ENTREPRENEURSHIP EDUCATION/ DEMONSTRATE

UNDERSTANDING OF ENTREPRENEURSHIP

ELEMENT ONE
DEMONSTRATE UNDERSTANDING OF WHO AN ENTREPRENEUR IS
Introduction
This learning outcome aims at equipping the trainee with knowledge of understanding best
who is an entrepreneur, who he socially is, his characteristics, how an entrepreneur differs
from business person, types of entrepreneurs, characteristics of entrepreneurs, factors
affecting entrepreneurship, development as per the principles of entrepreneurship.
Definition of key terms
Entrepreneur: It is a person who creates initially small business and strives to maximize
potential of their venture while simultaneously minimizing risk.
Entrepreneurship: This is a process of designing, launching and running a new business
which often initially a small business along with its financial risks.
Self-employment: This is where an individual is in control of his/her own business, makes
decisions affecting and enjoys all the profits of that business and incurring all the losses.
Business environment: Are those factors that affect the operations of a business. They
may be internal or external environment.
Small scale enterprises: It is a type of an enterprise marked by a limited number of
employees and limited flow of materials and finances.
1.1 Distinguish between entrepreneurs and business Persons
Assignment to be done by learners
1.2 Types of entrepreneurs
a) Innovator: They come up with completely new ideas and turn them into viable
business ideas.
b) Imitators: They are the types who copy certain business ideas and improve upon
them.
c) Small scale entrepreneur: It is a type of entrepreneur that involves small business
ventures. They lack the scale to attract venture capital but are funded by family and
friends. Examples are; groceries, Consultants, carpenters and hairdressers.
d) Scalable start-up entrepreneur: Entrepreneurs start their company believing that
their vision can change the world. Their funding comes from venture capital and
they hire the best employees. Finding a scalable and repeatable business is the
ultimate goal of the business. Examples are; Facebook, online shops, Instagram etc.
e) Large company entrepreneurship: through sustaining innovation, offering new
products in order to meet with changing customers’ needs and advanced
technology. Often companies do this by partnering with or buying innovative
companies. Examples are; Microsoft, Samsung, Google, etc.
f) Social entrepreneur: It is where an entrepreneur creates product and services to
solve social need and problems. This can be non- profit, profit or hybrid. E.g. safe
point trust by Marc koska which works to redesign medical tools and introduce
inexpensive non-reusable syringes for underfunded clinics the world.
Importance’s of entrepreneurship
 Create jobs: As much as entrepreneurs create job themselves. They also create a
number of jobs opportunities with their business venture and as their businesses
grow so the opportunities available increases.
 Creates change: When entrepreneurs make a product or explores ideas, it brings in
change and improvement in the world.
 Entrepreneur give to the society: The more the money they make the more in taxes
they pay which in turn funds public services. E.g. Bill Gates the founder of
Microsoft is the biggest donor in charities and non-profit organization.
 Entrepreneurship have independence: They are their own boss this enables to work
to their capacity and towards achieving the specific goal.
 Freedom of ideas: They are free to implement and make any change in the operation
of the business.
Disadvantages of entrepreneurship
 Risk of business failure - There is no certainty of success.
 Long working hours especially in early stages of implementation.
 Income is varied and uncertain - It is difficult to estimate the income that you will
be able to get in particular day or month.
1.3 Identify ways of becoming an entrepreneur
 Be a risk taker: Humans are generally risk averse, but part of being an entrepreneur
is recognizing the risk that you should take. Successful entrepreneurs know which
risk to take and which they shouldn’t.
 Exercise: That is put the idea into action
 Learning: Getting new ideas from established entrepreneurs.
 Networking: Analyzing gaps in the market where you can invest in and working
together with entrepreneurs of your area of specialization.
 Trust yourself: Being determined to achieve your goals.
 Challenge yourself: Compare yourself with the already established entrepreneurs.
 Visualize goals: Determine the needs and requirements of your goals.
1.4 Characteristics of entrepreneurs are identified as per the principles of
Entrepreneurship.
Characteristics of Entrepreneurs
 Self-motivated: when you want to succeed you need to be able to push yourself.
You aren’t answerable to anyone else as an entrepreneur and that means that it’s
hard to get moving without anyone to make you.
 Risk taker: successful entrepreneurs know that sometimes it’s important to take
risks. Playing it safe sometimes never lead to success as a business owner.
 Flexible: Have the ability to be able to change as needed. Staying on top of your
industry and be ready to adopt changes in the process and product as they are
needed.
 Passion: Successful entrepreneurs are passionate. They feel deeply about their
product or service or mission.
 Basic money management skills and knowledge: Understand how money works
so that you know where you stand and so that you run your business on sound
principles.
 Network: Being able to connect with others and recognize partnership
opportunities can take you a long way as a business owner.
1.5 Factors affecting entrepreneurship development are explored as per principles
of Entrepreneurship
Entrepreneurship is influenced by various factors:
 Economic development.
 Culture.
 Technological development.
 Education.
 Political factor
 Legal factor
 Capital
These conditions may have both positive and negative influences on the emergence of
entrepreneurship.
a) Economic factors: Economic environment exercise the most direct and immediate
influence on entrepreneurship. These factors include:
 Capital.
 Labor.
 Raw materials.
 Market.
 Infrastructure.
b) Social factors: These can go a long way in encouraging entrepreneurship. In fact it
was the highly helpful society that made the industrial revolution a glorious success
in Europe. Main components of social environment include:
 Caste factor.
 Family background.
 Attitude of the society.
 Education.
 Cultural values.
c) Technological factors: Technology has influenced entrepreneurship development
through innovations and use of internet to gather new and existing information.
d) Education: Many entrepreneurial theorists have propounded theories of
entrepreneurship that concentrate especially upon psychological factors. They may
include:
 Need achievement.
 Withdrawal of status respect.
 Motives.
e) Political and government changes in government policy can have a very huge
effect on the business in question. Example the tobacco industries have been on
forced to put warning labels on their product and lost the right to advertise on the
television.
 ELEMENT TWO
DEMONSTRATE KNOWLEDGE OF ENTREPRENEURSHIP
Definition of key terms
Entrepreneurial traits: These refer to characteristics of entrepreneurship and are always
possessed by the entrepreneurs. All the entrepreneurs possess these characteristics and they
distinguish them from the other persons.
Entrepreneurship culture: It is the behavior that is possessed by most of the individuals.
Are also the attributes, values, beliefs, and behavior in which an individual learns from one
generation to another i.e. behaviors of carrying out entrepreneurship activities e.g. starting
up a business.
Self-employment: This is where one is his/her own boss, is in full control of the business,
makes all decisions affecting the business and enjoys all the profits of the business or incurs
all the losses of the business.an individual can even hire employees to work for him or her.
National Development: This explains the benefits accrued from entrepreneurship to the
nation. It may include benefits like revenues, employment, cohesion, infrastructure [lights
roads, electricity] increased imports and exports among others.
2.1 Distinguish between entrepreneurship and self-employment
To distinguish means recognizing the differences between two aspects in this case
entrepreneurship and self-employment.
CAT 1; Difference between Entrepreneurship and Self-employment.
2.2 The importance of self-employment
To analyze means to interpret and explain in detail the importance of self-employment
based on business procedures and strategies. The importance includes:
i. Being your own boss
One is control of all key decisions affecting his business because it is your business you
have started. You work for your clients. Clients state what results they expect from you,
but they do not direct your work. You are your own boss therefore you decide when and
where and how to work to get the job done.
ii. Flexibility
To decide hours of operation, working conditions, business location. You do not have to
go where your employer forces you to do work.
iii. Harmony with your life
If you are working for yourself, chances are you will be doing ok that you enjoy hence
selffulfillment.
iv. Income generating
If all goes well and you are making money, chances are you will make more money than
you did while working for someone else.
v. Profitable
You get to enjoy all the business profits. If your business is doing well, you may not have
to share proceeds with anyone else. The fruits of your labor will all be yours because you
own the vineyard.
2.3 Requirements for entry into self-employment
i. Identify business structure: Determine whether your business will operate as a sole
proprietorship or partnership. You can also set your business up as a limited liability
company or as a corporation.
ii. Register your business: Apply to receive employer identification number. Also
register your business with state and local tax offices.
iii. Licenses and permits: Seek for licenses and permits required to operate a business.
iv. Record keeping: Create and maintain accurate records. Items to list in your records
are details of customers, dates sales or purchases, amount of sales, taxes collected on
sold items and unsold.
v. Taxes – be aware of the taxes that apply to the business to ensure you are fully
compliant.
vi. Will you enjoy your work? – You can only run a business you are passionate about
because it brings happiness that satisfies your life goals. You will have to run a
business that fill the sense of your purpose.
2.4 The role of an Entrepreneur in business
 Initiator: One who initiates the process of creating a business by coming up with
the idea for the business and planning out how to turn that idea into a reality.
 Risk taker: He is the biggest risk taker in business because he is the one who invests
capital and accountable in the face of failure.
 Allocator: He allocates various resources in the organization. These resources
include; manpower, machines, funds, etc.
 Forecasting: He should be prepared on how to deal with various forecast changes
such as strikes, machine breakdowns, budget cuts, legal policies, political or social
unrest, technological advancement etc.
 Adhering to legal norms: To ensure the enterprise adheres to legal norms and
policies. Not pertaining to this can mean serious legal consequences.
 Reduces risk: Best achieved by bringing people that can help the organization
grow. These people can be stakeholders or investors that have stake in the company.
2.5 The contributions of entrepreneurs to national development
 Entrepreneurs spur economic growth. New products or services created by
entrepreneurs can produce a cascading effect, where it stimulates relate businesses
or sectors that need support the new venture, furthering economic development.
 Boosts national income. Entrepreneurial ventures help generate new wealth,
additionally increased employment and higher earnings contribute to better national
income in the form of higher tax, revenue and higher government spending.
 Entrepreneurs create social change. Through offering unique goods and services,
entrepreneurs break away from tradition and reduce dependence on obsolete
systems and technologies.
 Community development. Entrepreneurs regularly nurture venture by other
likeminded individuals. They also invest in community projects and provide
financial support to local charities.
 Conservation of foreign exchange – You are able to produce goods hence no need
to import therefore contributing to conservation of foreign exchange.
 Promotion of entrepreneurial culture – They encourage individuals to set up and
manage their business and this reduces importation of goods.
2.6 Entrepreneurship culture in Kenya
 Entrepreneurship culture in Kenya is influenced by the following factors:
 Availability of funds
 Modern technology
 Availability of developed infrastructure
 Appropriate knowledge and skills
 Appropriate training
 Government policies
 Individual strength and talents
 Availability of markets
 Availability of resources
 Culture
 Natural factors
 Political stability
 Competition
 Resource persons and entrepreneurs
 Social security
Born or made Entrepreneurs traits
Born entrepreneurs dream big, take what they want and never stop trying to achieve their
goals. They have the following traits:
 Believe in themselves
 Have some security
 Takes charge
 Crafty and innovative
 Outspoken
 Observed with making money
 Fearless and thrive on challenges
 Take huge financial risks
 They can have a business idea that doesn’t have to bring income instantly when it
is implemented.
Made entrepreneurs are those that are self-made successful individuals. They may have
different traits from those who were successful before. They have the following
characteristics.
 Determined.
 Enjoy what they do.
 Serious.
 Risk taker.
 Can manage money.
 High level of confidence.
 Recognizes failure.
 Plan everything.
 ELEMENT THREE
IDENTIFY ENTREPRENEURSHIP OPPORTUNITIES
Definition of key terms
Sources of business: These are the origins of business idea that can be used for financial
gain that is centered on a product that can be offered money.
Product demand: A customer’s willingness to purchase a product or services at a given
price.
Business life cycle: They are phases that a business idea passes through from the time it is
formed in the entrepreneur’s mind to the time business rolls and expands or declines.
Business legal aspects: They are legal frameworks through which a business operates.
3.1 Sources of business ideas include:
 Customer surveys: Customer needs and wants to justify for the service or product
that you can offer them.
 Interests and hobbies: Most people have founded great successful businesses
while pursuing their interests and hobbies i.e. by doing what they love doing in their
leisure times.
 Brainstorming and dreams: This starts with identifying a problem statement or
question. Designing solution to these problems lead to business ideas.
 Franchising: It is a situation where sole traders mark distributor of a product gives
exclusive rights to independent retailers for local distribution.
 Mass media: Include T.V. newspapers, internet, radio, and magazines. They are
also a great source of ideas, information and opportunities.
 Personal experience and talents: Most of the ideas are also as a result of
experience in a workplace.
 Trade fairs and exhibitions: Attending such events regularly makes one discover
new services and products.
3.2 Generate business ideas and opportunities
To generate more business ideas and opportunities, one must be able to do the following:
 Meet new people
 Tap into your interests
 Keep “pain point” journal
 Travel
 Explore new ways of thinking
 Do your market research
 Go online
 Attending educational events
3.3 Business life cycle
Business life cycle refers to the phases that a business passes through from time the idea is
formed in the entrepreneur’s mind to the time business rolls and expands or even declines.
Many businesses go through six stages in their life as shown below;
a) Idea generation: This is the preliminary stage for the business. Here, the
entrepreneur does a lot of groundwork to access the viability of the venture he is
about to get into.
b) Start – up stage: Activities may involve preparation of a formal business plan,
registration of the business, sourcing capital, recruiting and designing the product.
During this phase, sales are low but slowly increasing its sales as the time passes
by. At this phase entrepreneurship concentrates with marketing their product and
services to their target customers business are prone to incur losses in this phase.
c) Growth stage: at this stage of business common experiences may include:
 Increased sales and profit
 Wider market coverage in terms of geographical region
 A growing number of employees
 Variety of products and services
 Increased competition
 Need for additional expenditures
d) Stabilization stage: At this stage, business sales and profits stagnate. The business
may also experience intensified competition. Sales may go down due to the
presence of competitors in the market, profit margin starts to go down.
e) Innovation stage: Organizations that fail to innovate at stabilization stage are likely
to decline. To ensure come back to growth, the entrepreneur is required to re-look
at the way’s businesses have been conducted. The cash generation is higher than
the profit on the income statement.
Among innovative attempts include:
 Change of management
 Repackage the product/service
 Change the technology
 New distribution methods
 Advertise and promote differently
f) Decline stage: This stage is not in normal plan of business. The entrepreneur does
not foresee business declining at the start-up stage. Sales and cash flow all decline.
Companies accept to extend their business venture by adapting to the changing
environment. Firms loses their competitive advantages and finally exits the market.
3.4 Business Legal aspects
Businesses operate within a legal framework that for the most part, works. The legal aspects
include:
 Legal entity: All businesses are categorized as some sort of legal entity that governs
the way they are treated under the law. Some business structures are considered free
standing entities that have special rights and the owners have limited liability.
Others like sole proprietorship, the owner assumes all the liability and rewards.
 Compliance: Compliance to local (city and county), state and federal laws will be
something that all businesses will need to deal with.
 Contracts: Most businesses will enter into a contract with a person or another
business at some point in their existence. These contracts are what define how the
working relationship will be carried out and who will be responsible for deliverables
and payments.
 Resolving disputes: The legal system is set up to solve disputes. These disputes
usually revolve around some sort of breach of contracts, violation of intellectual
property or breaking the law.
 A necessity that’s not the evil: Having good corporate counsel will make your
business better.
3.5 Product demand Assessment
This involves determining how many units of products will be sold over the course of a
year. Factors to include:
 Go over past sale records
 Use marketing projections to help estimate demand
 Use a competitor’s sales data
 Pay attention to the local and global economy
 Estimate sales on recent performance
3.6 Types of business environment
Are factors that affect the function of the organization and how organization works directly
or indirectly? They include internal environment which affects operations of a company
are within the control of management and external environment which are beyond the
control of the organization.
Internal business environment:
 Financial: Finances determine whether your company survives or dies. When
money is limited it affects the operations of the business.
 Employees and managers: Employees are the major part of your company internal
environment. They should be good at their jobs. On other hand managers should be
good at handling lower-level employees and overseeing other parts of internal
environment.
 Resources: Availability of resources can also determine how the business performs.
Scarce resources will affect the number of sales made, quality of products or
services produced and even the period which the business will last.
 Company culture: This consist of values, attitude and priorities that your
employees live by. Your staff will infer your values based on the type of people you
hire, fire and promote
External factors:
 Competition: Unless a company has unique features, competition will always be
there. When you start a company, you will compete against more establishes and
experienced businesses. Competition can either make or break your business.
 Political: Changes in government policy can have a very huge effect on the business
in question. Example the tobacco industries have been on forced to put warning
labels on their product and lost the right to advertise on the television.
 Customers and suppliers: Next to the employees, customers and suppliers are the
second most important in your business. Suppliers have a huge impact on the cost
and customers depend on how good your products are and whether you’re
advertising makes customers want to buy from you among others.
 Economical factor: In a bad economy, even a well-run business may not survive.
High interest rates on banks and credit cards will discourage / limit the entrepreneur
and customers spending on your products or services.
3.7 Factors to consider when evaluating business environment
 Ability to manage cash: You need to look at the ability to manage cash flow. Is
there a start-up funding for your business? What about ways to keep funding your
business each month. Figure out how cash flows will be managed and take a look
at your business plan.
 Passion and persistence: Are you working with people who will get their jobs
done? Do you trust they have passion for the work assigned to them? How will they
approach difficulties in case they face them in the future? You need to ensure that
you have the passion to be in that business and the desire to come out of challenges.
 Market size: It’s one of the most important factors when evaluating a business
opportunity. Researching the market and figuring out whether there we market for
your products and how big it is.
 Relationships: What is your relationship with the potential investors or customers?
When you have more relationships the chances for your business to run smoothly
is high.
 Management skill sets: What are the skills of those involved in your business?
When looking for the business opportunity to invest in or expand into, look at the
management. What skills do they have? Are they appropriate?
Incorporation of technology in business
 Provides for communication with customer: technology affects a firm’s ability to
communicate with customers. This is best achieved by use of internet.
 Efficiency of operations: Technology also helps a business understand its cash flow
needs and preserve precious resources such as time and physical space.
 Security: Most businesses of the modern era are subject to security threats and
vandalism. Technology can be used to protect financial data, confidential execution
decisions and other proprietary information.
 Business culture and relations: Technology creates a team dynamic within a
business because employees of different locations have better interactions.
 Research capacity: A business that has the technological capacity to research new
opportunities will stay a step ahead of its competition. For a business to survive, it
must grow and acquire new opportunities.
 ELEMENT FOUR
CREATE ENTREPRENEURIAL AWARENESS
Definition of key terms

Forms of Business: They are different business structures like sole proprietorship,
partnerships, limited companies, corporations among others.
Governing policies: These are written regulations and laws laid by the government that
businesses must comply with.
Small Scale Enterprises: This is a privately owned and operated business characterized
by a small number of employees, require small capital to start etc. A business is regarded
as small depending on the regulations of a country.
4.1 Forms of businesses are explored as per business procedures and strategies
1. Sole proprietorship
This is a form of business that is owned by one person.
Advantages
 It needs no charter to establish it.
 There are few casts that are related to its establishment.
 All the profits go to the owner of the business without sharing with anyone.
 Easier to raise startup capital that is from the owner’s savings.
 You are your own boss.
 Flexible to start your business at any location, anytime of the day.
 Motivation because you get all the profits.
 One has a personal contact with customers hence can be able to respond to their
requests.
Disadvantages.
 In case of loses, the sole proprietor bears all the loses by himself/herself.
 The sole proprietor will have to work very hard to sustain the business hence leaving
less time for leisure/recreation.
 A sole proprietor has unlimited liability that is a creditor with a claim against a sole
proprietor would normally have a right against all of his/her assets whether business
or personal.
 Poor and uninformed decisions made by the owner of the business may lead to the
collapse of business completely.
 One has nobody to discuss the business problems with.
 One has limited finance or capital hence the business will remain small.
2. Partnership
It is a relationship that exists between two or more persons carrying on a business common
with a view to making profit. It is an agreement when two or more persons combine their
resources in a business with a view of making profit. When two or more persons wish to
form a partnership, then it is recommended that they agree on the terms upon which to form
a partnership. This is done in writing signed off as agreed by all the partners and therefore
it becomes a partnership deed or agreement.
Contents of partnership agreement
 Name and address (s) of the firm and the partners.
 Capital to be contributed by each partner.
 The profit-sharing ratios expressed as a fraction or percentage.
 Salaries to be paid to the partners.
 Any interest to be charged on drawings by the partners.
 Interests to be given on partners on their capital balances.
 Procedures to be taken on retirement or admission of a new partner.
3. Membership
It has a minimum membership of two (2) and a maximum of fifty (50) except for
professions firms, e.g. lawyers, doctors whose maximum membership is twenty (20).
Types of partnerships
 General partnership: in this, all the members share the management of the
business and each is personally liable for all the debts and obligations of the
business. Each partner is responsible for and must assume the consequences of the
actions of the partner.
 Limited partnership: some members are general member who control and manage
the business and may be entitled to a greater share of profits. A legal document
setting out specific requirements must be drawn up for a limited partnership.
Advantages
 Additional capital can be raised in case a sole trader is not able to raise sufficient
capital.
 There is increased expertise in certain areas of business because of existence of
many partners who are skilled differently.
 Informed decisions and judgments can be made since the partners are involved in
the decision-making process.
 It is a tax pass through entity.
Disadvantages
 Wastage of time in decision making since all the partners must be consulted which
takes time.
 All partners are liable to payment of all the losses that accrue in the business.
 Some members have limited liability while others have unlimited liability.
 Can be dissolved at any time either due to the exit or death of a partner.
 If one partner is inefficient or dishonest, everybody loses.
4. Limited companies:
It is a type of business structure that has been incorporated at company’s house as a legal
‘person’. It is completely separate from its owners. It can enter into contracts using its own
name and it’s responsible for its own actions, finances and liabilities.
Characteristics of a limited company
 Separate legal existence- It is its own separate legal person from the owners of the
business.
 Limited liability- Shareholders are legally responsible for the debts of the company
only to the extent of the nominal value of their shares.
 Flexibility in taxation- Members of the corporation have the ability to choose the
form of taxation that makes the most sense for the business i.e. can choose to be
taxed as Subchapter corporation or Subchapter corporation.
 Simplicity in operation- Does not require to have shareholders meetings, appoint
the board of directors to run the company i.e. Simplicity in operation while the corporation with
no shareholders meetings, therefore there is no attendant
preparation of filing of minutes of the meetings i.e. simplicity in documentation.
Advantages
 Protection of the company’s name- It is an entity separate from its owners, and its
own rights, responsibilities and liabilities, can file a lawsuit or can be sued in its
own name.
 A limited company is tax efficient i.e. tax flexibility
 Personal liability is limited. - Debts are only to the extent of the nominal value of
their shares.
 Perpetual existence – Owners of the entity can change without triggering the
dissolution of the company unless stated otherwise in the articles of the
organization. A member’s death, retirement, withdrawal etc. doesn’t mean that the
company must cease to operate.
 Less paperwork – Having limited company operating agreement to create rules that
govern your business hence less paperwork for compliance of rules of your state.
 High status of the company will attract investors and customers.
Disadvantages
 Required to pay a registration fee to company’s house to incorporate i.e. legal
formalities.
 Company name is subject to certain restrictions.
 More complex and time-consuming accounting requirements.
 Strict procedures for withholding money from the business.
 Owners lose control when the original owners hold less than 51% of shares.
 Selling of shares is expensive because of the commission paid to banks to aid in
selling shares and costs of printing the prospectus.
5. Cooperatives
It is a group of individuals who have specific common needs. Its purpose is to improve the
economic status of the members.
Advantages
 Tax advantage: Exempted from income tax and surcharge on its earnings up to a
certain limit.it is also exempted from stamp duty and registration fee.
 Democratic management: Managing committee elected by members on the basis of
one member one vote irrespective of the numbers of shares held.
 State assistance: This is done by the government as they see cooperatives as an
effective socio-economic instrument of change therefore offered grants, loans,
financial assistance to make their work more effective.
 Open membership: Anyone can join irrespective of their color, age, religion,
economic status and there is no limit on maximum members.
 Limited liability: The liability is reduced to the extent of their capital in the
cooperative societies.
 Social service: The basic philosophy of cooperatives is self-help and mutual help.
Thus, cooperative foster fellow feeling among their members and inculcate moral
values in them for a better living.
Disadvantages
 Lack of mutual interest: All members are not imbued with a spirit of cooperation
and such absence breeds mutual rivalries among its members.
 Corruption: In a way, lack of profit motive breeds fraud and corruption in
management. This is reflected in misappropriation of funds by the officials for their
personal gains.
 There is slow decision making since all members of the managing committee have
to be consulted.
 Less capital incentives which does not appeal to long term investors.
4.2 Sources of business finance are identified as per business procedures and strategies
 Owner’s capital: It is the only source of capital for the sole trader starting business.
This type of capital through when invested is often quickly turned into long term
fixed assets which cannot be readily converted into cash.
 Ploughed back profit: It is the most basic source of funds for a company. Firms
profit by selling a product for more than it cost to produce.
 Borrowings: like individuals, companies can borrow money. This is done privately
through bank loans or publicly through a debt issue.
 Overdraft: Is a form of a loan from a bank. A business becomes overdrawn when
it withdraws more money than is available in the account. This leaves a negative
balance on the account. It is often a cheaper way of raising capital.
 Leasing: A business has the use of an asset but pays a monthly fee for its use and
will never own it. A business looking to purchase equipment may decide to lease if
it wishes to improve its immediate cash flow.
 Issue of shares: A company can generate money by selling part of itself in the form
of shares to investors which is known as equity funding.
4.3 Factors to consider in selecting source of finance of the business.
 Cost of capital: Every source of capital comes with a cost. The cost of getting capital
should not be extremely high. Most businesspeople prefer debt to equity because its
cost is low due to interest tax shield they are not taxed, which lowers the cost of
capital.
 Risk of the business: When choosing a source of finance, one should consider how
much risk the business will face when they acquire that source of capital. That
source of capital should not put the business at a very high risk.
 Control of the business: Owners of the business who do not want to lose the control
of the business would rather finance the business using debt rather than equity
which will dilute the ownership of the business.
 Purpose of the borrowing: If the reason for acquiring the source of finance is to
purchase noncurrent assets, the business would rather use long term sources of
finance to fund acquisition of non-current asset.
 The size, status and ability of the business to borrow: If the business has assets
which it can use as collateral, it can consider borrowing loans from financial
institution.
4.4 Governing policies on Small Scale Enterprises (SSEs) are determined as per
business procedures and strategies
All the state governments provide technical and other support services to businesses
through their directorates of industries. The government accords the highest preference to
development of the small scale enterprises by forming and implementing suitable policies
and promotional schemes. Thus, government play supportive role in developing
entrepreneurs. The following are common areas of support:
 Development and management of industrial estates.
 Suspension/deferment of sales tax.
 Power subsidies.
 Capital investment subsidies for new units set up in a particular area.
 Seed capital/margin money assistance scheme.
 Priority in allotment of power connection, water connection.
 Consultancy and technical support.
4.5 Problems of starting and operating SSEs are explored as per business procedures
and strategies
 Financial constraints: Finance has made it difficult to progress and provide quality
services. Financial institutions find it hard to consider lending loans to them as they
have little assets that could be used as collateral.
 Competition: The low comparative advantage in production of certain goods as
compared to our trading partners. This has restricted entry to the businesses as
production costs may be higher relative to the cheap imported goods.
 Lack of advanced technology: Technology is fundamental and a prerequisite to
higher output levels and reduced production costs. This has made them not to
flourish and participate in regional trading due to low quality output because of the
use of obsolete technology.
 Insecurity: Security poses a great challenge to small scale business owners in
Kenya. Many of the businesses suffer loss due to theft or thug’s invasion who steal
from them which lead to loss in terms of destruction.
 Hawkers: Pose a challenge to small scale businesses because they sell cheaper and
their goods are of high quality. Competing with hawkers on prices is debatable since
hawkers move from one place to another bargaining on price. Since most of them
don’t consider a lot of profit but sale of goods.
 ELEMENT FIVE
APPLY ENTREPRENEURIAL MOTIVATION
Definition of key terms
Internal motivation Factors: These are factors that aim to motivate the behavior of an
individual arising from within the individual because it’s naturally satisfying them.
External Motivation factors: These are those factors that aim to motivate the behavior of
individual in order to receive an external reward or outcome.
Motivation theories: These are the forces acting on or within a person that causes the
arousal, direction and persistence of reaching a goal.
Communication Principles: These are the proven guidelines that are followed in giving
and receiving a message to another person with an intention to evoke a response.
Entrepreneurial Motivation: It is the process that activates and motivates the
entrepreneur to exert higher level of efforts for the achievement of his/her entrepreneurial
goals.
5.1 Factors for internal and external entrepreneurial Motivation
Most researchers have classified all the factors motivating entrepreneurs into internal and
external factors as follows:
Internal factors
Examples;
 Participating in a sport because its fun and you enjoy it rather than doing it to win
an award.
 Spending time with someone because you enjoy their company not because they
can further your social standing.
 Volunteering because you feel content and fulfillment rather than needing it to meet
a school or work requirement.
Factors for internal motivation
 Curiosity: The desire to know pushes us to explore and learn the sole pleasure of
learning and mastering.
 Challenges: These makes us to work at a continuous pace and work hard towards
achieving our meaningful goals.
 Recognition: We all have a need to be appreciated and recognized when we do
something good.
 Cooperation: Cooperation with others satisfies our need of belonging and achieving
our shared goal.
 Fantasy: This involves using our mental and visual image to stimulate your
behavior.
External factors
Examples;
 Competing in sports for trophies.
 Completing a task for money.
 Buy one get one free sale.
 Doing things in public for fame etc.
Factors affecting external motivation factors
 Financial rewards: Commission, bonuses, stock options and employees stock plans
are compensatory rewards that motivates individual to working even more harder
to receive more of it.
 Praise and recognition: Some people aim to be praised and recognized when they
do their assigned task properly. This is also a motivating factor as they will do more
for them to be recognized.
 Social groups: The need to belong somewhere and to be accepted will trigger some
actions making people to work or try things in order to keep them up with the team.
 Consequences: People will opt to do or not to do things as a result of the
consequences arising for their actions.
 Promises: This is a commitment by someone to do or not to do something. It’s an
external motivating factor for some reason’s individuals will choose to do or not to
certain things in accordance to the promise in question.
Motivation Theories
Are divided into content theories that focus on what while the motivation theories focus on
how. The main content theories are; Maslow’s needs hierarchy, Alderfer’s ERG theory, Mc
Cleland’s achievement motivation and Herzberg’s two factor theory. Process theories are;
skinners reinforcement, Victor Vroom’s expectancy, lockers goal setting theory.
a) Maslow – hierarchy of needs
Earliest and mostly widely known. It was developed by Abraham Maslow.
It is often showed in the shape of a pyramid.
i. Physiological needs: Includes most basic needs for humans to survive and are the
most dominant of all needs. They include; food, water and shelter. Maslow
emphasized that our body and mind cannot function well if these requirements are
not fulfilled.
ii. Safety and security: Refer to a person’s desire for protection or security. They
include; personal security, financial security, health and well-being.
iii. Belongingness and love: Love involves giving and receiving affection. Maslow
claimed people need to belong and accepted among their social groups.
iv. Esteem needs: It is respect for a person as a useful, honorable human being.
Humans need to be valued and self-respected.
v. Self-actualization: Reflects on an individual’s desire to grow and develop to his/her
fullest potential.
NOTE: According to Maslow, “what humans can be then they must be”.
b) Alderfer –ERG THEORY: Existence needs, relatedness needs and growth needs.
ERG theory says, if the manager concentrates only on one need at a time, he/she won’t be
able to motivate the employee effectively. He therefore divided the needs into;
i. Existence needs: it includes needs for basic material necessities.
ii. Growth needs: is the need for self-development, personal growth and advancement
form. This class contains Maslow’s social needs and external component of esteem
needs.
iii. Relatedness needs: these are individual need significant relationships. It contains
Maslow’s social needs and external component of esteem needs.
c) McClelland theory: Need for achievement affiliation and power.
This theory differs from Maslow’s and Alderfer’s theory. This dominant motivator depends
on our culture and life experiences. The motivators are:
i. Achievement motivation: It’s influenced by internal drivers for action and pressure
used by the prospects of others. Individuals with high need of achievement like to
receive regular feedback on their progress and achievements and often like high
degree of independence.
ii. Affiliation motivation: It is a need for love, belongingness and relatedness. They
have a strong need for friendships and want to belong within a social group, need
to be liked and held in popular regard.
iii. Authority/power motivation is a need to control over one’s own work or work for
others. These persons are authority motivated. There is a strong need to lead and
succeed in their ideas.
d) Herzberg-two factor theory.
Also known as motivation-hygiene theory. This theory says that there are some factors that
cause job satisfaction and motivation and some separated factors (hygiene factors).
Hertzberg’s five factors of job dissatisfaction
 Company policy and administration
 Supervision
 Salary
 Interpersonal relations
 Working conditions
Hertzberg’s five factors of job satisfaction
 Achievement
 Recognition
 Work itself
 Responsibility
 Advancement
Process theories
a) Skinner’s reinforcement theory
It says that behavior can be formed by its consequences.
In it is stated that reward must meet someone’s needs, expectations, must be applied
equitably and must be consistent. The desired behavior must be clear and realistic.
b) Vroom’s expectancy theory
Emphasizes on the process and content of motivation. It aims to explain how people choose
from the available actions.
The motivation to engage in an activity is determined by appraising three factors. They are;
i. Expectancy: A person’s belief that more effort will result in success.
ii. Instrumentality: The person’s belief that there is a connection between activity and
goal. If you perform well, you will get a reward.
iii. Valence: It is the degree to which a person’s values the reward; The result is success.
c) Locker’s goal setting theory
It is an integrative model of motivation. It emphasizes that setting specific, challenging
performance goals and the commitment to these goals are key determinants of motivation.
Goals describe a desired future and these established goals can drive the behavior.
Achieving the goals, the goal accomplished further motivates individuals to perform.
It is a useful theory which can be applied in various fields.
Assessment for entrepreneurial Orientation
The first dimensions of entrepreneurial orientation to be consistently identified by
organizational research were innovativeness, risk taking and pro-activeness.
Innovativeness refers to the propensity towards creativity and experimentation through the
introduction of new products and services. Risk taking is the degree to which firms, or
managers are willing to consider investing in resources. The relationship between proactiveness
and personal initiative is congruent with studies conducted in organizational
settings.
Entrepreneurial Communication Principles
 Completeness: The message must be complete and geared to the receiver perception
of the world.
 Concreteness: The clearness of the message
 Courtesy: Approaching the audience in a friendly manner
 Correctness: Message should be grammatically correct and avoid wrong use of
verbs.
 Clarity: Clear language is characterized by short and concrete words.
Application of Entrepreneurial motivation theories
 In the case where there is need for achievement, affiliation and need for power as
stipulated by McClelland.
 Where there is need to establish entrepreneurial personality.
 If there is need for high achievement in a particular form of business.
 ELEMENT SIX
DEVELOP BUSINESS INNOVATIVE STRATEGIES
Definition of key terms
Business innovative strategies: A plan used by a company to encourage advancements in
technology or services usually by investing money in research and development activities.
Business growth: This is a stage where the business reaches a point of expansion and seeks
additional options to generate more profit.
Business Development: Is the creation of long-term value for an organization from
customer, markets and relationships normally focuses in achieving long term goals.
Business strategies: Are plans put in place by an entrepreneur to undertake business
operations and ensure that the strategies are implemented to achieve business goals and
objectives.
6.1 Determining business innovation strategies
This is a plan used by a company to encourage advancements in technology or services
usually by investing money in research and development activities.
Types of business innovation strategies
They can be classified as active, pro-active and reactive.
a) Proactive: Companies with proactive innovative strategies tend to have strong
research orientation and first-mover advantage and be a technological market
leader. They access knowledge from a broad range of sources and take big bets/high
risks.
Types of innovative technologies used in proactive strategy are:
 Incremental: The constant technological process changes that lead to improved
performance of products and services.
 Radial: Breakthroughs that change the nature of products and services.
b) Active: It involves defending existing technologies and markets while being
prepared to respond quickly on markets and technologies are proven. Companies
using this approach also have broad sources of knowledge and medium to low risk
exposure. They tend to hedge their bets. They mainly use incremental strategies.
c) Reactive: It is by companies:
 Which are followers?
 Have a focus on operations.
 Take a wait and see approach.
 Look for low risk opportunities.
They copy proven innovation and use entirely incremental innovations like Ryan air, a
budget airline which has successfully copied the no-frills service model of Southwest
Airlines.
d) Passive: Companies with passive innovative strategies wait until their customers
demand a change in their products or services.
Importance of innovation in business
Innovation refers to creating more effective processes, products and ideas. Their benefits
include:
 It helps to solve problems easily in business.
 It increases the productivity of the business.
 Innovation makes it easier to market your business hence gaining market share.
 Have a competitive advantage thus making it easier to beat your competitors.
 Enables the business to sustain in any particular environment.
 A business is able to maximize on its return on investment.
 It brings about a positive impact on the company’s culture.
 Helps in communication and educational accessibility, coming up with effective
innovative communication strategies that ensures that communication flows all
around the organization.
6.2 Creativity in business development
Business development: it is the creation of long-term value for an organization from
customers, markets and relationships. The two important aspects:
 Process
 People
The process is goal oriented and designed to attain a solution to a problem. The people are
the active resources that determine the solution. They will sometimes adapt a solution and
at other times they will formulate a highly innovative solution. This innovator approaches
tasks from unusual angels, discover problems and avenues of solution, questions basic
assumptions related to current practices, is more interested in ends, has little tolerance for
routine work, little or no need for con-census and often insensitive to others.
6.3 Developing innovative business strategies
The five steps for developing the strategy are:
 Determine objectives strategic approach to innovation.
 Know your market i.e. customers and competitors.
 Define your value proposition.
 Access and develop your core capabilities.
 Establish your innovation techniques and systems.
6.4 Ways of developing linkages with other entrepreneurs.
 Identify the competitive advantage of a given region and resident enterprises for
certain products and services.
 Developing a joint strategy with participation of local stakeholders.
 Linking the local PSD measures to the strategy. Fostering business linkages
between entrepreneurs of this sub-sector and related sub-sectors.
 Developing capacity of public and private business service providers.
6.5 ICT in business growth and development
ICT: Includes any communication device or application encompassing radio, television,
cellular phones, computers, hardware and software.
ICT can be used in expanding, growing and developing the business in the following ways:
i. Social media: Refers to a wide range of internet based and mobile services that allow
users to participate in online purchases, sales, advertising hence the business is able
to expand the number of audiences that can be able to see and purchase their products.
ii. Blogs: These are online journals hosted on platforms that help advertise the different
products of business hence a high probability of increasing market share.
iii. Wikis: A collective website where any participant can modify any page or create any
new page using a browser, hence people can see images, prices of the products of
your business and they can order online hence increased flexibility of the business.
iv. Media sharing sites: Allows users to post videos or photographs.
Social media platforms encourage knowledge sharing and businesses. With the current
information age, most individuals are connecting using various technological platforms.
Here someone can post their products or services freely among the members and
consultation is real time as answers and questions are readily available. This promotes
flexibility and customers are able to order from anywhere and their products will be
delivered hence convenient for the customers.
 ELEMENT SEVEN
DEVELOP BUSINESS PLAN
Definition of key terms
Marketing plan: involves identifying target customers, how to reach them and the
retention process.
Organizational/Management plan: describes how an organization or business is run.
Financial Plan: it is a comprehensive evaluation of an individual’s current pay and future
financial state.
Business plan: a written description of your business future, a document that tells what
you plan to do and how you plan to do it.
Describe types of Business as per business procedures and strategies
There are three major businesses:
1. Service business: is a type of business that provides intangible products. They offer
professional skills, expertise advice and other products.
2. Merchandising business: this type of business buys products at wholesale price
and sells the same at retail price. They make profit by selling the products at prices
higher than their purchase cost.
3. Manufacturing business: it buys products with the intention of using them as
materials in making new products. It combines raw materials, labor and factory
overhead in its production process.
Develop marketing plan as per business plan format
To grow your business, you need a marketing plan. The right marketing plan identifies
everything from:
 Target customers.
 How to reach them.
 The retention process.

Sectors to include in this plan:

a) Executive summary: it gives an overview of your plan.
b) Target customers: describes customers targeted. Describes their geographical
profile (e.g. gender, age), their wants and needs.
c) Unique selling proposition: having a unique selling proposition is very critical since
it distinguishes your company from its competitors.
d) Pricing and positioning strategy: it must be aligned. You should detail the
positioning you desire and how you’re pricing will support it.
e) Distribution channels: the advertising can be primarily done online via a search
engine. We should choose best marketing network for your products.
f) Keys to success: there are several benefits of using social media to market our small
business. Each of the postings on social media sites will include a traceable link.
We need to know how many people click to each link.
Prepare organizational/Management plan in accordance with business plan format
It describes how an organization or business is run. It allows you to formalize your
management structure and operations.
It entails:
1. Determine the need for management plan.
2. Outline your plan.
3. Describe your management structure.
4. List the different aspects of your organization being managed under the plan.
In the description of management, you should:
1. Name your board members.
2. Introduce the key management members.
3. Present the strengths of each individual I the management team.
4. Describe hiring process.
5. Name any outside consultants or advisors you will be hiring.
6. Summarize your management team abilities.
7. Describe relationships between management, ownership and employees.
Prepare production/operation plan in accordance with business plan format
Is a highly detailed plan that provides a clear picture of how a team, section or department
will contribute to the achievement of the organizations goals?
It is a manual for operating your organization. It is designed to ensure you accomplish your
goals.
It is a key piece of the puzzle for any goal oriented team.
The steps you can take to develop a strong operations plan. That is:
1. Start with your strategic plan.
2. Focus on your most important goals.
3. Use leading not lagging indicators.
4. Do not develop your plan in a vacuum.
5. Communication is paramount.
Prepare financial plan in accordance with the business plan format
It is a comprehensive evaluation of an individual’s current pay and future financial state by
using current known variables to plan.
It often includes a budget which organizes an individual’s finances and sometimes includes
a series of steps or specific goals for spending or saving.
It can refer to the three primary financial statements, that is:
1. Balance sheet.
2. Income statement.
3. Cash-flow statement.
Financial plans are the overall/entire financial accounting overview of a company.
Prepare an executive summary in accordance with business plan format
Is a short document or section of a document produced for business purposes?
It summarizes a longer report or proposal or a group or related reports in such a way that
readers can rapidly become acquainted with a large body of material without having to read
it all.
It is intended as an aid to decision making by managers and has been described as the most
important part of a business plan.
Typically, an example will:
 Be approximately 5 – 10% of the length of the main report.
 Be written in language appropriate for the target audience.
 Consist of short concise paragraphs.
 Begin with a summary.
 Be written in the same order as the report.
 Only include material present in the main report.
 Make recommendations.
 Provide a justification.
 Have a conclusion.
 Be readable separately from the main report.
 Sometimes summarize more than one document.
Present business plan as per best practice
It is a written description of your business’s future, a document that tells what you plan to
do and how you plan to do it.
It should contain:
1. The executive summary.
2. Company description.
3. Market analysis.
4. Competitive analysis.
5. Description of management and organization.
6. Breakdown of your products and services.
7. Marketing plan.
8. Sales strategy.
9. Request for funding.
10. Financial projections.
Benefits of a business plan
1. It helps in management of cash.
2. Enables business owners to develop accountability.
3. Useful in strategic focus.
4. Priorities can be easily set.
5. Easier monitoring of the whole business.
6. Helps in strategic alignment.
7. Realistic regular reminders to keep on track.
Disadvantages of a business plan
1. Is only a plan and does not guarantee success.
2. If the plan is too rigid, some problems may arise, it must be flexible to adapt to
market changes.
3. High sales expectations may cause overspending in other areas such as stocking and
stuffing.

BY MR. OTIENO OWUOR STEPHINE