Entrepreneurship for Engineers

(IEng5242)

1
Instructor: Biruk K.
Industrial Engineering Department
College of Engineering, IoT
Debre Berhan University 5/14/2019
Entrepreneurship for Engineers
(IEng5242)
The Entrepreneurial Cycle

Small Business as Basic components of

4
Economy
The process of Business Development
(Entrepreneurial cycle)
What is basic business idea
2

Steps in business setting

Conducting Feasibility study and 5/14/2019

Developing a Business Plan

 What is small business?
General criteria
To provide a clear image of the small firms, the
following general criteria for defining a small business
are suggested:
Financing of the business is supplied by one
individual or a small group.
 Except for its marketing function, the firm’s
operations are geographically localized.
 Compared to the biggest firms in the industry, it is
small.
 The number of employees in the business is
usually fewer than 100.
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 Defining Small businesses
There are two approaches to define small Business:
1. By some measure of size
2. Using an economic /control definitions
1. Size Criteria
Examples of criteria used to measure size are:
1. Number of employees
2. Sales volume
3. Asset size
4. Insurance enforce
5. Volume of deposits
 Although the first criteria located above, employee, is the most
widely used yardstick; the best criteria in any given case
depends upon the user’s purpose.
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 2. Economic /Control Criteria
 The economic /control definition covers:
a. Market share:- The characteristics of a small firm’s share
of the market is that it is not large enough to enable it to
influence the prices of national quantities of goods sold to
any significant extent.
b. Independence:- Means that the owner has control of the
business himself.
c. Personalized management:- Is the most characteristics
factor of all. It implies that the owner participates in all
aspects of the managements of the business, and in all major
decisions-making processes. There is no delegation of
authority.
 All three of these characteristics must be satisfied if the
business is to rank as a small business.

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 Types of small business
1. Family enterprises
Family owned business varies widely and can include
retail stores, contracting businesses, small manufacturing
firms, and restaurants among others.
In the absence of a successor, the life of a venture is
limited to the working life of its founder.
Succession is a serious problem.
2. Personal service firms (PSF), Eg.: Bill payment, etc.
3. Franchise:-The franchisee may receive franchise
help, training, a protected market, and technical
assistance with matters such as site selections,
purchasing, accounting, and operations
management.
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 Why are small business important to
economy?

They make exceptional contributions as they

provide:
New jobs as populations and economy grow,
small business provide new job opportunity.
Introducing innovations- many scientific
breakthrough originated with small
organization. E.g. Photocopies, etc
Stimulating economic competitions.

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 Reasons for the more rapid growth of small firms
in most developed countries:
1.New technologies, such as numerically controlled
machine tools, may permit efficient production on a
smaller scale.
2.Greater flexibility is required as a result of
increased global competitions.
3.Consumers may be coming to prefer personalized
products over mass produced goods.

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 Causes for small business failure

 Incompetence: the owners simply do not know how to run

the enterprise.
 Unbalanced experience: do not have rounded experience in
the major activities of business production.
 Lack of managerial experience: do not know how to
manage production.
 Lack of experience in the line- the owner has entered a
business field in which he or she has very little knowledge.
 Neglect- the owner does not pay sufficient attention to the
enterprise.
 Fraud- involves intentional misrepresentations or deception
(purchasing materials or goods for him/her self with the
company’s money)
 Disaster- refers to some unforeseen happening or ‘act of
super nature’ (eg. Robberies and extended strikes.)
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 The following are specific managerial causes of small business
failure
Inadequate records- unable to establish an adequate record
keeping system.
Expansion beyond resources
Lack of information about customer
Failure to diversify market
Lack of marketing research.
Legal problems
Nepotism- favoritism toward family members
One person management
Lack of technical competence
Absentee management; the owner stayed away for long period
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 Strength and weakness of small business

Strength
1. Independence
Most small business owners enjoy being their own
boss, they like the freedom to do things than way.
2. Financial opportunities
Many small business owners make more money
running their own company than they would be
working for someone else.
3. Community services
If the person has reason to believe the public will pay
for such output, he/she will start a company to
provide it.
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 4. Job security
when one owns a business, job security is ensured.
5. Family employment (benefits)
 Create the employment in the family
Higher moral and trust occur in family-run
business
 Is times of server economic downturn
6. Challenge
They want to win or lose on their own abilities the
challenge gives them psychological satisfaction.
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  Weaknesses
1. Sales fluctuations
 In some months sales are very high, while in other they drop off
dramatically. The individual must balance cash inflows with
cash outflows.
2. Competition
 Owning a business is the risk of competition (eg. Restaurants)
3. Increased responsibilities
 Owner is often a bookkeeper, accountant sales person,
personnel manager.
4. Financial loses
 When the owner makes all major decisions
5. Risk of failure
 The ultimate risk the small business owner manger faces is
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 The process of business development

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 Business idea

What is basic business idea?

It is logical thinking of a goal for the unit in long run
rather than to look for the immediate tomorrow.
This long-term thinking is called Basic business idea.
Businessmen/businesswomen should think of long-
term goal and the profit when they start a business.
The basic business idea, which is at the top of the
hierarchy, is to meet the broadest needs of the customers,
and has the long life perhaps from 5-50 years.

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  The basic business idea facilitates choice of product
under an overall plan.
 Thus, entrepreneur may think of being in the
entertainment film, in automobiles, in medicines, in
services, in industries, etc.

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 The product line is relatively narrow and has a shorter
life.
The product line consists of different families of
product.
A unit with a basic business idea for example
packaging can manufacture any of the following
groups of the products:
 Glass bottles,
 Plastic packages,
 Metal packages,
 Aluminum packages,
17  Paper or wood packages. 17
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 The product range includes different size of the
product with in the product line, in the examples
given above different size of glass bottles can be
manufactured for varied applications.
The product is one item of the product range
having different specifications like:
Size,
Material used,
Weight, etc.

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  In a dynamic business scheme, one has to
carefully assess and evaluate the basic business idea
and the business opportunities in terms of:
Its ability to generate quick returns
Its ability to permit quick changes in the
products/services
Its ability to achieve the founders long term
goals

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 What project an entrepreneur
should have?
 A project is a complex of economic activities in which the
key players commit scarce/limited resources in the
expectation that the benefits gained will exceed these
resources.
 Also, a project, broadly defined, in a way of using
resources: a decision between undertaking and not
undertaking a project is a choice between attentive ways of
using resources.
 The project should have to consider the SWOT and should
be designed accordingly.
 The SWOT approach compels individuals to think or
reason out systematically and analytically the important
factors strengths, weakness, opportunities, and threats.
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 Strength: is an inherent capacity, which an
organization can use to gain strategic advantage
over its competitors.
Weakness: is an inherent limitation or constraint,
which creates a strategic disadvantage
Opportunity: refers to any factor that offer promise
or potential for moving closer or more quickly
towards the firms goal.
Threat: is any factor that may limit or impede the
business in the pursuit of its goals

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 Steps in business setting

1. The first key to success in any manufacturing

activity is to select the right product.
These must be examined with a view to assess:
The marketing aspects
Technical aspects
Financial aspects

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 2. Having selected a product, a detailed project report to be
prepared. This will cover the following aspects:
 A detailed estimate of demand is to be made.
 Technical specifications of the process should be carefully
studied.
 The equipment required and their sources are to be
specified.
 Requirement of space.
 The total cost of the project to be worked out, the means
for financing it identified.
 The economics of the entire scheme at projected
24 operating level is to be assessed. 24 5/14/2019
 3. Implementation of the detailed project report, including:
Deciding on form of ownership and registration
Obtaining finance ,Obtaining license
Establishing necessary infrastructures
4. Once all the required authorizations and approval have
been obtained, simultaneous action is to be taken for the
following:
Ordering machinery from suppliers
Obtaining utilities like power and water connections
after constructions of shed, if necessary
Recruitment of staff
Arranging supplies of materials
Arranging for distribution of the products
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 5. Once these are complete, the plant is ready for
commissioning, i.e., trial run may be made.
Commissioning of plant, includes:
 Trial run of machineries
 Promotional activity for the product
 Introduce the product to the market and obtain
feedback

6. The unit is then ready for commercial

production.
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 Conducting feasibility study
and
Developing business plan

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 Conducting Feasibility study

Assessing the feasibility of a new venture:

 As the name implies, a feasibility study is an analysis of
the viability of an idea.
 It focuses on helping answer the essential question of
“should we proceed with the proposed project idea?”
 All activities of the study are directed towards helping
to answer this question.
 Entrepreneurs with a business idea should conduct a
feasibility study to determine the viability of their idea
before proceeding with the development of the
business.
 Determining it early; saves time, money and heartache
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 Cont.…
A feasible business venture is one where the
business will:
 Generate adequate cash-inflow and profits,
 Withstand the risks it will encounter,
 Remain viable in the long-term and meet the
goals of the founders.
The venture can be a new start-up business, the
purchase of an existing business, franchise, an
expansion of current business operations or a new
enterprise for an existing business.

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 Elements in evaluating new
ventures
 Market opportunity
 Industry trends & regulatory matters
 Proprietary approach …is the intellectual property stand
alone or platform IP
 Technology impact - what is the nature and outgrowth of
the technology?
 Financials - is the model articulated for how products will
be sold, who will buy them, how much revenue is projected
and by when?...
 Team - does the team have the requisite skills to move all
aspects of the company forward?
 SWOT is a series of steps one has to consider in evaluating
a business opportunity and arriving at a decision on starting
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 Guidelines of business
feasibility study
Description of the Business
Market Feasibility:
 Enterprise description,
 Enterprise competitiveness,
 Market potential,
 Sales projection,
 Access to market outlets, etc.
Technical Feasibility:
 Determine facility needs,
 Suitability of production technology,
 Availability and suitability of site,
 Raw materials,
 HR , etc.
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 Guidelines Cont.…
Financial Feasibility:
 Estimate the total capital requirements,
 Estimate equity and credit needs and determine sources,
 Budget expected costs and returns of various
alternatives…
Organizational/Managerial Feasibility:
 Legal structure of the business,
 Business founders,
Study Conclusions:
 It contain the information you will use for deciding
whether to proceed or not with creating the business
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 Developing A Business Plan
WHAT IS A BUSINESS PLAN?
A Business plan is a comprehensive set of
guidelines for a new venture.
A business plan is also called a feasibility plan that
encompasses the full range of business planning
activities, but it seldom requires the depth of
research or detail expected for an establishment
enterprise.
A business plan would present your basic business
idea and all related operating, marketing, financial and
managerial considerations.
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 What ever the name, it should lay out your idea,
describe where you are, point out where you want to
go, and how you propose to go there.

The business plan may present a proposal for

launching an entirely new business.
More commonly, perhaps; it may present a plan for
a major explanation of a firm that has already
started operation.

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 The purpose of business plan

 It can help the owner/manager crystallize and focus

his/her idea.
 Although planning is a mental process, it must go
beyond the realm of thought. Thinking about a
proposed business becomes more rigorous as rough
ideas must be crystallized and quantified on paper.
 It can help the owner/manager set objectives and
give him a yardstick against which to monitor
performance.
 It can also use as a vehicle to attract any external
finance needed by the business. Eg. To get fund, etc.
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 Purpose cont.…

 It can convince investors that the owner/manager

has identified high growth opportunities.
 It entails/causes taking a long-term view of the
business and its environment.
 It emphasizes the strengths and recognizes the
weaknesses of the proposed venture.
 The plan can uncover weakness or alert the
entrepreneur to sources of possible danger.

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 When the business plans are
produced?
 At the start up of a new business: After the concept stage of
initial ideas and feasibility study, a new business startup may go
through a more detailed planning stage of which the main output
is the business plan.
 Business purchase: A detailed plan, which tests the sensitivity
of changes to key business variables, greatly increases the
prospective purchasers understanding of the level of risk they will
be accepting, and likelihood of rewards being available.
 On going: Ongoing review of progress, against the objectives
of either a startup or small business purchase, is important in a
dynamic environment.
 Major decisions: at a time of major change, For example, the
need for major new investment in equipment or funds to open a
new outlet. It may be linked to failure, such as a recovery plan for
37 an ailing (or in bad condition) business. 37
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 Who produced the business plan?
 Managers, Owners, Lenders, etc
Why the business plans are produced?
Assessing the feasibility and viability of the
business/project: it is in every ones interests to
make mistakes on paper, hypothetically testing for
feasibility, before trying the real thing.
Setting objectives and budgets: having a clear
financial vision with believable budgets is a basic
requirement of everyone involved in a plan.
Calculating how much money is needed: a detailed
cash flow with assumptions is vital ingredient to
precisely quantify earlier the likely funds required.
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 The format of a business plan
1. Where are we now?
An analysis of the current situations of the market
place, the competitions, the business concept and the
people involved. It will include any historical
background relevant to the positions to date.
2. Where do we intend going?
Qualitative expression of the objectives, quantifiable targets
will clarify and measure progress towards the intended
goals.
3. How do we get there?
Implementing of accepted aims is what all the parties to
39 a plan are interested in as a final result. 39
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 Components of business plan
(out line of a business plan)
I. Analysis of the current situation (where are we now?)
1. Identification of the business
a. Introduction
Relevant history and background
Proposed date for commencement of trading /beginning of a
plan
b. Names
Name of the business and trading name
Name of the managers/owners
c. Legal identity
Company/partnership/sole-trade/cooperative
Details of share or capital structure
d. Location
Address-registered and operational
Brief details of premises/business buildings.
40 e. Professional advisers, -Accountants, solicitors, bank 40
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 Outline Cont.…

2. The key people

a. Existing management
Outline of background experience, skills and
knowledge.
Names of the management team
b. Future requirement
 Gaps in skills and experience and how they will
be filled,
 Future recruitment intentions

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 Outline Cont.…
3.The nature of the business
a. Product(s) or service(s)
Description and applications
Key suppliers
Planned developments of product or service
b. Market and customers
Definition of target market,
Classification of customers
Trend in market place
c. Competition
Description of competitors;
Strength and weakness of the major competitors
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 II. Future direction
(where do we intend going?)
Strategic Influence -SWOT Analysis
Opportunities and threats in the business environment
Socio-economic trends,
Technological trends
Legislation and politics,
Competition
Strengths and weaknesses
 In the industry,
 In the general environment:
Strategic direction:
Objectives- general and specific
Policies- guidelines and rules
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Activities- action plans and timetable of key activities43
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 III. Implementation of aim
(how do we get there?)
1. Management of resources
a)Operation:- premises, materials, equipment,
insurance, management information system.
b) People/Human resource/- employment practices,
recruitment, team management, training, etc.
2. Marketing plan
a)Competitive edge- unique selling point of business
(Critical products or service characteristics or
uniqueness in relation to competitors)
b) Marketing objectives - specific aims for product or
service in the market place
c) Marketing methods- product, pricing, promotion,
44 distributions=4ps 44
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 Outline Cont.…

3. Money: financial analysis

a. Funding requirement- start up capital, working
capital, asset capital, timing of funds required,
security offered.
b. Profit and loss:-- 3 years forecast, sales variable
costs, profit, overheads, net profit
c. Cash flow:-- 3 years forecast, receipts,
payments, monthly and cumulative cash flow
d. Balance sheet - use of funds, source funds

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