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ENTREPRENEURSHIP, GEOFFREY G. KAMAU 1

ENTREPRENEURSHIP & INNOVATION

TABLE OF CONTENTS

1. Course outline .......................................................................................................................................................... 2

2. Chapter 1: Introduction to Entrepreneurship .............................................................................................. 3

2.1. Definition of entrepreneurship, entrepreneurship ............................................................................................ 3

2.2. Theory of entrepreneurship (Cantillon, Say, Schumpeter, Kirzner & others) ......................................... 3

2.3. Characteristics of an entrepreneur ........................................................................................................................... 5

2.4. Entrepreneurial motivations .................................................................................................................................... 13

3. Chapter 2: Entrepreneurial concepts ........................................................................................................... 16

3.1. Types of entrepreneurship ........................................................................................................................................ 16

6.1. Areas of entrepreneurship in an economy.......................................................................................................... 16

7.1. National role of entrepreneurship .......................................................................................................................... 17

7.2. National Policy Initiatives in Entrepreneurship Development .................................................................. 17

8. Chapter 3: Introduction to small enterprises ............................................................................................ 19

8.1. Distinguishing Small Enterprises Management and Entrepreneurship ................................................. 19

8.2. Characteristics of small enterprises ...................................................................................................................... 19

8.3. Problems facing enterprises, why small enterprises fail .............................................................................. 20

8.4. Factors favoring growth of entrepreneurship ................................................................................................... 20

9.1. Business Development Services .............................................................................................................................. 20

12. Chapter 4: Fundamentals of Starting a Business ................................................................................... 21

12.1. Types of Business Formations in Kenya, their characteristics, Advantages & Disadvantages ... 21

25.1. Types of Start-ups: New business, franchise, collaboration, and subcontracting ............................ 22

25.2. Family Businesses ....................................................................................................................................................... 23

44.1. Business Planning and its Benefits ...................................................................................................................... 27

75. Chapter 5: Business start-up growth and development ...................................................................... 33

75.1. Challenges of starting a business ......................................................................................................................... 33

76.1. Funding Business Start Up ...................................................................................................................................... 33

76.2. Idea generation, creativity and innovation ...................................................................................................... 33

116. Chapter 6:Business Management Strategies and Current Issues .................................................. 42

116.1. Strategies for business growth: Mitigating factors that cause business failure ............................. 42

116.2. Record keeping and financial statements ...................................................................................................... 44

121.1. Role of ICT in entrepreneurship......................................................................................................................... 47

121.2. HIV and AIDs pandemic and entrepreneurial development .................................................................. 48

121.3. Globalization .............................................................................................................................................................. 48

121.4. Incubation ................................................................................................................................................................... 48


Course outline

KABARAK UNIVERSITY

COURSE CODE: MIS 520

COURSE NAME: ENTREPRENEURSHIP & INNOVATION

LECTURER: KAMAU GG

Email: [email protected]

Purpose: To equip the students with the necessary knowledge, skills and attitudes which enable them

to start, operate and manage personal or group enterprises.

COURSE CONTENT

1. Topic 1: Introduction to Entrepreneurship

a. Definition of entrepreneurship, entrepreneurship

b. Theory of entrepreneurship (Cantillon, Say, Schumpeter, Kirzner & others)

c. Characteristics of an entrepreneur

d. Entrepreneurial motivations

2. Topic 2: Entrepreneurial concepts

a. Types of entrepreneurship

b. Areas of entrepreneurship in an economy

c. National role of entrepreneurship

d. National Policy Initiatives in Entrepreneurship Development

3. Topic 3: Introduction to small enterprises

a. Distinguishing Small Enterprises and Entrepreneurship

b. Characteristics of small enterprises

c. Problems facing enterprises, why small enterprises fail

d. Business Development Services

4. Topic 4: Fundamentals of Starting a Business

a. Types of Business Formations in Kenya, their characteristics, Advantages &

Disadvantages

b. Types of Start-ups: New business, franchise, collaboration, and subcontracting

c. Family Businesses

d. Business Planning and its Benefits

5. Topic 5: Business start-up growth and development

a. Challenges of starting a business

b. Funding Business Start Up

c. Idea generation, creativity and innovation

d. Summarize: Requirements for starting a business - Idea, goals, name and formation,

location, business plan, resources, running, growth, exit

6. Topic 6: Business Management Strategies and Current Issues

a. Strategies for business growth: Mitigating factors that cause business failure

b. Record keeping and financial statements

c. Role of ICT in entrepreneurship

d. HIV and AIDs pandemic and entrepreneurial development

e. Globalization

f. Outsourcing and subcontracting

Methodology: Lectures, group discussions, group participation, case studies, guest speakers and

student presentations

ASSESSMENT

CATS (Individual assignments/group assignment (CAT1), sit-in CAT2, Project CAT3) 40%

FINAL EXAM 60%

TOTAL 100%

REFERENCES (Recommended)

Legge, J.M. & Hindlek (1997). Entrepreneurship: How Innovators Create the Future


Moore, C.W. Petty, J.W., Palich, L.E. & Longnecker, J.G. (2001). Managing Small Business. Southwestern:

Cengage Learning.

Timmons, S. & Dinger,J (1990). New Venture Creation: A Guide to Entrepreneurhship. Irwin

Publishing, 3rd Edn.

Amadi, N. (2007). Five Simple Steps to Business Planning. A Do It Yourself Workbook. Nairobi: Kekobi

Publishing

And any other texts on the subject

Chapter 1: Introduction to Entrepreneurship

Definition of entrepreneurship, entrepreneurship

Entrepreneurship

The term of entrepreneurship has been interpreted in diverse ways by different school of thoughts,

including: the creation of new organizations, entry or enterprises.

It has also been defined as;

- taking advantages of opportunities or process by which individuals strive for opportunities without

regards to the resources they currently control but being aware of their risks use their innovativeness

in order to make profit.

- The act of creating, building and expanding an enterprise, putting together an entrepreneurial team

and collecting other resources to pull out opportunities from the marketplace for long-term benefits.

- the process of assembling and risking resources to meet a business opportunity (Kuratko and

Hodgetts (2004).

Entrepreneur

The word “entrepreneur” was derived from the French verb “entreprede”, meaning “to undertake”. In

other words, it describes someone who takes risks. It can also added that “entrepreneur” is an

individual who initiates, builds, manages and develops a business venture under personal risks for

potential profit.

This is a person who identifies opportunities, assembles required resources, draws-up a practical

action plans for implementation, and anticipates the reward in a timely and flexible way...” (Casson et

al. 2006)

- Entrepreneurs are fundamentally not afraid of risks and believe in their ability to succeed. They can

put their personal savings and even their homes or other personal assets to grow their own

businesses. But they are not gamblers, they take calculated risks.

In conclusion entrepreneurship and entrepreneur are two indivisible words which means trying to

define one will certainly lead to the definition of the other. Hence, readers should not criticize about

the interchangeable use of these two concepts in this study. The only difference is that an

entrepreneur is a person while entrepreneurship is the act of undertaking entrepreneurial venture.

The title of entrepreneur should, however, be confined to an owner or manager who exhibits the key

trait of entrepreneurship. The supply of entrepreneurs depends not only on reward and status, but

also on personality, culture, and life experience.

Exercise: Identify 5 entrepreneurs in your local environment or family, and 5 entrepreneurs in the

national environment

1.1. Theory of entrepreneurship (Cantillon, Say, Schumpeter, Kirzner & others)

Theory of entrepreneurship


Richard Cantillon

Richard Cantillon (1680-1734) was the first of the major economic thinkers to define the entrepreneur

as an agent who buys means of production at certain prices to combine them into a new product. The

entrepreneur is a person who undertakes and operates a new enterprise or venture and assumesc

some accountability for the inherent risks. This is someone who organizes and assumes the risk of a

business in return for the profits. According to Cantillon's original formulation, the entrepreneur is a

specialist in taking on risk. He "insures" workers by buying their products (or their labor services) for

resale before consumers have indicated how much they are willing to pay for them. The workers

receives an assured income (in the short run, at least), while the entrepreneur bears the risk caused by

price fluctuations in consumer markets. He classified economic agents into landowners, hirelings, and

entrepreneurs, and considered the entrepreneur as the most active among these three agents,

connecting the producers with customers.

JB Say (1803)

Jean-Baptiste Say, a French economist who first coined the word entrepreneur in about 1800, said:

“The entrepreneur shifts economic resources out of an area of lower and into an area of higher

productivity and greater yield.” The entrepreneur is the agent "who unites all means of production and

who finds in the value of the products...the reestablishment of the entire capital he employs, and the

value of the wages, the interest, and rent which he pays, as well as profits belonging to himself." Say

contributed to the literature by broadening entrepreneurs’ efforts to include “the entire process of

production and distribution”

Frank Knight (1885-1972)

Cantillon's idea was refined by the U.S. economist Frank H. Knight (1885-1972), who distinguished

between risk, which is insurable, and uncertainty, which is not. Risk relates to recurring events whose

relative frequency is known from past experience, while uncertainty relates to unique events whose

probability can only be subjectively estimated. "Entrepreneurs attempt to predict and act upon change

within markets. Knight emphasize the entrepreneur's role in bearing the uncertainty of market

dynamics. Entrepreneurs are required to perform such fundamental managerial functions as direction

and control." Changes affecting the marketing of consumer products generally fall in the uncertainty

category. Individual tastes, for example, are affected by group culture, which, in turn, depends on

fashion trends that are essentially unique. Insurance companies exploit the law of large numbers to

reduce the overall burden of risks by "pooling" them. Knight observed that while the entrepreneur can

"lay off" risks much like insurance companies do, he is left to bear the uncertainties himself. He is

content to do this because his profit compensates him for the psychological cost involved.

Joseph Schumpeter

Joseph A. Schumpeter (1883-1950) took a different approach, emphasizing the role of innovation.

According to Schumpeter, the entrepreneur is someone who carries out "new combinations" by such

things as introducing new products or processes, identifying new export markets or sources of supply,

or creating new types of organization. Schumpeter presented an heroic vision of the entrepreneur as

someone motivated by the "dream and the will to found a private kingdom"; the "will to conquer: the

impulse to fight, to prove oneself superior to others"; and the "joy of creating."

In Schumpeter's view the entrepreneur leads the way in creating new industries, which, in turn,

precipitate major structural changes in the economy. Old industries are rendered obsolete by a

process of "creative destruction."

Schumpeter was concerned with the "high-level" kind of entrepreneurship that, historically, has led to

the creation of railroads, the birth of the chemical industry, the commercial exploitation of colonies,


and the emergence of the multidivisional multinational firm. His analysis left little room for the much

more common, but no less important, "low-level" entrepreneurship carried on by small firms.

Schumpeter rejected the risk-taking attribute as inherent to entrepreneurs and assigned it to

capitalists.

Israel Kirtzner’s Theory of Entrepreneurship (1973)

Israel Kirzner hold spontaneous learning and alertness two major characteristics of entrepreneurship,

and entrepreneurship is the transformation of spontaneous learning to conscious knowledge,

motivated by the prospects of some gain.

Kirzner considers the alertness to recognize opportunity more characteristic than innovation in

defining entrepreneurship. The entrepreneur either remedies ignorance or corrects errors of the

customers.

His entrepreneurship model holds:

The entrepreneur subconsciously discovering an opportunity to earn money by buying resources or

producing a good, and selling it

Entrepreneur Financing the venture by borrowing money from a capitalist.

Entrepreneur using the funds for his entrepreneurial venture

Entrepreneur paying back the capitalist, including interest, and retaining the "pure entrepreneurial

profit.”

Peter Drucker’s Theory of Entrepreneurship

Peter Drucker put risk-taking and uncertainty-bearing back on the map. Drucker believed that starting

a new business venture suffice in labeling an individual an entrepreneur. It is this characteristic that

distinguishes entrepreneurship from the routine management tasks of allocating resources in an

already established business organization. In conclusion, it set the tone for entrepreneurs to be the

innovators and sometimes the risk-takers. Entrepreneurship Theories Peter Drucker (1909-2005)

holds innovation, resources, and an entrepreneurial behavior as the keys to entrepreneurship.

According to him entrepreneurship involves

increase in value or satisfaction to the customer from the resource

creation of new values

combination of existing materials or resources in a new productive combination

1.2. Characteristics of an entrepreneur

Entrepreneur’s Personality characteristics

• Need to achieve: The push to conquer problems, and give birth to a successful venture.

• Hard work: It is often suggested that many entrepreneurs are workaholics.

• Desire to work for themselves: Entrepreneurs like to work for themselves rather than working

for an organization or any other individual. They may work for someone to gain the knowledge

of the product or service that they may want to produce.

• Nurturing quality: Willing to take charge of, and watch over a venture until it can stand alone.

• Acceptance of responsibility: Are morally, legally, and mentally accountable for their ventures.

Some entrepreneurs may be driven more by altruism than by self-interest.

• Reward orientation: Desire to achieve, work hard, and take responsibility, but also with a

commensurate desire to be rewarded handsomely for their efforts; rewards can be in forms

other than money, such as recognition and respect.

• Optimism: Live by the philosophy that this is the best of times, and that anything is possible.


• Orientation to excellence: Often desire to achieve something outstanding that they can be

proud of.

• Organization: Are good at bringing together the components (including people) of a venture.

• Profit orientation: Want to make a profit; but the profit serves primarily as a meter to gauge

their success and achievement.

Entrepreneurial Behaviors

Entrepreneurs exhibit many different personality types; searching for a specific personality pattern is

very difficult. There are probably as many personality varieties among entrepreneurs as there are

entrepreneurs.

Researcher David McClelland, a noted social psychologist, determined that founders of high-growth

companies appear to share a distinct cluster of personal characteristics.

• High Need for Achievement: Growth-oriented entrepreneurs have a high need for achievement.

o They need to succeed, to achieve, and to accomplish challenging tasks.

o The strong desire for achievement leads to a desire for independence.

o The need for achievement may help explain why growth-oriented entrepreneurs are not

satisfied with founding or working in one firm; they need to prove themselves again and again.

• Low Need to Conform: Growth-oriented entrepreneurs listen, but they are able to ignore others’

advice. Also, handling skeptics is easy for entrepreneurs.

o Taking the unpopular course of action, if they consider it best, is the way they do business.

• Persistence: Growth-oriented entrepreneurs are focused and persistent, doggedly doing what is

best for the business to succeed. They work hard on the details and relentlessly attempt to find

ways to become more profitable.

• High Energy Level: The capacity for sustained effort requires a high energy level.

o The necessary work, planning, organizing, directing, creating strategy, and finding funds, can

only be accomplished on a demanding schedule.

o The sixty-hour to eighty-hour workweek is common to entrepreneurs who have the drive to

succeed no matter what it takes from a physical stamina perspective.

• Risk-Taking Tendency: McClelland’s findings suggest that people with a high need for

achievement tend to take risks.

o Growth-oriented entrepreneurs believe so strongly in their ability to achieve that they do not

see much possibility of failure. Thus they accept risk and find it motivating.

o These five personal characteristics identified by McClelland can be further condensed into four

fundamental behaviors that all successful entrepreneurs exhibit:

� Across the different types of personality, researchers have found that entrepreneurs have

an optimistic way of thinking that leads them to deal with failure and change differently

than pessimists—they have a deep belief in the correctness of their cause.

1. Whereas pessimists view failure as personal and long lasting, optimists view failure as

short-lived and due to causes beyond their control.

2. The optimists see failure as an opportunity to grow, whereas the pessimists see failure

as a reflection of their own shortcomings.


� Commitment is necessary for success in entrepreneurship because of the length of time and

amount of energy required to make a business successful.

1. Often, a new venture struggles for years while the entrepreneur attempts to find the

right combination of product, price, and service to attract customers.

2. During these lean years, many new ventures fail because the entrepreneur/founder

simply gives up.

3. Second wave of entrepreneurs who follow the pioneers into the market are able to

succeed by learning from the pioneers’ mistakes.

� Focus is the term used to describe a singleness of purpose that is necessary during the

early stages of a new venture.

1. Branson and Trump both made their fortunes in narrowly defined niches before

branching into other business opportunities.

2. Successful entrepreneurs have intense focus on their core business in the early stages

of their ventures. Later, when they have capital to spare, they can dabble in other

ventures and test their skills in new industries.

� Drive is the intangible element of personality that is expressed as high energy and the

ability to work long hours.

1. The drive to succeed is usually an internal motivation—some people are just more

driven than others.

2. Many entrepreneurs help develop their own drive by creating a clear vision of where

they would like to go and then using every resource at their disposal to achieve that

vision.

• Another important factor to entrepreneurial success is the ability to work with others to achieve

goals.

o Successful entrepreneurs develop widespread social networks that they can leverage in time

of need.

2-2c The Entrepreneur’s Social Network

Researchers have begun to assess the importance of the entrepreneur’s social network as a means

to gain support, knowledge, and access to distribution channels.

• Research has shown that an entrepreneur’s social network varies from time to time depending on

the different phases of the venture’s life. Phases of venture development from this perspective are:

o Phase 1: The Motivation Phase. Entrepreneurs discuss the initial idea and develop the business

concept.

o Phase 2: The Planning Phase. Entrepreneurs seek the knowledge and resources needed to

launch the venture.

o Phase 3: The Establishment Phase. Entrepreneurs actually establish and run the venture.

• Entrepreneurs need capital, skills, knowledge, and labor to start new ventures.

o The entrepreneur provides some of these resources, and some are gathered from the

entrepreneur’s social network.


� The networks of contacts that help bring about success are the entrepreneur’s social

capital.

o An entrepreneur’s social network has several characteristics.

� One of these is size. Entrepreneurs can enlarge their social networks to gain access to

crucial resources.

� Another characteristic of a social network is positioning. Entrepreneurs can position

themselves within the social network so as to shorten the path to crucial resources.

� Finally, some of the entrepreneur’s social relationships are single stranded, the

relationship plays only one role in the network.

� Other relationships play multiple roles in the network, these are known as multiplex ties.

o Over time, entrepreneurs accumulate social capital, which is essential for starting new

ventures.

� Research has demonstrated significant differences in social network size between phases 1

and 2.

� Successful entrepreneurs have developed larger social networks in phase 2 over phase 1,

and more multiplex ties also characterize the phase 2 networks.

� However, the research found little difference in network size between phases 2 and 3.

� The number of years of experience for the entrepreneur did not affect the size of the social

network.

� However, there is a significant gender difference: female entrepreneurs tend to have larger

social networks than do male entrepreneurs.

� In terms of the amount of time spent developing social networks, entrepreneurs spend the

least time during phase 1, with phase 2 entrepreneurs spending the most time developing

their network.

� Phase 3 entrepreneurs spend an amount of time somewhere between phases 1 and 2.

� The research noted that entrepreneurs spend the most time on social network

maintenance during phases 2 and 3.

� Entrepreneurs use their social capital differentially throughout the phases of venture

development.

� In general, entrepreneurs limit their network during phase 1 while they explore the

feasibility of the business idea.

� In phases 2 and 3, the social network is widened to gather the necessary resources for a

successful venture.

2-3 ENTREPRENEURIAL COGNITIONS

Researchers’ logic is that successful entrepreneurs routinely exhibit a range of cognitive skills that, if

followed and practiced by others, will lead to their success as well.

• Scholars of entrepreneurship have recently begun the process of analyzing the thought processes

of successful entrepreneurs.

o A currently fruitful line of research into what makes entrepreneurs successful examines them

from a cognitive perspective.

� In other words, this research examines how entrepreneurs think and how they process

information as a prelude to action.

• Cognition and cognitive psychology are concerned with the study of individual memory,

perception, thinking, and information processing.


o In general, the study of cognition is the study of the processes by which sensory input is

transformed, including how it is elaborated, stored, retrieved, and used.

• Entrepreneurial cognitions have been defined as “the knowledge structures that people use to

make assessments, judgments, or decisions involving opportunity, evaluation, venture creation,

and growth.”

o The study of entrepreneurial cognitions is about how entrepreneurs use mental models to

simplify and piece together previously unconnected information that helps them identify and

invent new products and services and to assemble the necessary resources to launch new

ventures.

o Using the cognitive approach, entrepreneurship researchers have made great strides toward

explaining why some people become entrepreneurs and others do not.

• Entrepreneurs display distinct cognitive biases in decision environments characterized by

uncertainty and complexity.

o Yet, it is often these biases that enable entrepreneurs to take action despite incomplete

information.

• In general, entrepreneurial research has found a variety of cognitive tendencies among

entrepreneurs at the opportunity evaluation phase of a new venture. These tendencies include:

o Overconfidence: This bias refers to the inability to recognize the limits of one’s personal

knowledge.

� This bias stems from entrepreneurs’ relative ease of recalling their reasons for confidence

in a new venture despite the existence of new information.

� This bias also influences entrepreneurs to seek information supporting their original

opportunity evaluation rather than to seek potentially disconfirming information.

o Belief in the Law of Small Numbers: Entrepreneurs tend to draw firm conclusions from a

limited sample.

� They believe that the small sample from which they have derived their conclusions is

representative of the greater population.

� Belief in the law of small numbers coupled with mostly positive information likely

produces an overoptimistic view of the new venture’s prospects.

o Planning Fallacy: Entrepreneurs tend to have a future orientation.

� Their tendency to ignore past information and treat the current situation as isolated and

unique is known as the planning fallacy.

� Forecasts of future business outcomes are often based more on optimistic forecasts and

scenarios rather than on hard evidence from the past.

� This orientation to the future and neglect of possibly countervailing past results also biases

the entrepreneur to an overly optimistic view of the new venture.

o The Illusion of Control: An illusion of control occurs when an individual overemphasizes the

extent to which personal skill can improve performance in situations in which chance plays a

major role.


� People with this bias have a higher expectation of personal success than is warranted by

reality.

� This bias may play a role in decisions such as making acquisitions or producing innovative

new products or services.

� The active search process may produce this illusion because the entrepreneur generates

confidence by virtue of the activity.

� A particular danger of this bias is underestimating competitive response.

o Reasoning by Analogy: In an effort to understand a new situation, individuals often compare

it to a more familiar one.

� The use of personal information may lead entrepreneurs to this bias, known as reasoning

by analogy.

� Personal communications are usually more vivid and more easily recalled than are

secondary resources and are likely to be used more readily in entrepreneurial judgments.

� The danger is that entrepreneurs may use this vivid information to the exclusion of

potentially more salient information in decision-making.

� This bias can be dangerous in that firms may falsely believe that the operational needs of

their analogy apply to the new venture.

� Thus, this bias can lead to a misjudgment of the need for complementary assets to achieve

business goals.

• Scholarly research found these cognitive tendencies in a sample of entrepreneurs from small- to

medium-sized enterprises (SMEs).

• However, the investigators learned that only the belief in the law of small numbers and the illusion

of control seemed to affect opportunity evaluation.

The practical remedy to these biases is for entrepreneurs to conduct systematic research on their new

venture, including searching for information that runs counter to their optimistic evaluation.

• The following list contains a few approaches that entrepreneurs can use to minimize the risk that

their business decisions are based on biased cognitions.

o Active versus Passive Searching: Active searching is a process in which individuals intrude

into the environment in an effort to understand it.

� In this type of search, individuals expend resources and cognitive effort in looking for

answers.

� In contrast, individuals receiving information passively receive it as it flows by. This

“automatic” information search mode takes the environment for granted and allows

individuals to direct attention elsewhere.

� In new ventures or new product launches, entrepreneurs need to take an active approach

to their market environment.

o Personal versus Impersonal Information: A major difference in the quality of information is

based on whether it is obtained from personal or impersonal sources.

� Personal sources include direct contact with other individuals or the environment;

impersonal sources involve written documentation such as magazine articles or reports

generated by others.

� On the other hand, impersonal information can be vital for entrepreneurs to develop a

balanced view of the new venture opportunity.

� Entrepreneurs with new ventures or new product launches tend to use the personal

approach more than the impersonal one.


o External versus Internal Sources: Entrepreneurs can also choose to use information

generated internal to or external to the organization.

� Searching externally is usually a more active process because the external information is

unlikely to be organized in the required manner.

� Thus, entrepreneurs using this technique are likely to expend more energy than are those

using internal sources.

� Ventures that are pioneering new products or services require greater attention to

external information sources than do established firms.

• Entrepreneurs develop a sense of self-efficacy by virtue of their market search, planning, and

execution strategies.

o This sense of efficacy leads to actions that bring new products and services into the market.

• Sensitizing entrepreneurs to the need to search both external and internal sources of information

may mitigate the effects of bias.

o Identifying specific information search processes and their potential biases is an important

step in minimizing their potentially harmful effects.

o Gaining insight into potential biases and misperceptions may lead to more effective action.

2-4 ENTREPRENEURIAL ATTITUDES

Conation refers to the connection of knowledge and affect to behavior and is associated with the issue

of “why.” It is the personal, intentional, deliberate, goal-oriented, or striving component of motivation,

the proactive (as opposed to reactive or habitual) aspect of behavior.

• Conation is closely associated with the concept of volition, defined as the use of will or the

freedom to make choices about what to do.

o Conation is absolutely critical if an individual is successfully engaged in self-direction and self-

regulation. Some of the conative issues that an individual faces daily are:

� What are my intentions and goals?

� What am I going to do?

� What are my plans and commitments?

o Some scholars have proposed that conation is necessary to explain how knowledge and

emotion are translated into behavior in human beings.

• Conation has also been referred to as emotional intelligence, or EI. EI is a measure of people’s

ability to understand and use their emotions to solve life’s problems. EI is similar to the more

familiar measure of intelligence known as IQ.

o Daniel Goleman and his colleagues have done extensive research into the effects of emotions

on leadership behavior.

� In particular, they have examined the extent to which people’s knowledge of their own and

others’ emotions enable them to be more effective managers and leaders.

� Goleman suggests that a person’s emotional abilities may be at least partially genetically

determined.

� He states that a person’s emotional skills are not “genetically hardwired” like eye color or

skin tone but that they do have a “genetic component.”


� Goleman presents a five-step program for people—of all ages—to improve their emotional

skills. The five steps are:

1. Decide who you want to be.

2. Determine who you are now.

3. Develop a path from where you are to where you want to be.

4. Determine how to make changes permanent.

5. Find out who can help you get where you want to go.

o Some research suggests that human beings have an emotional style or a preferred method of

putting thought into action or interacting with the environment. Kathy Kolbe identifies four

action, or conative, modes:

1. Fact Finder: Tendency to probe, refine, and simplify

2. Follow Through: Tendency to organize, reform, and adapt

3. Quick Start: Tendency to improvise, revise, and stabilize

4. Implementer: Tendency to construct, renovate, and envision

� In Kolbe’s formulation, the combination of the striving tendency, reason, and targeted goals

results in different levels of commitment and action. At least five separate aspects of the

direction subcomponent of conation are identified in the research:

1. Becoming aware of human needs

2. Visions and dreams of possibilities

3. Making choices

4. Setting goals

5. Making plans

• One of the first aspects of successful self-direction is for people to become aware of their human

needs.

o Maslow’s hierarchy of needs, developed by social psychologist Abraham Maslow, is probably

one of the most well-known approaches, although research has suggested other human needs,

such as the need for optimal arousal, the need for achievement, the need for cognitive balance,

the need to find meaning in life, the need for power, and the need for social affiliation.

• A second aspect of conation is awareness of the possible self. The possible self provides the

bridge to action; if people do not consider something to be possible.

o They will not set goals and make plans. Long-term, vague statements represented by dreams

and visions must be turned into goals.

o If they are to impact immediate behavior. Additionally, dreams and goals must have visual and

emotional components in order to be effective.

• A third aspect is the exercise of volition, or people’s freedom to choose and control their thoughts

and behavior. Volition has two subcomponents:

o Covert: Referring to the controlling of a person’s own actions

o Overt: Referring to the controlling of the environment that impacts a person’s actions

o A variety of researchers believe that volition ought to be the cornerstone of the psychological

study of human behavior.

o Their rationale is that whereas animals are controlled mainly by instincts and reflexes, human

beings are not as controlled by these processes.


o Learning and choice replace these biological processes, allowing human beings to think about

and choose their behaviors.

• A fourth aspect of the direction component of conation is the setting of goals for the directions that

have been chosen. Scholars have identified three types of goals:

o Mastery goals focus on the development of competence or on the process of learning.

o Performance goals focus on the outcome or on winning or attaining credentials.

o Social goals focus on the performance of the group or on the individual fitting in with others.

� People need to consider several important issues when they set goals.

1. First, goals must be difficult but attainable. According to the Yerkes-Dodson law,

moderate amounts of difficulty lead to optimal performance.

2. Second, the emotional state of an individual can influence the goals that are set. Higher

goals are set when the individual is emotionally aroused, and lower goals are set when

the individual is depressed.

3. Finally, individuals with increased levels of self-efficacy set higher goals. When those

goals are met, the individuals experience even higher levels of self-efficacy.

• A fifth aspect of successful self-direction is the development of plans that can turn visions and

goals into reality. Plans must be written and specific, starting with a clear description of desired

outcomes. Two processes can be employed: backwards planning and task analysis.

o To be successful, backwards planning must be accompanied by a task analysis that will

identify the skills and knowledge required to learn or perform a specific task.

o By systematically completing a task analysis while working backward from the desired end

results, the individual arrives at the starting point with a clearly delineated plan for obtaining

those goals.

o Entrepreneurial attitudes can be cultivated over time, but each person has certain innate

tendencies or predispositions toward each of the attitudes we have discussed.

o The entrepreneur must learn not to fight against natural tendencies but rather to recognize

them and to compensate for them wherever possible.

o Successful entrepreneurs leverage their strengths and find ways to compensate for their

weaknesses.

1.3. Entrepreneurial motivations

Motivation & commitment

1. How does the motivation of an owner affect the business?

The motivation of the entrepreneur is driven by their type, of which there are three.

The “craftsman” entrepreneurs are focused on quality of life and are therefore seeking to satisfy

themselves and to satisfy just one or two customers.

The “classical” entrepreneur is driven by profit. Their main driving force is to maximise returns from

the market place.

The third area is one of a “manager” entrepreneur. They are strongly orientated and have a personal

need to prove their worth through business success. They are likely to be in a mature market. A

mature market is one where the customers know the product or service offering and do not need to be

educated about. (where they can succeed.)


2. How do (‘push and pull’) factors affect motivation to start a business?

Motivations to start a business

“push or pull”

• Be my own boss 25%

• Control over my life/independence 17%

• Better financial prospects 13%

• Spotted a market opportunity 14%

• To make a lot of money 6%

• To have a more balanced lifestyle 5%

• No real alternative 12%

• To do what I enjoy 5%

Source: Barclays Bank Survey (1992)

Push: factors are those that propel one into their own business, perhaps involuntarily at first e.g.

redundancy.

Pull: factors are positive factors in the marketplace and in an individual’s character which makes them

want to succeed e.g. market opportunity and the drive to succeed.

There are both positive and negative features of setting up a business. On the positive side an

individual has found an idea. From a negative perspective, an individual may have been made

redundant or be unhappy in their current role. The most successful entrepreneur is more likely to be

the person who is pulled into it by the market place. They recognise that they want to do something

different and that they are more highly motivated in satisfying their own aspirations and also those of

the market place.

Those who are pushed are reluctant entrepreneurs who may be running their business as well as

being employed. Alternatively, they feel they have no choice.

3. What can put an individual off starting?

Reasons for not starting a business are often surrounded by elements of fear. The fear of failure, of not

having enough cash to be able to continue their quality of life and what other people will think about

them.

In the UK we have a negative view of what it’s like to run a business. Even now when culture is

changing it is still a different culture that exists compared to that of the American culture. In America,

fear of failure, liquidation, and bankruptcy isn’t seen as a major inhibitor in terms of starting a

business.

4. What are the three main factors to consider when setting-up in business?

There are three factors that have to come into play when offering advice to people setting up and

running a business. Those of 1) risk, 2) reward and 3) timing.

1) Risk: The risk may be too great in a volatile, changing market place, where the product

requires constant changes and updates and where ownership of intellectual property rights

(IPR) may cause problems. If you don’t have the resources in place to cover these problems,

you risk will be higher.

2) Reward: Whilst the risk might be acceptable, the return or reward might not be adequate. The

individual should be looking for a reasonable return for efforts in running that business.


3) Timing: Timing is crucial to the success of a business. Never enter a saturated market unless

you have powerful point of difference or unique selling point. Early entrance to market should

be the most successful strategy; satisfying initial demand and getting established as a

recognised provider for future demand. Timing applies equally to resources. If you set up a

market proposition but cannot produce the goods in time you will rapidly lose credibility and

hence market share.

Abilities and skills

Can anyone set up in business or do you have any special skills and characteristics?

The requirement for specialist skills and characteristics will depend on the industry. Some, not all,

businesses require technical skills. Management skills are critical to all business.

Negotiating skills, selling skills, administrative skills, along with the ability to be able to identify target

markets and customers are all required when setting up and running a business.

One way to work out whether you have the appropriate skills or attributes to set up and run a

business is to undertake a quiz. The quiz will identify individual strengths and weaknesses, together

with areas for development.

The idea in relation to the market

How do you choose a profit making idea?

The business idea is key to success. The idea itself might come about by friends and so forth.

To validate the idea it is a good idea to check with people who know about that particular industry. Do

they think there is a gap on the marketplace and that the product could be serviced?

It is also a good idea to use the internet, to see if the idea has been done anywhere else in the world

before.

Following discovery and validation of the idea, you must consider profitability. Can the product be sold

at a profit and therefore generate the income stream that is required to run a successful business.


Chapter 2: Entrepreneurial concepts

1.4. Types of entrepreneurship

Types of entrepreneurship

a) According to the Type of Business

i. Business entrepreneur: Entrepreneurs who conceive the idea of a new product or

service and then converts it to a commercial venture to make profit and keep the profit or

give dividends to shareholders.

ii. Corporate entrepreneur: The process whereby an individual or a group creates a new

venture within an existing organization, revitalizes and renews an organization ,or

innovates.

iii. Social entrepreneur: An entrepreneur who while pursuing a social mission of doing good

by meeting people’s social also combines the social service with some income generation

from the service to possibly make the service sustainable. However, any surplus income is

ploughed back to the organization.

iv. Public entrepreneur: A public service manager who adopts entrepreneurial orientation

by innovating ways of raising more revenue for the public through direct or indirect

entrepreneurship venturing, for example at a fee providing affordable housing, recreation

services, irrigating ASAL land for poverty eradication, promoting creation of enterprises,

etc.

v. E-entrepreneur: An entrepreneur who sets up a business and runs a business on the

Internet space by innovating products and services that can be provided over the Internet,

e.g. google, e-bay, yahoo, etc.

b) Other entrepreneurs

i. Innovating entrepreneur: Innovative entrepreneurs are generally aggressive and possess

the art of cleverly putting the attractive possibilities into practice.

ii. Imitative entrepreneurs: Imitative entrepreneurs are characterized by readiness to

adopt successful innovations inaugurated by successful innovating entrepreneurs.

iii. Fabian entrepreneur: Fabian entrepreneurs are cautions and skeptical in experimenting

change in their enterprises. Such entrepreneurs are shy, lazy and lethargic.

iv. Drone entrepreneur: Drone entrepreneurs are characterized by a refusal to adopt

opportunities to make changes in production formulae even at the cost of severely reduced

returns.

1.5. Areas of entrepreneurship in an economy

Areas of entrepreneurship in an economy include different fields that entrepreneurs can venture.

Such may include; Man entrepreneur, Woman entrepreneur, Young entrepreneur, Immigrant

entrepreneur, Agricultural entrepreneur, Industrial entrepreneur, Rural entrepreneur, and Urban

entrepreneur, among others.

The ten classes of entrepreneurial activity are:

(1) Enterprise Turnaround – changing the basic value system, rationale, or focus of an organization.

(2) Corporate Turnaround – transformation and strategic renewal of an organization through the

radical restructuring of the organization’s portfolio of businesses units.

(3) Corporate Venturing – forming new ventures from within an existing organization.

(4) Business Turnaround – transforming an existing business unit through the radically restructuring

of the business unit’s strategic direction and way of competing in its industry.

(5) Product/Process Development – transforming or radically restructuring a functional unit within an

existing business unit through the development of new products, processes or modes of doing

business.

(6) Need-Driven Independent New Venturing – founding a high growth-potential, independent new

venture started for the purpose of fulfilling a perceived market need.


(7) Technology-Driven Independent New Venturing – founding a high growth-potential, independent

new venture started for the purpose of commercializing or capitalizing on a particular technology.

(8) Income Substitution New Venturing – founding a “mom ‘n’ pop,” low growth-potential,

independent new venture intended to replace the income that one or more individuals could have

earned from gainful employment.

(9) Income Supplementing New Venturing – founding a new business started to create extra income

on a part-time basis.

(10) Hobby / Lifestyle New Venturing – founding a venture for which making a profit is not a primary

motive in the founding but that is, instead, founded for the purpose of allowing the entrepreneur to

pursue a hobby or lifestyle that would not be possible or economically feasible without some

contribution from the venture.

1.6. National role of entrepreneurship

1. Provides opportunities for job creation and self employment.

2. Contributes to national GDP

3. Promotes exchange of goods and services and economic growth

4. Creation of industries and distribution of wealth

5. Promotion of innovation in the economy to produce competitive products and services

6. Local and regional economic development

7. Improved allocation of resources and transfer of technologies

8. Opening up of new markets

9. Opening up of new sources of supply

10. Industrial re-organization

11. Foreign exchange earnings in exports of products and services

12. Eradication of poverty and improvement of better lifestyles through products and services

1.7. National Policy Initiatives in Entrepreneurship Development

National Policy Initiatives in Entrepreneurship Development in Kenya

A National policy can be generally defined as a system of laws, regulatory measures, courses of action,

and funding priorities concerning a given topic promulgated by a governmental entity or its

representatives. It is a statement of goals, objectives, and recommendations on a specific subject area.

Earlier developments that lead to development of the MSE sector in Kenya

Industrial and Vocational Education has been a subject of discussion since the introduction of the

formal education. The first pioneers in African education, the missionaries, were interested in

Christian and Vocational Education for Africans. Colonial settlers like Delamere (1926) were

interested in giving natives education which could make them work with their hands. Phelps Stroke

Report of 1925 recommended training Africans of high character and tactiful disposition. Beecher

Report 1949 stressed manual work, hand-work and agriculture. Although efforts were made to give

the system of education, several factors worked against its success. Some of the major factors were,

poor and unqualified teachers, lack of jobs for programme graduates, attitude of teachers towards

technical skills, but the most important factor against the system was opposition by the rising African

nationalists after World War II.

The most interesting development in post-independent Kenya is that Vocational Education was

abolished all together. A more puzzling fact is that the abolition was just an independence celebration

honeymoon. In 1964, Kenya Government introduced service to the nation through acquisition of

technical skills, the National Youth Service. Three years after independence the NCCK recommended

and introduced more Vocational Education (1966) to give opportunity to young people who were left

in the educational ''gap'' and check emigration from rural areas into towns. The NCCK Report 'After

School What?' expressed concern over the lack of training opportunities for Kenya's rapidly growing

population of primary school leavers, the vast majority of whom were unable to progress to secondary

schooling. The Report had suggested that these youngsters typically lacked the experience and skills


which would allow them to contribute significantly to their own and their family's survival. In the

absence of rural opportunities, youngsters were being tempted to Kenya's cities in search of work; yet

statistics readily verified that the pace of employment growth in the economy's 'modern sector' in no

way kept pace with the expanding number of job seekers. NCCK Report proposed the introduction of

rural institutions which would provide training in practical skills and encourage youngsters to remain

in and contribute to the development of their own areas. A government sponsored conference (The

Kericho Conference of September 1966) endorsed the NCCK recommendations which were made in

March 1966. The conference recommended giving school leavers education which directly related

towards self-employment in the rural areas. The government finally adopted this programme (village

polytechnic) in 1969 and emphasized giving school leavers technical skills which could enable them to

engage in gainful employment and at the same time use these skills to develop mainly rural

communities in which they live.

The recent chronology of policy formulation for the MSE sector in Kenya:

i) In its second development plan (1970-1974) the Government emphasized development of small-

scale industries and training of entrepreneurs as a viable strategy for alleviating unemployment.

However, no concrete measure was taken to implement the strategy.

ii) ILO report of 1972: the Government, deliberately, focused on MSEs and the informal sector as a

means of creating jobs. As a result of this report the informal sector received considerable attention in

the third development plan (1974-1978).

iii) During the growth development plan period (1979-1983) various measures to encourage and

support small-scale and rural industrial development in the country were proposed. Barriers facing

MSE manufacturers and the potential of the informal sector were noted and a number of development

partners and NGOs began working with the sector.

iv) The fifth development plan (1983-1989) saw the establishment of a fully-fledged small enterprises

division in the Ministry of Commerce and Industry to monitor implementation of MSE programmes.

Sessional Paper No. 1 of 1986 entitled "Economic Management for Renewed Growth" addressed major

constraints to MSE growth which had been previously identified. This paper was a milestone in the

Government's efforts towards formalizing the informal sector as a vehicle towards poverty reduction

and creation of wealth. It also created the environment for the establishment of microfinance

institutions that saw the birth of such institutions as K-REP, Toto Home Industries, Kenya Women

Finance Trust (KWFT) and Faulu Kenya, among others.

(v) In the sixth development plan (1989-1993) agencies in both public and private sectors were

encouraged to develop supportive efforts in training, advising and counseling entrepreneurs in project

formulation, implementation, operation monitoring and evaluation. Sessional Paper No. 2 of 1992

entitled "Small Enterprise and Jua Kali Development in Kenya" provided a comprehensive framework

for the promotion of small enterprises and Jua Kali development in Kenya. It was geared towards

improvement of the existing policy and regulatory environment, gender specific issues, policy

measures to improve access to credit facilities, and measures to improve provision of nonfinancial

promotional programmes.

vi) The seventh national development plan (1994-1996) undertook to implement policies laid down in

Sessional Paper No. 2 of 1992.

vii) Sessional Paper No. 2 of 2005 on the Development of MSEs for Employment and Wealth Creation

as one of the strategies for the country’s industrialisation, employment generation and poverty

reduction. It set the stage for a SME Act of 2006 which is expected to revolutionize the provision of

credit to the sector by regulating the registration and operation of financial institutions involved in

extending financial services to MSEs, including microfinance institutions.


.

Chapter 3: Introduction to small enterprises

Distinguishing Small Enterprises Management and Entrepreneurship

Entrepreneurs Start Companies, Managers Run Them

Entrepreneurs are the dynamic forces behind the planning and launching of new business enterprises.

They may be involved in all aspects of a company throughout its life span, beginning with the raw

startup stage, when the venture is little more than an idea. They handle issues ranging from the

company's product design to determining the most efficient production methods and even finding the

company's first customers. A small-business manager is someone who operates a company that has

survived the startup stage. His goal is to keep the company growing and operating efficiently. In some

cases the founder/entrepreneur may bring in a skilled small-business manager to build the company

into a larger entity. He may recognize that his creative vision can take the company only so far, and

having an experienced manager on board to direct day-to-day operations will allow the business to

continue to grow.

Risk

Entrepreneurship involves recognizing, and being willing to accept, the risk that the venture may fail.

For the entrepreneur, failure could mean a loss of the money he has put into the company, a loss of the

time he has devoted to creating the business, as well as the personal disappointment that comes from

business failure. Small business managers face the risk of failure as well, but once the company has

attained certain milestones, most importantly positive cash flow and sustained revenue growth, the

chances of failure are reduced. Small business managers must deal with the pressure of continuing to

build the company in the face of ever-increasing competition.

Skill Sets

Entrepreneurs that are most successful usually possess an unusual vision, the ability to identify what

products and services customers will want or need in the future, and designing products or services to

meet those needs. Small business managers who operate established companies do not necessarily

need this predictive ability. For example, someone who operates a restaurant franchise needs to be

focused on operational efficiency -- controlling food and labor cost and maximizing customer

satisfaction. The creative part -- the concept, décor and menu -- has already been done for him by the

company he purchased the franchise from. Many entrepreneurs manage the big picture such as

creating strategies rather than overseeing the completion of the smaller tactics and tasks that must be

done to implement the strategies. Small business managers are adept at administration -- making sure

all of these tasks are completed on schedule and within budget.

Working Environment

An entrepreneurial company takes on the personality of its "creator," the entrepreneur. If he is at the

office 20 hours a day, the other team members will have to commit to long hours as well. An

entrepreneurial environment is characterized by high energy, lots of ideas flowing and a sense of

excitement about the company's future success. A small-business manager seeks to create the most

efficient, well-organized work environment possible. A good manager is an effective communicator

and motivator -- he can inspire those who work for him to put forth a maximum effort. For him, the

excitement comes from seeing his bottom-line profit grow through the years. His job is not a thrill ride

-- it's more of a slow, steady climb to success.

Characteristics of small enterprises

• Few employees (0-9 Micro, 10-49 Small, 50-99 medium, 100 + large.

• Owner managed.

• Many use family labor force

• Limited capital


• Limited geographical coverage

• Low technology adoption.

Mainly personal savings & family financed

Problems facing enterprises, why small enterprises fail

(Reasons for small business failures):

• Lack of experience

• Lack of expertise/ incompetent human resource

• Lack of strategy and strategic leadership

• Poor financial control

• Growing too fast

• Insufficient commitment

• Ethical failure (lack of discipline)

Factors favoring growth of entrepreneurship

• Access to finance

• Political stability

• Macro-economic stability

• Secure property rights

• Ease of starting a business

• Free flow of information

• The rule of law and mechanism for contract enforcement

• Access to finance

• Size of the market in terms of numbers and income levels

• Regulation of businesses Access to information

Business Development Services

• How does one start a new venture?

• Important issues in new venture creation:

• Does the entrepreneur have good ideas and the courage to give them a chance?

• Is the entrepreneur prepared to meet and master the test of strategy and competitive

advantage?

• Can the entrepreneur identify a market niche that is being missed by other established firms?

• Can the entrepreneur identify a new market that has not yet been discovered by existing firms?

• Can the entrepreneur generate first-mover advantage by exploiting a niche or entering a

market before competitors?

How does one start a new venture?

• Questions that keep a new venture focused on its customers …

• Who is your customer?

• How will you reach key customer market segments?

• What determines customer choices to buy or not buy your product/service?

• Why is your product/service a compelling choice for the customer?

• How will you price your product/service for the customer?

• How much does it cost to make and deliver your product/service?

• How much does it cost to attract a customer?

• How much does it cost to support and retain a customer?


New Product Development

Study Question 3: How does one start a new venture?

Life cycle of entrepreneurial firms

• Birth stage

• Breakthrough stage

• Maturity stage

• Each stage poses different managerial challenges and requires different managerial

competencies.

Business Growth Cycle

• Technology Adoption – Diffusion of Innovation


Chapter 4: Fundamentals of Starting a Business

Types of Business Formations in Kenya, their characteristics, Advantages & Disadvantages

Forms of legal ownership

• Sole proprietorship

• Partnership

• Limited liability company

Sole Proprietorship

Definition

• A sole proprietorship is a business owned and operated by one person for profit.

Sole Proprietorship Characteristics

• Easiest form of business to set up and operate

• Profits are taxed only once

• Unlimited legal liabilities

• Business ends with death of owner

• Easy to liquidate

• The owner enjoys all the profit

• Faster decision making

Formation of Sole Proprietorship

• Easiest Form of Business to Set Up and Operate

• Search business name with registrar

• Register Business Name

Partnership

Definition: A partnership is any two or more individuals who contribute money, labor, and skill

to a business, and who share in its profits, losses, and management.

It can also be a limited partnership has one or more partners who have limited liability and no

rights of management.

Partnerships Characteristics

• Easy to Set Up and Operate (Search Business name and Register Business Name including

partners)

• Share profit and losses

• Decision is shared


Limited Liability Company

• Created and owned through share-holding and the owners earn dividends for invested capital

•

• Search Business Name

• Prepare Memorandum & Articles of Association

• File Registration Application

Limited Liability Company Characteristics

• Limited legal liability

• Business may not terminate upon death

• Business is an artificial person

1.8. Types of Start-ups: New business, franchise, collaboration, and subcontracting

Start a New Business or Buy a Franchise - Which Is Better?

Start – cheapest, but very difficult

-requires most planning/research

Buy – expensive – may be out or reach

-requires less planning and research

Franchise (middle ground) – a business run by an individual (the franchisee) to whom a franchiser

grants the right to market a certain good or service.

Here are some comparisons and differences that will help you make up your mind on whether to start

a new business or buy a franchise business.

To Set-Up vs. Already Set-Up

Starting a new business would require you to set-up everything from scratch and experiment with the

right product range for some time until you get it right.

By buying a small business franchise, you will just be replicating a successful formula. This will reduce

the time required for your business to stand on its own two feet, and will also alleviate the pain of

searching for your target audience with your products in hand.

No Fees vs. Franchise Fees

If you start a new business, you will not have to pay any fees to anyone. But to buy a franchise

business, you will need to pay franchise fees and royalty fees, either for a fixed term or on an ongoing

basis.

This could result in an increase in your initial investment - and maybe even in a drain on your future

profits.

Own Marketing vs. No Marketing

While you will need to formulate and pay for your own marketing strategy, including your

advertisement expenses if you start a new business, the same will not be the case if you buy a

franchise business.

The parent company will handle the marketing blitz and all the advertisements, and it will benefit all

the small business franchisees. This will provide you with additional time and effort to increase your

sales.


Pricing Strategy vs. Fixed Pricing

When you run your own business, you can set prices according your assessment of the market

conditions.

However, in the case of a small business franchise, the parent company will decide the pricing strategy

for all its franchises. You will only be informed about the prices that you have to quote to your

customers.

The entire market research is done by the parent company, and the prices are decided accordingly.

Full Freedom vs. Limited Freedom

While running your own business provides you with the freedom of making or changing your

decisions and basically running the show as you see fit, a small business franchise will offer you only

limited freedom.

You will not be able to change or reject some policies of the parent company just because you do not

feel that they are right. You will be bound by all the rules and regulations that are specified in your

small business franchise agreement with the parent company.

Thus, while you will always be the head of your own business, you will never become the captain of

your franchise.

Large Mistakes vs. Small Mistakes

In starting and managing your new business, there may be many big mistakes that you will probably

commit before you learn the tricks of the trade.

But in the case of a small business franchise, the parent company will probably already have

eliminated a majority of the mistakes throughout its evolution; thus, you may end up committing only

some minor mistakes before settling down.

Both starting a new business and buying a franchise have pros and cons. Make sure you take the above

points into consideration before you make a final decision.

1.9. Family Businesses

The Family Business

• Discuss the factors that make a family business unique.

• Explain the forces that can keep a family business moving forward.

• Outline the complex roles and relationships involved in a family business.

• Identify management practices that enable a family business to function effectively.

• Describe the process of managerial succession in a family business.

What Is a Family Business?

– Family Business

� A company that two or more members of the same family own or operate together or in

succession.

Competing Interests in the Family Business


Family and Business Overlap

• Family Concerns

� Care and nurturing of family members

� Employment and advancement in the firm

� Loyalty to the family

• Business Concerns

� Production and distribution of goods and/or services

� Need for professional management

� Effective and efficient operation of the firm

Advantages of a Family Business

• Strength of family relationships during challenging periods of business change

• Financial sacrifices that family members make for the good of the firm

• Operation as a family business distinguishes the firm from its competitors

• Higher levels of concern for its community and non-family employees

• Capability to plan and prepare for the long haul

• Emphasis on quality and value

Advantages of a Family Business

• Family Business Momentum

• The Founder’s Imprint on the Culture: The founder’s core values become a transmitted part of

the culture (for better or worse).

• Organizational Culture

• Patterns of behaviors and beliefs that characterize a particular firm.

• Family Business Cultural Values

– Mutual respect

– Integrity

– Wise use of resources

– Personal responsibility

– “Fun”

• Commitment to the Family Business

Family Roles and Relationships

– Parental Concerns in Passing the Business On:

o Does my child possess the temperament and ability necessary for business leadership?

o How can I, the founder, motivate my child to take an interest in the business?

o What type of education and expertise will be most helpful in preparing my child for

leadership?

o What timetable should I follow in employing and promoting my child?


• How can I avoid favoritism in managing and developing my child?

• How can I prevent the business relationship from damaging or destroying the parent–child

relationship?

Family Roles and Relationships (cont’d)

– Husband–Wife Teams

• Opportunity to share more in each other’s lives

• Business differences interfere with family life

• Work doesn’t leave time for family life

• Sharing family responsibilities eases the load

– Sons and Daughters

• Personal preferences different from the business

• Personal qualifications insufficient to assume role in business

• Desire for personal freedom to choose another career

– Sibling Cooperation, Sibling Rivalry

• Best case: siblings work as a team, each contributing services according to his or her abilities

• Worst case: siblings compete as rivals and disagree about their business roles.

In-laws In and Out of the Business

• Disagreements about how to treat and reward in-laws and family members/children

• Assign to different branches or to different business roles

• The Entrepreneur’s Spouse Communication between entrepreneur and spouse is critical for

their performance as an effective team for both the business and the family.

Professional Management of the Family Firm

The Need for Good Management

Best Practices:

• Stimulate new thinking and fresh strategic insights.

• Solicit outsiders’ input to keep perspective.

• Attract and retain excellent managers.

• Create a flexible, creative organization.

• Create and conserve capital.

• Prepare successors for leadership.

• Exploit unique advantages of family ownership.

– Nonfamily Employees in a Family Firm

� Hazards:


� Competition with family members for advancement

� Getting caught in the crossfire and politics of family competition within the firm

� Solution:

� Identify family-only reserved positions in advance.

� Treat both family and nonfamily employees fairly in matters of reward and

promotion.

– Family Retreats

� A gathering of family members, usually at a remote location, to discuss family business

matters.

� Use of an outside facilitator may be necessary.

– Guidelines

� Set a time and place.

� Distribute an agenda prior to the meeting.

� Plan a schedule in advance.

� Give everyone a chance to participate.

� Keep it professional.

– Family Councils

� An organized group of family members who gather periodically to discuss family-related

business issues.

� Represent the family to board of directors

� Useful in developing family harmony

� Increases understanding of family

traditions and interest

– Family Business Constitution

� A statement of principles intended to guide a family firm through times of crisis and change.

The Process of Leadership Succession

– Available Family Talent

� Mentoring

� Guiding and supporting the work and development of a new or less-experienced

organization member.

� Allowing only qualified competent family members to assume leadership roles in the

firm increases the value of the firm for all who have an ownership interest in it.

Stages of Succession in a Family Business

Conditions Favoring Successful Leadership Succession in a Family Firm

– A sound, profitable business

– Stable, healthy family relationships

– Advance planning for leadership succession


– Positive family leadership and a team-oriented management structure

– Presentation of career opportunities without pressure

– Open communication on family business issues

Reluctant Parents and Ambitious Children

– Transfer of Ownership

� Passing ownership of a family business to the next generation

� Who will inherit the family firm? When?

� Should each heir receive an equal share?

� Should ownership be transferred gradually?

� How are tax considerations to be handled?

� What to do with other wealth and assets of the founding entrepreneur?

Business Planning and its Benefits

Our Definition of a Business Plan

• The business plan is a document that convincingly demonstrates that your business can sell

enough of its product or service to make a satisfactory profit and be attractive to potential

backers. It is a selling document. Real goal is to convince! Who are you convincing? Yourself,

investors, financiers, key employees, suppliers, etc.

Goals of Business Plan

1. 1) consider important aspects and decide whether to “go or no go”

2. 2) initial planning document for a new business

3. 3) serves as a tool to communicate the idea of the new venture to potential investors, bankers, key

employees

4. 4) serves as a record to monitor and compare results

Benefits of a Business Plan/ Who Needs to Write/See the Business Plan?

• Financiers: - Most banks loaning money, especially if the business does not have a track record

• Entrepreneur, to insure they have considered everything

• Seeking investment funding: this is the document most venture capitalists first ask for business

plan- who have some doubts about your abilities/integrity

• Highly required or important potential employees

• Suppliers who are providing goods to the firm on credit

• Obtaining large contracts: proof of recognition to large companies checking out small ones:-

Customers who have floated a tender and want to confirm that the firm shall manage to deliver

• Attracting key employees: can help an executive come over to your side

• Completing mergers and acquisitions: for selling and buying companies, buyers seldom look at

only one company

• Motivating management team: causes everyone to be working toward the same goal, reduces

customer confusion, lays out financial, marketing and production goals

• Anyone wondering if they should take the risk with the firm

Three Fundamental Types of Plans

• First Type: The Summary Plan -contains only the most important information about a business

and its direction. It has 10-15 pages, concise, terse in style, business strategy stated in one


sentence. Works best when applying for a loan, if you are well-known, not seeking funding from

other investors, need money quickly

• Type 2: the Full Business Plan. standard issue, 30-50 pages in length from 10-30 pages of

support documentation i.e., resumes, letters of support, promotional materials introduction

detailed, explanatory works best when you want to explain key issues fully, looking for a lot of

money, looking for a strategic partner

• Type 3: the Operational Business Plan: internal planning document of an operational company

usually much longer because it takes more time to describe ongoing business more history,

products, people heavy on the quantitative analysis meant to inspire managers, best for fast-

growing company, gives order to growth used as part of an annual review

Various Parts of the Business Plan

• cover page

• executive summary - small version of BP

• company strategy - what’s your identity?

• marketing issues - who are the buyers?

• product/services issues: What are you selling?

• sales and promotion: How will you sell?

• financial issues

Part 1: Cover Page

• Name of company

• address

• phone number, fax, e-mail

• chief executive’s name

• Hints: don’t make the banker look up your name and phone number

• number the copy of the plan

• follow-up with non-disclosure agreement

Part 2: Executive Summary

• Stands alone as a business plan within a business plan

• logical, clear, interesting and exciting

• requires less than 4 minutes to read

• no more than 2 pages (so that’s what they’re up to!)


• not an abstract, introduction, preface, random collection of highlights

• it’s the BP in miniature

The Better Executive Summary

• Explains why the timing is right for the company to be formed

• Establishes its strategy

• Explains how it will compete effectively, concise, to the point

• Emphasizes marketing aspects

• Positive in nature, says what a prospective investor wants to hear

• Synthesizes talents of team; written,re-written

Part 3: Company Strategy

• Asks: What is your company’s identity?

• Every company has an underlying philosophy and logic (examples):

• decentralization of decision-making

• interest in funding expansion of the company via earnings as opposed to outside

investment

Four Principle Strategy Issues

• overall company strategy: overall approach to producing and selling products and services,

goals for maximizing success, what is your guiding principle?

• mission statement: a statement that encapsulates your company’s values and overall purpose

in life

• technology/information assessment: ability to use technology and manage information

• management team: who determines and implements strategy (must have credibility)

1) Overall Strategy: past, present and future issues

• Discuss your company’s history, when it was started, by whom, has strategy changed from that

of the past, if so, why?

• Include fundamentals: sales, profits, number of employees, locations

• What is status of company today (snapshot)?

• Strengths and Weaknesses: mention these, you will appear more honest, open-minded

Overall Strategy: future prospects

• Also known as the “objectives” section


• easy to project good growth, harder to make it believable

• if you had a history of growth, then it is more believable

• can sometimes use external trends (e.g., growth in another area) to justify new direction

• start-up companies can more easily speak to growth because they have bad experiences to dispel

optimism

• people starting the business can lend credibility to the plan if they, themselves, are credible

2) The Mission Statement

• Represents a more generalized and idealistic vision of the company’s purpose in life

• often, these visions are a little too lofty

• many times it is more than adequate just to improve people’s lives

• mission statements also establish achievable goals

• often focus on three issues: product, economic and social objectives

3) Technology/Information Assessment

• Greater or higher technology allows small companies to compete on an even playing field with

larger ones

• used to achieve competitive advantages

• with proper technology, customers can be serviced more quickly and efficiently than

competitors

• technology must be integrated into the company’s most important operations

• examples?

4) The Management Team

• This is the critical link in making the strategy section believable

• quality of the management team should speak for itself because people are the key to

determining success

• two most common problems: one-man-band syndrome, everyone from same background

• hard to expand if you have a dictator

• successful management teams require diversity of training and expertise

Management Team Suggestions

• emphasize real-life business accomplishments

• academic accomplishments only hold value for technology businesses

• identify evidence of special knowledge and creativity


• make the most of your human resources: describe all team members in positions of authority

• describe your board of directors

Part 4: Marketing Issues (Who are the Buyers?)

• Everyone engages in marketing, whether they believe it or not

• obtaining clients through referrals and word of mouth is still marketing

• marketing: identifying your customer prospects and determining how best to reach them (this

is a BP-style definition)

• now-a-days marketing is not selling or promoting

• selling and promoting are the implementation of the marketing plan

What are you Selling?

• You might think this is an easy question to answer -- it isn’t

• the real question: What is the customer buying?

• If you answered “shrimp” to the first question, you really might want to answer: “the best

possible selection of shrimp at the lowest possible price.”

• What is the problem with this type of answer? Everyone else uses it.

• In building a business, you want to emphasize benefits as part of marketing

Emphasize the Best Benefits

• “best benefits” are those that make people feel better or fill their wallets

• benefit 1: convenience

• products and services that save people time can often charge more

• benefit 2: added value

• important, no matter how simple

• if product is boring, you must figure out ways to add value

• benefit 3: saving both time and money

• example: purchasing over the internet

Marketing: getting the answers you need

• Much information for market research is public domain

• many marketing surveys begin using on-line data bases

• doing it yourself is generally better than hiring someone else

• it’s cheaper and you’ll learn more

• consumer tests, as opposed to marketing surveys, are best done by someone else


Assessing the Competition

• No businesses are carried out in a vacuum

• if there is no apparent competition, do not take that as a good sign

• maybe the market isn’t receptive

• maybe you need to look deeper

• your competitor may not be another business, but another way of doing it

• list your competitors and their weaknesses + strengths

• how will you stay ahead of competition?

Part 5: Product/Service Issues (What are you selling?)

• The value of a product determines a company’s success

• there are really only two issues that come to mind in selling a product:

• 1) the market should determine the particulars of a product

• 2) if the market exists, can you deliver in a timely and cost-effective manner?

Part 6: Sales and Promotion (How do you Sell?)

• This is the key to everything else in your business

• without it, you cannot sell your product

• most poorly-managed firms take the “sales” approach: they do what everyone else does, know

what is acceptable

• that’s not enough in today’s world

• in this plan, you must show how sales will be cost-effective and get people’s attention

How a Project is Typically Put Together

Wrap-up on Business Planning

• The last section is the “Financial” Section

• Contains financial projections

• Hardest part of the Plan to organize and finish

• Subject of our next lecture

Summary Developing the Business Plan

• Title Page

• Table of Contents

• Executive Summary

• Vision and Mission Statement


• Company overview

• Product and/or service plan

• Marketing plan

• Management plan

• Operating plan

• Financial plan

• Appendix of supporting documents

Chapter 5: Business start-up growth and development

1.10. Challenges of starting a business

How does one start a new venture?

• Important issues in new venture creation:

• Does the entrepreneur have good ideas and the courage to give them a chance?

• Is the entrepreneur prepared to meet and master the test of strategy and competitive

advantage?

• Can the entrepreneur identify a market niche that is being missed by other established firms?

• Can the entrepreneur identify a new market that has not yet been discovered by existing firms?

• Can the entrepreneur generate first-mover advantage by exploiting a niche or entering a

market before competitors?

• How does one start a new venture?

• Questions that keep a new venture focused on its customers …

• Who is your customer?

• How will you reach key customer market segments?

• What determines customer choices to buy or not buy your product/service?

• Why is your product/service a compelling choice for the customer?

• How will you price your product/service for the customer?

• How much does it cost to make and deliver your product/service?

• How much does it cost to attract a customer?

• How much does it cost to support and retain a customer?

1.11. Funding Business Start Up

• Personal finance

• Debt financing

• Equity financing

• Venture capitalists

• Angel investors

1.12. Idea generation, creativity and innovation


• Life cycle of entrepreneurial firms

• Birth stage

• Breakthrough stage

• Maturity stage

• Each stage poses different managerial challenges and requires different managerial

competencies.

• Creativity is the process of generating unique and useful ideas. Innovation is about taking the

creative/unique new idea and turning it into something of value

• Innovation requires discipline and action to evaluate the ideas, test them, modify them and

then apply them. It is through there disciplined and actions that turn an idea into something of


value.

• Creative entrepreneurs observed people’s problem, and see opportunities. These entrepreneurs

then innovate by applying creative solutions to people’s problems to better enhance people’s

quality of life.

• Entrepreneurship is the commercialization of creativity.

• Entrepreneurship occurs when an individual or organization:

• Sees the potential in an idea that can be developed for the marketplace or user groups

• Is prepared to take the necessary risks to stir things up and get things out of their neat or

comfortable spaces

• Has the skills (or access to them), confidence, determination, and the funds (or access

to them) to carry out the innovation that is required to turn the idea into reality.

CREATIVE PROCESS

• Edward De Bono, 1992 – creativity is a process that can be developed and improved.

• Everyone possessed a certain degree of creativity, some of us are more creative, and some are a

little less.

• Creative process involves looking with different perspectives on unique relationships of the

surroundings.

PHASES OF CREATIVE PROCESS

• Phase 1: Background or Knowledge Accumulation

• Involves seeking and gathering of information through observations, readings,

conversations with others, attending seminars, meetings and workshops, etc.

• Phase 2: The Incubation Process

• Entrepreneurs deliberately allows creativity to spur by breaking-away from the problem

and let the subconscious mind work on it.

• Phase 3: The Idea Experience

• Discovery of the idea or solutions to the problems (eureka factor).

• Phase 4: Evaluation and Implementation

• Evaluation and implementation of workable ideas requires high level of persistency and

patience. Entrepreneurs do not easily give-up when they face obstacles.

COMPONENTS OF CREATIVITY

• Creative thinking skills

– The use of creative intelligence to approach problems and find solutions

• Knowledge

– Four styles of creative intelligence:


• Intuitive

• Innovative

• Imaginative

• Inspirational

• Motivation

• Extrinsic

• Intrinsic

COMMON CREATIVITY TECHNIQUES

• Brainstorming (Alex F. Osborn)

• SCAMMPERR (Micheal Michalko)

• Lateral thinking (Edward De Bono)

• Mind mapping (Tony Buzan)

• Problem reversal (Charles Thompson)

• Attribute listing

A. Brainstorming (Alex F. Osborn )

• Organize the group of ideally 4-8 students (per group).

• Choose the topic (problem) and write it on a whiteboard. Lecturer must make sure that

everyone understands the problem or issue.

• Remember the rules:

• Do not criticize. All ideas are welcome and valid.

• Do not limit the number of ideas. The aim of brainstorming is to get large

number of ideas.

• Do not filter /censor any ideas. Keep the brainstorming session flowing.

• Listen to other ideas and use it to generate other ideas.

• Do not discuss or question as it could stop the flow of ideas.

• The lecturer can conduct the session either in an unstructured way (any group can give

ideas at any time) or structure (going round the group for ideas).

• The lecturer must be around to enforce the rules and write down all the ideas.

• Lecturer should clarify and conclude the session.

• Lecturer should get a consensus of the best ideas produced from the session (at least two).

B. SCAMMPERR (Micheal Michalko)


• A checklist that could assists students to imagine various changes they can make to an existing

products/things to create a new one.

• SCAMMPERR stands for:

� S - Substitute - components, materials, people

� C - Combine - mix, combine with other assemblies or services, integrate

� A - Adapt - alter, change function, use part of another element

� M - Magnify - Make it enormous, longer, higher, overstated, added features

� M - Modify - increase or reduce in scale, change shape, modify attributes (e.g. colour)

� P - Put to another use

� E - Eliminate - remove elements, simplify, reduce to core functionality

� R - Rearrange - change the order, interchange components, change the speed or other

pattern.

� R - Reverse - turn inside out or upside down.

• Students can use these changes as starting points for Lateral Thinking

C. Lateral Thinking (Edward de Bono)

• Lateral Thinking – seeking to solve problems by unorthodox or apparently illogical methods

(Concise Oxford Dictionary).

• Lateral thinking - moving sideways when working on a problem to try different perceptions,

different concepts and different points of entry (get us out of the usual line of thought).

• Lateral Thinking can be used in two approaches:

• Specific: A set of systematic techniques used for changing concepts and perceptions, and

generating new ones.

• General: Exploring multiple possibilities and approaches instead of pursuing a single approach.

D. Mind Mapping (Tony Buzan)

• also called ‘spider diagrams’ which represents ideas, notes, information, etc. in far-reaching tree-

diagrams.

• To draw a mind-map:

• Put down a large sheet of paper and write a short heading for the subject/theme in the centre of

the page.

• For each major sub-topic start a new major branch from the central subject/theme and label it.

• Each sub-sub-topic, creates a subordinate branch to the appropriate main branch

• Carry on in this way for ever finer sub-branches.

• It may be appropriate to put an item in more than one place, cross-link it to several other items

or show relationships between items on different branches. This can be done through colour

coding, type of writing etc.


E. Problem Reversal (Charles Thompson)

The Method

• Create negative statements. For example, in dealing with Customer Service issues, ask students

to generate a list of all the ways to make customer service bad.

• Doing what everybody else doesn't. For example, food delivery using “mangkuk tingkat” or

selling women accessories using vending machine.

• Make a list of pairs of opposing actions which can be applied to the problem. Make students ask

themselves "What if I ........" and plug in each one of the opposites. A small sample:-

• Stretch it/Shrink It

• Freeze it/Melt it

• Personalise it/De-personalise it

• Change the direction or location of your perspective.

• “Flip-flop” the results. For example, if we want to increase sales, think about decreasing them.

What would you have to do?

• Turn defeat into victory or victory into defeat. For example, if something turns out bad, think

about the positive aspects of the situation. If I lost all of the files off this computer, what good

would come out of it? Maybe I would spend more time with my family?! Who knows!

F. Attribute Listing

Steps:

• Identify the product or process you are dissatisfied with or wish to improve.

• List its attributes. For a simple physical object like a pen, this might include: material, shape,

target market, colors, textures, etc.

• Choose, say, 7-8 of these attributes that seem particularly interesting or important.

• Identify alternative ways to achieve each attribute (e.g. different shapes: cylindrical cubic,

multi-faceted….), either by conventional enquiry, or via any idea-generating technique.

• Combine one or more of these alternative ways of achieving the required attributes, and see if

you can come up with a new approach to the product or process you were working on.

BLOCKS TO CREATIVITY

• Blockages to creativity need to be recognized and eliminated so that it will smooth the way to

creativity.

CLASSIFICATION OF BLOCKS ARE :

• Perceptual

• Emotional


• Cultural

• Environmental

• Intellectual/Conceptual

A. Perceptual Blocks

• Prevent problem recognition, limiting the problem.

• Inability to see problems from different perspectives

• Stereotyping, missing the connections or associations

• Not thinking outside the box

• Literal thinking

B. Emotional Blocks

• Fear of failure can paralyse us if we think what we are doing won’t be good enough.

• Will lead to procrastination and project abandonment.

• Most blockages are attitudinal or psychological.

• Inability to incubate can lead to other fears such as:

• fear of problem,

• fear of work,

• fear of fun,

• fear of exploring and

• fear of abandonment.

C. Cultural Blocks

• Tradition is to be maintained.

• Playfulness is only for children

• Fantasies or dreams are for crazy people

• Comfortable zone


D. Environmental Blocks

• Environmental blockages are those impose upon us by external factors. These include the

working atmosphere, amount of stress on individual, organizational culture, supervisory

practices and even the physical surroundings of our workspace.

• Blockages can also arise from physical and mental exhaustion.

• Examples:

• Lack of corporation and trust among colleagues (lack esprit de corp)

• Bosses who practice autocratic management

• Too many distractions

• Lack of financial and top management support to bring ideas to implementation

E. Intellectual/ Conceptual Blocks

Failure to understand and acknowledge problems that need to be solved.

• “I don’t know; “Don’t’ ask me”

• “Try asking someone else”

• Many creative solutions are hidden by mistaken assumptions. Therefore, people need to be

more open minded and receptive.

TYPES OF INNOVATION

– There are 3 types of innovation :

• Technological Innovation

• Operational Innovation

• Organizational Innovation

A. Technological Innovation

• These are breakthrough inventions that have wide-reaching impact and influence which benefit

society and business.

• Major breakthroughs can be radical and disruptive for people, society, businesses and countries

or the whole world.

• Example; the internet.


• They can change the way people live their lives, the way companies do business and the way

countries govern and behave

• Example of major technological breakthroughs are :

• the wheel,

• the printing press,

• steam power,

• electricity,

• Smaller technological inventions have less impact but still have significant benefit to certain

users.

• Example of small technological inventions are:

• the paper cup,

• the ball-point pen,

• the electric toothbrush,

• the electric razor,

• hair dryers,

• the garden hose,

B. Operational Innovation

• Operational Innovation is smaller, more process-oriented Innovation

• Tends to be incremental in nature

• Doesn’t necessarily change products or services or how they are used and most of it goes

unnoticed by the public, but often it is the means to improved products and lower operating

costs.

• This type of Innovation happens by the very act of people doing their work… “Hmm, what if

we try doing it this way instead?”

• Have much smaller impact, per invention, compared with breakthrough technological

innovation, but cumulatively their effect can be enormous. Their effect builds and grows over


time.

Operational Innovation includes:

• New systems or refinements to existing ones.

– For example, internal systems and methods for many aspects of work such as staff

administration, purchasing, distribution and sales.

• Small improvements in operations or processes.

– For example, changes to make equipment run more effectively.

• Minor improvements or developments that will enhance it to a technological product.

• Innovative new business practices.

• For example, new ways for thinking strategically.

C. Organizational Innovation

• Organizational Innovation is where a company or organization itself is innovative

• In an innovative company or organization everyone knows his or her specific role in

innovation

• It can be purposely built through putting organizational culture as the operational style or

mode to get things done.

• Innovative companies don’t just produce innovative goods and services. They use innovative

methods in everything they do.

How To Instill Organizational Innovation

• Developing and instituting an innovative work culture among the people within the

company or organization.

• By enforcing work culture, company or organization able to:

• Change the way the staff work

• Change their attitudes and mindsets

• Improve their skills

• Improve the methods they use to carry out their work

Examples of Organizational Innovation


• A CEO who accepts the challenge to be innovative and encourages risk-taking (a spur to

innovation) and rewards good ideas as well as the successful completion of projects (the

results of innovation)

• An organization where everyone understands the many benefits of innovation. Even those

who are not directly involved in innovative work, such as production people, recognize

they have a part to play in identifying better ways of doing things. They notice what’s going

on around them and they find opportunities or way for improvement.

SOURCES OF INNOVATION

• Within the company or industry

• Unexpected occurrence (viagra, penicillin)

• Incongruities (Federal Express)

• Process needs (enzyme for cataract operation, sugar free products)

• Industry and market changes (advances in technology, healthcare industry)

• Within the social environment

• Demographic changes (change in consumer preference)

• Perceptual changes (fitness craze)

• New knowledge (video industry, robotics)

COMMON CHARACTERISTICS OF CREATIVE ENTREPRENEURS

• Sensitive to problems

• Broad perspectives

• Flexible and adaptable

• Original thinker and stick-to-own opinion

• Risk-taker

• Motivated and dedicated

• Curious

Chapter 6: Business Management Strategies and Current Issues

1.13. Strategies for business growth: Mitigating factors that cause business failure

Success inhibitors — and what you need to do to overcome them

Lack of capital

Lack of capital is often the most critical challenge that a successful SME faces as its very success

creates this and it quickly becomes a vicious circle.

Without very diligent cash flow management and/or raising of more capital, including debt, the


business often is constrained by capital as it grows. Often the profit in one operating cycle is

insufficient to fund the extra working capital required for the next operating cycle.

This is especially the case where a business is either inventory or receivables intensive and/or the

operating cycle is a long one. (The operating cycle is the average time that it takes from the first

receipt of inventory to when the customer pays for the goods sold.)

This can be made even worse where capital goods are required to process the goods and the

company cannot finance the acquisition of these capital assets. Many capable entrepreneurs cannot

overcome the obstacles in their businesses cash flow cycle and cannot understand why bankers and

other lenders often cannot provide the financing as the SME often does not have the security to

support the debt.

The solution is often easier than most entrepreneurs realize. It often starts with a plan to see what

your cash needs are and when your cash needs arise. Then one is in a position to manage it and focus

on the cash management techniques most likely to be successful in your business.

Lack of management skills

Lack of management skills is a problem that is very difficult to deal with in most SMEs as the size of

the senior management team is necessarily limited. These areas of weakness could be in finance,

human resources, marketing â€¦ any area where the current management does not have the expertise,

or the time to deal with the issues.

The solution is to determine what those areas of weakness are and then to develop a plan for dealing

with those challenges. Once you spend the time to recognize a weakness -- as long as it is not in a core

area for the specific business -- it often can be compensated for without a lot of time, effort or money.

Solutions can be as simple as assigning the responsibility to an existing manager with a requirement

to watch for the obvious pitfalls, to hiring a person part-time or a consultant. The solutions are often

obvious if one spends a little time planning and assigning responsibility. And yes, it often is effective to

assign that responsibility to yourself as you then know that you have to deal with the issues rather

than waiting for an issue to become a real problem.

Lack of information about what is - and isn't - working

Lack of information about what is working, and what is not working, in the business can be an issue.

Often companies do not measure their results and when something specific causes a blip (positive or

negative) in results they do not know what has caused the success or problem.

Implementing a process for measuring and tracking key performance indicators (KPIs) on a weekly,

or at least monthly, basis is key to enabling management to react to challenges and opportunities alike.

The old saying that you cannot manage what you do not measure is so true. If nothing else, it often

alerts you to a change from the norm much sooner than waiting until you otherwise become aware of

it. Once awareness is established, solutions are easier to find.

Lack of a plan

Lack of a plan is often a fundamental problem for many SMEs. The arguments for planning are many

and irrefutable and yet this is a very common failing for most SMEs except those that are enjoying very

rapid growth.

In my opinion there are three very fundamental reasons for implementing a planning process:

If your plan sets out certain objectives you are much more likely to achieve - or exceed - them than

if you just keep barreling along. Research has often shown this to be true and it stands to reason that

having a plan will enable you to often think through and implement the steps necessary to achieve that

plan;


Most SMEs spend so much time dealing with the "alligators" that are snapping at their rear end

that it is difficult to recognize the steps necessary to achieve your long-term objectives. A plan

disciplines you to look "beyond the weeds" from time to time; and

A plan can often alert you to inconsistencies that need to be managed e.g. a lack of capital or other

resources necessary to fund the growth projected. Once recognized you are in a position to better

manage the limiting factor.

Poor procedures

Poor procedures are a constant challenge for a SME trying to manage with limited resources. Most

entrepreneurs do not realize that the procedures in place for managing the business need to be well

designed to reduce the incidence of errors. Error correction is often a major waste of time and

particularly management time.

Good procedures with a little time and effort invested up front will usually pay enormous dividends

in time and cost savings on an ongoing basis.

Ignoring risks in their assessment of alternatives and opportunities

Many entrepreneurs ignore risk in their assessment of alternatives and opportunities. A business is

about taking managed risks and one cannot insure for or avoid risk if one is in business. However in

my experience few, once they have chosen a course of action, pause to consciously think of ways to

manage the risk and determine procedures or steps that can be taken to reduce the risk and increase

the chances of success.

Often, this is as simple as "diarizing" to follow-up on an issue so that it does not get forgotten or

having a second person review something to reduce the risk of error.

Lack of focus

Lack of focus is often a real challenge for an entrepreneur in a SME as there are constant changes in

priorities, issues that need attention and other fires to be extinguished. Often opportunities present

themselves and it is difficult to say "no" to a short-term opportunity that will distract you from your

long-term goals.

Be clear on your long-term objectives and the opportunities that will facilitate your achieving this.

Then evaluate other opportunities by the extent to which they draw resources away from your ability

to achieve those long-term goals.

Failure to plan for issues absorbing the majority of your time

Each of the above potential mistakes are common and are often encountered in businesses that

could do lot better. However, the greatest failing that I encounter is an owner/manager not pausing to

plan for the issues and solutions that are absorbing so much of his/her time and energy.

Probably the scarcest resource in most businesses is the time of the owner/President and a little

time developing a strategy can often free up the opportunity to focus on real priorities.

1.14. Record keeping and financial statements

– Better Recordkeeping

What is a record?

– ‘information created, received, and maintained as evidence and information by an organisation

or person, in pursuance of legal obligations or in the transaction of business’

What is good recordkeeping?


– creating records to:

– support ongoing business

– meet accountability requirements

– capturing records into recordkeeping systems

– managing records for maximum use and value over time

– Why good recordkeeping is important

– better performance, decision making

– effective corporate governance

– better compliance with business, regulatory requirements

– protection, support in litigation

– better reuse of business information

– Mandatory requirements

– create and manage records to support your business

– do not destroy records without approval

– store records appropriately

– protect records from disaster

– keep electronic records accessible

– Key strategies

– develop and implement recordkeeping / records management policy

– Develop and implement recordkeeping systems / tools

– conduct training & education

– Develop and implement policy, procedures


– covering all record formats

– describes official recordkeeping systems

– rules for recordkeeping

– records management services

– responsibilities

– Develop and implement record keeping systems and tools

– avoid practice of information silos – where staff members keep ‘their own’ records

– no information sharing

– poor business practice

– illegal and inappropriate records management practices

– What are recordkeeping systems?

– recordkeeping systems are systems that capture, maintain and provide access to records

through time

– What does a recordkeeping system look like?

– can take a variety of forms

– paper – files and supporting indexes

– electronic – off the shelf software, custom built system, configured standard tools such as Excel

– combination of above

– key features:

– shared, supported by policy and procedure, staff are trained in its use, incorporates

recordkeeping tools, maintains authentic, useable and protected records

– How do you improve recordkeeping systems?

– work with staff to eliminate duplication


– implement recordkeeping tools

– basic classification scheme

– disposal rules

– review system functionality regularly

– are people actually using it?

– is it meeting staff and business needs?

– How do you improve recordkeeping systems?

– regular monitoring of

– system use, downtime, etc.

– automated features such as date/time

– file audits

– emails being captured

– identify problem areas and training needs

– Training and education

– All staff need to:

– realise that recordkeeping is a significant part of their job – it’s not just the role of records staff

– know that they make and keep records and that these records need to be appropriately

managed and made accessible

– understand the systems and rules you want to implement

– understand that these rules apply to records in all formats, including email

1.15. Role of ICT in entrepreneurship

• Important indirect impacts on the economy as an enabling technology.

• ICT enabled innovations.

• ICT relevance for leaner and more efficient business processes along the whole value chain.


• ICT relevance for efficient relations with customers and suppliers.

• According to a recent study* “Money spent on computing technology delivers gains in worker

productivity that are three to five times those of other investments”.

1.16. HIV and AIDs pandemic and entrepreneurial development

How has HIV and AIDs pandemic affected entrepreneurial development

1.17. Globalization

Discuss globalization and internationalization of entrepreneurship in kenya

1.18. Incubation

• Involves “nurturing” start-up business with an enabling environment, material and intangible

resources

• Set up by universities or high tech parks

entrepreneurship & innovation table of contents 1. course ... · entrepreneurship &...

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