Entrepreneurship: Simplified and demystifiedCopyright © 2017 by Kamau, Geoffrey GitauAll rights reserved.
No part of this book may be reproduced or transmitted in any form or by any means without written permission from the author.ISBN (XXXXXXXXXXXXX) DedicationTo my hardworking mum – Flora Wanjiku. ForewordThe subject of entrepreneurship has been a subject of discourse for decades now. However, many questions abound on what, who and how? One wonders, “Why do some start-ups succeed where others failed and even what it takes to gain the propensity to start a successful entrepreneur?” It is an undisputable fact variety of businesses are continually increasing, yet while some become successful ventures a good number rarely survive to see their third birthday. An entrepreneur must be willing to fail, though; and must also be willing to little income while sacrificing to reap future dream income. However, it is also a hallmark of success to realize that successful entrepreneurs always seek to offer something unique, new and better to out-perform their competitors. This book takes an incisive approach to break down the subject of entrepreneurship into simple and demystified concepts that even a novice can catch and run with. It begins by elaborating the fundamental concepts that distinguish the entrepreneur and the practice of entrepreneurship.
By use of a historical theoretical perspective, the proponents and patriarchs of entrepreneurship are brought to the fore with their perspective of conceptualization of entrepreneurship. A typology of the entrepreneur is built by contrasting the entrepreneur from a business person, a manager and a capitalist, to name a few. The characteristics that define an entrepreneur are explored as well as the motivational factors behind this entrepreneurial gusto.
Nevertheless, the author acknowledges that entrepreneurs encounter many setbacks that at times cause early demise of noble or even novel entrepreneurial undertakings. The avalanche of such overhanging threats to entrepreneurial success are thus reviewed.One most salient feature of this book is its practical approach in elaborating the processes of launching a successful entrepreneurial venture. The author presents rich case studies to enlighten the readers and prick their entrepreneurial sensors so as to identify with the skin the entrepreneur walks in. These case studies paint the reality picture of success and failures that entrepreneurs are known to endure and the glory reaped by successful outcomes of the entrepreneur.
It takes a balanced a approach that ensures gender parity in the typology of the entrepreneur because success as an entrepreneur has no gender bias, even though some real challenges need to be overcome by certain categories of entrepreneurs than others. However, rewards for succeed where others like you have failed will suffice to motivate any daring entrepreneurial actor. It is commendable to note that the author is not just informative but very mind provoking. This is important especially because successful entrepreneurial development in an economy is often times hampered by lack of attractive business environment which is the role of policy makers and regulators. Matters copyright and intellectual property have been adequately explored in the context of an economy as a means to promoting growth of entrepreneurial creativity and innovations. Other subjects such as financing of start-ups and new product development as well as the role of business development services has also been well covered. In view of these comments I strongly recommend this book as a must read for every aspiring entrepreneur and those seeking academic knowledge on the very important subject of entrepreneurship.
PrefaceIt is with great pleasure I present this book to my readers. Over my many years as a lecturer at various universities, no subject has impressed me so much as entrepreneurship. It’s amazing how ordinary looking nascent entrepreneurs go to become business moguls controlling economies and employing huge workforce with even higher academic qualifications than they themselves have ever accomplished. This truly demonstrates an entrepreneur as person who possesses high knowledge. A person of unique capabilities, on who is conscious and apt in leveraging on what the environment brings his or her way. The content packaged in such a personality needs to be unraveled and propagated as a means to self-employment and economic development of any people world over. I hope you will find this book such relevant as to make you a successful entrepreneur.
?Table of contentDedication iiForeword iiiPreface ivTable of content vCHAPTER ONE 1INTRODUCTION TO ENTREPRENEURSHIP 11.1 So what is entrepreneurship? 11.2 Who is an entrepreneur? 21.3 Distinction of entrepreneur from a manager 41.4 Distinction of entrepreneurship from small business 41.5 Entrepreneurship and Economic Growth 51.5.1 Role of entrepreneurship in national economy 51.
5.2 Entrepreneurship development 51.5.3 Case of Kenya’s Entrepreneurship Development 61.6 Characteristics of an entrepreneur 81.7 Types of entrepreneurs 121.8 Chapter summary 16CHAPTER TWO 20ENTREPRENEURSHIP THEORY 202.1 Richard Cantillon (1680-1734) 202.
2 Adam Smith (1723-1790) 212.3 Baptiste Say (1767 – 1832) 212.4 Joseph Allois Schumpeter (1883-1950) 212.5 Frank Knight (1885-1972) 232.6 Israel Kirzner (1973) 232.7 Peter Drucker (1909-2005) 24CHAPTER THREE 26ENTREPRENEURIAL BEHAVIOUR AND MOTIVATION 263.
1 Distinguishing behavior and motivation 263.2 Entrepreneurial behavior 273.2.
1 Psychological theories on entrepreneurial behavior 273.2.2 Social cultural theories on entrepreneurial behavior 293.2.3 Summary of Entrepreneurial Personality (or Traits) 303.3 Entrepreneurial motivation 333.3.1 Internal and external motivation factors 333.
3.2 Push and pull motivation factors 333.4 Factors affecting success of startup businesses 34CHAPTER FOUR 36ENTREPRENEURIAL ORIENTATION 363.5 Risk taking 363.6 Pro-activeness 363.7 Innovativeness 363.8 Competitive aggressiveness 373.
9 Autonomy 37CHAPTER FIVE 39ENTREPRENEURIAL PROCESS AND NEW PRODUCT DEVELOPMENT 393.10 Entrepreneurial process 393.10.1 Opportunity identification and selection 423.10.2 Business feasibility 433.
10.3 Business planning 453.10.4 Resources acquisition 463.10.
5 Managing the enterprise 463.11 Business Life Cycle 483.11.1 Birth or Establishment 483.11.2 Growth 503.11.
3 Maturity 503.11.4 Post-maturity or decline 503.12 New product development 513.12.1 Step 1: Idea Generation 543.12.2 Step 2: Idea Screening 543.
12.3 Step 3: Concept development 553.12.4 Step 4: Business Analysis 553.
12.5 Step 5: Beta and Marketability Tests 553.12.6 Step 6: Technical Implementation 553.12.
7 Step 7: Product launch 553.12.8 Step 8: Post Launch Review and Perfect Pricing 56CHAPTER SIX 57NEW STARTUP, BUYOUT OR FRANCHISING 573.13 New business 573.14 Franchise 583.15 Buyout 59CHAPTER SEVEN 60BUSINESS REGISTRATION 603.16 Sole proprietorship 603.16.
1 Definition 603.16.2 Characteristics 603.16.3 Advantages 603.
16.4 Disadvantages 613.16.5 How to register in Kenya 613.17 Partnership 623.17.1 Definition 623.
17.2 Characteristics 623.17.3 Advantages 633.17.4 Disadvantages 633.17.5 How to register 633.
18 Limited company 643.18.1 Definition 643.18.2 Characteristics 653.18.3 Advantages 663.18.
4 Disadvantages 673.18.5 How to register 67For Kenyan Citizens attach copies of directors: 677.4 Registration of Clubs, Associations and Societies 67CHAPTER 8 69FAMILY BUSINESS 698.1 Definition of family business 698.2 Different Family Business Teams Combinations 698.3 Advantages of family business 708.4 Disadvantages of family business 708.
5 Causes of Conflict in the Family Business 708.6 Strategies for succession and family business continuity 72CHAPTER NINE 74CREATIVITY AND ENTREPRENEURSHIP 749.1 Definition of creativity 749.2 Types of creativity 759.3 Components of creative thinking 759.4 Theories of creativity 769.5 Barriers to creativity 779.6 Enhancement of creativity 789.
7 Perspectives of creativity 799.8 Factors influencing individual level creativity 799.9 The creative process 809.10 Creativity techniques 81CHAPTER TEN 84INNOVATION AND ENTREPRENEURSHIP 8410.1 Defining innovation 8410.2 Innovation process 8510.2.1 Types of innovations 8610.
3 Diffusion of innovation 8710.4 Theories of diffusion 9110.5 Innovation myths 91CHAPTER ELEVEN 93FINANCING STARTUP BUSINESSES 9311.1 Types and Sources of Financing for Start-up Businesses 933.19 Personal Savings 933.20 Friends and relatives 933.21 Equity Financing 933.
22 Debt financing 943.23 Venture Capitalists 953.24 Angel Investors 953.25 Crowd funding 953.26 Government Grants and public financing 963.
27 Bonds 963.28 Warrants 963.29 Lease 96CHAPTER TWELVE 98BUSINESS PLANNING 9812.1 Defining business plan 9812.2 Goals of a business plan 9812.3 Benefits of a business plan 9812.
4 Types of business plans 9812.5 Parts of a standard business plan 99CHAPTER THIRTEEN 102BUSINESS DEVELOPMENT SERVICES 10213.1 Defining Business Development Services 10213.2 Types of BDS providers 10313.4 Types of BDS services 10413.5 Problems associated with BDS incentives 10813.6 Critical success factors of a BDS initiative 109CHAPTER FOURTEEN 110CONTEMPORARY AREAS IN ENTREPRENEURSHIP 110References 117 CHAPTER ONEINTRODUCTION TO ENTREPRENEURSHIP1.1 So what is entrepreneurship?In every day of our lives from the breakfast we take, the commuter service we ride, the beauty shop we visit and all the activities of the day till we retire all the services enjoyed represent an outcome a certain person or persons who decided to establish a venture for delivering certain goods or services.
Entrepreneurship therefore is a domain of study that focuses on what brings about all these ventures and why some of them emerge more successful than others. A lot of confusion exist between the entrepreneurship and business management. While these two are related entrepreneurship focuses on a wider view of a business phenomenon to include both business formation and the eventual management to success.
The term entrepreneurship is borrowed from the French word “entreprendre”, which simply means to undertake or to begin something. This points to the fact that entrepreneurship covers the entire business life cycle. It starts with someone breaking from some inertia and out some inner drive and prospects of making profit, scouts for opportunity and undertakes the necessary risks to assemble resources necessary and start some commercial activity, hence manage it to its successful growth. The classical economic theory focused on the theory of the firm and not the person who created the firm. So entrepreneurship on the hand focuses on the person behind the firm instead. The earliest lead lights to entrepreneurship borrow from a book entitled, “The Wealth of Nations” by Adam Smith in 1776. Adam Smith refers to “the invisible hand” which manifests as an unobservable market force by which demand and supply of goods in a free market reach equilibrium automatically. Adam Smith is regarded as the father of modern economics and a major proponent of laissez-faire economic policies.
Nevertheless, economic view of the firm is not adequate in understanding entrepreneurship so entrepreneurship as a domain of study relies on different set of theories but inter-relates with theory of the firm. In very simple terms entrepreneurship is the processes of startup of business ventures, running them to their growth and development. It is notable that although many enterprises start small enterprises they always have potential of becoming large enterprises and become source of economic growth and development in a country. Entrepreneurship as a processes involves a number of steps which can be simplified to four:Step 1: Identifying an opportunity that if exploited can generate profit.
The person who thus perceives this opportunity and evaluates it and buys-in the idea.Step 2: Develop this business idea into a business plan.In order to determine viability of the idea, there is always need of drawing a write up in form of a plan to describe the idea, target market, source of raw materials, its operational implementation and financial plan, among other plans.Step 3: Resource supply In order to actualize the business plan resources will need to be assembled to carry out the new venture.Step 4: Managing the enterpriseUpon successful establishment of the business venture, thereafter on day to day basis, there would be need to continue supplying economic factors of production and coordinate the functions and operations of the business to its eventual success.
A few other definitions of entrepreneurship include:a. Entrepreneurship is carrying out of new combinations of firm organization that creates new products, new services, new sources of raw material, new methods of production, new markets, and new form of organization (Schumpeter, 1934)b. Entrepreneurship is purposeful activity to initiate and develop a profit-oriented business (Cole, 1959).
Further he defined four distinctive types of entrepreneur: (1) The innovator, (2) The calculating inventor, (3) The over-optimistic promoter, and (4) The organization builder. These types of entrepreneurs are not related to the personality of the entrepreneur but more to the type of opportunity the entrepreneur will inevitably be attracted to and the problems that they will face (or so he thought).c. Entrepreneurship involves the creation of new organizations (Gartner, 1985). d. Entrepreneurship is an approach to general management that begins with opportunity recognition and culminates with the exploitation of opportunity (Sexton & Bowman, 1991).
e. Entrepreneurship is a process by which people pursue opportunities, fulfilling needs and wants through innovation, without regard to the resources they currently control (Robbins & Coulter, 1999). f. Fundamentally, entrepreneurship is a human creative act that involves finding personal energy to initiating and building an enterprise or organization (Timmons, 1990). g. Entrepreneurship is the launch and/or growth of ventures through the use of innovative risk- assuming management. (Fry, 1993).
h. Entrepreneurship is an integrated concept that permeates an individual’s business in an innovative manner (Karatko ; Hoggets, 1998)i. Entrepreneurship is the pursuit of market opportunities to create future innovative goods and services discovered, evaluated and exploited to extract social and economic value from the environment, leading ultimately to new independent business or venture creation (Shane ; Venkataraman, 2000). j. Entrepreneurship is a process by which individuals or groups identify and pursue entrepreneurial opportunities without the immediate constraint of the resources they currently control. (Hoskisson, Hitt, Ireland, ; Harrison, 2012)Besides all these varying definitions, the fact is that entrepreneurship is about the phenomenon of how businesses start, grow and finally become successful ventures.
It focuses on the process of business formation, its growth and maturity. In many instances businesses start small possibly in form of owner manager setup with no other employee. The question of what triggers this startup and causes it to succeed where others fail is altogether of great significance to entrepreneurship as well.1.2 Who is an entrepreneur?The search for a definition of entrepreneurship is very elusive. Entrepreneurship as a domain of study extends the traditional economic factors of production land, labor, and capital as coined by the “father of economics” – Adam Smith.
Entrepreneurship adds a feather to this factors by introducing the entrepreneur in the equation as the “change agent” thus redefining the factors of production to include land, labor, capital and entrepreneurship. Entrepreneur then is the human actor behind all the processes that take place in entrepreneurship discourse. The entrepreneur is one who identifies the business opportunity, undertakes the risk of assembling and committing resources to start the venture, and then provide it with the management needed to become a successful venture. Entrepreneurial opportunities are conditions in which new products or services can satisfy unmet need in the market, due to competitive imperfections and unevenly distributed information in the market.
Therefore, an entrepreneur will carry out new combinations to create new products, new services, apply new sources of raw material, apply new processes of production, identify new markets, and finally create new organizations (Schumpeter, 1934). This entrepreneur will be propelled by an entrepreneurial mindset characterized by a viewpoint which values uncertainty in the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations in form of these new combinations. According to (Hoselitz, 1952) the entrepreneur is uncertainty bearing, undertakes coordination of productive resources, introduction of innovations and the provision of capital to the firm. The entrepreneur can be personified for the purposes of this text as being at the same time the creator, the owner of the business (he either invests his own capital or borrows) and its manager (Boutillier, ; Uzunidis, 2014).
An entrepreneur faces several risks including:1. Financial risk versus profit (return) motive varies in entrepreneurs’ desire for wealth.2. Career risk—loss of employment security3. Family and social risk—competing commitments of work and family4.
Psychological risk—psychological impact of failure on the well-being of entrepreneurs1.3 Distinction of entrepreneur from a manager 1.4 Distinction of entrepreneurship from small businessAn entrepreneurial venture is characterized by innovative strategic practices and/or products and the focus is on rapid venture growth through pro-actively seeking for opportunity and assuming the attendant risks of the undertaking to exploit the opportunity. A small business, sometimes called a micro business, on the other hand, is any business that is independently owned and operated by the owner and a small number of employees.
It may not be necessarily growth oriented and the owners may not want it to, as they usually prefer a more relaxed and less aggressive approach to running the business. They manage their business in a normal way, expecting normal sales, profit and growth. In other words, they seek a certain degree of freedom and ideally a certain degree of financial independence. Nevertheless, most entrepreneurial ventures may start as small businesses but will distinguish themselves on their wings of take-off by their pro-activeness, innovativeness and risk-taking propensity that cause them to rapidly soar up and leave small businesses wallowing in the dust.1.
5 Entrepreneurship and Economic Growth1.5.1 Role of entrepreneurship in national economyThe primary role of an entrepreneur is to establish business startup in response to economic incentives. The startups often grow into important firms that create and operate markets providing mechanisms of exchange for consumers. Entrepreneurs therefore are the essential force that helps to drive the economy towards demand and supply of goods and services.
Entrepreneurs are endogenous to the economy because they often arise from within the economy, where they have been part and parcel, response to opportunities generated from new knowledge to start a new firm. Therefore, over the years Governments having realized that entrepreneurship can play significant role in national economies have attempted to introduce a variety of incentives to spur entrepreneurship in an economic sector. It has been found that entrepreneurship:1) Provides opportunities for job creation and self-employment.2) Contributes to growth of the national Gross Domestic Product (GDP).3) Promotes exchange of goods and services and economic growth4) Creation of industries and distribution of wealth5) Promotion of innovation in the economy to produce competitive products and services6) Local and regional economic development7) Improved allocation of resources and transfer of technologies8) Opening up of new markets9) Opening up of new sources of supply10) Industrial re-organization11) Foreign exchange earnings in exports of products and services12) Eradication of poverty and improvement of better lifestyles through products and services1.5.
2 Entrepreneurship developmentEntrepreneurship development focuses on the individuals who wish to start or expand a business. Micro Small and Medium Enterprises (MSMEs) development have received immense attention as key drivers to economic growth. Therefore, entrepreneurship development has tended to concentrate more on growth potential MSME development and their innovations. Entrepreneurship has been promoted to help alleviate the unemployment problem, to overcome the problem of economic stagnation and to increase the competitiveness and growth of business and industries. One of the key areas of entrepreneurship development is entrepreneurship training. Entrepreneurship training has been used to improve the competence of the entrepreneur and his/her enterprise so as to enhance his/her entrepreneurial objectives and accommodate more people to become entrepreneurs as well.
Entrepreneurship development also focuses on helping people start and grow dynamic businesses that provide high value addition to economic goods and services. Entrepreneurship development programmes developers should identify risks in entrepreneurship and determine the likelihood of success, identify the factors that affect the levels of entrepreneurship in a country. Entrepreneurship development programmes require a selection process that attempts to identify target groups that have some of the key prerequisites for entrepreneurial success. The selection process should encourage deployment of limited resources where they are most effective, to the overall benefit of the community such as helping aspiring entrepreneurs to recognize and design unique, innovative business opportunities, based on an analysis of local conditions and their own special skills. The programme can help the entrepreneur to diversify based on his/her basic knowledge of a product or skill in a certain sector. Entrepreneurial development programmes may have to include support for:• Entrepreneurship orientation and awareness• Development of the competencies (skills, experience and attitudes) necessary to recognize a market opportunity and organize the resources to meet it• Improvement of business performance for growth and competitiveness• Financial services access – For example, support for bank credit process and appraisal of the business plan• Marketing• Quality assurance and productivity improvement.
Successful entrepreneurship also depends on supportive and coordinated government policies. Government programmes and policies have a significant impact on the level of entrepreneurship within a country. While many governments profess support for entrepreneurial businesses, they often lack specific policies and coordinated programmes designed to support entrepreneurial activity.1.5.
3 Case of Kenya’s Entrepreneurship DevelopmentIn Kenya, there are marked obstacles to successful entrepreneurial development initiatives, key among them include: access to credit, cost of power and other utilities, poor infrastructure including roads, difficult import procedures, lack of entrepreneurial training, etc. Fostering entrepreneurship involves ensuring that markets for capital, labour, goods and services are working well. It also requires that impediments to entrepreneurship be removed and that conditions be established in which innovation and risk-taking can flourish.
Government policy-makers also seek to foster entrepreneurship through programmes which, for example, augment the supply of information and enable reliable transportation of goods and services, encourage networking, facilitate the provision of finance, and seek to create positive attitudes towards entrepreneurial activity.A National policy can be generally defined as a system of laws, regulatory measures, courses of action, and funding priorities concerning a given topic promulgated by a governmental entity or its representatives. It is a statement of goals, objectives, and recommendations on a specific subject area. An entrepreneurship supportive economy should have focused policies that facilitate access to finance, professional services and training for start-up companies, which simplify business registration, reporting and taxation, among others.
These are essential to entrepreneurial venture creation. The early developments that lead to development of the Micro and Small Enterprises (MSEs) sector in Kenya can be traced to the Kenya’s colonial era. The first pioneers in African education in Kenya were the missionaries at around 1900. Their interest was in providing Christian religious education and vocational education for Africans. Later colonial settlers, the likes of Lord Delamere in 1926 were interested in giving natives education which could make them work with their hands to provide semi-skilled agricultural services. Phelps Stroke Report of 1925 recommended training Africans of high character in technical skills. Further, Beecher Report of 1949 stressed training on manual work, hand-work and agriculture. Nevertheless, several factors worked against these various systems of education’s success.
Some of the major factors were, poor and unqualified teachers, lack of jobs for programme graduates, attitude of teachers towards technical skills, but the most important factor against the systems was opposition by the rising African nationalists after World War II.During the celebration of Kenya’s independence in 1963 vocational education was abolished and then re-introduced shortly after in 1964 through a programme known as the National Youth Service (NYS). Further, the National Council of Churches of Kenya (NCCK) in 1966 recommended introduction of more vocational education to give opportunity to young people who were left in the white collar jobs educational ”gap” and thus check emerging rural-urban migration. The NCCK Report ‘After School What?’ expressed concern over the lack of training opportunities for Kenya’s rapidly growing population of primary school leavers, whose vast majority were unable to progress to secondary schools. The report noted that these youngsters typically lacked the experience and skills which would allow them to contribute significantly to their own and their family’s survival.
In the absence of rural opportunities, the youngsters were being tempted to move to Kenya’s cities in search of work. Further, statistics available then showed that the pace of employment growth in the economy’s ‘modern sector’ could not keep pace with the expanding number of job seekers. Therefore, the NCCK Report proposed the introduction of rural institutions which would provide training in practical skills and encourage youngsters to remain in those rural areas and contribute to the development of their own localities. The Kericho Conference of 1966 organized by the Government of Kenya endorsed the NCCK recommendations which were effected in the 1969 to create vocational centers called Village Polytechnics to give school leavers vocational education which directly related towards self-employment in the rural areas.
The village polytechnics were later named Youth Polytechnics, and have remained today – although they are extremely underfunded.The year that followed from 1970 to date have been made with a raft of policy formulation for the MSE sector in Kenya. Key among the policy papers include second to fifth national development plans 1970 to 1989. The Second National Development Plan of Kenya (1970-1974) emphasized development of small-scale industries and training of entrepreneurs as a viable strategy for alleviating unemployment. However, no concrete measure was taken to implement the strategy. All the same, to International Labor Organization (ILO) report of 1972, the Government of Kenya deliberately focused on MSEs and the informal sector as a means of creating jobs. This report on the informal sector received considerable attention in the Third National Development Plan of Kenya (1974-1978) and was improved in the Fourth Development Plan of Kenya (1979-1983) where various measures to encourage and support small-scale, and rural industrial development in the country were proposed.
Barriers facing MSE manufacturers and the potential of the informal sector were noted and a number of development partners and Non-Governmental Organizations (NGOs) began working with the sector. The Fifth National Development Plan of Kenya (1983-1989) saw the establishment of a fully-fledged small enterprises division in the Ministry of Commerce and Industry to monitor implementation of MSE programmes.Later a policy paper referred to Sessional Paper No. 1 of 1986 entitled “Economic Management for Renewed Growth” addressed major constraints to MSE growth which had been previously identified. This paper was a milestone in the Government’s efforts towards formalizing the informal sector as a vehicle towards poverty reduction and creation of wealth.
It also created the environment for the establishment of microfinance institutions that saw the birth of such institutions as K-REP, Toto Home Industries, Kenya Women Finance Trust (KWFT) and Faulu Kenya, among others.In the Sixth National Development Plan (1989-1993) agencies in both public and private sectors were encouraged to develop supportive efforts in training, advising and counseling entrepreneurs in project formulation, implementation, operation monitoring and evaluation. It was in Sessional Paper No. 2 of 1992 entitled “Small Enterprise and Jua Kali Development in Kenya” that the Government provided a comprehensive framework for the promotion of small enterprises and Jua Kali (informal sector) development in Kenya. It was geared towards improvement of the existing policy and regulatory environment, gender specific issues, policy measures to improve access to credit facilities, and measures to improve provision of non-financial promotional programmes. Further, the Seventh National Development Plan (1994-1996) undertook to implement policies laid down in Sessional Paper No. 2 of 1992 but it was the Sessional Paper No. 2 of 2005 on the Development of MSEs for Employment and Wealth Creation that presented a strategy for country’s industrialization, employment generation and poverty reduction.
It set the stage for the SME Act of 2006 to focus on the provision of credit to the sector and regulating the registration and operation of financial institutions involved in extending financial services to MSEs, including microfinance institutions.In more recent times a lot of effort has been made to enhance credit access to MSEs through programmes such as Youth Fund and Women Fund; efforts for affirmative action on Government tenders access by women, youth and disabled special groups, among others. Research on these incentives has been on going to determine their effect on entrepreneurial development in Kenya. 1.6 Characteristics of an entrepreneurIn theory anyone can easily describe an entrepreneur but to identify the real entrepreneur may not be as easy. It is a fact that there are many species of birds so one would be forgiven to see all of them as mere birds but imagine a peacock is a bird, a wood pecker is a bird, an eagle is a bird, and so is a hen. All these birds undergo the same processes of development from the egg, hatching, growth to maturity, life and their eventual death. However, after hatching and early growth their difference start to emerge.
The peacock becomes a beautiful, large and elegant bird, the wood pecker goes to peck the tree, the eagle rises to the sky while the hen takes to scratching the ground day in day out while keeping a watchful eye on the eagle, knowing too well any day it may become its meal. If entrepreneurs were like birds, from the analogy above, it is inevitable to then for one to seek a way of distinguish what type of a bird the entrepreneur is. One would wonder, what are the antecedents that forerun the genesis of the entrepreneur – or characteristics of the egg so to speak? How are the entrepreneurs hatched? What environmental factors precipitate their successful growth? Finally, how they manage their life development to ensure their maturation and terminal exit also needs to be reviewed. It is the examining of these events, the cause and effect relationships in the business environment that an avid scholar of entrepreneurship will always find perplexing to unravel. A focus on the antecedents of an entrepreneur would present us with two inputs, the embryonic entrepreneur (nascent entrepreneur) and the environment. This elucidates the two pronged perspectives of an entrepreneur – the psychological school of thought and the sociologist’s school of thought. The psychologists look at the traits that are exhibited by entrepreneurial behavior. They focus on the inherent person of the entrepreneur while sociologists concentrate on the environment external to the entrepreneur which contribute to successful birth, growth and development of an achiever entrepreneur.
The question that is often posed by scholars is, could entrepreneur be by nature or by nurture? Finding opportunities that can be exploited like an eagle plying the sky is a continuous preoccupation of an entrepreneur. An entrepreneur understands that success lies in pro-actively seeking opportunities and swinging to action swiftly and aptly to exploit those opportunities knowing to well these processes pose both risks and uncertainties on the outcomes. Risks because the pursuit of the same exposes one to unfamiliar environment and commits resources whose outcome is uncertain since entrepreneur is always future oriented.
In order then to venture this entrepreneur must bear high tolerance for risk and ambiguity, because the greatest opportunities often demand the greatest risk-taking and marketplace requires making decisions with less than clear information demanding that the entrepreneur cultivates tolerance for ambiguity. Notwithstanding the example of bird species in my analogy, human beings have the creative ability of combining resources, experimenting and rationalizing. When these qualities and competencies are added to the person of the entrepreneur, it yields a new force of called innovation which could yield a higher characteristics in an entrepreneur that the instinct based argument of the bird species.The lack of a generally accepted definition of the entrepreneur demonstrates that it is a multidimensional concept.
However, the opportunity seeking tendency within aspects of uncertainty and risk bearing, pro-activeness, and innovation are inalienable characteristics that define an enterprising individual such as would be in entrepreneur. Classical entrepreneurship was defined in such economic terms as the buying, selling, and bringing together the factors of production that in itself connoted the aspects of utilization of productive factors necessary for creation of economic goods. This view of entrepreneurship reflects on an entrepreneur as an economic actor who looks ahead to foresee the future conditions of supply and/or demand and then aptly responds to exploit that future opportunity. The neoclassical view of entrepreneurship has been associated with the creation of new business enterprises. The contemporary view however, presents the entrepreneur as an integrator of technologies to innovate for radical products and services that disrupt the market equilibrium. Nevertheless, fundamentally the entrepreneur will be defined also by his or her capacity and willingness to undertake conception, organization, and management of a productive venture with all attendant risks, while seeking profit as a reward.
In order to advance knowledge on the understanding of the entrepreneur and entrepreneurship two key approaches are: entrepreneurial behavior and entrepreneurial orientation theories. Theories on entrepreneurial behavior focus two distinct schools of researchers in the field of entrepreneurial psychology. The more classical group of researchers focused on the personality characteristics (entrepreneurial traits) of an individual entrepreneur such as: locus of control, risk taking, need for achievement (nAch), problem solving style and innovativeness, perception, and work values – among others. The second group of researchers has taken a social cognitive approach, focusing on how the external environment of an entrepreneur such as culture, religion, role models, work experience, education, and upbringing shape the behavior of an entrepreneur. Entrepreneurial orientation on the other hand is theoretical framework used to many researchers to study organisations so as to determine the extent to which an organization exhibits entrepreneurial behaviour. The entrepreneurial behavior at the firm level has been theorized to focus on three dimensions: risk-taking, innovativeness and pro-activeness.The concepts of entrepreneur behavior are significant for one wishing to build in-depth understanding of the entrepreneur’s personality, while study of entrepreneurial orientation provides a framework to study and investigate a firm’s entrepreneurial characteristics. Both of these concepts will be furthered in later chapters of this book.
Among successful entrepreneurs it has been found that they exemplified a number of common characteristics which include:1. Commitment, determination and perseveranceDuring the process of formation and running a new venture to its success. An entrepreneur needs total dedication to success since there are many obstacles and setbacks to overcome.
Sheer determination and an unwavering commitment to succeed such as willingness to mortgage one’s house, take a cut in pay, sacrifice family time, and reduce one’s standard of living are necessary.2. Drive to achieve (need to achieve)Internally entrepreneurship must self-starters with undying strong desire to compete, to excel against self-imposed standards, and to pursue and attain challenging goals. 3.
Pro-active opportunity obsessionEntrepreneurship is all about exploiting suitable opportunities. Therefore, the daily focus of an entrepreneur is to continually study the environment and be alert to opportunities. The pro-active posture puts the entrepreneur ahead all the time.4.
Risk takingWith opportunity comes uncertainties and risks. Depending on the attractiveness of the opportunity one will need to commit his or her resources even without any guarantee of returns. Different opportunities have different risk levels.
For example Bonds are less risk as compared to Shares, while production of goods and services is more risky. However, it has been observed that returns correlate with risk levels. 5.
Internal locus of controlDuring the business cycle external factors are likely to hurt the course of the business. However, it remains the responsibility of the entrepreneur to study and manage all these variations. Successful entrepreneurs are therefore not pre-occupied with blaming circumstances.
Instead they take charge and act in a way to counter such unfavorable conditions such as taking insurance, delaying an investment, spreading the risk (not putting your eggs in one basket), and other mitigating factors. Such a person is said to have internal locus of control rather than external locus of control where one does not believe in himself but attributes success or failure to factors beyond one control.6. Tolerance for ambiguityThe start-up entrepreneurs face uncertainty that is compounded by consistent changes that introduce ambiguity and stress into every aspect of the enterprise.
It is therefore inevitable that the entrepreneur even with such ambiguity to gather courage to proceed.7. Integrity and reliabilityIntegrity and reliability help build and sustain trust and confidence with investors, partners, customers, and creditors.
In case of dented reputation it is very expensive and difficult to recover a lost customer.8. Tolerance for failureMost times in business failure is a learning experience. One may feel disappointed, discouraged or depressed by setbacks or failures but must be strong enough to soldier on by picking up the pieces and attempting again with lessons learnt.9. Energetic and hardworkingLong hours of work, traveling, research and so forth are common workloads and the stressful demands faced by entrepreneurs that place a premium on energy.
One will need to eat and drink healthy, exercise and take get away for relaxation often.10. Creativity and innovativenessCreativity and innovation is the hallmark of a successful entrepreneur. The idea factory is the nexus connecting opportunity to actionable idea. 11. Vision and focusEntrepreneurs must focus on the long term goal of where he or she wants to go and then avoid spreading oneself to thin especially in the beginning since one will not have adequate energy and resources to run all the ideas. Don’t bite more than you can chew.
12. Self-confidence and optimismBelieve that tomorrow will be better. This sustains the growth effort and willingness to keep going.13. Passion for excellence and successEntrepreneurs operate in a competitive space and the only way to distinguish oneself among other industry players is to standout by giving outstanding services and products all the time. So the entrepreneur must be willing to go an extra mile and distinguish from the rest in order to remain a favorable choice.
This happens by better quality products and services, high value for money to the customer, excellent customer orientation by understanding and effectively meeting customer needs, continuous customer relationship management and so forth.14. Resilient and optimistic Given the ups and downs of business, a successful entrepreneur will need to have tenacity to recovery in case of a down turn.
This occurs from an optimistic spirit to look forward to better times ahead.15. Dissatisfied with the status quo and change orientedThe desire to change status quo is very important especially in promoting new innovations that disrupt or destroy equilibrium. Some organizations like remaining in their predictable pattern and familiar ground but entrepreneurs like new and dare unknown frequently.16. Diligence in use of resources Entrepreneurial decisions demand great understanding of reality. In opportunity seeking the entrepreneur must be careful to differentiate good opportunities from fakes and fads.
Committing resources to the wrong ventures is very expensive error. For example, do proper feasibility for every business idea, determine credibility of a customer before giving credit, evaluate capacity to pay before taking credit, evaluate land or asset purchase for its perfection, and so forth.17. Dreamer The creative process of an entrepreneur requires one who imagines things, ideas fantasizes on those capabilities to reality. 18.
Profit orientedThe entrepreneur in the classical sense wants to make significant profits to compensate for the risks and hard work done. Even when one is not profit oriented the revenue versus costs must always add up since for any entrepreneurial idea to be sustainable it must generate significant income for meeting its’ running financial obligations.19.
Cognitive competenciesAlthough cognitive competencies are not behavioral, they represent certain capabilities acquired by the entrepreneur which assist the entrepreneur with technical know-how, problem solving skills, inter-personal relationship capability, among others. These competencies can be learned through training thus entrepreneurship and vocational/technical training is important for promotion of entrepreneurship.20. Market oriented (competitor and customer oriented)Any entrepreneurial venture is about the customer. However, the customer is under intense competition from other ventures as well. So a successful entrepreneur will need to understand the competitor and his/her strategies and counter them by providing the customer will better choice all the time.1.7 Types of entrepreneursDistinguishing entrepreneurs by their types stems from the perspective taken to classify the entrepreneurs.
Among such classifications are 1) Nascent entrepreneur: This is a potential entrepreneur who is in the budding stages or in the embryonic formation. 2) Novice entrepreneur (i.e.
, an individual moving into entrepreneur-ship for the first time);3) Serial entrepreneur (i.e., an individual has launched several entrepreneurial endeavors in a sequential fashion);4) Lifestyle entrepreneur (i.e., an individual who, valuing passion before profit when launching a business, combines personal interests and talent with the ability to earn a living long term);5) Habitual entrepreneur (i.e., an individual has launched or is currently launching several entrepreneurial endeavors in a parallel fashion); and6) Entrepreneurial manager (i.e.
, an individual has the characteristics of an entrepreneur but is in an employment relationship with an employer; also called an intrapreneur)Further entrepreneurs can be classified by groups of characteristics such as:(1) According to the Type of Business:1. Business entrepreneur: Business entrepreneurs are those entrepreneurs who conceive the idea of a new product or service and then translate their ideas into reality. Entrepreneur examines the various possibilities of sources of finance, supply of labour, raw-materials or finished product as the case may be. Business entrepreneur may be undertaking the trading business or manufacturing business but initially the size of the business is very small. As the entrepreneur flourishes, he tends to expand his business.2. Trading entrepreneur: As the very name indicates trading entrepreneur is concerned with trading activities and not manufacturing.
Trading means buying the finished product from the producer and selling off to the customer directly or through a retailer. A trading entrepreneur has to be creative enough as he has to identify the market. He has to identify potential market, create demand through extensive advertisement of his product and thus inspire people to buy his product. For this is inevitable for him to find out the desires, tastes and choices of his customer in domestic as well as international market.3.
Industrial entrepreneur: As the very name indicates, an industrial entrepreneur is one who sets up an industrial unit. He perceives the opportunity to set up his unit, complies with necessary formalities of getting license, power connection, pollution control clearance (if the need be) arrange initial capital, providing securities and guarantees to the financial institutions, making payment of wages and supply necessary technical know-how. An industrial entrepreneur has the ability to convert economic resources and technology into a considerably profitable venture. Manufacturer of leather products, textiles, electronics, food items and the like are industrial entrepreneurs.4.
Social entrepreneur: Focuses in setting up organizations to deliver social goods and services so as to uplift people’s life and not to make profit. Such an enterprise may generate revenue by changing a minimal fee on its subscribers or even receiving donations and gifts but these revenue is not source of profit but instead its surplus is ploughed back into the organization or donated to other social needs.5. Corporate entrepreneur: Corporate entrepreneur is the one who plans, develops and manages a corporate body. He is a promoter, an essential part of board of directors, an owner as well as an entrepreneur. He gets his corporate body registered under the requisite Act which gives his company the status of separate legal entity.6. Agricultural entrepreneur: Agricultural entrepreneur is the one who is engaged in the agricultural activities.
He uses latest technology to increase the productivity of agriculture and also adopts mechanisation.(2) According to Motivation:1. Pure entrepreneur: Pure entrepreneur is one who may or may not possess an aptitude for entrepreneurship but is tempted by the monetary rewards or profits to be earned from the business venture.
He is status-conscious and wants recognition.2. Induced entrepreneur: Induced entrepreneur is attracted by the various incentives, subsidies and facilities offered by the government. ‘An entrepreneur is not born’ —this is no doubt true as every person can be trained to become a good entrepreneur. Most of the entrepreneurs who enter into business are induced entrepreneur as various kinds of financial, technical and managerial facilities are provided by the government to promote entrepreneurship.
An entrepreneur can develop himself much more by attending EDPs and they can make a stand in the market. Import restrictions, allocation of production quotas to SSIs, reservation of products for small industry etc. have forced many young people to set up a small industry.(3) According to the Use of Technology:1.
Craft or Technical entrepreneur: The strength of a technical entrepreneur is in his skill in production techniques. He concentrates more on production than on marketing. He possesses craftsman skill in himself which he applies to develop and to improve the technical aspect of the product.2.
Non-technical entrepreneur: Unlike technical entrepreneur, non-technical entrepreneur is not concerned with the technical aspect of the product rather he spends more time in developing alternative strategies of the marketing and distribution to promote his business. His target is not to change the production technique but how to increase the demand of the product in which he is dealing.3. Professional entrepreneur: Professional entrepreneur means an entrepreneur who is interested in floating a business but does not want to manage or operate it. Once the business is established, he sells it out and catches on to float a new business.(4) According to Stages of Development :1. First generation entrepreneur: First generation entrepreneur are those entrepreneurs who do not possess any entrepreneurial background. They start an industrial unit by means of their own innovative skills.
2. Second generation entrepreneur: Second generation entrepreneur are those entrepreneurs who inherit the family business firms and pass it from one generation to another.3. Classical entrepreneur: A classical entrepreneur is a stereotype entrepreneur whose aim is to maximize his economic returns at a level consistent with the survival of the unit but with or without an element of growth.(5) Other classifications:1.
Innovating entrepreneur: Innovative entrepreneurs are generally aggressive and possess the art of cleverly putting the attractive possibilities into practice. An innovating entrepreneur is one who introduces new goods, inaugurates new methods of production, discovers new market and re-organises the enterprise. He arranges money, launches an enterprise, assembles the various factors, chooses the competent managers and sets his enterprise go. Schumpeter’s entrepreneur is of this type. His entrepreneur belongs to that nation which has wide industrial base, modern banking facilities, rich infrastructure, up to date technology and the like. Innovative entrepreneurs do not exist in developing economies where lack of capital, technological know-how block the path of innovativeness.
2. Imitative entrepreneurs: Imitative entrepreneurs are characterised by readiness to adopt successful innovations inaugurated by successful innovating entrepreneurs. Imitative entrepreneurs do not imitate the changes themselves, they only imitate techniques and technologies innovated by others. Such entrepreneurs are significant for under-developed economies because they put such economies on high rate of economic development. Entrepreneurs prefer to imitate the technology already existing somewhere in the world. However, the talent of imitative entrepreneurs should not be under-estimated. Even imitative entrepreneurs are revolutionary and agents of change. They have ability to do things which have not been done before even though, unknown to them, the problem may have been solved in the same way by others.
Innovative entrepreneur is creative, while imitative entrepreneur is adoptive.3. Fabian entrepreneur: Fabian entrepreneurs are cautious and skeptical in experimenting change in their enterprises. Such entrepreneurs are shy, lazy and lethargic. They are imitative by nature but are not determined and also lack power. They imitate only when it becomes perfectly clear that failure to do so would result in a loss of the relative position of the enterprise.4.
Drone entrepreneur: Drone entrepreneurs are characterized by a refusal to adopt opportunities to make changes in production formulae even at the cost of severely reduced returns. They can suffer loss but are not ready to make changes in their existing production methods. When competition increases, they are pushed out of the market as it becomes uneconomical for them to exist and operate in a competitive market.(6) According to Capital Ownership:1. Private entrepreneur: When an individual or a group of individuals set up an enterprise, arrange finance, bear the risk and adopt the latest techniques in the business with the intention to earn profits, he or the group is called us private entrepreneur/entrepreneurs.2. State entrepreneur or public entrepreneur: As the name indicates, state entrepreneur means the trading or industrial venture undertaken by the state or the government itself.3.
Joint entrepreneur: Joint entrepreneur means the combination of private entrepreneur and state entrepreneur who join hands.(7) According to Gender and Age:a) Men entrepreneurship – a form of entrepreneurship owned and run men groups or an entrepreneurial incentive targeting to grow entrepreneurship among men beneficiaries.b) Women entrepreneurship – a form of entrepreneurship involving women groups or a form of entrepreneurial incentive targeting to benefit women entrepreneurs.c) Youth entrepreneurship – a form of entrepreneurship incentive that targets to promote entrepreneurship among youths either at individual or group level.d) Aged entrepreneurship – a form of entrepreneurship that focuses on promoting business formation by aged and retirees. (8) According to target area and communities:a) Urban entrepreneur – an entrepreneur who operates in an urban environment.b) Rural entrepreneur – an entrepreneur who operates in a rural environment.
c) Immigrant entrepreneur – an entrepreneur operating in a different location from ones country of origin or nationality. Their business activities are undertaken within the influence of their country of origin social cultural and ethnic background. The business exhibits a unique flavor of the immigrant’s origin.d) Ethnic entrepreneur – An entrepreneur who exploits his or her ethnic background to flavor the business around the ethnic group social cultural background even away from their ancestral land. For example Asian hotels, Chinese hotels, Masai cultural tourism, and so forth.e) Indigenous entrepreneur – An entrepreneur who hails from the native community with a business in their ancestral land.
This is the opposite of an immigrant entrepreneur. The indigenous entrepreneur may practice ethnic entrepreneurship if he or she promotes indigenous innovations of his or her ethnic community in the local environment (thus operating as a local ethnic entrepreneur) or in a foreign country (thus operating as an immigrant entrepreneur dealing in ethnic entrepreneurship). f) E-entrepreneur – an entrepreneur who forms and runs a business in the virtual space such as mobile network business or internet business.g) Minority Entrepreneurs – Business owners who are not of the majority population. They may include non-natives, Persons with Disabilities (PWDs), or any other group disproportionately represented in the enterprise ownership population. Such groups may need some affirmative action or some form of deliberate enhanced support to encourage their recognition and representation.(9) According to Scale:a) Micro enterprise entrepreneurship – they represent businesses that employ less than ten people.
Such businesses operate in a limited geographical area, they have low adoption of technology and mechanization, and often use family labor instead of specialized expert human capital. These businesses are faced with many problems due to their liability of smallness.b) Small enterprises entrepreneurship – they have less than 50 employees but are more advanced than micro enterprises. However, they more or less face similar challenges as those of the micro enterprises.c) Medium enterprises entrepreneurship – they have less than 100 employees and a sizable business turnover. These businesses have a high potential of joining the league of the large enterprises and could even exhibit some level of global venturing.d) Large enterprises entrepreneurship – they have 100s to 1000s of employees and would often operate across national borders with high levels of specialization and sophistication of technology.1.
8 Chapter summaryIn view of different attempts to categorize entrepreneurs, it emerges that there is not adequacy in classification. Therefore, going into the future many new categories of entrepreneurs will emerge according to combination of characteristics and entrepreneurial postures. Business enterprises are migrating from physical marketplaces to virtual marketplaces in e-entrepreneurship, from physical aggregation of goods to virtual aggregation, from middlemen entrepreneurs to entrepreneur-user communities who one side are customers as well as entrepreneurs on the other hand. Internationalization of entrepreneurship is also becoming a reality by elimination of physical international borders to create a global village. All these together with turbulence in the entrepreneur discourse is creating a paradigm shift that would be interesting to keep under focus and investigation.Case Study??Chapter review questions1. Distinguish between the following terms: entrepreneur, entrepreneurship and enterprises.2.
Entrepreneurs and managers are both firm actors, yet they differ in many ways. Explain the differences between an manager3. Discuss why entrepreneurship is important in a national economy. Review the case study on Dubai City.4. Critique entrepreneurship development in your country and what you would recommend to improve entrepreneurship development in your country.5. Identify a notable entrepreneur in your locality and conduct an interview to determine characteristics of the entrepreneur, entrepreneurial motivation and problems and challenges encountered in entrepreneurship.6. There are many ways of categorizing entrepreneurs. Explain.7. Tito is a young graduate who wishes to venture into entrepreneurship. Kindly help him understand what processes lie ahead in less than 200 words.8. Distinguish between risks and uncertainties hence explain what risks an entrepreneur is likely to face in his or her new enterprise.9. Entrepreneurs more often than not start from small enterprises, yet entrepreneurship is not just about small enterprises. What is your take on this statement?10. Need to achieve is one of the strongest drives of an entrepreneur. Explain how this trait distinguishes a successful entrepreneur.?CHAPTER TWO ENTREPRENEURSHIP THEORY Theory of entrepreneurship brings together generally accepted principles that constitute a systematic view of entrepreneurship as a discipline. The theories provide a scholar with a guide to comprehension, evaluation and judgment of entrepreneurial concepts. In order to comprehend the theory of entrepreneurship one would need to systematically review the development of this branch of knowledge historically. 2.1 Richard Cantillon (1680-1734)Richard Cantillon (1680-1734) is credited as the first of major economic thinkers to define the entrepreneur and to fully consider the critical role of entrepreneurship within an economy. Cantillon described entrepreneurship as being found everywhere in an economy and that it played a pivotal role in the economy. It is Cantillon (1755) who is wrote an essay in French called “Essai sur la Nature du Commerce en Général” (English translation: “Essay on the Nature of Trade in General”) that was published after his death in 1755. This essay provided entrepreneurship theory its foundation by giving it an “economic meaning” and the entrepreneur a role in economic development – as a “risk-taker” economic agent. Cantillon elucidated on discrepancies between supply and demand as options for buying cheaply and selling at a higher price. He argued that entrepreneurs were alert to supply-demand arbitrage options. However, they assumed the risk of inherent uncertainties by purchasing inputs at a certain price while selling them at an uncertain price. Thus entrepreneurs brought the market into equilibrium by eliminating market imperfections by their arbitrage. The arbitrage raised profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms.The essay argued that there are three main actors in an economy: the property owners, the laborer and the entrepreneur. The property owners are paid rent for their property while laborers are paid the fixed wages; but entrepreneurs have no guaranteed income. Therefore, the entrepreneur will obtain goods at a certain price to sell at uncertain price thereby assume the risks of the undertaking so as to make uncertain profit as income. It is the entrepreneur who takes the responsibility for the production, circulation, and exchange of goods in the economy and thus assumes some accountability for the inherent risks in return for profits. By so doing the entrepreneur “insures” workers by buying their products (or their labor services) for resale before consumers have indicated how much they are willing to pay for them. The workers receives an assured income (in the short run, at least), while the entrepreneur bears the risk caused by price fluctuations in consumer markets. Cantillon introduced the word entrepreneur into economic literature in 1734 when he describe three types of agents in the economy: the “landowner” who as the proprietor of land provided the primary resource for this economic activity. Then the “worker” or “hireling” who rented labour service, and the “entrepreneurs”, who undertook the risk by obtained resources “at a certain price and sold them at an uncertain price”. Entrepreneurs establish markets in the villages and settlements which provide the necessary conditions under which prices are established between supply and demand. The size of the market place depends on the size of the economy it serves. The merchants would go to several villages before finding the quality and quantity of products that they wish to buy. The villagers would generally be in their fields when the merchants arrive and, not knowing what products the merchants desired, they would have nothing prepared and ready for sale. At this time it would be almost impossible to fix the price of the products and the merchandise in the villages, between the merchants and the villagers. Due to this in one village, the merchant would refuse the price asked for the products, hoping to find it cheaper in another village, and the villager would refuse the price offered for his merchandise in the hope that another merchant would come along and take it on better terms. Nevertheless, all these difficulties are avoided when the villagers come to town on market days to sell their products and buy the things they need. In the marketplace prices are fixed by the proportion between the products displayed for sale and the money offered for it; this takes place in the same spot, under the eyes of all the villagers of different villages and of the merchants or entrepreneurs of the town. When the price has been settled between a few, the others follow without difficulty and so the market price of the day is determined. The farmer then goes back to his village and resumes his work (Cantillon, 1755).2.2 Adam Smith (1723-1790) Contrary to Cantillon, who was a wealthy entrepreneur, Adam Smith was academician who traveled widely in Europe and empathized with the “Philosophers of the Enlightenment” who sprang in Europe and America in the 18th century as luminaries of new knowledge advancement. He argued that only free market is capable of bringing wealth and prosperity, without overshadowing by the State. In his analysis is he identified an “invisible hand” that acted as unobservable market force to help demand and supply of goods in a free market to reach equilibrium automatically. He become the “father of economics” by laying its foundations to elaborate on three factors of production land, labour and capital perceiving a capitalist structure that combined division of labour and self-regulating mechanisms of the market. However, he expressed little interest in the entrepreneur as such doers of projects inspired little confidence in him.2.3 Baptiste Say (1767 – 1832)The other remarkable personality in entrepreneurship theory is Jean-Baptiste Say (1767 – 1832). It is Say (1803) who coined the term “entrepreneur” in his publication entitled “Treatise on Political Economy”. Just like Cantillon, J.B. Say also placed great emphasis on the risk-taking entrepreneur but further argued that, “the entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.” He saw the entrepreneur as the agent “who unites all means of production. Therefore, J.B. Say contributed to entrepreneurship theory by broadening entrepreneurs’ efforts to include “the entire process of production and distribution” where he argued that supply creates its own demand thus restoring demand and supply equilibrium without government interference. The producer will either adjust production to different items or adjust prices until the goods sell. The buying low and selling high is the “arbitrage” that sets prices of goods in a market place. He distinguished between the profits of those who provided capital and the profit of entrepreneurs who use it.2.4 Joseph Allois Schumpeter (1883-1950)The other notable theorist of entrepreneurship is Joseph Allois Schumpeter (1883-1950). He the entrepreneur as someone who carries out “new combinations” by such things as introducing new products or processes, identifying new export markets or sources of supply, or creating new types of organization. Schumpeter presented a heroic vision of the entrepreneur as someone motivated by the “dream and the will to found a private kingdom”; the “will to conquer: the impulse to fight, to prove oneself superior to others”; and the “joy of creating” (Schumpeter, 1934). It is the entrepreneur who leads the way in creating new industries, which, in turn, bring about major structural changes in the economy. Old industries are rendered obsolete by a process of “creative destruction.” Schumpeter rejected the risk-taking attribute as inherent to entrepreneurs and assigned it to capitalists. Schumpeter does not consider equilibrium to be the end goal of market processes. Instead there are many fluctuating equilibria that are constantly reshaped or even replaced by dynamic innovation and competition. Thus the entrepreneur actively create disequilibrium through constant innovations (Schumpeter, 1942).• New Product Innovation: This is an innovation by which new products or services emerge in the market place for example; the mobile phones, collateral-free loans, electric cars, etc. • New Process Innovation: This type of innovation touches on how existing products or services acquire a better and improved means, ways or medium of creation and delivery. Although that may not impact on the final product or service features and components it nevertheless produces benefits in the production process, generally increasing the productivity and reducing costs. Such examples include automated manufacturing plant, mechanized farming, and adopting Internet to deliver teaching of programmes in e-learning. All the same process innovation many times can result new products innovations.• New Markets: A new market innovation occurs when an established market is disrupted by innovators who take on new “plane” of competition strategy to cause a product gain use by non-consumers outside of an existing market. It may also occur by attacking low end of an established market to reach consumers who historically have been locked out of a market because they lacked the skills or wealth welcome a relatively simple product that allows them to get done what they had always wanted to get done. For example, Equity Bank Kenya has been renown in Africa for providing banking services to the unbanked.• New Source of Raw Material (new use of raw materials): As industries grow and demands for products continue, cheaper and better raw materials will be demanded. An innovator will therefore go out to find new sources of innovative and low cost raw materials across the globe and determine the scalability of the supply to sustain new industries and increasing demands of products. On the other hand within a local setting an innovator may also find new use of raw materials that in plenty supply in the locality such as recycling of solid waste, new use of banana fiber in carpeting, and so forth.• New organization: This innovation is an outcome of either radical or incremental innovations by which new organizations are created and old ones replaced. Such organizations presents new products or new processes, new business practices for workplace and external relations that improve the use of knowledge, workflows efficiency or quality of goods or services. In the whirlwind of business, enterprises are created and develop. The same applies to the ownership of capital. Smith interested himself in the development of limited companies. The separation between management and ownership seemed to him likely in the longer term to damage individual initiative. The shareholder has no particular interest in the future or in the enterprise, apart from the dividends which he may be able to withdraw as net company worth progresses. Companies having shares are by their nature less efficient than companies managed directly by their owners, since the interests of the shareholders are not necessarily the best interests of the company. This tends not to be the case for the shareholder who thinks strategically in terms of accumulating or trading blocks of shares. As in Schumpeter nearly two centuries later, capitalism seems to be losing its soul by socializing itself.2.5 Frank Knight (1885-1972)The concept of an entrepreneur as a risk-taker received a critical review by Frank, a U.S. economist. He distinguished between risk, (which is insurable) and uncertainty (which is not insurable). On account of this assertion he said that risk relates to recurring events whose relative frequency is known from past experience, while uncertainty relates to unique events whose probability can only be subjectively estimated. Therefore, the “entrepreneur attempts to predict and act upon change within markets”. In this regard of unpredictable changes within markets, Knight emphasized the entrepreneur’s role in bearing the uncertainty of the market dynamics. Thus for success, the entrepreneur would be required to perform such fundamental managerial functions as direction and control. He observed that insurance companies exploited the law of large numbers to reduce the overall burden of risks by “pooling” the risks from many customers. Knight classified three types of uncertainty.a. Risk, which is measurable statistically (through probability of occurrence of known factors).b. Ambiguity, which is hard to measure statistically since contributing factors are partially unknown.c. Uncertainty which is impossible to estimate or predict statistically since no contributing factors are even known.Introduction of new innovations generally falls in the uncertainty category, since no precedent market has existed before and the entrepreneur is left to bear the uncertainties himself or herself. Even if a market already exists, there is no guarantee that a market exists for a particular new player. As for risks an entrepreneur can transfer them to insurance companies but not with uncertainty, for which the entrepreneur will take content to bear it in the interest of profit compensation for the psychological cost involved. 2.6 Israel Kirzner (1973)One of the outstanding contemporaries of entrepreneurship theory is Israel Kirzner (1973). He holds that spontaneous learning and alertness as two major characteristics of entrepreneurship. Kirzner criticizes neoclassical theory for its preoccupation with the model of perfect competition, which neglects the important role of the entrepreneur in economic life. It is the entrepreneur who causes economic transformations through spontaneous learning to acquire conscious knowledge of opportunities which itself is motivated by the prospects of some gain. He considers the alertness to recognize opportunity as more characteristic than innovation in defining entrepreneurship. The entrepreneur either remedies ignorance or corrects errors of the customers and thus buys resources or produces a good and selling it to pay back the capitalist’s interest and retain the “pure entrepreneurial profit”. In contrasts to Schumpeter who portrayed the entrepreneur as a dis-equilibrating force, Kirzner sees the entrepreneur as one who seizes the situation of economic disequilibrium and works to restore equilibrium (Kirzner, 1973).2.7 Peter Drucker (1909-2005)It was Peter Drucker who put risk-taking and uncertainty-bearing back on the conceptual view of the entrepreneur. Drucker believed that starting a new business venture was a sufficient condition for an individual to be an entrepreneur. It is this characteristic that distinguishes entrepreneurship from the routine management tasks of allocating resources in an already established business organization. The entrepreneur will bear the risk of starting the business through which he or she will introduce innovations, commit resources and manage the firm. To him these comprise the entrepreneurial behavior that hold the key to entrepreneurship. Therefore, to Peter Drucker, entrepreneurship involves starting a venture for satisfaction and increase of customer value, and the creation of new combinations using existing materials or resources that yield a new productive combination of a products or services.2.8 Chapter summaryIn this chapter theory of entrepreneurship has been briefly explored. Different scholars and their schools of thought on entrepreneurship have been presented. However, none of them is adequate to explain the concept of entrepreneurship without respect of another viewpoint. Critiquing the different schools of thought helps to identify the conceptual gaps in entrepreneurship domain.2.9 Chapter review questions1. Critique Schumpeter’s view of entrepreneurship within the contemporary view of entrepreneurship today.2. Entrepreneurial alertness is vital since entrepreneurial opportunities can only benefit one who is keen to seize the opportunity. How much do you agree with this statement?3. Within an economy there is always a disparity between producers and market access and that calls for opportunistic persons to exploit this disparity by moving goods from a place of low productivity to a place of high productivity and yield. Explain.4. Richard Cantillon argued that an entrepreneur is a risk taker. Explain this concept by distinguishing different economic actors in a business and their rewards.5. Why is risk insurable while uncertainty is not? Give FIVE examples of risks and uncertainties in a business.6. Explain Schumpeter’s concept of innovation and his types of innovations.7. Some group of students have come up with banana fiber doors and they are very excited about the idea. Identify the category or categories of innovations exemplified in this innovation according to Schumpeter.8. Why is innovation central in development of entrepreneurship?9. In order to start a new firm, it is not a must that one has an innovation to carry out. Do you agree?10. What constitutes entrepreneurial pro-activeness and why is it necessary for an entrepreneur?11. Review the entrepreneur story entitled “From a humble background to phenomenal influence in medical entrepreneurship” and summarize your lessons on entrepreneurship.CHAPTER THREE ENTREPRENEURIAL BEHAVIOUR AND MOTIVATION The explanation on causal factors that precipitates one to become a successful entrepreneur has obtained a lot of scholarly attention. It is perplexing to observe some startups fail where others take-off to become successful enterprises. These studies on the phenomenon of characteristics of an effective entrepreneurial personality have yielded little agreement but despite the lack of agreement some characteristics of entrepreneurs and entrepreneurship are consistently portrayed and cited as important elements of entrepreneurial success. In order to explain the phenomenon of entrepreneur in an economy different schools of thought have emerged including psychological or trait based theories, and social-cultural theories.3.1 Distinguishing behavior and motivationBehavior comprises observable or measurable physical activity or movement of an individual (Sundel ; Sundel, 2017). The focus of entrepreneurial behaviour is on the profile that characterize the entrepreneurial agents’ of actions that culminate in the establishment of a new firm and its successful outcomes. It includes personality characteristics or traits observed among successful entrepreneurs during the entrepreneurial process – opportunity identification, opportunity exploration, and opportunity exploitation. Entrepreneurial motivation on the other hand is the impetus or reason for doing the behavior. If focuses on what it is that initiates the entrepreneurial action(s) and even sustain them. Sources of entrepreneurial motivation could be internal or external. Internal motivation has close association to entrepreneur’s personality trait without influence of external stimulus. External motivations on the contrary are triggered by some stimulus – both positive and negative. Therefore, entrepreneurial motivation focuses both on entrepreneur’s personality traits as well as external stimuli that precipitate the propensity for one to be an entrepreneur. Many arguments abound on whether entrepreneurial propensity of an individual is by nature or nurture – is the phenomenon for entrepreneurial cognition and venturing determined by personality traits or external environment stimulus? Personality traits (often referred loosely as entrepreneur’s characteristics) include tenacity, passion, vision, self-efficacy, passion, need for achievement, locus of control, and other implicit personality qualities. However, apart from traits approach to entrepreneur’s characteristics include entrepreneurial cognition. This focuses on how entrepreneurs recognize patterns in an entrepreneurial opportunity, how they determine feasibility of an idea, how they make operational entrepreneurial decisions, and so forth. Other studies have also attempted to study and characterize entrepreneurial behavior based on demographics characteristics such as gender, race, education, and age, among others. Nevertheless, it is generally agreed that there is no single entrepreneurial personality, for one be automatically be a successful entrepreneur. Therefore, entrepreneurial behavior acknowledges that entrepreneurial competencies such as organizational skills, technical skills, industry skills can enhance a person’s entrepreneurial behavior. This means entrepreneurship behavior can be influenced through conditioning and training as well.Of all entrepreneurial characteristics, traits, and cognition that are observable in entrepreneurial behavior, the most commonly explored constructs in entrepreneurial motivation research include: 1) need for achievement, 2) risk taking, 3) tolerance for ambiguity, 4) locus of control, 5) self-efficacy, and 6) goal setting (Shane, Locke and Collins 2003). Additional dimensions that have individually shown promise are conscientiousness, expectancy, and a variety of cognitive processes (such as entrepreneurial intentions). Motivation comes from internal and external sources. According to Deckers (2015), “motivation is the impetus or reason for doing the behavior; it initiates the action. The second thing we know for certain is that there is no single entrepreneurial personality in the sense that if you have one you’ll be a successful entrepreneur, but if you don’t have one you should not even try to start a business on your own. Rather, there are dimensions on which all humans can be measured. Some of these are implicated in entrepreneurial success, others less so. But no single dimension is the one without which entrepreneurial success is impossible. 3.2 Entrepreneurial behaviorEntrepreneurial behavior can be approached from many theoretical standpoints. They include:3.2.1 Psychological theories on entrepreneurial behaviorBehavioral psychologists have attempted to provide various theories in an attempt to what arouses and sustains a directed behaviour towards becoming an entrepreneur. Key among the theories on entrepreneurial behavior are psychological theories on motivation of human behavior. They include the David McClelland’s motivational needs theory, Abraham Maslow’s Hierarchy of Needs motivational model, Douglas McGregor’s Theory X and Y, and William Ouchi’s Theory Z, among others. 184.108.40.206 David McClelland Motivational Needs TheoryDavid McClelland developed a theory on three types of motivating needs; namely: need for power, need for affiliation and need for achievement. These needs are learned and reinforced rather than instinctive and several learned needs can motivate us at the same time. People with high need for power are inclined towards influence and control. They like to be at the center and are good orators. They tend to be demanding in nature, forceful in manners and ambitious in life. They would be motivated to perform if they are given key positions or power positions. The second category are the people who are social in nature and get motivated by a friendly environment where they are recognized and belong. The third category of people are driven by taking up challenges that present opportunity for success. They fear failure and will attend to difficult tasks with an analytical nature to calculate risks and perform devotedly to enhance chances of success. McClelland observed that with the advancement in hierarchy the need for power and achievement increased rather than Affiliation. He also observed that people who were at the top, later ceased to be motivated by this drives.220.127.116.11 Abraham Maslow Hierarchy of Needs Motivational TheoryAccording to Abraham Maslow only ungratified needs can motivate behaviour. Human needs are satisfied in a succession of five levels. The lowest level are physiological needs that are basic for human survival and maintenance of the human body. They include need for nutrition, shelter, clothes, and sleep; among others. These needs are followed by safety needs that guarantee one is free from aggression and threats that arouse fear. The next level are social and belongingness needs that provide one with a sense of affection and acceptance in a social group. These needs are followed by esteem needs instill a sense of self-worth and upholds ones reputation. Finally at the highest level are self-actualization needs which result from a feel of fulfillment of one’s full potential. Although, self-actualization according to Abraham Maslow is not attained by many, it has been noted that many of us have peak experiences in our lifetime which give us momentary glimpses of the self-actualizer’s world, even though temporarily. Maslow argued that people in low paid employment or who face hazardous and dangerous environments in the workplace are less interested in developing social networks, let alone achieving high status in their jobs. Therefore, it is difficult for them to realize their potential in other ways.18.104.22.168 Douglas McGregor “Theory X and Theory Y”McGregor alludes that a manager’s view of the nature of human beings is based two contrasting assumptions that he named “theory X and theory Y”. The assumptions of theory X is that employees inherently do not like work and whenever possible, will attempt to avoid it. Therefore, they have to be forced, coerced or threatened with punishment to achieve work goals. On the contrary the assumptions of theory Y is that average human beings are willing to take responsibility and work by self-control and self-direction and if they are committed to work goals. Therefore, managers applying theory X assume that they should dominate workers and use threats and force. Theory X manager is authoritarian and commanding as compared to Theory Y manager who is “participative” and empowers employees to act with minimal supervision.22.214.171.124 Ouchi’s Theory ZIt has been observed that Japanese companies are characterized by lifetime employment, slow evaluation and promotion, non-specialized career paths, collective decision making styles, collective responsibility, and integration of work and social lives (Ouchi, 1982). These characteristics have been found to be consistent with fostering teamwork and collaboration; and total quality management. Theory Z therefore places more reliance on the attitude and responsibilities of the workers, unlike McGregor’s XY theory that mainly focused on management and motivation from the manager’s and organization’s perspective.126.96.36.199 Frederick Herzberg motivation-hygiene theoryFrederick tried to modify Maslow’s need Hierarchy theory arguing that there are satisfiers and dissatisfiers for employees at work. Job satisfaction was said to be due to intrinsic factors while extrinsic factors are associated with dissatisfaction. The questions, “What do people want from their jobs?” and “What situations has one felt exceptionally good or exceptionally bad?” explain factors for satisfaction and dissatisfaction. Removing dissatisfying characteristics from a job does not necessarily make the job satisfying but it is the presence of certain intrinsic factors in the person that lead to motivation. However, non-presence of certain external factors leads to demotivation for one who already have intrinsic motivation factors. In similar manner there are certain factors, the absence of which causes no dissatisfaction, but their presence has motivational impact. The intrinsic factors are termed as the motivational factors and the external factors are termed as hygiene factors. Motivational factors at workplace include growth prospectus job advancement, responsibility, challenges, recognition and achievements; while hygiene factors include security, status, and relationship with subordinates, personal life, salary, work conditions, relationship with supervisor and company policy and administration.3.2.2 Social cultural theories on entrepreneurial behaviorAccording to Shapero and Sokol (1982) social and cultural factors that enter into the formation of entrepreneurial events are most felt through the formation of individual value systems. The argument for an entrepreneurial culture is that shared belief systems, similar ways of earning a living, and common educational arrangements could combine to create ‘cultures’ more or less favorable or unfavorable to entrepreneurship. Thus “cultures” would then get translated into individualistic behavior are either pro or anti entrepreneurship. The proposition that cultures can influence our work-leisure and savings-expenditure trade-offs, and our risk taking attitudes presents an argument that our culture can increase or diminish the propensity to start new businesses. One wonders, could a culture with lower value for leisure be likely to create more entrepreneurs, because successful enterprises require long hours of work at times? Severally researches have been conducted on the role of social-cultural factors on entrepreneurship development. Key among them are:188.8.131.52 Entrepreneurship and religionMax Weber (1904) noted that rise of capitalism was closely linked to the emergence of Protestantism and he attributed this to the fit between capitalistic individualism and the Protestant work ethics. Analysis of Swiss Census data from 1970 to 2000 also showed that religious ethics significantly affected economic behavior and outcomes: on average Protestants were 2.9 percent more likely to be entrepreneurs than Catholics (Nunziata & Rocco, 2014).184.108.40.206 Entrepreneurship and ethnicityAccording to research findings by Scheers (2010), there is a positive relationship between ethnical and cultural background and successful small business in South Africa. It has also been found that there is a relationship between ethnicity, occupational choice, and entrepreneurship. Immigrant groups in the United States for example cluster in specific business sectors – Koreans are 34 times more likely than other immigrants to operate dry cleaners, and Gujarati-speaking Indians are 108 times more likely to manage motels (Kerr & Mandorff, 2015).220.127.116.11 Entrepreneurship and upbringing (early childhood parenting)The impact of childhood experiences on the development of entrepreneurial intentions has been a subject of research investigations. According to Drennan, Kennedy and Renfrow (2005) perceptions of entrepreneurship can be influenced not only by parental ownership of a business but also ones childhood experiences. Offspring’s of entrepreneurial parents are more likely to be entrepreneurs and to be more successful entrepreneurs compared to others. Possibly because of role modeling in upbringing and juvenile experience. The strong grounding in business and its ethics at an early age is a useful and powerful driving force for children as they choose their future careers. This has been observed as a common characteristic among Asian family businesses in Kenya. May be this can be explained by the fact that a person, who grows up around a family that runs a business is likely to benefit from the hands-on skills, accumulated experiences and networks of existing firm. Such a person would also be likely to have better access to advice, credit, established markets and sources of inputs than a pure novice. The fact that these will make it easier to start a business may be a big encouragement to those associated with business exposed families.18.104.22.168 Entrepreneurship and genderThere seem to be important distinctions in the defining features of entrepreneurship of men versus women. Men seem to prefer entrepreneurship as a means of getting ahead. They identify financial capacity and creativity as important incentives for becoming an entrepreneur. Women on the other hand prefer entrepreneurship if it allows them to get organized by fitting into their social pressures. Outcomes of entrepreneurship to a woman on work-family interference, personal health and perceived autonomy are more important indicators than financial gains. Therefore stimulating female entrepreneurship may require offering different career reasons and training in different competencies than those typically associated with male-dominated entrepreneurship (Leroy, 2009).22.214.171.124 Social economic factorsSocio-economic background factors could include type and level of education, occupational experiences, travel exposure, social networks, among others. There exist conflicting findings on effects of level of education on entrepreneurial behavior. First formal education can operate as an impediment/hindrance to entrepreneurship because, rather than develop creative thinkers, it fosters conformity and low tolerance for ambiguity, leading to thought and behavior process that refuse to admit tolerance, and social values that preclude ” getting your hands dirty”. The flip side of that is that education is capable of developing competencies required for an entrepreneurial venture including creativity, curiosity, open mindedness, good interpersonal skills and technical know-how thus enhancing favorable entrepreneurial outcomes. More specifically, entrepreneurship education and training generally has a positive association with entrepreneurial behavioral intents. Upon taking entrepreneurship courses students become less oriented to need to conform, they gain propensity for being more risk taking, more welcoming of change and ambiguity, develop higher energy level drive for entrepreneurship, and becoming more cognitive of entrepreneurial technical skills. All these characterize a profile similar to that of successful entrepreneurs. Further, exposure and prior on-job experience has also great contribution to an entrepreneur’s success story. This is so especially in trade skills related enterprises such as art and craft, events management, textile design, among others. This outcome may be unrealized by situations where one’s experience is an area not in the interest him or her. Economic marginalization can have duality effect. On one side financial difficulties makes necessity the mother of inventions. However, abject financial distresses may drive someone to deviant behavior instead of choice to become an entrepreneur.3.2.3 Summary of Entrepreneurial Personality (or Traits)A number of traits or personality characteristics have been put forward by researchers as important influences in successful entrepreneurship. Amongst these are the following;126.96.36.199 The Need for Achievement (nAch)Growth-oriented entrepreneurs have a high need for achievement. They need to succeed, to achieve, and to accomplish challenging tasks and the strong desire for achievement leads to a desire for independence. According to Mclleland (1965) the need for achievement may help explain why growth-oriented entrepreneurs are not satisfied with founding or working in one firm instead they need to prove themselves again and again. He concluded that entrepreneurs have had parents who expected them to be self-reliant at an early age, while remaining supportive and not rejecting outcome of their acts. An entrepreneur’s need for achievement manifest itself in a number of ways:1. Desire for responsibility 2. Preference for moderate risk (risk eliminators) 3. Confidence in their ability to succeed 4. Desire for immediate feedback 5. High level of energy 6. Future orientation (serial entrepreneurs) 7. Skill in organization 8. Value of achievement over money 188.8.131.52 Self-determination or persistenceGrowth-oriented entrepreneurs are focused, self-determined, and persistent when doing what is best for the business to succeed. They work hard on the details and relentlessly attempt to find ways to become more profitable and giving up for them is not the easier option. 184.108.40.206 Internal locus of controlStrong people believe they have control over the situations and experiences that affect their lives. They therefore attribute their success or failure to their actions. Such a person is said to have internal locus of control in contrast to external locus of control where one attributes success or failure to other factors external to the self always or most of the time.220.127.116.11 Tolerance for ambiguityBusiness start-ups are by nature unpredictable yet entrepreneurs are expected to view situations without clear outcomes as attractive rather than threatening. Therefore, firm founders have higher tolerance for ambiguity than their managers when faced challenges and potential for success associated.18.104.22.168 EnergeticThe capacity for sustained effort requires a high energy level to plan, organize, direct, strategize and finance and entrepreneurial venture. Thus being an entrepreneur takes a lot of physical stamina to keep going.22.214.171.124 Self driveThis is an intangible personality expressed as high energy and the ability to work long hours. The passion to succeed is usually an internal motivation – some people are just more driven than others and are often capable of concentrating on their clear vision and use every resource for vision alone. Successful entrepreneurs, according to some research studies, are convinced that they can control their own destinies. Behavioral scientists describe those who believe they have the ability to control their environment as having an internal locus of control, compared to others with an external locus of control. The stronger commitment to self-determination has enabled some entrepreneurs to overcome difficulties which defeated others.126.96.36.199 Desire for independenceA trait which is commonly recognized as prevalent among entrepreneurs is their strong desire for independence, the freedom to create their own futures. This can be linked to their internal locus of control (belief in their ability to control their own destiny)188.8.131.52 Other behavioral traitsBehaviorists have also identified other traits among successful entrepreneurs to include but not limited to:1. Desire to work for themselves: Entrepreneurs like to work for themselves rather than working for an organization or any other individual. They may work for someone to gain the knowledge of the product or service that they may want to produce.2. Nurturing quality: Willing to take charge of, and watch over a venture until it can stand alone.3. Acceptance of responsibility: Are morally, legally, and mentally accountable for their ventures. Some entrepreneurs may be driven more by altruism than by self-interest.4. Reward orientation: Desire to achieve, work hard, and take responsibility, but also with a commensurate desire to be rewarded handsomely for their efforts; rewards can be in forms other than money, such as recognition and respect.5. Optimistic: Entrepreneurs have a deep belief in the correctness of their cause, and that this is the best of times, and that anything is possible. To an entrepreneur failure as short-lived and it is an opportunity to grow and not an indication of ones shortcomings.6. Orientation to excellence: Often desire to achieve something outstanding that they can be proud of.7. Organization: Are good at bringing together the components (including people) of a venture.184.108.40.206 Limitations of traits approachThe attempt to find single personality traits that characterized entrepreneurs is useful in providing insights into some entrepreneurial types. However, its general application is limited only to certain types of entrepreneurial ventures. Criticisms of entrepreneurial traits approach includes:1. It is inadequate to over emphasis on a single key trait as to adequately characterize the entrepreneur. It may therefore take wide scale of characteristics to distinguish an entrepreneur; the most widely used collection of characteristics are by Covin and Slevin (1988) namely risk taking, innovation and proactive response. 2. The implication that entrepreneurial traits are formed during childhood, implies that a would-be adult entrepreneur either has them or not, and cannot acquire them later. This negates the proposition that entrepreneurship can be developed or nurtured.3. The lack of recognition that the needs of a business venture change during its life cycle, and so the characteristics of successful entrepreneurship will likewise change. For example, personal attitudes which create a new venture to may be different from those of manage it as a more mature business. It may also occur that as a firm grows, hired managers have greater impact on the likelihood of success and the influence of the original founder diminishes gradually.3.3 Entrepreneurial motivationEntrepreneurial motivation factors can be categorized to internal and external factors as well as push and pull factors. The factors are construed to be explanatory to the drive that propels one to become an entrepreneur and also successfully carryout the entrepreneurial processes. Although trait based motivations have been widely explored recent research has been relatively accepting of arguments that people vary in their willingness and ability to engage in the entrepreneurial process because of non-behavioral differences. Researchers have shown that the willingness of people to pursue entrepreneurial opportunities could also depend on such: opportunity cost (Amit, Meuller, & Cockburn, 1995), stock of financial capital (Evans & Leighton, 1989), social ties to investors (Aldrich & Zimmer, 1986), and career experience (Carroll & Mosakowski, 1987 and Cooper et al., 1989). 3.3.1 Internal and external motivation factorsInternal motivation factors, also called intrinsic motivation comprise of conditions within the entrepreneur as a person that from inward encourage or drive one into entrepreneurship and also sustain the focus of the entrepreneur in the business life cycle. The factors have nothing to do with the socio-economic environment of the entrepreneur. Abraham Maslow Theory attributes human behavior as driven by a hierarchy of needs. Therefore, internal motivational factors closely relate to psychological theories on entrepreneurial behavior. However, it has been found that entrepreneurial behavior can also be motivated by social cultural environment as well as prevailing business environment. Where such environment is favorable entrepreneurs are encouraged to launch new ventures. A country’s ease of doing business as relates to ease of business registration, installation of utilities, legal enforcement of contract among many others are critical index in determination of viability of a country an entrepreneurship investment destination. It has also been observed that certain kinds of businesses succeed well where they are close to source of raw materials, rapid market access, huge demand, adequate support infrastructure among others. External environment factors such as (1) political factors (legal restrictions, legal enforcement of business contracts, political stability, and currency stability); (2) market forces (structure of the industry, technology regime, potential barriers to entry, market size, and population its demographics); and (3) business resources (availability of investment capital, adequate and skilled labor market, transport infrastructure, and information communication technology infrastructure), among others. All these factors constitute external motivation factors of an entrepreneur.3.3.2 Push and pull motivation factorsPush and pull entrepreneurial motivation factors is a paradigm that views entrepreneurial phenomenon as circumstantial. The circumstances could be negative (push) or positive (pull). In push circumstances one is trying to escape from unpleasant experience such as unemployment, lay-off, loss of breadwinner, immigrant displacement, among others. Pull factors on the other hand involve one getting attracted to an opportunity due favorable expectations such as getting more independence, huge market, prospects for huge profits, more leisure time, pursuing ones passion, among many others.Type of motivation factor Push PullInternal • Loss of breadwinner• Unmet basic needs• Lack of employment• Pay bills• Support need case • Talent and passion• Have fun• Independence• Earn more• Need to achieveExternal • Family pressure to takeover parents businesses• Support your spouse to run family business• A requirement for academic progression • Favorable business environment• Financing availability• Ready market• Availability of raw materials• Support infrastructure3.4 Factors affecting success of startup businessesA host of problems make it difficult for SMEs to exploit their potential for further employment and wealth creation and cause existential problems to them. Some of these problems are exacerbated by unique characteristics that define SMEs. Among the most studied factors are:1. Lack of necessary entrepreneurial behavior: Although entrepreneurs may not be essentially by nature, it is imperative that those who start and operate the businesses possess the right attitudes and sufficient motivation because entrepreneurial journey is sometimes challenging and discouraging.2. Lack of experience and exposure – this often happens when one engages in unfamiliar territory without a mentor and adequate feasibility study. 3. Incompetence staffing who lack of relevant professional skills such as management and technical skills such as book keeping and accounting, marketing, etc. This problem can be addressed through education and training. 4. Inept institutions and associations for supporting SMEs: They may be absent, weak, fragmented uncoordinated to hardly provide any initiatives for targeted, comprehensive and sustained support specifically to facilitate upward mobility of micro and small enterprises. 5. Hostile regulations and administration/enforcement by local governments and central governments. The regulatory framework is tailored to the capacities of large companies and hence is not too expensive and cumbersome to micro and small enterprises. This automatically discourages start-ups and condemns businesses that dare to start to the informal sector.6. Difficulties in access to finance and unrealistically expensive finance. This is because the formal financial sector is yet to evolve functional models which enable them to provide services, especially to the growth oriented section of the micro and small enterprise sector. 7. Poor infrastructure: Micro and small enterprises operate from temporary, illegal sites or premises because there are not adequate appropriately serviced areas where they can locate and operate from.8. Social barriers for women and minorities where they are discriminated or disproportionately out-competed. Women, the disabled and youth are disproportionately disadvantaged by all the said barriers. The implication of the foregoing is that, much more needs to be done to create conditions that make formal business affordable to the minority of operators, including women, the youth and the disabled.9. Lack of financial discipline. Most of small enterprises are owner operated and if the owner lacks financial discipline he or she may be tempted to divert business capital to personal use, especially borrowed funds.10. Too rapid growth. Opening too many branches or expanding product lines too rapidly spreads ones working capital and may expose one to huge and unmanageable financial commitments.11. Lack of commitment. In some cases entrepreneurs start business ventures as side jobs while pursuing another full time career and thus deny necessary attention to their start up businesses, when its needs them most. One must determine how much time is needed and is available for committing to the intended start up venture before its launch.12. Unrealistic business plan. A business plan is a very important document for a start up business. It helps one to demonstrate that the business will be able to sell enough of its products and services to be able to meet its financial obligations.13. Poor business location such as far from target clients, sources of raw materials, and insecure environment14. Poor management practices such as wrong operating hours, poor customer service, and so forth15. Lack of business ethics such as mistreatment of staff, nepotism, lack of accountability.16. Personal misfortunes such as prolonged sickness of the entrepreneur, death, and other unfortunate incidences. Some among the misfortunes can be insured through medical cover and other forms of insurance.17. Unforeseen macro environment risks. There are many factors that are beyond an entrepreneur such as bad weather, national economic decline, natural disaster, riots and war, and so forth. Some among these can be covered by insurance while some are un-insurable risks.?CHAPTER FOUR ENTREPRENEURIAL ORIENTATION Entrepreneurial orientation (EO) can be defined as is a ‘strategic posture’ of firms that indicates their entrepreneurial posture to the sustainment of firm viability (Gurbuz & Aykol, 2009; Covin & Lumpkin, 2011). This term has often been used to refer to the strategy-making processes and management styles that characterize firms that engage in entrepreneurial activities. Lumpkin and Dess (1996) suggested a five dimension model to characterize a firm that is entrepreneurial, namely: innovativeness, risk taking propensity, pro-activeness, competitive aggressiveness and autonomy (Lumpkin & Dess, 1996). However, majority of entrepreneurial orientation constructs use innovativeness, risk taking and pro-activeness as the most popular parameters to determine entrepreneurial orientation characteristics of an organization. Entrepreneurial orientation has been used therefore to refer to the extent to which a firm is entrepreneurial.3.5 Risk takingThe term risk-taking in the context of entrepreneurship at the foundation of entrepreneurship concept used to refer to the risks individuals take by working for themselves rather than being employed. Cantillon (1755) described the entrepreneur as an agent who buys factors of production (land, labor, capital and materials, among others) at a certain price in order to combine them into a product to sell at uncertain price thereby undertaking the uncertainties and risks. However, it has since been widely applied to companies, for example, when managers make decisions that commit large amounts of resources to projects with uncertain outcomes. Without a significant level of belief in themselves, entrepreneurs are unlikely to have taken the initial risk of starting their own business. Entrepreneurs are often characterized as risk takers who instinctively know that gains do not accrue to those who always play safe first. However there is debate over the levels of risk taken, which highlights a distinction between an entrepreneur and a small business owner. The small business owner’s traits match those of an administrator more than an entrepreneur. Risk taking have many shades, from the reckless to calculated, which depend on the context as well as an individual’s character. 3.6 Pro-activenessPro-activeness describes the characteristic of entrepreneurial actions to identify and utilize of opportunities. It is an on opportunity seeking behavior involving anticipating of future opportunities or identify emerging and existing opportunities and promptly taking favorable action that takes advantage of those opportunities. This opportunity seeking behavior is exemplified by ability to see future products or technologies that could exploit current and new markets and consumer demand. This characteristic is central in economic thinking where the entrepreneur is perceived as someone who identifies opportunities in the marketplace and proactively pursues them (Lumpkin & Dess, 1996). Although, it does not necessary mean that the entrepreneur will always be the first to see or act on an opportunity, a proactive firm will be a leader in the market rather than follower most of the time.3.7 InnovativenessThe hallmark of an entrepreneur is innovation. Innovativeness behavior is exemplified by types of products and services a company introduces to the market. Are the products new and unique? Do they involve use of new raw materials not earlier thought of or exploited? Do they open up new markets that were unreached before due to earlier prevailing constraints? Do they introduce newer and better ways of doing things that enhance speed, convenience and quality – for example? Ultimately, are these introduced products and services disruptive to the market or even incremental in technological adoption such that they have potential of destroying the old products or firms while creating new ones? For some theorists, innovativeness is intrinsically linked to entrepreneurship in that entrepreneurs create new combinations of resources by the very fact of their entry into the market. Nevertheless, in the context of entrepreneurial orientation, innovativeness can be defined more narrowly by emphasizing the importance of technological leadership to the company, as well as changes in its product lines that fit to the market. Drucker (1986) insists that anyone can develop his/her innovation skills. He regards entrepreneurship and innovation as task that can be and should be organized in a purposeful, systematic way through searching and developing new ideas. It does not necessarily need to be a born trait but one can learn to be a manager who knows where to look for innovation, and how to develop it into useful products or services. Therefore, innovation could be a practice which you can constantly follow or you choose to ignore in the continuous and purposeful search for new ideas and their practical applications.3.8 Competitive aggressivenessCompetitive aggressiveness refers to the company’s way of engaging with its competitors, distinguishing between companies that shy away from direct competition with other companies and those that aggressively pursue their competitors’ target markets (Schillo, 2011). Competitive aggressiveness can be determined by the intensity of a firm’s effort to outperform rivals. It is characterized by a strong offensive posture or aggressive responses to competitive threats. How good is a firm in building a “walled garden” around its customers while waging aggressive attacks on markets enjoyed by its competitors has been found to be a factor that can sustain a firm competitive position. Nevertheless, this characteristic alone may not yield much results because customers need to be attracted by the value proposition of a firm as generated through the innovative products that correspond to their tastes and preferences and a customer centric orientation that actively understands and satisfies the dynamic needs and wants of a customer.3.9 AutonomyAutonomy refers to the independent action of an individual or a team in bringing forth an idea or a vision and carrying it through to a success (Lumpkin & Dess, 1996). The organizational environment is surrounded by numerous constraints which limits the capacity of the individual manager or entrepreneurial team. For example, do employees have autonomy in the scheduling and performance of work without being held back by overly stringent organizational constraints? It involves transfer of power from top management to knowledge workers with high autonomy and who are able to take initiative and make decisions about daily activities (Ford & Fottler, 1995). Autonomy has been found to be an important managerial style and a strong motivational characteristic that yields a variety of positive subordinate outcomes making employees to acquire a self-direction behavior. However, providing subordinates with formal autonomy may not necessarily be sufficient; subordinates should also develop adequate motivation for working autonomously using delegated or shared resources. Employees should be empowered and energized to lead themselves, to be self-reliant and confident of their competence through continuous development support.?CHAPTER FIVEENTREPRENEURIAL PROCESS AND NEW PRODUCT DEVELOPMENTEntrepreneurial process refers to the activities that are carried out by the entrepreneur while in the process of launching a new enterprise or the founding of a firm. In order to establish and run an enterprise an entrepreneur will need idea generation, marketing and promotion, and then the actual operation of the business. 3.10 Entrepreneurial processThe entrepreneurial process is a set of stages and events that follow one another culminating in establishment and running of a new enterprise. Over the years varying authors have identified between two and five distinct stages in the entrepreneurship process as summarized in the table that follows:Table: Entrepreneurial process stepsAuthor Step 1 Step 2 Step 3 Step 4 Step 5Bhave (1995) opportunity identification technology set up organization creation exchange Hisrich & Peters (2002) identifying and evaluating the opportunity developing the business plan determining the resources required managing the resulting enterprise Gruber (2002) pre-founding stage (opportunity identification and evaluation) founding stage (business plan, resource gathering, incorporation and market entry) early development (building the company and market penetration) Baron (2004) screening ideas for feasibility assembling needed resources actual startup and development of the new business Rwigema & Venter (2004) identifying, measuring and refining an opportunity from multiple ideas formulating a business plan marshalling the resources organizing and mobilizing a team overseeing the new venture creation and growthPretorius et al. (2005) Opportunity recognition resource acquisition Kunene (2008) innovation triggering event implementation growth Although there are no standard steps agreed on for the entrepreneurial process, a critical factor for the entrepreneurial process is the drive at each stage that motivates the human actor to act. Such triggering events are likely to vary so Kunene (2008) model that perceives the triggering events as an event stands disputed. Nevertheless, the model brings in an important recognition of the triggers however since they are not at certain point but through out the entire entrepreneurial process they can be discussed independently across all the stages or steps of entrepreneurial processes. In view of the different perspectives of this entrepreneurial process, Hisrich & Peters (2002) model seems to present a very practical view that can widely apply to many types of startup businesses. The model identifies four steps namely: (1) identifying and evaluating the opportunity, (2) developing the business plan, (3) determining the resources required, and (4) managing the resulting enterprise. These steps have been modified to include an extra step step called “business feasibility” after opportunity identification. Therefore a new five steps model has been proposed to comprise (1) Opportunity identification and selection, (2) business feasibility (3) business planning, (4) acquisition of resources, and (5) managing the enterprise. Kunene (2008) explained the entrepreneurial process stages as follows:1. InnovationIt is the time when the entrepreneur generates or conceptualizes the innovative idea, identifies the market opportunity, and looks for information, evaluates and assesses the idea and screens it for its feasibility and/or conducts a market research. The feasibility of the generated idea, is evaluated for the ability of one to get value from it and how to generate the development of the product or service.2. Triggering eventDuring triggering event, the entrepreneur goes through a gestation time until he or she gains motivation to start the business due to different triggers. At this juncture the entrepreneur then makes the decision to proceed and creates a business plan, identifies the different resources required, weighs the risks and if they are acceptable the entrepreneur then sources and assembles resources. 3. ImplementationDuring this event the innovation is commercialized in line with the business plan. Capital resources are employed to perform business startup activities that include registration of the business, obtaining land (premises) and labor and then operating the business.4. GrowthThe process of business growth alludes to the phases that culminate in maturity of the business to maximize profitability for better benefits. Growth is the stage of the entrepreneurial process in which is reflected time and effort spent by the entrepreneur.In order to keep up the pace of the business growth, the entrepreneur must keep up his personal development to continue also his internal growth.The fact that there seems to be no standard model to represent the concept of entrepreneurial process means that there could be different perspectives experienced by entrepreneurs in the process of starting their new ventures. Nevertheless, it is agreeable that some event triggers can explain underlying factors that moderate the entire entrepreneurial process. These triggers are available at varying degrees across all the stages of the entrepreneurial process. They include:1. Personal triggersPersonal triggers are individual in nature and intrinsic. These triggers are important to both pre-business and in-business steps. They could be push or pull triggers. Push triggers are negative conditions that motivate one to take action to move from undesirable condition to a more desirable one. Pull triggers are attractive challenges that encourage one to move into starting a new venture. Personal push triggers include “lack of accomplishment”, “wanted change in career for satisfaction”, and so forth. Personal pull triggers could include “utilize my skills in solving problems”, “desire to achieve”, “change my situation”, and “apply my knowledge and skills”. 2. Idea/opportunity related triggersIdea or opportunity related triggers are purely pull factors. They include “saw an opportunity”, “saw a customer need”, “saw an idea and pursued it”, “my hobby grew into a business”, “an idea grew out of my job”, “bought a business”, and in some limited occasions “commercialized an invention”. These type of triggers are very fundamental to any entrepreneur since the action to venture out is only justified if there is an opportunity to exploit.3. Job related triggersJon related triggers could be push or pull triggers that prompt one to shift in employment situations. Economists and industry analysts often speculate an inverse relationship between number of available jobs and number of new businesses in the market. Therefore in economies where jobs are scarce more new businesses are created in response to self-employment drive. On then wonders do entrepreneurs really see job related factors to be an important trigger for them to start new businesses? They “no job”, “job was boring”, “job dissatisfaction”, “job not financially rewarding”, “job not exciting”, “job had low potential”, “laid off”, “disliked co-workers”, “disliked my job”, “boss conflict”, and “disliked boss”. 4. Financial triggersFinancial incentives are motivators of prospects for making lots of money or better economic position. However money is not always the primary reason for people to start their own businesses. It is also possible that seeking financial reward could be distractive to entrepreneurial objectives (Barringer & Ireland, 2006). They include: “needed more money”, “wanted to earn some money”, “create income source for my spouse”, “had some windfall money to invest”, “inherited money to invest”, “hoped for some financial rewards”, and “to get rich by starting own businesses”. 5. Family and interpersonal triggersFamily and interpersonal triggers emerge from social interactions such “joined a family business”, “wanted a flexible work schedule”, “wanted more family time”, “wanted to work with spouse”, “death of a loved one”, “divorced”, “wanted to be out of the house”, “retired-wanted something to do”, “someone else suggested the business” and so forth.Therefore entrepreneurial process can be summarized as follows:3.10.1 Opportunity identification and selectionThe ability to identify business opportunities is an essential characteristic of an entrepreneur. An opportunity is a favorable position or a range for advancement that can be exploit for some entrepreneurial outcomes. The process of opportunity identification and selection refers to how entrepreneurs perceive business opportunities and eventually select which idea to carryon for exploitation. This process involves creativity process and may sometimes culminate in new product development. It is this new product development that eventually yields innovation. Nevertheless, the innovation is not just about product, it also includes a new process that combines elements of production to deliver a unique business mix, or a new application of raw materials or source of raw materials for an existing product, or a new market or use of a product. This innovation may also be inform of organization change that creates a new and different organization that aptly responds to changing use tastes and preference and market turbulence. This innovation becomes the defining hallmark of the new entrepreneurial kid sprinting off the blocks. For any new entrepreneurial undertaking to be acknowledged as entrepreneurial and not an uninspired business venture, it must demonstrate some characteristic of innovativeness. Entrepreneurs are known to experience rapid surges of ideas at any time. However, not all these ideas are worth pursuing. Therefore, selection of opportunities is a meticulous process that is constituted as part of new product development.3.10.2 Business feasibilityAny nascent entrepreneur is faced with multiple questions: – What makes a business opportunity feasible? How do I find the best business to start? How do I identify whether business idea or opportunity is good for me? How can I determine the viability of a business venture before investing in it? Everyday, I come across entrepreneurs who are so excited because they have just thought up a new business idea or discovered a business opportunity with massive potential. However, many of them never see the light of the day. Others though carried out, may be should not have been carried out at all! So what informs one if an idea is worth venturing into is a very important question to an entrepreneur. Business feasibility focuses on five critical success factors that you can use as a yardstick to know if the business opportunity you are pursuing is feasible:1. Demand capacityThe first condition that makes a business opportunity viable is market demand. Your business idea or opportunity must have real market demand. Your business opportunity must either satisfy a need or solve a problem. The demand should be adequate to sustain the business or should at least show potential for growth.2. Supply capacityA business demands variety of constant supplies such as raw materials, skilled labor, electricity, water, and so forth. If any of these critical suppy inputs are not adequate, the business may not perform optimally and might collapse unless the entrepreneur has an innovative source of such supply possibly new source of raw materials and energy such as use of solar milling plant where electricity is not available.3. Attractiveness of returnsA business entrepreneur is motivated by the prospects of attractive profits and return on investment (ROI). Any business opportunity you intend to pursue must show a strong possibility of yielding a good return on investment. Moreover, all a business is meant to do is to either satisfy a need or solve a problem for a profit.4. Intensity of competitionMost business ideas are not entering into an unoccupied market. There are incumbents who enjoy benefits of incumbency and would resist or counter new entrants. So the entrepreneur should assess the level of competition and the intensity of rivalry if any. Against this background the entrepreneur will need to hatch a market penetration strategy that would dislodge the competitor and hive a market share to himself or herself. Except your business idea is the first of its kind, there is bound to be competition. 5. Entrepreneur’s capacity and competenceThe competence of the entrepreneur and his business management team, as well as capacity of the entrepreneur is very important. An entrepreneur is a like an army general marshalling his or her soldiers to war. Besides understanding the intensity of the rivalrly one needs to be aware of his or her strengths and weaknesses. A business opportunity will only be feasible if it is backed by a strong business team. An honest reality check is to ask if you are equal to the task that you wish to undertake. Do you have potential even to raise the level of capital needed? Do you have the technical knowledge needed? Do you have the physical strength needed for the rigor of the venture?6. Aspirations, values and objectives of the entrepreneurApart from profit making at least for the business entrepreneur, it is important that whether for profit or not, the entrepreneurial opportunity satisfies the entrepreneurs aspirations. What would make you have a sense of satisfaction is it the money you made in the business or what your business achieved beyond money factor? At times an entrepreneurial opportunity is against your faith and personal values or ethics. This point is very clear and easy to understand. Before ever starting a business, there are certain aims and objectives you intend to achieve using that business as means to the end. For a business opportunity to be viable, it must meet your personal objectives. May be you also want a business that allows you independence and leisure, pursuit of a hobby or talent and so forth.7. Favorable environment for doing businessAlthough entrepreneurs are intrinsically motivated, lack of favorable requisite environment for doing busines such as security, regularatory framework, political stability, equal opportunities for all, enforcement of legal, among others may impair success of your venture.8. Characteristics of the innovationAccording to Rogers (1995) five characteristics of an innovation may influence whether someone adopts a product or service, and this will consequently affect feasibility of your new business idea especially if it involves some innovation. These are relative advantage, compatibility, complexity, trialability, and observability.a) Relative advantage is an observation of the advantages and benefits of adopting a specific innovation. The potential adopter must first calculate its relative strengths or advantage over another. What improvements does it hold? What other benefits in terms of mobility, ease-of-use, what battery capacity does a solar charged mobile have? If someone finds an advantage in this new technology, the individual will be more likely to adopt it.b) Compatibility: How well does the innovation fit into a person’s needs, usage patterns and/or current value system? Adoption may have more to do with potential adopter than the characteristics of the innovation. An innovation that is more compatible with a person’s lifestyle and cognitive characteristics is more likely to be assimilated into an individual’s life.c) Complexity: The level of difficulty that the potential adopters encounter with the innovation. It is likely that the more complex or the more difficult an innovation is to understand, the less likely it will be adopted, and its diffusion will occur more slowly.d) Trialability: Being able to test an innovation or try it out will facilitate the rate of adoption. If it can be experimented with or taken out for a ‘test drive,” it is more likely to be utilized.e) Observability: How visible are the benefits? The easier it is to see the advantages of an innovation, the faster it will diffuse throughout society. 3.10.3 Business planningDuring this step the entrepreneur prepares some write up to describe how he or she will start and run the business. Business planning is often overlooked by many entrepreneurs due to a number of myths about business planning that include:1. Myth: You do not need any business plan in order to succeed in your business. Reality: Entrepreneurship involves committing huge resources to an uncertain undertaking, business planning helps the entrepreneur run a sanity check on the idea to see its potential for success.2. Myth: I don’t need a business plan, it’s just me!Reality: The business venturing journey involves many ups and downs with a lot of uncertainties. Having a business plans helps one get a roadmap to predictably pre-empt the safest route in the uncharted waters. The exercise of creating a business plan helps one to think through all the critical aspects of running a business, make better business decisions, and get to profitability sooner.3. Myth: Business planning is for experts.Reality: While possessing some technical skills in business planning could be helpful anyone can put down their idea on paper and calculate necessary inputs and expected sales to breakeven. This is a basic pre-disposition that any entrepreneur must have. The quality of business plan will depend on how precise and inclusive one is. 4. Myth: I need to hire a consultant to write my business plan.Reality: Consultants are not only expensive but also not the best option because your business is you. So writing your own business plan gives you an opportunity to be intimate with your business. A better strategy is to hire someone who can guide you in what you need to do or a walk along.5. Myth: The business plan has many complex sections.Reality: The only time you need to follow a specific outline is if it is so demanded by your target audience. You can keep the business plan as you want as long as it answers your key questions on how to start and run the business in the initial startup stages. 6. Myth: My business plan needs to be perfect before I can start my business.Reality: A business plan is a living document that inspires life to the business and adapts to emerging reality in the business journey. Therefore, there is no perfect business plan. However, in a financing business plan, one may be restricted to follow the approved plan and changes will need to be approved as well. 7. Myth: I have to follow my business plan to the letter.Reality: Following is business plan is very important but reviewing it once in a while to suit reality at hand or pursue emerging better goals or opportunities is more fulfilling – no financier should take away this benefit from an entrepreneur because as such it would tie the exploratory and dynamic spirit of an entrepreneur to soak in avoidable risks or failures.8. Myth: I don’t need a loan a business plan is not needed.Reality: You are the investor and you do not have to put good money into a bad idea. Just lay out a budget that shows where all the money is coming from (and going) and see if it makes sense.9. Myth: My business plan is in my head.Reality: Encountering dead ends with an idea is more likely when the idea has not been challenged by taking time to account for it. There is great understanding that comes with writing down your plans. Writing a plan down triggers our subconscious mind to start working on how to manifest that plan. 10. Myth: Friends and family are enough sources of feedback and advice on my business plan even without writing one.Reality: Though well-meaning our friends and family may not be candid with you always though they can give you the first opportunity to validating your idea but you are your own driver as far entrepreneurship is concerned. 3.10.4 Resources acquisitionBusiness startup requires a number of resources such as capital, land/premises, plant and machinery/implements, human resources and informational resources among others. One should also obtain necessary licenses and certifications in order to be complaint with regulatory standards for the industry and business setup. A number of these resources take time to assemble and so it is necessary to highlight them in ones business plan before hand. Most of these resources will be discussed in other chapters across the book.3.10.5 Managing the enterpriseManaging small enterprises focuses on activities carried out by owner/managers of a business, after start-up, so as to manage it to growth. It is during this period that their business plan is executed. Upon opening a business the entrepreneur will wear two hats: that of an entrepreneur and that of a manager. Entrepreneur because of the founder attitude that drives the propensity for risk-taking, innovativeness and pro-activeness. Manager because of the assumption of responsibility for planning, coordinating, organizing, controlling and directing the activities of the organization. a) Entrepreneur – manager as a plannerPlanning is the act of setting goals or business objectives, identifying the tasks and activities to be carried out and allocation of resources to the tasks. There are three levels of plans; namely operational plans, tactical plans and strategic plans. The business plan is the entry plan that the entrepreneur has. However such as plan is so broad to execute without breaking it down to workable short term plans. The constituent short plans assembled together help achieve a distinct objective within a unit of the organization. Strategic plans are long term in nature and focus on critical outcomes of the firm such as increase of market share, market penetration, high profitability ratio and so forth. The business plan is different from a strategic plan but it is a roadmap to the strategic plan. However, at the startup the entry point business plan is the strategic plan of the business if it has clearly captured what the vision of the business is and how it will be carried out in the next 3 years or so. However, on annual basis a new strategic plan will be developed not the turbulent situational analysis of the firms Strengths, Weaknesses, Opportunities and Threats (SWOT analysis). This strategic plan will utilize input plans (tactical plans) obtained from departments or business unit of the organization, whereby the section heads will be responsible for the implementation and controlling using the tactical plans. The tactical plans can be decomposed to short term plans to be done by skills groups’ level such as accountants, front officer attendants, sales executives, and so forth. These low level plans are called operational plans. They are detailed and comprise procedure standards which form best working practices that employees must adhere to for such standards are believed to yield necessary operational efficiency and effectiveness which enhances outcome of the business units and cumulates to the overall organizational goals performance. b) Entrepreneur-manager as an organizerOrganizing establishment of work related structures, roles for the different human resources, line of authority and reporting, and so forth. Poor organization structure results in inefficiencies, duplications and conflicts that lower organization productivity and ultimately demoralize employees. However, care should be taken to keep the management tree as short as possible since tall hierarchies affect responsiveness in vertical communication. An organization can be structured into functional units, divisions, branches, and so forth. For example a manufacturer could have production department, warehousing department, sales department, marketing department, and so forth. A university could be organized into Academic, Administration, Human Resources and Finance, for example. So organization structures will differ with the sector or industry but the more coherent the structure the ease to communicate and command duties and responsibilities.c) Entrepreneur-manger as a coordinatorCoordination assists in ensuring harmony between cross-functional teams such as marketing, sales, finance, distribution and so forth. Each of the team worker is aware on the timing that coincides with a reciprocal relationship with another cross-functional team. So action between the teams is timely and apt for the process at hand to create a systematically functioning organization.d) Entrepreneur-manager as a controllerControl is critical in measuring and comparing actual performance against the expected or the planned outcomes. It helps the organization provide quality goods and services and improve its efficiency thus cutting down its costs by avoiding expensive re-working and cost of non-compliance. Customers tend to be more satisfied by a firm whose products and services are of consistent quality. Controls also help violations of the organizations standards and procedures so as to secure its resources and reputation. Any variance in the observable actual performance should be rectified by a corrective action.e) Entrepreneur-manager as a directorEntrepreneur-manager as a director is responsible for critical decision making such as source of capital, mergers and acquisitions, partnerships, opening of branches, hiring of staff, acquisition and disposal of expensive machinery and assets. In general as a director the entrepreneur is answerable for the direction the firm takes even to other internal and external stakeholders. One is expected to command and provide leadership that inspires the organization and guides it to its desired future.3.11 Business Life CycleThe newly started business will go through a number of steps called business life cycle. Business lifecycle therefore is a concept that describes how a business progresses from inception and its development processes. Just like a human being a business existence is initiated by birth but then it will progress on up to a point that it dies. Nevertheless, as characterized in other forms of living organisms there are circumstantial factors that can lead to early demise of business. On the flip side some business outlive others and become perpetual between generations of owners almost forever. Of course as it were for every human being longevity is a very desirable achievement but it is not guaranteed. So the business life cycle focuses on these stages of growth and development of a business and the characteristics exemplified by businesses at any of these stages as well as their desired inputs for their sustenance and performance. The business lifecycle can be conceptualized into four stages or phases. Each phase has its own special features and challenges. Not all businesses will experience every stage of the business lifecycle, and those that do may not necessarily experience them in chronological order. For example, some businesses may see astronomical growth right after startup, and the founders may decide to cash out right away, jumping straight to that “exit” stage.For many companies, though, there will be some sort of resemblance to the stages defined above, and awareness may help you anticipate what is coming next and how you can best prepare yourself and your team to maximize your chance of success. Making the right decisions at each stage is another thing altogether, however, and that will require your usual mix of gut instinct and practical business sense. The Phases of business cycle are:1. Birth or Establishment (Introduction)2. Growth (early growth and rapid growth)3. Maturity4. Post-Maturity or decline 3.11.1 Birth or EstablishmentThis is the birth of the business occurs when the entrepreneur overcomes the inertia and takes off by establishing the new business venture. The business idea or innovation is now converted to a business product or service. Business location is acquired (physical marketplace or virtual), tools and implements are acquired, business is formally registered or may even start informally, workforce is procured, marketing campaign is initiated and commerce exchanges starts trickling in. At this point the entrepreneur is usually very spirited and enthusiastic to hit the tarmac. Nevertheless, it is at this point when reality sets in and the business is very venerable at this time. Cash flow is the king at this point because financial obligations must be met in a timely manner. Unfortunately, profitability at this point is not guaranteed. Since the sales volumes may not meet the breakeven point and the cash inflows are normally lower than the outflows. The secret at this point is to keep the fixed costs of items such as premises and salaries as low as possible. Most successful businesses are reported to have started from cottages or a home garage thus no initial expensive premises rental fees. They also employed family labor, volunteers and friends and often the owner was the only employee until the scale of production driven by rising demand necessitated more hands for work. Institutional support necessary at this point includes incubation and market linkages. When the first orders start trickling in the business owners will need to identify a reliable financial partner who not only provides banking services but has an elaborate plan for supporting growth for similar enterprises. A current account is very important because it gives the entrepreneur the freedom and ease of deposits and withdrawals. Credit financing is not the best option at this point. It is better to start small and understand the dynamics of the business at a pilot level before committing huge credit finance. Less risky sources such as personal and family savings, crowd funding, and equity may be handy. Care must also be taken not to overdraw personal short term financial instruments such as credit cards. If one has an expensive asset it would be prudent to use it for bank overdraft instead of a commercial loan. Some banks also provide personal unsecured loans for employees. One can use it for the seed capital. Due to the fact that the inflows are low, emphasis should be on current payments with no credit terms to customers. In case one has no adequate internal capacity outsourcing can help reduce overheads. For example instead of hiring a full time accountant one can contract an external accountant on temporary basis during the accounting monthly cycle and use a bureau for computer services. A careful selection of inventory is required to start with fast moving products and services that do not demand huge working capital. The entrepreneur must be as professional as possible because many new customers will be trying out and their first experience may be their lasting experience. This new business has the advantage of smallness that makes its able to provide personalized unique experience for each single customer showing up. Internal efficiency will be important and recording keeping so as to exploit new contacts and build a track record of performance. Regardless of the limiting inflows fiscal discipline is very important to ensure timely payments of all obligations when they fall due. Early accumulation of debts may be early signals of imminent failure and that one might be biting more than one can chew. Across the world 10% – 40% businesses die before their third birthday. Researchers have some similar reasons behind this failure which include external and internal environmental factors. The aim is to get the business onto a stable foundation of profitable sales and a consistent cash flow. Frequent review of the initial business plan during this stage can greatly increase the chances of success and the entrepreneur should not shy from consulting business counselor or expert consultants from the bank or other support institutions available. Any insurable risks of equipment or goods in transit among others may prove useful due to so many risks and uncertainties at this point.3.11.2 Growth In this phase, the business is experiences two types of growth (early growth and rapid growth). Early growth occurs immediately after the business formation when the business gradually gains regular customers and sales volume climb slowly. At some point during the end of the early growth the customer numbers not only increase but customers gained also increase their business volume which causes the business experience rapid growth with an upsurge of products and services demand. In order to cash in on this trend the business must increase its production and service capacity by mechanization, automation, more employees, opening new branches and so forth. This growth through a blessing if not managed carefully it makes the company exposed to huge financial commitments and uncontrolled expansion during growth is also a common cause of business failure. Owners therefore, must be careful not to expand faster than their business can cope.3.11.3 MaturityMaturity begins when sales come to a plateau and cannot climb any more. The thriving business in the rapid growth reaches its saturation in the market size, consumption capacity, and reachable market. It is now that a more innovations are needed to open new markets, create new products, introduces new and better processes, new sources of raw materials and creation of new organization. There is a good chance that customers’ tastes and preferences will have changed since establishment; so to continue keeping the customer new combinations will be needed (innovations). The goal at maturity is to maintain profits at the top and not to decline. 3.11.4 Post-maturity or declineDuring post maturity decline may be inevitable since the business has reached its peak. However, a new business cycle can kick off superimposed on the impended decline by injecting innovation that introduces new products and services, new processes, new use of resources, new markets or consumers, and altogether a new organization formation. At such a point the entrepreneur may choose to exit or harvest by selling off the business if no new innovations are forth coming. However, with innovation signs of an aging firm such as obsolete products and services, tired and aged staff satisfied with status quo, dwindling sources of input resources, market saturation, and shifting consumer needs; can be reversed to set off a new growth curve super-imposed on the plateau of the former curve. Post maturity therefore consists of three possible outcomes:1. Renewal: New areas of growth cause increased sales and profits2. Steady State: A continuing state of maturity.3. Decline: Profits begin to fall as a result of poor management; often a direct result of a drop in sales or excess expenses.RenewalInnovation results in new markets being tapped to create new areas of growth, expanding the reach of products and services the business provides.Steady StateTo maintain a steady state, focus should be on what existing customers are currently demanding. This requires market research for accurate results. A steady state stops expenditure on research and development required for renewal. Be warned, a steady state cannot be maintained forever and will fall into decline if not forced into renewal.3.12 New product developmentNew product development is a process which is designed to develop, test and consider the viability of products which are new to the market in order to ensure the growth or survival of the organization. Following an act of innovation, the process that converts the innovation from a creative idea to a product that can launch is the market is quite elaborate. There have been several approaches to managing an effective new product development process. One such method is the Fuzzy Front End (FFE) followed by a more formal Stage Gate process. The Stage-Gate Innovation Process comprises of eight steps namely: idea generation, idea screening, concept development, business analysis, beta version and test marketing, technical implementation, product launch, and new product pricing (review of market performance). From one stage to the next a gate must be passed for purpose of validation. 1. Idea GenerationThe idea generation (also called ideation or discovery) occurs when an innovator comes up with a novel idea for new product or improvement of an existing product. In a healthy agile product development process the Research and Development provides a systematic idea funnel that captures ideas from internal and external sources such as voice of customer, peripheral vision, immersion, open innovation, disruptive technologies, brainstorming, fundamental research and more. The ideas are compiled by the Research and Development team. These ideas are subjected to the idea screening gate to filter them and narrow down into the best potential product or service. It is necessary to employ strong analyses to identify current market trends and available solutions, understand customer behavior and needs, and identify areas of opportunity. Some tools that can help this analysis include a basis internal and external SWOT analysis, market surveys and customer trends index, competitor analysis, focus groups, sales staff and other employees, and information from trade shows. It is also helpful for the team to keep important aspects of the future product in mind such as how lean it is, how scalable it is and how much return can it generate. There may be many ideas at this point, which will be analyzed in detail in the next stage.2. Idea ScreeningIdeas that do not make strong business case are dropped using a set criteria from an established standard in the organization. There should be as little deviation as possible from this criteria so that no extra time is spent debating unsuitable ideas. Some questions that can be asked at this stage include: (1) Will the target audience benefit substantially from this product? (2) What is the size of this target audience its growth forecast? (3) Who are the current competitors or anticipated? (4) Is the industry and market trend positive? (5) Does it make technical sense to manufacture the proposed product given resource capacity of the firm? (6) Will the product be profitable enough to sustain the business? (7) Will it be acceptable to the customer at target price?, among other questions.3. Concept Development The practical process of developing and launching the new product are studied. The necessary intellectual property and patent issues should be reviewed to prevent later infringement issues. An understanding of the marketing message and marketing details will also help streamline and focus the process moving forward. Identifying the target market, purchase decision makers, product features, potential benefits and consumer reactions to the product are some important marketing related points. In addition, design details and their technical requirements as well as cost effective production are also vital considerations.4. Business AnalysisOnce marketing and design details are evaluated and understood, it is now time to conduct a business analysis to assess product profitability potential. It is important to estimate as close to reality as possible the likely sale price, based on competitor analysis results and consumer focus group or survey data. It is also necessary to workup sales volumes based on market size and relevant tools. And based on this, profitability a break-even point can be identified to confirm if the product will generate enough business volume for sufficient Return on Investment (ROI).5. Beta Version and Market TestingThis is a small scale launch conducted to further assess acceptance of the product by the target user group. An actual prototype or a close mockup called a beta version is manufactured. This product has also the features and components of the final product and packaging. It then tested in true to life usage conditions to determine how the market will respond to it. This can be done through focus groups, interviews, introductions at tradeshows, and mail products to key partners to distribute for trial with the end user customers. The feedback that is generated can help identify redundant features or those that create no real value and any hitches in the user experience. Necessary adjustments are made. 6. Technical ImplementationThe product development team if satisfied with the product will need to know how will the product be produced and distributed. At this stage, the technical teams will finalize the quality management system. They will also work out the resource requirements, plan engineering operations and create department schedules. Technical communications and requirements can be published to create a record. Suppliers should be brought on board and logistics worked out. A system for regular reviews of the project as well as contingency and risk mitigation plans should also be drawn up.7. Product LaunchOnce all the technical systems for production and distribution are in place, the product is ready for launch. Necessary advertising and marketing communications strategies are set into motion and the distribution channel is loaded up to ensure consistent product availability. The product should be monitored for usage feedback with consistent technical support available if applicable. In order to help convert undecided consumers into actual buyers, the marketing communications and brand presence need to be strong, relevant, visible and updated.8. New Product Pricing and Post Launch ReviewOnce the product has hit the market, the firm will need to keep reviewing its value proposition so that the product sustains gradual adoption. At this point, a review of the entire process is a good idea to identify best practices and areas of improvement. The impact of this new product on the entire product portfolio should also be evaluated. An external and internal value analysis will help understand the impact of the product. The product may have been launched at an introductory price and it may now be time to decide upon an actual pricing strategy. This can be done after assessing consumer response, competitor response and product costs. A forecast of unit volumes, revenue and profit will also add value. An ongoing mechanism needs to be put in place to evaluate changing customer needs and market trends to ensure that the product stays relevant and competitive as consumers grow older and change preferences.3.12.1 Step 1: Idea GenerationThe idea generation (also called ideation or discovery) occurs when an innovator comes up with a novel idea for new product or improvement of an existing product. In a healthy agile product development process the Research and Development provides a systematic idea funnel that captures ideas from internal and external sources such as voice of customer, peripheral vision, immersion, open innovation, disruptive technologies, brainstorming, fundamental research and more. The ideas are compiled by the Research and Development team. These ideas are subjected to the idea screening gate to filter them and narrow down into the best potential product or service. It is necessary to employ strong analyses to identify current market trends and available solutions, understand customer behavior and needs, and identify areas of opportunity. Some tools that can help this analysis include PESTEL (Political, Economic, Social, Technological, Environmental and Legal environment), Industry analysis, competitor analysis using SWOT analysis, market surveys and customer trends index, competitor analysis, focus groups, sales staff and other employees, and information from trade shows. It is also helpful for the team to keep important aspects of the future product in mind such as how lean it is, how scalable it is and how much return can it generate. There may be many ideas at this point, which will be analyzed in detail in the next stage.3.12.2 Step 2: Idea ScreeningIdeas that do not make strong business case are dropped using a set criteria from an established standard in the organization. There should be as little deviation as possible from this criteria so that no extra time is spent debating unsuitable ideas. Some questions that can be asked at this stage include: (1) Will the target audience benefit substantially from this product? (2) What is the size of this target audience its growth forecast? (3) Who are the current competitors or anticipated? (4) Is the industry and market trend positive? (5) Does it make technical sense to manufacture the proposed product given resource capacity of the firm? (6) Will the product be profitable enough to sustain the business? (7) Will it be acceptable to the customer at target price?, among other questions.3.12.3 Step 3: Concept developmentThe practical process of developing and launching the new product are studied. The necessary intellectual property and patent issues should be reviewed to prevent later infringement issues. An understanding of the marketing message and marketing details will also help streamline and focus the process moving forward. Identifying the target market, purchase decision makers, product features, potential benefits and consumer reactions to the product are some important marketing related points. In addition, design details and their technical requirements as well as cost effective production are also vital considerations.3.12.4 Step 4: Business AnalysisOnce marketing and design details are evaluated and understood, it is now time to conduct a business analysis to assess product profitability potential. It is important to estimate as close to reality as possible the likely sale price, based on competitor analysis results and consumer focus group or survey data. It is also necessary to workup sales volumes based on market size and relevant tools. And based on this, profitability a break-even point can be identified to confirm if the product will generate enough business volume for sufficient Return on Investment (ROI).3.12.5 Step 5: Beta and Marketability TestsThis is a small scale launch conducted to further assess acceptance of the product by the target user group. An actual prototype or a close mockup called a beta version is manufactured. This product has also the features and components of the final product and packaging. It then tested in true to life usage conditions to determine how the market will respond to it. This can be done through focus groups, interviews, introductions at tradeshows, and mail products to key partners to distribute for trial with the end user customers. The feedback that is generated can help identify redundant features or those that create no real value and any hitches in the user experience. Necessary adjustments are made.3.12.6 Step 6: Technical ImplementationThe product development team if satisfied with the product will need to know how will the product be produced and distributed. At this stage, the technical teams will finalize the quality management system. They will also work out the resource requirements, plan engineering operations and create department schedules. Technical communications and requirements can be published to create a record. Suppliers should be brought on board and logistics worked out. A system for regular reviews of the project as well as contingency and risk mitigation plans should also be drawn up.3.12.7 Step 7: Product launchOnce all the technical systems for production and distribution are in place, the product is ready for launch. Necessary advertising and marketing communications strategies are set into motion and the distribution channel is loaded up to ensure consistent product availability. The product should be monitored for usage feedback with consistent technical support available if applicable. In order to help convert undecided consumers into actual buyers, the marketing communications and brand presence need to be strong, relevant, visible and updated.3.12.8 Step 8: Post Launch Review and Perfect PricingOnce the product has hit the market, the firm will need to keep reviewing its value proposition so that the product sustains gradual adoption. At this point, a review of the entire process is a good idea to identify best practices and areas of improvement. The impact of this new product on the entire product portfolio should also be evaluated. An external and internal value analysis will help understand the impact of the product. The product may have been launched at an introductory price and it may now be time to decide upon an actual pricing strategy. This can be done after assessing consumer response, competitor response and product costs. A forecast of unit volumes, revenue and profit will also add value. An ongoing mechanism needs to be put in place to evaluate changing customer needs and market trends to ensure that the product stays relevant and competitive as consumers grow older and change preferences. ?CHAPTER SIX NEW STARTUP, BUYOUT OR FRANCHISINGFor a business opportunity to qualify as good investment opportunity it must meet a real market need with respect to its function, quality, durability and the price must be right. Marketing the product will be needed to convince consumers that the benefits of the product or service outweigh costs and that the product will satisfy their needs and wants better than its competitor. A number of factors for judging whether a new business idea is good include:-1. Market Factors: They include the extent to which a product or service meets a clearly defined market need within its window of opportunity. The window of opportunity remains only for a given time when the consumer is in need2. Competitive advantage: This exists when a firm offers a product/service that customers perceive to be superior to those of competitors. The customer considers perceived value (PERVAL) or the service or product quality (SERVQUAL).3. Economics: The venture must allow significant profit and growth potential in a sustained period that is long enough for the investors.4. Suitable to entrepreneur: There must be a fit between the entrepreneur and the opportunity. A best fit opportunity should be able to exploit entrepreneur’s experience, skills and the resource capacity that the entrepreneur is willing and able to mobilize for the ventures.5. Fatality of risks: The risks to the opportunity should not be extreme or almost certain. There must be no fatal flaw in the venture such that in no circumstance the business might be unsuccessful. When beginning a business, most individuals think in terms of a pure start-up. The owner-entrepreneur decides upon a business or profession, finds space and opens shop. The most attractive thing about this approach is that it usually has the least demands on cash investment, although the time involved certainly doesn’t necessarily mean the least capital investment. Considering another model can be a sound strategy.3.13 New businessStarting a business from the scratch is the cheapest option but very difficult. It requires most planning and research for one to eventually build the new venture and get a name or brand. One may start with a new business by venturing into a new market where the product or service does not exist in a particular market but exists somewhere else. Further, start the new business by introducing a new cutting edge technology or unique benefit not available with competitors. Sources of ideas include personal experience, hobbies, accidental discovery of opportunity, research, personal contacts, social networks, tradeshows, and so forth. One will need to select the competitive strategy to adopt and prepare a business plan.Advantages1. You have complete control over the business.2. You can choose and set-up every aspect of the business (products and services, premises, equipment, suppliers, staff).3. You can develop your business and grow over time.Disadvantages1. It may be difficult to obtain the initial finance.2. You may not have an established customer base, and you may have to compete with strong, existing businesses.3. Your business may not be profitable at first.3.14 FranchiseFranchise is a business run by an individual (the franchisee) using trademarks granted by a franchiser in exchange of a royalty fee. The franchise gives one an opportunity to the franchisee to replicate a successful formula. They include multi-million dollar fast food franchises such as Kentucky Fried Chicken (KFC), Motor Vehicle Manufacturers, Retail Chain businesses and so forth. The entry barriers can be huge from both a capital and experience standpoint. While running your own business provides you with the freedom of making or changing your decisions and basically running the show as you see fit, a franchiser will offer you only limited freedom. Often times the parent company will handle the marketing and all the advertisements, and it will benefit all the small business franchisees with its established brand name and networks. This will provide a new business additional time to focus its effort on increasing its sales. The benefit of franchises is an existing, and ideally proven business plan, uniformity of product and presentation, marketing, name appeal and goodwill. Of course in many franchise operations, none of these actually exist. Of course if you as an entrepreneur can spot the coming trend, then reaping a gigantic reward is a real possibility.There are several franchising options to consider:1. Business format franchisingIn this form of franchising the entrepreneur receives an entire marketing and management system from the franchisor.2. A master licenseeThe franchisee is an independent company or business but acts as a middleman or sales agent for the franchisor in a contractual relationship. The master licensees are responsible for finding new franchisees within a specified territory and growing the business on behalf of the franchisor who pays them a specific commission for their services. The franchisor will also provide specific service level agreements to enable the franchisee market and re-sale the franchisor’s products and services.3. Multiple-unit ownershipThe franchisor will permit a single franchisee to own more than one unit of the franchised business as an exclusive partner or area developer. The franchisee obtains the legal rights to open several outlets in a given area.4. Piggyback franchiseThe franchisee will be permitted to operate a retail franchise within the physical facilities of a host franchisor store. In Kenya agency banking models have created franchises and in the Cooperative Bank agency banking model, the agents are given retail space in the banking hall to off-load some of the teller services.Advantages1. You are supported by the franchisor and have access to training, information and resources.2. Market exposure is higher than with most businesses as your business is an established brand.3. Your expenses may be lower through the collective buying power of the franchise.Disadvantages1. You cannot run your business independent of the franchiser.2. The franchise may be too skewed in favor of the franchiser in the revenue share model.3. Your reputation can suffer if other franchisees have a poor reputation.4. If you want to make changes to your business you may not be able to. You can be restricted by your franchise agreement; such as sales territories covered, site approval for the retail outlet appearance and location, goods and services to sell, advertising and hours of operation, and so forth.5. One misses the opportunity to grow your own brand.3.15 BuyoutBuying an existing business can be a very sound approach if done properly with due diligence and determination of appropriateness of the opportunity to one’s passion and capacity. A business that has been well run and has an established entities (customers and suppliers) with strong goodwill is an easy entry. However, buying an existing venture is expensive though quicker for take-off especially if the buyout is a renown brand and well performing business, among other assets. The buyout is likely to be priced based upon a discounted cash flow of future anticipated income flows. It is necessary to review financial records, speak with suppliers, customers, employees and regulators and value asset. Unfortunately it is difficult finding a seller who is willing to disclose to the world why he or she is selling the business. Further to the current owner some secrecy will be needed because one is not guaranteed of the suitor’s outcome. So going beyond financial records is rare until a purchase agreement is in place. There is almost always “good faith” money required, and sometimes due diligence is delayed until post-closing. Then the buyer can depend on enforceable “representations and warranties” for any redress on impactful undisclosed facts.The other purchase opportunities revolve around searching for under-performing businesses. These are the deals where true entrepreneurial spirit comes into play. You are betting on yourself to better manage and capitalize on a business. These buys can often go for a discount or may be under liquidation of assets. The risk is one is never sure if of the worth of the risk and why the business had failed. If you have experience building a business and solving problems, then these are probably the opportunities for you. Not only will your business earn an income, but you can make a significant return on your capital. Advantages1. There is an existing customer base.2. You do not have to purchase equipment and stock.3. Previous financial records give you an estimate of running costs and profits.Disadvantages1. The business may have financial or legal problems.2. The business’s success may depend on the skills and experience of the previous owners.3. The previous owners may be selling as they see tough times ahead so you may not be able to grow or expand the business.?CHAPTER SEVENBUSINESS REGISTRATION Summary of business formationsBusiness Form Liability Continuity Management Primary investment sourcesProprietorship • Personal• Unlimited Ends with owner’s death or decision • Personal• Unrestricted Personal savingsGeneral partnership PartnersUnlimited Ends with any partner’s death or decision • Partners• Restrictions depend on partnership deed Personal savings by partnersLimited liability company Capital investedLimited Perpetual even in death of director or shareholder • Board of directors• Restricted by Memorandum and articles of association Sale of stocks of shares3.16 Sole proprietorship3.16.1 DefinitionA sole proprietorship is a form of business entrepreneurship that is established and owned by one person who shares all profits and all the losses. This person is also the one who legally liable for running the enterprise such that the business owner and the business are treated as one entity. Therefore, the sole proprietor is in direct control of all elements of the business and is legally accountable for its assets and liabilities.3.16.2 Characteristics1. Easiest form of business to set up and operate2. Profits are taxed only once3. Unlimited legal liabilities4. Business ends with death of owner5. Easy to liquidate6. The owner enjoys all the profit7. Faster decision making3.16.3 Advantages1. Flexibility of control and decision-making 2. Easy income taxation accounting because it is filed with personal income3. Minimal costs to forming a sole proprietorship4. Forming is very simple – just a few formal business requirements and quick registration5. No sharing of profits3.16.4 Disadvantages1. Unlimited personal liability because owner is held personally liable for the debts and obligations of the business. 2. Life of business ends with death of the owner3. Heavy burden of management and limited support in decision-making4. Limited Ability to Raise Capital since investors won’t usually invest in sole proprietorships3.16.5 How to register in KenyaThe Registrar of Companies is responsible for business registrations in Kenya. The process of registering a sole proprietor business in Kenya is a very simple. It can be done at the Registrar of Companies office in Nairobi or at a Huduma center across the country. Huduma centers are one stop shop for public services by all Government departments and are spread across major commercial centers in Kenya. 1. Business name searchName search can be done in person or through an agent at any Huduma centre, via mobile device *271#, online using e-citizen portal, and at the Registrar of Companies chamber in Nairobi. This takes a duration of one (1) to two (2) days. You can submit as many business names for search as you want but each business name will charged (Kshs 100 – equivalent to $1.00).2. Submit sole proprietorship registration application form BN/2Upon picking the Business Name Search results from Registrar of Companies you will be given a registration form BN/2 which is also available in the e-Citizen portal. The filled form is submitted alongside the required fee of Kshs 800 (approximately $8.00). The processing of the application takes approximately three (3) to five (5) working days. The fill-in details include: Business Name Suggestions – select your preferred business name based on the successful name search results• Nature of Business – For example real estate, road construction, business consultant, tours ; travel.• Plot No./ Land Reference Number• Street Name• Town Name• Postal Address • Full names (As shown on ID or Passport)• Age – (in years)• Gender – (Male or Female)• Nationality• Usual Place of Residence• Other Business Occupation (optional)The applicant will need to provide proof of identity documents as follows:• Copy of ID/Passport• Passport Photo• Copy of KRA PIN CertificateUpon successful registration the certificate of registration will be available for download at the eCitizen portal.3.17 Partnership3.17.1 DefinitionA partnership is any two or more individuals who contribute money, labor, and skill to a business, and who share in its profits, losses, and management. The two most common are general and limited partnerships. The Partnership Act of Kenya Cap 29 allows upto 20 partners to be listed in the partnership .While it is not required by law in many countries, a partnership deed is important for partnerships to help solve disagreements and other difficult-to-resolve issues that naturally occur in nearly every business relationship. Key areas in a partnership deed include: Its name; purpose; duration; responsibilities; performance and remuneration of each partner; contributions of partners (cash, assets, loans, investments, and/or labor); if a partner loans the company money, what will be the terms or repayment; partner’s compensation for contribution made, and so forth.A general partnership is one in which all of the partners have the ability to actively manage or control the business. This means that every owner has authority to make decisions about how the business is run as well as the authority to make legally binding decisions. Unless the partners have a partnership agreement, each partner will have equal authority.Partners in a general partnership don’t have any limit on their personal responsibility for the debts of the business. This means that the partner could lose more than just his investment in the business because personal assets would have to be used to pay business debts if necessary. Each partner in a general partnership is also “jointly and severally” liable for debts of the business. Joint and severable liability means is that each partner is equally liable for the debts of the business, but each is also totally liable. So if a creditor can’t get what he is owed by one or more of the partners, he can collect it from another partner, even if that partner has already paid his share of the total debt. If someone sues your partnership and obtains a large judgment, and your partner doesn’t have the money to pay his share of it, you will have to pay the entire amount.A limited partnership requires a partnership agreement. Some information about the business and the partners must be filed with the appropriate state agency (Registrar of Companies). Additionally, a limited partnership has both limited and general partners. A limited partner is one who does not have total responsibility for the debts of the partnership. The most a limited partner can lose is his investment in the business. The trade-off for this limited liability is a lack of management control: A limited partner does not have the authority to run the business. He is really more or less an investor in the business.A limited partnership must have at least one general partner. The general partner or partners are responsible for running the business. They have control over the day-to-day management of the business and have the authority to make legally binding business decisions. The partnership agreement will specify exactly which partner or partners have certain responsibilities and which have certain authority. General partners are also subject to unlimited personal liability for the debts of the business. The general partners of a limited partnership are also jointly and severally liable for the debts of the business, just like partners in a general partnership. 3.17.2 Characteristics1. Existence of an agreement: Partnership is the outcome of an agreement between two or more persons to carry on business. This agreement may be oral or in writing. 2. Sharing of profits: The purpose of partnership should be to earn profits and to share it. In the absence of any agreement, the partner should share profits (and losses as well) in equal proportions.3. Agency relationship: The partnership business may be carried on by all partners or any of them acting for all. Thus, the law of partnership is a branch of the law of Agency. To the outside public, each partner is a principal, while to the other partners he is an agent. It must, however, be noted that a partner must function within the limits of authority conferred on him.4. Membership: The minimum number of persons required to constitute a partnership is two. The Act, however, does not mention the upper limit. 5. Nature of liability: The nature of liability of partners is the same as in case of sole proprietorship. The liability of partners is both individual and collective. The creditors have a right to recover the firm’s debts from the private property of one or all partners, where firm’s assets are insufficient in case of general partnerships.6. Fusion of ownership and control: In the eyes of law, the identity of partners is not different from the identity of partnership firm. As such, the right of management and control vests with the owners (partners).7. Non-transferability of interest: No partner can assign or transfer his partnership share to any other person so as to make him a partner in the business without the consent of all other partners.8. Registration of firm: Registration of a partnership firm is similar to sole proprietorship. The only document among partners required is the ‘partnership deed’ to bring the partnership into existence.3.17.3 Advantages1. Better decision making – two heads (or more) are better than one2. Easy to establish and start-up costs are low3. More capital is available for the business from the partners4. Have greater borrowing capacity from financial institutions than a sole proprietorship5. High-caliber employees can be made partners6. Income splitting between partners can result in tax savings7. Limited external regulation and tax obligations since taxed with personal income3.17.4 Disadvantages1. Unlimited liabilities to partners2. Complex to manage with risk of disagreements and friction among partners and management unlike with sole proprietorship3. Company is dissolved with death of any partner4. Each partner is an agent of the partnership and is liable for actions by other partners creates risk if one partner errors5. Anytime a partners join or leave, you will probably have to value all the partnership assets and this can be costly.3.17.5 How to registerIn Kenya application for partnership registration can be done at the Registrar of Companies in Nairobi, at e-citizen portal or using one stop Government service shops called huduma centers. In additions it requires the following information:1. Name of Business – (A name search needs to be performed first as part of the registration process.)2. Nature of business3. Address of the principal place of business – (Plot No., Section and Name of Street or Road, Name of Building)4. Postal Address5. Address of any other place of business (Branch Office)6. Partner Information including Full names, Nationality, Age, Gender, Place of Residence and Professional Occupation e.g. Teacher, Doctor, Engineer7. Signature on Application Form8. Copy of ID/Passport for each partner9. Copy of KRA PIN Certificate for each partner10. Passport Photo for each partner3.18 Limited company3.18.1 DefinitionA limited liability company (LLC) is a corporate structure whereby the members of the company cannot be held personally liable for the company’s debts or liabilities. It’s owned by shareholding so that profit is shared by the shareholders whose operations are chartered by the Memorandum and Articles of Association.BASIS FOR COMPARISON MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATIONDefinition Memorandum of Association (MOA) is a document that contains all the fundamental data which is required for the company incorporation. Articles of Association (AOA) is a document containing all the rules and regulations that governs the companyRegistration MOA must be registered at the time of incorporation. The articles are registered as subsidiary of the MOA.Scope The Memorandum is the charter, which characterizes and limits powers and constraints of the organization. The articles demonstrate obligations, rights and powers of individuals, who are endowed with the responsibility of running the organization and administration.Status Supreme document. It is subordinate to the memorandum.Power The memorandum cannot give the company power to do anything opposed to the provision of the companies act. The articles are constrained by the act, but they are also subsidiary to the memorandum and cannot exceed the powers contained therein.Objectives The memorandum contains the objectives and powers of the company. The articles provide the regulations by which those objectives and powers are to be conveyed into impact.Validity The memorandum is the dominant instrument and controls articles. Any provision, as opposed to memorandum of association, is invalid.3.18.2 CharacteristicsIn Kenya two categories of companies fall in limited liability companies by shareholding. These are Public companies limited by shares and the Private companies limited by shares (Companies Act, Cap 486 and the revised Companies Act No. 17 of 2015)KEY FEATURES ; DISTINCTIONS (IN CAP 486)ASPECT PUBLIC COMPANIES PRIVATE COMPANIESPurpose: Intended for business and public investment. Intended for business, trading and other commercial purposes. Most suitable for families, friends and relatives.Membership Minimum seven members with no maximum membership Minimum two members and a maximum of fifty(50) excluding employeesDirectorships At least two directors At least one directorTransfer of shares The company may transfer or sell its shares to the members of the public The company is restricted in the transfer of its shares and the shares are not freely transferable.Financial privacy They are strictly regulated hence the financial accounts are published and filed with the Registrar There’s no requirement for publishing financial accounts of a private companyCapital • No minimum authorized capital/ nominal capital prescribed.• Enjoy increased ability to raise capital by listing its shares at a securities exchange and issuing debentures from the members of the public • No minimum authorized capital required.• Restricted ability and means of raising capital and borrowing.Company Secretary Must have a Company Secretary duly appointed and practicing in accordance with the law. Must have a Company Secretary duly appointed and practicing in accordance with the law. DISTINCTIONS & SALIENT FEATURES AS PER COMPANIES ACT, 2015ASPECT PUBLIC COMPANIES PRIVATE COMPANIESPurpose: Intended for business and public investment. Intended for business, trading and other commercial purposes. Most suitable for families, friends and relatives.Name: If a Limited Company, the name must end with “Public Limited Company” or “plc” If Limited, the name must end with “limited’ or “ltd”Membership: Any one or more persons may form a public company Any one or more persons may form a private company up to a maximum of 50 members.Directorships: At least two directors (at least one director must be a natural person) At least one directorMinimum Capital Authorized minimum capital of Kshs. 6,750,000/= No minimum capital requirement.Allotment of shares Cannot allot shares unless at least one-quarter of their nominal value and the whole of any premium has been paid up. No restrictions on allotment of sharesTrading Certificate Must be obtained before conducting business or exercising borrowing powers Once the Certificate of Incorporation is issued, the company may commence business.Transfer of shares The company may transfer or sell its shares to the members of the public The company is restricted in the transfer of its shares and the shares are not freely transferable.Financial privacy They are strictly regulated hence the financial accounts and director reports are published and filed with the Registrar of Companies Required to file annual audited financial statements (unless exempted) to Kenya Revenue Authority and annual director reports to registrar of companies.Capital Minimum authorized capital Restricted to its ability and means of raising capital and borrowing.Company Secretary Must have a company secretary Does not have to appoint a secretary unless with paid up capital of at least Kshs. 5 million and above Other form of limited liability in Kenya is Limited Liability Company by Guarantee. A company may be limited by guarantee whereby the company’s memorandum of association provides for liability on the part of its members to contribute a fixed sum of money towards its debts, should the company be wound up. This form of company is most useful where incorporation is necessary or desirable but there is no immediate need for capital to carry out the objects of the company; and it is desirable to limit the liability of the members. It is an option to consider for not for profit organizations (clubs and associations). It is also appropriate for professional, charitable organizations, trade and research associations. Such a structure is particularly useful where it is desirable to avoid the need to transfer a share every time a member leaves or joins.According to Companies Act Cap 486, one may establish either a Company limited by guarantee with or without shares. However, Companies Act, 2015 only allows companies limited by guarantee without share capital to be established. In Kenya, the Registrar of Companies does not incorporate companies which are limited by guarantee without prior clearance from National Intelligence Service (NIS). The process for obtaining this clearance is time-consuming and uncertain, and as a result very few of such companies have been registered as such in Kenya.3.18.3 Advantages1. They are a separate legal entity from their Members, artificial body corporate2. Limited liability for their Members so property of the shareholders (owners) is separate from the company and cannot be charged in case of loss in the firm3. They are taxed separately from the owners.4. Improved quality of decision making and management5. Easily transferable ownership by sale of shares6. Easy to attract capital and investors7. Exist in perpetuity in case of death of an owner3.18.4 Disadvantages1. Cost and time in incorporating2. Double taxation of revenue by corporate tax and later for the dividends3. Highly regulated and requires more statutory accounting and reporting4. Potential loss of control to shareholders5. Sharing of profits with shareholders as dividends3.18.5 How to register1. Application and reservation of name. The name search and reservation process can be done at any of the Huduma Centers countrywide, online using the e-Citizen platform and on a Safaricom mobile phone by dialing *271#.2. Submit Filled Form CR 1 (see Appendix 1) – Application to register a company containing the proposed name (as reserved), the registered office, liability of members (whether limited by shares or by guarantee), the nature of the company (if private or public) and the name, consent of the initial director and secretary of the company and address of the agent if an agent is used to make the application. The form combines the application for company registration, Kenya Revenue Authority (KRA), Personal Identification Number (PIN), National Health Insurance Fund (NHIF), and National Social Security Fund (NSSF) registration.3. Submit Filled Form CR 2 – Model memorandum for a company limited by shares or (Form CR 3) Model memorandum for a company limited by guarantee or (Form CR 4) Model memorandum for a company whose liability is unlimited.4. Statement of Nominal Share Capital form.5. Notification of directors’ residential address. (Form CR8)6. Articles of Association (if those provided in the Regulations have not been adopted).7. Applicants should attach copies of identification documents.For Kenyan Citizens attach copies of directors:• Identification Card (ID)• Personal Identification Number certificate (PIN)• Passport size photo (colored)For Non Kenyans (Foreigners) attach copies of directors:• Passport pages with bio dataPassport size photo (colored)7.4 Registration of Clubs, Associations and Societies A “society” in Kenya includes clubs and associations of ten or more persons registered with the registrar of societies in accordance to Societies Act Cap 108. Consists of at least five persons and not more than forty persons. The members of the association have a common agenda which the association seeks to satisfy. The association by law is required to, within a period of sixty days from the date of its formation, and application for registration should be made. Every registered society should furnish the registrar annually with the Annual Returns of the previous year by latest 31st March by filing in the prescribed Form I and at a prescribed fee based on the number of members. The requirements for Society registration in Kenya are:1. A list of designated members (10 members minimum);2. The names, occupation and postal addresses of the officials Chairman, treasurer and secretary;3. Constitution of the society which must contain name of the society, postal address and objects of the society;4. Application form A and B each in duplicate signed by three officials.• Form A (application for registration of a society)• Form B ( notification of address and registered office of a society)7.4.1 Registration of a society procedurea. Name search: A name search is conducted to determine whether proposed names are available for registration.b. Preparation of the constitution and necessary forms: The society’s constitution is prepared and Forms A and B are completed.c. Lodging of the documents for registration purposes: The duly filled forms and the constitution are there after lodged with the registrar of societies together with the prescribed fee.d. Issuance of a certificate: Once the application is approved a certificate of registration of society is issued. If the application does not comply with the societies rules a Notice of refusal is formally issued.?CHAPTER 8FAMILY BUSINESS8.1 Definition of family businessThe concept of family business is not new in entrepreneurship. Family businesses are many shades and flavors. However, their common characteristic is that they are started by two or more family members who come together to contribute their resources and time to run and operate the business together or in succession as joint owners. The business then passes from one family generation to another. While globally around 30% of family business survive into the second generation and less than 16% make it to the third family businesses have produced major brands in the world such as Toyota, VW, Ford, Samsung, BMW, and WalMart among others. Walmart was started by Sam Walton family in 1962 and was listed as the largest family business in 2015 with over US Dollars 485.7 billion turnover and 2.2 million employees (Ernest & Young, 2017). In 2015 the top 500 family businesses generated 6.5 trillion USD sales, employed 21 million people and 44% of the firms are owned by the 4th generation or older with the oldest firm being Takenaka Corporation, was established in 1610 (Farrington, 2016). Family businesses are unique because the family owners enjoy firm-specific knowledge that is passed from generation to generation. Their shared social networks bring valuable social capital to younger members of the family that enhances the firm’s future performance. Usually the focus of the family team is the long-run therefore the family members make significant current sacrifices for future gain as could non-family corporate managers. The preservation of the firm’s reputation is central theme in a family business which results in maintenance of high standards when it comes to honesty in business dealing, offering quality and value to consumer. The fact that key employees in a family business are related and trust one another eases on the management control challenges against theft and destructive employees work habits.8.2 Different Family Business Teams CombinationsMany combinations of family business teams are possible such as Wife (Mother) Children (Son/Daughter) In-lawsHusband (Father) Husband & Wife Father + Son or Daughter or Children Father + In-lawsWife (Mother) Mother + Son or Daughter or Children Mother + In-lawsSiblings (Son/Daughter) Sons/Daughters + Daughters/Sons) including cousins Siblings + In-laws (Cousins)In-laws In-laws + In-lawsa) Husband–Wife TeamsThis combination creates a strongly bonded team where each partner is able to complement each other and operate under very high degree of mutual trust and ownership. It gives opportunity for the couple to share more in each other’s lives. However, business differences can interfere with family life, and work life leave little time for family life. The Entrepreneur’s spousal communication is critical for their performance.b) Sons and Daughters (Siblings)When siblings come together to run a business they are likely to strengthen family bond and leverage on blood ties to pool their personal resources and human capital. Sibling cooperation and sibling rivalry has been common especially as business dynamics emerge and the level of commitment or contribution becomes unequal. The best case has siblings working as a team, each contributing services according to his or her abilities but worst cases involve siblings competing as rivals and disagree about their business roles to eventually breakup and run separate business outfits.c) In-laws In BusinessIn laws in business is the most challenging family business because can easily escalate to nuclear family conflicts of interest. Disagreements about how to treat and reward in-laws and family members/children are always a thorn in the flesh. If possible in-laws should be assigned to different branches or to different business roles.8.3 Advantages of family business1. Strength of family relationships during challenging periods of business change2. Financial sacrifices that family members make for the good of the firm3. Operation as a family business distinguishes the firm from its competitors4. Higher levels of concern for its community and non-family employees5. Capability to plan and prepare for the long haul6. Emphasis on quality and value7. Family Business Momentum is easy to maintain by passing business between generations8. The founder’s core values become a transmitted part of the culture (for better or worse).9. Family Business Cultural Values such as (Mutual respect, Integrity, Wise use of resources, and Personal responsibility) are easily propagated10. It is “fun” for family to work together. They get more time together and form strong family bond.8.4 Disadvantages of family business1. Family Conflict on roles and rewards are common2. Lack of structured governance and adhere to external corporate laws3. Nepotism and reluctance to let outsiders into the top tier positions hinder professionalism4. Poor Succession Planning create long histories of in-fights and legal suits5. Lack of openness in management8.5 Causes of Conflict in the Family BusinessCauses of Conflict in the Family Business1. Ambiguity of roles 2. Differences in power and status among family and non-family members3. Hasty and /or unfair succession process4. Rivalries among family members5. Favorite Son/daughter syndrome6. Lack of clear and coherent policies regarding career development, compensation and hiring7. Lack of code of conduct8. Lack of proper job descriptions and clear boundariesCommon Sources of Conflict1. Father-Son/Daughter Rivalry 2. Rivalries between offspring 3. Conflict between other members of the family 4. Conflict between family and non-family members Father-Children RivalryThis type of conflict occurs due to several factors that include:1. Founder’s Psychological strong sense of attachment and hence reluctance to give up control and power2. Rivalries Between Offspring: the Favorite Son Syndrome – father playing off offspring against one another 3. Violation of social or economic pecking order such as elder Son/daughter not being selected as a successor 4. Unwillingness to delegate5. Ambiguity or uncertainty concerning career path, promotion and compensation such as using age rather than competence as a basis for promoting or compensating family member.6. Son/daughter has a need for independence and grows impatient7. Value Difference Between Generations – differences in values, vision and management styles leads to increased tension8. The Path to Self-Validation by a drive to equal or outdo father and a feeling that one can measure up as equal or better to the fatherMechanisms to Resolve Family Business Conflicts1. Succession planning including mentoring and fair distribution of wealth2. Third-party intervention (Peacemaker, Wise man/woman in the family, Consultant/lawyer, accountant)3. As the family business head the father should allow off-springs to do his/her own thing and make own choices4. Children should understand father’s feelings and respect social valuesConflict between other members of the family may be caused by:1. Lack of or unfair succession process2. Value differences between generations3. Ineffective communication4. Unclear definition of roles and responsibilities5. Undefined or poorly defined policies on division of labor, career development and business proceduresConflict between family and non-family members are also not uncommon. They can be caused by: 1. Nepotism and unfair treatment of non-family members2. Bossy children3. Non-consultation in decision-making with senior non family members4. Undefined or poorly defined policies on division of labor, career development and business proceduresMechanisms to resolve family business conflicts include:1. There should be clear job descriptions where each family member knows his or her role. It should give clear jurisdiction, compensation, career development, code of conduct, objectives, performance assessment criteria2. Have intervening confrontation resolution meeting and the family leader or chief executive officer should play mediating role. Open communications including face-to-face meetings, one-on-one meetings with CEO/Founder and employees involved in conflict, and group meetings3. Create a family code of conduct for the business that distinguish family issues and business and their conduct.4. Provide useful and open communication to family members such as in a weekly dinner5. Introducing professional management and training among the family members so that each feels valued and is able to realize their optimal input.6. Managing conflict promptly and professionally (breaking deadlocks, act early, The founder or the president of the family business as chief arbiter should avoid enlisting allies in conflict situations or taking sides in conflict situations, Allow expression of feelings, Set aside time to resolve dispute and reduce tension, and develop appropriate mechanisms/procedure for resolving conflict.7. Create a healthy business environment where merit is recognized and productivity rewarded fairly without segregation.8. Involve non-family third party peacemaker/arbiter (lawyer, accountant, and family friend)9. Reassignment of conflicting parties to other duties outside the line of duty of their aggrieved partners.8.6 Strategies for succession and family business continuityIn order to ensure continuity between generations, succession planning is very critical. The founder may become incapacitated due to sickness, may retire or even die. It should include:1. Role family may play in the succession of management2. Economic requirements for retirement and timing issues3. The professional role of the exiting family head: active or inactive4. Providing professional management of employees, customers and suppliers5. Allocating for financial requirements for dependent family membersBenefits of succession planning include:1. Smooth transition between generations2. Improved confidence with family, employees, customers and suppliers3. Commitment to future success due to reputable tradition of peaceful transition4. Happier work environment to employees and family5. More financial security to dependents and employees6. Improves customer loyalty of the business as a stable going concernFounder exit strategies 1. Sell company to competitor, third party buyer, or to the management team2. Create a family trust where trustees manage the estate on behalf of the family3. Gift shares to children or relatives in business to take up ownership 4. Sell interest in the entity to operating partner or employees5. Liquidate the company and sell assets and distribute the wealth6. Do nothing – let heirs worry about itSince transition is inevitable the owner needs to prepare for transition by: 1. Develop competent management successors from among the family members2. Retain key employees for training and continuity with the new leadership3. Select time frame for transfer and make it gradual4. Communicate to employees, customers and suppliers of the impeding changes5. Transfers shares and ownership to children and/or relatives in a timely manner6. Review the contribution of each family member to your business including dependency of non-working family members who are also entitled beneficiaries. 7. Establish an estate plan with a neutral party8. Determine tax and other liabilities to avoid external litigations9. Fund an effective business succession planStages of success planning In the pre-business stage the child is made aware of some aspects of the firm or industry through some formal orientation. Then during the introductory stage this child is exposed to business jargon, employees in the business and the business environment so as to make him or her familiar with the business activities and its settings. However, it only in the next step of introductory functional that the child will work, so to say on part-time basis gradually while learning few details of the firms operations. During functional step the potential successor begins work as full time employee in some non-managerial position. In the advanced functional the potential successor assumes managerial position and ascends through management positions prior to becoming president in the early succession where now the successor will exercise overall direction but parent still in the background. In the mature succession the successor will becomes the figure head of company and the outgoing head formally exits from active role in the firm. In some cases mature succession does not occur until the predecessor dies or is legally incapacitated. The transfer of ownership then passing to the next generation.CHAPTER NINECREATIVITY AND ENTREPRENEURSHIP9.1 Definition of creativityHuman history has been marked with trails of progressive improvements in tools, technology, man-made systems, and products among others. One wonders what human characteristic generates these new ideas about solving life problems and improving it. Creativity is the ability to develop new ideas and to discover new ways of looking at problems and opportunities. When faced with a problem human brain triggers a process of solution development that begins with looking around for anything to implement and respond to the problem or opportunity. The solutions arrived at will depend on what the environment provides and how the person is able to connect the dots between what the environment gives and the desired outcome. The process of connecting these dots to see the solution is the creativity process. If the outcome becomes something of substance that would be converted to a new and better process, product, use of that raw material now discovered in an existing product or translocation of the product to a new market, or transformation of an old organization into a new one buoyed by the new combinations created then that creativity has now yielded into an innovation. However, some creativity acts are an end to themselves but when the creative solution can be done or used by people or organizations then it fits into an innovation. Schumpter (1934) calls innovation creative destruction since its outcome is new things where the old order is destroyed. In a nutshell, creativity is thinking new things while innovation is doing new things. According to Kuratko (2009), creativity is a process that can be developed and improved. Everyone has a degree of creativity but some individuals have a greater aptitude for creativity than others. On the other hand Schaper and Volery (2007) stated that creativity is the process through which invention occurs, the enabling process by which something new comes into existence. Further, Baron and Shane (2008) defined creativity as a production of ideas for something new that is also potentially useful. Psychologists argue that creative thinking occurs in the right brain which is said to be creative and intuitive (lateral thinking), while the left brain is logical and rational (vertical thinking). Therefore, it is argued that those who use their right brain are more likely to be different and tend to challenge traditional mindsets (paradigms), which is fundamental for innovations. Innovators think and do things differently from the established norm. Contrary to this the developmental view of creativity is that it is available to everyone and is manifested in personal and modest insights. It can be released through training and development of personal potential. Therefore, creativity is inherent in all scopes of all jobs and can be encouraged or discouraged within groups according to their climate. Creativity journey is an escape from ‘personal stuckness’ and reveals itself in results which are original ; potentially valuable. An effective leadership in process that enhances creativity is one that creates certainty, confidence and commitment of all participants. There is awareness of different viewpoints, ideas and paradigms yet it creates the flexibility and creativity to deal with the unexpected in an effective and efficient manner. Example of sources for new ideas• Consumers—the feedback and complaints from consumers will trigger ideas on how to fulfil the needs and want of the customers.• Existing products and services—existing products and services in the market will give new ideas to entrepreneurs to further improve and upgrade their products and services from time to time.• Distribution channels—members of distribution channels are also excellent sources of market information because of their familiarity with the needs of the market.• Government—government policy, regulation and support can be a source of new product ideas that push entrepreneurs to be innovative and creative.9.2 Types of creativityThere are four types of creativity namely: deliberate (relating what you observe to answer questions), spontaneous (watching an encounter), emotional (feeling) and cognitive (thinking): 9.3 Components of creative thinking1. Creative thinking skills –This component determines how flexibly and imaginatively people approach problems and find solutions. 2. Expertise – Derived from knowledge – technical skills, procedural and intellectual competencies possessed. Creative intelligence can be imaginative, inspirational, intuitive, and innovative. 3. Motivation – The drive behind the behavior and it could be extrinsic or intrinsic. 9.4 Theories of creativity9.4.1 Creativity by graceThe theory argues that creativity is something of a mystery. It draws forth images of wonderful insights, imaginative efforts, illumination and intuitions that come from nowhere. Creativity is like the work of magic. However, the idea of genius may add force to this notion where for example creative artists, musicians, among others are endowed with superhuman potential. Therefore creativity is a divine gift.9.4.2 Creativity by accidentCreativity arises by chance or accidental discoveries such as immunization arising from an interruption in work, smallpox vaccination discovery from observation and radioactivity discovery from the wrong hypothesis.9.4.3 Creativity by associationThis is a popular creativity theory that argues that creativity can occur by applying procedures from one domain to another to allow divergent thinking techniques such as lateral thinking and brainstorming.9.4.4 Creativity is cognitiveThe theory opines that creativity is a normal human activity that involves cognitive processes like recognition, reasoning and understanding of a phenomenon.9.4.5 Creativity relates to personalityThe advance of the theory is based on the argument that creativity is a state of mind which can be learned. Therefore, some people seem to have a facility for it while others do not, but they can improve with practice and learning. The theory represents that mental barriers to creativity have to be removed to allow innate spontaneity to flourish. The creative acts in this case are not isolated acts of perception, since they require an emotional disposition too. For any new idea to replace and in effect destroys the previous order it would take courage and persistence to weather the resistance that any change seems to bear.9.5 Barriers to creativity1. Searching for the one “right” answer: Most educational systems teach that there is one “right” answer to a problem. This is a boon to creativity since it acts as a block to brainstorming.2. Focusing on “being logical”: Being logical is valuable when evaluating ideas and implementing them, however, focusing too much effort on being logical in the early imaginative phases discourages the use of intuition.3. Blindly following the rules: Often times, creativity depends on our ability to break existing rules so we can find new ways of doing things.4. Constantly being practical: Suspending practicality for a while frees the mind to consider creative solutions that, otherwise, might never arise.5. Viewing play as frivolous: Play gives us the opportunity to reinvent reality and to reformulate established ways of doing things.6. Becoming overly specialized: Defining a problem as one area of specialty limits the ability to see how it might be related to other issues.7. Avoiding ambiguity: Ambiguity encourages us to “think something different.” Ambiguous situations force us to stretch our minds beyond their normal boundaries and to consider creative options we might otherwise ignore.8. Fearing looking foolish: Creative thinking is no place for conformity. New ideas are rarely born in a conforming environment. People tend toward conformity to avoid looking foolish.9. Fearing mistakes and failure: Trying something new often leads to failure, however, failure should not be seen as an end; but rather as pit stops toward success.10. Believing that “I’m not creative”: One who believes they are not creative will likely behave in the same way, thus making the belief a reality. Everyone has the potential to be creative, however, one must tap into that potential first. 9.6 Enhancement of creativity1. Freedom to think: One of the best ways to communicate the expectation of creativity is to give employees permission to be creative.2. Expecting and tolerating failure while trying: Creative ideas will produce failures as well as successes. Creativity requires taking chances, and managers must remove employees’ fear of failure.3. Encouraging curiosity: Constantly asking “what if…” questions and taking a “maybe we could…” attitude allows one to break out of the assumptions that limit creativity.4. Viewing problems as challenges: Every problem offers the opportunity for innovation. Dumping one’s problems on employees’ desks to be “fixed” does nothing to develop creativity within employees.5. Providing creativity training: “What separates the average person form Edison, Picasso, or even Shakespeare isn’t creative capacity – it’s the ability to tap that capacity by encouraging creative impulses and then acting upon them.” Training can help everyone learn to tap their creative capacity.6. Providing support: One must give employees the tools and resources they need to be creative. One of the most valuable resources is time.7. Rewarding creativity: Monetary rewards, praise, recognition, and celebration can be powerful incentives.8. Avoid over criticism: Many new ideas that were dismissed by critiques as “non-sensical” have saved the day at times. So any new idea in team-work should be listened to.9. Be more pragmatic than dogmatic: Pragmatic people may have rules but they are open to new practical and realistic use of ideas to fix problems. Dogmatic people are follow and live by strict convictions and unquestionable rules, which usually come from some authority such as religious fundamentalism and do not accept any idea outside the given code or the book even when reality calls for newness.10. Listen to everyone: At times creative ideas have come from even outsiders (customers and non-customers) or lower cadre staff, who observe what you do and wonder “I wish it was like this”. So collect feedback in the process of product and service delivery.11. Modeling creative behavior: Setting example creative behavior as an entrepreneur by taking chances and challenging the status inculcate similar behavior to the employees. 12. Listen at motivational speakers and achiever: Most of these people have unique pattern of thought that propels their success. Their success story can be your eye-opener.13. Exposure to triggering environment such as science exhibitions, trade exhibitions, materials, reading, games and activities and so forth.9.7 Perspectives of creativityCreative ideas can be worked out or extracted from three different perspectives as suggested by Bessant and Tidd (2007): Work place creativity can be improved through a number of factors. They include: 1. Organizational climate: Organizational motivation to innovate is the basic orientation towards innovation and supports for creativity and innovation2. Leadership style: Refers to allowance of freedom in conduct of work, provision of challenging and interesting work, specification of clear strategic goals, formation of work teams with diverse skills and perspectives, focus on technology and reward and incentive structures3. Organizational culture: Norms, group cohesiveness, size , diversity, roles, task characteristics, and problem solving approaches used4. Resources and skills: Everything that an organization has to aid work in domain targeted for innovation including training9.8 Factors influencing individual level creativityResearchers have found that individual level creativity is influenced by a number of factors including:1. Age – creativity decreases with age unless individual is intentionally creative2. Intelligence- certain level required for certain measures of creativity only.3. Personality- high valuation of aesthetic qualities in experiences, interests, attraction to complexity, independence of judgment, autonomy, intuition , self-confidence, ability to resolve conflicting traits in self and belief that self is creative4. Dispositions- high level of intrinsic motivation, follow intrinsic interests, free from evaluations and constraints5. Capabilities – Insight is a result of integration of previously learned behaviors potential9.9 The creative processBased on a detailed reading of Graham Wallas’ Art of Thought (1926). The art of thought is a four-stage model of the creative process consisting of: The first and last stages are left brain (Quadrant A and B) activities, whereas the second and third stages belong to the right brain (Quadrant D and C). Roger Sperry (1913 – 1994) showed that each hemisphere of the brain processed different types of information. Broadly put, the left brain is the objective, analytical, logical half of the brain, looking at information sequentially and focusing on individual parts rather than on the whole. The right brain, on the other hand, is the subjective, intuitive, playful part of the brain; it looks at information in a more random fashion, seeing the whole rather than the parts.1. In the preparation stage, we define the problem, need, or desire, and gather any information the solution or response needs to account for, and set up criteria for verifying the solution’s acceptability.2. In the incubation stage, we step back from the problem and let our minds contemplate and work it through. Like preparation, incubation can last minutes, weeks, even years.3. In the illumination stage, ideas arise from the mind to provide the basis of a creative response. These ideas can be pieces of the whole or the whole itself, i.e. seeing the entire concept or entity all at once. Unlike the other stages, illumination is often very brief, involving a tremendous rush of insights within a few minutes or hours.4. In verification, the final stage, one carries out activities to demonstrate whether or not what emerged in illumination satisfies the need and the criteria defined in the preparation stage.The creative process moves from divergent to convergent you. Divergent thinking is the ability to see differences among various data and events. Convergent thinking on the other hand is the ability to see the similarities and connections among various data and events. 9.10 Creativity techniquesIn order to spur creativity a number of techniques can be used either at the individual level or at team or group level. The most common creativity techniques include:1. Brainstorming 2. Reverse Brainstorm3. Mind mapping 4. SCAMMPERR 5. Lateral thinking 6. Attribute listing 7. Problem reversal 9.10.1 Brainstorming (by Alex F. Osborn, 1953) Brainstorming involves organizing people into small groups of up to say 10 members to discuss a topic so that the teams can create more ideas as well as build on previous ideas come up with better ones. This technique progress from divergent thinking to convergent thinking at group level. Individual brainstorming is also possible. In a group brainstorming a rapporteur is appointed to take and write notes of their ideas on a board or a wall (physical or software based). In order to coordinate the discussion one person should chair and control the group to ensure there is no domineering or even ignored member. All the members’ ideas are welcomed and posted without pre-mature discussion, criticism, filtering, or censoring/dismissal until there are no more ideas coming or flowing. The members must take time and listen to team-mates ideas without interruption and use them generate other ideas. Choice can be made to either allow random contribution of ideas or systematic contribution in a circle from one member to the next. One creative way to enhance the discussion is to use a token or a ball that is passed to the one who is on the floor contributing and holds it until done then passes it on to the next contributor. Many tactics can be implemented to enhance quality and participation of the group members, for example step ladder, brain-writing, checklist (what, why, where, who, when, and how), online brainstorming (brain-netting), and slip writing. At the end the chair of the discussion session will clarify and conclude the session then proceed into the plenary session of the group to build consensus of the best ideas to usually one or two ideas. To synthesize the ideas a number of tools and tactics can be used including:a) Affinity diagrams – the ideas are written on sticky notes as they come (unorganized) then in the end they are grouped into meaningful themes so as to see the connections between them.b) Paring down the vast list of ideas into the ones that are feasible and worthwhile.c) Decision analysis matrix – this is 2-dimension table where attributes to consider for the decision can be put in columns and the alternative solutions available are put in the rows. Each alternative is scored against each desired attribute in a ratio of 0 to 5 (or 0 and 1 – representing present or absent). Allocate a weight (0 to 5) to each attribute (usually write it next to the attribute in the column), then obtain the product of the score and the weight for each alternative solution. Sum up the total score of each alternative solution and pick the one with the highest score as the winner.d) Other tools include pairwise comparison analysis, six thinking hats, modified borda count, and multi-voting.9.10.2 SCAMMPERR (Micheal Michalko)SCAMMPERR technique uses a structured checklist comprising of a number of actions one can take to improve something: i. Substitute components, materials, people ii. Combine it with other assemblies or services, integrateiii. Adapt by altering, changing function or using part of another element iv. Magnify to make it enormous, longer, higher, overstated, added featuresv. Modify by increasing or reducing in scale, changing shape, modifying attributes such as color or texture and so forthvi. Put to another use vii. Eliminate by removing elements you don’t need, simplifying, and reducing to core functionality viii. Rearrange by changing the order, interchanging components, changing the speed or other pattern. ix. Reverse or turn inside out or upside down. 9.10.3 Lateral Thinking (Edward de Bono)The technique applies a process of thought that get us out of the usual line of thought when seeking to solve problems. It allows us to solve problems by unorthodox or apparently illogical methods by moving sideways instead of the usual top-down or down up process when working on a problem. This gives one an opportunity to try different perceptions, different concepts and different points of entry. Lateral Thinking can be used in two approaches: a) Specific: A set of systematic techniques used for changing concepts and perceptions, and generating new ones. b) General: Exploring multiple possibilities and approaches instead of pursuing a single approach.9.10.4 Mind Mapping (Tony Buzan) In this technique also called ‘spider diagrams’ ideas are inter-linked into a web drawn out from the problem or topic so as to inter-relate them and visually view the solution. In order to draw a mind-map: a) Put down a large sheet of paper (or use a mind mapping software) and write a short heading for the subject/theme in the centre of the page or in a hierarchy. b) For each major sub-topic start a new major branch from the central subject/theme and label it. c) Each sub-sub-topic, creates a subordinate branch to the appropriate main branch d) Carry on in this way for ever finer sub-branches. e) It may be appropriate to put an item in more than one place, cross-link it to several other items or show relationships between items on different branches by use of color coding. 9.10.5 Problem Reversal (Charles Thompson) The technique uses negative statements of opposites to norm to provoke one to think on the negatives. The technique can be used together with brainstorming as a reversal brainstorming process. For example in deciding what changes to do to a product one would flip-flop actions:Positive Negative (opposite)Stretch ShrinkFreeze MeltPersonalize DepersonalizeIncrease DecreaseVictory DefeatBuy Sell9.10.6 Attribute Listing In attribute listing one identifies the products or processes than he or she is dissatisfied with or wish to improve. After that list its attributes so as to identify different ways of attaining those attributes. For a simple physical object like a pen attributes may include material, shape, colors, and texture. The different ways of attaining those attributes may include using different materials, different color and shape such as cylindrical cubic, multi-faced and so forth. The ideas are then combined into one or more alternatives of achieving the required attributes and a new product or process is created.CHAPTER TENINNOVATION AND ENTREPRENEURSHIP10.1 Defining innovationDrucker (1986) describes innovation as specific tool used by entrepreneurs to exploit change opportunities to cause new business or service. According to him ideas to innovate can come from various sources such as:1. The unexpected sources such as unexpected success, unexpected failure or other unexpected events which trigger ideas and creativity in firms.2. The incongruity or the uneasiness of customers in dealing with their daily lives that trigger firms to conceive ideas to create something new for the customers. For example, paying bills on the Internet since customers complain of unfriendly work hours.3. Process need where an opportunity presents itself thus becomes the source of innovation. For example in the process of evaluating market information the firm may discover untapped opportunity begging for exploitation.4. Changes in industry or market changes that catches everyone unawares in the effect triggers a corresponding reaction. For example the drive of globalization by formation of regional trade blocs disrupts local industry by opening boarders for partner states companies thus triggering local firms to counter-move to other regional states as well.5. Demographic changes such as population change where there is a surge of many young families or middle income earners in need of certain lifestyle and consumer goods thus demanding innovation for such products and services.6. Changes in perception, tastes and preferences due to health concerns, morality activism and other drivers of preferences. 7. New, scientific and non-scientific knowledge that requires consumer behavioral change for example impact of pesticides on crops may cause people to switch to organic products. Other definitions of innovation include:a) Innovation is the introduction of a new products and services, new process or method, opening of a new market and conquest of a new source of supply, as well as the carrying out of the new organization of an industry (Schumpeter, 1934)b) Innovation is creation of something new in the marketplace that alters the supply–demand equation (Chell, 2001). c) Innovation is finding ways to deliver new or better goods or services (Kinicki & Williams, 2003). d) Innovation is a process by which entrepreneurs convert opportunities (ideas) into marketable solutions (Kuratko, 2009). ?10.2 Innovation processThe process of innovation refers to the temporal sequence of events that occur as people interact with others to develop and implement their innovation ideas within an institutional context. The systematic innovation process consists purposeful and organized search for changes, and in the systematic analysis of the opportunities so that such changes might offer for economic or social innovation. In order for such to be achieved an organization requires two fundamental conditions; innovation strategy and innovation culture. Innovation strategy helps the organization to have a systematic setting for capturing and evaluating innovations, whereas an innovation culture is a mindset propagated by the tone established by the top management that recognizes and rewards innovation initiatives. The question of what comes first between innovation strategy and innovation structure is also critical. While establishment of innovation structures is one-off, the crafting of innovation strategy is a cyclic process and even the resulting strategic document remains a living document that evolves in the dynamics of the environment and organization focus and outlook. The innovation process can summarized into three steps namely:1. ConceptionThe step comprises of requirement analysis, idea generation, idea evaluation, and project planning. In the context of an organization innovation ideas can come from many sources. It could come from customers, employees, suppliers, management or even other external people to the organization. All these ideas will be raw and untested. The innovation funnel should be able to capture as many ideas as possible. Those ideas which finally fit and are promising will be presented for further development. They will put into a project and the necessary plan established. 2. ImplementationImplementation involves developmental/construction of prototype and subsequent piloting and beta testing of the resulting product or process. 3. MarketingFinally, when the resulting product or innovation is satisfactory it will be put into a production process and launched into the market place in line with the most feasible entry and penetration strategy. 10.2.1 Types of innovations Types of innovation can be conceptualized using different conceptual presentations. Schumpeter identified (1934) categorized innovations into new product, new process, new market, new source of raw materials, and new organization. However, Kuratko (2008) discusses four types of innovations namely; invention, extension, duplication and synthesis. Both of these typology of innovation become important when trying to describe innovations in an organization and can be evaluated each on its own merit. 10.3 Diffusion of innovationDiffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system (Rogers, 1995). It is a kind of social change, defined as the process by which alteration occurs in the structure and function of a social system. Through innovation diffusion new ideas are invented, diffused, and are adopted or rejected, leading to certain consequences by which social change occurs (Rogers, 1995). Every truly innovative high tech product starts out as a fad – something with no known market value or purpose but with “great properties” that generate a lot of enthusiasm within an “in-crowd.” That is the early market. Then comes a period during which the rest of the world watches to see if anything can be made of this (Moore, 2002). Rogers (1995) diffusion of innovation process has four main elements are: 1. Innovation – an idea, practices, or objects that is perceived as knew by an individual or other unit of adoption, 2. Communication channels – the means by which messages get from one individual to another, 3. Time – the three time factors are: (a) innovation-decision process (b) relative time with which an innovation is adopted by an individual or group, (c) innovation’s rate of adoption, 4. Social system – a set of interrelated units that are engaged in joint problem solving to accomplish a common goal (Rogers 1995). In figure 1, a conceptual model of the diffusion of innovations process is provided.The original diffusion research was done as early as 1903 by the French sociologist Gabriel Tarde who plotted the original S-shaped diffusion curve. Tardes (1903) S-shaped curve is of current importance because “most innovations have an S-shaped rate of adoption”. Some new innovations diffuse rapidly creating a steep S-curve; other innovations have a slower rate of adoption, creating a more gradual slope of the S-curve. The rate of adoption, or diffusion rate has become an important area of research to sociologists, and more specifically, to advertisers. Diffusion research centers have also studies on the conditions which increase or decrease the likelihood that a new idea, product, or practice will be adopted by members of a given culture. Diffusion of innovation theory predicts that media as well as interpersonal contacts provide information and influence opinion and judgment. The information flows through social networks and the nature of networks and the roles opinion leaders play in them determine the likelihood that the innovation will be adopted. Innovation diffusion research has attempted to explain the variables that influence how and why users adopt a new information medium, such as the Internet. Opinion leaders exert influence on audience behavior via their personal contact, but additional intermediaries called change agents and gatekeepers are also included in the process of diffusion. Five adopter categories have been identified as: (1) innovators, (2) early adopters, (3) early majority, (4) late majority, and (5) laggards. These categories follow a standard deviation-curve, very little innovators adopt the innovation in the beginning (2,5%), early adopters making up for 13,5% a short time later, the early majority 34%, the late majority 34% and after some time finally the laggards make up for 16% (Rogers, 2004). Characteristics that Rogers (1995) identified in each category of adopters are as follows: Rogers differentiates the adoption process from the diffusion process in that the diffusion process occurs within society, as a group process; whereas, the adoption process pertains to an individual. Rogers (1995) defines “the adoption process as the mental process through which an individual passes from first hearing about an innovation to final adoption”. Rogers breaks the adoption process down into five stages. Although, more or fewer stages may exist, Rogers says that “at the present time there seem to be five main functions (Rogers, 1995).” The five stages are: (1) awareness, (2) interest, (3) evaluation, (4) trial, and (5) adoption. In the awareness stage “the individual is exposed to the innovation but lacks complete information about it”. At the interest or information stage “the individual becomes interested in the new idea and seeks additional information about it”. At the evaluation stage the “individual mentally applies the innovation to his present and anticipated future situation, and then decides whether or not to try it”. During the trial stage “the individual makes full use of the innovation”. At the adoption stage “the individual decides to continue the full use of the innovation (Rogers, 1995).” Diffusion of Innovations Theory is at its best as a descriptive tool, less strong in its explanatory power, and less useful still in predicting outcomes, and providing guidance as to how to accelerate the rate of adoption. There is doubt about the extent to which it can give rise to readily refutable hypotheses. Many of its elements may be specific to the culture in which it was derived, and hence less relevant in, for example, East Asian and African countries, and as time goes on. Nonetheless, it provides one valuable ‘hook’ on which research and practice can be hung (Clarke, 1991).Why is the Adoption Process of any relevance to advertisers? The purpose of marketing and advertising is to increase sells, which hopefully results in increased profits. It is through analyzing and understanding the adoption process that social scientists, marketers and advertisers are able to develop a fully integrated marketing and communication plan focused at a predetermined stage of the adoption process. Rogers (1995) defines the innovation-decision process as the “process through which an individual (or other decision making unit such as a group, society, economy, or country) passes through the innovation-decision process”. There are five stages in the Innovation-Decision Process: (1) from first knowledge of innovation, (2) to forming an attitude toward the innovation, (3) to a decision to adopt or reject, (4) to implementation of the new idea, (5) to confirmation of this decision. It should be noted that prior conditions affect the innovation-decision process. Prior conditions such as: (1) previous practice, (2) felt needs/problems, (3) innovativeness, and (4) norms of the social systems. The first stage of the innovation-decision process entails seeking one or more of three types of knowledge about the innovation. Rogers describes these as: (1) awareness knowledge is information that an innovation exists, (2) how-to-knowledge consists of the information necessary to use an innovation properly, and (3) principles knowledge consists of information dealing with the functioning principles underlying how the innovation works. Rogers states that awareness and knowledge of an innovation can be made most efficiently through mass media. It will be interesting in twenty years or so, to ascertain if mass media will still be considered the most efficient means to create product awareness and knowledge. It is important to consider the consequences or changes that occur to an individual or to a social system as a result of the adoption or rejection of an innovation. Rogers identifies three consequences or changes: (1) Desirable versus undesirable consequences, (2) Direct versus indirect consequences, and (3) Anticipated versus unanticipated consequences. For the most part, the world of advertising is concerned with the diffusion of innovation process in terms of how such research studies can facilitate product adoption and therefore market segmentation. But it should be mentioned that additional research exists on the diffusion of innovation theory in other scientific disciplines, such as economic development and in the technological sector. In The Innovative Choice: An Economic Analysis of the Dynamics of Technology, Mario Amendola and Jean-Luc Gafford compare the process of innovation with the diffusion of innovation as “the extent and the speed at which the economy proceed to adopt a superior technique.” The concern is on how the economy adjusts or `diffuses’ to the new technology. This adjustment or diffusion can be instantaneous or gradual. Amendola explains a `new’, expanded interpretation of the process of innovation has emerged. Less emphasis is on the actual absorption of a given technology, and more importance is placed on the actual process through which a new technology is developed step by step. “The economy, in this context, no longer adjusts passively to the technology but becomes the instrument for determining the extent, the nature and the articulation through time of the development of the technology.” (Amendola, 1988) Although, we are most concerned with how the diffusion of innovation theory relates to the field of advertising, it is meaningful to give a brief description of other existing research that is based on and integrates the diffusion on innovation process into its’ study. Mark Dodgson and John Bessant (1996) in their book “Effective Innovation Policy: A New Approach” recognize that `success’ in innovation is not simply a matter of moving a resource from A to B, but “the capability on the part of the recipient to do something useful with that resource”, in other words, to innovate effectively. Dodgson and Bessant acknowledge that innovation is not an “instantaneous event, but a time-based process involving several stages”. They have identified these stages as: (1) initial recognition of opportunity or need, (2) search, (3) comparison, (4) selection, (5) acquisition, (6) implementation, and (7) long-term use (involving learning and development). In conclusion, the diffusion of innovation process consists of four main elements: the innovation, communication through certain channels, over time, and among the members of a social system. Research concerning the diffusion of innovation process has increased significantly the past several decades due to its versatility. A universality or similarity found amongst the various research studies on the diffusion of innovation process is that the adoption process or the rate of diffusion can be charted on an S-shaped curve. Of vast importance to those in the advertising field is the innovation-decision process. Rogers defines the innovation-decision process as the process through which an individual passes from first knowledge of an innovation to forming an attitude toward the innovation, to a decision to adopt or reject, to implementation and use of the new idea, and to confirmation of this decision. The diffusion of innovation process can be tracked on a micro level as is the case of an individual who is a targeted member of an audience, or traced at the macro level when considering economic development or technological advances. In either instance, during the course of the twentieth century the diffusion of innovation theory has proven to be versatile, universal, but most important relevant. Some of the methods used to evaluate the diffusion of innovations are network analysis, surveys, field experiments and ECCO analysis. ECCO, Episodic Communication Channels in Organization, analysis is a form of a data collection log-sheet. This method is specially designed to analyze and map communication networks and measure rates of flow, distortion of messages, and redundancy. The ECCO is used to monitor the progress of a specific piece of information through the organization (Rogers, 2004). 10.4 Theories of diffusionOther relevant theories to diffusion of innovation include:1. Innovation Decision Process theory. Potential adopters of a technology progress over time through five stages in the diffusion process. First, they must learn about the innovation (knowledge); second, they must be persuaded of the value of the innovation (persuasion); they then must decide to adopt it (decision); the innovation must then be implemented (implementation); and finally, the decision must be reaffirmed or rejected (confirmation). The focus is on the user or adopter. 2. Individual Innovativeness theory. Individuals who are risk takers or otherwise innovative will adopt an innovation earlier in the continuum of adoption/diffusion. 3. Rate of Adoption theory. Diffusion takes place over time with innovations going through a slow, gradual growth period, followed by dramatic and rapid growth, and then a gradual stabilization and finally a decline. 4. Perceived Attributes theory. There are five attributes upon which an innovation is judged: that it can be tried out (trialability), that results can be observed (observability), that it has an advantage over other innovations or the present circumstance (relative advantage), that it is not overly complex to learn or use (complexity), that it fits in or is compatible with the circumstances into which it will be adopted (compatibility). 10.5 Innovation mythsMyth 1: Innovation is planned and predictableFact: Innovation may need a strategic plan but it can also be accidental or unplanned.Myth 2: Technical specifications should be thoroughly preparedFact: At times one may not be certain of all the facts about how to carryout but much knowledge will always in emerge in the process of doing.Myth 3: Creativity relies on dreams and blue- sky ideasFact: Any idea can emerge as the useful innovation so much desired when evaluated and carefully selected, developed and implemented.Myth 4: Big projects will develop better innovations than smaller onesFact: Quality of innovation is independent of the size of the project. What matters is the fit of the innovation to the market.Myth 5: Technology is the driving force of innovation successFact: Innovation is not synonymous with technology but technology can be built on by innovators and can also be an outcome of some innovation as well. ?CHAPTER ELEVENFINANCING STARTUP BUSINESSES11.1 Types and Sources of Financing for Start-up BusinessesFinancing is needed to start a business and run in its lifetime. The ?nancial needs of a business will vary according to the type and size of the business. For example, manufacturing enterprises are usually capital intensive, requiring large amounts of capital. Retail businesses usually require less capital. During start up options for funding are usually constrained as compared to a mature business. There are several sources to consider when looking for start-up ?nancing to consider; among them are: 1. Personal finance2. Friends and relatives3. Debt financing4. Equity financing5. Venture capitalists6. Angel investors7. Crowd funding3.19 Personal SavingsThe ?rst place to look for money is your own savings or equity. Personal resources can include ones salary, lottery win, terminal pay-off, savings account, dividends, early retirement funds, real estate disposal, cash value insurance policies maturity pay-offs, and so forth. It is any financial resources that one can mobilize from assets possessed.3.20 Friends and relativesThis includes any contribution from people known to you, for example a parent, sibling, religious leader, political leader, and so forth. It may be in the form of donation and financial aid social funding where the friend or relative acts a well-wisher in becoming part of the success story of the start-up.3.21 Equity FinancingEquity ?nancing means exchanging a portion of the ownership of the business for a financial investment in the business. The ownership stake resulting from an equity investment allows the investor to share in the company’s pro?ts. Equity involves a permanent investment in a company and is not repaid by the company at a later date. An equity stake in a company can be in the form of membership units called shares – as in the case of a limited liability company. Companies may establish different classes of stock or membership units to control voting rights among shareholders – such as general and preferred stocks. General stockholders can vote while preferred stockholders generally cannot. However, common stockholders are compensated last in case of default or bankruptcy. Further, preferred stockholders receive a predetermined dividend before common stockholders receive a dividend. Equity financing include contributions by partners, shareholders in an IPO (Initial Public Offer), rights issues of stocks among others.3.22 Debt financingDebt ?nancing involves borrowing funds on behalf of the business with the terms and conditions for repaying the borrowed funds in future time. It includes commercial bank loans, micro-finance institution loans (MFIs), life insurance policy cash value borrowing, home equity loans, and other formal and informal lenders. For the creditors (those lending the funds to the business), the reward for providing the debt ?nancing is the interest or achievement of other funding objectives. Debt ?nancing has terms and conditions. For example, it may be secured or unsecured. Secured debt has collateral (a valuable asset capable of covering the risks of non-payment to the lender, if charged). Conversely, unsecured debt does not have collateral and places the lender in a less secure position in case of default. Debt ?nancing may also be short term or long term and schedules of payments may be stipulated. In practice, short-term debt is used to ?nance current activities such as working capital for operations while long-term debt is used to ?nance assets such as plant and machinery, or development projects such as buildings and land acquisition. Banks and other commercial lenders are popular sources of business ?nancing. Most lenders require a solid business plan, positive track record, and plenty of collateral. These are usually hard to come by for a start- up business. Once the business is underway and pro?t and loss statements, cash ?ows budgets, and net worth statements are provided, the company may be able to borrow additional funds.In the informal sector and micro and small enterprises Savings and Credit Associations such as Rotating. Savings and Credit Associations (ROSCAs), Accumulating Savings and Credit. Associations (ASCrAs), and table banking; among other region specific savings and credit innovations have become profound source of business financing. ROSCAs and ASCRAs have three main functions: (i) security or insurance, (ii) economic support and (iii) socialization of members. Through some embedded welfare element these informal or semi-formal groups support members in life cycle events like burial, sickness, weddings and other events. They are a major source of economic support through collateral free credit since the members guarantee each other. Socialization aspects is also evident in building of a social networks of mutual care and concern for the group members. ROSCAs involve a group of individuals who come together and make regular cyclical contributions to a common fund, which is then given as a lump sum to one member in each cycle (“merry go round”). In ASCRA the savings of members are accumulated for a given agreed upon period. Then any member who wishes to borrow is lent at a specified simple interest. The remaining savings for the group can be deposited into a financial institution. The main difference between a ROSCA and an ASCrA is what happens to the funds contributed by the members. ASCrAs have a broader set of objectives than ROSCAs: they do not only focus on individual goals, but also fulfil group goals. The ROSCA system promotes the welfare of the individual, while ASCrAs tend to promote collective success. Unfortunately, these savings and credit associations can also have some negative aspects: they can perpetuate debt and dependency where members borrow just because it is their opportunity to borrow and after spending borrowing on obvious household items sometimes the borrowers have no idea of what to do with the borrowing thus misappropriating it and ending in credit cycle with not utility value. The option of table banking has been advanced extensively in Kenya through Joyful Women Organization (JOYWO). Led by Mrs. Racheal Ruto, wife to the Deputy President of the Fourth President of Kenya, within four years by 2013 the organization had a circulation of Sh425 million (USD 4.25 million). In table banking members save and borrow directly from their savings in either short-term or long-term loans. This process is done on and around a table, hence the name, “table banking.” In this group funding method each group meets once a month and at this meeting members place their savings and loan repayments on a table. Members are then able to borrow money from one another as either a short-term or long-term loan for their projects. Savings and Credit Cooperative Associations (SACCOs) are more or less like the ASCRAs but they are formal organizations and are strictly regulated.3.23 Venture CapitalistsVenture capital refers to ?nancing that comes from companies or individuals who engage in the business of investing in other business that appeal to their sought after characteristics for a given period and stake-holding, usually with a management controlling interest. Venture capital ?rms are usually focused on creating an investment portfolio of businesses with high-growth potential resulting in high rates of returns. These businesses are often high-risk investments. They may look for annual returns of 25 to 40 percent on their overall investment portfolio. So these investors prefer profitable or potentially profitable startups that are very innovative and often owned by young entrepreneurs, among other characteristics. The entry and exit should be easy and prospects of rewards very high. The businesses must have a high competitive advantage or a strong value proposition in the form of a patent, a proven demand for the product, or a very special untapped market niche. Venture capital investors often take a hands-on approach to their investments, requiring representation on the board of directors and sometimes the hiring of managers. Venture capital investors can provide valuable guidance, expert business advice, and other non-financial benefits to propel the business and notch higher. However they bargain for substantial returns on their investments and their objectives may be at cross purposes with those of the founders. They are often focused on short-term gain.3.24 Angel InvestorsAngel investors are individuals and businesses that are interested in helping small businesses survive and grow. They philanthropic and their objective may be more than just focusing on economic returns the business generates to the owners but its social contribution to a course they believe in. Although angel investors often have somewhat of a mission focus, they are often interested in sustainability by pro?tability and security for their investment so that the business achieves for them their social goals. So they may still make many of the same demands as a venture capitalist with an orientation of the impact of the business on their goals of interest. Angel investors for example may be interested in the economic development of a speci?c geographic area in which they are located. Angel investors may focus on earlier stage ?nancing and will give smaller financing amounts than venture capitalists.3.25 Crowd fundingIt involves fundraising funds from strangers towards ones’ personal projects. When one has a very convincing startup that can obtain social support then one can pitch his or her story through a social channel to solicit for well-wishers to donate financial aid or other relevant aid towards the startup. Several organizations exist with majority of them online which assist in fund raising for projects.3.26 Government Grants and public financingGovernments often have ?nancial assistance in the form of grants, unsecured loans, asset-financing loans among others through Government Funds incentives. In Kenya examples include Youth Enterprise Development Fund (YEDF), Women Enterprise Fund (WEF), Uwezo Fund, and manay more. The objectives is to inject financial support as means to national or regional social economic development. Government can also give assistance in the form of a financial guarantee of the repayment of a loan from a bank or commercial lender. The guarantee provides the lender repayment assurance for a loan to a business that may have limited assets available for collateral.3.27 BondsBonds may be used to raise ?nancing for a speci?c activity. They are a special type of debt ?nancing because the debt instrument is issued by the company. Bonds are different from other debt ?nancing instruments because the company speci?es the interest rate and when the company will pay back the principal (maturity date). Also, the company does not have to make any payments on the principal (and may not make any interest payments) until the specified maturity date. The price paid for the bond at the time it is issued is called its face value. When a company issues a bond it guarantees to pay back the principal (face value) plus interest. From a ?nancing perspective, issuing a bond offers the company the opportunity to access financing without having to pay it back until it has successfully applied the funds. The risk for the investor is that the company will default or go bankrupt before the maturity date. However, because bonds are a debt instrument, they are ahead of equity holders for company assets.3.28 WarrantsWarrants are a special type of instrument used for long-term ?nancing. A warrant is a security that grants the owner of the warrant the right to buy stock in the issuing company at a pre-determined price (exercise) at a future date (before a speci?ed expiration date). Its value is the relationship of the market price of the stock to the purchase price (warrant price) of the stock. If the market price of the stock rises above the warrant price, the holder can exercise the warrant. This involves purchasing the stock at the warrant price. So, in this situation, the warrant provides the opportunity to purchase the stock at a price below current market price. If the current market price of the stock is below the warrant price, the warrant is worthless because exercising the warrant would be the same as buying the stock at a price higher than the current market price. So, the warrant is left to expire. Generally warrants contain a speci?c date at which they expire if not exercised by that date.3.29 LeaseA lease is a method of obtaining the use of assets for the business without using debt or equity ?nancing. It is a legal agreement between two parties that speci?es the terms and conditions for the rental use of a tangible resource such as a building and equipment. Lease payments are often due annually. The agreement is usually between the company and a leasing or ?nancing organization and not directly between the company and the organization providing the assets. When the lease ends, the asset is returned to the owner, the lease is renewed, or the asset is purchased. A lease may have an advantage because it does not tie up funds from purchasing an asset. It is often compared to purchasing an asset with debt ?nancing where the debt repayment is spread over a period of years. However, lease payments often come at the beginning of the year where debt payments come at the end of the year. So, the business may have more time to generate funds for debt payments, although a down payment is usually required at the beginning of the loan period.?CHAPTER TWELVEBUSINESS PLANNING12.1 Defining business planA business plan is a document that convincingly demonstrates that your business can sell enough of its product or service to make a satisfactory profit and be attractive to potential backers. It is a selling document. Real goal is to convince! Who are you convincing? Yourself, investors, financiers, key employees, suppliers, and so forth.12.2 Goals of a business plan1. Consider important aspects and decide whether to “go or no go”2. Initial planning document for a new business3. Serves as a tool to communicate the idea of the new venture to potential investors, bankers, key employees4. Serves as a record to monitor and compare result12.3 Benefits of a business plan1. Financiers: – Most banks loaning money, especially if the business does not have a track record2. Entrepreneur, to insure they have considered everything3. Seeking investment funding: this is the document most venture capitalists first ask for business plan- who have some doubts about your abilities/integrity4. Highly required or important potential employees5. Suppliers who are providing goods to the firm on credit6. Obtaining large contracts: proof of recognition to large companies checking out small ones:- Customers who have floated a tender and want to confirm that the firm shall manage to deliver7. Attracting key employees: can help an executive come over to your side8. Completing mergers and acquisitions: for selling and buying companies, buyers seldom look at only one company9. Motivating management team: causes everyone to be working toward the same goal, reduces customer confusion, lays out financial, marketing and production goals10. Anyone wondering if they should take the risk with the firm12.4 Types of business plans1. The Summary Business Plan – contains only the most important information about a business and its direction. It has 10-15 pages, concise, brief in style – for example the business strategy stated in one sentence. This kind of business plan works best when applying for a loan, if you are well-known, not seeking funding from other investors, and one need money quickly.2. The Operational Business Plan –it acts as an internal planning document of an operational company usually much longer because it takes more time to describe ongoing business more history, products, people heavy on the quantitative analysis meant to inspire managers, best for fast-growing company, gives order to growth used as part of an annual review.3. The Full Business Plan is the standard business plan. It may take 30-50 pages and 10-30 pages of support documentation such as employees’ resumes, profit and loss accounts, copies of awards won, proof of formal business registration, letters of support, promotional materials introduction detailed, and other explanatory works. It is best when you want to explain key issues fully, looking for a lot of money, looking for a strategic partner.12.5 Parts of a standard business plan1. Cover page2. Executive summary – small version of BP3. Company strategy – what’s your identity?4. Management plan: Organization chart, key staff and their competencies, recruitment procedures, job description, promotion of employees procedures, etc.5. Marketing plan (marketing issues such as who buyers are, market niche, pricing, distribution, etc.).6. Product/services plan: the products/services provided, justification for those products, capacity and quality plan, breakeven, production plan, etc.7. Operational plan: where to locate the business, how to display, working hours, sales terms, etc.8. Financial plan: Budget and sources, cash flow projection, pro-forma financial statements, etc.9. Harvest/Exit strategy: what to do if the business comes to an end or with profits generated.Part 1: Cover PageThis is the first page of the business plan. It must be attractive to the audience and will need to include:i. Name of companyii. addressiii. phone number, fax, e-mailiv. chief executive’s namev. number the copy of the planvi. follow-up with non-disclosure agreementPart 2: Executive SummaryA page or so to highlight key information the business plan. It explains what is the business, location, purpose of the business plan, period covered, business goals in that period, and specific business strategies to be applied to satisfy profit and growth. i. Stands alone as a business plan within a business planii. Should be logical, clear, interesting and excitingiii. requires less than 3 minutes to readiv. should not be more than 2 pages Part 3: Company StrategyCompany strategy answers the question of what and how the company wishes to do. Every company has an underlying philosophy and logic, for example: decentralization of decision-making, interest in funding expansion of the company via earnings as opposed to outside investment, among others. Four Principle Strategy Issues are overall company strategy: overall approach to producing and selling products and services, goals for maximizing success, what is your guiding principle for the company. Company strategy includes a mission statement to encapsulate the company’s values and overall purpose in life. It also highlights technology and information systems assessment such as firm’s ability to leverage on edge cutting technologies adopted by the company and its capacity to generate superior customer value; the management team competencies as the ones who determine and implement the strategy. Discussion on company’s history, when it was started, by whom, has strategy changed from that of the past and status of company today. Other elements include: a) The Vision, Mission and Core Values i. A vision represents long term aspirations of the firm relative to other similar organizations and the dream of the organization – many times it is more than adequate just to achieve business goals but also to earn an enviable position through improving people’s lives.ii. A mission represents a more generalized and idealistic vision of the company’s purpose in life. Mission statements also establish achievable goals and often focus on three issues: product, economic and social objectivesiii. Core values state the principles held by the company as critical drivers of its philosophy and work practices.4) The Management PlanIt covers the organization chart and structure of the business. Staff hiring, promotion, development, and other factors that enhance productivity of employees and their satisfaction. This is the critical link in making the strategy section believable. The quality of the management team should speak for itself because people are the key to determining success and should not be a one-man-band syndrome or everyone from same background. Successful management teams require diversity of training and expertise. There should be emphasis of real-life business accomplishments, academic accomplishments, evidence of special knowledge and creativity, coverage of key positions of authority, structured board of directors, and other features of a strong and competent team.Part 4: Marketing Issues It details on the buyers, their profile, where they are found, why them and how fit the product and company is to cover them, the strategies to be used to satisfy them, who else is in this market, what share does the company enjoy or is targeting to acquire, what strategies will be used to capture and serve this target market, the SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of the company and its competitiveness; product, promotion, distribution and pricing strategy, among others. The marketing plan must emphasize the benefits of the customer such as convenience, price, uniqueness of product, and other selling points of the product.Part 5: Product/Service Issues This section covers details on what your company will be selling and its quality and value to the market, varieties of products, source, production line and quantities, stocking principles, and so forth. Each product line sold by the company will need clear plan on its sourcing, stocking, display, sales and delivery and its costs and profitability, as well as growth objectives. Portfolio analysis of each individual product to justify its value to the company and how far the company intends to go with it is important.Part 6: Operational plan This section covers how the business will be conducted, operating hours, location, layout of the offices and shopping area, key procedures that gives the business excellent service delivery. Operational plan focuses on how the business will operate on the day to day basis, every day and hour for the entire year. Part 6: Financial planThis section covers the sources of revenue and expenses of the business including the startup capital and budget, cash-flow projections month by month for year one, pro-forma profit and loss account for year 1 to 3, pro-forma balance sheets for year 1 to 3, profit ratios for project years, break-even analysis of the business, among others. The financial plan is the hardest part of the plan to organize and finish and may require an expert to help put together your projections.Part 7: Harvest and Exit StrategyThis is an optional part. It covers the eventual end of the business when the owners plan to either sell, withdraw substantial part of their investment possibly to other use or even sell the firm altogether – not to mention wound up when the business has reached it end.?CHAPTER THIRTEENBUSINESS DEVELOPMENT SERVICES13.1 Defining Business Development ServicesBusiness development services (BDS) are all services meant to assist a business person to start, manage and expand their business operations. The scope of BDS is very broad, ranging from operational BDS like communication and transport needed for the day-to-day operation of business, to strategic BDS like training and consultancy services needed to gain the business management know-how. Business development services includes all services that improve the performance of the enterprise. They provide support and assistance to business in its access to markets and its ability to compete. Their services include registration of business, business planning, business incubators, micro insurance, business management training, consultancy and business counseling, marketing, use of information communication technology, technology development and transfer, business linkages promotion, and so forth. There are two BDS service levels, namely; operational (day-to-day issues) and strategic (medium to long term issues that improve performance). BDS are designed to service individual businesses at their different stages of business cycle. Usually services needed by business differ with the stage of the business, its sector, market target orientation, a other factors.In order to spur growth of enterprises a Government or its development partners can use different BDS related interventions that include: a. Business Support Centers (BSC)b. Local Economic Development Initiatives (LED)c. Business Incubators (BI)d. Information and Communication Technology (ICT) centersThe incentives are meant to address problems of the MSME sector that include:• Liability of smallnessa) Lack of access to market b) Local or regional market focusc) Poor infrastructure for SMEs based in rural areasd) Poor quality of infrastructure (electricity fluctuations)e) Inadequate technical weaknessesf) Lack of entrepreneurship competencies g) Lack of technical skills (Product development, Packaging, Distribution, Sales promotion)h) Financial barriersi) Inefficiencies in management of financej) ICT problems and access to informationk) Unfavorable policy decisions (tax, imports etc.)l) Lack of access to affordable skilled laborsm) Lack of business networksn) Low productivity and yield13.2 Types of BDS providersBDS can be provided by Governments, NGOs, Universities, and other development partners and even by private commercial BDS service providers. The advantage of the first category (first tier BDS) is that its services are usually free or subsidized. However, private commercial BDS service providers have also proved vital in closing the gap where first tier BDS providers are inadequate. They may also be more innovative and pro-active. 1st Tier BDS service providers 2nd Tier BDS providersVision A non-profit or government organization that provides BDS to MSMEs A primarily private sector market made up of competing suppliers sell a range of services to MSMEsObjective Provide services that MSMEs can afford or free Encourage others to provide services to MSMEs on a commercial basis with a competitive pricing regimeStarting point Diagnosis of needed BDS interventions through surveys Assessment of market (demand, supply, profitability potential)Point of intervention Primary services including establishment of institutions, infrastructure, policies, environment, facilities, etc. Secondary services such as business registration, micro credit, incubators, market access, ICT services, etc.Duration of involvement Permanent and donor-funded programmes Temporary and are market driven Subsidies Includes free or low cost services to MSMEs without expectation of immediate returns to the providers. No subsidies and pricing is on various competitive models13.3 Types of BDS providers and their characteristics1. Government ministries and departments• Mostly free of charge or subsidized• Effectiveness of service delivery varies• They may cover various SME’s perspectives • Policy making2. Non-Governmental Organizations (NGOs)• Limited focus• Absolutely free of charge• Limited to project period• Limited to target group and locality3. Associations and Societies• Sector base• Initiated because of an influence• Free services • Voluntary contribution4. Private Institutions• Specialized or multidisciplinary• Profit oriented and fee based • Sustainable market strategies13.4 Types of BDS servicesA BDS organization is any organization with a mandate to provide business development services to the business community. BDS organizations can be public or private sector institutions, and registered as a non-profit organization or as commercial business. BDS can also focus on revving up business viability with a focus to BDS incentives such as affordable loan interest rates, business friendly banks, and affordable electricity tariffs in business zones or at night time. Some can focus on incentives for alternative power applications, improvement of product or service quality through new technology adoption. They may also help to reduce or eliminate non-tariff barriers of trading partner states or trade blocs. Marketing linkages and opportunities, award for business innovativeness and promotion of modern technology can also be other facets of BDS. Nevertheless, multiple barriers affect adoption and use of technology, for which BDS so also pay attention to. They include; high cost of plant and machinery or equipment, high cost of expertise (which can be solved by extension services), unsupportive rules and regulations, expensive custom procedures and so forth. In response to all these needs there exist many categories of BDS service provides in the Government sector, not for profit partners and private enterprises. Their services include: 1. Market access BDSProduction of goods and services in an enterprise is not an end in itself. Successful business enterprise must be market oriented by understanding their customers and being in the best position to supply and meet those needs. Unfortunately many small enterprises fail on the onset by lack of accurate market information on the market feasibility of their products and services. This problem is extended due to poor location of the business away from favorable location reach of the customers. There is also low or limited capacity for advertisement of services. Where certain services are demanded in certain quantities and quality specifications, those MSMEs finding it difficult to achieve such specifications. For example, if a supermarket requires certain supply of bananas at a certain quantity and quality, a small farmer may not be a position to accumulate the needed quantities and check the quality of goods and services. Furthermore, the most lucrative markets have standards and protocols which are unknown to the small enterprises and even hard to comply. Many times also the small enterprise entrepreneur may not be even aware of opportunities that exist in the market place such as exports and the necessary regulations that govern it. Several major opportunities in Kenya remain poorly subscribed by MSMEs in Kenya. They include African Growth and Opportunity Act (AGOA) and Access to Government Procurement Opportunities (AGPO). AGOA is a United States Trade Act, enacted on 18 May 2000 as Public Law 106 of the 200th Congress. AGOA has since been renewed to 2025. The legislation significantly enhances market access to the US for qualifying Sub-Saharan African (SSA) countries by lowering or abolishing trade tariffs and quotas for various goods (mostly textiles and garments) from selected African countries. AGPO is an affirmative action program aimed at empowering women, youth and persons with disability in Kenya by giving them more opportunities to do business with Government. AGPO is founded on the Presidential Directive, the Preference and Reservations Regulations 2011 (amended in 2013) to facilitate the enterprises owned by women, youth and persons with disability to be able to participate in government procurement. It is aimed at implementation of a Presidential Directive that 30 percent of government procurement opportunities be set aside specifically for enterprises owned by women, youth and persons with disability. Unfortunately, the opportunity over the years has not yielded satisfactory subscription since most of these enterprises lack capacity to access and are even ignorant about the opportunity.2. Infrastructure BDSThe cost of installation of fundamental infrastructure such as electricity, Internet, water, security systems, among others is prohibitive for many MSMEs. Therefore, these MSMEs operate without adequate access to most of these basic utilities a factor that affects their productivity and cost of products. Government can intervene by providing MSMEs industrial parks, shades, business zones and so forth that are installed with these services.3. Financial services BDSAccess to finance and affordable credit are major challenges of MSMEs. Most of MSMEs therefore rely on inadequate personal savings and expensive financial markets. This affects their capacity to obtain expensive industrial machinery, farm implements, working capital and other financial requirements. The owners may lack sufficient collateral and conditions set out for formal lending access. Therefore financial BDS focuses on resolving these problems through micro-lending, collateral free credit, and other financial interventions. The Government of Kenya has responded through the Youth Enterprise Development Fund (YEDF) and the Women Enterprise Development Fund (WEDF). The funds have become source of low cost credit to Youth and Women owned enterprises. However, both of thems have not been performing as expected and there are plans to convert them into a Business Bank (Biashara Bank) in future.4. Technical services BDSThe capacity for MSMEs to meet certain technical services such as use of modern technology and methods has been poor. Attendant to this is their inability to afford the technology and skills such as professional financial management, legal representation, tax filing and tender application, and so forth. Most of these services can be provided by private BDS suppliers through outsourcing and business bureaus. Government and not for profit institutions can assist in establishment of business information centers, ICT centers, advisory extension services, and so forth.5. Policy and advocacy BDSIn most cases problems of MSMEs are worsened by lack of legal framework that supports their growth and development. Unlike the large enterprises MSMEs are disproportionately affected by business environment turbulence and can be fragile. It has been noted that one of the factors behind low subscription of Access to Government Procurement Opportunities (AGPO) affirmative programme for preferential access to supplying Government tenders is delayed payments by Government departments. This delay usually affects the cash flow of such MSMEs and thus discourage their participation. There is therefore need for a policy through legal enactment that establishes strict payment timelines for suppliers to Government especially for MSMEs. In order to pro-actively develop a favorable environment for doing business, the Government must review its policies to eliminate unnecessary red tape, secure business from unscrupulous persons, enforce legal contracts, speed up court redress systems, research and enact supportive policies, review and repeal policies frequently, and reduce difficulties of opening and running businesses that comply with legal and administrative framework. Innovations such as use of Internet for e-Government and one-stop Government service window (shop), such as Kenya’s Huduma Centers can alleviate most of these business pains.6. Training services BDSKnowledge transfer is critical to progressive growth of any business sector. Training provides necessary skills and knowledge for technical and management capacity for the entrepreneur and the employees. The training can focus on many aspects business including use of technology, financial management, market information, and can touch on all the different areas of BDS. The role of Government and its development partners is primary. Integrating of entrepreneurship training in formal education curriculum as well as establishment of technical and vocational training centers (TVETs) has also contributed to entrepreneurship development. It would be desirable that every financial intervention programme should have an element of training to ensure proper use and application of financial support given.7. ICT access BDSAccess to Information Communication Technology (ICT) and its related services can enhance a business performance since ICT has been found to be an enabler in any sector. ICT in business supports different applications including product development, operations, communications, training, and service delivery. However, the cost of computer hardware and software as well as technical staff is a major problem for MSMEs. Establishment of ICT centers at community or village level in 2011 in Kenya called Pasha centers was expected to address this problem. However, the project had mixed outcome. Many small enterprises rely on Internet cyber cafes to access such services. However, there has been a great performance in mobile technology innovations in Kenya due to high penetration of mobile phones. These has resulted in many mobile business applications that are making use of ICT become a great driver in many small businesses in Kenya today. Nevertheless, provision of cheap and affordable Internet is a great challenge especially in rural areas where mobile Internet is not inexistent or on very low capacity.8. Input supplies BDSBusiness input supplies are critical component in production. These include quality seeds, farm implements, manufacturing machinery, and pesticides. Government could assist in providing affordable input supplies and reduction of tax on input supplies. Capacity for local manufacturing of most of input supplies should also be enhanced where economically viable and such manufacturers given trade incentives. Suppliers of counterfeit input supplies should also be checked to avoid huge losses due to poor input supplies. Bulk purchase of input supplies through Government institutions and direct distribution to the MSMEs can also eliminate problem of exploitation by middlemen.9. Research and development BDSResearch and development (R;D) is very expensive and many small enterprises do not afford it. Universities and research institutions provide public with vital information to support their businesses. However, since research is expensive some structured and regular funding scheme is needed to ensure consistent support. The Government of Kenya has recently pledged to allocate 2 percent of its national budget to research. Universities can enhance collaboration with Government and Industry so as aid in Knowledge Transfer (KT) from its research work. There should be an emphasis that every state sponsored research must demonstrate KT so that such research outputs do not continue wasting away.10. Business incubation BDSBusiness incubators (BI) are organizations geared toward jumpstarting or speeding up (accelerating) the growth and success of startup businesses. They can be a physical space meant to foster networking among entrepreneurs and their coaches or a virtual online space for the same purpose. Common services in a BI include physical space, business registration, capital, coaching, common services, and business networking connections. Their office and manufacturing space is offered at below-market rates, and provide its staff, supplies advice and the much-needed expertise in developing business. An incubate typically spend an average of six months to two years in a business incubator to reduce everyone overhead and operational costs until it is strong enough for the more challenging business market. Such centers can be set up in universities, municipal centers, private and Government institutions.13.5 Problems associated with BDS incentives1. There is no standardization of BDS providersAs an entrepreneur wishing to access BDS services it is quite confusing to identify one single partner. Each BDS will have a different bouquet for its contemporary.2. Lack of clear cut government policy and rules and regulations governing BDS marketsIn many economies BDS operate without a policy framework to govern their formation and services. This causes duplication of services and lack of coordination of these many helping hands.3. Repetitions of BDS service especially from government sectorEvery well-wishing trade oriented Government entity at the national Government or its devolved units often times has an aspect of trade development that aligns to BDS settings. For example in Kenya many county Governments have a Youth and Women entrepreneurship programme yet the national Government also has its own.4. Complexity of decision on service fee model (free, subsidized or commercial). Absolute free BDS service model is noble for its inclusiveness and accessibility. However, both free and subsidized models cause distortion of free market economy and have challenges of sustainability. Pure commercial model locks out a critical mass of MSMEs that cannot afford. Therefore, Government based BDS and not for profit BDS should exist for providing free and subsidized BDS services as an incentive to inject growth where free market has failed such that an affirmative action is needed. However, the best model is for Government to create the necessary environment to encourage formation of effective and efficient private BDS services providers. Its main focus should be on the primary BDS services such as policy development, infrastructure development, and research and development. Private sector based BDS orientation in an economy not only hastens their spread and strengthening but also brings in innovation as these partners compete amongst themselves in a free market. Universities and research institutions in a country are also fundamental knowledge factories and establishment of incubation centers as an integral component of their setup creates the industrial interface necessary to link the innovators to the market place.5. Attitude of MSMEs for paying BDSMany times MSMEs do not place adequate value of BDS service providers and end up in trial and error business. It may be necessary to institutionalize the linkage of BDS and MSMEs but establish mandatory requirement that encourage the relationship without undue exploitation. For example, for going global enterprises, they should register with the Export Processing Council and the Council should have complementing services to such members. On the other hand the National Industrial Training Authority (NITA) has an institutionalized relationship with medium and large enterprises since a regulation requires them to pay Industrial Training Levy which also allows them to enjoy attractive training rebates. The same relationship applies with Utalii College and the Kenya Tourism Development Corporation where a levy charged to tourist hotels is channeled to support staff training for these hotels. Unfortunately, most of these establishment of funds and levies do not have accessible membership for MSMEs. There also no established business associations or clubs that target MSMEs with BDS services. 6. Absence of coordinated effort for BDS deliveryThe coordination of effort of different BDS service providers is also lacking. Many countries including Kenya do not have institutions charged with responsibility of registration and coordination of BDS service providers. Their role has not been mainstreamed in the Government legal framework for business development.7. Distorted and discontinuation of BDS markets by projectsMost BDS services are normally inform of short-lived projects which often fail to achieve their objectives for lack of sustained support. They are sometimes political projects and lack property feasibility and sustainability.8. Lack of technically qualified officers with BDS providersAt times BDS providers rely on volunteers and ill-trained staff as social programmes. Strengthening of private BDS providers at commercial terms holds the key to establishment of professional standards in BDS services.13.6 Critical success factors of a BDS initiative In order for any BDS initiative to be successful, it must focus on three critical factors namely; (1.) Sustainability, (2.) Impact, and (3.) Outreach (area, number of people and service portfolio). Sustainability of a BDS can be enhanced by participation of key stakeholders in their model of operation, and also by ensuring there is a revenue model that creates sufficient in flows to avoid donor or financiers fatigue. It also very important for the BDS to have demonstrated impact so as to attract subscription by the target beneficiaries. In terms of outreach, the BDS must clearly segment its target and offer it appropriate service portfolio. In appropriate products and services will be a waste of resources and are likely to be shunned.?CHAPTER FOURTEENCONTEMPORARY AREAS IN ENTREPRENEURSHIP14.1 IntroductionThis chapter covers emerging topical issues about entrepreneurship. The subject of area of entrepreneurship has continued to expand and among key thematic areas are corporate venturing, strategic entrepreneurship, social entrepreneurship, global entrepreneurship, e-entrepreneurship and entrepreneurial marketing, among others. This topic takes a seminar approach to help in exploring various sub themes related in these contemporary areas of entrepreneurship. The seminar approach discusses various research papers in these topical areas. 14.2 Corporate entrepreneurshipCorporate entrepreneurship focuses on entrepreneurial actions within established enterprises especially the large organizations. This phenomenon has been identified a critical characteristic that sustains the strategic renewal of an existing business. It refers to the development of new ideas and opportunities within large or established businesses that would directly lead to a reloading of a new innovation curve for the improvement of organizational profitability and an enhancement of competitive position. Corporate entrepreneurship is activated through innovation-based initiatives that generates renewed venturing within existing firms and when carried out as planned management paradigm it then constitutes strategic entrepreneurship to become the long term characteristic that defines such an entrepreneurial firm. The tragedy of established firms is to celebrate their success far too long and thus lose the nexus of market turbulence which inevitably remain surpriseful and a phenomenal cyclic creative destruction. When a firm is keen on its replication of successes by frequent self-renewal through new and innovative products then it keeps its pace riding on the high waves that would drown the iconic stars of yesterday. The concepts of corporate entrepreneurship goes back to the 1970s when Peterson and Berger (1971) introduced it as a strategy and leadership style adopted by large organizations to cope with the increasing level of market turbulence. However, it became a separate research discipline 1980s through the works of Burgelman (1983) and Miller (1983), and in particular Pinchot (1985) book on intrapreneurship. Similar terms used with corporate entrepreneurship include intrapreneurship, strategic renewal, entrepreneurial management, strategic entrepreneurship and corporate venturing, among others.Covin and Miles (1999) categorized four forms of corporate venturing to include:1. Sustained regeneration: This refers to organizational level entrepreneurial activity in regular and continuous introduction of new products and services or new markets entry. It involves cultures, structures and systems supportive of innovation where change is promptly embraced and competitors are battled in aggressive market share challenge. While introducing new products and services or entering new markets, these businesses deliberately kill older products and services from their product lines in an effort to improve overall competitiveness and break the norm from copycats through rapid product life cycle management strategies. 2. Organizational rejuvenation: This is a corporate entrepreneurship phenomenon whereby the businesses alters its internal processes, structures and capabilities in order to sustain or improve its competitive standing. The business would improve execution its business strategies both pre-existing and new ones.3. Strategic renewal: This refers to the corporate entrepreneurship phenomenon whereby the business makes a paradigm shift in its strategy so as to fundamentally alter how it competes and redefine its relationship with its markets or industry competitors. 4. Domain redefinition: In this corporate entrepreneurship phenomenon the business proactively creates a new product-market arena that others have not recognized or actively sought to exploit. It takes the competition to a new arena either as a first or early mover and seek a sustainable competitive advantage and create the industry standard or define the benchmark against which later entrants are judged. The four key elements of corporate entrepreneurial endeavors are (1.) New business venturing, (2.) Innovativeness, (3.) Self-renewal, and (4.) Proactiveness. The New Business Venturing is the creation of a business within an existing organization, and Organizational Innovativeness delivers the Product and service innovation, with an emphasis on development and innovation in technology. It includes new product development, product improvements, and new production methods and procedures. The Self-Renewal element is the transformation of an organization through the renewal of the key ideas on which it is built. It causes redefinition of the business concept, reorganization, and the introduction of system wide changes to increase innovation. The element of pro-activeness manifests initiative and risk-taking. Proactive organizations tend to take risks by committing significant resources to new combinations that might have a likelihood of failure.Corporate entrepreneurship as entrepreneurial management paradigm is different from traditional management in eight (8) ways. (1.) Strategic Orientation, (2.) Commitment to Opportunity, (3.) Commitment of Resources (4.) Control of Resources, (5.) Management Structure (6.) Reward Philosophy, (7.) Growth Orientation, and (8.) Entrepreneurial Culture. The Strategic Orientation takes a focus on those factors that are inputs into the formulation of the firm’s strategy. It is driven by perception of opportunity instead of been driven by controlled results. Commitment to Opportunity occurs by a commitment to taking action on potential opportunities in a revolutionary way of a short time duration instead of evolutionary with long duration. The pursuit of a particular opportunity requires Commitment of Resources carefully minimizing the resources that would be required. Control of Resources revolves around how to access others’ resources to use or rent instead of owning them so the firm overcomes the constraint of its possessed resources even by employing or control resources it does not own. The Management Structure is more organic and tends to be flat instead of a tall hierarchy such that it has few layers of bureaucracy between top management and the customer and typically has multiple informal networks. The Reward Philosophy hinges on pragmatic employees compensation schemes based on their value creation contribution toward the discovery and generation and exploitation of opportunity instead of responsibility ; seniority. A focus on Growth Orientation places top priority to acceptance of risk to achieve growth instead of safe, slow, and steady growth. The Entrepreneurial Culture encourages employees to broadly search for opportunities and generate ideas, experiment, and engage in other tasks that might produce opportunities instead of restricting them/denying them resources and punishing failure for trying.A favorable corporate entrepreneurial environment can be created through rapid adoption of technology, creation of purposeful structures for collecting, evaluating and rewarding new ideas, tolerance to failure of new ideas, and top management support and identification of innovation champions. The Corporate Entrepreneur needs to be visionary and flexible with good foresight the business environment turbulence, one who encourages teamwork and persistence with capability for building coalition of supporters who believe in where firm should go and carry through that change tirelessly.14.3 Strategic entrepreneurshipStrategic Entrepreneurship is integration of two disciplines – entrepreneurship and strategic management. Whereas entrepreneurship focuses on identifying opportunities through innovation, strategic management focuses on firm’s direction in choice of its competition means that determines its application of resources and innovation efforts. Strategic management defines a firm’s “efforts to exploit its today’s competitive advantages as a foundation for tomorrow’s competitive advantages”. Therefore Strategic entrepreneurship (SE) involves simultaneous opportunity-seeking and advantage-seeking behaviors to attain superior firm’s performance. Small enterprises are relatively effective in identifying opportunities but are less successful in developing competitive advantages needed to build appropriate value from those opportunities. On the contrary, large and established firms often are relatively more effective in establishing competitive advantages but are less able to identify new opportunities. Therefore, SE provides a unique, distinctive construct through which firms are able to create wealth by both pro-active opportunity identification and effective exploitation of competitive advantage. An entrepreneurial mindset that raises an entrepreneurial culture and entrepreneurial leadership, and encourages the strategic management of resources and applying of creativity to develop innovations are important dimensions of SE.14.4 Social entrepreneurshipSocial entrepreneurs pursue people oriented goals such as poverty alleviation with entrepreneurial zeal. They apply business methods and courage to innovate and overcome traditional practices of social services providers such as education, health, environment and humanitarian aid. A social entrepreneur behaves like a business entrepreneur driven by social innovation and transformation to build strong and sustainable social enterprises set up as not-for-profits organizations. 14.3.1 Characteristics of a social entrepreneurSuch as person is a leader and a pragmatic visionary who demonstrates the following characteristics:1. Achieves large scale, systemic and sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these.2. Focuses first and foremost on the social and/or ecological value creation and tries to optimize the financial value creation.3. Innovates by finding a new product, a new service, or a new approach to a social problem. 4. Continuously refines and adapts approach in response to feedback. 14.3.2 Social entrepreneur behaviourSocial entrepreneurs have been found to exhibit some common traits or behaviour that include:1. An unwavering belief in the inherent capacity of all people to contribute meaningfully to economic and social development 2. A driving passion to make it happen. 3. A practical but innovative stance to a social problem, often using market principles and forces, coupled with determination that allows them to break away from constraints imposed by ideology or field of discipline, and pushes them to take risks that others wouldn’t dare. 4. A zeal to measure and monitor their impact. Entrepreneurs have high standards, particularly in relation to their own organization’s efforts and in response to the communities with which they engage. Data, both quantitative and qualitative, are their key tools, guiding continuous feedback and improvement. 5. A healthy impatience. Social Entrepreneurs cannot sit back and wait for change to happen or the right environment for they are the change drivers themselves.14.3.3 Defining social entrepreneurshipSocial entrepreneurship is about applying practical, innovative and sustainable approaches to benefit society in general, with an emphasis on those who are marginalized and poor. The term captures a unique approach to economic and social problems cutting across all sectors and disciplines such as education, health, welfare reform, human rights, workers’ rights, environment, economic development, agriculture and so forth. Social organizations such as religious bodies often birth institutions to carry on a livelihoods agenda touching on areas of issues that affect people. These institutions by their interaction of the beneficiaries and their going concern become enterprises regarded as social enterprises. One way of keeping them going is to call for donations and keep a fixated management orientation married to the tradition of “how we do things”. However, by adopting a perspective of new way of thinking, such an enterprise may craft a new approach to raising its funds, its outreach agenda and internal organization so as to standout and achieve beyond normal expectations. This is where social entrepreneurship flourishes exemplified by a combination of innovative risk taking approach where the leader is pragmatic and pro-active opportunity seeker capable of creating new combinations to achieve a social mission. Good examples include Mother Teresa, Richard Branson, Professor Yunus, among others.14.3.4 Social entrepreneurship organizational modelsIn view of the approaches taken the outcome organizational models in social entrepreneurship include:i. Leveraged non-profit ventures The entrepreneur sets up a non-profit organization to drive the adoption of an innovation that addresses a market or government failure. In doing so, the entrepreneur engages a cross section of society, including private and public organizations, to drive forward the innovation through a multiplier effect. Leveraged non-profit ventures continuously depend on outside philanthropic funding, but their longer term sustainability is often enhanced given that the partners have a vested interest in the continuation of the venture.ii. Social business ventures The entrepreneur sets up a for-profit entity or business to provide a social or ecological product or service. While profits are ideally generated, the main aim is not to maximize financial returns for shareholders but to grow the social venture and reach more people in need. Wealth accumulation is not a priority and profits are reinvested in the enterprise to fund expansion. The entrepreneur of a social business venture seeks investors who are interested in combining financial and social returns on their investments. iii. Hybrid non-profit ventures The entrepreneur sets up a non-profit organization but the model includes some degree of cost-recovery through the sale of goods and services to a cross section of institutions, public and private, as well as to target population groups. Often, the entrepreneur sets up several legal entities to accommodate the earning of an income and the charitable expenditures in an optimal structure. To be able to sustain the transformation activities in full and address the needs of clients, who are often poor or marginalized from society, the entrepreneur must mobilize other sources of funding from the public and/or philanthropic sectors. Such funds can be in the form of grants or loans, and even quasi-equity.14.5 Global entrepreneurshipGlobal entrepreneurship is a domain of entrepreneurship characterized by firms trading beyond their national borders. Global entrepreneurs are professionals who use their global understanding and connections to identify transnational and cross-cultural opportunities and turn them into new value-creating initiative. While entrepreneurship usually means the creation of a new business, the scope of many global leaders’ efforts go beyond business creation. Value creation obviously happens in established companies every day and many global leaders act as intrapreneurs pursuing opportunities from within an organizational context. Global entrepreneurs also include non-profit social enterprises that work across national borders.Global entrepreneurs typically create value in three distinct ways:1. The first is by tapping into commonalities – or convergence – between markets and cultures. This approach is exemplified by organisations trying to bring a standard brand promise to diverse cultures and communities. This means a brand could be selling as a global brand such as Intel, Samsung, Toyota, Equity Bank and many others.2. The secondly category of global entrepreneurs tap into distinct comparative advantages between communities – divergence among regions in order to access better value. For example, design work is done in one country then assembled in another.3. The third category global entrepreneurs who access networks and create value by building platforms that allow global exchange. Why go global?1. Offset sales declines in the domestic market2. Increase sales and profits3. Extend products’ life cycles4. Lower manufacturing costs5. Lower product cost6. Improve competitive position7. Raise quality levels8. Become more customer-orientedStrategies for going global include (1.) e-commerce (2.) use of international value added resellers (VAR) networks (3.) establishing off-shore locations (4.) importing (5.) exporting (6.) joint ventures (7.) international franchising (8.) foreign licensing (9.) countertrading and bartering.14.6 E-entrepreneurshipE-entrepreneurship refers to establishing a new company to carry out innovative business idea within the Net Economy. Good examples include e-bay, Google and Jumuia. An e-entrepreneur uses an electronic platform of data networks to offer its products and/or services based upon a purely electronic creation of value. One can create an e-shop or an e-commerce website to promote products and services and conduct commercial exchanges including sales of goods and services, sometimes within limits of national borders. E-entrepreneurship provides a level playing ground for small businesses to compete with established retails chains by aggregating virtual goods instead of physical goods. It also gives a higher return on investment by eliminating expensive operational costs of a business.14.7 Entrepreneurial marketingThe central part of entrepreneurial marketing is gaining competitive advantage by combining the two disciplines of entrepreneurship and marketing. It focuses on the role of brand development and the role of network relationships as mechanisms for customer value proposition creation (Thomas et al., 2012). Within entrepreneurial marketing strategies are activities for enhancing the brand image and reputation, product development in terms of quality, uniqueness and diversity, entrenching innovation as the growth driver of industry competitive advantage and in improving profitability (Vrontis ; Paliwoda, 2008). The extent that a marketing undertaking demonstrates some amount of innovativeness, risk-taking, and pro-activeness, can be considered an entrepreneurial marketing. Conventional marketing in practice ignores this orientation which has been found central to entrepreneurship (Morris et al., 2002).Theories advancing entrepreneurial marketing strategies emphasize on marketing and entrepreneurship interface paradigm to explore how well existing marketing models and the traditional marketing paradigm fit their environment, behavior and processes found in entrepreneurial organizations. The construct uses the three parameters of entrepreneurial orientation of a firm (innovativeness, risk-taking and pro-activeness) and pragmatic marketing construct of market orientation (customer centricity and competitor focus). On the basis of these firms are evaluated on how effectively they identify opportunities, develop appropriate products and services and deliver services to the target customers while ensuring value creation for the customers to create a sustained competitive advantage.??