doing lots of things yourself. But when a
company experiences its first real surge of growth, it's time for you to change
what you do. You need to become a CEO that is, the leader, the strategic
thinker, and the planner—and to delegate day-to-day operations to others.
Moreover, as businesses grow in size they often encounter problems that
increasingly require the experience and knowledge of outside people.
Entrepreneurs guiding growing businesses have to be willing to solicit the
expertise of accounting and legal experts where necessary, and they have to
recognize their shortcomings in other areas that assume increased importance
with business expansion.
 7.3.5 Choosing not to Grow
• Small business owners choose not to expand their
operations even though they have ample opportunity to do
so. For many small business people, the greatest
satisfactions in owning a business, which often include
working closely with customers and employees,
inevitably diminish as the business grows and the owner's
role changes. Many entrepreneurs would rather limit
growth than give up those satisfactions. Other
successful small business owners, meanwhile, simply
prefer to avoid the headaches that inevitably occur with
increases in staff size, etc. And many small business owners
choose to maintain their operations at a certain level
because it enables them to devote time to family and other
interests that would otherwise be allocated to expansion
efforts.
 7.4 Business Ethics and Social
Responsibility

• 7.4.1 Introduction
• Business organizations, as established
by their entrepreneurs, are expected to
do their businesses in a sustainable and
ethical manner. For this there are certain
theories that we should understand.
• These theories have been evolving
through time as business practices
mature and grow as well as societal and
government influence increase.
 7.4.2 Three Approaches to Corporate
Responsibility

• According to the traditional view of the corporation, it exists primarily to

make profits supported by stockholder theory. From this money-centered
perspective, insofar as business ethics are important, they apply to
moral dilemmas arising as the struggle for profit proceeds. These
dilemmas include: “What obligations do organizations have to ensure
that individuals seeking employment or promotion are treated fairly?”
“How should conflicts of interest be handled?” and “What kind of
advertising strategy should be pursued?” “What pricing strategy
should be pursued?”
• While these dilemmas continue to be important throughout the economic
world, when businesses are conceived as holding a wide range of
economic and civic responsibilities as part of their daily operation, the
field of business ethics expands correspondingly. Now there are large sets
of issues that need to be confronted and managed outside of and
independent of the struggle for money. Broadly, there are three
theoretical approaches to these new responsibilities:
1. Corporate social responsibility (CSR)
2. The triple bottom line
3. Stakeholder theory
 Corporate Social Responsibility
(CSR)
• Corporate social responsibility has two meanings.
• First, it’s a general name for any theory of the
corporation that emphasizes both the responsibility to
make money and the responsibility to interact ethically
with the surrounding community.
• Second, corporate social responsibility is also a specific
conception of that responsibility to profit while playing
a role in broader questions of community welfare.
• CRS is a philosophy in which the company’s expected
actions include not only producing a reliable product,
charging a fair price with fair profit margins, and
paying a fair wage to employees, but also caring
for the environment and acting on other social
concerns.
1. The economic responsibility to make
money.
 This obligation is the business version of the
human survival instinct (to live we have to eat).
Companies that don’t make profits are in a
modern market economy doomed to perish.
 there are special cases. Nonprofit
organizations make money (from their own
activities as well as through donations and
grants), but pour it back into their work. Also,
public/private hybrids can operate without
turning a profit.
• 2. The legal responsibility to
adhere to rules and regulations.
• This obligation must be understood as a
proactive duty. That is, laws aren’t
boundaries that enterprises skirt and
cross over if the penalty is low; instead,
responsible organizations accept the
rules as a social good and make good
faith efforts to obey not just the letter
but also the spirit of the limits.
• 3. The ethical responsibility to do
what’s right even when not required by
the letter or spirit of the law. This is the
theory’s keystone obligation, and it
depends on a coherent corporate culture
that views the business itself as a citizen
in society, with the kind of obligations
that citizenship normally entails. Think of
a plant producing toxin in the
manufacturing process.
• 4. The philanthropic
responsibility to contribute to
society’s projects even when
they’re independent of the particular
business.
• Public acts of generosity represent a
view that businesses, like everyone
in the world, have some obligation to
support the general welfare in ways
determined by the needs of the
surrounding community.
 The Triple Bottom Line
• The triple bottom line is a form of corporate social
responsibility dictating that corporate leaders
formulate bottom-line results not only in economic
terms (costs versus revenue) but also in terms of
company effects in the social realm, and with respect
to the environment. There are two keys to this idea.
 First, the three columns of responsibility must be kept
separate, with results reported independently for each.
 Second, in all three of these areas, the company
should obtain sustainable results.
• The notion of sustainability is very specific. At the
intersection of ethics and economics, sustainability
means the long-term maintenance of balance.
• Economic sustainability values long-term
financial solidity over more volatile, short-term
profits, no matter how high. Sustainability as a
virtue means valuing business plans that may not
lead to quick riches but that also avoid disastrous
losses.
• Social sustainability values balance in people’s
lives and the way we live. As the imbalances
grow, as the rich get richer and the poor get both
poorer and more numerous, the chances that
society itself will collapse in anger and revolution
increase.
• Environmental sustainability begins
from the affirmation that natural resources—
especially the oil fueling engines, the clean
air we breathe, and the water we drink—are
limited.
• If those things deteriorate significantly, our
children won’t be able to enjoy the same
quality of life most of us experience.
• Conservation of resources, therefore,
becomes tremendously important, as does
the development of new sources of energy
that may substitute those we’re currently
using.
 Stakeholder Theory
• Stakeholder theory, which has been described by Edward
Freeman and others, is the mirror image of corporate social
responsibility. Instead of starting with a business and
looking out into the world to see what ethical obligations
are there, stakeholder theory starts in the world.
• It lists and describes those individuals and groups who will
be affected by (or affect) the company’s actions and asks,
“What are their legitimate claims on the business?” “What
rights do they have with respect to the company’s
actions?” and “What kind of responsibilities and obligations
can they justifiably impose on a particular business?”
• In a single sentence, stakeholder theory affirms that those
whose lives are touched by a corporation hold a right and
obligation to participate in directing it.
• Who are the stakeholders surrounding companies? The answer depends on the
particular business, but the list can be quite extensive. If the enterprise produces
chemicals for industrial use and is located in a small town, the stakeholders and their
interests in parentheses include:
 Company owners, whether a private individual or shareholders,
(reasonable profit)
 Company workers (reasonable salaries that enable them to live
decent lives),
 Customers and potential customers of the company (quality
products at fair prices),
 Suppliers and potential suppliers to the company (fair prices for
their inputs),
 Everyone living in the town who may be affected by
contamination from workplace operations,
 Creditors whose money or loaned goods are mixed into the
company’s actions,
 Government entities involved in regulation and taxation (fair
tax),
 Local businesses that cater to company employees (restaurants
where workers have lunch, grocery stores where employee
families shop, and similar),
 Other companies in the same line of work competing for market
share (fair competition for competitiveness of the industry),
7.4.3 Business Ethics Principles

• There are certain universal ethical principles

that managers of enterprises must adhere to.
Ethical values, translated into active language
establishing standards or rules describing the
kind of behavior an ethical person should and
should not engage in, are ethical principles.
The following
• list of principles incorporates the
characteristics and values that most people
associate with ethical behavior.
• 1. Honesty. Ethical executives are honest and truthful in
all their dealings and they do not deliberately mislead or
deceive others by misrepresentations, overstatements,
partial truths, selective omissions, or any other means.
• 2. Integrity. Ethical executives demonstrate personal
integrity and the courage of their convictions by doing
what they think is right even when there is great
pressure to do otherwise; they are principled, honorable
and upright; they will fight for their beliefs. They will not
sacrifice principle for suitability, be hypocritical, or
unscrupulous.
• 3. Promise-Keeping & Trustworthiness. Ethical
executives are worthy of trust. They are candid and
forthcoming in supplying relevant information and
correcting misapprehensions of fact, and they make every
reasonable effort to fulfill the letter and spirit of their
promises and commitments. They do not interpret
agreements in an unreasonably technical or lega listic
manner in order to rationalize non-compliance or create
justifications for escaping their commitments.
• 4. Loyalty. Ethical executives are worthy of trust, demonstrate
fidelity and loyalty to persons and institutions by friendship in
adversity, support and devotion to duty; they do not use or disclose
information learned in confidence for personal advantage. They
safeguard the ability to make independent professional judgments by
scrupulously avoiding undue influences and conflicts of interest. They
are loyal to their companies and colleagues and if they decide to
accept other employment, they provide reasonable notice, respect
the proprietary information of their former employer, and refuse to
engage in any activities that take undue advantage of their previous
positions.
• 5. Fairness. Ethical executives are fair and just in all dealings; they
do not exercise power arbitrarily, and do not use overreaching
nor offensive means to gain or maintain any advantage nor
take undue advantage of another’s mistakes or difficulties. Fair
persons manifest a commitment to justice, the equal treatment of
individuals, tolerance for and acceptance of diversity, they are open-
minded; they are willing to admit they are wrong and, where
appropriate, change their positions and beliefs.
• 6. Concern for Others. Ethical executives are caring,
compassionate, benevolent and kind; they like the Golden Rule,
help those in needs, and seek to accomplish their business objectives
in a manner that causes the least harm and the greatest positive
good.
• 7. Respect for Others. Ethical executives demonstrate respect for the
human dignity, autonomy, privacy, rights, and interests of all those
who have a stake in their decisions; they are courteous and treat all
people with equal respect and dignity regardless of sex, race or national
origin.
• 8. Law Abiding. Ethical executives abide by laws, rules and
regulations relating to their business activities.
• 9. Commitment to Excellence. Ethical executives pursue excellence in
performing their duties, are well informed and prepared, and constantly
endeavor to increase their proficiency in all areas of responsibility.
• 10. Leadership. Ethical executives are conscious of the responsibilities
and opportunities of their position of leadership and seek to be positive
ethical role models by their own conduct and by helping to create an
environment in which principled reasoning and ethical decision making
are highly prized.
• 11. Reputation and Morale. Ethical executives seek to protect and build
the company’s good reputation and the morale of its employees by
engaging in no conduct that might undermine respect and by taking
whatever actions are necessary to correct or prevent inappropriate
conduct of others.
• 12. Accountability. Ethical executives acknowledge and accept personal
accountability for the ethical quality of their decisions and omissions to
themselves, their colleagues, their companies, and their communities.