ENTREPRENEURSHIP AND

SMALL BUSINESS MANAGEMENT

1
 CHAPTER ONE
ENTREPRENEURSHIP AND FREE
ENTERPRISE

 Entrepreneurship is the process of creating

something new with value by devoting the necessary
time and effort, assuming the accompanying financial,
physical, and social risk resulting and receiving the
rewards of monetary and personal satisfaction and
independence.
 1.2. The r/p among an entrepreneur,
entrepreneurship and enterprise
 Entrepreneur: men and women who establish
and manage their own business; the catalyst who
brings about change; tangible people.
 Entrepreneurship: is the process involved in
creating and starting an enterprise is called
entrepreneurship.
 Enterprise: is the business organization that is
formed and which provides goods and services,
creates jobs, contributes to national income,
exports and overall economic development.
 1.3. CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS:
 Confident: high self-esteem and faith in their ability to greet challenges
 Feel a Sense of Ownership
 Able to communicate effectively: Completeness, Conciseness,
Consideration, Concreteness, Clarity, Courtesy and Correctness)
 Passionate about Learning: are often “autodidactic” learners (informal
learners)
 Team Player: believe in interpersonal synergy and dynamic relationships.
 System-Oriented: Design, implement, and perfect systems
 Dedicated: bringing a single-minded dedication to the task
 Grateful: Being grateful for what they have and receive more.
 Optimistic: have a positive outlook
 Gregarious: Sociable, outgoing, fun-loving both on and off the job
 Lead by example: persuade others; be a role model
 Not Afraid of Risk or Success: they prioritize their approach to life so that
the fear of failure, frustration, boredom, drudgery, and dissatisfaction far
outweighs the persistent fear of success.
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 1.4. ENTREPRENEUR VS. MANAGER

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1.5. ENTREPRENEURSHIP: DEVELOPING ENTREPRENEURSHIP IN
THE CORPORATION
Intrapreneurship is a form of entrepreneurship with in an
existing organization.
 The intrapreneurs’ acts like an entrepreneur in that they realize
their own ideas with out being the owner of the enterprise.
 Intrapreneurs are creative and risk-takers that step-out their
traditional role.
 Intrapreneur is a person who focuses on innovation and
creativity and who transforms a dream or an idea into a profitable
venture, by operating within the organizational environment.
 An intrapreneur is an individual employed by an organization for
remuneration
The need for INTRAPRENEURSHIP has arisen in response to a
number of pressing problems such as competition (domestic or
int.l) leading to improved efficiency and productivity
 1.6. ROLE OF ENTREPRENEURSHIP IN ECONOMIC
DEVELOPMENT
 Increasing the per capita output and income of the people of the country.
 Initiating and creating change in the structure of business and society.
 Generation of innovation→ creation of new pdts and services.
 Improvisation and modification on existing product to better suit market
and customers’ needs.
 Creation of self employment and to cut back the dependency of potential
employment of new workers in government sectors.
 Streamline of the private sector and encourage the inclusion of new
technology that is less labor dependent.
 Increase in the national outputs →greater and stronger economic growth.
 Laying the seed bed for creating new entrepreneurs in various new
technologies
 Acting as a catalyst to nurture Intrapreneur in a business organization.

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 1.7. The relationship between creativity, innovation and
entrepreneurship
 Creativity is thinking new things (ability to develop new
ideas and to discover new ways of looking at problems
and opportunities)
 Innovation is doing new things (the ability to apply
creative solutions to those problems and opportunities in
order to enhance people’s lives or to enrich society)
 Entrepreneurship is creating value in the marketplace
(commercializing it).
N.B: Entrepreneurship = creativity + innovation.
It is the result of a disciplined, systematic process of
applying creativity and innovation to needs and
opportunities in the marketplace.
 The Creative Process: Most social scientist agree on five
stages:
i. Idea Germination (Recognition): Seeding stage of
new ideas
ii. Preparation (Rationalization): Conscious search for
new ideas
iii. Incubation (Fantasizing): Subconscious assimilation
of information
iv. Illumination (Realization): Recognition of ideas as
being feasible
v. Verification (Validation): Application or test to prove
ideas has value

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 Barriers to creativity and innovation
Roger Von Oech (1990) identifies ten “mental locks that limit
individual creativity:
1. Searching for the one “right” answer.
2. Focusing on being logical.
3. Blindly following the rules.
4. Constantly being practical.
5. Viewing play as laughing
6. Becoming overly specialized.
7. Avoiding ambiguity.
8. Fearing to look foolish.
9. Fearing mistakes and failure.
10.Believing that “I am not creative”.
By avoiding these ten mental locks, entrepreneurs can set free their
own creativity as well as the creativity of those people around them.
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The Innovation Sources
The main areas are: ᅀ in market, ᅀ demographic, ᅀ attitudes,
ᅀ perception, unexpected occurrences, process needs, and gaps
between expectations and reality.

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 CHAPTER TWO

SMALL BUSINESS- VITAL

COMPONENT OF THE ECONOMY
Definitions of Micro and Small Enterprise/Small Business
(MSEs)

At present in most countries, a combination of the number

of workers and invested capital are used as a yardstick for
a meaningful classification of firms .
World wide, individual countries apply their own
definitions and criteria in defining categories of small-scale
enterprise.
The definition set by most developed countries:
e.g. USA- 1-10 employees; and/or maximum capital of about
US Dollar 50,000.
In Ethiopian context, a standard definition to both micro
and small enterprise has been set by the Ministry of Trade
and Industry study on August, 1997.

Micro enterprises:
Service rendering firms: <6 workforces; paid up capital of
≤50,000 birr
Mfg firms: <6 workforces; maximum of 100,000 birr
Small enterprises:
Service rendering firms: 6-30 workforces and with paid
up capital of 50,001-500,000 birr
Mfg firms: 6-30 employees, 100,001 to 1.5 million birr
for manufacturing firms.
 Generally, the followings are approaches to define a small
business enterprise. These are:
i. Personal character: usually the owners are managers and
they can operate independently
ii. Flexibility: since they are owned by one person they can
easily respond quickly to environmental trends
iii. Labour intensive: SBs have tremendous capacity for
employment generation and can create more jobs than big
businesses.
iv. Local area of operation: however, the market for its
product may be local, regional or international
v. Short gestation (growth) period: the capital investment in
SB is generally low & the time taken for production to
commence is low – the result - quick return & quick
economic development
 In Ethiopian context, a standard definition to both
micro and small enterprise has been set by the
Ministry of Trade and Industry study on August,
1997.
Micro enterprises:
Service rendering firms: <6 workforces; paid up capital
of ≤50,000 birr
Mfg firms: <6 workforces; maximum of 100,000 birr
Small enterprises:
Service rendering firms: 6-30 workforces and with
paid up capital of 50,001-500,000 birr
Mfg firms: 6-30 employees, 100,001 to 1.5 million
birr for manufacturing firms.
 MOTIVATION FOR STARTING A BUSINESS
A) “Pull” influence: some individuals are attracted towards
small business ownership by positive motives
- Desire for independence - Desire to exploit an
opportunity
- Financial Incentive
B) “Push” Influence: Many people are pushed into founding
a new enterprise by variety of factors including:
 Job Dissatisfaction (with their current job)
 Relocation (repeated unhappy relocation)
 Joblessness
 Lay off
 Retirement (who are physically and mentally fit-want to
keep themselves occupied).
METHODS OF GENERATING IDEAS
1. Pursue the type of work you love
2. Look for opportunity
3. Brainstorm
4. Keep your goals in mind
5. Go traveling
7. Look for unfulfilled demand
8. Improve a process
9. Fill a niche
10. Consider your resources: Money, skill, time.
How much do you have of each?
 SIGNIFICANCE & ROLE OF SMALL BUSINESS
IN NATIONAL ECONOMY
 To generate immediate and large scale employment
opportunities with relatively low investment.
 Development of entrepreneurship
 Provide low initial capital investment
 To promote balanced regional development in the
whole country.
 To ensure more equitable distribution of national
income.
 To encourage effective mobilization of county’s
untapped capital and human resources.
 To promote inter-sectorial linkages
 STRATEGY OF SETTING A SMALL BUSINESS
A. Launching a new business
Starting new ventures rather than buy existing one when:
 New pdt or svs is developed that need new type of business
 Looking for ideal location, employees, suppliers financiers etc
 Entrepreneur wants to avoid undesirable policies, procedures
and legal commitments of existing firms
B. Buying an existing Business: Why?
It reduces the uncertainties involved in launching new venture
e.g. time to start, long legal requirements, acquiring new
workers, vendors, physical resources…etc
C. Franchising: it is a system of distribution in which the
franchisee contracts to distribute or sell specified goods or
services in a given area.
 SMALL BUSINESS FAILURE FACTORS
• External and Internal causes.
1. External causes:
 Intense competition
 Change in demand
 Sometimes legal decisions
 Natural calamities /disasters
2. Internal causes:
 Inefficient management and control system
 Insufficient resources
 Fraud and cheating
Problems of small business: Small businesses face
the following problems:
1. Scarcity of finance: because of lack of collateral
security
2. Poor availability of power and other
infrastructure
3. Obsolete technology
4. Marketing problems
5. Poor Managerial and Organizational skill
6. High incidence of business sickness
Feasibility Analysis: checking whether some idea
will work or not
A) Market Analysis: knowing who are your
customers 7Ps (Pdt/svs; Place; Promotion; Price;
People; Process: Physical evidence)
B) Financial Analysis: check about investment outlay
and cost of the project; means of financing; projected
profitability; break- even point; cash flows of the
project; investment worthiness judged in terms of
various criteria of merit; and projected financial
position.
 CHAPTER THREE

FEASIBILITY ANALYSIS, PROJECT

REPORT AND BUSINESS PLAN
 Feasibility Analysis: checking whether some
idea will work or not
A) Market Analysis: knowing who are your
customers 7Ps (Pdt/svs; Place; Promotion; Price;
People; Process: Physical evidence)
B) Financial Analysis: check about investment
outlay and cost of the project; means of
financing; projected profitability; break- even
point; cash flows of the project; investment
worthiness judged in terms of various criteria of
merit; and projected financial position.
C) Technical analysis: deals about inputs, process and
outputs
 Input Analysis: identification, quantification and
evaluation of project inputs, that is, machinery and
materials.
 Process Analysis: production/operations that you
would perform on the inputs to add value (e.g. facility
location, layout, quality controls, etc)
 Output Analysis: product specification in terms of
physical features color, weight, length, breadth, height;
functional features; chemical material properties; as
well as standards to be complied with such as industry
level standard and country level standard.
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D) Economic analysis: is the study of costs- and- benefits
(Overall costs to benefits)
E) Ecological Analysis: environmental concerns such as
pollutions, wastes, damage caused by the project to the
environment …
F) Legal and Administrative Analysis: being sure about the
administrative and legal issues involved in the business project
which is going to be selected. These include, choice of the form
of business ownership, registration and clearances and approvals
from the diverse authorities.
The findings of the feasibility analysis may be compiled in a
project report. And then registration should take place and
submitted in a prescribed form. In addition, documents such as
the memorandum of association or the contract of partnership; A
notice published in a news paper announcing the establishment
of the business organization.
 3.3. BUSINESS PLAN
• It is a written document describing all relevant internal
and external elements and strategies for starting a new
venture. It includes: functional plans, expected results and
critical risks.
• For the entrepreneur starting a new venture, a business
plan has four basic benefits:
i. It identifies the nature and context of the business
opportunity
ii. It presents the approach the entrepreneur plans to take
to exploit the opportunity.
iii. It identifies the factors that will most likely determine
the success of the venture,
iv. It also serves as tool to raise financial sources.
• A business plan should;
 Lay-out your basic idea of the venture,
 Describe where you are now,
 Indicate where you want to go, and
 Outline how you propose to get there.
• Above all, a business plan should explain the key
variables of success or failure, thereby helping
you prepare for both
.
 Importance of the business plan
• The major benefits of a sound business plan are;
1. Arranging strategic alliance
2. Seeking investment funds
3. It reduces the anxieties and tension of the
entrepreneur:
4. Obtaining bank financing
5. It helps to obtain large contract:
6. Completing merger and acquisition
7. Attracting key employees
8. Motivating the management team
9. It provides self-assessment of the entrepreneur
 USERS OF A BUSINESS PLAN

• The users of a business plan will vary based on its function.

 The business plan has two major functions,
1st it provides a clearly articulated statement of goals and strategies for
the entrepreneur and those called as internal users.
2nd it serves as a selling document to be shared with outsiders such as
investors, government officials and interested parties.
 Stakeholders of a business plan: Three types of people will be
interested in a business plan are: Managers, Owners/ perspective
investors and Lenders - Such as banks, micro financing institutions
Grouped into 2:
 Insiders (Internals): Firm’s management/entrepreneurs & Employees
 Outsiders (Externals): -Customers -Suppliers -Investors

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 Essentials of a sound business plan:
• Comprehensive: the business plan has to fully and
completely treat all the major issues facing the
new venture.
• Communicative: the business plan is a document
for communicating to various audiences the
business’s concept and potential.
• Guidance or serve as guideline: sets goals &
milestones for the new venture (what business we
will do, how and where it will be started etc)
• The planning process/flexible: be consulted
frequently, reviewed and revised periodically
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 DEVELOPING A WELL-CONCEIVED BUSINESS PLAN
Outline of a Business Plan
1. Preliminary Section/ Introductory page
• Cover page, Table of contents, Executive summary
2. Environment and Industry analysis
3. Description of the venture
4. Marketing plan
5. Production Plan
6. Organizational and HR plan
7. Financial plan
8. Appendix
1. Introductory Page • Future outlook and trends
• Name and address of • Analysis of competitors
business • Market segmentation
• Name(s) and address(s) • Industry forecasts
of principals 4. Description of Venture
• Nature of business • Product (S)
• Statement of financing • Size of business
needed
• Office equipment and
• Statement of personnel
confidentiality of report
• Background of
2. Executive Summary entrepreneur
3. Industry Analysis
5. Production Plan
 Manufacturing process (amount sub contracted)
 Physical plant
 Machinery and equipment
 Names of suppliers of raw materials
6. Marketing Plan
 Pricing
 Distribution (Place)
 Promotion
 Product forecasts
 Controls
 7. Organizational Plan
 Form of ownership (SP, P, Corpor., Cooper.)
 Identification of partners or principal share
holders
 Authority of principals
 Management-team background
 Roles and responsibility of members of
organization
8. Assessment of Risk
 Evaluation of weakness of business
 New technologies
 Contingency plans
 9. Financial Plan
Pro forma income statement
Cash flow projections
Pro forma balance sheet
Break-even analysis
Sources and applications of funds
10. Appendix
 Letters from customers
 Market research data
 Leases or contracts
 Price lists from suppliers