Academic Year 2023

Department of B/Management,
Rift Valley University
By Fitsum T.
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 Course content
 Chapter one
introduction
 Chapter two
SMALL BUSINESS
 Chapter three
developing business plan
 Chapter four
product
 Chapter five
Marketing and New Venture Development

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What is entrepreneurship?
And who is an entrepreneur?
Related concepts:
o Entrepreneur: a person who undertakes a certain project
o Entrepreneurship: how the entrepreneur does what he
wants
o Entrepreneurial process: means through which new
value is created as a result of a project

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To be specific,
 entrepreneur is a person who tries to do something new
 visualizes a business opportunity, organizes the
necessary resources for setting up the business and bears
the risk involved. Thus, an entrepreneur may be termed as
an innovator, an organizer and a risk bearer.
As an innovator, the entrepreneur introduces new
products in the market ,finds out new markets for existing
products, introduces new production technology, launches
new marketing strategy and so on.

FT,2019 5
Definition Entrepreneurship is the process of
creating incremental wealth. The wealth is
created by those individuals who assume the
major risk in terms of equity and time or
providing value for others.

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Joseph A. Schumpeter: A person who
introduces innovation changes an entrepreneur.
 Peter F. Drucker: A person who always
searches change, responds to it and exploits it
as an opportunity.
Robert D. Hisrich says, “The person who is
going to establish a successful new business
venture must also be a visionary leader, a
person who dreams great dreams.
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To an Economist: An entrepreneur is one how
brings resources, labor, material and other
assets into combinations that make their value
greater than before, and one who introduces
changes innovations and a new order.
To Psychologists: Such a person is typically
driven by certain forces need to obtain or attain
something, to experiment to accomplish, or
perhaps to escape authority of others.
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 To a Businessman: An entrepreneur appears as a threat an
aggressive competitor, where as to another business man the
same entrepreneur may be an ally, a source of supply, or
someone good to I must in.

Fred Wilson/Venture capitalist/: Sees entrepreneurship as

the art of turning an idea into a business.

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In almost all the definitions of entrepreneurship,
Initiative taking
The organizing or reorganizing of social/economic
mechanisms to turn resources and situations to practical
account
The acceptance of risk or failure.

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All people who are gainfully engaged in work
manufacturing, distribution or service and other
sectors are called entrepreneurs.
Again, the founder, creator, and risk taker are
called entrepreneurs.
Each of these terms focus on some aspect of
entrepreneurs; they have some attribute, but they
are not entrepreneurs in the strict sense.

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Imitators
Brothel-keeper or call-girl-business
boot logger
drug peddler
black market, etc
All the above people cannot be entrepreneurs, though
they take risks, create a market and gets a reward
more than visualized.
These occupations are not for the social good.
They violate business ethics.

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entrepreneurship includes five critical elements
1. The ability to perceive an opportunity: why, when and
how entrepreneurial opportunity exists? The source of
those opportunities and the forms that they take, the
process of opportunity discovery and evaluation are part of
this step.
2. The ability to commercialize the perceived opportunity
i.e. innovation: the acquisition of resources for the
exploitation of these opportunities and the act of
opportunity exploitation.
3. The ability to pursue it on a sustainable basis
4. The ability to pursue it through systematic means
5. The acceptance of risk or failure
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 Role of entrepreneur in the
economy
a. Combination of economic factors
All the products bought and sold in an economy are a mix of
three primary economic factors (the raw materials, nature
offers up, the physical and mental labor people provide and
capital (money). Now value is created by combining these
three things together in a way which satisfies human needs.
b. Providing Market efficiency
Efficient means resources are distributed in an optimal way
that is the satisfaction that people can gain from them is
maximized. An economic system can only reach this state if
there is competition between different suppliers.
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c. Accepting Risk
Risk is the potential variation in terms of future
outcomes. We do not know exactly what the future will
bring. This lack of knowledge creates uncertainty. No
matter how we plan there is always a possibility of
adverse deviation from what we expect or hoped for.
Here the primary function of the entrepreneur is to accept
risk on behalf of other people.

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d. Maximizing investor’s return
Entrepreneurs create and run organizations which
maximize long-term profit on behalf of the investors
which in turn generates overall economic efficiency.
e. Processing of market information
The entrepreneur keeps an eye out for information that is
not being exploited. By taking advantage of this
information they make markets more efficient and are
rewarded out of the revenue generated

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 Innovation Vs Invention
Innovation is sometimes confused with invention.
a. Innovation is the creation of a new idea and its
reduction to practice. Innovation is successful
exploitation of a new idea that involves much more than
the “creation of ideas and it includes the ways in which
the new ideas are “Developed”, “diffused”, and
“Exploited”.
Innovation is at once an “Outcome”: a new product,
process or service, and a process of organizational and
managerial combinations and decisions. An innovation is
successful/it may be limited or short-lived/.
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Inventors and entrepreneurs differ from each
other:
•An inventor: creates something new.
•An entrepreneur: assembles and then integrates all
the resources needed- the money, the people, the
business model, the strategy, and the risk-bearing
ability- to transform the invention into viable
business.

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The three primary reasons that people become entrepreneurs and
start their own business firms are:
1. To be their own Boss/Ones own boss
This does not mean that entrepreneurs are difficult to work with or
that they have trouble in accepting authority. Rather many
entrepreneurs want to be their own boss.
2. Pursue their own Ideas
Some people are naturally alert, and when they recognize ideas for a
new products or services, they have a desire to see those ideas
realized.
3. Pursue Financial Rewards:
This motivation, however, is typically secondary to the first two and
often fails to live up to its hype.

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4. Forms of Entrepreneurship
Entrepreneurship can take two main forms:
a. The individual Entrepreneurship: An individual entrepreneur is
someone who started; acquired or franchised his/her own
independent organization.
b. Intrapreneur/ Corporate Entrepreneur: An established firm with
an orientation to acting entrepreneurial is called corporate
entrepreneurship. Entrepreneurial firms are typically proactive
innovators and are not averse to taking calculated risks. A corporate
entrepreneur/Intrapreneur is a person who does entrepreneurial work
within large organization

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 Prior Research on Entrepreneurship
A. Focus on Individual: believes that
entrepreneurship is a function of human attributes
and studies on entrepreneurial individuals.
A large number of entrepreneurship researchers have
sought to explain the entrepreneurship phenomenon
by identifying those members of society who could
be considered “entrepreneurial individuals.

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B. Focus on Environment: situation in which
entrepreneurial activity have high likelihood to
occur: places with high entrepreneurial
activity. A group of researchers has sought to
explain entrepreneurship by referencing to the
environment in which entrepreneurs have been
found.

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Individual Attributes
1. Psychological Factors:
Some of the most often cited entrepreneurial characteristics are:
Commitment, Determination, and perseverance: More than
any other factor total dedication to success as an entrepreneur
can overcome obstacles and setbacks
Drive to achieve: Entrepreneurs are self-starters who appear to
others to be internally driven by a strong desire to compete, to
excel against self imposed standards and to purser and attain
challenging goals.
Opportunity Orientation: One clear pattern among
successful, growth minded entrepreneurs is their focus on
opportunity rather than on resources, structure, or strategy
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Initiative and Responsibility: Effective entrepreneurs activity
seek and take the initiative, they willingly put themselves in a
situation where they are personally, responsible for the success
or failure of the operation.
Persistent Problem solving: Entrepreneurs are not intimidated
by difficult situations, attack a problems or obstacles that are
impeding business operations, if the task is extremely easy or
unsolvable ones do not warrant their time ,
Seeking feedback: effective entrepreneurs often are described
as quick learners, unlike many people, they also have a strong
desire to know how well, they are doing and how they might
improve their performance

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• Internal Locus of Control:, this attribute is consistent with
A high achievement motivational derive , the desire to take personal
responsibilities and, self confidence
 Calculated Risk Taking: They participate in a venture in a very
calculated and carefully thought out manner, avoid unnecessary risks;
they get others share inherent financial and business risks with them.
 Tolerance for Failure: Use failures as a learning experience, they are
realistic enough to expect such difficulties,
 High Energy Level: Entrepreneurs fine-time their energy level by
carefully monitoring what they eat and drink know when to get away
for relaxation.
 Creativity and Innovativeness:
 Vision:
 Self-confidence and optimism
 Independence
 Team building
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 Demographic Factors
a. Childhood family environment: Specific topics in the
family environment of the entrepreneur include: birth order,
parents occupation & Social status, relationship with parents.
b. Education: Although a formal education is not
necessary for starting a new business, it does provide a
good background particularly when it is related to the field
of the venture.
Many entrepreneurs are coming from the ranks of BA or
MBA’s

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 c. Age: in terms of chronological age, most entrepreneurs
initiate their entrepreneurial career between the ages of 22
and 55. Male entrepreneurs tend to start their first
significant venture in their early 30s, while women
entrepreneurs in their middle 30s.
d. Work History: while dissatisfaction with various aspects of
one’s job such as: Challenges, lack of promotion
opportunities, frustration and previous technical and industry
experience

e. Role models: could be parents, relatives, brothers,

successful entrepreneurs, etc.
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 Environmental Factors

Environmental factors affecting entrepreneurship in a

society includes:
1. Technology
2. Economy: income level, economic growth, taxation
level, inflation and economic stability, interest rates
3. Political: ease of starting firm (regulations),
transparency of rules, property rights
4. Social: social acceptance of entrepreneurship,
entrepreneurial role models, cultural norms
5. Culture
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 CHAPTER TWO

SMALL BUSINESS: VITAL COMPONENTS

OF THE ECONOMY
WHAT IS SMALL BUSINESS?

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Specifying any size standard to define is
necessarily arbitrary, because people adopt
different standards for different purposes. A
business may be described as ‘small’ when
compared to large firms, and “large” when
compared to smaller ones.

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 There are two approaches to define small Business.
They are:
- By some measure of size/Size Criteria/
- Using an economic /control definitions
A. Size Criteria
Even the criteria used to measure the size of business
vary. Some criteria are applicable to all industrial areas,
while others only to certain types of business. Examples
of criteria used to measure size are:
1. Number of employees 2. Sales volume
3. Asset size 4. Insurance enforce
5. Volume of deposits

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To provide a clear image of the small firms, the
following general criteria for defining a small business
are suggested:
 Financing of the business is supplied by one
individual or a small group.
 Except for its marketing function, the firm’s
operations are geographically localized.
 Compared to the biggest firms in the industry is small
 The number of employees in the business is usually
fewer than 100

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B. Economic /Control Criteria
The economic /control definition covers:
Market share
 Independence
 Personalized management

All three of these characteristics must be

satisfied if the business is to rank as a small
business.
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Market share: - The characteristic of a small firm’s
share of the market is that it is not large enough to
enable it to influence the prices of national quantities
of goods sold to any significant extent. Market share
is a company’s product sales as a percentage of total
sales for that industry.
Independence: - Means that the owner has control of
the business by himself.
Personalized management: - Is the most
characteristics factor of all. It implies that the owner
actively participates in all aspects of the managements
of the business, and in all major decision making
processes. There is little delegation of authority. One
person is involved when anything is concerned. 34
Based on the above mentioned two criteria, we can have
three types of small businesses. These are:
Family Enterprises: Are locally owned and operated,
often by one person called a sole proprietor.
Personal Service Firms (PSF): Rely crucially on
unique skills of their founders or key employees. In most
instances, the business is the person, and successions are
unlikely unless a son or daughter develops comparable
skills.
Franchise: These are created by contract; an individual
receives specific help and advantages in exchange for a
franchise fee and, usually, a percentage of sales.

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SIGNIFICANCE AND ROLE OF SMALL BUSINESS
Job creation: The energy, creativity and innovative abilities of
small business owners have resulted in jobs for other people. As
the population and economy grow, small businesses must
provide many of the new job opportunities
Introduce innovations: Strength of small business is their
ability to innovate and bring significant changes and benefits
to customers. the individual business person driven by self-
interest is motivated to act in a socially desirable manner. It is
competition that acts as the regulator to transform selfishness
into service. They provide fresh ideas and usually have greater
flexibility to change them into large companies.

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Aid big business: The fact that some functions are more
expertly performed by small business enables small firms to
contribute to the success of larger ones. If small businesses
were suddenly removed from the contemporary scene, big
businesses would inefficiently perform.
Two functions which small business can perform more
efficiently than big business are the distribution function and
the supply function.
Distribution function: Few large manufacturers of inexpensive
consumer products find it desirable to own wholesale and retail
outlets.
Supply function: Small businesses act as suppliers and
subcontractors for large firms.
Produce goods and services efficiently:

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 SMALL BUSINESS FAILURE FACTORS
Every year many small business firms cease operations.
The major reasons for the business failure are:
Incompetence- the owners simply do not know how to
run the enterprise.
Unbalanced experience -do not have rounded
experience in the major activities of business production.
Lack of managerial experience - do not know how to
manage production.
Lack of experience in the line- the owner has entered a
business field in which he or she has very little
knowledge.
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Neglect- the owner does not pay sufficient
attention to the enterprise.
Fraud- involves intentional misrepresentations
or deception (purchasing materials or goods for
him/her self with the company’s money)
Disaster- refers to some unforeseen happening
or ‘act of God’ (E.g. Robberies and extended
strikes.)

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The following are specific managerial causes of small business
failure
Inadequate records- unable to establish an adequate record
keeping system.
Expansion beyond resources
Lack of information about customer
Failure to diversify market
Lack of marketing research
Legal problems
Nepotism - favoritism toward family members
One person management
Lack of technical competence
Absentee management: the owner stayed away for long period

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SMALL BUSINESS SUCCESS FACTORS
Success Factor 1 - Choice of Business: Why have
you chosen this business? Are you passionate about this
particular business, or just about being in business
Success Factor 2 - Education and Experience.
“Which is more important: Education or
experience? Education and experience are both
important success factors. Identify where you are
deficient and acquire what you don't have.
Success Factor 3 – People This success factor people
can be broken into three groups:

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Internal Team: These are the founders and the
key employees who make the company work
External team: These are the paid professionals.
Every business has them, but in small businesses
they become de facto vice presidents. Choosing
this team is a critical element in success.
Connections: I like to use the term, network:
your community of marketplace friends.
Networking has long been on my list of success
factors, and it's never been truer than today.

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 Success Factor 4 - Creativity in Management
 Some entrepreneurs are not good managers.
Ssome excellent managers don't have a creative bone in their
bodies.
 Honesty is definitely the best policy here. Be honest with
yourself. If you're an entrepreneur through-and-through, sell what
you create quickly, like when an inventor licenses an invention, or
hire a good manager to run what you have created.
Success Factor 5 - The Industry. This factor ties in closely with
Success Factor 1 - Choice of Business. It encourages you to find out
if the industry you are considering has high potential or low
potential. You're probably asking, "Why would anyone pick a low
potential industry?"

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High Potential Intuitive - Obviously, a high potential industry is
one that's emerging, or at least hasn't spent too much time on the
maturity continuum. Much of the technology industry would fit this
profile. Doug says a high potential industry is also one that
affords a low capital investment, and/or one where you can
operate with a small number of employees.

Low Potential Intuitive - A low potential industry is one that has

already seen it's best days, like buggy whips at the turn of the 20th
century, or 56K modems at the turn of the 21st century. Doug says
industries that are capital and people intensive, and/or highly
specialized, are also examples of those with low potential.

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 Success Factor 6 – Records. Successful businesses must manage
the information they collect: financial statements, customer
records, sales performance, service levels, plus dozens of other
categories.
Success Factor 7 - The Corridor Principle

This factor is closely related to Success Factor 5 - Choice of

Industry. Doug defines the Corridor Principle as "the concept
where an entrepreneurial venture may significantly change focus
from the venture's initial concept through a continuous response
to the market and the desire to optimize profitability."

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 SETTING SMALL BUSINESS
WHAT IS BASIC BUSINESS IDEA?

It is logical to think of a goal for the unit in long run

rather than to look for the immediate tomorrow. This
long-term thinking is called basic business idea.

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The basic business idea and the product through
hierarchy can be represented as follows

Basic business idea

Product line

Product range

Product

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 The basic business idea facilitates choice of product
under an overall plan. Thus, entrepreneur may think of
being in the entertainment film, in automobiles, in
medicines, in services, in industries, etc.
The product line consists of different families of product. A unit
with a basic business idea for example packaging can manufacture
any of the following groups of the products: glass bottles, plastic
packages, metal packages, aluminum packages, paper or wood
packages.

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The product range includes different size of the product with in the
product line, in the examples given above different size of glass
bottles can be manufactured for varied applications.

The product is one item of the product range having different

specifications like size, material used and weight, etc.

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 SOURCES OF NEW IDEAS
1. Consumers
2. Existing Companies
3. Distribution Channels
4. Federal Government act.
5. Research and Development

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1. Consumers Potential entrepreneurs should pay close attention to
the final focal point of the idea for a new product or service-the
potential consumer. Care needs to be taken to ensure that the idea or
need represents a large enough market to support a new venture.
2. Existing Companies Potential entrepreneurs and intrapreneur
should also establish a formal method for monitoring and
evaluating competitive products and services on the market.

3. Distribution Channels Members of the distribution channels

are also excellent sources for new ideas because of their familiarity
with the needs of the market.

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4. Federal Government The federal government can be a source of
new product ideas in two ways. new product ideas can come in
response to government regulations.

5. Research and Development The largest source of new ideas is

the entrepreneur's own "research and development," efforts that
may be a formal endeavor connected with one's current
employment or an informal lab in the basement or garage. A more
formal research and development department is often better
equipped and enables the entrepreneur to conceptualize and develop
successful new product ideas

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 METHOD OF GENERATING IDEAS
Even with a wide variety of sources available, coming
up with an idea to serve as the basis for a new venture
can still be a difficult problem. The entrepreneur can
use several methods to help generate and test new
ideas, including focus groups, brain- storming, and
problem inventory analysis

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focus groups For a new product area, the moderator focuses the
discussion of the group in either a directive or a nondirective
manner. The group of 8 to 14 participants is stimulated by
comments from other group members in creatively conceptualizing
and developing a new product idea to fulfill a market need. Focus
group is groups of individuals providing information in a structured
format.

Brainstorming The brainstorming method for generating new

product ideas is based on the fact that people can be stimulated to
greater creativity by meeting with others and participating in
organized group experiences. Brainstorming is a group method for
obtaining new ideas and solutions.

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When using brainstorming, the following four rules should be
followed:
•No criticism is allowed by anyone in the group - no negative
comments.
•Freewheeling is encouraged-the wilder the idea the better.
•Quantity of ideas is desired-the greater the number of ideas, the
greater the likelihood of the emergence of useful ideas.
•Combinations and improvements of ideas are encouraged; ideas of
others can be used to produce still another new idea.
•The brainstorming session should be fun, with no one dominating
or inhibiting the discussion

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Problem Inventory Analysis Problem inventory analysis uses
individuals in a manner that is analogous to focus groups to
generate new product ideas. However, instead of generating new
ideas themselves, consumers are provided with a list of problems
in a general product category. Problem inventory analysis is a
method for obtaining new ideas and solutions by focusing on
problems.

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STEPS IN SETTING A SMALL BUSINESS UNIT
Entrepreneurial process the process through which a new
venture is created by an entrepreneur.
The process of starting a new venture is embodied in the
entrepreneurial process, which involves more than just problem
solving in a typical management position. An entrepreneur must
find, evaluate, and develop an opportunity by overcoming the
forces that resist the creation of something new. The process has
four distinct phases:
(1) identification and evaluation of the opportunity,
(2) development of the business plan
(3) determination of the required resources, and
(4) management of the resulting enterprise

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