Technical Articles Theme 01

Title: History and Introduction of Entrepreneurship

Videos: 1-12

Topics Covered
1. Course Introduction
2. History of entrepreneurship (Part a): The beginning
3. History of entrepreneurship (Part b); as an emerging discipline
4. History of entrepreneurship (Part c); Current practices
5. What is entrepreneurship? The definition
6. Who is an entrepreneur? The definition
7. Role of entrepreneurship in economic development and growth
8. Role of entrepreneurship in economic development and growth (country cases) Part 1
9. Role of entrepreneurship in economic development and growth (region wise) Part 2
10. The decision to become an entrepreneur
11. Common myths about entrepreneurs
12. The potential benefits of being entrepreneur

Author: Jawad Hassan, Instructor Business Administration, Virtual University of Pakistan

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 The Rise of Entrepreneurship
Entrepreneurship is a buzzword nowadays. Entrepreneurship is about doing business, creating
profits, and adding workforce to an economy. A business graduate has the choice to establish
himself as a job creator or a job seeker. Governments, educational institutions, financial
institutions, and NGOs support entrepreneurship through the availability of finance and the
development of incubation centers. Entrepreneurship has emerged as a discipline over the
years. Entrepreneurship is a practical and experiential subject. Entrepreneurs are expected to be
intelligent, genius, and super-smart people. Starting an enterprise and then establishing it as a
successful business is not a coincidence, rather it is engineered with the right business process,
stable approach, and decisions. Studying entrepreneurship enlightens fresh business graduates with
the theory, evolution, dimensions, and challenges of the modern business world. Entrepreneurship
is also helpful for in-action businessmen to equip them with technical handling of business matters
i.e. marketing, financial and administrative management. A human being who has got some talent
as an artist, musician, or has got any other business skills is a potential entrepreneur. A potential
entrepreneur can learn the art of doing business i.e. entrepreneurship from mentors (academicians,
industry experts, and tech entrepreneurs) who guide you to make smart management, marketing,
and strategic decisions.

The act of entrepreneurship is rooted in the enterprising nature of mankind since pre-historic
times. The enterprising nature of mankind urges him to discover non-routine actions in a dynamic
way i.e. creation of new ventures and finding solutions to the existing problems and challenges,
faced by society at large. Initially, humans were hunter-gatherers and used to live in form of
isolated entities, known as tribes. Their only adventure was to hunt for their food and shelter and
then survive against Mother Nature by confronting different weather conditions. In this pursuit,
humans’ enterprising nature ventured fire lightening techniques, tool-making techniques, food
hunting, and storing methods. The enterprising nature of mankind further urged him to try different
methods to grow food that channelized different farming methods. Farming at a large scale
brought the big economic revolution, also called as big green revolution to mankind at that
time. The big green revolution turned hunter-gatherer tribes into agricultural societies. Humans
were required to have rules, traditions, and governance to run the emerging agricultural societies.
Agricultural societies started to produce surplus food which got being traded among the multiple
tribes. In that way, the concept of merchant entrepreneur emerged when excess got traded.
Mankind further developed the great Silk Road in ancient times to develop trade relations
between different continents of the world.

The invention of the steam engine brought the industrial revolution by fulfilling the
transportation needs of traders among the farthest trade destinations and markets. The industrial
revolution gave birth to the era of manufacturing, the establishment of big industrial units. In this
way, an era of craft production led the way to an era of mass production. Railroads, iron factories,
textile mills, mining, weapon industry, and all the scientific inventions to date are the fruits of the

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industrial revolution. The improvement in human living standards and increased traveling needs
gave rise to big units and a decline in small business units. The United Kingdom government
published the Bolton Report in 1971, indicating 8 important functions of small firms, depicting
their importance to the economy. In the meanwhile, Small Business Administration (SBA) from
the United States of America enlightened the importance of small firms and stressed the
importance of their re-emergence. SBA pointed out that due to new inventions, technological
changes, new industries and sub-contracting, demand for more services and variety, individual
customer requirements, employment opportunities, privatization and tax benefits from the
government are the main reasons why small firms are important to establish an enduring economy.
The industrial revolution lead mankind towards a technological revolution, also called as
computer revolution. All these revolutions are not accidental but in fact, credited to the human
enterprising nature.

1946-First computer machine  1954-First commercial computer  1981-Personal Computer

and www/.com revolution  1993-Search Engine revolution  today-Social Media
revolution/Artificial intelligence/machine learning.

Entrepreneurship as an Academic Discipline

An academic discipline is a branch of knowledge, a particular area of study, or a subject of study

being taught in a college or university. Some of the most known academic disciplines are
philosophy, geography, archeology, psychology, economics, history, mathematics, political
science, social science, computer science, management science, and
linguistics. Entrepreneurship is an interdisciplinary discipline in business administration,
sociology, psychology, culture, marketing, finance, and geography. Economics is the mother
discipline of entrepreneurship. The term entrepreneur is rooted in the French language in the 12th
century. “Entrepreneur” means “to take between” (the act of risk-taking between buyer and
seller and creating a venture).

 Richard Cantillon, an Irish French economist from the 17th century described the
entrepreneur as a person who has an insight into a business opportunity and takes the risk
by knowing the cost of the venture but the reward is unknown to him. “Entrepreneur is a
person with foresight and confidence to operate in a condition where the cost may be
known but rewards are uncertain”
 Jean Baptiste Say, a French businessman from the 18th century broadly categorized an
entrepreneur as a buyer and seller and also as an innovative person. “The entrepreneur
shifts economic resources out of an area of lower and into an area of higher productivity
and greater yield”

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  Joseph Schumpeter, an Austrian political economist from the 20th century described
entrepreneurship as a discipline. Schumpeter labeled entrepreneurship as a process of
creative destruction and directly linked it with innovation. According to him, an
entrepreneur with an innovation and enterprise mindset extracts the resources from the
conventional mode, innovatively bundles these resources to create value, take/manage risk
and contribute to economic development. “The entrepreneur is a person who is willing and
able to convert a new idea or invention into a successful innovation”
 William Jack Baumal, an American economist from the 20th century categorized an
entrepreneur as a business organizer and also as an innovative person.
 David C. McClelland, a behaviorist from the 20th century described entrepreneurs based
on characteristics, attitudes, and skills.
 Peter Drucker, a management scientist from the 2oth century wrote the book “Innovation
and entrepreneurship: practice and principles”. Drucker also linked entrepreneurship
with innovation. He further described that an entrepreneur comes with product innovation,
production method innovation, new market development, supply chain development, and
a new and better structure of an organization.

It is to particularly remember that word “entrepreneurship” is not synonymous with small

businesses or SMEs but large firms can behave in an entrepreneurial way by foreseeing business
opportunities, taking risks, and doing innovation in products or processes within an existing
business setup. The evolution of entrepreneurship as a discipline and its current status as an
innovative business practice has forced the establishment of business incubation centers.

Business Incubation Centers (BICs)

A business incubation center is a place that helps startup companies to develop, grow and mature
as an established business by providing finance, office space, and mentoring services. A business
incubation center is considered a Launchpad for startups. The Higher Education Commission
(HEC) of Pakistan supports the incubation center development programs in the degree awarding
institutes in Pakistan. Virtual University of Pakistan (VUP) has successfully established an
incubation center: Student Startup Business Centre (SSBC) with the collaboration of
the Punjab Education Foundation (PEF) and HEC Pakistan. You can find the details about
SSBC at https://ssbc.vu.edu.pk/Default.aspx. There are many other national and international
platforms that are providing incubation services to young entrepreneurs. The Indus Entrepreneur
(TIE) is an international platform for entrepreneurs to get benefited from its eminent incubation
services https://tie.org/. Global Entrepreneurship Monitor (GEM) is an information source that
publishes data and reports about entrepreneurship echo-system and entrepreneurs. GEM reports
discuss the importance of entrepreneurship in national and international contexts
https://www.gemconsortium.org/

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 Entrepreneurship and Entrepreneur (Definitions)

The term entrepreneurship is defined by different experts as following.

 “Entrepreneurship is the capacity and willingness to develop, organize and manage a

business venture along with any of its risks to make a profit. The entrepreneurial spirit is
characterized by innovation and risk-taking and is an essential part of a nation’s ability to
succeed in an ever-changing and increasingly competitive global
marketplace” (Businessdictionary.com)
 “Entrepreneurship is defined as a process by which individuals pursue opportunities
without regard to resources, they currently controlled. Entrepreneurship is an art of turning
an idea into a business” (Barringer and Ireland)
 “Entrepreneurship is a dynamic process of creating incremental wealth. The wealth is
created by individuals who assume the major risk in terms of equity, time and commitment
to providing value for some product or service” (Hisrich, peters, and shepherd)

The term entrepreneur is defined by different expert sources as follows.

 “Entrepreneurs is an individual who takes initiative to bundle resources in innovative ways

and is willing to take the risk to act” (Hisrich, peters, and shepherd)
 “Entrepreneur is the one who creates a new business in the face of uncertainty and risk to
achieve profit and growth by identifying significant opportunities and assembling the
necessary resources to capitalize on them” (Zimmerer and Scarborough)
 “Entrepreneur is someone who exercises initiative by organizing a venture to take benefit
of an opportunity and, as the decision-maker, decides what, how and how much of a good
or service will be produced” (Businessdictionary.com)

The most common traits of entrepreneurs are that they have enterprising nature, motivated and
committed, create new ventures, redefine value prepositions, and created jobs by opportunity
hunting and establishing business units. Some of the leading Pakistani entrepreneurs are Aftab
Iqbal (Tapal Tea), Adamjee Dawood (Adamjee Group), Mian Muhammad Din (Super Asia), Dr.
Amjad Saqib (Akhuwat), Roshan Zafar (Kashf Foundation), Salim Ghauri (NetSol), and Monis
Rehman (Rozee. pk). Most famous international entrepreneurs are Henry Ford (Ford Motors),
Walt Disney (Disney) Steve Jobs (Apple Inc.), Richard Branson (Virgin Group), Mark Zuckerberg
(Facebook), and Jack Ma (Alibaba.com).

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 Entrepreneurship and Economy

The economy is defined by various literature sources as follows.

“The state of a company or region in terms of the production and consumption of goods and
services and supply of money”
(https://www.oxfordlearnersdictionaries.com/definition/english/economy)

Three broad categories of the economy are factor-driven economy, efficiency-driven, and
innovation-driven economies. Pakistan is an example of a factor-driven economy. A factor-
driven economy has a subsistence agriculture background with an extraction business with heavy
reliance on unskilled labor and natural resources. India is an example of an efficiency-driven
economy. The economy in an efficiency-driven phase becomes more competitive with more
efficient production processes and increase product quality. America and Japan are examples of
innovation-driven economies. The economy is in the innovation-driven phase, businesses are
more knowledge-intensive, and the services sector expands. (https://www.weforum.org/)

M. Porter in his book “The competitive advantage of nations” declared that “Entrepreneurship is
at the heart of national advantage”. Entrepreneurship has a huge economic impact because it acts
as an innovation hub, creates jobs, adds to national income, and creates social change through
social innovation. Entrepreneurship also partners the economic development by addressing
environmental challenges, social value creation, the commencement of regional economic
integrations i.e. SAARC, CPEC, and social value creation i.e. donations for education and research
and development. Collectively entrepreneurs are the partners in the economic development of
regions and countries.

Entrepreneurial Ecosystem

Information is a great resource for entrepreneurs for basic and strategic planning. Databases are
important for entrepreneurship as these databases carry statistics, trend analysis, cases, and reports
from national and international instances of entrepreneurship. The Global Entrepreneurship and
Development Institute (GEDI) is a research organization that advances knowledge on the
relationship between entrepreneurship, economic development, and prosperity. Global
Entrepreneurship Index (GEI) is a flagship project by GEDI. GEI measures ecosystems at a
national and regional level. Annual reports (International, regional and national cases) by GEI can
be reached at https://thegedi.org/global-entrepreneurship-and-development-index/

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GEI defines 14 Pillars of an entrepreneurial ecosystem, explained in the following table.

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 Entrepreneurs: Antecedents and Myths

While studying entrepreneurship and entrepreneurs, it is very crucial to know that why individuals
become entrepreneur? The common reasons to become an entrepreneur are explained here.

1. Creativity doesn’t fit the corporate environment. Most creative-minded people choose
the route to establish their entrepreneurial venture due to knowledge spillover. The
employer does not recognize, accept and value one’s abilities and creative skills.

2. They want a lifestyle that isn’t bound to nine to five. Entrepreneurs are reluctant to adopt
fixed office timing and follow the same working routine.

3. Be their own boss. Entrepreneurs do not like to be directed or controlled by further

individuals when it comes to decision making, planning, and execution within a business
setting.

4. Entrepreneurs are active learners. Entrepreneurs are eager to learn more and more and
to learn quickly within a tight frame of time. They do so by surfing the rising tides of a
startup venture.

5. Entrepreneurs want to pursue their own ideas. The enterprise mindset of entrepreneurs
surges exceptional and enormous ideas frequently. Entrepreneurs tend to get hold of these
dynamic ideas on their own.

6. Entrepreneurial ideas are unconventional and very innovative. Innovation, novelty,

and uniqueness are the basic qualities of entrepreneurial ideas. A startup venture can absorb
these attributes.

7. Entrepreneurs assume that there are unlimited earning possibilities. The

entrepreneurial venture has got inbuilt ability to offer unknown rewards against the risk
being taken at the right time.

8. We can change the world. Entrepreneurs are the change agents due to their social
innovation instinct.

9. Entrepreneurs are never retired from their work. Entrepreneurs have posted their
interests and insights into business ideas that never get old. Development, prosperity, and
continuous improvement keep entrepreneurs afresh throughout their lives.

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 10. Entrepreneurs, necessarily do not require degrees. Starting your venture does not need
any formidable requirements such as a college degree or a diploma. Although an
entrepreneur may need to acquire formal training to improve business and relevant skills
as and where it is needed.

11. Entrepreneurship brings autonomy, freedom, and responsibility. Entrepreneurs are

driven through the internal motivation of autonomy and freedom which meets the
entrepreneurial venture in its way to accomplish such psychology of a human.

12. Entrepreneurship brings a sense of achievement. Entrepreneurs accomplish and achieve

through progressive advancements attached to a business venture.

Common myths about entrepreneurship are.

1. Entrepreneurs are born and they cannot be made. This discussion is most common
among the folks. This is a debate of nature vs nurture. Entrepreneurship is a combination
of both nature and nurture. Individuals are from different genetic backgrounds and possess
distinct individual characteristics. Furthermore, the external environment influences the
individuals’ behavior, career choice, and entrepreneurial activity.

2. Entrepreneurs are very high-risk takers. Entrepreneurs are risk managers as they take
manageable moderate risk after cost and benefit analysis of a particular decision or
investment in a due phase of time.

3. Entrepreneurs are primarily motivated by money. Financial reward has never been a
primary source of motivation for entrepreneurs rather the entrepreneurs are motivated by
the factors of self-actualization and personal achievements.

4. Entrepreneurs are overwhelmed by their own ideas and do not listen to the
advices. Entrepreneurs are active learners and they show deep interest in the expert noise
from the industry and market.

5. Entrepreneurs are high tech wizards. This is not true to have high-end technical skills
and an IT background. Entrepreneurs with mere basic business knowledge can effectively
manage an enterprise. Tech resources are the need of the hour and can be included in your
team when needed.

6. Entrepreneurs love the spotlight. Entrepreneurs’ storytelling and status sharing attribute
is a source of knowledge and inspiration for the listener itself. Entrepreneurs have some

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 other measures i.e. business success and challenges met up, to quench their self-
actualization needs.

7. Entrepreneurs must be inventors because they are innovators. This is not true in all
cases as this is not necessary and most of the time not possible for you to be an innovator
and inventor at the same time. An entrepreneur may introduce an innovative idea i.e.
Wright brothers gave the idea to fly which was later commercialized for the production of
the passenger airplane (invention of the Airplane).

8. You don’t need to earn degree if you want to be an entrepreneur. This myth is
challenged in a way that a degree or a diploma is not the pre-requisite to establish a new
venture, although formal training or degree may fulfill the upgraded needs of doing
business.

9. If you don’t have money, you can’t be an entrepreneur. Entrepreneurship is a pursuit

of opportunity beyond the resources you currently control or the finance you have in hand.
You can better attract investment by bagging a unique business proposition.

10. Entrepreneurs are usually young, super genius and super energetic: kind of a
hero. Age does not matter here. Colonel Harland Sanders, founder of KFC started his
venture at the age of 65 and now it is the 2nd largest food chain in the world.

Potential Benefits of Being an Entrepreneur

1- You are in charge of your own destiny. An entrepreneur chooses his own path to create
a venture. He employs his own team and makes his very own decisions. At the end of the
day whatever he gets: profit or loss, he is responsible for his own acts and rewards what he
has input in form of efforts and investment.

2- You can be an innovator. It is the case of knowledge spillover (as discussed earlier) when
you find lesser room to let your innovation breath and finally your innovative and creative
capability urges to take your own root to develop a unique value proposition.

3- Entrepreneurship has no age limit. An entrepreneur during all its business life span never
gets retired. As a beginner he performs the basics of business and learn incrementally. At
some point of business maturity of time he is likely to be a motivator and mentor for the
young entrepreneurs. His utility in the business world always gets alive.

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4- Full responsibility as a source of motivation. An entrepreneur being a business owner,
is responsible for many entities involved within a business i.e. investments, human
resources and business opportunities. This equation of up scaled responsibilities keeps an
entrepreneur motivated and affirm his role as a job creator in the society.

5- You become contributor to the society. An entrepreneur impacts the society in general
and economy at large. He creates jobs and streamlines the financials of many individuals
attached to a business unit. An entrepreneur causes positive change in the society through
social innovation and business solution i.e. Akhuwat by Dr. Amjad Saqib.

6- Power to pivot. At any point of time you can take autonomous decisions regarding your
business. The enterprise you are running is pivoted to you for all the decisions to be made
i.e. change in business model, change in investment portfolio, and diversification etc.

7- Experience the personal growth joy. Most of the entrepreneurs come from humble
background and then turn up an exemplary business success. You story, sometimes, is so
enriched with instances of grit, struggle and resilience that it becomes a source of
inspiration for young entrepreneurs.

8- You become an expert, a solution provider. Living an entrepreneurial life lets you
develop rigorous insights of the industry processes and business tactics. Later you become
a consulting sources for many startups.

9- Resilience, recovery and learning process. Being an entrepreneur you live a life full of
remarkable experiences of resilience. In the meanwhile, you learn to recover from pitfalls
in business and finally it becomes a learning journey.

10- Financial and personal reward, become a role model. Entrepreneurship gives you huge
personal reward in form of money and accomplishments.

11- Schedule flexibility and freedom. Being a business entrepreneur, it lets you escape from
routine job timings: nine to five. Entrepreneurship lets you freely schedule your daily
routine tasks but it also takes effort to burn midnight oils.

12- Work with the people you like. It is your choice to employ resources and collaborate with
the people, you declare feasible and beneficial for your business and your own personality.

13- The chance to share your learning. Being the part of an enterprise you learn from your
team members and let other learn in the same proportion.

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 14- The legacy to next generation. Business ideas, business models and social innovations
are transferred to the next generations of entrepreneur i.e. family businesses etc.

---------------------------------------------------The End-------------------------------------------------------

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 Technical Articles Theme 02
Title: Routes to Entrepreneurship: Buying an Existing Business
Videos: 13-23

Topics Covered
13. The potential drawbacks of being entrepreneur
14. What is feeding your entrepreneurial fire (source of motivation)
15. How to become an entrepreneur?
16. Establishing new venture
17. Buying an existing business
18. Buying an existing business-Why on sale
19. Buying existing business-Financial Statements
20. Buying existing business-Evaluation
21. Buying existing business-Evaluation Methods
22. Factors to Consider in Valuing a Business
23. Buying Existing Business Negotiating and Closing the Deal

Author: Aneeqa Tauseef, Instructor Business Administration, Virtual University of Pakistan

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 Potential Drawbacks of Being an Entrepreneur
Though, there are countless benefits of being an entrepreneur but the drawbacks should not be
ignored. There is no fixed income. Sometimes it is high due to higher sales/services and sometimes
low. There is always risk of failure and in case of loss entire investment can go in vain. Unlike
normal job hours entrepreneurs might have longer working hours depending on the nature of
business. For the businesses with less startup finances quality of life suffers somehow until the
business gets established. Stress level is ultimately high. Because everything is own responsibility
so can’t blame anyone. Family pressure, market trends and other factors may lead to
discouragement. Entrepreneurs are not just limited to enjoying benefits but they might have to do
several tasks at a time including financial analysis, physical efforts and many other. Due to
uncertain income, sometimes there is risk for family expenses and social life. Debt becomes
difficult and a burden until the business gets established. Meeting the deadlines is difficult. Even
after properly set plans and procedures it is not sure to be successful in business as consumers and
market has its own trends.

Source of Motivation to Become an Entrepreneur

Economy and economic indicators can lead to several new entrepreneurial ideas. These
indicators can be: purchasing power, inflation or deflation, loan rates, price competition, industry
growth rate, tax rebates and global ties. This can be understood with a simple example i.e. Due to
ongoing projects of CPEC in Gwadar, people all over the country and in fact globally are pre
planning to invest in Gwadar. Demographic factors also play an important role. Minorities have
their own needs and festivals. A number of population falls under 25 years of age. They have their
own needs and wants. They need to earn as well so it’s better to be job creator instead of job
seekers. In urban areas, there are a lot of working couples and have specific requirements in their
daily life routines. Women entrepreneurs are increasing day by day due to increase in social media
and several other factors. Unplanned urbanization might create a lot of problems as well as
opportunities for potential entrepreneurs. There are many part time entrepreneurs who have started
some business along with their jobs.

Universities are offering degrees in entrepreneurship which is ultimately a motivator for

youngsters to start their own ventures. Universities have developed incubation centers. Even if
you are not graduates, but have business ideas, universities support and facilitate that. Most online
business these days offer services. There is overall shift to service economy which leads to several
new ideas. Technological advancements lead to several new ideas. For example, in Japan there
is a large number of old age people and youngsters are not available to take care of them so they
have developed robotic nurses. Feeling of achievement that you have done something for
betterment of people is itself a drive towards new ideas. E-commerce and World Wide Web

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becomes a source somehow. This is age of internet and social media. Many businesses these days
run only on social media.

How to become an entrepreneur?

Most of the people think that there is only one way to become entrepreneur i.e. creating your own
business from scratch. Some also think that if you are having unique business idea only then you
can be an entrepreneur. Another misconception is that if you have joined a family business only
then you are called an entrepreneur. Only sole proprietorship is called entrepreneurship is also a
myth. It is not appropriate to say that if you are an engineer, doctor, or chemist then you cannot be
an entrepreneur, or you have to start business in your relevant field only. If you are from any
profession you can start your business.

Sometimes when graduates during their studies think of starting their own ventures, they dropout
and try their luck in business. This is called academic spinout. When students get to have some
business idea through some teacher or some videos they watch and they then go for starting their
own business it is called inside out approach. When somebody who is working somewhere or
doing a job thought of some business idea, they then went to an incubation center of any university
which supports and facilitates them for their venture is called outside-in approach.

There are multiple ways to become an entrepreneur which are:

 Establishing new venture

 Buying an existing business
 Family entrepreneurship
 Franchising

Establishing New Venture

Creating a new venture means: start-up. It means starting the business from scratch. It requires
more time, risk and finance. The fate of start-up is uncertain. Usually the size is small and
frustration increases when there is risk of failure.

Incubation centers are made to facilitate new ventures especially if they face challenges and
problems. Through incubation centers and other facilitation centers people gather from different
areas of industry thus it helps in network development. Legal and administrative issues might
arise and through network you know where to approach. Initially it is assumed to have market
knowledge but because they have not gone into market, they don’t have much knowledge about
actual market dynamics. Sometimes it is difficult to have skilled labor which is suitable for your
venture. Initially startups have limited finance. It is mostly because of risk involved, people tend
to invest less. Product/ service design issues may also arise.

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Stages of New Venture Creation

Information seeking is one of the most critical parts. One must seek information if currently
unaware. Cultural and market awareness is a must. There must be strong intention to start a
business and must have strong determination. Idea for a product or a service must be clear. Must
have knowledge about competition and price. Supplier info and every other possible information
required for startup must be gained. Must have knowledge about the expected challenges. After
start up, steps must be taken for growth and expansion. After business is established networks are
developed which help in growth. You might have to go for certain trainings to grow. Several
certified trainings are available for this purpose.

Key Points to Consider

Entrepreneurs must consider all the economic factors before starting new venture. What was the
basic drive or intention to be entrepreneur must be kept in mind. There can be some worrisome
issues for new venture. Potential entrepreneurs must foresee these issues. One must have a proper
business plan for smooth running of business.

Some questions like: Which resources are most difficult to obtain? And what are the ways to
obtain. What hurdles or issues can be faced in this regard? Must be considered before starting the
business. As discussed earlier seeking market information is very much important to start and run
the business smoothly. In addition to market information investor related information is also
important. Factors regarding product development or product development plan must be clear.
Competitors’ information along with level of competition must be gathered beforehand.

Entrepreneurship myopia is a concept which states that, sometimes new entrepreneurs read
stories of successful entrepreneurs and overlook the struggle of them which frustrates these new
or potential entrepreneurs if they don’t reach the similar point of success.

Buying an existing business

We have discussed in detail about starting a new venture. Now, for buying an existing business
some important things must be kept in mind. Must have knowledge about the business one intends
to buy. Relevant industry experience would also be a plus. One must research about all the
possibilities regarding potential of expansion or at least maintenance at current level. Knowledge
about current customers of the business and related market trends must also be kept in mind before
buying an existing business. There might be certain practices regarding payment methods.
Whether cash payment required or credit terms must be initially analyzed and worked out.
Liabilities and receivables must also be kept in mind. If you are to enter new business, is it related
to your existing business? Would it be profitable to diversify? Business model sustainability issues
must also be considered. Is the brand image good so that you can buy? Must consider goodwill.

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Advantages of buying an existing business

Successful existing business may continue to be successful. It might already have best location
which can benefit the buyer. Employees and suppliers are already established and working
smoothly. Fixed expenses e.g. equipment's are already installed especially when buying a
manufacturing unit. Productive quality is already known because already production is going on.
Inventory is already in place and might have knowledge about inventory in hand and required
things. Experience of previous owner might be useful because this is an opportunity for network
development as well. Save the time, energy and cost of establishing new venture. Customers and
market are already developed which can save from a lot of hassle.

Disadvantages of buying an existing business

In documents the business might be showing profits and receivables but in actual it’s not that
profitable. The business model might be faulty. It might not have proper supply chain or delivery
system. The location could be unsatisfactory. Location at some faraway place might be a source
of increase in expenses. Competitors might have purchased updated equipment. Outdated
inventory might also be increase in cost. After a certain time, it might be observed that there are
many liabilities which can be a source of bankruptcy. Financial assessment might conclude that
you have bought an overpriced business. These include assessments can be done using several
techniques including balance sheet, adjusted balance sheet, receivables and payables, capitalized
earnings approach. There have been many examples in which due to negative brand image
reputation of buyer collapsed. Sometimes crucial information or documentation might be missing.
In some cases, business secrets are already known to previous owner. Existing employees may
leave which usually happens. In case of partnership, the partners may create problems.

Finding Out Why the Business Is For Sale

Business might be running well but due to old age or illness he wants to sell. Owner might be
shifting to different section of the country or probably moving to some other country and due to
nature of the business he can’t move the business. Sometimes it might happen that you are running
your own business but you get another different but good option from other company. The business
might be no more profitable. Contract with major franchisors might have ended and business is
not profitable with local brand name so he wants to sell. Owner might have foreseen that the
business is not going to grow in future and might face loss so he can sell.

Examining the Financial Data

When somebody buys an existing business, it is somehow evaluated on the basis of financial
statements they show you. So, the following guidelines must be kept in mind.

1. Review financial statements and tax returns for the past five years. These statements
show the performance of the business over the years.

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 2. Recognize that financial data can be misleading. These can be misleading in the
following heads.
I. Assets overvalued
II. Expenses overstated/understated
III. Income underreported
IV. Unrecorded debts
3. Adjust asset valuations to reflect the true state of the business

Investigating and Evaluating Available Businesses

When one has decided to buy existing business he/she must evaluate the same and keep following
things in mind:

While evaluating about an existing business, hasty decisions should not be made. Professional
services might be required. These can be Accountants especially chartered accountants because
they are experts in business valuation so it is better to attain their services. They can accurately
validate the information. There might be several legal agreements with entities so it would be better
to attain services of attorneys. These may be domain experts relevant to the specific type/ field of
business.

Evaluation Methods

Asset-Based Valuation Approach. Assets’ value/price is determined. This approach is mostly

buyer friendly but sellers usually do not agree with this approach because sometimes it is not
suitable for assets of a running business.

Market-Based Valuation Approach. Looks at similar businesses sold recently and price is
determined accordingly. Main issue is that in our country, there is hardly any platform where we
can find such data. So implementation of this method is a bit difficult.

Earnings-Based Valuation Approach. Future earnings capacity is analyzed and price is

determined accordingly. More the future earning capacity, higher the prices.

Cash Flow-Based Valuation Approach. On the basis of past cash flows, future cash flows are
projected and price is determined. As it is a complex procedure, professional help of accountants
might be required in this.

Determinants of a Firm’s Capitalization Rate

Capitalization rate here is considered as rate at which business reinvest its earnings. Value of a
business is usually determined at its capitalization rate. A Business that has to reinvest most of its
earnings is considered a risky business and is less valuable as compared to a business that has to
reinvest just a percentage of earning. Capitalization rate is determined on the basis of risk and
projected growth. If there is high risk means capitalization rate is high so the value of the firm will

5
be low. If the risk is low with low capitalization rate, firm’s value will be higher. If projected
growth will be high, it means firm has low capitalization rate and its value will be high. With low
projected growth, there would be high capitalization rate and firm value will be low.

Factors to Consider in Valuing a Business

There are some Non quantitative Factors to Consider in Valuing a Business. If the business has
more competition means more pressure and you can have to compromise on price and other factors
in future. If there is more customer base and potential of the business, it can be profitable to buy
that. If community can have positive changes with the business, it would be a better decision to
buy that. Odd legal commitments e.g. improper rental agreements and supply chain agreements
might create trouble. If there is employee or trade unions, agreements with those must also be
checked. Situation of the building must also be checked. Poor condition of which might require
major investments. Product prices can you set must also be kept in mind.

Negotiating and Closing the Deal

After evaluation and valuation of the business, we are towards the last step i.e. negotiating and
closing the deal.

Terms of Purchase

While deciding about buying an already established business following things must be kept in
mind.

• Assets purchase or total entity. It must be considered whether you are buying whole
business or its assets. If you are buying assets only, you might not be owner of the name
of the business

• Indemnification clause. This clause suggests that after a particular time if it is found out
that due to some error at seller’s end buyer faces any loss, seller has to bear that loss.
This clause in the agreement is a guarantee for the buyer. Any misleading or hidden fact
revealed after a time would be a penalty on the seller.

• Payment in full or partial payments over time. Experts recommend when you buy any
business must not pay in full. 30 to 40% must be paid in advance and rest must be in 3 to
4 installments. Payment span must also be more than a year.

Closing the sale

Any lawyer or agency or firm can act as that third party to close the sale process and they must
check all the documents including, Bill of sale, tax certifications and Payment-to-seller agreements
and guarantees.

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6
 Technical Articles Theme 03
Title: Routes to Entrepreneurship: Joining a Family Business
Videos: 24-34

Topics Covered
24. Family business challenges and characteristics (Part 1)
25. Family business challenges and characteristics (Part 2)
26. Family business Advantages
27. The Family Business: Value and commitment
28. The Family Business: Professional Management
29. The Family Business: Roles and Relationships
30. The Family Business: Family Conflict Resolution
31. The Family Business family & non-family members
32. The Family Business: Successful Succession (Part 1)
33. The Family Business: Successful Succession (Part 2)
34. Family Business Teams

Author: Sara Hussain, Lecturer Business Administration, Virtual University of Pakistan

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 Family Business
There is no hard and fast definition of what family business is. The ownership control is by
members of a family. Not only one member of family or family with blood relations might be
owners of the business but other relatives might also be involved. Family practices and value
influence family business. If the business is successful it would transfer into generations. A
company that two or more members of the same family own or operate together or in succession
can be considered as Family business. In others words we can say that a business owned controlled
and joined by more than two family members is called Family Business. There is interaction
between an individual, family and business so this business becomes a unique entity. For example,
if a graduate wants to join his family business where his father and brother are already working he
is an individual plus part of the family and business as well. All these roles overlap in a family
business.

Family Business Challenges and Characteristics

If family members have conflict with each other, it impacts the whole business. In addition to that
if there is no male member in the family, it becomes really difficult for female family members to
take over the business. Family businesses sometimes have to face role conflicts. If parents and
children are there it becomes difficult to differ in their parent and professional roles. Parents and
children might have different management styles. It is difficult to have financial accountability
of family business as members don’t want to justify their financial spending. Family issues and
conflicts are reflected in business. Several major issues arise when there are succession delays.
Sometimes senior family members have fear of death. They are reluctant to transfer business to
next generation. Sometimes senior family members are hesitant to share responsibilities and
power. Sometimes members feel threat to personal identity so they are reluctant to transfer
authority. Parents do not want to be bias. So they are reluctant to transfer authority to single person
which creates delays in succession. If one of the children is more engaged in business activities,
others feel neglected which can be a basis for succession delays. Fear of retirement along with
jealousy and rivalry also creates unwanted delays in transfer of ownership. Boundaries among
family, ownership, management systems may become blurred. Because successful or running
business is transferred to next generation, they are many times unable to keep it going successfully.

Family business has its shared vision, values and goals. They are not performing business
haphazardly but have a proper plan. There are well written procedures and expectations
regarding family participation in the business. It is clearly mentioned that how much participation
of each family member would be there. It is clearly mentioned that after retirement/death who will
take care of business. It is documented beforehand to avoid conflicts. They not only rely on family
wisdom but have outside advisors and board members as well for advice. Family unions also

1
impact the business positively. Family business is supposed to have professional management and
proper governance structures. Responsibilities of family members are usually pre-planned.

Some Research Facts about Family Businesses

After doing research we get to know that out of all businesses all over the globe 80% have family
business structure. This ratio is common for both developed and developing countries. This family
business can be with parents or any blood relations. If we research about any of the successful
brand, we get to know that they have family business stories. It is generally said that not more
than 30% family businesses transfer to next generations. 10 to 15% usually transfer to 3rd
generation. Only 2 to 4% are those who transfer to 4th generation. If we locally look around in our
country and cities we get to know that many sweets, jeweler, and other popular businesses are
family owned.

Family Concerns Business Concerns

Care and nurturing of family members Production and distribution of goods and/or
services

Employment and advancement in the firm Need for professional management

Loyalty to the family Effective and efficient operation of the firm

Family business Advantages

While choosing between starting a family business and starting a business from scratch there are
certain advantages that shift the attention towards selecting and joining a family business rather
than starting a venture from scratch. Let’s have a look these one by one.

 Just like life, the journey of business is also not smooth. Business organizations also have
ups and downs in it just like any person’s life. It has happy and successful times and it has
challenging times as well. During challenging times, the benefit that family business offers
is strength of the relationship that holds family member together during tough times. It
keeps them integrated with each other and the business. While in other non-family
businesses the partner who are not family members leave or dissolve the business and
getaway with their share.
 During tough times family members may sacrifice their financial benefits for sometimes
to bring the firm into normal working conditions.
 Usually family businesses are distinguished from other businesses by the very status of
being a family business. It gives strength that this business is owned by a family.

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  Researches show that family businesses generally show a high level of concern for the
community and contribute towards social work and welfare activities.
 Due to unbreakable family ties, family business plan for the long run showing long term
commitment. Literature also supports that family businesses have better quality and values
as compared to other businesses. The intensity and presence of these attributes may not be
same in all family businesses but they do have some level of these attributes in one way or
the other.
 In family businesses, motivation for success is high as all members try to achieve common
goals leading towards mutual success. All members in family business have networks thus,
the network of the business becomes wide which makes promotion of the business
comparatively easy

The Family Business Unique Attributes

Now let’s see how family business is different from other businesses in terms of its culture and
commitment. The start/ initiation of family business usually take place by an individual -the
founder of the business- whose core values are transmitted in to the business and shape up the
culture of the organization. The founding member of the business has deep impact on the culture
that is formed within the business. Every creation has the characteristics of its creator same is true
for the businesses which have an imprint or reflection of the personal values of the founder. This
reflection of the founder’s personality and value still has deep roots within the family business
even if the third generation or fourth generation is dealing the business now. Hence in family
businesses usually certain common values are embedded in their cultures which can be witnessed
in majority of family businesses in one way or the other. For example these values generally
include mutual respect, integrity, and wise use of resources, fun and personal responsibility. Even
the non-family members in the family business also exhibit these values. Similarly there are four
kinds of commitments that affect the family business.

 Desire-based commitment
 Obligation-based commitment
 Need-based commitment
 Cost-based commitment

All these commitments affect the turnover and performance of the family businesses. All family
members have to exhibit all these commitments because if any member lacks or ignore any of
these commitments then it may cause turnover which means other family members leaving the
family business or business performance is affected.

Let see what are the best practices for managing the businesses and how conflicts are resolved in
family businesses. Literature has reported certain best practices over the years, all or some of which
can be used in any family business. These are:

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New thinking must be encouraged in family businesses and fresh insight must be gathered to avoid
inertia which is a key issue in most of the family businesses. Due the inertia, family businesses
cannot become compatible with the changing environment. Due to which they may ultimately
phase out.

 You must take input from those non family members in the business to update your
perspective.
 Hire the excellent managers rather than relying on the family members. Give chance to
capable person for being the managers irrespective of the fact that he is the family
member or non- family member.
 Make the organizational environment creative and flexible. It will benefit the business.
 Try to not only create the capital (it means all forms of capital) but also to conserve it.
 Succession planning must be timely done.

Every family business has its uniqueness, try to keep this unique advantage of family business and
keep on exploiting it.

There are different kinds of roles in family business and what kind of possible conflict might arise
in it. The family is very broad and it encompasses many different kinds of relationships that join
the business during different times and stages of the family business. Like husband and wife, father
and son or daughter, grandfather and grandchildren, cousins and in-laws. Succession planning is
also a major issue in family business.

The Family Business: Successful Succession

There are different concerns for succession. Parental concerns for passing on the business to the
children. Does my child possess the temperament and ability necessary for business leadership?
How to motivate the child to take part and interest in the business? What type of education and
capabilities will help them to become a part in business? At what time, they should engage their
children in business. Should they include them at once or first train them? Then after making them
part of business, how to prevent favoritism and also keep your relations healthy with their child?

One of the issues that arise in the family business is conflict among family members. As far as
conflict is concerned, be it a family firm or a non-family business, there are chances that conflict
may arise among people. Whenever people are working together, their interests may clash with
each other and difference of opinion may exist and problems may arise. These conflict are realities
of this world, so experts suggest that whenever conflict arise among family members within family
businesses they may arrange family gatherings periodically but away from business environments
usually at a remote area to discuss business matters.

Another suggestion is make a family business council to discuss family business matters and
resolve the conflicts. The objective of the council must be to create harmony among them.

4
A constitution may be passed by the mutual consent of the family members. They may form a
constitution decide certain principles and seek guidance from that constitution for the smooth and
conflict-free flow of the business.

All these suggestions may not guarantee the success of the business but these may help to ensure
the smooth flow of family business.

From management point of view, another challenge in the family business is that after certain years
two different cadres are formed; Family members who are working and non-family members who
are working. Then sometimes certain floors or areas are reserved for family members. Family
member executives and non-family executives have different areas / floor dedicated for them in
certain business.

Now we see the conditions that favor the leadership succession in the family business. First we
will see what is succession? Succession is transferring ownership of the family business to the next
generation. Succession means when the next generation of the family is joining the family business
and they are assuming important business positions to carry out its activities in future.

The conditions that make succession in the family business easy, includes:

 A sound and profitable running business

 Stable and healthy relationships among family members joining the business
 If prior decisions regarding the succession process have been taken and planning about
leadership succession is done in advance.
 If positive attitude and team oriented management structure of the overall family
leadership makes succession easy.
 Never force the newly joining family member to join the business or a certain position in
the business and always present the true and realistic preview about the opportunities that
they have in the family business.
 Always be open to discuss the family issue because open communication and discussion
will help resolve issue and will benefit the business.

Besides all this, keep it in mind that the new generation needs to be properly guided and mentored
to become effective part of your family business. For business succession, a five stage process for
succession is recommended. The different stages are:

First stage is pre-business involvement- some businessmen start taking their children to their firms
during their summer vacations and start involving them by giving them small tasks and
assignments of the business. Then they are given proper education which is suitable for their
business. After that their competence is determined and then according to their competence, they
formally join the business. As a final step their business succession is declared.

5
During succession when ownership is being transferred to the next generation there are certain
things that must be kept in mind. Like; following things needs to be considered

Who will inherit the firm and when? There are two separate points here; giving jobs to family
members in the family business is something different and transferring ownership formally to
family members is totally separate thing. So it’s important to question that who will inherit the
business? Will here be collective inheritance or a single individual will be made owner of the
business. Should each heir receive the equal share? Should ownership be transferred gradually?
Or should it be transferred at once? While transferring the business there will be certain tax
considerations as well. How these tax implications will be handled? What to do with other wealth
and assets of the founding entrepreneur besides this business?

All these questions must be dealt with care and consideration as these are very crucial for the
smooth transfer of ownership to the next generation and also for keeping the business sustained.
The sustenance of the business is important not only for the family but for the employees working
in it and for the society at large.

Family Business Teams

Moving on in our discussion on relations in family business, we will discuss the teams that may
exist in family businesses.

Husband wife team in family business such team exist in west but now in Pakistan such teams
also exist specially in service sector like in private schools. Such teams provide to opportunity to
share in each other’s life. But in case of any conflict in family it may affect the business and other
way around. At times, work increases so much and both becomes so busy that you do not get time
for family life. An advantage of working together provides an opportunity to share the
responsibilities.

Another team is sons and daughters team. When siblings join the business, there are chances that
their personal preference might vary from one another and may be different from business. Their
qualification may be different from business requirements. It is also possible that they are not
capable to deal the affairs of the business or they do not have any interest to continue the family
business. When they decide to join the business there are two possibilities: either they show a lot
of cooperation or they may start competing with each other and become rivals.

At times in-laws of one family member also join and become part of the business. Then the in-
laws of other individuals may also try to join. It may be that the in-laws joining the business may
not capable. At such times disagreement about treating them and rewarding them may become an
issue. Thus, in family businesses roles and relationship among business may have conflict and may
show co-operations.

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6
 Technical Articles Theme 04
Title: Routes to Entrepreneurship: Franchising
Videos: 35-41

Topics Covered
35. Franchising Opportunities-Introduction
36. Pluses and Minuses of Franchising
37. Franchising options
38. Franchising Cost
39. Franchisor Controls
40. Evaluating Franchise Opportunities
41. Franchisor and Franchisee Relationship

Author: Umar Shahzad, Lecturer Business Administration, Virtual University of Pakistan

1
 Introduction to franchising opportunities
It is important to know the routes for entering the business world. There are four main routes for
the entering business world and each has one its advantages and disadvantages. First method is to
start a new business from the scratch. This is called “pure entrepreneurship route” and it is the
riskiest route for a business as well. Second option is that if you do not want to start a business
from the scratch, then you can avail the option of “franchising”. This means you take a limited
right of doing a business for an existing enterprise to a start your work. Third method is to “buy
an existing business” that was already operating in the market. Fourth option is “to join the already
existing family business”. The riskiest of the options among these four is of pure entrepreneurship
route. The least risky business option for a new venture is franchising business with less risk and
more reward. In existing and family business, there is less risk and reward.

A franchise is a popular mode of business. In education sector of Pakistan, this model of business
franchising is being used. In fast food business, fertilizers’ business, petrol pumps business,
telecom business and automobile industry etc., business model of franchising is being used. This
is a kind of marketing system in which strong and existing business (franchiser) gives rights of
business to the franchisee for operating its business based on a franchise agreement. This is
basically a two party system.

Pluses and minuses of franchising

Frenching is a potential route to entry in an entrepreneurial world. It is important to assess the

positive and negatives aspects of franchising mode of business. The plus points include that you
do not enter alone in the franchising as the support of franchiser remains with you due to his
business interests. You enter business world under the umbrella of an established business brand.
Potential risk is less and it is a relatively secure mode of business. All franchisers give a business
training to the new franchisee because it is a partnership relationship and they all get benefit. They
may also provide financial help along with proven marketing methods. This helps in business
success as well. Franchiser also provides managerial support to the franchisee. Startup time is less
in franchising business. Overall, the failure rate is less in the franchising business.

Negative aspects of franchising cannot be ignored as well. It is not a cheap business. You have to
invest a lot and have to give part of business earning such as royalty to the franchiser on regular
basis. Growth of franchisee remains restricted. You cannot sell your own business or expand the
business. Operations are monitored by the franchiser. Every franchise agreement has a termination
clause that remains an advantage only for franchiser.

1
 Franchising options

It is important to know about the concept of franchising and its types. In Frenching, there are two
parties. One grants the right of business to the other party based on the terms and conditions of
franchise agreement. There are different methods of franchising. Most popular arrangement of
franchising is “product and trade name franchising”. In this arrangement, franchiser gives the right
of only using his brand name to the franchisee and hence franchisee will sell his products or
services. Generally, the franchising of schools and colleges in education sector happens on this
pattern. Telecom sector also follows this pattern of franchising. Dealership in automobile industry
is also based on the arrangement of “product and trade name franchising”. Petrol pumps business
also runs on the same franchising arrangement. Franchisee does not have to produce anything in
this arrangement and franchisee only sells the products or services produced by the franchiser.

Second most popular form of franchising is “Business Format Franchising”. Franchisee gets the
similar system to operate as that of franchiser. So, in the apparent shape and appearance, a
franchisee is a copy of franchiser under this arrangement. Example of business format franchising
is of fast-food restaurants. All franchised branches of fast-food restaurants are often similar and
they make the same product. Franchisee’s branch is often a ditto copy of franchiser’s branch.

Third method that is common in franchising but not much known is called “Piggyback
Franchising”. In this type, neither franchisee uses the name of franchiser nor does he deal in
franchiser’s products or business format. In fact, franchisee uses the location / premises allowed
by the franchiser with exclusive right of use. For example, canteens in colleges and universities
have exclusive rights to sell food items in those areas. Similarly, tyre shops, tuck shops and car
service areas inside the petrol pumps are also the examples of piggyback franchising.

“Area developer” is another type of franchising. For example, a franchisee operating with an
exclusive right of having franchiser’s outlets in a city. “Multiple unit ownership” is another type.
For example, if someone owns more than one outlet of a telecom company. “Master Licensing” is
another type in which a company gives exclusive right of operations to the franchisee in its country.
All of the above are the commonly used options of franchising.

Franchising Cost

Once an entrepreneur makes a decision about entering in franchising business, then it is important
to know about the types of cost associated with franchising business. There are four types of costs
that an entrepreneur will have to bear in franchising business. First type of cost is “initial franchise
fee”. This type of fee is usually non-refundable and taken at the start by the franchiser for
commercial use of his name by the franchisee. For example, a school may sell the name as a
franchise and can collect the initial franchise fee. Second type of cost is “cash investment” that is
incurred for the development of infrastructure such as building etc. Third type of cost is “royalty
payment”. It is the type of cost that franchisee has to give to the franchiser based upon the earning
2
of business. This payment usually ranges from 5 % or 25 % depending on the mutually decided
agreement. Fourth cost is “advertising expense”. Franchiser takes this cost of advertising from
franchisee as he / she is also a beneficiary of the business.

Franchiser Controls

There are four types of controls often observed by the franchiser on franchisee. First type of control
is “restriction of sales territory”. This is the first type of restriction faced in franchising. For
example, the franchisee cannot operate out of a specific area of a city. Second control of franchiser
on franchisee is that franchisee has to follow the “approval of site and facility’s appearance”. For
example, a franchisee of McDonalds will have to follow the same style of building, SOPs, design,
layout and logo etc. Same applies to telecom sector. Third control is “restriction of goods / services
to be sold”. Franchisee can sell only those goods and services whose right has been granted by the
franchiser. Fourth control is “required operating hours and advertising”. These are the four controls
of franchiser on franchisee.

Evaluating Franchise Opportunities

It is important to know about the opportunities available for franchising before starting such a
business. Some of the techniques about evaluating franchise opportunities include personal
observation. This may depend upon your own information. For example, your knowledge about a
company that is selling franchise rights. Second option is of “advertisements”. Franchise
opportunities are often advertised in newspapers. Alternate words such as dealership, distributors
etc. are also advertised.

After knowing about the franchise opportunity, it is important for the entrepreneur to investigate
such opportunities. Getting information from multiple authentic sources is the key. Other sources
of such investigation about a company include government agencies such as Securities and
Exchange Commission (SECP), internet, and franchise consultants and also franchisers themselves
provide information manuals. It is also important for a potential franchisee to meet the already
existing business demands in franchise operations of their targeted company.

Franchisor and Franchisee Relationship

After purchasing the franchise, the relationship of franchiser and franchisee should be productive
one. Both should be “responsive” to each other. They provide answers to each other’s queries.
Secondly, “empathy” is also important. One should understand the others. Communication is also
important. Dependability is also important. It is important for both the stakeholders of franchiser
and franchisee. Then the accessibility is also important as it is a give and take relationship.
Anticipation is important for forecast about future. Structure of relationship needs to align as per

3
the needs of both franchisee and franchiser. Open mindedness is also important. Franchiser has the
upper hand in a franchiser – franchisee relationship but they would not like to spoil franchisee’s
business and instead the business growth of franchiser also depends upon the business growth of
franchisee.

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4
 Technical Articles Theme 05
Title: Routes to Entrepreneurship: Characteristics of Successful
Entrepreneurs
Videos: 42-55

Topics Covered
42. Co-entrepreneurship
43. Young entrepreneurs
44. Minority and Senior entrepreneurs
45. Part-time and home based entrepreneurs
46. Social entrepreneurs
47. Women entrepreneurs
48. Who are Wantrepreneurs?
49. The pitfalls in the journey of entrepreneurship and how to avoid pitfalls?
50. Characteristics of successful entrepreneurs (part a)
51. Characteristics of successful entrepreneurs (part b)
52. Characteristics of successful entrepreneurs (part c)
53. Some Key skills of successful entrepreneurs (Part a)
54. Some Key skills of successful entrepreneurs (Part b)
55. Some Key skills of successful entrepreneurs (Part c)

Author: Umar Shahzad, Lecturer Business Administration, Virtual University of Pakistan

1
 Co-Entrepreneurship
Co means “two” people working together. Similarly, in co-entrepreneurship, two people work
together on an entrepreneurial project. There is no restriction of age, gender, cost etc. in co-
entrepreneurship. Sometimes, idea of business is developed together and everything is also shared
in the business. They work in a team to establish a venture. Co-founder is also a term used for such
entrepreneurs who create a business together. Serial entrepreneurs are those people who have a lot
of experience of creating new ventures. They are very skilled people. They often establish a
venture for selling it and then create another venture to sell that as well. Co-entrepreneurs are often
those who have good skills of establishing a business or they can be good advisers of establishing
a business. Third method to become a co-entrepreneur is to be an investor in an entrepreneurial
venture. For an entrepreneurial venture, one has to manage a team and it is not easy to work in a
team. Same applies to co-entrepreneurship. First challenge of co-entrepreneurship is “personality
conflict”. Second is “risk taking behavior”. Third is “personal life and commitments”. “Team
conflicts” may also be there. “Financial matters” may also be a cause of concern. “Profit sharing”
and “partnership dissolution” may be the other issues. If partnership deed was not there then more
issues can arise while business dissolution if it was not registered business. Scale up issues may
also arise if business gets flourished. These may differ in different types of the co-
entrepreneurship. One partner may be highly committed versus other. Hence, in a good
entrepreneurial venture, these issues should be managed properly.

Minority and Senior Entrepreneurs

Minority means a group of people who are less in number compared to a social group in any social
environment. They usually face some disadvantage in the society. In the flag of Pakistan, while
color is for minorities. Minority can be gender based, ethnicity, race, religion, linguistic and
disability based. There may be certain basis upon which we declare a group as minority. For
example, based on religion, Hindus, Christians, Sikhs, Parsis and Buddhist among many other are
the minorities in Pakistan. These minorities can also become entrepreneurs but they also have to
face competition in the entrepreneurial as well as in the job market. So, they often start business.
Even in US, minorities are closely watched as they often do their own business. Main issue of
minorities is that they often have to face discrimination in their country from dominant groups.
For informal sources of finance through loan, they also face discrimination as they are often unable
to provide collateral to banks for gaining loan. Senior entrepreneurs are those people who start
their business after the age of 50 years. This is usually the age of retirement or early retirement.
They often feel they can start small ventures. Corporate layoffs are also a reason. Personal
fulfillment and self-actualization are other reasons for senior entrepreneurship. It may be for the
need of additional income as well. Sometimes, people do it for spending quality time as well.

1
 Part-time and Home-Based Entrepreneurs
There are two approaches of entrepreneurship. Full-time or part-time entrepreneurship. Full-time
entrepreneur has to bear time, cost and all the associated risk of the business only for a single
business commitment. Part-time entrepreneurship is the one which is not the main source of
income for an entrepreneur. An example of part time entrepreneurship might be of a person who
is doing a job and is also doing a business in the additional time after office hours. Important
considerations for part-time entrepreneurs are;

1. The role of financial or non-financial motives: Financial motive may be a lesser income
in the job. Non-financial motive might be that the entrepreneur is developing the idea and
once the business would develop, he would leave the job and will join the entrepreneurship
as a full-time activity.
2. Social pressure: This is the second issue for which you want additional income to enhance
living status. The problem is that due to extra efforts, an entrepreneur may get burnout in
which stress increases and he may leave the business venture altogether.
3. Over commitment: Employment and business both demand time and social life and those
may get effected simultaneously. You will have to manage both the risks with a good
balance.

Home based entrepreneurship is more common in rural areas and it is also called micro or nano
business. It is often a skill-based business at home. Mostly females are engaged in home-based
business. Access to finance remains an issue as financial institutions don’t see it as a mature
business. Increased production / scale up becomes an issue for home businesses. Work life balance
also becomes an issue.

Social Entrepreneurs
Social entrepreneurs solve community issues through novel business ideas. They are willing to
take risk for positive change in society through their initiatives. So, they don’t do their business
only for profit. There are so many issues around us such as unemployment, poverty, minority
association and disability etc. Then, why not that one should create a business that solves these
problems and the one who solves these issues is a social entrepreneur. A social entrepreneur does
business for social a cause. Often NGOs take such initiatives. But, business model of NGO stays
only on donations or funds from local and international donors. To break that model which is not
sustainable, a model of business and NGO was merged for social entrepreneurship.

Social entrepreneurship is actually a socio-economic business model. Whole profit gets re-invested
in the same business. They often work with government and NGOs. Grameen bank is the best
example of social entrepreneurship that was made for ultra-poor people who had no collateral.
Grameen bank provided loans to such communities. Its recovery rate was highest and was 99 %.

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In Pakistan, Akhuwat Foundation is also an example of social entrepreneurship like Grameen bank.
It does not charge interest as it offers “Qarz-e-Hasna”. In 2010, a restaurant was started where
waiters were blind just to make the people realize about their disability and to give jobs to
disadvantaged. Three major issues of social entrepreneurship are there. First is financial
sustainability. Therefore, Akhuwat also takes donations. Operation self-sufficiency and business
sustainability are the other two issues.

Who are Wantrepreneurs?

Wantrepreneurs are those potential entrepreneurs who make unrealistic desires for starting a new
business. They are also often confused about business idea and rely on so many other people and
hence get confused. They also find it difficult to make timely decisions. They are often
complaining and not willing to fail. They are day dreamer and risk-averse persons. The main
difference between entrepreneur and wantrepreneur is that entrepreneur converts idea into a startup
while wantrepreneur keeps on planning for the business idea. You have to decide whether to
become and entrepreneur or a wantrepreneur. It is always better to use your energies for becoming
entrepreneur rather than entrepreneur.

Pitfalls in the Journey of Entrepreneurship

How to avoid pitfalls?
Pitfall means an area of uncertainty. Pitfalls in the entrepreneurial journey happen due to the
mistakes of entrepreneurs. One of those mistakes is “lack of managerial skills”. For example, if
you can design a good product but cannot manage the people then it is an issue. Second is the lack
of experience. So, never over rely on lack of experience in new business. Poor financial control is
another issue that can cause a pitfall. It is mainly because entrepreneur starts spending on personal
financing as well. There are often poor controls as well that might be a source of entrepreneurial
pitfall. “Weak marketing effort” is another issue. “Failure to develop a strategic plan” is another
issue. You need to have plan B as well being an entrepreneur. One should know which competition
to avoid initially. “Uncontrollable growth issues” are also a problem. Unplanned diversification in
business creates problems as well. Selection of poor location is also an issue. For example,
transportation may become an issue for poor location. Similarly, “incorrect pricing” is also a big
issue that can lead towards an entrepreneurial pitfall. One should avoid over pricing as well as
underpricing. One should avoid inability to make transition in the entrepreneurial journey. Self-
awareness and awareness of business is the key. Networking also helps in the industry. An
entrepreneur must tune himself for new and better qualities as an entrepreneur.

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 Characteristics of Successful Entrepreneurs (part a)
Learning about the characteristics of a successful entrepreneur can help a lot to the entrepreneurs
for a better entrepreneurial experience. It also helps us in understanding the reasons that contribute
to the success of entrepreneurs. Some of the major characteristics of a successful entrepreneur
include;
 Passion for the business
 Tenacity despite failure
 Execution intelligence
 Discipline

If we study the autobiography of successful entrepreneurs of the world, then we would realize that
all the successful entrepreneurs had a passion for doing their own business even from the start
of their career. Without passion, a person can neither excel in the job nor in the business. So many
aspects are associated with an entrepreneur when he starts a business. For example, financial risk
gets attached to him. He has to manage a team for business. Time, energy and other resources are
also utilized by an entrepreneur. Even while spending all these financial and non-financial
resources, one cannot make an organization if the passion is not there. Many people realize that
these are the non-commercial businesses such as NGOs that require passion. However, it is not
true. All the big businesses in the world were established by passionate and visionary people.

Second aspect of a successful entrepreneur is tenacity despite failure. As an entrepreneur, one

should not stop efforts even after failure. We often see the successful entrepreneurs while they
enjoy their success stories in the final phase when their business is well established. Behind that,
there happens to be a lot of struggles in their past and every entrepreneur has to face a lot of
setbacks at the start of a business. Therefore, as an entrepreneur, one should remain prepared to
face setbacks at the start of entrepreneurial journey.

Execution intelligence is also very important. People may have many other characteristics but an
entrepreneur needs to have many characteristics. All the successful entrepreneurs have execution
intelligence. They know when to use which resource and how to operate the business. They also
know how to get the work done from their team. They should also know how to timely bring the
idea in the market and to deal with the competitors. Hence, execution intelligence is an extremely
important characteristic for an entrepreneur.

Discipline of entrepreneur is also very important for entrepreneur. There is this myth that
entrepreneur does not have to follow the time like a job. But discipline is even more important in
the business as well. You have to set priorities, be punctual and be better manager for being a role
model of employees working in that venture.

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 Characteristics of Successful Entrepreneurs (part b)
Some of the other characteristics of a successful entrepreneur include;

 Being self-starter
 Strong work ethics
 Open mindedness
 Self-assurance

Many people can guide an entrepreneur by providing self-motivation and talks but for success as
an entrepreneur, being self-starter is a pre-requisite. There is a new term that is getting popularity
and that is “motivational garbage”. It means that even after listening so much motivational
speakers, sometimes we cannot start a business. That means we are not motivated from the inside
because we were not self-starters. A person has to adopt his own path.

Strong work ethics are also very important. Some people are of the view that everything in
business is fair. But that is not true. All the successful businesses in the world have strong work
ethics values. There is a viewpoint that corporate social responsibility is the responsibility of only
the big businesses. But, irrespective of the size of the business, people prefer those values even in
the small businesses that they see in the business owner.

Open mindedness is also very important. We listen to the people and can often get judgmental.
People often lack tolerance as well in business affairs. However, tolerance for ambiguity is very
important for successful entrepreneurs. It’s important to keep personal biases aside.

Self-assurance means confidence on one’s own personality. If entrepreneur does not have the
confidence on his own product, then his product would not sell to others in the market. One also
has to be ready to face the opinion of other for which being self-assured is important.

Characteristics of Successful Entrepreneurs (part c)

Empathy and tolerance are important factors. Being empathetic means listening people from their
point of view. Entrepreneur has to listen the consumers. One has to be empathetic with the end
users. Then, vision is also very important. Successful entrepreneur definitely has a vision. He
should have foresightedness. Can you assess the future market demand? Such factors are key for
a visionary leader. Self-investment is also important as entrepreneurs need to learn. They need to
have trainings for business excellence. Export business owners often go abroad for such trainings
and for meeting with the potential and actual clients. One has to be optimistic being an
entrepreneur. Entrepreneur also has to be creative. Your approach must not be traditional and you
should not use the same formula used by the whole market. Successful entrepreneurs are always
creative.

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 Some Key Skills of Successful Entrepreneurs (Part a)
An entrepreneur should have some good personal characteristics for the business success. There
are many such characteristics that can be discussed; however, few are more important. First, “goal
setting” is an important characteristic and a key skill. Entrepreneur must know the business goal
as he / she is to invest the resources in a business for a specific time and purpose. Entrepreneur
should know where the business would be after a year. In which market he wants to access and
how much he wants to expand the business in coming time. Goals should be specific, measureable,
accurate, and realistic and time bound (SMART).

Then, “information seeking” is a power and an ability for an entrepreneur. Everyone has digital
existence. You should have customers’ data for your business. This information helps in making
the decisions. Industry information is also very important. It is a skill to access right information
for your business. “Opportunity seeking” is also another skill for entrepreneur which is very
important. Everyone has the opportunity but it is important to properly assess an opportunity and
avail it in a right manner. It is also a skill that can be learnt. “Learning” is also another ability for
which unlearning the existing mindset, business patterns and behaviors is sometime important, so
that one can absorb the knowledge with open mind and open heart for improvement. “Persistence”
is also another skill based upon which one quits or keeps on going for a business.

Some Key Skills of Successful Entrepreneurs (Part b)

“Planning and monitoring” is a characteristic of a successful entrepreneur. It is very important to
plan and monitor your business. Software can also help an entrepreneur in planning and monitoring
measures. For example, for accounting purpose in business, many software can help an
entrepreneur. Availability of finances is also very critical. Financial strength is the lifeline of every
business. Hence, “financial intelligence” is very important. Financial management is a key for a
business. Entrepreneur should know about financial statements, balance sheets, ledgers and
financial ratios etc. “Market intelligence” means market research for your business. You need to
keep an eye on your competitors. “Persuasion and influence” is a very important skill as well.
Some people are introvert and many people in the extrovert category think that they are good in
marketing and sales as well. In fact, it’s all about persuasion and convincing the consumers. As an
entrepreneur, even you have to convince employees of your organization to keep doing the good
work and this also requires persuasion. There are many trainings that are conducted that can help
an entrepreneur in this regard for learning about the art of persuasion, convincing others and
communication skills.

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 Some Key Skills of Successful Entrepreneurs (Part c)
Quality assurance is an important business characteristic in the sense that an entrepreneur would
want to convince customers on the basis of quality of his products and services. You should make
sure that there should not be any defect in the products or services. “Efficiency” of resource is
another skill for proper business. You have to use the resources smartly. “Reading financial
statement” is also very essential for the entrepreneurs. Understanding balance sheets, cash flows
etc., is necessary for an entrepreneur. Understanding different ratios such as liquidity ratio is also
important to know the net worth of the business. Marketing skill is also important for an
entrepreneur. One should know about the proper execution of marketing mix. “Place” for selling
the product is also a critical decision. You should be able to design the supply chain of your
product. In services industry “physical evidence” is also very important. Team of good individuals,
communication skills, networking etc., all are important. There is a saying that your networking is
your net worth. For example, you should have people who can help you in supplies, legal advice,
financial advice and digital marketing etc. These characterizes are key for a sustainable business
relationship but they would not like to spoil franchisee’s business and instead the business growth
of franchiser also depends upon the business growth of franchisee.

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7
 Technical Articles Theme 06
Title: Entrepreneurial Process
Videos: 56-69

Topics Covered
56. The entrepreneurial process (Orientation)
57. Group Discussion 1: Academicians and Practitioners View (part 1): Are entrepreneurs
born or made?
58. Group Discussion 1: Academicians and Practitioners View (part 2): Are entrepreneurs
born or made?
59. Group Discussion 2: Family Entrepreneur (Part 1): How they started and what challenges
they face?
60. Group Discussion 2: Women (Part 2): How they started and what challenges they face?
61. Identifying and recognizing opportunities Part I
62. Identifying and recognizing opportunities Part II
63. The opportunity sources: Observing Trends
64. The opportunity sources: Demographics and Social Trends
65. The opportunity sources: Economic and technological forces
66. The opportunity sources: Social Innovation and market gaps
67. Techniques of idea generation: Brain storming and mind mapping
68. Techniques of idea generation: library, internet, and incubation centers
69. Techniques of idea generation: Friends, Experts, and intuitions

Author: Marriyam Bukhari, Instructor Business Administration, Virtual University of Pakistan

1
 The Entrepreneurial Process
The entrepreneurial process includes all the functions, actions and activities that are part of
perceiving opportunities and creating organizations to pursue them. Entrepreneurship is a complete
process which is not easy. An individual can get fascinated by the idea of being his/her own boss
but if he/she opts for entrepreneurship, he has to go through the complete process. The
entrepreneurial process has following steps:

1. Decision to become an entrepreneur (personal preference, desire behaviors, dream)

2. Developing business idea (business plan making for opportunity
3. Idea to venture establishment
4. Managing and growing firm

As we have already discussed the importance of entrepreneurial traits, we will now see how these
traits help entrepreneurs in entrepreneurial process.

 An entrepreneur’s traits of knowledge and inspiration help him in idea generation.

 An entrepreneur’s traits of dream, desire, and creativity help him in venture development
 An entrepreneur’s traits of determination, learning from trial and error, productivity and
efficiency help him in production and operations
 An entrepreneur’s traits of leadership and networking help him in sustainability and growth

The entrepreneurial process is alternatively defined as a set of stages and events that follow one
another. According to this definition, the entrepreneurial process stages are: the idea or conception
of the business, the event that triggers the operations, implementation and growth. An important
factor that drives the development and growth of the business at each stage is human behavior or
entrepreneurial characteristics. Entrepreneurial traits are shaped by personal attributes and
environment.

Identifying and Recognizing Opportunities

A business opportunity is defined as “a favorable set of circumstances that creates a need for a
new product, service, or business.” In order to become successful, an entrepreneur must be
consciously innovating and searching for new opportunities. Usually, ventures are started in two
ways; ventures in which opportunity is externally stimulated and ventures where the opportunity
is internally stimulated. In externally stimulated ventures, the entrepreneur decides to start a
business, look for and recognizes the opportunity and starts the business. In internally stimulated
ventures, an entrepreneur sees the problem or gap and an opportunity to create a business and fill
the gap. Whether a venture is externally stimulated or internally stimulated, opportunities are tough
to locate. A business opportunity represents a possibility for the entrepreneurs to successfully fill
a large enough unsatisfied need that results in enough sales and profits.

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The difficult task in opportunity recognition is to identify that the business or product idea is not
merely a different version of something that already exists. A major mistake entrepreneurs usually
make is to pick an existing product about which they are excited and passionate and build a
business around that model or a slightly different version of it. The important thing to remember
is to identify and recognize an opportunity and build a product which is the demand of customers.
In other words, make a product that the customer is willing to buy rather than the one which
entrepreneur wants to make and sell. A good opportunity should have four qualities which are:
attractiveness (personal choice, preference, attractive with respect to market, financially viable),
durability (not be short term, pop up opportunity, sustainable), timeliness ( right time, develop
product within time before others), and value proposition (product or service adds value for the
buyer or end user, value for entrepreneur, overall environment, value anchored in
product/service/business)

For an entrepreneur, to take advantage of an opportunity, the window of opportunity must be

opened. Window of opportunity means the time duration during which a company can enter into
a new market. The window of opportunity for a new product opens when the market for that new
product is established. When the market established and grows, a firm may enter and establish a
profitable position. When the saturation point comes and market matures, the window of
opportunity closes. For example in 1995, the first search engine Yahoo appeared in the market.
After that the market grew and Excite, Lycos, AltaVista and others came in the market. In 1998,
Google entered the market with advanced search technology after which the search engine market
matured and window for opportunity closed or is less prominent unless some company comes with
very advanced technology.

Difference between an Idea and an Opportunity

We define idea as “Something imagined or pictured in the mind”. Idea is in your mind (it’s a
thought, an impression, or a notion). It may or may not meet the criteria of opportunity. On the
other hand, an opportunity must possess all four qualities i.e. attractiveness, durability, timely and
value addition.

Model of opportunity recognition process

Source: adopted from Entrepreneurship by Dean A. Shepherd, Michael P. Peters, and Robert D.
Hisrich
2
 The Opportunity Sources
An entrepreneur observes the recent trends and tries to find the opportunity in order to get
maximum benefit. Though there are unlimited trends, following are the few of those recent trends
where an opportunity can be spotted these days.

 Green trend (sustainable fashion, recycling, zero-waste practices, eating a plant-based diet,
and reducing the use of plastics)
 Clean energy trend and global warming (clean energy technologies like solar, geothermal,
wind, biofuels, and fuel cells)
 Organic orientation trend (organic vegetables with no fertilizers and pesticides used,
chemical free food products, home grown vegetables and fruits,, organic cosmetics with
ingredients that are human friendly, organic farming)
 Fitness and health trend (connection of mind and body, at-home workouts, outdoor fitness,
yoga, meditation)
 Social networking trend (you can be an opinion maker, you can launch business idea on
social media, marketing on social media)
 Traveling and adventure (small traveling and tourist firms)
 Bloggers, vloggers and virtual communicates

Entrepreneur can see the opportunity in any problem of the society. Sometimes, a problem exists
in the market which entrepreneur visualizes as an opportunity. He thinks of solving that problem
with creative and innovative product or service.

Demography means the statistical structure of populations. It includes the age, gender, income,
ethnicity, religion, profession and level of education of a population. Age is a very important factor
for an entrepreneur with marketing perspective as people with different age brackets have different
demands, needs and wants. The age of humans is usually divided in the following groups: baby
boomers (born 1946-1964), generation x (1965-1980), millennial (1980-2000 or 1978-1999), post
millennial (people born after 2000). Millennial are also known as generation y (or gen y). some of
the traits of millennial or generation y are: buying power and influence on older generation,
support cause, global shared values, social media lovers, part of virtual communities, early adopter
of technology, travel and adventure, adopt new trends. Other important demographics to be
considered by entrepreneurs are: working couples, single parents, region and ethnic groups, and
the diversity of workforce.

Your presence on social media is your digital identity. In this technological era, the business must
have its digital presence and identity where consumers can always reach it. The social media
platforms where an entrepreneur can create its digital presence are: Facebook, Twitter, Instagram,
Whatsapp, Pinterest, Snapchat, and LinkedIn. Digital identity at social media helps entrepreneur
in networking and sharing.

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Economic forces play an important role in identification of a good opportunity. It is important for
an entrepreneur to understand the types of economies in which he/she might have to start and
operate his/her business. One of the types of an economic system is Command Economic System
or planned economic system. Command economic system is a system controlled and directed by
a central authority which is usually the government of the relative country. The central authority
or government decides on the organization and distribution of resources and sets prices. This
system is rarely followed by countries in the current era. Another type of economic systems is
Market Economic System or Free market. In free market system, demand and supply regulates the
market instead of the government. Market forces (supply and demand) decide what to produce, at
what price and quantity. Resources are owned by private individuals who are free to do business
with each other which makes the market more competitive. This competition to acquire resources
and give the quality product in market, leads towards the most effective and efficient use of scarce
resources. There is a little intervention of government in free market economy. Market economic
system is the extreme opposite of command economic system. While countries rarely employ any
of these economic systems, another type of economic system was introduced that has been widely
employed by countries. Mixed economic system (mix of command and market economy) is a
combination of other economic systems. In mixed economy, although market is free but the
government is still involved in certain regulations. The intervention of government is minimal
except for a few key areas where government may intervene. It is also called modern economic
system. Most of the economies are based on the mechanism of mixed economic system.
Characteristics of mixed economy are: co-existence of public and private sector, existence of
economic planning, role of price system and government directives, government regulation and
control over private sector, reduction of economic inequalities, government protection of labor and
protection of consumer sovereignty.

The economic indicators which an entrepreneur must have information about are: GDP annual
growth rate, GDP per capita, GDP per capita PPP, unemployment rate, inflation rate, consumer
price index CPI, food inflation, foreign exchange reserves, balance of trade, corporate tax rate,
personal income tax rate, and sales tax rate. These indicators tell entrepreneur about the economic
situation and help him to make timely decisions. For example, an entrepreneur will not offer a
luxury product in a region where the purchasing power of consumers is very low.

Technological forces also play an important role in identification of a good opportunity. Key
technology areas of which an entrepreneur must have knowledge these days are: big data (ways to
analyze big volumes of data sets which cannot be analyzed with traditional analysis software. This
data can be used by companies to know customers’ preferences), cloud computing, artificial
intelligence, machine learning, robotic process automation (using robots and automation
technologies to reduce the labor work), 5g & 6g, blockchain, digital privacy, e-governance, virtual
space and networking.

World Economic Forum defines social innovation as “the application of innovative, practical,
sustainable, market-based approaches to benefit society in general, and low-income or underserved
4
populations in particular”. In general, NGOs are responsible for the welfare of society and
businesses are established to make profit. As NGOs run on donations of big organizations, the idea
of social innovation emerged. It illustrates that businesses instead of giving donations to NGOs,
should come up with a business idea which can solve a societal problem and also generate profit
for the firm. For example, medicine to cure a disease can be a profit making business for a
pharmaceutical company but also solves a societal issue i-e to cure that disease. Features of social
innovation are: tangible business with profit is established in result of a societal issue, part of firm’s
business strategy and innovation agenda, managed from company’s core operations, sustainable
development of society and business, enhancing long-term competitiveness and business growth,
and new product development with environmental concerns.

With the emergence of social innovation, social entrepreneurship has been becoming popular.
Social entrepreneurs are defined as “individuals who recognize a social problem and use their
entrepreneurial skills to create a program, business or process to find a solution.” Another
definition states that “a social entrepreneur is a person who pursues novel applications that have
the potential to solve community-based problems. These individuals are willing to take on the risk
and effort to create positive changes in society through their initiatives.” For example, the
development of a mobile application which serves the needs of deaf and dumb through which they
would be able to communicate with people is social entrepreneurship.

Gap is important to bring new product in market. A ‘gap in the market’ idea can have one or more
of three attributes which are: it is something new and original, it improves on something that
already exists, and it takes something that exists and finds it a new market. To find a gap in market,
it is important for an entrepreneur to conduct market research. To conduct a market research and
measure the characteristics of the market and its size, a specific market is identified. Market
research also involved market intelligence and industry analysis. The integral part of doing any
business is to keep track of the competitors and the industry which is termed as market intelligence.
Companies get valuable insight into how to expand and grow their firms by collecting and
analyzing the data of their target market. Industry analysis is related to reviewing the political,
economic and market factors that influence the industry and the way it develops. It is a market
assessment tool which gives firms an idea of how a particular industry works and how complex it
is. According to Porter, five forces that impact the industry are: the condition of competition, the
power of suppliers, the likelihood of new entrants, threat of substitute products and power of
customers.

Techniques of Idea Generation

As we have already discussed that an idea is a thought, an impression, or a notion. Idea generation
is a fundamental or basic part of a business venture. There are certain techniques of idea generation
which are: brain storming, problem inventory analysis, and mind mapping. Brainstorming is a
group technique to generate ideas or solve a problem. Usually one facilitator or moderator controls
the discussion. Participants are typically asked to discuss about a product or a problem (or

5
anything) in detail and from every angle. The more the ideas are generated in brainstorming, the
more the discussion is considered healthy. The members of the discussion can be the heads of the
organization, consumers or industry experts. Sometimes there are some rules to be followed while
doing brainstorming that are: no criticism or no negative comments in the beginning, all types of
wild ideas are welcome, quantity of ideas is desired, think out of the box, and combination of ideas
brings improvement and may produce new ideas. Sometimes reverse brainstorming is done in
which every participant is provided with a paper where they can write all the generated ideas and
then give their opinion on each idea, called brain writing. In brain writing, the members can also
criticize the ideas so that a refined version of best ideas can come on the table. Another technique
of idea generation is problem inventory analysis is “a method for obtaining new ideas and
solutions by focusing on existing problems”. In this method, a list of problems related to market,
product or service is provided to the participant in the beginning of the discussion. Mind mapping
is another approach that can be used to generate ideas. In this technique, a central idea is written
and then participants are asked to come up with associated ideas that branch out from the central
idea. It’s a graphical/visual representation for organization of ideas and concepts.

Libraries are the most underutilized resource. Ideas can also be generated in libraries using
industry specific magazines, trade journals, industry reports, databases, and market research
reports. Such reports and magazines are also available online but it is quite a task to ensure their
authenticity. As unauthentic information can lead the entrepreneur to make wrong decisions,
he/she must go for authentic sources of information even if he/she uses internet. Government
reports (which are usually paid) can also be found in libraries and you can get information by using
them free of cost. Internet is also a rich and most used source of information. There are pages and
official accounts of thousands of businesses on social networking sites (Facebook, Instagram,
Twitter, YouTube, and LinkedIn) where an entrepreneur can see them. It can also help him find
the gap, generate new idea and mature it. One thing must be kept in mind while using internet to
get information is checking the source of that information. Most of the information on internet is
unauthentic. Entrepreneur must ensure the authenticity of the source. Entrepreneurs also use
search engines to get new ideas. He/she can find the authentic magazines and journals and get
their subscription. Subscription allows these websites to send email alerts to the subscriber about
every new publication and events. Incubation centers can also be a good source of new idea
generation. Potential entrepreneurs must visit all local incubation centers and also visit the
websites of all international incubation centers. This can give them an idea of: the industry trends,
which ideas are popular these days, and which product or service is in demand. Potential
entrepreneurs must also keep an eye on the business plan competitions and see which business
plan ideas are winning these competitions internationally and locally.

Friends and family can also be a source of generating and maturing an idea. If you have identified
an opportunity, have an idea in mind and you are sure that you can design a product on that idea;
the first thing that comes in mind is to discuss it with your friends and family. Friends and family
members are good listeners and honest advisers. Moreover, if they are senior, they can give you

6
an honest advice based on their experience. Another benefit of sharing your business idea with
friends and family is that they may invest in your business if they really like your idea. They may
be interested in becoming your partner too. Friends and family are the people who are close enough
to know your capacity. They can tell you that though the idea is good but you might not have
capacity to mature it. Potential entrepreneurs must listen to this kind of advises as a number of
business startups fail because of inconsistency and incapacity/incapability of the entrepreneur.
Potential entrepreneurs can get most benefit from family or friends if they have
business/entrepreneurial background. They can give him/her advice based on their experience of
business and market dynamics. On the other hand, family can discourage potential entrepreneurs
too. They might influence him/her to do job instead of business as in case of loss, they will be the
major financial sufferers.

Another source of good idea is experts of the industry potential entrepreneurs are interested in.
Expert opinion can help an entrepreneur take the right decision at right time. Potential
entrepreneurs must attend the live sessions and leaders’ talk shows where industry leaders share
their life stories and experiences. Entrepreneurs should try to make networks with these experts to
get benefit from their lifetime experience. Potential entrepreneurs can share their business idea
with these experts to get a feedback on how realistic and workable the business idea is.

Intuition is defined as “the ability to understand something instinctively,

without the need for conscious reasoning.” It’s an ability to know something without any
information or proof. Some people rely more on their intuition or gut feeling while others rely
more on strategic reasoning and thinking over things before making any decision. As far as
entrepreneurs are concerned, they are more of the intuitive type of people. Although they make
decisions based on strategic thinking and reasoning, they also make decisions solely based on their
gut feeling. Interviews with different entrepreneurs showed that the decision they took based on
the gut feeling or intuition were right most of the times. It doesn’t mean that intuition is never
wrong as some of the decisions were found to be wrong too, which were taken intuitively according
to the expert entrepreneurs. Taking decision based on intuition alone is a risk for business venture.
Although entrepreneurs are risk takers but taking blind risk can affect the business venture.
Entrepreneurs should consider the gut feeling or intuition but also collect information and do
market research before taking any decision.

---------------------------------------------------The End-------------------------------------------------------

7
 Technical Articles Theme 07
Title: Entrepreneurship and Creativity
Videos: 70-86

Topics Covered
70. What is innovation?
71. What is creativity?
72. Barriers to innovation and creativity
73. Creativity, innovation, opportunity and entrepreneurship: the link
74. Protecting your business idea: what is Intellectual property (IP) and what is intellectual
property rights (IPRs)?
75. Protecting your business idea (Patent, Trademarks, and Copyrights etc.)
76. The interview with an entrepreneur: How to open third eye for opportunity hunting?
77. What makes entrepreneurs entrepreneurial?
78. The effectual reasoning: (The problem, The process)
79. Effectual reasoning: the principles
80. Bird-in-hand
81. The affordable loss principle
82. The crazy quilt principle
83. The lemonade principle
84. Pilot-in-the-plane
85. Effectuation: The workshop activity
86. The interview with an entrepreneur: How entrepreneurs can use their available resources
for quick start?

Author: Marriyam Bukhari, Instructor Business Administration, Virtual University of Pakistan

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 What is innovation?
Innovation, creativity and entrepreneurship are closely related. Innovation is defined as “the process
of translating an idea or invention into a good or service that creates value for which customer will
pay.” In large organizations, it is a complex process to bring innovation because of certain
limitations. On the other hand, small firms are more prone to innovation and every small startup is
thought to be innovative. The reason is; less complex structure of small firms, quick decision
making, easy resource pulling, and easier product testing.

Innovation is also defined as: “Making a product or service better, faster, cheaper, greater
satisfaction and/or greater value.” Another comprehensive definition of innovation is “the
company’s capability to implement a range of coordinated actions and strategies for the purpose of
developing and delivering new products and/or new services to the new or existing market in a
manner that outperforms competitors.” Two critical components of innovation are: invention and
commercialization. Commercialization adds social and economic value to the invention through
the creation of a business, or/and licensing/intellectual property protection. You need to
commercialize the new idea to solve the society’s problem. Without commercialization, no matter
how unique the idea is, it won’t be converted into a product and offered in the market. The most
common types of innovation are: incremental innovation, disruptive innovation, architectural
innovation and radical innovation.

Most of the firms go for incremental innovation with existing market and existing technology.
Incremental innovation is referred to the series of improvements a company make in its existing
products and services with time. For example, Apple or Samsung mobile companies launch a new
model of their smartphones every year with a slight improvement in certain features. Incremental
innovation is not risky. Disruptive Innovation is related with implementing new processes,
technologies (disruptive business models) in existing markets. In the beginning, new models look
inferior as compared to the current solutions, but with the passage of time, they surpass the old
technology due to their efficiency and efficacy. Amazon was the first online book store which
disrupted the old business model of conventional book stores. There was an existing market of
books and they changed the way books are sold. Architectural innovation is what the giant
companies like Google and Amazon do. They take their domain related technology, expertise and
skills and then implement it to a different market. This is the way they increase their customer base
by expanding the market. Radical innovation is the type of innovation which people actually think
as innovation stereotypically. It is the rarest type of innovation. It involves innovating new
technologies, business models or services which create new markets. The examples of radical
innovations are invention of microwave, airplane etc.

In Harvard business review, the types of innovation are defined in terms of how well the problem
is defined and how well the domain is identified and defined. Innovation types are (according to
HBR): sustaining innovation, breakthrough innovation, disruptive innovation, and basic research.
Sustaining innovation involves improving the existing capabilities. Organization tries to get better

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at what it has. Entrepreneur has a clear idea of what problems will come and which skill domains
are needed to solve them. On the other hand, breakthrough innovation involves getting into a
well-defined problem for which it is hard to get the solution. In this case, entrepreneur has to explore
the skill domains which will be able to solve the problem. Researchers have discovered that with
the changes in competition and shifts in technology and marketplace, companies improve and
become better and better at the things (product/services) which customers want less. At this point,
innovation in products or services won’t help rather the companies have to innovate their business
models. This type of innovation is called disruptive innovation. Basic research involves doing
research on something you don’t know. Every invention must have had a background research when
the inventor did not even know what he is exploring.

Other most common types of innovation are: product innovation, business model innovation,
process/technology innovation, social innovation, market-pull innovation and technology-push
innovation. Product innovation involves innovation in products and intangible services such as
services that meet customer needs. The business model is the way a company functions and earns
money. The business model innovation encompasses innovations in strategy, marketing, supply
chains, value creation, pricing or cost structures. The major examples of business model innovation
are Food panda Uber, Careem, and Foodpanda. Process and technology innovation involves
creating the process efficient or cost effective in order to improve quality or production. Social
innovations are innovations where the benefit lies with society and the purpose is not primarily
profit. Examples include innovation in education, poverty reduction, equal opportunities, health,
pollution reduction, plastic use reduction, and green trends. Market pull innovation originates
from the market and initiates by a specific customer request. Lastly, technology-push innovation
is the result of new technologies for which suitable application possibilities are sought and
implemented.

What is creativity?
As we know, creativity is what distinguishes humans from other creatures. Business managers and
entrepreneurs are more interested in creativity as they think it as a linkage to innovation which
ultimately leads to new product, process, firm growth, or stronger competitive advantage (Ko &
Butler, 2007). Different academics define creativity as a process which results in novel or new
products or ideas which are appropriate and valuable to the society as a whole. The traditional
approach to creativity was person-centered which assumed that creativity is innate in individuals.
Contrary to the traditional approach, the contemporary approach to creativity believes that all
humans having normal capabilities can produce at least moderate creative work, for some time, and
in some domain. Research showed that creativity is not only innate quality of an individual, but it
is also the function of environmental factors and individual characteristics which can be developed
(Amabile, 1996; Sternburg, 2006). Creativity is about seeing the things same as everyone else is
seeing but making the connections between them which no one else has made. It’s an ability to
produce or use original, unusual and unique ideas. Business dictionary defines creativity as “mental

2
characteristics that allows a person to think outside of the box, which results in innovative or
different approaches to particular task. There are the five stages of an Individual’s creative process.
Each stage of creative process flows logically into the next stage. The stages of creative process
are: preparation, incubation, insight, evaluation, and elaboration.

As an individual starts the creative journey, the first phase involves preparation work and
generation of idea. It’s the stage when individual conducts the research work and gathers
information and materials that could ignite a unique idea. In this first stage of the creative process,
the brain is using its memory to get knowledge and information on past experiences to generate the
novel idea. When an individual is done with actively thinking about the creative idea giving it
upfront time, it is the stage when he/she must let it go for a while. This stage is called incubation.
It is the part of creative thinking to get yourself away from your idea before sitting down again to
add more details to it. At this stage an entrepreneur might start working on other project or take a
break from creative thinking altogether in a sense that he/she is not actively or consciously working
on his/her creative idea. Throughout this stage, the idea is incubating in the back of the mind. After
incubation, entrepreneur enters into the insight stage which is sometimes called illumination stage,
a stage when “aha” moment happens, and individual gets eureka experience (feeling of joy and
satisfaction). It is when he is able to form new connections and gather all the material he has
collected to present the solution to the problem. It is the stage when the real unique idea is emerged.
At this stage, entrepreneur is sure about the target market, customers, the product, the sources of
finance and resources. Once the idea is emerged, it enters in evaluation stage. It is the stage to
validate the idea and weighing it against the alternatives. An individual can go back and see if the
current version of his idea is what he initially imagined. Another important thing at this stage is
testing the viability of the idea. The entrepreneur will have to scrutinize the idea (whether it is viable
or not) and conduct market assessment. An important thing at this stage is to check the financial
viability of the idea. Elaboration is the final stage of creative process, and is sometimes called
verification stage. It is the stage when hard work is needed to transform your idea into a physical
product or service. At this stage an entrepreneur finalizes the design, transform the idea into a
physical product or service and share it with the world. Entrepreneur at this stage will launch the
marketing campaigns, keep the financial records, take the customers’ feedback and will try to
improve based on the suggestions of the customers.

Barriers to Creativity and Innovation

Why an entrepreneur cannot innovate or bring creative product ideas into the market. There are
certain barriers to innovation and creativity.

Personal barriers involves personality and behavior barriers, social pressure, lack of passion, lack
of direction, fear of failure and making prior assumptions. Personality and behavior can be a major
barrier to creativity and innovation. Some people are not the risk takers and want to enter in a market

3
with a casual or simple (already existed) product. They might not have the capability to think out
of the box. Thinking creatively or wanting to innovate is a personality trait too so the people who
do not have that trait of doing something different, do not go for creativity. Social pressure is
another barrier to a creative idea. An entrepreneur comes under the social pressure when he/she
tells his/her idea to someone (family or friends) and gets a negative response (when they call your
idea weird and strange). This is normal for friends, family and even customers to have innovation
barriers in their minds which form a wall against creative things. Our brain spontaneously prefers
the known things as compared to the unknown things. This is the reason why society first rejects
your idea. Under this social pressure, even if the entrepreneur is creative, he/she will curtail his/her
creativity and try to build a simple product which will have market acceptance. Lack of passion is
a personal barrier which comes from demotivation. May be in the beginning, entrepreneur is excited
about the new idea but after getting discouraged by the family and friends, he becomes less
passionate about his creative idea. Lack of direction can also hinder an entrepreneur’s creativity and
innovation. If an entrepreneur’s personality is inconsistent and he doesn’t have a proper direction,
it will lead him to astray. Only a focused person can think creatively. Fear of failure is the foremost
barrier to innovation and creativity in entrepreneurship. It happens when an entrepreneur is already
under the social pressure and people around him have already rejected his idea. It makes
entrepreneur feel demotivated thinking that his product/service model will not work or be rejected
by the customers too. This fear also disturbs the entrepreneur at market testing stage which can lead
him/her to take wrong decisions. This fear of failure leads the entrepreneur to make prior
assumptions about the product acceptability in the market. He assumes that he will not get the
investment, resources, customers, or the team to work on the idea.

Cultural barriers involve lack of training, misguiding instructions, lack of motivation, lack of
basic ability, and access to resources. Culture is defined as “the shared values, beliefs, and practices
of the people”. Some organizations do not have a creative culture. May be the business of the firm
doesn’t need creativity and innovation. Leg pulling and politics in organizations can also hinder
creativity. In other firms (for example, advertising agencies or IT firms) creativity and innovation
is the essential part of firm’s culture. Such organizations (like Google) give upfront time to their
employees to think creatively encouraging creative ideas and promoting innovation. An
organization which needs creative ideas should train its employees to think creatively. Lack of
training can be a barrier to creativity as the individual would not know what to think and what
actually the organization needs him/her to think. Instructions on which type of idea is needed would
be communicated clearly as misguided instructions can result in a totally different idea and wastage
of time. Another barrier to creativity is lack of motivation. Even if the entrepreneur himself is
creative but if he is unable to motivate others in the team, it will curb the creativity. If an
entrepreneur doesn’t have the basic ability to think creatively he/she won’t be able to produce any
unique ideas. Moreover, in order to execute a creative idea, entrepreneur needs resources. If he/she
doesn’t have access to resources, the creative idea will remain in the mind of the entrepreneur but
will never be executed and offered in the market.

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Feasibility barriers involve blur ideas, financial feasibility, and business model feasibility. Idea
should be clear as the blur idea will not result in creative product or service. It should be practical
and can be converted into a physical product or service. Financial viability is an important factor.
The road from idea generation to a physical product/successful innovation is really expensive. An
entrepreneur faces the situations like “we don’t have the right staff”, “too expensive”, “this is
practically impossible” etc. Most of the creative ideas die because the entrepreneur fails to meet the
finances of the journey from idea generation to innovative product development.

The knowledge and experience barrier involves lack of prior knowledge, lack of prior
experience, and lack of access to information. Prior knowledge of the domain and experience in the
domain can enhance the creativity. According to Amabile (1996), one of the components of
creativity is domain related experience. Lack of prior knowledge and experience of the domain can
hinder the creativity. The more you have knowledge of the field, the more you think creatively. An
entrepreneur should have updated information on new trends and business models. Inability to
access the right information can curb the innovativeness and creativity.

The regulatory and procedural barrier involves laws and policies, registration process, access
to raw materials and government policies. An entrepreneur has to execute his/her idea according to
the rules, regulations, laws and policies of the country. He/she has to register the business as per
the registration process of the relative country. Another major barrier can be the access to raw
material. May be the idea is so unique that it needs raw materials which are hard to access or need
governmental approval to access them. An entrepreneur also needs to get the patents for the creative
idea and see the government policies regarding that. The idea must be acceptable in terms of
government laws and policies. The product should not be something which is not allowed in a
country where you want to offer it.

What makes entrepreneurs entrepreneurial? Another perspective on

entrepreneurship
Effectuation: The problem
In entrepreneurship, the general question which comes in mind while thinking of starting a business
startup is “How should we start a business?” Entrepreneurship experts state that the more important
question is “How does a business start?” instead of “How should a business be started?” Another
most discussed question in entrepreneurship is “What makes entrepreneurs entrepreneurial?”
This debate led the researchers to give the concepts of causation and effectuation approach to
entrepreneurship. Sara Sarasvathy is a researcher and expert in the field of entrepreneurship who
gave the theory of effectuation in 2001. Before discussing theory of effectuation, it is important to
understand the difference between causation approach to entrepreneurship and effectuation
approach to entrepreneurship. A causation approach infers that “entrepreneurs focus on a
predefined goal and then aim to find the means to reach this goal”. Causal rationality arises when a
pre-defined goals is set by the entrepreneur with a given set of means or resources. Entrepreneur

5
seeks to find the fastest, ideal, efficient and cheap means/alternatives to achieve that goal. The
examples of causal reasoning are: choosing a high return market or choosing to serve the niche
market. On the other hand, an effectuation approach infers that “entrepreneurs focus on the means
at hand, which they aim to materialize into one or more goals that were not necessarily predefined.”
It does not start with a specific goal. Instead, effectuation starts with the given means that
entrepreneur has at the moment. It allows goals to develop over time with the aspirations and
imagination of the entrepreneur.

Difference between causation and effectuation process

Effectuation: The Process

As we know, effectuation does not start with a specific goal. Instead, effectuation starts with the
given means that entrepreneur has at the moment. All entrepreneurs begin with three categories of
means:

(1) Who they are – their traits, tastes and abilities; (some people have certain special skills or
qualities, natural skills and abilities which are actually the resources. Resources are not only the
financial resources rather a special skill or ability can also be a resource).

(2) What they know – their education, training, expertise, and experience; (for example, if you
have education in data sciences, you can start your own IT firm based on your education and
expertise as this education and expertise are your resources/means)

(3) Whom they know – their social and professional networks (networking with resourceful and
useful people can also be a resource/mean for an entrepreneur)

These three things are the core of an entrepreneur as entrepreneurs use these things (traits,
education, skills, expertise and experience) to generate business ideas and start their businesses.

6
 Effectuation: The Principles
There are five principles of effectuation given by Dr. Sarasvathy which are:

1. Bird in hand principle (create solutions to the problem with the means/resources available at
the moment)
2. Lemonade principle (surprises and mistakes are unavoidable. An entrepreneur should use the
mistakes and surprises to find new opportunities.)
3. Crazy quilt principle (focus on co-creation and partnership instead of competition. It can bring
new directions and funds for your project.)
4. Affordable loss principle (you should see how to cover the negative side. The best approach is
to invest only the amount which you can afford to lose.)
5. Pilot-in-the-plane principle (you are yourself responsible for everything. Your future can be
influenced by your own actions.)

Bird in Hand Principle

When successful entrepreneurs start a new business, they first start with the available resources or
means. The bird in hand principle infers that the business should be started with the means/resources
currently available. These resources are categorized as follows:
 Who I am- what skills, abilities and tastes an entrepreneurs has
 What I know- his/her education, experience and expertise
 Who I know- his/her professional and social network

Using the mixture of these means, an entrepreneur can start imagining the new possibilities.
Usually, he/she starts a business at a small scale with closest available resources or means and
directly implements it without any detailed planning. With each decision, possible results are re-
aligned. Ultimately, certain emerging things result in clearly achievable goals. The end goals are
the result of aspirations, abilities, skills, and imagination of the entrepreneur and the people he/she
has interacted with.

Affordable Loss Principle

In business world, the general practice is to choose the market with highest return. It is a natural
impulse which comes from the years long training which we get in business schools and business
world. Business world tells us to maximize the returns by choosing optimal strategy and high return
market segment. As far as effectual entrepreneurs are concerned, they go for affordable loss instead
of maximizing profits. They make decisions on what they can afford to lose not what they can
expect to make. This is what affordable principle infers. Instead of calculating what money is
needed upfront and investing his/her time, energy and effort in raising that money, an expert
entrepreneur tries to assess the negative side or downside and examines what he/she is willing to
lose. The entrepreneur then starts the process of building the venture and brings other partners or
stakeholders on board in order to estimate what they can afford to lose. An estimation of affordable
7
loss does not depend on what type of venture an entrepreneur is going to start rather it depends on
the entrepreneur himself. It varies from one person to the other and even across the life stage of the
entrepreneur and circumstances he/she is in. By estimating affordable loss and making decision
which business to start (based on estimation of affordable loss), entrepreneurs stop relying on
prediction. As an alternative, they cultivate the opportunities that have a low cost of failure.

Crazy Quilt Principle

While causation relies on detailed competitive analysis, effectuation focuses on co-creation and
partnership. The crazy quilt principle focuses on building partnerships instead of beating
competition. Since effectual entrepreneurs start their business without a predetermined target
market, the detailed competitors’ analysis becomes less useful for them as they do not have an idea
of who will be their competitors. Instead, they take their product to nearest possible potential
customers. Some of the individuals or firms they interact with make commitments with the
entrepreneurs by investing their means/resources in terms of time, efforts and money. This
partnership principle or crazy quilt principle merges best with affordable loss principle to bring
entrepreneur’s product into the market with little expenditure. In the initial stages of venture
development, these partnerships with suppliers, customers and other stakeholders help reduce the
uncertainty and fear of failure. Lastly, since in the beginning entrepreneur doesn’t not know which
market to serve, these strategic partnerships and network, to a great extent, determine which
market/markets the entrepreneur will eventually target.

Lemonade Principle

There is a famous proverb “If life deals you lemons, make lemonade!” The lemonade principle
(leverage contingences) of effectuation infers that an entrepreneur should embrace surprises that
arise from uncertain circumstances by being flexible instead of being tied to the set goals. This
principle is at the heart of entrepreneurial expertise that is the ability to turn the surprises or
unexpected things into profitable opportunities. Effectual entrepreneurs learn to work with
uncertainties and take advantage from them. In most businesses, the contingency plans are prepared
where surprises are considered worst case scenarios. On the contrary, because effectual
entrepreneurs do not bind their idea to any preconceived or specific market, so everything and
anything is a surprise for them which can be turned into a valuable opportunity.

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 Pilot-in-the-Plane Principle
The desire of self-control is as old as human itself is. Research shows that humans have been
struggling to control everything in their lives ever since the history began. In today’s world, the
mechanism, processes and instruments for control-striving are different than they were in the past
but the issue remains the same. Psychological research studies show that human behavior of
control-striving is directly related to his/her functioning/performance. For example, if a person has
self-control or control over things around him, he or she will be less stressed. On the other hand,
loss of control is linked with helplessness and depression. Effectual entrepreneurs consider the
desire of control as healthy and normal. Entrepreneurs usually chose entrepreneurship to become
their own boss and control his/her business. Control makes them able to work independently, and
on their own schedule. Effectual entrepreneurs take right actions, at the right time to control the
things. They focus on the things in their own control and know that their decisions will result in
the outcome they want. Though every entrepreneur has the desire to control but the intensity of it
varies among people and also depends on the life stage of the entrepreneur. This principle suggests
that entrepreneur is similar to a pilot who is responsible for the plane and passengers just like the
entrepreneur is responsible for his venture.

---------------------------------------------------The End-------------------------------------------------------

9
 Technical Articles Theme 08
Title: Strategic Management in Entrepreneurship and E-Commerce
Videos: 87-104

Topics Covered
87. Strategic management in entrepreneurship
88. Strategic Management Process
89. Clear Vision and mission of business venture
90. Assessment of strength and weakness of yourself and venture
91. Scan environment for potential opportunities and threats
92. Create short term and long term long
93. Select appropriate strategies
94. Building competitive advantage for new venture
95. analysis competition
96. Strategy review, evaluation and control
97. Innovation logic: the blue ocean strategy (Part 1)
98. Innovation logic: the blue ocean strategy (Part 2)
99. Innovation logic: the blue ocean strategy (Part 3)
100. The interview with an entrepreneur 1: How to lead the competition or making
competition irrelevant?
101. E-commerce and the entrepreneur
102. Myths of E-commerce and challenges
103. Tech entrepreneurship and academia linkage
104. The interview with an entrepreneur 2: What are the challenges of online businesses?

Author: Sara Hussain, Lecturer Business Administration, Virtual University of Pakistan

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 Strategic Management and its Role in Entrepreneurship
Strategic management and entrepreneurship are somehow related to each other. Strategy is an
action plan that synchronizes the tangible and intangible resources and for achieving a set target
for superior performance. A person might have a unique business idea but he cannot grow properly
if he is unable to execute it with proper strategy. Strategic management is a branch of
management. It is essential for managing organizational tangible and intangible resources to
achieve its long term and short term goals and objective for sustainable competitive advantage in
industry. There are three main phases of strategic management namely Strategy formulation,
strategy implementation, Strategy evaluation and control. The main areas covered under strategic
management are business vision and mission, internal and external environmental scanning,
strategies formulation, analyzing the multiple strategies, sustainable competitive advantage for
sustainable growth, implementation and operational execution of strategies, Strategies review,
measures and control.

Strategic management can be divided in three broad categories i.e. strategy formulation,
implementation and evaluation. Vision, mission, long term and short term goals and objectives,
environmental scanning, strategies analysis and choices, business models and competitive
advantage are all part of strategy formulation. Structures, designs and polices development,
managing and allocating resources, functional areas e.g. marketing, finance, R&D and HR along
with putting strategies into real time operations are part of strategy implementation. Strategy
review, quality and control, corrective measures and revisiting strategies are all part of strategy
evaluation. Creation and growth, diversification, performance of firms, industry dynamics,
competitive advantage Mergers, acquisitions, alliances innovation and product ecosystems are
some overlapping areas of strategic management and entrepreneurship.

Strategic management process is a method by which entrepreneurs assess their idea’s viability
and implement an appropriate strategy that can ensure to a sustainable competitive advantage of
venture. This process starts with initial assessment which includes vision and mission. Next comes
situation analysis which includes SWOT analysis i.e. analysis of strengths, weaknesses,
opportunities and threats. When it comes to strategy formulation there is need to have a look at
objectives, business level, corporate level, and global strategy selection. At the phase of strategy
implementation policies, resource allocation, change management, organizational chart and
structure are designed and redesigned. After design and implementation strategic monitoring
comes in action through which performance is measured.

Vision statement defines the anticipated future orientation of the business venture whereas mission
statement outlines the company’s business, objectives and its approach to reach those objectives.

A good mission and vision statement must have a philosophy. Vision and mission statement must
be aligned with each other. These must be customer and market oriented. Technology must be
reflected. Competitive advantage, concern for society, concern for employees and future

1
orientation must also be reflected in vision or mission statement. Main questions to be asked while
planning for a business are:

 What is your general business description?

 What is your business model?
 Is it sustainable viable business idea?
There are a lot of benefits of defining vision and mission statement. Clear vision and mission
statement brings unanimity of purpose and direction among strategic partners. It provides
standards and procedures for execution plan. Brings focus in allocation of resources. Establish a
culture and tone of your venture. Serve as a direction and quality standard. Set rule to deter those
strategic partners who cannot from participate for further growth. Facilitate in translating the long-
term and short-term goals and objectives into a work structure. It also motivates for future growth.

For starting a new venture SWOT analysis of the business and individual himself must be done.
SWOT stands for strengths, weaknesses, opportunities and threats.

Strengths are the positive internal factors that a business venture can use to achieve its vision,
mission, goals and objectives. Weaknesses are the negative internal factors that inhibit the
business venture’s capability to achieve its vision, mission, goals and objectives. It adversely affect
the sustainable competitive advantage of a venture. Following is the checklist of own/individual
assessment:

 Am I clear about my destination?

 Are my skills sufficient for kick start or growth?
 What are my limitations?
 In which area I am lacking that could adversely/positively affect my venture establishment
or growth?
 Is my network worthy for establishment/growth?
 What level of commitment I can bring in my venture?
Following is the checklist of venture assessment:

 Is venture’s objectives and goals measurable?

 Is venture’s objectives and goals well communicated to strategic partners?
 Is product/service design competitive?
 Is selected target market is well thought and planned?
 Is my pricing strategy competitive?
 Are my unique selling proposition well communicated to target market?
 Is customer orientation well crafted?
 Is the venture’s structure appropriate?
 Are jobs and requirements clear to all strategic partners?
 Is strategic partners’ morale high?
 Are employee’s absenteeism and/or turnover low?

2
  Are reward and control mechanisms effective?

There are several tools that can be used to assess strengths and weaknesses. These are usually cost
benefit analysis, financial ratios, and production and operation assessment. Business operates
under an ecosystem that affects its activities. Internal factors like its customers, organizational
environment and suppliers might be affecting the business. Similarly competitors, technological
change, political environment, economy, social factors and several other factors also positively
and negatively affect the business. So, Opportunities are potential options available in the external
environment that a venture/entrepreneur can exploit to achieve its vision, mission, goals and
objectives. Threats are negative forces available in the external environment that inhibit the
business venture’s capability to achieve its vision, mission, goals and objectives. Economic forces,
social cultural and demographic forces, natural environment forces, political and governmental
forces, legal forces, technological forces and competitive forces all can be considered as broad
categories of external forces. Marketing intelligence, scenario planning, PEST Analysis (political,
economic, social and technological analysis), Porter’s five forces model (Competition in the
industry, new entrants, Power of suppliers, Power of customers, substitute products) are several
tools for external environment audit.

Keeping in view the SWOT analysis businesses define their goals and objectives. Goals are the
broad long-range attributes that a business seeks to accomplish; Goals tend to be general and
sometimes even abstract. Objectives are more specific, precise and quantifiable plan of
performance addressing areas such as profitability, productivity, growth and other key aspects of
a business. Objectives are defined on the basis of areas like product design, innovation, market
development/diversification/penetration, productivity, cost efficiency, profitability, financial
resources, growth, physical infrastructure development, team/venture restructuring and
venture/employees performance. Objectives should be specific, measurable, assignable, realistic,
attainable, time bound, written. These same characteristics are also defined by SMART model.
Short term objectives suggest yearly plan of action whereas long term objectives are defined to be
achieved within time frame of 5 to 10 years.

Strategy is an action plan that synchronizes the tangible and intangible resources and for achieving
a set target for superior performance. It is road of action an entrepreneur draws up to attain the
venture vision, mission, goals and objectives. It must be based on entrepreneur and company's core
competencies while considering strengths and weaknesses. A successful strategy must be
comprehensive, well thought and well integrated ensuring the key success factors to win the market
share. Cost leadership strategy, differentiation strategy and focus strategy are three possible
strategy options.

According to Porter Generic strategic positioning model, Cost leadership strategy is a strategy in
which an entrepreneur strives to be low-cost producer relative to its competitors in the industry. It
involves mass production, quality compromise, or technological breakthrough. It may trigger price
war in the industry. Cost leadership strategy is applied if owner is selling similar product/services
3
and customers are not brand conscious. If customers are price conscious and ready to compromise
on quality and the industry is price focused.

Differentiation strategy is strategy in which the entrepreneur seeks to build customer base by
positioning its product or service in a unique or different fashion and where the customers also
value its differentiation. Differentiation strategy is applied if customers value and demand for
differentiation. They are brand conscious not price conscious and are not ready to compromise on
quality.

Focus strategy is where an entrepreneur selects one or more narrow (niche) market segment to
serve. He/she identifies the market segment’s special need, wants, interest and approaches them
with customized product or service. In focus strategy itself an entrepreneur can be low cost or
he/she can differentiate.

Competitive advantage is defined as unique advantage over the competitors an entrepreneur

gained by offering consumers greater value either in terms of cost or differentiation of product or
services. By competitive advantage an entrepreneur is offering superior cost/production efficiency,
superior good and/or service quality, superior innovation and up-gradation and/or superior
customers’ engagement. According to competitive advantage model, resources and core
competencies lead to competitive advantage that gives cost or differentiation advantage which
ultimately leads to value creation. Companies can achieve global competitive advantage through
Local market adaptation, economies of scale, common global culture, tapping the optimal location
for activities and resources, knowledge management and sharing, technology transfer, cost
efficiency and technological efficiency. Competitive positions can be achieved being market
leader, market follower, market challenger and market nicher. Market leader is the one having
larger portion of market share. Market challengers are those who are innovating through
technology cost efficiency or any other way. Market followers are those are always following
market trends. Market nicher are those who are dealing in highly competitive market which is
smaller in size. Competitive advantage should be valuable, rare, inimitable, non-substitutable and
sustainable.

Competition is analyzed through many tools one of which is Porter’s five forces model. Industry
rivalry has to be analyzed. Threats of entry, bargaining power of suppliers, bargaining power of
customers and threats of substitutes are remaining forces. Number of competitors, rate of industry
growth, and intermittent industry overcapacity, and exit barriers, diversity of competitors,
informational complexity, brand equity and level of advertising expense are some of the indicators
of industry rivalry. Barriers to entry, economies of scales, brand equity, switching costs, access to
distribution, absolute cost advantages, learning curve advantages and government policies are
indicators to be analyzed while looking for threats of new entrants. Supplier switching costs
relative to firm switching costs, degree of differentiation of inputs, price of inputs, uninterrupted
supplies of input are to be analyzed to check supplier power. To check buyer power, bargaining
leverage and volume, buyer switching costs, trends and preferences and buyer information

4
availability are to be analyzed. Buyer propensity to substitute and relative performance of
substitutes are the indicators for analyzing substitutes.

Strategies once made must be continuously evaluated. A strategy should be consistent with goals
and policies. Consonance refers to the need for strategists to examine sets of trends adaptive
response to the external environment. Strategies must be feasible i.e. one must have all resources
i.e. physical, human and financial resources. Must have competitive advantage. Checklist for
evaluation of strategies includes the following:

 Competitors reaction to strategies

 Competitors’ strategies change
 Competitors’ strengths and weaknesses change
 Competitors strategic changes and success
 Competitors satisfaction with their present market positions and profitability
When entrepreneurs want to do financial review, they must have know how about financial review
tools like return on investment (ROI), return on equity (ROE), profit margin, market share, debt to
equity, earnings per share, sales and asset growth. Balanced scorecard is a document through which
areas of objectives can be measured according to set targets and timelines and responsibilities.
Similarly for review and evaluation policy audit, human audit are done. Along with that corporate
social responsibility and ethical responsibility are also analyzed.

Blue Ocean Strategy suggests how to create uncontested market space and make the competition
irrelevant. The book regarding the strategy was written by W. Chan Kim and Renée Mauborgne.
According to this strategy, market is an ocean and the ocean is divided into two parts one with
more sharks means high competition with limited capacity and other with less competition and
survival is not that difficult. Earlier is considered as Red Ocean and later being considered as Blue
Ocean. In Red Ocean strategy competitors have to compete in existing market, they have to beat
the competition and exploit existing demand. After that value cost tradeoff is done and whole
system of a strategic firm's activities are aligned with its choice of differentiation or low cost.
According to blue ocean strategy uncontested market space is created. Competition is to be made
irrelevant, new demand is captured. After which there would be no need to tradeoff between value
and cost rather value innovation can be created. According to Blue ocean theory, supply exceeds
demand, more options are available as customers globally, and price war has increased. Profit
margins are shrinking. Brands are becoming more similar and selection is based on price. 3 core
principles of BOS are:

1. Reconstruct Market Boundaries

2. Reach beyond existing Demand
3. Get the strategic sequence right

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1. Reconstruct market boundaries
Following table suggests boundaries of competition relevant to market where head to head

Industry Looks across alternative industries

Strategic Group Looks across strategic groups within its industry

Buyer Group Redefines the buyer group of the industry

Scope of Product and Service Looks across to complementary product and service
Offerings offerings that go beyond the bounds of its industry

Functional-emotional
Rethinks the functional-emotional orientation of its industry
Orientation of an Industry

Time/Trends Participation in shaping external trends over time

competition is there.

Industry Focuses on rivals within its industry

Strategic Group Focuses on competitive position within strategic group

Buyer Group Focuses on better serving the buyer group

Scope of Product and Service Focuses on maximizing the value of product and service
Offerings offerings within the bounds of its industry

Functional-emotional Focuses on improving price-performance with the

Orientation of an Industry functional or emotional orientation of this industry

Time/Trends Focuses on adapting to external trends as they occur

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As compared to the above table following table suggests boundaries of competition relevant to
Blue ocean strategies.

2. Reach Beyond Existing Demand

Through this logic two basic conventional strategies are challenged i.e. focus is not limited to
existing customers only. In addition to that, these strategies drive for finer segmentation to
accommodate buyer differences. Mobile phone applications are perfect example of this new
demand creation. Non customers are to be targeted.

3. Get the Strategic Sequence right

If the supplier/ buyer utility for the business is going right there is a need to check whether price
is easily accessible to mass of buyers. After that, there is need to assess whether you need to attain
cost target to profit at strategic price. If yes, there is need to have knowledge about adoption hurdles
for the business idea.

Strategy canvas can be used in Blue Ocean Strategy where multiple factors that the industry
competes in are to be kept in mind and performance is measured. Through this strategy one has to
operate beyond the usual industry performers/operators. Four actions are there to create Blue Ocean
strategies which are Reduce, Create, Raise, and Eliminate.

---------------------------------------------------The End-------------------------------------------------------

7
 Technical Articles Theme 09
Title: Business Idea and Business Plan
Videos: 105-114

Topics Covered
105. Preparing a powerful business plan: The significance
106. Users of Business Plan
107. Extent of a Business Plan
108. Features of a Business Plan
109. Arrangements of Business Plan
110. Table of Contents and General Business Description
111. Management Plan
112. Product, Services, and Marketing Plan
113. Operations and Production Plan
114. Financial Plan and Appendix

Author: Jawad Hassan, Instructor Business Administration, Virtual University of Pakistan

1
 Business Idea and Business Plan
Business plan is considered as the backbone of an entrepreneurial venture. Business plan helps
entrepreneurs the most, to start a business. Irrelevant to a business success, it is obvious that every
entrepreneur has some kind of business plan whether formal or informal business plan. Although
a business plan does not guarantee the success of a business venture but it is good to have one.
Different attributes of a business plan provide exclusive support to help manage and sustain a
business unit. Therefore, it is critical to understand the basics of a business plan. For this one needs
to know that any business activity is based on an idea (a business idea/a thought to start a business).
A business idea is considered as a thought in someone’s mind. Moreover, it could be in the written
form, but still it is has no physical existence until it is transformed into a physical business activity.
A business plan is that tool which assists the connectivity between a business idea and a physical
business. Or a business plan is that ladder through which a business idea travels from space
(thoughts in mid) to the earth (physical presence of a business unit). Hence, it is clarified that a
business idea itself has no relevance to an entrepreneurial venture in the absence of a business
plan.
Why business plan is prepared?
It is a dream for an entrepreneur to convert his/her dream (a business idea) into a practice. The
business plan is prepared to transform a business idea into a practical business. For example: your
business idea is to open an automobile workshop or to setup an advertising agency for digital
marketing services. In any of these cases you will definitely need a written business plan to convert
your thoughts into a physical business.
For whom business plan is prepared?
The essence of this question is to identify the potential users/beneficiaries of a business plan.
Broadly a business plan has two types of users: internal and external users.
Internal users are entrepreneurs themselves who get immediate guidelines to start a business
through a step by step approach. Potential employees are also the beneficiaries of a business plan
document i.e. skill full employees of a business setup can become the part of a newly hired team
by an entrepreneur (a new business being established on the basis of a business idea). In this case
the entrepreneur must have a business plan to attract, guide and retain the newly employed human
resources.
External users are customers who can pre order or initiate a transaction in advance with the
entrepreneur. Customers deem to analyze an entrepreneur’s plan to conduct a business, its inputs
and outputs in detail and then decide whether to collaborate with the startup or not. In the same
way, suppliers and investors identify the potential benefits of being the part of a business startup.

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 What is the extent of a business plan?
It is very important to know the depth of a business plan. The length and the depth of a business
plan depends upon the following factors.

1. The entrepreneur itself: Orientation of the entrepreneur decides the depth of a business
plan. An entrepreneur with a deep orientation to a business will enlist more attributes,
requirements and details of a business setting within the business plan document.
Ability/Education of an entrepreneur will also affect the length and details of a business
plan. A more educated entrepreneur will be able to know even minor details of a business
startup and hence such an input will deepen the content of a business plan. An
entrepreneur’s choice, preference and ability to understand the importance of a business
plan also affects its depth directly. It is quite possible that an entrepreneur may consider
the business plan a mere formality while the other one may take it very seriously.

2. The complexity of the business: The nature of a business decides the extent of a business
plan. The level of complexity is different for different businesses. The business plan
requirements for a cement factory would be different (much complex) from fast food
restaurant or a barber shop (less complex). It is critical to understand that, the more
complex a business is, lengthier its business plan will be. The complexity and depth of a
business plan will help to reduce business risk and avoid unwanted mistakes. Thus it is
recommended to write an in-depth business plan in case of a complex business. It is not a
healthy notion to avoid writing an in-depth business plan due to its complexity and robust
technical requirements.

3. The level of competition: The magnitude of competition will decide the details of a
business plan. The science of competition acts just like complexity factor. More
competition will require more information and knowledge based input to help devise a
business plan.

4. The level of uncertainty: Being uncertain is a characteristic of a human’s life. Similarly

it applies to the business planning process. The increasing level of uncertainty demands an
increase in the rigor of a business plan.

5. Availability of time and monetary resources: It is the luxury of time and available
resources which decide the length of planning a business idea and writing it in the form of
a business plan document. Time, the length of the window opportunity and the financial
resources will guide you in deciding the ingredients of a business plan.

2
 What are the features of a business plan?
Comprehensiveness: A business plan must be comprehensive enough to cover all the aspects
of a new business startup. A comprehensive business plan must tell you about the entry,
survival, growth and exit of a business startup. In this context a business plan document must
answer the questions: How to start a business? How to run a business? How to close a business?
What is the plan B?
Communication: The foremost feature of a business plan is the quality of communication. A
business plan is that prime document which serves as an ambassador of your business idea to
all the stakeholders i.e. formal and informal investors. Therefore, a business plan must be taken
care with the basics of communication i.e. The message should be complete, coherent, correct,
concrete, concise, clear and courteous. The communication factor has so much impact on the
health of a message that it can blur the importance of a quality content if not communicated
properly.
Guidance: A business plan must be comprehensive enough and well communicated that it can
guide its internal and external users.
Formal planning process: A business plan must include the formal procedural steps in order
to make it comprehensive, duly communicated and a subtle source of guidance for its
stakeholders.

What is strategic arrangement/contents of a business plan?

It is very necessary to understand the strategic arrangement, sequence and the content of a business
plan and its sequence. Usually a business plan has the following parts.

A. Title/cover page
Title page is usually prepared after the completion of a business plan document. Title page is not
just a formality rather it is a first impression of your business idea. A title page must have Name
of the business, Logo of the firm, Nature of the business (retail, manufacturing, services etc.), Legal
status (sole proprietor, partnership or corporate), Name of the key entrepreneurs, Investment
(finances), Statement of confidentiality (confidentiality of the document and its rightful
ownership), Email and Location address of the business (mobile number, office address, social
media ID etc.)

B. Table of contents
Table of contents is a gateway for the readers about the information inside a business plan. It guides
the reader about how to explore a business plan. The reader will lose interest in case any
misguidance found in the table of contents. Thus it is very crucial to align the inside content with
the table of contents.
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 C. Executive summary
The executive summary gives a summarized view of the whole business plan. Executive summary
is crucial in the sense that it can make or break the interest of the reader or the potential stakeholder
of your business plan. An executive summary of a business plan usually contains 2-3 pages and
have small paragraphs. It must be originally written (must not be a replica of any other document)
after the completion of whole business plan document and later it needs a careful review before
making it part of the business plan document.

D. Management plan
Management plan has the following particulars.
1. The introduction of the management team: name and address of the
proprietors/entrepreneurs, qualification of the entrepreneurs (degree, skills, diploma etc.),
experience of the entrepreneurs (internships, projects, volunteer work, formal business
experience) and current responsibilities (role played by each resource).
2. Hierarchy of the management team describes about the team structure and reporting
structure.
3. Total number of jobs: number of employees, the job description (job responsibilities and
roles) for each employee and skill requirements for each job.
4. Human resource Policy: Hiring process, training and development evaluation and reward
system are the part of human resource policy statement. An entrepreneur must adhere to
the government regulations for small businesses and minimum wage rates etc.

E. Total product and service plan

It is very useful to clarify and write the product or service being offered by the business startup at
this stage. It exclusively helps the reader to know that what a particular business will offer i.e.
manufacturing, distribution, trading, servicing, consultancy, sales or retail. It gives the reader a
detailed note about the product mix (a mineral water product will have its packaging and sizing
details) or a service mix (a college/education services will have details of its degree programs).

F. Operations and production plan

Usually a business plan’s scope is wide enough to cater the products and services both. A business
plan is equally valuable and indispensable for both manufacturing concerns and services
businesses. More often a business startup may offer a blend of both: services and products. A
services business has an operations plan only, whereas a manufacturing business has both: an
operation plan and a production plan. Operations and business plan is a very technical section of
the business plan because your investors, suppliers, contractors and potential stakeholders observe,
read and analyze the details of this technical information given in this section, precisely to check

4
the soundness of the business plan. Collectively, operations and production plan has the following
particulars.
1. Input/supply/purchase plan: It lists down the raw material requirements for the
manufacturing process. It includes the list of suppliers and also mentions the potential
reasons to select those suppliers. Supply schedule and payment plan is also a part of this
section. Storage facility and transportation system information is also a part of it.
2. Production plan: It includes the detail about production plant (layout, covered area and
design etc.). It includes the description of tools, machinery, equipment, technology,
facilities (different types of technologies and variety in production options) and total
capacity (ability to produce certain number of unites in a day or in a month) of the
production unit.
3. Total quality management system: The description of quality management system is very
critical part of a business plan. It is very tactical to write the total quality management
system in detail. Usually an entrepreneur has not much understanding of these details so it
is advised to consult a professional quality manager in order to complete this section of a
business plan.
4. Outbound logistics plan: This section contains the detail about how the manufactured
goods will travel/reach to the market and become accessible to market players i.e.
wholesalers, distributers, retailers etc.

G. Financial plan
Formally, financial plan is the last section of a business plan document. The financial plan is
considered as the heart and soul of a business plan along with the marketing plan. A financial plan
must answer these three questions.
1. How much finance is required?
It is foremost important to exactly calculate, know and write the total amount of capital (financial
resources) required to start a business. This information is valuable to be made part of the title
page as well.
2. Where to get finance from?
Financial plan should also tell you the sources of finance. It mentions different avenues of financial
resources e.g. banks, microfinance institutions, NGOs or other informal sources e.g. personal
savings, borrowing from friends and family members.

3. Utilization and recording of financial results?

The details regarding the utilization of resources is very much necessary to mention here. This
section comprises details of how, when and for which function of a business, money is required.
This section is prerequisite with the information extracted from sales forecasting documents and
requirement sheets. Pro-forma financial statements (estimated statements) are prepared to depict

5
the projections of output of future business processes. Pro-forma income statement, balance sheet
and cash flow statement are prepared on monthly, quarterly, bi annually or annually basis.

H. Appendix
An appendix or annexure is another important and informal part of a business plan document. It
includes supporting documents i.e. resumes/CVs of entrepreneurs, legal documents (registration,
agreements, contracts etc.), pictorial information (location map, animated visuals, cite graphics
etc.). You may also attach information about the advance order from the customers if any or any
other related information which you consider valuable to attract potential stakeholders of the
business plan.
Note: It is recommended to draw a raw business plan according to your dream business idea and
keep practicing alongside the learning about different sections of a business plan. Hopefully this
exercise will be helpful you to finalize your business plan.
---------------------------------------------------The End-------------------------------------------------------

6
 Technical Articles Theme 10
Title: NABC and Business Model Canvas: Presenting a business idea
Videos: 115-124

Topics Covered
115. NABC: Presenting business idea
116. NABC: The Need
117. NABC-The Approach
118. NABC-The Benefit
119. NABC-The Competition
120. Business Model Canvas
121. NABC-Example
122. Business Model Canvas-Example
123. Discussion Group : angle investor and venture capitalist (Part 1)
124. Discussion Group : the investors' perspective on loan applications (Part 2)

Author: Jawad Hassan, Instructor Business Administration, Virtual University of Pakistan

1
 NABC and Business Model Canvas: Presenting a Business Idea
It is important to know that a business idea whether it is sourced from your daily routine, the
problems you see in the society or from the unmet needs of the people around you (i.e. water
resources, health issues, energy issues, travelling, food and so many other problems) is initially in
a raw form. Once you have identified a business opportunity and have prepared a rough business
idea sketch in your mind, the very next critical phase it refine that business idea. You need some
resources to start that business and it is not necessary that you have all the resources with you to
start that business at once. You need others’ help in order to materialize your thoughts. You may
find help from your immediate family members, other investors or from the open market sources.
In each condition you need to present your business idea in a meaningful, structured and organized
way. There are numerous ways to present a business idea but we need to find one which is
convenient, easy to understand and smoothly presentable.

Here we present the Need Approach Benefits Competition (NABC) approach, a framework to
better structure and present your business idea. NABC is originally presented by Stanford
University. As we all know that the effective pitching of your business idea to the potential
investors and other stakeholders is very critical. So a very smart presentation of the business idea
is an ideal approach to reach potential stakeholders of a business idea.

Stanford Research Institute defined NABC approach as “An important client or market need
addressed by a unique approach with compelling benefits when compared against the competition
or alternatives”

Let’s understand NABC importance with the help of an example.

Suppose feel hungry and sitting in you Virtual University Campus at the lunch time. After a little
ponder you have decide to go to a nearest tuck shop, a place that is trusted by you for good quality
food with economical price. You avoid to go farther and other market places to avoid unnecessary
fatigue and wastage of time.

You need to do a little activity here; that is to attribute this moment of thinking, analysis and
decision making (finding a suitable, quick and affordable food option) to NABC components. This
activity will enable you to find insights to NABC components from an entrepreneur’s perspective.
An entrepreneur actually needs to exactly refine and structure his business idea by considering the
Need, Approach, Benefits and Competition factors of the services or goods being offered to the
market. NABC components are collectively considered as the backbone of a business idea pitching
sequence and content. It elaborates the Need you are addressing (the actual problem in
consideration), the Approach you are using to address the issue/need (tools, strategies, plans etc.),
the Benefits this business idea will provide (financials, profits, needs fulfillment etc.) and finally
the details about the market Competition (competitors, industry dynamics etc.).

1
 Need
It is indeed important to know the individual components of NABC one by one. First component
is Need. Need must identify the customer and the market you are offering product to. It is important
to remember here that any service or good can sustain, grow and survive whose market exists with
its customers and their demands. You need to be very clear with what need of the market or the
customers your aim to fulfill. And also need to identify needs with large enough market which can
offer sustainable market opportunity. An entrepreneur answers the following question at this stage
of NABC preparation.

 What is the need?

 What is its market size?
 Is it sufficient enough to be a potential investment opportunity?

Another thing to be remembered during need identification is that you need to build a solid case
on an authentic facts based evidence (either through a survey, a statistical report, a market research
or a concrete observation) which argues that a particular need/opportunity exists in the market.
Clearly pinpointing the need, its market size, sustainability potential and its scientific evidence are
the basic parameters to build a convincing argument in front of potential stakeholders of your
business idea.

Approach
After clearly pinpointing the need, the next phase is to finalize the approach through which that
need will be fulfilled. Approach discusses the tool, resources, mechanism, plan and strategy to
fulfill the needs of the target customers. It is most important to keep your approach simple,
smooth, updated and state of the art to meet the dynamic market demands.

Benefits
After identifying the need and devising a sound approach to serve that need now it is the time to
list the benefits of the idea being presented to the stakeholders. The benefits package must be
unique or sometimes it could be closer to other people’s offering in the same target market. This
will be your point of difference to other players in the market. At this stage you have to precisely
list down the details about the benefits you are offering to the unserved market and customers.
Usually market or customers demand three types of products or services. Customers need low
cost, economical, high quality, better quality products and services simultaneously and so you
need to give them a reason to switch to your offer and leave the previous one if any. Your benefit
must be substantial enough to conquer the market battle. It is to remember here that this portion of
a business idea presentation can become a reason to win or lose for you.

2
 Competition
After refining the need, approach, benefits of a business idea now this is the time work on the
competition factor. It is the dilemma of the startups or the novel entrepreneurs that the focus too
much on their approach to do the business. They are very much product centered and thus ignore
the marketing forces i.e. competition. Thus they are more tilted towards thinking about approach
factor and least bother about the market competition. We develop an exaggerated view of our
product and contrarily we underestimate others products and services. We must be rightly critical
to our own approach and must lookup that how competition can affect our business idea. It is
equally important to precisely present the details about your current and potential competitors.
You also need to elaborate how competition can affect your business proposition and how you are
better than your competitors. All you need to do is answer what you will do? How will you do it?
What are its benefits? Who are your competitors? You identified the need with some research
based evidence, devised a fascinating approach, and described well versed benefits but you have
half-heartedly analyzed your competition. This notions say that you have incomplete information
about your business idea and it will be difficult for you to pitch your business idea effectively.
Important need, with unique approach, compelling benefits and smooth competition description is
the output of NABC framework.

Example of Uber (Car riding service)

Let’s take the example of how Uber (Ride sharing services) has successfully identified and
addressed the customers’ need of travelling. Uber has successfully identified a market (a set of
customers) who do not have their own vehicles and those customers also find public transport a
low quality option. Uber aims to serve the market by offering an affordable, reliable and quality
transportation service. Uber has used a unique, state of the art approach to fix the travelling needs
of the customers. Uber has used android based application platform to connect the different market
forces. Uber application is being used as a technology driven modern tool to connect customers
(people with travelling needs), captains/drivers (people who have their own vehicles and they
choose to earn livelihood through ride sharing services) and a third party (Uber as an entrepreneur
itself). It is easy to understand that Uber application simply inputs the customer call in form of
travel destination and fetch that call to the interested drives on board. Once the ride service offer
is accepted and the ride has been completed the driver collects the payment directly from the
passenger. In this way need of the customers is fulfilled using a dedicated technological tool. Uber
has offered low cost/economical, affordable and simultaneously high/better quality ride sharing
services. The mentioned service package when compared to ordinary riding service (conventional
cab services high cost and low quality) or public transport (low cost low quality) prompts
numerous benefits to the customers. Uber services are affordable and it’s fair calculating and fair
collecting mechanism is transparent and standardized thus offers a much contended and mutually
agreed transaction of services between the two parties. Uber has outperformed its competitors by
offering reliable, better, cheaper and faster services.

3
 Business Model Canvas
Once business idea is refined through NABC and you have a presentable, articulated and nourished
NABC framework of your business idea. The next step is to develop a business model canvas to
further elaborate your business idea. Just like an artist uses a canvas or a blank paper two draw his
thoughts and craft a master piece of art with symbols, gestures, lines and colors, the entrepreneur
draws his business model canvas in the same way. The basic difference between NABC and
business model canvas is that the purpose of NABC framework is to structure your business idea
whereas the business model canvas draws a detailed picture of your business idea.

Wikipedia defines the business model canvas as “The Business Model Canvas is a strategic
management template used for developing new business models and documenting existing ones. It
offers a visual chart with elements describing a firm's or product's value proposition,
infrastructure, customers, and finances assisting businesses to align their activities by illustrating
potential trade-offs”
Source: https://en.wikipedia.org/wiki/Business_Model_Canvas

By looking at the definition you will be able to understand the individual segments of business
model canvas and their utility. Business model canvas answers the following questions to the
readers or the viewers.

1. How do you acquire customers?

2. How do you plan and manage the relationship with the new customers?
3. How do you charge your customers?
4. What is your revenue model?
5. How much do you charge your customers?
6. Can you calculate your revenues for the next month, quarter and year?
7. What assets are available to you or under your control?
8. Who are your key partners?
9. What key activities do you need to engage in to deliver your value proposition?
10. What are your fixed, variable costs and how you calculate your future costs?
11. Does your revenue forecast demonstrates increase profitability towards the end of the
forecast period?

The detailed general framework of a business model canvas is shown in table1.

4
Table 1: Business Model Canvas with general questions

Vagi-Fresh (Example of a business Idea)

A novel entrepreneur dreams to convert his business idea into a business empire. In fact he wants
to materialize his business idea into a workable physical business. Let’s take an example of a
business idea. “The idea is to offer everyday fresh vegetables on a bicycle based mobile outlet to the
households”

Q-What is the important customer and market need? (The Need)

Answer: Unavailability of fresh and cut vegetable at competitive rates at the door step is a problem
for the households. Issue of managing buying of fresh vegetable and cutting it for meal preparation
as faced by the working women (As reported by working women) is an addressable problem. This
need analysis is based on the facts: Total population of Pakistan has exceeded 200 million with
women about 49%. There are 32 million households in Pakistan. About 24% of women are the
part of the workforce.

Q-What is the unique approach to addressing this need? (The Approach)

Answer: Bicycle based mobile outlet of vegetables having cool box installed in it for keeping the
vegetable fresh throughout the day, offering fresh whole vegetables, fresh cut vegetables and fresh

5
boiled vegetables ready to be cooked. Outlet will work under the brand name Vagi-fresh and be
supported by a website where customers, working women, may order fresh vegetables of choice
24 hours before the delivery to be made at the door steps. Vagi-Fresh will start as one outlet aiming
at the chain of outlets.

Q-What are the specific benefits resulting from the approach? (The Benefit)
Answer: Availability of fresh and hygienic vegetables to working women throughout the day
(Quality/Standard Product). Availability at the door step in desired form, whole/cut/boiled
(Convenience). At competitive prices (Affordability/Low Cost for Customer)
Q-Why must we win?
Answer: Because we are offering what the target market exactly wants.

Q-How/Why are the offered benefits superior to the competition/alternatives?(The

Competition)
Answer: Standardized quality, availability at the door step, in the desired form and at affordable
prices make our offering superior to the competition. Everyone has alternatives. We must be able
to tell our client or partner why our solution represents the best value. Conventional vegetable
shops offer heterogeneous quality and usually do not suit to the working women owing to their
work-life schedule. Our solution offers utmost convenience with quality and affordability.

Our Pitch (Standardized Quality at your door step within an affordable price. What else one can desire.)

Just like NABC framework for Vagi-fresh we also need to build its business model canvas.

Table 2: Business Model Canvas with Vegi-Fresh example

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Table 2 answers all the questions of basic concern in a business model canvas.

Please watch the video lectures uploaded on VULMS for the topics related to interview based
discussion on angel investment, venture capitalist and loan applications

 Video lecture 123: Angel investors and venture capitalist

 Video lecture 124: the investors' perspective on loan applications

Note: It is advised to form NABC framework and business model canvas according to your dream
business idea and keep practicing alongside the learning about different particulars of both
approaches. Hopefully this exercise will be helpful you to form an effective NABC framework and
a presentable business model canvas of your business idea. Never forget that perfection is hidden
behind the iteration (practicing and rethinking and again practicing the content you are
producing).

---------------------------------------------------The End-------------------------------------------------------

7
 Technical Articles Theme 11
Title: The marketing and legal aspects for an entrepreneurial venture
Videos: 125-145

Topics Covered
125. The marketing aspects for entrepreneurial venture
126. Relationship marketing
127. Buzz marketing
128. Guerrilla marketing
129. Choosing the right segment and target market
130. Choosing the right customer to serve : Identify the needs and wants of your customers
131. How to conduct a market research? Turning data into knowledge
132. Design your market offering(s)
133. Product Design and quality
134. Product or service specifications
135. Explicit and implicit promises (interview)
136. Packaging and labelling
137. Where to sell and what? The Display matters
138. Smart choice for selling product/services and The virtual markets
139. What is price?
140. Pricing strategies (new product pricing )
141. Price Adjustment strategies
142. Price Change and Price war
143. What is Advertising Mix? And Integrated marketing communication strategies
144. Brand : Business identity
145. Interview: Brand building and selling tactics : Issues and challenges

Author: Sara Hussain, Lecturer Business Administration, Virtual University of Pakistan

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 The Marketing and Legal Aspects of an Entrepreneurial Venture
Now we will be discussing marketing and different aspects of marketing. First we will start with
the definition of marketing given by Philip Kotler. According to Kotler and Armstrong, Marketing
is “the process by which companies create value for customers and build strong customer
relationships in order to capture value from customers in return”. This definition has some
components that are process, value for customer, customer relationship, goodwill and profit.
Moving on we will be talking about need. We have earlier talked about NABC (Need approach
benefit and competition). Whenever you discuss or talk about a business idea, the first thing that
is considered with the business idea is the need. So, need is identified at the first place whenever
you are designing any product or service. So what is need?

Need, Want, and Demand

Need is a state of felt deprivation. (Kotler and Armstrong) Anything that you feel is lacking in you
is called need. Let’s see when this need is converted into want. According to Philip Kotler and
Armstrong, want is “The form human needs take as they are shaped by culture and individual
personality”. Your need becomes you want based on the culture, weather and belief system of the
area you are living in. This want finally takes the shape of demand. What is demand?
Demand is “Human wants that are backed by buying power”. (Kotler and Armstrong)

Market offerings
How this need, want or demand is fulfilled? It is fulfilled through market offering.
For fulfilling need, want and demand of customers, businesses make market offerings. Kotler and
Armstrong define Market offerings as “some combination of products, services, information, or
experiences offered to a market to satisfy a need or want”.
In marketing, you would have heard about 4 P’s or 7 P’s. This is an important and main framework
of marketing which explains which aspect to keep in mind during the marketing process. What are
4 P’s of Marketing?

 Product: what are the design, quality and attribute of the product?
 Price: what will be the price of the product?
 Place: what will be your market place?
 Promotion: how will you inform your customer about your product service or experience?

In case you are offering a service, there mostly 7 P’s of service marketing are considered. Along
with the 4 Ps three more Ps are added making it product, price, place, promotion, process, people
and physical evidence.
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Now coming towards market, it says that Market is “the set of all actual and potential buyers of a
product or service” (Kotler and Armstrong).

Markets and Marketing Strategies

There can be many types of markets like business markets, customer markets and online markets.
Business markets: when selling to the business
Customer markets: when selling to customer
Online markets: when selling through digital media and not through physical markets

Marketing Strategy will be briefly discussed here and detail will be given in later modules. While
designing a marketing strategy, following steps are involved.

1. Identify the customer need

2. Choose your value proposition
3. Design a consistent brand and message
4. Select your target audience
5. Select the marketing/social channel for your startup
6. Build your referral network
7. Assemble smart marketing team
8. Become your product’s loyal user
9. Be vigilant to customer’s feedback
10. Relationship marketing

Coming to the next topic, we will be discussing customer relationship management. You will have
to develop a relationship between your customer and your business.
Customer Relationship Management (CRM)
“The overall process of building and maintaining profitable customer relationships by delivering
superior customer value and satisfaction” (Kotler and Armstrong)
The building blocks of CRM include deliver customer value and delight your customer.
Customer value is very important. While purchasing a product, whatever benefit or value I attach
to your product, I will be comparing it to alternate products by the competitors. If the value or
promise you are offering is better as compared to the competitors, then I will be buying your
product.

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There to understand Customer-perceived value, let’s have a look at its definition,
“The customer’s evaluation of the difference between all the benefits and all the costs of a
marketing offer relative to those of competing offers.” (Kotler and Armstrong)

Delighting customer relates to satisfying the customer. So, how to delight the customer? Customer
will be delighted if you exceed his or her expectations and how will you do it? You can do it by
exceeding his or her expectations through customer experience, customization and personalize
communication, feedback mechanism, and relationship marketing and build/join communities.

Customers
A very important framework is available to select the kind of customer that you are interested to
maintain your relationship with. Philip Kotler has given a framework for customer classification
on two bases; one is potential profitability and second is projected loyalty. Based on which there
are following classifications of customers.
 Strangers
 Butterflies
 True friends
 Barnacles
Strangers: These have low potential profitability and little projected loyalty. They have just once
purchased your product and might not purchase in future again.
There is little fit between the company’s offerings and their needs. So the strategy for such
customers should be not to invest anything in them.
Butterflies: They are potentially profitable but not loyal. They need the product and might buy
your product and then again when the need arises they might buy the product of some other brands.
They will not wait for your brand to offer discount, they will avail the discounts of any brand to
fulfill the needs. There is good fit between the company’s offerings and their needs. Therefore, the
strategy should be to capture as much of their business as possible in the short time during.
True friends: They are profitable as well as loyal. They are your true friends. They need your
product and they have strong fit between their needs and the company’s offerings. Strategy for
them should be to build continuous relationship and investments should be made to delight these
customers and nurture, retain, and grow.
Barnacles: They are highly loyal but not very profitable. They will show interest in your product
but will eventually not buy your product. They have limited fit between their needs and the
company’s offerings. They are very problematic also. They might be demanding a lot from your

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product. You may be providing them customized service to fulfill their demands but they will later
on tell that they are not interested in your product. So for them strategy is to fire them

Moving on we will discuss different marketing tactics used by businesses to gain customer
attention like buzz marketing and guerrilla marketing. Firstly let’s see what buzz marketing is.
“Creating a word of mouth or talk around product service or experience that consumers view as
authentic”
Marketing Techniques/Methods
Buzz marketing is done by using any entertaining way or news to draw people’s attention towards
the brand instantaneously. Which means you read a news or saw a Facebook teaser that got your
attention instantly and started talking about it. That is buzz marketing. What companies do in buzz
marketing is that they hire celebrities, opinion leaders and influencers (like you tubers) who start
talking about the product and show that they are using this newly launched product or they talk
about a product about to be launched. This is how buzz marketing is done.
Viral marketing, undercover marketing, diffusion marketing and product seeding are certain other
names for Buzz marketing. Buzz marketing is used under various situations:
Buzz marketing can be used under following circumstances:
When you have to enter the market, you need to sensitize your market and your customer at that
time you can use it.

 When you are launching a new product, service or any experience, you may be using buzz
marketing.
 When you are opening a new outlet. You might have seen in big malls that on certain shops
it is written Coming Soon.
 While expanding business.
 When you are entering a new market segment.
Buzz marketing can be used as a promotional campaign. In today’s era of digital marketing, the
widely used technique is buzz marketing. After buzz marketing, check out another tactic that is
Guerrilla marketing.
Guerrilla marketing is the strategy that involves unconventional and low cost marketing tactics
that produce maximum results. It has two main features; its low cost and it brings maximum
customer engagement. It may involve any unconventional design or unconventional event in a
market place that grabs your attention and you are involved in it and enjoys it, its guerilla
marketing.

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Jay Conrad levinson coined the term guerilla marketing in his book named guerrilla marketing in
1984. This word was inspired from guerrilla warfare. In this warfare different small tactics are
used to surprise the enemy like ambush, sabotage, raid and surprise. So the basic purpose of
guerrilla marketing is to surprise the customer to such an extent that the customer enjoys the
experience. Now we will see when guerrilla marketing can be used. In Pakistan the use of guerilla
marketing is very limited as compared to other parts of the world. What you do in this marketing,
you engage the customers and customer starts enjoying your aesthetics sense. This kind of
marketing was basically for small firm but large companies use this marketing to a wider extent.
There are different types of guerrilla marketing.

 Outdoor guerrilla marketing

 Indoor guerrilla marketing
 Event ambush guerrilla marketing
 Experiential guerrilla marketing
Targeting your customers is a critical part of marketing function. There are certain Market
targeting strategies. First thing to do is to see how to choose the right customers to serve? After
dividing the market into various segments of distinct customers which may be based on
psychology, age, income. Then the next step is targeting the market. Targeting means once you
have divided the market into various segments now you will be choosing one or multiple segments
to offer your product or service. So, in short targeting it that segment/segments that you are going
to serve. Before targeting the segment we have to evaluate the segments. There are two options for
this evaluation. Philip Kotler has given two yard sticks for evaluation first being segment’s
attractiveness and second is firm’s objective and resources.
Segment’s attractiveness:
For evaluating the segments attractiveness, once you have divided the market into segments based
on any element like income age, psychographics etc, you must have the important information
about size and growth, profitability, economies of scale are available and competition. By
measuring these you can know how attractive the segment is that you plan to target.

After this you will check what the objectives of your firm are and what are the resources of your
business and determine that will these be enough and fit to fulfill the needs of the segment you are
selecting.
How to target the market. There are multiple strategies:
For young and upcoming entrepreneurs the one leading area of weakness is Marketing Research
and marketing intelligence. Information and knowledge is an important resource in this era. For
information market research is critical. So let’s see what market research is.

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Marketing research is systematic design, collection, analysis, and reporting of data and findings
relevant to specific marketing situation faced by a company (Philip Kotler).

Now let’s have a look at the situations where information is required. It could be a Business
opportunity for which information is required. It may be market growth for which information is
gathered. It may be competition about which data is collected. Moving on let’s see why Marketing
Research is required. Marketing research is needed for the following reasons. It is conducted for
any of the following situations arise to identify problem, to evaluate segment attractiveness, to
evaluate a business opportunity, market survey for customers’ preference, product preference test,
sales forecasting, integrated marketing communication strategies evaluation, evaluation
competition, product and/or market expansion and price change.

Marketing Research Process

Now let’s study the Marketing Research Process. This process is very simple:
Step1: Define the problem/opportunity
Step2: Define the objectives of marketing research
Step3: Develop a complete research plan
Step4: Identify data sources
Step5: Selecting of sampling method and data collection
Step6: Analyze the collected data
Step7: Present the findings
Step8: Make an informed decision

Marketing Intelligence is a great success factor for entrepreneur. According to business dictionary
marketing intelligence is:
“Primarily external data collected and analyzed by a business about markets that it anticipates
participating in with the intention of using it in making decisions”.
(http://www.businessdictionary.com/definition/marketing-intelligence.html)
Considering the importance of Marketing Intelligence big firms develop Marketing Intelligence
System. Philip Kotler defines it as:
“A set of procedures and sources used by the management to obtain everyday information about
development in the marketing environment”. (Philip Kotler)
Moving on we will be discussing design your market offering(s) or how your product or service is
designed. Let’s see how Philips Kotler defined product and service.

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“Product is anything that can be offered to market for attention, acquisition, use or consumption
that might satisfy a need or want”. (Kotler and Armstrong) and secondly what service is;
“Service is anything or benefit that one party can offer to another that is essentially intangible and
does not result in any ownership of anything”.

Classification of Product and Services

There are certain levels of product and services which include core benefit, actual product and
augmented product. Mostly firm stay at the core level while designing the product or service but
many of them add certain additional flavors to their product like brand name, level of quality and
packaging etc. If you want to reach augmented level then according to Kotler you may offer
delivery at the door step, credit facility cash on delivery, installation, after sales service etc.
Deciding about all these levels is important because it will have impact on the pricing of the final
product. When we talk about product and Service Classification, we see that whatever business is
going on it can broadly be divided into two categories i.e. consumer products and industrial
product.
Consumer products are offered to end consumer including convenience, shopping and specialty
product while industrial products are offered to firms for further processing or for use in
conducting the business. There are certain attributes of product and services. Product and service
comprises of product Quality, Product Features, product style and design. Along with all these
another important aspect is Unique Selling Proposition (USP). Entrepreneurship.com defines it as:
“The factors or consideration presented by a seller as the reason that one product or service is
different from better than that of the competitors”.
(https://www.entrepreneur.com/encyclopedia/unique-selling-proposition-usp)

Product Design and Quality

Product design and product quality are other significant areas to be discussed. Product quality
seems to be a simple concept yet it is very deep and complex. Let’s have a very simple definition
of Product quality. Product quality is defined as zero defect product or service. The American
Society for Quality defines “quality as characteristics of product or service that bear on its ability
to satisfy stated or implied customer needs”. Product quality is:
 The leading positioning tool
 Directly related to performance of product or service
 Directly linked with value for customer
 Directly related to customer satisfaction
 Ensure long term relationship with customer

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Dimensions of product quality include level of quality and consistency and commitment with
quality.
What does it means by quality? Quality revolves around these eight dimensions.
Design of product and service is also important and is a little more complex and detailed than style.
It is directly linked with customer value and satisfaction, ensure long term relationship with
customers.
While designing the product or service, its specifications are considered crucial at this stage. So
an entrepreneur must write these specifications. Consider yourself as a customer now. Whenever
you go to buy an expensive product, you check all its specifications before making the purchase
decision. The business dictionary.com defines product specifications as:
“Written statement of an item's required characteristics documented in a manner that facilitate its
procurement or production and acceptance”.
http://www.businessdictionary.com/definition/product-specification.html)

Another definition given by Kotler says that product specification is: “The stage of the business
buying process in which the buying organization decides on and specifies the best technical
product characteristics for a needed item”.

Buying Preferences
In business buying, if your written specifications for the product, you may be involved in three
different business buying situations; straight rebuy, modified rebuy and new task rebuy. Now
looking at each concept one by one. Kotler has defined these three concepts in his book Principles
of Marketing.
“A business buying situation in which the buyer routinely reorders something without any
modifications called straight rebuy”.( Kotler and Armstrong)
“Business buying situation in which the buyer wants to modify product specifications, prices,
terms, or suppliers called modified rebuy”. (Kotler and Armstrong)
“A business buying situation in which the buyer purchases a product or service for the first time
called new task”. (Kotler and Armstrong)

Product: Packaging and Labelling

Packaging and labeling defines your product. It is very important because it involves cost and
grabs the customer’s attention. Packaging helps to keep the product safe. Your packaging should
be convenient and safe for the customer and customer should be happy to carry the product without

8
hassle. Labeling is also very important in certain products because legal issues may be involved
like medicine.
What is packaging? Lets’ have a look at two different definitions of packaging.
“The wrapping material around a consumer item that serves to contain, identify, describe, protect,
display, promote and otherwise make the product marketable and keep it clean.”
(https://www.entrepreneur.com/encyclopedia/packaging)
“Packaging involves designing and producing the container or wrapper for a product.”
(Kotler and Armstrong)
While designing a product, it might have multiple layers of packaging. It may involve primary
package, secondary package and shipping or third package. Packaging is known as the product's
face. So, there are certain packaging concerns as given below:

 Product container
 Packaging design and functionality
 Packaging color and quality
 Packaging size
 Packaging durability
 Packaging cost
Packaging also attracts the attention. For example the Candy packaging ideas grabs the attention
of the kids. Therefore, packaging is important because it results in influencing consumer, assurance
of the product quality, brand recognition and brand reinforcement.

Labeling is very critical for certain industries especially where regulatory authority is monitoring
it. Lets’ see a simple definition of labeling: “Display of information about a product on its
container, packaging or the product itself” Businessdictionary.com also gives a very good
definition of labeling as:
“For several types of consumer and industrial products, the type and extent of information that
must be imparted by a label is governed by the relevant safety and labeling is a part of the
packaging. Labeling ranges from shipping laws.” You may further explore it on
http://www.businessdictionary.co
Labeling is has broad meaning it includes simple tags to complex graphics.

9
 Placement
After packaging and labeling let’s move on towards placement of product and/or service. So, for
an entrepreneur an important question is where to sell the product? What will be your market,
customers and how to access them? Placement is related to accessing the customer. You may be
selling the business product or consumer products but how will your customer access your product
is important. Therefore, placement is the distribution options available to you to access your
customer to deliver the customer value. It may be online, physical outlet or door to door selling.
Given below is the simple definition of Place/Access. “What new distribution options are there
for customers to experience our product e.g. online, in-store, mobile etc.” Placement includes all
the matters related to supply chain management, geographical locations, distribution channels and
display of the product.
For placement, it matters a lot in which market are your dealing. Is it consumer markets, industrial
markets, government markets, global markets or virtual market?
There are some important questions related to display like:
How to get dominating shelf space? Where to display the product e.g. own display center or
shopping mart, departmental store or convenience shop? What are shelf plan to maintain the
inventory? What is the shelf life of the product?
Price and Pricing Strategies
After place, next P that is going to be discussed is price. Price is a really sensitive area whether
you are planning to start the business; you are designing the product or already doing business
which you want to expand. Price is the only p that is source of revenue while remaining P’s involve
/ incur cost. A general definition of Price is: “The amount of money which is required and given
in payment for buying something including product, service or experience”. Another definition by
businessdictionary.com is:
“A value that will purchase a finite quantity, weight, or other measure of a good or service”.
(http://www.businessdictionary.com/definition/price.html)
Consumer psychology and pricing are linked to each other as pricing may be the first factor a price
conscious consumer is considering while making a purchase decision. While checking the pricing,
the consumer may be considering and comparing all the following areas like consumers process
the price information, previous purchases (last paid price), market survey, formal communication,
informal communication, online sources, competitors’ price, expected future price and price
sensitive customers.

Before studying the pricing strategies, first we will see what pricing objective is because pricing
strategies are designed based on your pricing objectives. So, there could be different objectives on
which pricing is based like survival, maximum current profit, maximum market share (market
penetration), new product pricing, product quality leadership and partial cost recovery.

10
Price strategies usually depends on what product, service or experience you are offering to the
customer, what is your competitors’ price of similar and alternate products and who you’re your
customers/ what is your target market? While selecting any of the price strategies, it depends upon
business life cycle stage your business is in. You may choose any pricing strategies from new
product pricing strategies, psychological pricing and product-line pricing strategies. Let’s see one
by one what these pricing strategies are.

1. New Product Pricing Strategies

When a company is bringing in new product into the market, it usually charges market-
skimming pricing which means they charge high price in the start and then with the passage of
time lowers the price. Another option is market-penetration pricing. In this pricing strategy,
you want that when your new product is being launched, it sells in bulk as compare to your
competitors so you offer a price which is competitively low and at the same time offering some
additional features in comparison to your competitors.

2. Psychological Pricing
It is based on the psyche of the customer and it may include reference pricing, bundle pricing,
multiple unit pricing and everyday low pricing.

3. Product-Line Pricing Strategies

This strategy is important for those entrepreneurs who are on the growth stage and wants to
increase their product line. It is based on product line for which two different pricing are used
named as captive and premium.

Captive pricing is for products that must be used along with the main product. Main product in a
product line priced at low while related product and/or line of product price higher. For example,
shaver with replaceable blades which is the main product is priced low but the replaceable blades
are priced a little higher. You may charge Premium pricing which is pricing different model at
different prices depending on their quality and features.
Price is the factor that brings revenue. While discussing price, one thing that is very important is
price change and price wars. Being an entrepreneur, if you have decided to change the price of
your product then you have to consider how your competitor will respond to it. There could be
multiple reasons for price change like cost inflation, over/less demand, price competition, nature
of product and product life and promotional campaign.

When prices are changed, there are certain reactions to price change. Both customer and
competitors will respond to change in price.

11
  Reaction by customers: He will be happy if price decreases while he will be annoyed if
prices increase.
 Reaction by competitors: They will also react towards your change in price for that they
may respond in any of the following ways:

1. Maintain the price

2. Maintain the price with some value addition
3. Reduce the price
4. Increase the price and improve the quality
5. Launch a low price line

Price war is a very critical moment and entrepreneur should be able to survive the war.
Investopedia defines price war as:

“A price war is a competitive exchange among rival companies who lower the price points on their
products, in a strategic attempt to undercut one another and capture greater market share. A price
war may be used to increase revenue in the short term, or it may be employed as a longer-term
strategy.” (https://www.investopedia.com/terms/p/price-war.as)

While businessdictionary.com defines it as:

“Market situation in which (usually two) powerful competitors try to suppress each other's market
share by progressively reducing prices until one of them retreats, at least temporarily”.
(http://www.businessdictionary.com/definition/price-war.html)

Marketing Communications Mix

After seeing price, price changes and price war, marketing communication mix is going to be
discussed. Communication mix is significant because if you are launching a product in the market
then you have to communicate with your customers to inform them about your product. The way
you inform them is called communication strategies or marketing communication strategies or
mix.
Kotler defines Marketing Communications Mix as: “The specific blend of promotion tools that
the company uses to persuasively communicate customer value and build customer relationships”
(Kotler and Armstrong)

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Marketing Communications Mix includes advertising, sales promotion, personal selling, public
relations, direct marketing and digital marketing. Looking at their definition one by one, as given
by Philips Kotler, are:

Advertising: Any paid form of non-personal presentation and promotion of ideas, goods, or
services by an identified sponsor Source: (Kotler and Armstrong)
Sales promotion: “Short-term incentives to encourage the purchase or sale of a product or service”
(Kotler and Armstrong)
Personal selling: “Personal presentation by the firm’s sales force for the purpose of making sales
and building customer relationships.” (Kotler and Armstrong)
Public relations (PR): “Building good relations with the company’s various publics by obtaining
favorable publicity, building up a good corporate image, and handling or heading off unfavorable
rumors, stories, and events.” (Kotler and Armstrong)
Direct Marketing: “Direct connections with carefully targeted individual consumers to both obtain
an immediate response and cultivate lasting customer relationships” (Kotler and Armstrong)

Therefore, all these tools are available to communicate with the customers, you may use any of
these tools individually or in combination. When you are using multiple tools, it is called
integrated marketing communication. Integrated marketing communications (IMC) as defined
by Kotler is: “Sensibly integrating and coordinating the company’s multiple communications
channels to communicate a clear, reliable, and convincing and persuasive message about the
product, service and/or organization”. (Kotler and Armstrong)
In integrated marketing communications, there are different strategies like social media, SMS
marketing, blogs and influencers, news channels, vlogs, website and website banners, search
engine optimization and local cable advertising. It is the decision of the entrepreneur to pick and
choose any of these communication tools either individually or in combination. But the essence of
using these tools is to inform the customer about their offerings.

Brand and Branding

Another important concept of marketing is brand. Brand is your business identity. Pakistani
entrepreneurs are lacking the brand development skills. Therefore, this area needs special attention
of the entrepreneurs. There are various definitions of brand. One discussed below if taken from
Investopedia.com: “A brand is an identifying symbol, mark, logo, name, word and/or sentence that
companies use to distinguish their product from others”.
(https://www.investopedia.com/terms/b/brand.asp)

13
While brand building, it is important to get legal protection for your brand so that no one else can
use or copy your brand name. Such kind of protection is called trademark. Investopedia.com
defines trademark as: “Legal protection given to a brand name is called a trademark”.
(https://www.investopedia.com/terms/b/brand.asp)
While discussing brand, another important concept is brand identity. Let’s see how
Investopedia.com defines it. “Brand identity is the visible elements of a brand, such as color,
design, and logo that identify and distinguish the brand in consumers'
minds.”(https://www.investopedia.com/terms/b/brand-identity.asp)

Branding is important for the business and there are numerous reasons for its importance as it
provides business Identity, helps in building recognition and customer relationship, being an
implicit quality promise, leads to customer loyalty, generates new customers, wins customer and
market place trust and provides edge on competitors.
Brand development is a complex process. There are some brand development strategies but these
are critical for those businesses that are planning to expand. For these strategies, there are two
things: either you are dealing with existing or new product category or you are using existing or
new brand name. Therefore, ultimately it generates four strategies to select from.

Kolter defines these strategies in the following way.

Line extension: “Extending an existing brand name to new forms, colors, sizes, ingredients, or
flavors of an existing product category” (Kotler and Armstrong)
Multi brand: “Multi Brand Companies often market many different brands in a given product
category” (Kotler and Armstrong)
Brand extension: “Companies extend a current brand name to new or modified products in a new
category.” (Kotler and Armstrong)
New Brands: “If the power of existing brand name is fading, a new brand name is needed.” (Kotler
and Armstrong)
It is up to the entrepreneur that which brand development strategies he will use but brand building
is very crucial in today’s era. At the end, it is again emphasized that Pakistani entrepreneurs should
make utmost efforts towards brand development to reap maximum benefits of their business
struggle.
Note: Please watch the video lectures uploaded on VULMS for the topics related to explicit and
implicit promises of brands and businesses and brand building.
Video lecture 135: Explicit and implicit promises of brands and businesses
Video lecture 145: Brand building
---------------------------------------------------The End-------------------------------------------------------
14
 Technical Articles Theme 12
Title: The Management Aspects of an Entrepreneurial Venture
Videos: 146-151

Topics Covered
146. The management aspects for entrepreneurial venture
147. Organizational Structure: How it is different from a large setup?
148. Legal form of business (Part 1)
149. Legal form of business (Part 2)
150. Discussion Group with a lawyer: how to register a firm in Pakistan?
151. Discussion Group: with a lawyer (How to approach ombudsman )

Author: Marriyam Bukhari, Instructor Business Administration, Virtual University of Pakistan

1
 Management Aspects of Business Ventures
To become a successful entrepreneur, one must be good at managing the venture. The management
related considerations for an entrepreneur include decision making, leadership behavior,
organizational structures and processes, clusters & networks, creating resilience, technological
systems, departmentalization, and HR policies.

Decision-Making is an important aspect of any business venture as entrepreneur makes decision

every single hour of every single day. These decisions can be minor decisions to major strategic
decisions. How these decisions are made vary from one entrepreneur to another entrepreneur?
Some entrepreneurs make decisions on their own while others take the opinion of employees or
other friends and family. Some entrepreneurs also rely on expert opinion to make decisions
especially in case of strategic decisions. Being an entrepreneur, which decision making style you
opt is an important thing which he/she should consider while operating a business venture.
Leadership behavior is another important aspect of management of a business venture. Which
leadership style you opt for, decides the loyalty of your employees or team. It has been observed
that employees are most loyal to the organization that they stick to the same organization for 30
years if the leader is good. Organizational structure and processes are the important things to
operate the firm in an organized way. In the beginning of a new venture development, the
organization structures are usually blur and every employee reports to the owner. But as the firm
grows, the structures must have to be clear in terms of reporting and teams. On the other hand,
processes should be clear even in the beginning.

Another important aspect of a firm’s management is the Clusters & networks of an entrepreneur.
Before starting a business venture, an entrepreneur must decide the industry he/she will enter. He
must see if he has any networks and associations in that industry. Networking and associations
with other businessmen and entrepreneurs are of utmost importance for an entrepreneur especially
in the initial stages of new venture development. Being resilient and creating resilience in teams
is the key to the success of any firm. Whether it is the development stage of a business venture or
the growth stage, an entrepreneur can face setbacks or any uncertainties which should be faced by
being resilient. In those times, it is the entrepreneur who must manage resources and make
decisions which are in the favor of the firm. These setbacks can be the result of entrepreneur’s bad
decisions or competitors but there are certain uncontrollable factors (like COVID 19) which can
be the reason of these setbacks.

Entrepreneur must also see which Technological systems are needed by the firm. As this is the
era of technology and a lot of tasks have been digitized. For these tasks, you do not need any
human resource. Some business models are based on technology, so they need more technological
systems than others where human capital is more important. In the initial stages of new business
development, there are no separate departments for each business function. Usually, one team

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performs several functions. But in the growth stage of business venture, departmentalization can
be a major concern for an entrepreneur. On the other hand, whether it is the initial stage or growth
stage, an entrepreneur must devise the HR policies. It should be clearly decided which financial
or non-financial rewards would be given to employees and when. Which type of contracts would
be built with the employees and which actions would be taken against the employees who are
involved in any fraudulent activities.

What is Organizational Structure?

An organizational structure is defined as “a visual presentation of a company’s structure showing
what employees do, decision making style, span of control, and chain of command”. In the initial
stages of venture development, organizational structures are blurred and usually all employees
report to the entrepreneur or CEO. But as the organization grows, it becomes important to define
the organization structures and chain of command. Organizational structures are classified in terms
of functions, products, markets, and geographical location.

Functional Organizational Structure departmentalizes an organization based on the common

job functions e.g., marketing, finance, human resource, management, operations and IT. It is the
most common structure organizations adopt. In small scale firms, if you want to make teams, you
can give responsibility to some people of marketing function and some of finance function.
Usually, one team is handling two or multiple tasks. Following is the pictorial representation of
functional organization structure.

Product-Based Structure divides an organizational structure based on products. It is ideal for

organizations with multiple specialized products. If an organization is dealing with multiple
specialized products, it can make separate teams for each product each performing all the functions
of marketing, finance, research, and operations independently. For example, an entrepreneur
dealing with clothing as well as beauty products can make two separate teams. Each team will do
the marketing separately. Similarly, all other functions (finance, HR, research, and operations)
would be performed separately by each team.

Market-Based Structure divides an organizational structure based on industries, markets, or

customers. Some entrepreneurs deal with different markets like government market, consumer
market, and B2B market. For those entrepreneurs, the organization structure would be market
based. There will be separate teams for each market served by the firm. If a firm deals with local

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market and international market, there will be two separate teams for both markets who will
perform each organizational function independently.

Geographical Structure deals with division of an organizational structure on the basis of

geography. This is mostly adopted by the entrepreneurs who deal with import and export business.
For example, if the firm deals with Canadian market and UAE market, there will be two separate
teams for both the markets.

Flat Structure deals with an organizational structure where employees are only a few steps away
from senior leadership and decision making is centralized. In the beginning of the start-up,
organizational structures are usually flat where employees report directly to the owner or CEO.

Tall Structure deals with multiple layers of reporting and decentralized decision making. In the
growth stage of business venture, when an entrepreneur has a big team, there are multiple layers
of employees. Each layer of employees’ report to the upper layer. For example, labors report to
the line managers and the line manager reports to the senior manager. Further, senior manager
reports to the middle manager who reports to the manager operations.

How the structure of small setup is different from large firms.

1. Blur organizational structures

2. Centralized decision making

3. Multiple roles of managers

4. Need for growing firms

5. Lack of R&D and human resource development (we don’t see it in small business)

6. Flexibility of organizational structure (you can change the structure easily in small firm not
in the large firms.)

Legal Forms of the Business

There are four basic legal forms of business which are: sole proprietorship, partnership, joint stock
Company, and nonprofit organization.

Sole proprietorship is a business owned and operated by a single person who enjoys the whole
profit and bears all the loss. This form of business has unlimited liability which means in case of
non-payment of debt, the proprietor’s business property as well as personal property will be taken
to pay off the debt.

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Some of the characteristics of sole proprietorship business are:

 Single ownership
 No need of registration of business
 No documentation required (except for some businesses like pharmacy where
documentation is needed)
 No separate legal entity from the proprietor
 Small scale business
 Tax on owner’s income (No double taxation)
 Unlimited liability
 Sue and can be sued in the name of the owner
 Sole manager
 Business commencement and closure is on the will of the single owner

Another legal form of business is partnership which is a legal entity formed by two or more
people. The partners are personally responsible for all the losses and debts and partnership has
unlimited liability. A partnership can be a partnership at will when it is open-ended. A partnership
at will is formed to carry out a general business without specifying the time of termination of
partnership business or without specifying the duration of partnership. On the other hand, a
partnership can also be a particular partnership which is formed for a particular project and
terminated as soon as the project is completed.

Usually, it is not mandatory for firms to register a partnership, but it is recommended to register a
partnership to get the legal protection. A Partnership deed is usually prepared in order to get a
partnership registered.

Some of the characteristics of partnership are:

 At least two individuals are required to form a partnership

 Unlimited liability of all partners collectively and individually
 Profit is shared equally or in agreed ratio
 Voluntary registration
 No perpetual succession/continuity
 For transfer of share, mutual consent of all partners is needed

SECP has introduced a relatively new concept in partnership business in May 2018, that is limited
liability partnership (LLP) where the liability of all partners will be limited to the extent of their
investment except for one partner whose liability would be unlimited. LLP is form of business
which is near to the corporate form of business in terms of some of its characteristics. The two
main characteristics which distinguishes the LLP from general partnership is:

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  Separate legal entity (it is the main characteristic of corporate form of business where the
firm is separate from the owners. It can sue and be sued in its own name.)
 Perpetual succession (in general partnership, in case of death of a partner, partnership gets
dissolved but in the case LLP it will continue. The death or insanity of any partner will not
affect the existence of partnership).

Partnership Act 1932 explains the detailed procedure of registering and dissolution of partnership,
right and duties of partners.

Another legal form of business is non-profit organization. A nonprofit organization is a business

that has been granted tax-exempt status because it serves a special cause and provides public
benefit. This type of organizations supports the government. Some of the characteristics of
nonprofit organizations are:

 They are formed for the public service or benefiting the society.
 Donations which are given to NGOs are tax deductible. If you show it in your tax return,
you will get the tax rebate or exemption.
 NGOs itself pay no tax on the received donations or on any other income earned through
fundraising activity.

Entrepreneur can also start a nonprofit organization. Abdul Sattar Edhi is the example of NGO
entrepreneur who started a nonprofit organization which has all the systems and processes, but it
works for public service instead of profit making. A nonprofit organization can be started at local
level, district level, divisional level, or provincial level in Pakistan whereas it can be registered
under Punjab government welfare department if any individual wants to start it in the vicinity of
province Punjab.

Another basic and most common form of business is corporation. There are four types of
corporations which are:

1. SMC or single member company is a limited liability private company owned by a single
director/member. This type of company was introduced by SECP in Companies Act 2017.
The purpose of introducing SMC was to facilitate the sole proprietor. It gives the sole
proprietor the benefit of limited liability.
2. Limited liability partnership: SECP has introduced a relatively new concept in
partnership business in May 2018 that is limited liability partnership (LLP) where the
liability of all partners will be limited to the extent of their investment except for one
partner whose liability would be unlimited. LLP is form of business which is near to
corporate form of business in terms of some of its two characteristics perpetual succession
and limited liability.
3. Private limited company: it is the form of corporation started by two or more people. It
is registered with SECP. The liability of members of a private company is limited to the

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 extent of their investment. The shares of private limited company are not offered to the
public for purchase. All the profit is divided among the shareholders. Private limited
company is not listed on the stock exchange for trading.
4. Public limited company: a public limited company is owned by the shareholders and
managed by the directors who are selected by the shareholders. Shareholders get the profit
in form of dividend. The shares of a public limited company are offered to the public for
purchase hence public limited company is listed on stock exchange. It is registered with
SECP under the Companies Ordinance 1984. The liability of the shareholders is limited in
public limited company. For a public limited company, it is mandatory to show all the
financial statements publicly hence it is more open to public as compared to the private
company.

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 Technical Articles Theme 13
Title: The Financial Aspects of an Entrepreneurial Venture
Videos: 152-165

Topics Covered
152. Introduction to Financial Management
153. Financial objectives of the firm
154. Financial Management Process
155. Need for financing
156. Sources of Personal Financing
157. Raising Debt or Equity Financing
158. Creative Sources of financing
159. Financial Statements
160. Historical Financial Statement
161. Historical Balance Sheet
162. Historical Statement of Cash flow
163. Proforma of financial statement
164. Ratio Analysis
165. Break even analysis

Author: Aneeqa Tauseef, Instructor Business Administration, Virtual University of Pakistan

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 Introduction to Financial Management
Financial management means managing finances effectively. Every business needs to manage the
finances. For entrepreneurs, arranging the funds and managing those funds and earning maximum
profit is a must. Profitability, liquidity, efficiency and stability are the major financial objectives
of a firm. Finances that are needed for a business are considered as cash inflows and expenses are
cash outflows. Capital expenditures are usually fixed expenses. Finances required for
entrepreneurs are usually from their own or from family or friends. Loans and other finances are
the other sources of funds for entrepreneurs. Forecasting helps in having idea about financial
requirements. If entrepreneurs decide to have debt, they need to forecast whether they will be able
to pay interest rate or not. Banks are an important source of finance. Other financial institutions
and debt financing organizations can also finance startups. There is no specific guaranteed source
of financing for a particular type of business. Business with weak cash flows and low growth rate
must go for personal funds or from family/friends. Businesses with low risk, healthy balance sheet
and good management can go for debt financing. Businesses having unique idea and high growth
rate can go for equity financing.

When we discuss about financial management in context of entrepreneurship, preparation of

financial statements is an important element. Financial statements of a business can be either
historical financial statements or proforma financial statements. Historical financial
statements are required by SECP and are based on past performance. These are usually made on
quarterly, half yearly or yearly basis. Pro forma statements are made on the basis of projections
and are of equal importance. Income statement is one of the historical statements and is prepared
over a period of time whereas balance sheet is prepared for point in time. Statement of cash flows
deals with cash inflows and cash outflows. Income statement is created by stating net sales and
adding any sales returns and subtracting direct expenses which gives income before interest and
taxes. After adjusting interest and taxes we get net income/profit/loss. The basic accounting
equation is Assets=Liabilities + Owner’s Equity. Assets can be either current assets or fixed
assets. Current assets fall within period of 1 year. Fixed assets are for more than a year. Current
assets are liquid which means that can be easily converted into cash. Fixed assets are usually land
and machinery. For balance sheet their depreciation amount is deducted to get proper value. As far
as liabilities are concerned, they are also long and short term. The sequence of making financial
statements is a must. Firstly, income statement is prepared then balance sheet and after that cash
flow statements are prepared. Most of the information in cash flow statement is taken from
income statement and cash flow statement. There are three sections of cash flows, Cash flows from
operating activities, cash flows from investing activities and cash flows from financing activities.
For cash flows from operating expenses, sources of cash are added and uses of cash are subtracted.
Figures in this statement that might be increased or decreased can be taken from balance sheet or
income statement. Net cash flows from operating, investing and financing activities are adjusted
and then we can get the figure of cash flows at the end of the year which can be easily compared
with the amount at the start of the year.

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Proforma financial statements are similar to historical statements but they show projected
figures rather than actual amounts. These can be used as a planning tool as well and can be a source
to control the expenses. These statements can be used if the firm requires funding. There are three
proforma financial statements, Proforma income statement, proforma balance sheet, proforma
statement of cash flows. For proforma income statement, sales are projected for upcoming years
as compared to actual figure of current year. Cost of sales is considered as percentage of sales so
the same is projected for upcoming years. Some facts and figures are known for example
depreciation expenses. Taxes and interest are also certain percentages so these can also be
calculated. When starting new venture and actual figures from current and previous years is not
present, statements of competitors or industry’s average figures and can used. For proforma
balance sheet, assets and liabilities are projected and this way the statement is prepared. Similarly,
proforma statement of cash flows is prepared.

Ratio analysis is a tool to determine financial health or operational efficiency of a company.

Actual sales figures cannot be compared so ratios are used. Ratio analysis is done to compare
company performance with others and to compare performance of company departments with each
other. It is also done to analyze future trends. Some ratios measure profitability, liquidity and some
overall financial stability of a company. Return on assets, return on equity, and net profit margin
are part of profitability ratios. Liquidity ratios include current ratios and quick ratios. Financial
stability ratios include Total debt ratios and debt as equity. By performing ratio analysis, it
becomes quite evident where the company actually stands.

Break-even is the point when total revenue is equal to total cost. At this point cost is covered but
still profits are not earned. There are two types of costs, fixed costs and variable costs. Variable
costs are costs that change with changes in production levels. These can be costs of materials used
in production. Fixed costs remain the same regardless of sales. These can be rent, insurance and
wages. Breakeven analysis helps businesses make decisions about prices, costs and level of sales.
This analysis is used to predict future results. Total cost is fixed cost plus variable cost. So, total
cost changes with change in variable cost. After covering variable cost the amount that is left to
cover fixed cost is called unit contribution. Breakeven analysis is an important planning tool.

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 Technical Articles Theme 14
Title: Growth of Entrepreneurial Firms and Globalization
Videos: 166-177

Topics Covered
166. Business growth Model (Part 1)
167. Greiner Growth model of business (Part 2)
168. Preparing for growth (part 1)
169. Preparing for growth through Acquisition and mergers (part 2)
170. Preparing for growth (part 3)
171. Issues and challenges of growing firms
172. How to close a venture?
173. Discussion: The link between entrepreneur’s personality and firm growth pace & style
174. Globalization and entrepreneurship
175. Opportunities and challenges in the globalized world
176. Strategies for going global
177. The digital age and its issues

Author: Umar Shahzad, Lecturer Business Administration, Virtual University of Pakistan

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 Handling Business Growth
It’s important that an entrepreneur should not only be able to start the business but he should be
able to handle the challenges of business growth. Some of the models and strategies commonly
taught in entrepreneurship are following:

1.1. Business Growth Model (Part 1)

Once a business is started, it is important to understand the dynamics associated with the growth
of a business. Therefore, understanding different business-growth models is also important for an
entrepreneur. Such models and frameworks give a better thinking pattern to an entrepreneur. There
are two famous models for the business growth. The first is “business growth model” that
emphasizes existence, survival, success, growth/takeoff and resource maturity. The very first phase
of the business growth model is existence in which the entrepreneur starts the process of acquiring
and retaining the customers. Products and services are delivered and showcased to the new and
existing customers. The next phase of the business growth model is survival. Young entrepreneurs
often confuse this stage of survival with success. However, it is a stage between the existence and
success of a business.

In the survival phase, the entrepreneur realizes that the business idea is workable for further
progress of the business or not. At this stage, often, a slight increase in the product sales and
revenue is observed for which the entrepreneur starts getting encouragement. Hence, often the
business achieves a breakeven point at this stage or at least gets closer to it. The third stage is
success at which the company becomes able to maintain good customers. Business starts having
profit as its income exceeds the breakeven point. At this stage, the entrepreneur carefully needs to
differentiate between the sales and the profit. Often, the entrepreneurs get excited that increased
sale is a source of income and that might be confusing because it is necessary to exclude all
expenditures from income to determine the actual profit of a venture. At this stage, the entrepreneur
starts developing brand rapport. The business also becomes capable of facing the competition in
the market at the success stage. The fourth phase after success is the take-off. At this stage, the
entrepreneur starts thinking about the further growth of the business. The fifth stage of the business
growth model is resource maturity. At this stage, the entrepreneur tries for better financial
management, product and service diversification and hence all specialized activities are performed
separately at this stage at the departmental level within the organizational unit. Research has shown
that at this stage, the entrepreneur often starts compromising further growth and tends to maintain
a steady stream of income.

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 1.2. Greiner Growth model of business (Part 2)

This model was presented in the Harvard Business Review and presents the detail of potential
challenges for entrepreneurs while having business growth. In this model, each growth phase is
made up of a period of relatively stable growth, followed by a crisis. This model can be elaborated
clearly through a graph which is given below.

This graph of the Greiner Growth model of business shows that over time, as the organizational
size and business keeps growing, then a business has to face six phases and five challenges. As per
this model, the business initially grows through creativity, then through proper direction,
delegation, coordination, collaboration and alliances. However, each stage of such business growth
is met with a crisis that a business has to deal with.

In this model, creativity is the very first phase of business growth. Cost reduction, existence and
survival remain the focus of this phase. Usually, when an entrepreneur comes out of an incubation
centre then he/she enters this phase of creativity. Usually, informal communication takes place at
this stage between entrepreneurs and other stakeholders such as customers.

Phase 2 in this model is direction. You have to give proper direction to the people working with
and under you. However, this stage also brings this crisis of leadership. A leader has to be able to
work for the venture himself and has to provide an enabling environment to the people working
under him.

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Phase 3 is the delegation stage. In different functions, the entrepreneur has to delegate the work
as he cannot perform every task himself. Leaders are often used to of keeping the work under their
own supervision for every activity. Therefore, this stage of delegation comes with the crisis of
autonomy. For example, the person dealing with sales should have the autonomy to provide a
discount on product or service up to a certain limit etc. At this stage, employees also start
demanding autonomy for their work.

Phase 4 of business growth is coordination. At this stage, businesses are often having significant
growth. All the departments coordinate with each other under a defined hierarchy. However, in the
coordination phase, an entrepreneur has to deal with the crisis of control.

Phase 5 in this business growth model is collaboration. At this stage business often has a
significant growth with separate departments. Often rules and policies get so mature at this stage
that they slow down the decision making. Such issues create red tape barriers in the organizations.

Phase 6 of this business growth model is growth through alliances. Sometimes, when a business
reaches the stage of maturity and it is difficult for the business to grow on its own then alliances
with other strategic partners are formed. But such alliances should be carefully made.
Entrepreneurs often face such difficult crises in the business. It can be concluded that business
growth is not easy. Entrepreneurs have to face a crisis in the business such as those related to
marketing, finance or leadership. It is also important to maintain the structure of the business.

1.3. Preparing for growth (part 1)

For expanding the business, preparation is the key. Once the brand name establishes, then the
business needs expansion. It is important to understand a few concepts concerning preparation for
growth. The first concept is the industrial life cycle. The industrial life cycle refers to the gradual
development of an industry through five common stages. Those five stages are:

1. Introduction (Embryonic stage)

2. Growth
3. Shakeout
4. Maturity
5. Decline
Many industries evolve and then decline very soon. Like reel camera and Symbian phone
technology market has declined now. Therefore, an entrepreneur should not enter an industry that
is at the decline stage. Consumer demands also change from time to time.

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IT revolution, environmental factors and machine revolution have also caused a decline in many
industries. If an industry is at an evolution phase, then it is better to enter in that industry for a new
business. After the initial phase, the growth phase starts. For example, if the online business was
a success in the recent past then many new entrants came into it. Home-based banking is another
example. At the maturity phase, the environment for a new entrant is very tough. An entrepreneur
should not opt for an industry that is at the decline phase.

Then there is another concept which is the product life cycle as the products can also be categorized
with respect to their life cycle stages. The stages of the product life cycle are 1. Introduction 2.
Growth 3. Maturity 4. Decline.

For example, initially, the mobile phone was used only for making a call or SMS. Then, the simple
mobile phone market nearly declined and smartphones entered the market initially with Symbian
technology and then with the Android technology. Now, even more experiments are being
conducted for even greater evolution in the smartphone industry, so that, they could hold their
maturity stage. Companies try to sustain this stage through research and development. Initially,
products consume greater expenses such as for advertisement. In America, companies often launch
their products at the decline phase in another region or country where that product was not earlier
available.
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For business growth, different factors are the source of entrepreneurial resources. For example,
entrepreneurial intuition, knowledge and information, brand/business identity, team, finance,
technology, customers and network are the resources for an entrepreneur to have business growth.
These resources, if utilized effectively then they help the business at different stages.

Preparing for growth through Acquisition and mergers (part 2)

As discussed earlier, for business growth, three decisions are very important which are given
below:

1. Life cycle stage of the industry

2. Product life cycle stage
3. Available entrepreneurial resources
Other than those three factors, there are strategic measures for the growth of a business such as
acquisition and merger. In small businesses, mergers and acquisitions are not that difficult but they
are not easy in large businesses as many factors have to be kept in mind. In a merger, two
companies combine their business and form one company that represents both entities. However,
in the acquisition, one company takes over another company by purchasing it and the company
that is acquired remains in the total control of the acquirer. The basis of merger and acquisition are
often following:

1. Financial
2. Tender-based
3. Management team based
4. Product-based
There have been acquisitions in the recent past in the telecom and banking sector of Pakistan. In
merger, there are a few types of it which are following:

1. Horizontal Merger: In this kind of merger, two businesses that are direct competitors
having the same product line and market combine to form a new business.

2. Vertical Merger: In this kind of merger, a company merges with the supplier for a new
business and for value addition in their product offering. For example, a supplier of a cone
can merge with an ice cream producing company to provide cone ice cream units.
Similarly, supplier of cotton yarn can combine the business with a textile company to
establish their textile unit with a value addition and cost reduction for both the businesses.

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 3. Congeneric Merger: In such mergers, two businesses that serve the same customer
differently combine for a joint venture. For example, a TV manufacturer and a cable
company can combine their business. Similarly, sometimes sellers of TV provide free
subscriptions of Netflix for a month or two.

4. Market Extension Merger: In this merger, two businesses that are selling the same product
in different markets share their markets. It is also called the market extension merger.

5. Product Extension Merger: In such a merger, two businesses selling different but related
products are combined for a joint venture.

6. Conglomeration: In such a merger, two businesses that have different products, different
market and different nature of business combine to form a new business. For example, in
a furniture shop, the name of the product brand may of a bakery. That brand might be
dealing in both of those two entirely different businesses.

1.1. Preparing for growth: Strategy tools (part 3)

For better understanding and decision making in business growth, two strategic tools are often
used which are the following:

1. BCG Matrix
2. Ansoff Matrix
BCG matrix was developed by the Boston Consulting Group. It is also called as Growth-Share
Matrix. This strategic tool can help an entrepreneur in deciding that in which product or market
he/she has the best scope for the business growth. In the BCG matrix, one assesses how much is
the market growth rate and the relative market share, i.e., the market share of the company.

6
At the Star phase, a company is often in a monopolistic type of situation in the market and
generates a lot of revenue. Product is advertised more and the investor often needs more investment
to maintain this position; however, the product often remains the market leader at this stage.
Question Mark stage means that the product has a low market share but a high market growth rate.
Hence, more investment in advertisement and marketing is needed to further penetrate and increase
the market share. A Cash Cow stage means that the product has a high relative market share but
low market growth. These products generate enough revenue and not much investment is needed
for them. That’s why, it is called Cash Cow stage. Dog category means neither growth nor market
share for the product in the market. At this stage, the business of that product hardly meets even
the breakeven point. If it is the one product business, then often business closure decision is taken
while the product is in this Dog category. However, options such as product redesigning or change
of market etc., might rejuvenate the product even at this stage. Hence, this tool helps a lot in the
strategic decision making.

Ansoff matrix is also a very good tool for analysing product or market expansion. It was developed
by Igor Ansoff and was published in 1957 in Harvard Business Review with the article title,
“Strategies for Diversification”. Even in the present era, this model is still very popular.

It explains different options of business expansion like market development, diversification,

market penetration and product development etc. In market development, the same product is
introduced in another market. It involves risk as well because a brand might not be successful in a
new market. So, the risk factor remains moderate to high. In market penetration, product or market
remains the same but increased marketing effort for growth is made to have a large market share
in the same market. It involves low to moderate risk. The next choice may be product development
which involves a little higher risk. You introduce a new product in the same market. In

7
diversification, a company introduces a new business often in another market. Hence, this tool
gives all these options for better decision making.

1. Globalization and entrepreneurship

Globalization has connected people of the world in a way that never happened in the past.
Communication channels have made the world a global village and it has reshaped the dynamics
of businesses as well. A new entrepreneur also has to consider the factor of globalization and that
how it can impact the new business in his/her domain. Globalization is the shared integration of
resources in the world. Knowledge is now more accessible and cultural boundaries are shrinking.
Free trade is taking place in many countries and people are more connected through shared culture
and values. People of different countries also need the products and services of each other which
globalization has made possible. There are different drivers of fast globalization and some of them
are following:

1. Natural resource endowment: Sometimes, the natural resources of a country are also the
source of competitive advantage for the people of that country. Michael Porter in his theory
of “Competitive Advantage for Nations” suggested that every nation has a unique
competitive advantage of its resources. Therefore, a nation would like to sell its natural
resources to other nations for which globalization is a factor that has fostered this process.
A single country cannot fulfil all its requirements and has to rely on other countries for its
needs.

2. Improved transportation: Better means of transportation have also added an advantage

compared to the past and it has facilitated the exchange of commodities across the world.

3. Technological breakthrough: Communication and connection have become easy. Emails,

the internet, phones etc., have made this process very easy and increased the pace of
globalization.

4. Free trade policies and international politics: Nations are developing their trade blocks
for mutual international trade such as America, Canada and Mexico in the American
continent have their trade agreement. In Asia, ASEAN and in Europe, EU etc., have
increased the globalization process through mutual trade.

5. Skill and knowledge: Now nations are also categorized based on their skill and knowledge-
based economy. Due to this, skilled people of a nation work in other countries for their jobs
and hence culture of a nation is also transmitted from one country to another country.
Values are also exchanged and hence, the globalization process gets the strength.

6. Growth strategies of the large corporation: Many large multinational companies (MNCs)
working in different countries also play a role in the globalization process.

8
Therefore, globalization also impacts the business of a new entrepreneur just like it impacts an
established business. It also creates challenges for small and medium enterprises (SMEs). For
example, the entry of Chinese products in Pakistan also decreases the business value of the local
businesses. Similarly, the textile industry of Pakistan had a relatively bad impact due to
globalization as the other regional competitors grabbed the bulk of market share in the international
market. Therefore, an entrepreneur needs to observe the industry, capital requirement and other
success factors before entering into a new business.

1.1. Opportunities and challenges in the globalized world

There are many challenges and opportunities for new businesses due to globalization. Global
entrepreneurship is the process of business competition at the global level. Hence, understanding
the culture and values of the other country is important for the entrepreneur if he/she is to sell the
products there. The cultural, economic, legal and political forces of that country need to be
understood for better compliance. The global entrepreneurs are more risk-takers and they have to
adapt to the culture of the other country where their business is to operate. Some people think that
globalization has increased opportunities as well problems for small businesses. New concepts of
business are emerging along with globalization phenomenon. Some of the opportunities presented
by globalization process for business are following:

1. Born-Global Firm: The concept of “born global firm” is emerging where “small firms
launch their business in an international market right from the beginning of their business”.

2. Service Outsourcing: Large firms want to reduce costs and they outsource services such
as call centre services to the workforce of less developed countries. Therefore, a
businessman in a developing or under-developed country can be a service provider for a
large firm present in a developed country.

3. Offshoring: In this process, companies initiate their operations in other countries where
the cost of business is less for hiring knowledge workers. For example, there is a trend for
offshore businesses in the IT industry of many countries.

4. Information technology: Social media, and vlogging has become very popular and they
are also the sources of globalization. Websites, blogs, online bookings etc., are strongly
emerging now compared to the past.

5. Skill industry: Offshoring and outsourcing happen due to the skills of people of other
countries.

However, along with the opportunities, there are also the challenges of globalization. Therefore,
an entrepreneur has to understand both the opportunities and challenges of globalization. Some of
them are given below:

9
 1. Culture, demographics and values
2. Legal system
3. Economic risk
4. International politics
5. Financial issues
6. Managerial and skill limitation
7. Quality standards
8. Product design
9. Operation alteration

1.2. Strategies for going global

Primarily, there are six strategies for going global with respect to a business which are following:

1. Exporting
2. Importing
3. Foreign licensing
4. International franchising
5. International strategic alliance
6. Cross-border acquisition

The easiest way of going global is to export a product or service to the international market. In
exports, products and services of the home country are sold in another country where they are
needed. For example, sports goods, surgical instruments, textile products etc., are exported from
Pakistan. Another strategy for a global business is importing in which products of another country
are sold to the customers of the home country. For example, many companies nowadays have
online stores where they import products from China, Malaysia, Japan etc., and customers in
Pakistan buy those goods online from them in Pakistan. This model of business by those online
stores is import oriented. This model can be B2B and B2C as well. Foreign licensing is another
option that needs a lot of legal consideration. In this process, an entrepreneur gets the license of
selling a foreign company’s product/services in their country. The one who buys the license of a
foreign company is called the licensee and the one who sells that license is called the licensor.

10
International franchising is another option in which franchise of a foreign company sells its
products/services in the home country. For example, in the fast-food industry, franchises of many
foreign companies are operating. An international strategic alliance is another option in which risk
gets minimized as a local partner in the foreign country is found for joint collaboration. Both
partners share the resources and foreigner plays the role of insider. Another option is cross-border
acquisition in which a local company purchases the business of a foreign company. It involves the
use of a large capital. All these options provide range of business choices for the entrepreneur in
this globalized world.

2. The digital age and its issues

Globalization has brought the revolution of digitalization that has its opportunities and challenges
as well. Many companies are born global companies with export orientation and they need the use
of digital means of communication for worldwide customers. It has reduced cost of business but
businesses have to be vigilant for it. E-commerce has become more popular due to the
digitalization. It brings new opportunities for the firms. Now transportation and payment methods
along with other facilities are available for international customers and hence, it has increased the
customer base for businesses. For example, Daraz.pk, AliExpress, Bareeze.com are the Pakistan
companies that have started an international business through their online presence. However, for
born global businesses of digital nature, serious considerations are also required. Some of them
are given below:

1. Privacy policy
2. Exchange policy
3. International policy
4. Payment policy and methods
5. Logistics
6. Order tracking
7. FAQs
8. Consumer-generated content
All these considerations need to be kept in mind before starting a digital business. However, there
are also some issues and challenges of e-business, e-commerce and some of them are following:

1. Competition is brutal
2. It takes time to build a positive profile online
3. Government can ban/restrict the product
4. Generating online targeted traffic
5. Converting shoppers into paying customers

11
 6. Choosing the right technology and partners
7. Product display and content development

3. How to close a venture?

It is important to understand the closure strategy for a business as well. Sometimes, people even
don’t know about the closure of a business and find themselves in the risk of legal consequences.
There are multiple options for business closure and a few commonly used options are following:

1. Complete closure
2. Selling of business
3. Declaration of bankruptcy for liquidation
One must have a file having the business dissolution documents. Brand registration and licenses
must be cancelled in case the business is closed to avoid the legal consequences. Finances and debt
must be cleared along with having record for all the payments that were made. All business
accounts in the banks must be closed to avoid the issues such as money laundering allegations etc.,
at the later stages. Business conflicts must be resolved and entrepreneurs should announce in the
market about business closure so that, no one else should use the brand name later on. Tax
returns/sales returns must be paid. Creditors must be notified. Keep the files/documents of the
business with you even after the business is closed for at least five years. Serial entrepreneurs
should evaluate the value of financial and non-financial assets very well. An entrepreneur should
know what to sell and what not. Sometimes, companies declare bankruptcy and announce the
assets that are ready for liquidation. Evaluators of banks assess the value of the asset. Overall, the
financial and legal aspects must be considered carefully before the business closure.

---------------------------------------------------The End-------------------------------------------------------

12
 Technical Articles Theme 15
Title: Entrepreneurship Ecosystem and Ethical Considerations
Videos: 178-194

Topics Covered
178. Entrepreneurship ecosystem (Part 1)
179. Entrepreneurship ecosystem (Part 2)
180. Business Markets and business buying behavior
181. Institutional and Government markets
182. Business Ethics for entrepreneurs (part 1)
183. Business Ethics for entrepreneurs (part 2)
184. How ethical behavior and practices in business bring economic benefits?
185. Visit to Lahore chamber of commerce
186. Interview with Dr. Amjad Saqib: Social entrepreneurship and its impact on society
187. Discussion with Lawyer: Intellectual property
188. Discussion with Lawyer: Trademarks and property rights
189. Discussion with Lawyer: Patents
190. Discussion with Lawyer: Copy Rights
191. Discussion with Lawyer: Design protection
192. All you need to know about CPEC-Part I
193. All you need to know about CPEC-Part II
194. Expert Opinion about Incubation centers

Author: Jawad Hassan, Instructor Business Administration, Virtual University of Pakistan

1
 Entrepreneurship Ecosystem and Ethical Considerations
Entrepreneurship ecosystem is an important concept and it is critical to see it in detail understand
it. In the beginning of this course we shared some development stats (i.e. 14 pillars of
entrepreneurial ecosystem by GEI) with you and discussed our position as a country in an
entrepreneurial ecosystem region wise and worldwide.

All the details we have been through during the whole of this course will be discussed under the
umbrella of the concept of ecosystem. An entrepreneurial ecosystem discusses the tasks an
entrepreneur performs, the resources and planning he needs to do so and the environmental factors
which he comes across. An ecosystem is defined in multiple ways like “it is a community of living
organism in conjunction with the non-living components of their environment (things like air,
water and mineral soil), interacting as a system.” The Global Entrepreneurship and Development
Institute (GEDI) defines the ecosystem as “A system which is organized in a set of interacting and
interdependent subsystems that function together as a whole to achieve a purpose” source: GEDI

The integration of resources, economic activities among the contributors of a system, subsystems
is called as ecosystem. Our university, faculty members, students, campuses, cities, courses,
content, degrees are all the part of an ecosystem. Actually we are all working in an ecosystem,
means you are not working in isolation and secondly you are an integral part of the system just
like other parts you too have the equal importance. “An ecosystem is a purposeful collaborating
network of dynamic interacting systems and subsystems that has an ever changing set of
dependencies within a given context” source: GEDI

“An entrepreneurial ecosystem at socioeconomic level having properties of self-organization

scalability and sustainability as dynamic institutionally embedded interaction between
entrepreneurial attitudes abilities and aspirations by individuals which drive the allocation of
resources through the creation and operation of new ventures” source: GEDI

1
In order to understand this complex definition in simple way let us divide it into further layers.

Consider yourself as an entrepreneur who have basic entrepreneurial motivation with attitude,
ability and aspirations. (Inner layer)

You interact with the dynamic environment (changing needs and behaviors of customers, markets,
resources and organizations) around you. (Mid layer)

Furthermore you interact with the subsystems i.e. corporate sector (competitors), financial sector
(investors, capital sources), research and development (innovations in the market), government
(regulators, policy makers), market structure, and the education sector within your geographic
vicinity. These all subsystems are interlinked and connected as a system which creates and
enabling environment for you to conduct an entrepreneurial activity. (Outer layer)

GEI defines 14 Pillars of an entrepreneurial ecosystem, explained in the following table.

2
Entrepreneurship doesn't take place in a vacuum — a whole host of factors determine how easy
(or difficult) it is to start up. Our National Expert Survey (NES) looks at the national context in
which individuals start businesses

Source: Global Entrepreneurship Monitor

1. Financing for Entrepreneurs

2. Governmental Support and Policies
3. Taxes and Bureaucracy
4. Governmental Programs
5. Basic School Entrepreneurial Education and Training
6. Post School Entrepreneurial Education and Training
7. R&D Transfer
8. Commercial and Professional Infrastructure
9. Internal Market Dynamics
10. Internal Market Openness
11. Physical and Services Infrastructure
12. Cultural and Social Norms

3
Taking discussion on entrepreneurial ecosystem to further step let us have a look on
entrepreneurial ecosystem from another angle. “Entrepreneurial ecosystem is a set of
interdependent actors and factors coordinated in such a way that they enable productive
entrepreneurship in a particular territory. ”

Source: F.C. Stam & Ben Spigel, 2016. "Entrepreneurial Ecosystems," Working Papers 16-13,
Utrecht School of Economics.

Similarly, Isenberg’s model of an entrepreneurship ecosystem has 6 indicators.

1- Conducive culture
2- Enabling policies
3- Availability of appropriate finance
4- Quality of human capital
5- Venture friendly markets for products
6- Institutional and infrastructure support

4
Ease of doing business index is closely related to an entrepreneurial ecosystem. It has further
indicators given in the following paragraph.

 Starting a business:
 Dealing with construction permits
 Getting electricity
 Registering property
 Getting credit
 Protecting investors
 Paying taxes
 Trading across borders
 Enforcing contracts
 Resolving insolvency
Source: World Bank Group

Pakistan entrepreneurial ecosystem.

5
Consumer and non-consumer/business markets:

Business opportunities spread across consumer markets, business markets, and institutional
markets. As an entrepreneur we need to realize that business opportunities have heavier magnitude
of opportunities in business, institutional and governmental markets thus these markets serve a
larger chunk of business opportunities. The dynamics of non-consumer markets are different to the
dynamics of consumer markets i.e. buying decision

Buying decision in consumer markets is done by an individual or maximum by a family unit. In

business markets the buying decision is being performed by a system. It does not mean that there
is no involvement of humans in these sort of decisions. But it is important to understand that these
decisions take humanly input through an integrated system (all the decision makers are the part of
a system in this case). This system has some certain requirements and entry dynamics which are
needed to be well understood in order to enter and penetrate into these markets.

Business markets buy two types of products: 1) for their own consumption, 2) for the further
production of products and services they deemed to produce and deliver to consumer, institutional
or government markets. Their demand is derived demand which is based on their personal potential
markets. Unlike business markets, the government markets’ dynamics are pretty different. Within
any type of economy i.e. market economy, government is the biggest buyer and the largest
consumer of products and services. Government’s span of servicing includes health, education,
defense, policing, transportation and infrastructure.

Institutional markets either governed by the government or non-government entities, profit or non-
profit organizations. Let’s take the example of a prison. A service providing institute for captives.
All the service (health, hygiene, food, education, and skill development) requirements of a prison
need to be sourced. Similarly hospitals from the private and public sector both are the examples of
institutional markets. Institutional (government) buying decisions are systematic, careful and
legally bound by the PEPRA rules, they need to open tenders for sourcing and buying.
Institutional markets (private sector public limited companies) are legally bound to show
transparency to their stakeholders and they also need to open tenders. So tender is a big science. It
needs market intelligence, information seeking. A tender has its own specific requirements pre
requirements and post tender requirements. So here comes the element of mall practices which are
performed to crack the tender related market and real time facts. It is more critical to understand
that in between these mall practices as an entrepreneur you must not betray yourself form the
principals of better, cheaper and faster. Ideally you need to focus on the quality and pricing of your
offerings and further you need to be quick to get accurate marketing information resources.

It is important to know for a startup that it can target consumer, business, institutional, government
markets with equal effectiveness and efficient if the entrepreneur has the right approach,
information seeking ability, and exposure to legal mechanisms of these different types of markets.
It is critical to know the entry preparation requirements for non-consumer or the

6
business/institutional markets. The preparatory requirements depend upon the objective of the
startup itself. Generally a startup focuses on increasing the sales volume, market share and the
return on investment on top priority. Firms dealing in B2C markets attach B2B market in its
business portfolio to muscle up its market share, sales volume and return on investment. B2C and
B2B are totally different organisms to deal with. The strategies and planning of sales, marketing,
servicing, pricing, recovery etc. for B2C are totally different to B2B. Conditioned to the type of
product you are offering it is the liberty of dealing both B2C and B2B at the same time that you
can switch to B2C in case of problems in B2B and vice versa.

When you are growing as an entrepreneur then you need to approach institutional and government
markets in order to increase market share and introduce your innovative products to a larger
market.

Business and ethics

Whether you are a service provider or you deal only in products or both, whether you deal with
B2B markets or B2C markets in each of these situations you come across multiple types of business
practices, people, transactions and situations. Therefore, you need to learn and practice the
business ethics. If you do not practice business ethics and involve in business malpractices then
you may get the short term benefits but it will not help you sustain in the market. Ethics is the
branch of knowledge that defines the moral principles to deal with people and society. Generally,
it involves the moral principles that govern and guide an individual's behavior while living in a
society for conducting activities in general interest of society.

Business ethics is the study of appropriate business policies and practices regarding potentially
controversial subjects. (The waste of a chemical factory will pollute the environment)

Some issues that come up in a discussion of ethics include corporate governance, insider trading,
bribery, discrimination, social responsibility, and fiduciary responsibilities. (Unfair means to win
a tender from an institutional client, gender biasness in employee promotions etc.)

The law usually sets the tone for business ethics, providing a basic guideline that businesses can
choose to follow to gain public approval. (to dispose off chemical factory waste in a proper way,
you own rules and decisions to morally power your business)

Source: https://www.investopedia.com/terms/b/business-ethics.asp

Ethical Boundaries

Religion, personal values, government rules, consumers ‘values, cultural values, and societal
values decide your ethical boundaries.

7
An entrepreneur must have some certain acts or behaviors to display business ethics. These set of
business ethics signal the (business ethic) reputation of an entrepreneur to the business community
and the clients and help grow and sustain business as well.

1) Trustworthiness: Being transparent and honest in all actions and communications (i.e.
warranty claim conditions must be clear, transparent and justified). Trustworthiness creates
your image as a good employer among the internal customers (employees) and a good
brand among the external customers (consumers, suppliers and the competitors).
2) Respect: Respect for employees and customers is equally important along with being a
trusted business entity. The way an entrepreneur treat you during a business transaction i.e.
mutual respect or the way he treats his employees while performing a business activity.
Respect to you customers and employees is a non-monetary reward ensures the return in
form of loyal employees and customers.
3) Fairness: Fairness in dealings with customers and employees is very critical. (Warranty
properly claimed or not, and similarly the worker get the salary and other financial benefits
as per contract or verbal agreement).
4) Respect for governing laws, rules and regulations: Avoid illegal practices i.e. an
entrepreneur must be a tax payer is a great symbol of being ethical. Similarly an
entrepreneur who does not employee child labor is considered as a fair businessman. The
more you adhere to the government laws the more you are reputed among the business
community.
5) Workplace environment: Diversity, harassment, equal opportunity right, wages, basic
rights etc. add to the business ethics reputation of an entrepreneur.
Why Business ethics?

Practicing business ethics are important for the following reasons.

 Business image and credibility and reputation

 Employees’ trust and loyalty and retention
 Consumers’ trust and brand loyalty
 Stake holders and shareholders trust and loyalty
 Cost effective strategy
It is concluded that for a long-term, sustainable business strategy the development and practice of
business ethics and their display in business transactions is critically important for entrepreneurs.

---------------------------------------------------The End-------------------------------------------------------