Bus 429

Course outline

 Definition of entrepreneurs and entrepreneurship theory

 Characteristics of entrepreneurs
 Creativity and innovative
 Entrepreneurship networking
 Business environments
 Feasibility analysis
 Business plan
 Starting a business
 HRM entrepreneurship
 Financing entrepreneurship activities
 Marketing in entrepreneurship
 Production management in entrepreneurship
 Dealing with legislative institutions
 Comparative analysis of business ownership

Topic 1

Who is an entrepreneur?

The word entrepreneur is derived from the French word "entrepredre" which
means to undertake. An entrepreneur is the individual who undertakes to organized,
manages and assumes the risk of a business, such risk are;

 Financial and personal or psychology

 Career and employment
 Social risks

An entrepreneur is the individual who creates a new business or buys and existing
business and faces the risks and uncertainties for the purpose of achieving profit
and growth by identifying significant opportunities and assembling the necessary
resources to sustain the created enterprise or purchased enterprise.
PETER DRUNKER: defines entrepreneur as a person who looks out for any
changes, respond to the change and take advantage of the opportunity generated by
the change.

RICHARD CANTILLON: refers to an entrepreneur as the bearer of risk which is

non insurable.

SCHUM PETER: entrepreneur as change agent in the society

The process of creativity instruction which entrepreneur create new ideas and new
businesses that make existing ones obsolete is significant for economic
development.

Definition of entrepreneurship

It is defined as the process by which individuals pursue opportunities without

regard to resources they currently controlled.

It is an ad of building an idea into business. In essence, entrepreneur behavior

makes him or her to identify opportunities and put useful idea into practice.

The task of entrepreneurship can not accomplished by either an individual or a

group and typically, it requires creativity and willingness to take risk.

It refers to overall cause of action taken by an individual in starting and managing

an enterprise or corporation. The term entrepreneurship continue to used in
different ways.

 One way relate to the process leading through creation and management of a
new business regardless of the size, product, service and ownership.
 Another view point, it is essentially concerned with developing a new idea
based on which a unique product, service or method is marketed by means
of settling up a new independent way or by using an already existing unit.

Entrepreneurship in at least non authoritarian society constitutes a bridge between

the society and the home especially the non economic outlet of that society and
profit oriented nit established to take advantage if economic endowment and
satisfy as first as possible the society economic desires.
There are at least 8 different features that regularly appear in the definition of
entrepreneurship:

 Environment: where entrepreneurship take place

 The people engaged in entrepreneurship
 Entrepreneur behavior
 Creation of organization by entrepreneur
 Opportunity identification and exploration
 Innovation whether incremental, radical or transformational
 Adoption of risk at personal, organizational or even at societal level
 Adding value to entrepreneurs and the society

Entrepreneurs' theories

A theory can be defined as a verifiable and logically coherent formulation of

relationship or underlined principles that either explain, predict by characterizing
conditions that are likely to lead the new preferred opportunities and formulation
of new enterprises or providing innovating guidance that is prescribe right actions
or particular circumstances. Entrepreneurship theory are divided into:

 Macro view of entrepreneurship thought which are divided into:

 Environmental school of thought
 Financial or capital school of thought
 Displacement school of thought
 Environmental school of thought: this school deals with external
environment or factors that affect potential entrepreneur's life. These are
either negative or positive forces caused in molding an entrepreneurial life.
The focus is an institutions, values and norms that group together to form the
social and political environmental framework that strongly influenced the
development of entrepreneurs. For example, if a middle level manager
experienced freedom and support to develop ideas, initiate contract and start
new methods, the work environment will serve to promote the manager
desire to pursue an entrepreneurial career.
  Financial or capital school of thought: it is based on the capital seeking
process or search for seed and growth of capital. The entire focus of this
theory is venture capital of entrepreneurial activities is as shown in the table
below:
Venture stage Financial consideration Decision

Start up/acquisition Seed capital and venture Routine or abandon

capital sources

Ongoing Cash management, Maintain, reduce or

investment, financial increase size
analysis and evaluation

Decline or succession Profit question, corporate Sell, retire or job

buyout succession operations
question

Business planning guides and textbook for entrepreneur emphasize phase

and development seminars focus on fund application process and upper on
continuous phases. This school of thought views the entire entrepreneurial
venture from financial management perspectives.
 Displacement school of thought: it focuses on the negative side of
group behaviors in which someone feels out of the place or literally
displaced from the groups. There are three types of displacement namely:
a) Political: it is caused by factors ranging from an entire regime that
reject free enterprise to governmental regulations and policies that
limit or indirect certain industry.
b) Cultural: this deals with social groups, proscribed from professional
fields, ethnics background, race, religion and sex are examples of
factors that figure out in the minority experience in the cultural
displacement.
c) Economic: this is concern with economic variation (boom and
recession), both trends, job loss, capital shrinkage and bad times can
create the foundation for entrepreneur pauses.
  Macro view of entrepreneurship: this view of entrepreneurship examine
the factors that are specific to entrepreneur (I.e) part of internal locus of
control. The potential entrepreneur has the ability to direct and adjust the
outcome of each major influence in this view.
 Entrepreneurial traits school of thought: this approach is grounded in
the study of successful entrepreneurs who tend to examine similar
characteristics that if emulated will increase the success opportunity for
the emulator. Example creativity, achievement, perseverance,
determination, opportunism and technical knowledge are commonly
exhibited by successful entrepreneurs. CREATIVITY: is the individual's
ability that has to do with new ideas or identifying existing ideas or
joining existing ideas with new ideas. Family development and
educational incubation are also relevant. The family development idea
focus on nurturing and support that exist within the home atmosphere on
an entrepreneurial family.
 Venture opportunity school of thought: this such focuses on the
opportunity aspects of venture development. The search for new idea
forces, the development concept and implementation of venture
opportunity are important interest areas of this school. Entrepreneurs try
where there are opportunities. Creativity and market awareness are built
as essential. The corridor principle stated that "new path ways or
opportunities will arise that lead entrepreneurs in different directions".
The ability to recognize this opportunities when they arise and to
implement the necessary procedures for actions are the key factors. The
maxim-preparation and maxim opportunities equal to luck organize this
corridor principle.
 Strategy formulation school of thought: this school emphasize the
planning procession of successful venture development. One way to view
strategy formulation is in leveraging of unique elements, unique market,
unique product, unique resources etc are identified, used and constructed
into effective venture formulation.

ASSIGNMENT
Identify 15 different types of entrepreneur and 10 functions of entrepreneur
(explain in not more than two lines per points).
Topic 2:

Characteristics of Entrepreneurs

Although many behaviors has been ascribed to successful entrepreneurs. Several of

these characteristics are common to those entrepreneurs who are successful. Those
in new ventures and those who are already part of entrepreneurial firm share these
characteristics which are shown in the figure below:

Passion for business Product/customers focus

Successful entrepreneurs

Tenacity despite failure Execution intelligence

 Passion for business: the first characteristics is the passion for their
business whether it is in the context of a new firm or an existing firm. This
passion physically stems from entrepreneur's benefit that the business will
positively influence people's lives. This passion makes entrepreneurs active
and highly involve on issues that are related to the venture. Passion makes
entrepreneurs successful in the sense that it makes entrepreneurs to have a
clear vision or a great future for their business. Often entrepreneurs are
discipline, highly commitments which serve as a means to an end by touch
in people's life positively.
Important of passion
 Ability to learn and literacy
 The willingness to work hard
 Ability to overcome setbacks and loss.
 Ability to listen to feedback on limitation upon organization and self
perseverance and persistent.
 Product and customers focus: an entrepreneur knows that a customer is
king and the product for satisfying customer needs in one way or the other as
a result of the quality the product has. This quality or products is
exemplified by STEVEN JOBS who wrote "the computer is the most
remarkable tools we have ever built". An entrepreneur usually approach his
or her business from the customers perspectives even though we have to
 consider other element like management, finance, human resources and
other functions that operate. In an integrated approach, the entrepreneur
seeks product development opportunities by asking critical questions that
will lead to better means of satisfying both current and potential customers.
 Tenacity despite failure: it requires entrepreneur to have a strong ability to
withstand setback and failure in early development of the venture.
Entrepreneurship is an experiment that involves trial and error process in
venture development like a chemist working in a laboratory with chemicals.
An entrepreneur working with ideas must be diligent if he or she is to get the
right mix required to succeed.
 Execution intelligence: an entrepreneur must have a goal that drive him or
her to the accomplishments of every day activities. The entrepreneur should
have personal drive or capacity to avoid being drive from external forces in
other for the entrepreneur to succeed. To achieve a great feat, entrepreneur's
energy from within him or herself must be utilized to ensure the goal that are
set are achieve at the right time wit minimal resources to ensure optimal
output.
 Confident: entrepreneurs are confident in their abilities and the business
concept. They believe they have the ability to accomplish whatever they set
out to do. This confident is not unfounded however, entrepreneurs have in
dept knowledge of the market and industry because they have conducted
several investigation about the market and the industry. It is common for
entrepreneurs to learn an industry while working for someone else, this
allow them to gain knowledge and make mistake before striking out on their
own.
 Self determination: this is crucial sign of successful entrepreneur because
they act out of choice, they are never victim of fate, entrepreneur believe that
their failure or success depends in their actions. This quality is known as
internal locus of control "a person who believe that fate, the economy or
other outside factors determines success as an external locus of control is not
likely to succeed as entrepreneur.
 Management of risk: entrepreneur do not put all their resources and time
into a venture until the venture appear viable. Entrepreneur often defined the
risk early enough in the process of starting their venture and they minimize
this risk to the extent that is possible. Entrepreneurs can also see risk
 differently from others although, this happen because of their knowledge of
the industry.
 See changes as opportunity: to the general public, change is often frighten
and its something to be avoided. Entrepreneurs however, see changes as
normal and necessary, they search for change, respond to change and exploit
change as an opportunity which is the foundation of innovation.
 Tolerant for ambiguity: the life of an entrepreneur is unstructured because
no one is setting schedule or step by step process for the entrepreneur to
follow. There is no guarantee of success. Uncontrollable factors such as
economy, weather and changes in consumers' taste often have a dramatic
effect on businesses. An entrepreneur life as being describe as a professional
life riddled by ambiguity on a consistent lack of clarity.
 Initiative and needs for achievement: successful entrepreneur takes
initiative in situation where others may not their willingness to act on their
ideas often distinguish them from those who are not entrepreneur.
Entrepreneurs act on their ideas because they have a high need for
achievement, showed in many studies to be higher than that of a general
population. This achievement motive is conducted into drive and initiative
that result in accomplishments.
 Detailed orientation and perfectionism: entrepreneurs are often
perfectionist and striving for excellent or perfection, this help the business to
succeed. Attention in details and the need for perfection result in a quality
products or services. However, this often result into frustration for
employees who may not be perfectionist themselves because of this, workers
may perceive the entrepreneur as a difficult employer.
 Perception of pass time: entrepreneurs are aware that time is passing
quickly and they therefore often appear to be impatient because of this kind
of orientation, nothing is ever done soon enough and everything is in crisis.
This perceptive may irritate employees who do not see the same urgency in
all situation.
 Creativity: one of the reason entrepreneurs are successful is because her
have imagination and can envision alternative scenario. They have the
ability to recognize opportunities that other people do not see. The act of
operation is nothing more than taking something standard in one business
and applying it to another business. Entrepreneurs must know what the
 customers want, some time little before customers know they want the
product and before they know it is possible.
 Ability to see the big picture: entrepreneurs see things in a political sense,
they can see the big pictures when others see only the path. This process of
seeing the big picture is known as scanning the environment which allows
entrepreneur to see the entire business environment and the industry which
helps entrepreneurs to formulate the larger picture of the business activities.
 Motivating factors: although, many people believed that entrepreneurs are
motivated by money, other factors are actually more important. The need for
achievement and the desire for independent are more important than money.
Entrepreneur often decide to start their own business in other to avoid
having a boss. The following factors are very important reason for being an
entrepreneur:
 To use personal skills and ability
 To gain control of their life
 To build something for the family because entrepreneurs like challenges
 To live how and where they choose
 Self efficacy: this has been defined as a personal belief in his or her
capabilities to perform a task. One study found out in the sense of personal
efficacy, there is both accurate and strong will is essential to the initiation
and performance in all aspect if human development.

Topic 3

Creativity and innovation

Opportunity identification is central to the domain of entrepreneurship

because at the core of entrepreneurship revolves around the questions of why,
when and how of opportunity recognition for the creation of goods and
services in a given economy. This opportunity recognition is a projector of
both personal and societal wealth. It has been argued that understanding the
opportunity and identification process is one of the primary challenges in the
domain of entrepreneurship research.
 The following are some of the most resources of entrepreneurial
opportunities:

 Trend; population, economy and technology

 Unexpected occurrences
 Incongruities: the gap between importation and process needs
 Industry and market changes
 Demographic changes: age, education, gender etc
 Perceptual changes: people's interpretation of things around them such as
product produced
 Knowledge based concept: it leads to innovations and creativity

Creativity

It is the ability to develop new ideas and to discover new ways of looking at
problems and opportunities. Creativity is the generation of ideas that result in
improved efficiency and effectiveness of a system. Two important aspect of
creativity exist: people and process.

The ability to develop new ideas is a process that is goal oriented which is design
to provide a solution to a problem. People are the sources that determine the
solution because the process remain the same but the approach that people use
differs from one place to another.

Nature of creative process

Creativity is a process that can be developed and improved. Everybody is creative

to some degree, however, as it is the case with many abilities and talent, some
individuals have higher or greater aptitude of creativity than others. Also some
people have been raised and educated in an environment that encourages them to
develop their creativity. They have been taught to think and act creatively. To
others, d process is more difficult because they have not being positively
reinforced, if they have to be creative, they must learn how to implement the
creative process. Creativity is the easiest way of looking at the walls that is often
illogical.
Creativity process involve series of relationship among things where others have
not seen the relationship. The creative process have four commonly agreed steps;

INCUBATION

CREATIVE
ACCUMULATION
PROCESS
IDEAS
OF WEALTH

EVALUATION AND

IMPLEMENTATION

 Background or knowledge accumulation: successful creative are preceded

by investigation information gathering this usually involve extensive reading,
conversation with others, working in the field, attendance at personal
meeting and workshop and the general adoption of information relating to
the problem or issues under study.
 Incubation: creative individuals allow their subconscious to mull over the
tremendous amount of information they gather during the preparation stage.
This incubation process often occurs where individuals are engaged in
activities totally unrelated to the subject of the problem. Some of the most
helpful steps to include are as follows:
i. Engage in routine mindless activities
ii. Exercise regularly
iii. Play
iv. Think about the problem before falling asleep
v. Mediate
 Idea experience: this path is often the most existing because this is where
the idea or the solution the individual is seeking is discover. This us
sometime refers to as EUREKA factors. This is also the step that an average
person incorrectly perceived as the only component of creativity. Idea
experience often imagine while the person is doing something unrelated to
the problems. In most cases, the idea come to the person instructional,
slowly formulate the ideas. There are several ways to freed up the idea
experience:
i. Day dream and fantasize about the problem
ii. Practice your hobbies
iii. Walk in a leisure environment
iv. Put the problem in the back corner
v. Keep a note book at the bedside to record in the late night or early in the
morning
vi. Take break while working
 Evaluation and implementation: successful entrepreneurs can identify
ideas that are workable and that entrepreneur have the skills to implement.
Entrepreneurs do not pick when the run in through temporary obstacles often
entrepreneurs would pay severally before successfully develop their best
ideas. In some cases, the entrepreneur would take the idea in an entirely
different direction and we discover a new and more workable idea while
struggling to implement the original ideas. Another important part of this
phase is working of ideas to out them into firmer form, some of their useful
suggestion of implementation are as follows:
i. The entrepreneur should increase his or her energy level with prosper
exercise, diet and rest
ii. The entrepreneur should engage him or herself in a business planning
process and up-facets of business
iii. The entrepreneur should test his or her ideas with knowledge people
iv. The entrepreneur should educate him or her self in the selling process
v. Entrepreneur should learn organizational policies and practices.
vi. Entrepreneur should seek advice from others
Areas in which people are creative: individuals in organizations can channel their
creativity in seven different ways:

o Idea creativity: thinking up a new idea and concept such as idea for a new
product or service or a way to solve a problem
o Material creativity: inventing and building a tangible objectives such as a
product, a report or a photography
o Organizational creativity: organizing people or project and coming up wit
new organizational forms or approaches to structuring
o Relationship creativity: this is an innovative approach to achieving
collaboration, operation and win-win relationship with others.
o Event creativity: producing events such as award ceremony, team outing,
annual meetings etc
o Inner creativity: changing oneself and being open to new approaches and
thinking about oneself in different ways.
o Spontaneous creativity: acting in a spontaneous or spur of the moment such
as a witty response in a meeting and off-give-huff

Barriers to creativity

 Searching the one right answer

 Focusing on being logical
 Blindly following the rules
 Constantly being practical
 Viewing play as frivolous
 Being overtly specialized
 Avoiding ambiguity
 Fearing mistakes and failures

Innovation

Innovation is the ability to apply creative solution to those problems and

opportunities, the identified in other to enhance or enrich people's life. The term
innovation is derived from Latin word "INNOVARE" meaning make something
new.
The modern day understanding of innovation is that is the process of turning ideas
into new opportunities for value creation and putting this ideas into widely used
practices.

Innovation is also defined as the successful implementation and exploration of a

new idea or invention. Innovation is the process of taking new ideas effectively
and profitably to satisfy customers' needs.

There are four basic types of innovation:

i. Invention: is the creation of a new product, service and process often one
that's noble or untry
ii. Duplication: is the repetition of an already existing products, services or
process. Duplication effort however, is not simply copying but it is the
addition of entrepreneurs creative touch to enhance or improve the concept
in other to beat competition
iii. Synthesis: is the combination of already existing concepts and factors into a
new formulation. This involves taking a number of ideas or items already
invented and find in a way that these ideas or inventions can form a new
application
iv. Extension: is the expansion of a product, service or process already in
existence to satisfy new needs. Such concepts make a different application
of the current ideas.

Principles of innovation

Potential entrepreneurs need to realize that innovation principles exist which can
be learned by entrepreneur. The major important principles are as follows:

a. Action oriented: innovators must always be active and searching for new
ideas, opportunities or sources of innovation
b. Make the product, services or process simple and understandable: people
must readily understand how the innovation works
c. Make the product, services or process customer based I.e study customer to
identify needs to develop product I.e the beginning and the end. Innovators
must always keep the customers in mind, the more an innovator has the end
user in mind, the greater the chance the concept will be accepted and used
 d. Start small: innovators should not attempt a project or development on a
grandeur scale, innovators should begin small and then build and develop
allowing for growth and proper expansion in the right manner and at the
right time.
e. Aim high: innovators should aim high for success by seeking a niche in the
market place.
f. Try, test and revise: innovators should always follow the rules of try, test
and revise. This helps work out any flaws in the product, process or service
g. Learn from failures: innovations does not guarantee success more
importantly, failures give rise to innovations
h. Follow a mile-stoned every innovator should follow a schedule that indicate
milestone accomplishments
i. Reward heroic activity: this principle implies more to those entrepreneurs
involve in seeking and motivating others to innovate. Innovation activity
should be rewarded and given the proper amount of respect
j. Work, work, work: this is a simple but accurate exhortation with which to
conclude the innovation principles. It takes work not genius or master in to
innovate successful.

Sources of innovation

 Unexpected events including natural disasters

 Act of terrorism, wars etc
 Processed need
 Industry and market structure
 Demography
 Changes in perception
 New knowledge

Innovation management process can be divided into four stages:

 This involves scanning the environment for relevant signals indicating

opportunity for change
 This involves striving which of the signal to response to based on a strategic
view of how the enterprise can best be developed
  This involves acquiring resources to enable the venture to respond to the
identified signals which may be as a result of research and development
 Implementing the project, developing both the technology and market in
order to respond effectively.

Topic 4

Entrepreneurial Networking

A network is a collection of connected points, the points are known ad NODES

while the connection is known as TIES.

NODE NODE
NODE

NODE
NODE NODE

NODE
NODE

NODE NODE

Bold lines - strong ties

Broken lines - weak ties

Network maybe large or small, dense or sparse, close or open.

Nodes maybe active or passive, weak or strong

Networking: it is the process of operating alliances with people and organizations
beyond the immediate boundary of the ventures. This is also an process of linking
with the right people to get things done. The difference between a successful and
unsuccessful venture rest on knowing people in the right places. Consequently, the
idea of a network is both positive and negative. The concept of network simply
provide a mean of analyzing and discussing social and economic activities.
However, networks can have either positive(such as business development) or
negative(people involved in organized crime) effects.

It is the purpose to which networks are put, that create or destroy their value, the
entrepreneurship networks are taught to be extremely important and add value in
several ways such as:

 a source of idea and idea evaluation

 A route to resources in the form of money and other assets
 A key means of finding customers, partners, distribution channels and
other collaborations.

Types of network

 Personal/individual network: it consist of individuals within someone's

immediate circle or daily activities/relationship which includes family
members, friends and coworkers with whom a person has close ties. This
results from roles in life such as being part of the family. As roles change,
personal networks change. The following figure is an illustration of a
personal network. (Drawing is here).

Entrepreneurs create new roles for themselves by pursing their adventure

and in so doing they begin to expand this circle of personal affiliations. Of
entrepreneurs are good at forming friendship, they may develop personal network
that includes business partners, investors, customers, suppliers and lenders. Many
of these individuals maybe be counted simply as friends not persons to whom the
entrepreneur turned to for specific help, in this sense, network members consist of
weak or casual acquaintances who provide little in terms of direct help to a new
venture. Other network members maybe a strong ties meaning that they can be
expected to help when called upon or in most circumstances, their personal
relationship wit the entrepreneur is very close. Example: father, mother. Wife,
 husband, in-laws etc having close personal network with strong ties is important
because this group tend to be small and a very highly density I.e people who are
close to one another but not necessarily well networked outside their circle.

SPOUSE
CO-WORKER

CO-WORKER FRIENDS

ENTREPRENEUR

FAMILY FAMILY FRIENDS ACCOUNTANT

MEMBER ATTORNEY

IN- LAWS ACQUINTANCES CO-WORKER FRIEND

 Social network: are described as loosely connected affiliation within are

community or industry. These distinction does not exclude strong ties,
linkage of a personal network but only shift the emphasis away from
personal to professional associations.

Social network are constructed as purposely develop. Social network provide

access too resource and expertise and research have shown that the majority of the
successful entrepreneurs use social network advantageously.

Type of content Examples

Employment Employee in the same firm

Employer in the similar roles

Family ties Business, sisters, tribes, clans

Friendship School/college friends
Neighbors

Common social interest Social club and sport clubs

Professional interest Medical/legal specialist

Product specialist

Business interaction Buying/selling

Partnership
Providing complementary resources

 Regional network: this regional networks in between the extreme of local

network and global network which is usually of disperse network. The
strength and important of regional network will vary with local conditions as
well as with the type of enterprise that are involved.

Spatial distance within the networking

The members of network maybe physically closed or fall apart. For instances, a
group of entrepreneurs with office space in an incubator or business mall specially
develop for the purpose of interaction maybe considered to be closed in the
interaction as a network. The physical proximity of the entrepreneurs in an
incubator enable largely information but quite intensive and frequently interaction
especially at the cafeteria etc.

The entrepreneur maybe acts as client and supplier to one another but just as imply,
they may help one another identify new customers and opportunity, act as
sounding board for one another and help motivate one another when the time are
tough. In a more physically dispensed network which include network of people
within common profession or business interest who connect together through the
Internet from all over the whole world to share scientific, operational, market
information. The interaction would be as close as the one in the business incubator.
Topic 5

Business Environment

Business environment refers to the surrounding of the business and everything that
surrounds and affect the business. Business enterprises do not operate in isolation
but business maintain relationships with their environment. These relationships are
mutual in the sense that this business produce goods and services, provide
employment and contribute to social development. On the other hand, the
environment provide inputs, demand for the goods and services produced by the
businesses and opportunities for the businesses. To successfully operate in the
environment, an enterprise must understand its environment and carefully
integrated into the environment.

Classification of Business Environment

The following are the different classes of environment:

 Simple/static environment: it refers to environment that does not undergo

significant changes. A detailed analysis of static environment fast with the
help in mirroring to the future occurrence. However, the situation of
simple/static environment is an abstraction.
 Dynamic/changing environment: it is an environment that experiences
technological advances I.e more sophisticated in terms of customers needs
and whose market is international. Business in this environment cannot
make decisions on the basis of historical information.
 Complex environment: this is where influences/changes are difficult to
understand, there is need to use sophisticated techniques like stimulation and
linear programming are used to forecast the future.
 International environment: it refers to the forces, influences and factors
that affect business organizations as distinct entities that are international to
it.
 External environment: this refers to the forces, influences and factors that
affect business because of its location and there operations in a particular
environment. It could be direct or indirect impact environment.
 Direct impact environment refers to persons or groups that have long
standing relationship with the company to the extent that they affect the
 actions and decisions of the company, these factors include shareholders,
creditors, suppliers, customers, competitors, trade unions, immediate
communities and government.
 Indirect impact environment consists of the general environment that
include all forces, influences and factors that affect business indirectly, it
includes:
 Physical environment include land, climate, natural resources
 Sociocultural environment: it refers to factors in the way of life/people
residing where a business operates. It includes norms, values, cultures,
religion, morals and ethics of the people in the environment surrounding
the business.
 Technological factor: it is the application of science and discoveries to
solve industrial problems. Technology is the benchmark for survival of
business organization which invariably means that understanding the
technological environment will determine the company's ability to
operate in a competitive environment.
 Economic factors: it refers to the general pattern and outlook of the
economy. There are 3 dimension to the economic environment namely:
economic philosophy (social, mixed and capital), economic
measures(fiscal and monetary policies) and economic conditions.
 Government factors: it include policies, rules, laws, decree and edicts
that affect business. Government is a major participants, facilitator and
regulator of business.
 Internal environment: it refers to factors, forces and influences that affect
business organization as a distinct entities that are internal to the business
which includes management, policies, rules and procedures, culture,
organizational structure, organization own resources etc.

Entrepreneur Environment
Entrepreneur environment refers to the combination of factors that
play a role in the development of entrepreneurship. First, the entrepreneur
environment refers to overall economic, sociocultural and political factors
that influences the people's willingness and abilities to undertake
entrepreneurial activities. Secondly, entrepreneur environment refers to
 availability of persistence and support services that facilitate the start-up
process.
Studies have shown that countries that keep rules and regulations at a
minimum, offer taxes and other incentives and provide training and
counselling services to start-up increased the likelihood of new venture
creation factors such as availability of financial resources, large urban areas
and presence of universities for training and research are very important to
increase the rate of new venture creation. Also, there is evidence that
entrepreneurs face several obstacles such as lack of financial assistance, lack
of information on various aspect of business, excessive taxation and high
inflation rate.
There is an agreement that the more conducive the business
environment, the more likely that new businesses will be created.

Environmental conditions influencing entrepreneurship

 Financial support to businesses: entrepreneurs require financial assistance

for at least one or three purposes:
 To diversify/spread the start-up risk
 To accumulate start-up capital
 To financial growth and expansion

While the availability of financial resources appear to be the major setback for new
business start-up, many lenders seem to unwilling to invest in high risk project and
tend to withhold support until the firm is established/succeeded.

In developing economies, only a few ventures capital companies and commercial

banks provide alternative sources of finance are almost nonexistence.

 Entrepreneurial and business skills: a low level of technical and business

skills would prevent motivated entrepreneur from starting a new venture.
Unless, entrepreneur are well equipped with technical and business skills,
they are not likely to succeed in their chosen ventures. The need for training
programme appear especially important where there is limited assistance.
Training and educational services are particularly important on developing
countries like Nigeria because entrepreneurs lack basic business skills.
  Non-financial support for business: business need support in conducting
market research, in preparing business plan and in getting loans. Business
incubators can play a major role in providing a variety of services to start-up
entrepreneurs. Most incubators provide office spaces, common office
facilities, faster and efficiency means of communications and counselling
and advisory services to their clients at lowest.
 Government policies and procedures: government have influence in the
market mechanisms tat make them function efficiently by removing any
condition that creates market imperfection and administrative bottleneck.
 Socioeconomic conditions: favorable attitude of the society encourages the
development of new ventures and equally widespread public support for
entrepreneurial activities motivate people to start new business. Social
factors maybe equally important as sources of loans, technical assistance,
physical facilities and information. The most important factors that
encourages entrepreneurship are the family, the presence and effectiveness
of social networks, attributes supportive of entrepreneurship etc.

Topic 6:

Feasibility Analysis

This is the process of determining if a business idea is viable. A feasibility

analysis is the process of determining whether or not an idea is a viable foundation
for creating a successful venture. A feasibility report is the comprehensive analysis
that is carried out to establish the sustainability of a venture and it indicates as
whether the venture is viable , profitable and possible.

The purpose of feasibility analysis is to determine whether or not a business

idea is worth pursuing. If the idea passes the feasibility analysis, the entrepreneur
next step is to build a solid business plan for exploitation of the idea. If the idea
fails the feasibility analysis, the idea should be dropped and move on to the next
idea.

A feasibility study is not the same as business plan, both play important but
separate roles in the start-up process. A feasibility study answer the question:
"should we continue with this idea?". The role of feasibility is to serve as filter,
screening out idea that lack the potential for building a successful venture before
an entrepreneur commits the necessary resources to build the business plan.

A feasibility study is primarily an investigation tool that is designed to give

an entrepreneur the picture of market, sales and profit potential of a particular
business idea. Feasibility studies are particularly useful when entrepreneur are
generating multiple ideas for a business concept and entrepreneur must filter the
main options to the best choice.

Feasibility analysis enable entrepreneur to explore quickly the profitability

or practicability of each of several potential paths for translating an idea into a
successful business venture. Sometimes the result of feasibility study may show
that an idea would simply not be viable business, no matter how well the idea is
organized.

The methodology for conducting feasibility analysis is by describing 4 keys areas:

 Product or service feasibility: it is the assessment of the overall appeal of

the product/service been proposed. There are two components to
product/service analysis which are:
o Product/service desirability: it is the first component to affirm that the
proposed product/service is desirable and could serve and identify need
in the market place. The following questions are asked to determine the
basic appeal of the product/service.
 Does the product make sense?
 Is the product reasonable?
 Is the product something consumer's will want to get interested about?
 Does it take an advantage of environmental trends, solve a problem or fill
a gap in the market place?
The proper mindset at the feasibility analysis stage is to get a general sense or the
answers to these questions rather than trying to reach final conclusion. One way to
achieve this objective is to administer a "concept test". A concept test involves
showing a preliminary description of a product/service idea called a concept
statement.

o Product/service demand: it determine if there is demand for the

product/service. There are two techniques for making this determination.
 Administering buying intention survey: it is an instrument that is used
to measure customers' interest in a product/service. It consist of a concept
statement or a similar description of a product/service with a short survey
attached. To measure customers interest, the number of people who
indicate will definitely buy is typically combined with the number of
people who indicate will probably buy.
 Library, Internet and gumshoe research: the second way to access
demand for a product or idea is by conducting library, Internet and
gumshoe research which is done because more data is needed. Evidence
that there will be enough demand for the entrepreneur's product or
service must be accumulated through d library, Internet and gumshoe
research. Reference librarians can often point an individual towards
resources that will help investigate a business idea. The necessary
information would include: Industry specific magazines, trade journals,
industry reports.

The Internet is a marvelous resource for measuring products or services demand;

by simply typing market demand for female Ankara bags or typing Ankara bags
into Google search box, automatically some articles will come up.

Gumshoe research is a detective or investigative search that scrolls around for info
or clues wherever they can be found.

 Industry/target market feasibility analysis: this is an analysis of the

assessment of overall appeal of the industry and target market for the
product or service being proposed. An industry is a collection of firms
producing similar or the same product or services. A firm target market is
 the limited portion of the industry that the firm goes after with its product or
services in order to satisfy identified needs.

There are two components of industry/target market feasibility analysis: industry

attractiveness and target market attractiveness. An industry varies in term of its
overall appeal or attractiveness. The most attractive industries have some of these
characteristics:

 Younger rather than older industries

 Early rather than late in their life cycle
 Fragmented rather than concentrated
 Growing rather than shrinking

The top 3 factors are particularly important; other factors that are also important
are; the degree to which environmental and business trends are moving in favour
rather than against the industry example growing population.

Target market attractiveness: most new ventures simply do not have the resources
needed to participate in the broad market rather this new ventures focus on smaller
target market in order to avoid head to head competition with industry leaders. It is
also not realistic in most cases for a new venture to introduce a completely new
product idea into a completely new market.

 Organizational feasibility analysis: an organization is a socio-

technical(human and machines) unit that is set up to satisfy some identified
needs and to achieve specified objectives. Organizational feasibility analysis
is conducted to determine whether a proposed business has sufficient
management expertise, organizational competencies and the resources.
There are two primary issues which are management prowess and resources
sufficiency.

Management prowess has to do with the ability of the managers of the new
ventures at its initial stage whether it is the entrepreneur or a team that is managing
the entity, in collection of factors help define management prowess which includes:

 The passion of the solo entrepreneur

 The understanding the entrepreneurs has of the market
 Managers with existing professional and personal networks
Resources sufficiency is analysis that is carried out to determine whether the new
venture is capable of obtaining sufficient resources to move forward.
The focus in organizational feasibility analysis is on non financial resources. The
objectives of organizational feasibility analysis is to identify the most important
non financial resources and access their availability. Another key resource
sufficiency issue is to obtain intellectual property protection on key aspect of the
business (copyrights and patents).
 Financial feasibility analysis: it conducts preliminary financial
assessment for a new venture. The most important issue to consider at
this stage are:
 Total start up cash needed: this refers to total cash needed to prepare a
business in order to make its first sales and the actual budget should be
prepared that list all the anticipated capital purchases and operating
expenses needed to get the business off and running. An explanation of
where the money will come from should be provided
 Financial performance of similar businesses: it is the components of
financial feasibility analysis that estimate the finance required for a
proposed new venture by comparing the financial performance to similar
existing businesses. This effort will result in approximation rather than
exact figures.
 Overall financial attractiveness of the proposed venture: it is
associated with the number of factors that are used in evaluating the
financial attractiveness of a new venture, these evaluations are based
primarily on the new ventures projected sales and rate of returns. At
feasibility stage, the projected return is a judgment call, a more precise
proforma statement is computed or estimated that includes one to three
years cash flows, income statements and balance sheet.

Topic 7

Business plan
 A business plan is a written document that shows the details of a proposed
venture. It describes current status, expected needs and projected result of the
business.

Holt defined business plan as a comprehensive set of guidelines for a new

ventures. Unfortunately people think of business plan as only for starting a new
business or for applying for business loans but business plans are also important
for an existing business whether or not the business needs new loans or new
investment. It is important to note that businesses need plans to optimize growth
and development according to priorities.

Every aspect of the new venture need to be cover: the project, marketing,
research and development, management, critical risks, financial projections and
milestone schedules. A description of all the phases of the proposed venture is
necessary to demonstrate a clear picture of what a venture is, where it is projected
to go and how the entrepreneur will promote it.

A business plan is entrepreneur road map for a successful ventures, in some

professional areas, a business plan is referred to as "a venture plan", " loan
proposal" or "an investment prospectus". Whatever the name the business plan is
the minimal document required by any financial source. The business plan allows
entrepreneur entrance into the investment process.

The complete outline of a business plan is as follows:

 Effective summary: in a summary statement, the entrepreneur should

briefly describe the venture itself, market opportunities, financial needs and
projections and any other special research and technology associated with
the venture, the summary should be written in such a way that investors
would choose to read on. If an information is not presented in a concise
competent manner, the reader may put away the business plans or conclude
that the project is not worth his or her finance.
 Business decision: the name of the venture should be identified with any
significant relationship to family name, technical name etc. The new venture
possesses over its competitors should be described.
 Marketing: a market segment is that unit of the market that the entrepreneur
wishes to satisfy with either his or her product or service and for his or her
 specified needs. The entrepreneur should convince the investor that the
market will allow the realization of the sales projection and that competitors
would be defeated.
The projected sales level based on market research analysis directly influences the
size of manufacturing operation, marketing plan and the amount of debt or equity
financing required.
A market niche is a homogeneous group with common characteristics describing
all the people who needs the company's product or service. Market niche can be
identified on the basis of customer purchase decision, price of product or services,
quality personal services, personal contacts or the combination of this factors.
 Sales projection: it should be made at least for three years on the major
factors affecting market growth, government policies, population shift,
socioeconomic growth would help in sales projection. The source of data
and method used for market projection should be indicated. The
entrepreneur should estimate the market share in terms of quantity and
Naira value for each other three years.
 The competitive analysis should compare the competing product or
service on the basis of price, performance, service warranty and other
features. The competitive analysis should indicate a short discussion on a
current advantages and disadvantages of competing products or services
and while the competing products or service are not meeting customers'
demand.
 Market strategy should develop from market research and evaluation data
that will indicate the following:
 The type of customers' goods should be targeted by initial intensive
selling effort.
 Customers' groups should be targeted for later selling effort
 Methods of identifying and contacting potential customers
 Features of the products or service to be emphasized in other to generate
sales
 Innovation: unusual marketing concept that will enhance customer
acceptance.
 A number of pricing policy should be examined and one of them should be
convincingly presented. The gross profit margin between manufacturing and
the stage cost should be discussed with consideration given to whether a
 margin is large enough to allow for distribution sales, services expenses,
equipment cost and net profit.
 For a product or service, a discussion of advertising and promotional
campaigns intended to introduce the product and the type of sales promotion
for dealers or wholesalers should be included, the cost of promotion and
advertising should be equally presented.
 Operations: the operation segment should begin describing the location of
the new venture. The site chosen should be appropriate in terms of
availability of labour, wage rate closeness of suppliers, customers and
community support, specific needs should be discussed in terms of facilities
required to handle the new venture and the equipment that needs to be
acquired. The cost data associated with any of the operational factors should
be presented.

 Management: this segment identify the major human resources, these

position and responsibilities and the career experiences that qualified them
for those responsibilities. The CV design for each of the management
members should be provided. The entrepreneur roles should be clearly be
outline. The structure of payment and ownership should be described in
summary, this section should present this typical factors, organization
structure, management team and physical experience, personnel and
technical capacity of the personnel, ownership structure and compensation
agreement, board of directions and other outside consultant.
 Financial statements
 Balance sheet: the balance sheet details the asset required to support the
projected level of operation and it equally shows how the asset are to be
finance. Investors would want to look at the proforma balance sheet to
determine debt equity ratio, working capital, current ratio, inventory ratio are
in acceptable limit required to justify the future finances.
 Income statement: this illustrate the projected operating result based on
profit and loss. The sales which was developed in the marketing segment is
essential in this section. Once the sales projection is in place, cost must be
budgeted based on level of activities needed to support the projected earning.
 Cash flow statement: the cash flow statement set forth the amount and
timing of expected cash inflow and cash outflow. This document should be
included in a break even chart which shows the level of sales needed to
cover all costs. It include cost that vary with production level and cost that
do not vary with production level.
 Critical risk segment: in this segment potential risk such as unfavorable
threat in the industry or manufacturing cost that have gone beyond the
estimate both the difficulty of lead time encounter when purchasing part of
material and unplanned for new competition should be identified.
Suggestion or alternative cause of action should be included to address
inaccurate projection, delays, industry slumps etc. These factors mentioned
above should be recognized by entrepreneurs and adequate preparation
should be made for such critical event.
 Harvest strategy: entrepreneur should prepare for all the orderly transition of
the venture as it grows and developed. This section deals with such issues as
management succession, investors exist. In addition, change management
should be given some thoughts meaning orderly transfer of the company
asset if ownership structure changes, continuity of business strategy during
transition and assignment of key individuals to manage the business if the
current ownership changes.
 Milestone scheduling: this is a step by step approach illustrating
accomplishments in a piece meal manners. This milestone can be
accomplish within any appropriate time frame. It is important however, to be
coordinated in a given time period not only with such activities as
production design and development, sales projection, establishment of
management teams, production and operation scheduling, marketing plan as
well as other activities. The corporation of the venture, completion of design
and development, completion of prototype and hiring of sales
representatives are the other issues in the milestone schedules.
 Appendix and bibliography: this allows for additional documentation that is
not appropriate in the main business plan. Diagrams, blueprint, financial data,
curriculum vitae of the management, key members and other bibliography
materials that support the business plan are included here.
Topic 8

Starting a business

There are several ways of starting a business among which are creating a
new venture, buying an existing business, inheriting an existing business,
franchising and manufacturers representative.

Creating a new venture: it is a general practice in Nigeria for new entrepreneurs to

start their own business from the scratch up to maturity. Entrepreneur that use this
means of starting a business derive pleasure and satisfaction for owning their
business.

Reasons for starting a new business:

 The entrepreneur experiences the joy and sorrow of starting something on

their own and they gain experience of starting new.
 The entrepreneur select his or her location, customers, suppliers, employees,
equipment and record keeping method.
 Entrepreneur decide their scale of operation with little capital and the
entrepreneur also decide whether to start small and grow by reinvesting his
or her profit.
 Entrepreneur decide when to start the business and he or she formulate the
business plan, decide the organization structure, rules and regulations etc.

Before an entrepreneur decide to enter a specific industry he or she need to clearly

identify:

 Service or product he or she want to introduce to achieve this, it is important

for the entrepreneur to know if there are not enough firm serving an existing
market so that the entrepreneur will fill that gap.
 If the existing enterprise are poorly manage and do not have the capabilities
to penetrate the existing market and satisfy the existing customers.

All new entrepreneur should strive to have a preferential advantage, a niche benefit
the need to take advantage of.
Buying an existing business: there is a tendency of people who retire or are no
longer capable of operating their business to the business inadequate or they sell
out the business. There are several cases where the entrepreneur sell their business
out-rightly.

Advantages of buying existing business

 Less risk
 Less time and effort required
 Possibility of buying at a bargained price

Demerits: environment, internal problems, departure of the current owner.

Determining the price of a business

Before any bid on a business is made, the prospective buyers will have to
determine the value of the enterprise. Value is define as the monetary worth of
something at the market place, it is the price for which the business can be
purchased.

Consequently, it is the figure we are given when we ask "how much" the owner
want to sell the business. Response of the prospective buyers determine whether
the price worth the price the seller want to sell the business. When a business is
purchased the new owner get the asset, there are four ways to figure the value of
the asset;

 We must simply look-up the value in the books of account the value is called
the book value
 Replacement value: this is also a straightforward figure but not readily
available like the book value, to get this figure we have to check the market
to each of the firm asset to know what it will cost to purchase them
 To build a value of the asset by what they will bring if we are to sell the
asset, this is the liquidation value.
 Asset appraisal value or the value of an asset are determined by an
independent expert.
Franchising: this is a legal arrangement by which one company allows a product,
service or other business format to be use by other for a fee. A franchise is a
company or an individual who pays for the legal right to use the product, service or
other business format of another company. A franchiser is the party that grant to a
company or an individual the legal right to use the franchiser product, service or
business format.

Types of franchising

 Product franchising: this is the arrangement where dealers are given the
right to distribute goods for a manufacturer. For this right the franchisee
pays a fee for the right to sell the trademark goods of the franchiser.
 Manufacturing franchise: this is commonly used in the soft drink
production, using this type of franchising, the franchiser give the
franchisee(bottler) the exclusive right to produce and distribute the
product in a particular area.
 Business format franchising: this is an arrangement under which the
franchiser offers a wide range of services to the franchisee including
marketing, strategic planning, training, production or operation planning
or manuals and standard and quality control guideline.

Merits of franchising

d) Set up assistance: the franchiser will typically provide services to

make the task if getting started easier, among this services are site
selection choice, facility layout analysis, firm assistance, management
training, employees selection, training assistance etc
e) Basis for judging prospect of success: franchising option provides a
readily made basis for accessing the possibilities of success or making
money. The process by which future profitability of a new business is
determine is always an uncertain one.
f) Instance acquisition: when established, the franchisee take the
advantage of the distribution network of the franchiser which is an
important advantage of recognition, many view business experience
initial low sales in this early start-up stage.
 g) Purchasing power: been part of a large organization (franchise) means
paying less for a variety of things such ad supplies, inventory,
equipment, services and insurance.
h) Advertising scope and sophistication: franchise companies are often
national in scope and operations because they do national advertising
this enable the franchisee take advantage of the advertising. This
advertising is not only less expensive and on the basis of cost per
contract than most locally produced and distributed materials the
franchisee usually benefit more.
i) Operational improvement: because of the important of success of each
franchised outlet to the franchiser the organization will concentrate a
great deal of time and other resources in making the franchise more
efficient.

Demerits of franchising

 Restrictive or restrictions: franchise is run on the basis of efficiency and

interest, this efficiency and uniformity of operation means that the franchisee
will face numerous restrictions on how to go about managing the business.
 Cost: the cost associated to a franchise in addition to securing the original
outlay of the franchise, the share of profit that most go to the franchiser and
fees for advertising and other services means additional cost to the
franchisee.
 Termination: a disadvantage facing the franchisee is the threat of termination
of the franchise by the franchiser.
 Unrealistic expectations
 Regulations of management: there are general guidelines in the management
of a franchise imposed by the franchiser which reduces the management
autonomy of the franchisee.

Topic 9

Human Resources Management in Entrepreneurship

Human resource management is the function of management that is responsible for

identifying, attracting and getting prospective workers to join and stay in an
organization, placing workers into suitable position, motivating workers and
rewarding workers and helping workers to work together and to grow.

Manpower planning or Human Resources Planning

This is the process by which an entrepreneur ensures that he or she has the right
numbers of workers and the right type of workers with appropriate skill at the right
place and right time to do the work for which they are economically most suited.

Conducting job analysis and job description

Job analysis is the investigation into a various aspect of a task, in terms of skills,
qualifications, duties and responsibilities. Job analysis covers job title, the
department to which the title relate, the line of supervisor, relationship which other
jobs, types of materials and equipment needs, mental and manual dexterity,
working conditions etc.

Job description deals with why, when and how task are to be perform. In other
words, It is a written statement of work condition, time involvement and job
responsibilities. Job specification describe the salient features of the person to
recruited into a specific job, it is a standard against which the salient features of the
employee are matched, how he or she match with the job specification in terms of
age, sex, state of origin, special abilities would indicate if the person is employable
or not. The entrepreneur is to match job specification with job description in other
words, job specification describes the preferred qualities of the employee for
example knowledge, skills, experiences, leadership qualities, decision making
ability etc.

Recruitment: it is the process of obtaining interested applicants to apply for jobs

in an organization. It has two sources that entrepreneur can explore: internal and
external sources.

Internal sources refer to recruitment from the current workforce of the enterprise
itself.

External sources include employee referrals, unsolicited applicants, professional

organizations, advertising agencies etc.
Selection: it is a process of filtering the right applicants and matching the
applicants to the right jobs.

Selection procedures vary from place to place and enterprise to enterprise.

Enterprise should relate selection methods to job success, some of the method used
in selection are: preliminary interview, application blank, psychological testing
(aptitude, intelligence, verbal reasoning, personality), performance measurement,
references, interviews, physical examination etc.

Placement: if the employee is selected, he or she is placed into a specific job. Here,
the entrepreneur need to consider few points before expecting normal performance
and better performance from the new employee. A new employee should be
properly introduced to his or her coworkers, shown the location of available
facilities, informed about the regulations of the entity and the new worker is
encouraged to ask for any needed information. This aspect which is called
"orientation" makes the new employee familiar with his or her enterprise
objectives and activities he or she is expected to perform on the job.

Training: it maybe describe as any procedure initiated by an entrepreneur which

foster and enhances learning among employees working in an enterprise. Training
methods include:

Job rotation which is an aspect of on the job training, Mentoring, coaching,

understudy, workshops is an aspect of off the job training.

Other methods of on the job training are apprenticeship, stimulation. Other

methods of off the job training includes certificate rearing courses, distance
learning, audio visual based learning.

Development refers systematic process of training and growth by which

managerial personnel learn new concepts involved from time to time. Other
developmental aspect includes skills development, knowledge and insights to
manage the workplace effectively and efficiently. Some of the methods include job
revision, planned progression, counselling, special training courses are all designed
to develop managerial personnel on the job.

Remuneration and benefits/employee rewards: it is expressed in terms of wages

and salaries which are of critical concern to the entrepreneur because this represent
a cost. Wages represent income to the employee and represent cost to the employer
and sources of potential tax to the government. Enterprise nowadays pay for a wide
variety of supplementary items often called fringes or fringe benefits, these
benefits are indirect payment made to the employee in addition to their direct
wages and salaries. Fringe benefits can broadly be classified into four categories:
premium payment consisting of bonuses, payment for overtime, payment for time
not worked and payment for employee welfare.

Discipline: it is designed to ensure employee compliance with rules and

regulations, some time discipline is an action taken against an err employee for
disobeying established rules and regulations of an enterprise. In general, the best
practice is self discipline and the manager has the responsibility to ensure his or
her subordinates are self discipline. Disciplinary action can contribute towards
improved behavior and certain actions should be noted:

 Expected behavior must be made known and this is done best during the
orientation period.
 Discipline should be exercised without favoritism, excessive penalties as
soon as after the breach/offense is committed.
 Management should not break rules itself

Topic 10

Financing entrepreneurship activity

Finance is the acquisition and utilization of funds for investment purposes.

There are two types of financial needs of an entrepreneur which are: equity and
debts.

Finance can be classified on the basis of performance of the entity namely:

fixed capital and working capital. On the other hand, finance can be classified on
the basis of period of time which are long term finance and short term finance.

Fixed capital refers to the money invested in fixed assets or durable assets.
This assets are required for permanent use meaning for a long period for example
building, plants and machinery etc
Working capital refers to the money invested on current assets.

Long term finance refers to such money whose the payment is arranged for
more than 5years into the future. The sources of long term capital could be the
owner's equity, term loan, credit facilities from commercial banks, hire purchase
facilities from specific organization.

Short term finance refers to borrowed money that is to be repaid within a

year. The sources of short term finance include bank borrowing, working capital,
loans from friends and relative etc.

The theory of financial management suggest that in other to ensure sound

financial health of an enterprise, short term fiance should used for acquiring
current asset and on the other hand, long term finance should use for acquiring
assets that have long term nature.

There are two sources of finance: internal and external sources. Using the
internal sources, funds are raised within the enterprise itself, these could be the
owner's equity, deposits and loans given by new partners, directors and sometimes
the owner. Using the external sources, funds are raised outside the entity which
include deposits or borrowing from relatives, borrowing from banks for working
capital purpose, credit facilities from commercial banks, term loans from financial
institutions, hire purchase or lease finance etc.

Common sources of funds for entrepreneurship

As present, the major sources of funding entrepreneurship are as follows:

 Multilateral financing institutions such as world bank and African

development banks.
 Private financing institutions such as commercial banks, Micro finance
banks etc
 Government
 CBN: central bank of Nigeria is the apex financial institution that direct a
certain percentage of total loans and advances to entrepreneurship and small
businesses.
Some of the intervention of CBN towards financing entrepreneurship and small
businesses include:

 Agricultural credit guarantee: model operated by farmers

 Trust fund model
 Interest drawback programme
 Micro finance policy
 Small and medium enterprises equity investment scheme
 Agricultural credit support scheme
 Entrepreneurship development center
 Refinancing and re-discounting
 Poverty alleviation programme

Restructuring of some financial institutions that means people's bank,

Nigeria Agricultural and co-operative bank and family economic advancement
were matched together to form Nigerian Agriculture Cooperative and rural
development bank (NACRDB), Nigerian economic reconstruction fund, Nigeria
bank for commerce and industry and Nigeria industrial bank were formed together
to form the new bank of industry in the year 2000

Development finance institutions: these are specialized institutions charged with

the responsibility of providing term finance and technical assistance to specific
sectors of the economy which include the following:

Bank of industry: which is charged with the responsibility of providing the

following services:

Short, medium and long term financing

equity financing

structured working capital,

programmed lending,

management of specialized fund, national automotive fund, development finance

fund, business development fund for women etc,

co-financing or syndication.
Infrastructural development/industrial parks. Other complementary services of the
bank include lease financing, trusteeship, insurance consultancy etc.

Nigeria agricultural cooperative and rural development bank: this bank gives
micro credit to finance small business, cooperative and agricultural
entrepreneurship

Federal mortgage bank of Nigeria: this bank provide financing for banking
project and allied matters.

Urban development banks

In summary, the entrepreneur is open to a variety of sources of funds which

the entrepreneur has to investigate in order to obtain funds to finance his or her
entrepreneurial activities. When the most viable project has been chosen, the fund
needs of the project has to be satisfied. In order to secure the required funds the
entrepreneur needs to sell his or her project successfully to financier as he or she
present and discuss the feasibility report in order to be able to marshal the salient
points to convince the financier.

Topic 13

Dealing with legislative institutions

A number of legislation govern the operation of businesses in Nigeria. These

legislation are part of the legal environment which refers to the various acts, edicts
and decrees. The essence of these acts edicts and decrees are to effectively
coordinate the activities of business organization as well as entrepreneur by:

 Ensuring that business organization are legitimately established

 The activities of business enterprises are in the best interest of the society.

Examples of these legislation include:

 Companies and allied matters as amended in 2011

 Price control act of 1990

 Food and drugs act 1974

 Labour act of 1974

 Workmen compensation act of 2004

 Pension reform act of 2004

 Personal income act

 Company and allied matters as amended in 2011: this act as its

commencement date in January 2nd 1990. The act has three material parts:
Companies, businesses and incorporated trustee.

Corporate Affairs Commission establish and charge CAC with responsibility

or administering the act, supervision and incorporation of company. CAC is also
empowered to conduct inquiries and investigation into the affairs of any company
in Nigeria in order to ensure the protection of the interest of shareholders and
investors.

Some of the functions of CAC are:

 Administration of the Act including regulations and supervision of the

formulation, registration, incorporation and management and winding down

 Carrying out of investigation into the affairs of any companies where the
interest of the shareholders of the public so demand

 Administration of business name and incorporated trustees

 Shareholders protection

 Labour Act 1974: this act remains the legal instrument regulating the contract
of employment in Nigeria. The act defines a worker as ‘any person who has
entered into or works under a contract with an employer whether the contract is
for manual labour clerical works or it is expressed or implied, oral or written or
whether it is a contract go personally execute any work as labour’.

Section 7 of the act provide that an employer shall in not less than three months
after beginning of the workers period of employment make available to the worker
a written statement specifying the particulars of terms of the employees
employment which shall include:

1. Name of the worker and his or her address

2. Where appropriate the undertaken by which the worker is engaged

3. The name of the employer, place of employment and dates

4. The nature of employment that mean permanent contract of temporary.

 Factory Act of 1987: this act deals with safety of workers in the factory
meaning provision of fire extinguishers, first aid boxes, source of food, safe
drink water, protective garments for workers exposed to hazard etc.

 Trademark act: this act involves the registration of the name of the product
such that no other person or company can use the name for another product
except with the express permission of the original trademark owner.

 Company income tax Act: this is enforced by the federal inland revenue
service or Nigeria customs and excises.

 Nigeria Enterprise Promotion Act of 1972 and 1977: it promotes the

ownership of companies by Nigerians. The bank for commerce and industry
and Nigeria Industrial development banks were established to enable the
enforcement of this act by providing loans to indigenous entrepreneur.

 National Agency for Food and Drug Administration and Control

(NAFDAC): NAFDAC was established in 1993 with the following chemicals.

 Regulate and control the import, export, advertising, distribution, sales and
use of drugs, cosmetics, medical devices, bottle water and chemicals.
 Conduct appropriate tests and ensure compliance with standard specification
approved by the council for effective control of the quality of food, use of
drugs, cosmetics, medical devices, bottle water, chemicals and their raw
materials as well as their production processes in factory or other
establishment.
 Undertake appropriate investigation into the products, services and raw
materials for food and use of drugs, cosmetics, medical devices, bottled
 water and chemicals and established relevant quality assurance system
including certification of production and regulation of products.

 Standard organization of Nigeria (SON): this is the sole regulatory body

with the responsibility of standardized and regulating the quality of all products
made in Nigeria for example construction services. SON has the statutory right
to specify and elaborate standard as well as provide quality assurance system
for commodity produced, manufactured or imported products.

The functions of SON are:

 To investigate the quality of materials and products and establish a

quality assurance system for factories, products and laboratory
 Ensure reference standard for calibration and verification of measures
and measuring instruments
 To comply an inventory of products that requires standardization
 To foster interest in the recommendation, verification and established
standards for the industry and the general public.

 Investment and securities Act 1999 (ISA): it embodies comprehensive

provision for issues relating to securities and investment in Nigeria. The major
provisions are:

 The establishment of an investment tribunal to settle any disputes arriving

from operations of the investment market in Nigeria.
 The provision for electronic transfer of registered shares
 Transfer of shares by private individuals to foreigner no longer required the
approval of SEC (Securities and Exchange Commission) with respect to
mergers and acquisition and other causes of business transaction.

Topic 11

Marketing

William is the total system of interacting business activities, design plans,

price, promote and distribute want satisfying product and service to the present and
potential customers.
 Kotler defined marketing as social and management process by which
individuals and groups obtain what they need and want through creating and
exchanging products and values with others.

The four main decisions area in marketing are product, price, promotions
and place but equally this can be extended to people, processes and physical
facilities which makes it 7Ps of marketing.

 Product is defined as anything that's offered by a company to a consumer to

satisfy his specific needs and wants. Company had new products for many
reasons; new firms will have to start somewhere and usually start with a single
product line. Existing trims will generally had new products for these reasons:

 Every product has a life cycle (introduction, growth, maturity and decline,
firms will introduce new product as life cycle of existing product is
moving towards decline.
 Firm had new products to achieve growth and expansion
 New product can be added in other to spread business risk and to share
overhead cost
 New product can be added to minimize the seasonality of the existing
products

Product decisions: these are important components of marketing planning which

lead to the eventual sales of goods and services.

The important issues in product decisions are:

 the characteristics of desire product

 target market of customers

 whether the desired products will fit into the existing market

 the impact of the new product on corporate effectiveness.

 Price: it is the value at which the buyer and the seller are willing and ready to
carry out an exchange transaction. It is a continuum between the buyer and the
seller. Pricing is a sensitive activity and it should be carefully handled to
benefits the company, buyer and also allow the price to maintain a strong
 competitive position in the market. Generally price should cover cost and profit
margin.

Basic pricing strategy: a company or an entrepreneur can adopt each of the

following pricing strategy for his or her price:

 Penetration pricing: this is used by companies that charged lower prices on

their product to gain an entry into the market. It is used in the following
situation: by new company or new products to break into the market, when
the product is highly price sensitive, if volume sales will reduce unit cost
and increase profit significantly, if competitors and potential entrants would
be discouraged by the use of the sale strategy
 Skimming pricing: this strategy generally appeals to customers who are
interested in the purchase of exclusive product and who are willing to pay
higher price. This strategy is employed at the earlier stage of a product life
cycle in other to recoup the cost of Research and Development and promote
the product, after which the price is lower. This method can be used in the
following situations: when a product is new and unique, if the product is
exclusive and the firm wishes to permanently skimmed the cream of the
market, when the firm wishes to test the demand while still learning.
 Satisfactory rate of return: prices are set on the basis of the company's
acceptable satisfactory rate of return, it involves the calculation of an
average mark-up and average cost structure for a given period of time.
 Variable pricing: this is applied to product with demand fluctuations.
Higher mark-ups can be charged during the period of higher demand and
lower mark-ups during period of lower demand. Other pricing strategies are
product line pricing, discount pricing, market level pricing, psychological
advantage pricing, bid pricing etc.

Other pricing strategies are: product line pricing, bid pricing, discount pricing,
market level pricing and psychological advantage pricing.
Promotion: this is the provision of information about the quality, use, price and
special features to the intending, prospective and existing customers.
There are four aspects of promotion which are:
 Advertising: this comprises of the set of activities geared towards the
preparation of the passage about an idea, product/service or another through to
 a mass audience. This is paid for by the sponsor which distinguish activities
from publicity.
The four basic types of media are:
 Print media
 Broadest media
 Traffic media
 Point of purchase media
We can add internet to the list.

 Personal selling is the most effective method of selling a product or service to a

customer. It involves face to face communication between a seller and a
prospect

 Sales promotion refers to a set of marketing activities other than personal

selling, advertising and publicity that stimulate consumer's purchases.
Examples are demonstration, exhibitions, shows, displays and other recurrent
selling efforts.

 Publicity: it is carried out by the media without a cost to a firm and therefore,
publicity often comes in a form of news. It is usually outside the control of the
firm, although some firms would like to get a publicity relating to their product
launch and other significant activities.

Place/Distribution: it refers to the process activities and route by which goods are
moved from producer to consumer. Businesses must make decisions about two
distribution activities which are: Movement of owner and Physical distribution

Channel structure

Many distribution exist within the channel and these are typified by
wholesaler, retailers, dealers and distributor. The diagram below illustrate the
channel structure.

Wholesaler are those firm that sells products which they have purchase to
other firm which in turn either use the product to make other product or resell the
product. The following are examples of types of wholesalers: assemblers, agency
wholesaler, merchant wholesaler, manufacturer sales branches or offices, retail
warehouses and buying offices, bulk tank stations.

Retailers are those operators who buy goods from manufacturers or

wholesalers and sell to the final consumer. Retailers perform a variety of functions
to producers and wholesalers because:

 Retailers provide a means through which the product reaches the final
consumers

 Retailers, sometimes repackage product in other for consumers to buy

 Retailers provide warehousing

Distribution decisions

Among the many decision points in the distribution process are:

 Channel length: it refers to a medium either long or short where middlemen

operate.

 Distribution intensity: this exist in the market of the product regarding the
number of channel members.

A channel length is refer to as being long where many middlemen are

involved and a channel length could refer to as being short where there are few
middlemen in the channel.

Intensity of distribution is classified into two: intensive distribution and exclusive

distribution

Intensive distribution refers to distribution where the product is placed at all

possible outlet to give the product maximum exposure while exclusive
distribution refers to distribution where the product is sold at a single outlet or a
type of outlet which is believed to be most effective

Topic 12

Production management
 It is the process and procedures of converting resource input into finished
goods and services. Input includes all physical and intangible resources that are
transformed in a business. Example: raw material, skills and knowledge of people,
money, information and energy

Transformation refers to the process used in transforming input into

finished goods and services. This process include fabrication, assembling,
manufacturing, communication, inspection

Outputs are the result of transformation processes which can be tangible or

intangible, since a business social responsibility to the community has become a
serious matter, product liability is also an output likewise employee accident,
customer injuries, pollution etc.

Types of operational management

Manufacturing business can be classified by the way goods are made and the
time spent on making input.

Goods can be made from analytic/synthetic systems using either

continuous/intermittent process.

Analytic system reduce input into component parts in order to extract product
example automobile savage business; buys vehicles and dismantle this vehicles for
part or for scarp to sell.

Synthetic system combines input to create a final product or change a product into
different product example restaurant, uses vegetable fruits, meat, sea foods, music,
lightening, furniture and variety of human talents to create and serve meals.

Continuous production is accomplish over a long period of time by producing the

same or very similar product, that goes uninterrupted for days and months example,
production of cement, crude oil, salt, soft drinks etc

Intermittent process involves short cycle and frequent stops to change product
example custom jewelry, custom printing etc. This method is often called "Job
Shop"
Scheduling: this is the basic operation activity for both manufacturing and services
businesses that involves the timing of production. The purpose of scheduling is to
put the business plan into operation by describing what each worker has to do. It is
necessary in order to maximize the level of efficiency and customers' satisfaction.

Scheduling methods: most business operations use forward, backward or a

combination of the two. In forward scheduling, materials and resources are
allocated for production when a job order is made while backward scheduling
involves arranging production activities around the due dates for the product. The
entrepreneur takes the date on which the finished products must be deliver.

Schedule production in reverse order

Routine scheduling: This involves sequences and dispatching a product through

successful pages of production. Routine scheduling shows the detailed breakdown
information explaining how the company's product or services will be produced.

Sequence: This is a critical step for determining the order in which a job will pass
through the production process. This is important when a job involves more than
one department as it hold up in one department could cause idle time for another
department.

Dispatching: this is the act of releasing work to employees according to priorities

determine by the entrepreneur in planning the work sequences. It could take the
following:

 First come, first served

 Earliest due date

 Longest processing time

 Shortest processing time

Facility layout

Layout refers to configuration of the total facilities, machines, employees,

work station, strong inner work etc, the aim of computing layout is to reduce
material handling cost, provide consistent capacity and allow for safe equipment
operation and ease of operation
 Facility layout is especially important for service firm. It can be categorized
into four:

 Product layout example restaurant:; soup will be one side while rice on another
rice

 Process layout example machine performing the same functions are one side

 Fixed layout

 Cellular layout

Managing services

Service management is a total organizational approach that makes the

quality of service as perceived by customers. The number one driving force for the
operation of business.

Service management also means managing the enterprise whether in a

service or manufacturing operation in such a way that quality of service becomes
the basic standard for evaluating what the company does or should do. The actual
technique of service management focus on 3 core concepts

 Moment of truth: this refers to the precise instant when the customer comes
into contact with any aspect of the entrepreneur business and on the basis of
that contact, thoughts and opinions about the quality of the entrepreneur's
services and potentially the quality of the entrepreneur's products

 Service circle: the customer's moment of truth in terms of a circle of service

start with the first instant in which the customer comes into contact with any
aspect of a firm and its includes sequence of every other moment of truth.

 Service triangle: it is useful to think of a successful service management effort

in term of service triangle as shown below:
 SERVICE STRATEGY

SATISFIED CUSTOMER

CUSTOMER
FRIENDLY SYSTEM CUSTOMER
ORIENTED
FRONTLINE PEOPLE

Location criteria for retail and service businesses

 Trade area size: every retail and service business should determine the extend
of its trading area, this could refer to the region from which a business is
expected to draw customers over a reasonable period of time. The primary
variable that influences the scope of trade area are the size and type of business.

 Retail compatibility: it describes the benefit a company receives by locating

near other business that sell or produce complementary product/service or
generate high volume of foot traffic.

 Degree of Competition: the size, location and activities of competing

businesses also influence the size of a company's trading area. If a business will
be the first of its kind in a location, its trading area might be quite extensive
however, if the area already has a nearby store that directly compete with the
business, the trading area might be very small because the market is saturated
with competitors.
  Index of retail saturation: this is the measure of the potential sales per square
foot or stock for a given product within a specific trading area. This is a ratio of
trading area, sales potential for a particular product/services to its sales.

IRS = C x Re ÷ Rf.

Where C = number of customers in a trading area.

Re = retail expenditure = average expenditure per person for the product in

the trading area.

Rf = retail facility = total square feet of selling space allocated to the product
in the trading area.

To illustrate the index of retail saturation : suppose that an entrepreneur

considering two sites for a shoe shop, finds that's he or she needs the sales of N175
per square foot to be profitable.

 Site 1 has a trading area with 25875 potential customers who spend an average
of N44 on shoes annually. The only competitor in trading area has 6000sq. Feet
of selling space.

 Site 2 has 27750 potential customers spending an average of N43 on shoes

annually, two competitors occupies 8400 sq feet.

What is IRS?

Site 1= 25,875 x 42
6,000
= 181.125
Site 2= 27,750 x 43.50
8,400
= 143.7

 Transportation network: these are high way , local road network and public
service route that presently exist or are being planned for. If customers find it
convenient to get to a location, the trading area is reduced therefore the
 entrepreneur should verify that the transportation system or network is free if
barriers that might prevent customers from reaching their shopping destination.

 Customer traffic: perhaps the most important criteria for a potential retail
location are number of potential customer passing by the location during
business hour. A business must be located in such a way that will enable the
generation of sufficient sales to pass break even point that requires a large
volume of customer traffic going past it gate which is a success factor for many
retail stores. High customer traffic volume coupled with accessibility would
generate more sales for a retail outlet.

 Physical and psychological barrier: physical barrier maybe a parking lot,

river, lake or any other natural/ man made obstruction that hinders customers'
access to the trading area. Locating on one side of the large park may reduce
the numbers of customers who will move around to get to the shop.

 Adequate parking lot: if customers cannot find a convenient and safe parking
lot, they are not likely to shop in the area.

 Reputation: like people, a side can have a bad reputation in some cases. The
reputation of previous business owner lowers the value of the location example
site where business are failed repeatedly create negative impression in the
customers' mind. Many customers view the business as just another one that
will soon be gone.

 Visibility: highly visible location make it easy for customer to find the
business and make purchase, a site that lack visibility put a business at a major
disadvantage before it ever opens its doors for business.

Topic 14:

Comparative Analysis of forms of business ownership

There are three legal forms of business formation which are:

 Sole proprietorship
 Partnership

 Companies

The three basic legal forms of business ownership are compared with regard
to ownership, liability of owner, start up costs, continuity of business,
transferability of interest, capital requirement, capital control, distribution of profit
and attractiveness of raising capital.

 Ownership: in sole proprietorship, the owner is an individual who start the

business and he or she is responsible for the operation of the business. In
partnership, especially for general partnership, there is no limited to the number
of partner. In companies, ownership is reflected by the number of shareholder
or the number of shares.

 Liability of owners: Liability is unlimited for sole proprietorship and it is

equally unlimited for general partnership but limited for limited partnership.
For companies, liability is limited to the cost of capital contributed by each
shareholders.

 Start-up cost: there is no start-up cost in sole proprietorship other than filling
fee for trad name or business name. In partnership, there is need for partnership
agreement, legal cost and minor filling fee for trade name or business name.
There is high cost associated with the formation of limited partnership.
Companies are only created by status, articles of incorporation, filling fees,
taxes and fees charged by the domiciliary state.

 Continuity of business: the death of a sole proprietor automatically dissolve

the sole proprietorship. In partnership, the death or withdrawal of one partner
of the partnership terminate the partnership unless partnership agreement
stipulate otherwise. In limited partnership, death or withdrawal of the partner as
no effect on continuity of the partnership. There is greater continuity for
company because death or withdraw of one owner will not affect the legal
existence of the company.

 Transferability of interest: in sole proprietorship, there is complete freedom

to sell or transfer any part of the business. In general partnership, partner can
transfer their interest only with the concept of other general partner. In limited
 partnership, partner can transfer their interest or sell their interest without the
concept of general partner. Transferability of interest in company is most
flexible, some share transfer may be restricted by agreement.

 Capital requirements: in sole proprietorship capital is raised only by the

proprietor or by loan. In partnership loans or new contribution by partner
require a change in partnership agreement. Company can raise new capital by
sale of shares/bonds/by borrowing in the name of the company.

 Management control: in sole proprietorship, the proprietor make all the

decision and the proprietor can act immediately. In partnership, all partner have
equal control and the majority rules. In limited partnership, only the general
partner have control of the business. In company , majority of shareholder have
the most control from the legal point of view day to day. Control is in the hands
of manager who may or may not be major shareholders.

 Distribution of profit: the sole proprietor is responsible from the start-up of

his or her business and so receive all the profit and loss. In partnership
distribution of profit or loss depends on partnership agreement and investment
by each partner. In case of company, shareholder can share in the profit by
receipt of dividend.

 Attractiveness of raising capital: for sole proprietor, this demand on the

capability of the proprietor or success of the business. In partnership,
attractiveness for raising capital depend on capability of partners or success of
partnership. In company's with limited liability for owner, it is more attractive
as well as an avenue for investment opportunity.