ENT 131 Module Outline & Notes

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ENT 131 Module Outline

PART A

1. Introduction
2. Creativity and Innovation
3. Identifying and Evaluating Entrepreneurial Opportunities

PART B

4. Determining Financial Feasibility


5. Financing Options
6. Developing the Business Model

PART C

7. Market Entry Strategy


8. Marketing Strategy
9. Competitive Strategy

PART D

10.Developing Operating Systems


11.Regulatory Compliance

PART E

12.Government Support Programmes


CHAPTER 1 INTRODUCTION

Benefits of Becoming an Entrepreneur


An entrepreneur is someone who recognises an opportunity to start a business
that other people may not have noticed and acts on it. A French economist
defined an economist as an economic agent who unites all means of production,
the land of one, the labour of another and the capital of yet another, and yet thus
produces a product. By selling the product in the market he pays rent on land,
wages to labour, interest on capital and what remains is his profit. He shifts
economic resources out of an area of lower into an area of higher productivity
and greater yield.
Benefits and Costs of Becoming an Entrepreneur
Entrepreneurs put a great deal of time and effort into launching their own
businesses. While establishing a business, an entrepreneur may also pour all of
his/her money into it. An entrepreneur may not be able to go on vacation or
spend time with family until the business becomes profitable and starts
generating cash.
If so much work and sacrifice are involved. Even if you have a clear vision that
you believe will motivate you through the ups and downs of running a business,
look closely at the costs and benefits of being an entrepreneur before you decide
whether this is the life for you. This examination is fundamental in the decision
to become an entrepreneur.
Potential Benefits of Entrepreneurship
The entrepreneur is working for the following potential rewards:
Control over time: if you start you own business, you will have control over
how you spend your time by the type of business it is.
Fulfilment: successful entrepreneurs are passionate about their businesses. They
are excited and fulfilled by their work. Entrepreneurs who are working to reach
their full potential are rarely bored, because there is plenty to do.
Independence/autonomy: because they are not reporting to managers or
supervisors, business owners do not have to follow orders or observe working
hours set by someone else. They have control over their decisions.
Creation/ownership: entrepreneurship is a creative endeavour. Doing what they
love to do or turning a skill, hobby or other interest into a business can be
highly satisfying. Entrepreneurs put time and effort into creating a venture they
expect will survive and become profitable. Entrepreneurs own the business they
create and the profits those businesses earn. Ownership is the key to wealth.
One goal is to build a business that creates a continuing stream of earnings.
Financial reward/control over compensation: entrepreneurs can build income
and wealth through their endeavours. Although income potential is generally
capped for employees, entrepreneurs are limited only by their own imagination
and tenacity. Entrepreneurs built most of the country’s great fortunes. At the
same time, many part-time seasonal and lifestyle entrepreneurs find ways to
fund gaps in household income, pay for college or support extraordinary
expenses through their business endeavors.
Control over working conditions: as an entrepreneur, you can create a work
environment that reflects your values. If you support recycling, you can make
sure your company recycles. You will also evaluate your own performance. If
quality is essential, you may have an office with equal working spaces.
Self-esteem: knowing that they created something valuable can give business
owners a strong sense of accomplishment. It can help them feel good about
themselves and increase their self-confidence.
Contribution to society: business owners decide how they can add value to their
communities and wider world. The issues they care about can be ‘designed-in’
when they form companies.
Potential costs of entrepreneurship
While there many potential benefits of entrepreneurship, entrepreneurs also face
numerous possible costs
Business failure: about in 80% business fails in the first year. Others become
discouraged and give up. Entrepreneurs risk losing not only their own money
but also the financial investments of other.
Obstacles: entrepreneurs run into problems that they will have to solve,
primarily by themselves. In addition, their families and friends may not support
their vision and may actively discourage them.
Loneliness and isolation: it can be lonely and even frightening to be completely
responsible for the success or failure of a business. While owners have control,
they also have the responsibility and cannot defer to someone else for decisions.
Financial insecurity: owners are not guaranteed a set salary or benefits. They
may not always have enough money to pay themselves, particularly in the first
two years of the new enterprise. They also have to set up and fund their own
retirement funds.
Long hours/hard work: entrepreneurs have to work long hours to get their
businesses off the ground. Many entrepreneurs work six or seven days a week,
often more than 12 hours per day. While they decide when to work, they often
end up working or thinking about their businesses many more hours as
entrepreneurs than they would as employees.
Strain on personal relationships: even with the strong support of family and
friends, the inherent challenges of a small business can strain relationships to
the breaking point.
Not everyone is cut out to be an entrepreneur. Entrepreneurs have to be able to
tolerate higher degree of risk and uncertainty than people who work steady jobs
for established employers. With higher risk, however, comes the potential of
higher rewards.
Cost/Benefit Analysis
Using a comparison of benefits and costs to make a decision is called
cost/benefit analysis. It is a helpful tool because people often make decisions
based on emotions, not intellect, to evaluate pros and cons. Strong emotions
may take over to the point where they see only the benefits and not the costs of
an actions or vice versa.
To turn an opportunity into a business, entrepreneurs invest both time and
money. Before making this kind of investment, think carefully about:
Costs: the money, the energy and time you will have to invest, as well as the
opportunities you will be giving up, to operate the business.
Benefits: the wealth you will accrue and the knowledge, skills, self-esteem and
experience you will gain.
Opportunity Cost
Cost/benefit analysis is incomplete without considering opportunity cost. This is
the cost of your next best investment. Perhaps your goal is to be writer. You get
a full-time job to support yourself, so that you can write in the evenings.
You find however, that whenever a publisher wants to meet you, you cannot get
out of work to go. You realise that, even though you are getting a salary, you
are missing some important opportunities. Perhaps it would be smarter to take a
part-time job that would leave your mornings free for meetings.
People often make decisions without considering the opportunity cost and then
wonder why they are not happy with the outcome. Each time you make a
decision about what to do with your time, energy or money, think about the
opportunities you are giving up.
Seeking Advice and Information to Succeed
While experience is an excellent teacher, using knowledge, skills and abilities to
avoid errors, problems and delays is much healthier. A savvy entrepreneur
learns from mistakes of other and appreciates the wisdom and experience of
trusted advisors and mentors.
Preparation and planning are keys to avoid making mistakes. Thoughtful
consideration of entrepreneurship option is an excellent starting point. Thorough
research and taking advantage of training and or one on one consulting to bridge
gaps in your preparation can make a world of difference.
Two of the best resources for keeping track are mentors and advisors. A mentor
is a trusted advisor with whom a person forms a developmental partnership
through information, insight, skills and knowledge are shared to promote
personal and or professional growth. Finding a committed business mentor with
industry specific knowledge and experience, broad general business experience,
or both is a worth-while endeavour. A successful entrepreneur in your field
perhaps outside of your geographic area may prove invaluable if he/she will
mentor you. Many successful entrepreneurs will carve out time for promising
new comers. Unfortunately, becoming a mentor may be more of a commitment
than your identified entrepreneur is willing or able to make. Perhaps she or he
will become an advisor instead.
Taking advantage of available courses in entrepreneurship, whether brief
workshops, individual college courses, an entrepreneurial certificate program or
degree program, can offer considerable benefits. The opportunity to learn from
the experience of others and to systematically explore entrepreneurial options
and build skills can be important.
A well prepared entrepreneur is more likely to get and stay on the path to
success.
CHAPTER 2 CREATIVITY AND INNOVATION

In today’s fast-moving and high-technology environment, the focus on quality


has given way to a focus on creativity and innovation. High quality is now a
given for products and services.

Competition is fiercer and more intense than ever before. Technology


breakthroughs can be transferred to any part of the world in a matter of days.

The key to being competitive is staying ahead of the competition. That means
coming up faster with more competitive products and services than the
competition. The problem that every organization—be it public or private, profit
or nonprofit, product or services—has is a need to have more innovative ideas
effectively implemented.

Majaro (1988:27) differentiates between creativity and innovation as constructs.


Creativity is the thought process that leads to the development and generation of
ideas. Innovation is the practical implementation of the idea concept to ensure
that the set aims on a commercial, profitable basis are met, in line with a
specific opportunity in the market environment. Innovation is therefore ideas
that seem to be newer, faster, more cost effective and possibly more aesthetical.

Creativity involves an ability to come up with new and different viewpoints on


a subject. It involves breaking down and restructuring our knowledge about the
subject in order to gain new insights into its nature. ‘It is your ability to
combine ideas in a unique way or to make useful associations among ideas.
Involves the development of UNIQUE & NOVEL responses to problems /
opportunities” “ability to combine ideas in a unique way”. The ability to make
or otherwise bring into existences something new, whether a new solution to a
problem, a new method or device, or a new artistic object or form”\“new and
useful”

Creativity is a quality which exhibits itself in the way in which people


conduct their lives. People who exhibit creative behaviour:

 challenge the status quo


 confront assumptions

 exhibit curiosity

 like to investigate new possibilities

 tend to take the initiative in most matters

 are highly imaginative

 are future-orientated

 tend to think visually

 see possibilities within the seemingly impossible

 are not afraid of taking risks

 are prepared to make mistakes

 are adaptable to different work environments

 are adaptable to changing circumstances

 see relationships between seemingly disconnected elements

 distil unusual ideas down to their underlying principles

 synthesise diverse elements

 are able to spot underlying patterns in events

 are able to cope with paradoxes

 look beyond the first ‘right idea’

How to Foster Creativity within Your Organization

There are several smaller steps leaders can take to make a big change on their
organization. Here are five ways you can foster creativity within your own
team:

1. Reward Creativity

2. Hire the Right People

3. Try the “Yes, And…” Approach


 One method for spurring creative brainstorming is trying a technique used
in improvisational theater: “Yes, and…” The approach encourages
colleagues to build off their peers’ thoughts by first agreeing and then
adding something to the discussion. Taking “no” off the table ensures all
ideas are heard.

4. Try Flexible Work Hours

5. Give Employees Time to Recharge

 With creativity can also come burnout. Employees need time to step back
and hit the refresh button. Companies do need to take burnout into
consideration

Defining innovation

1. any new and unique idea

2. a new and unique idea that is produced and delivered to an external


customer who is willing to pay more for it than the cost to provide it plus
a reasonable profit margin for the supplier.

3. The process of translating an idea or invention into an intangible product,


service, or process that creates value for which the consumer (the entity
that uses the output from the idea) is willing to pay more than the cost to
produce it.”

If you use the first definition of innovation, almost all organizations are
innovative organizations. If you use the second definition of innovation, less
than 5% of the organizations could be considered innovative. More than 95% of
the new and unique ideas that are generated within most organizations never
complete the consumer to deliverables cycle and produce a profit for the
organization.

Innovate vs create

• Creative—Using the ability to make or think of new things involving the


process by which new ideas, stories, products, etc., are created.
• Create—Make something; to bring something into existence.

• The difference between creativity and innovation is that the output from
the innovation has to be a value-added output, while the output from
creativity does not have to be value added.

DEFINING AND INNOVATOR

The following are five different definitions of an innovator:

1. An innovator is an individual who creates a unique idea that is marketable.

2. An innovator is an individual or group that creates a unique idea and is able


to guide it through the processes necessary to deliver it to the external customer.

3. An innovator is a person who has the capability to create unique ideas and
has the entrepreneurship to turn these ideas into output that is marketed.

4. An innovator is a person who creates a unique idea and uses the facilities
available to produce an output that is marketable.

5. An innovator is an individual who creates a unique idea that is marketable


and guides it through the development process so that its value to the customer
is greater than the resources required to produce it.

Definitions interpretation

• From the definitions the innovator must be capable of:

• Defining an unfulfilled need

• Creating a solution for the unfulfilled need

• Developing a value proposition

• Getting the value proposition approved by management, if it relates to an


established organization

• Getting the project funded

• Establishing an organization to produce the output

• Producing the output

• Marketing the output


• Selling the output

• Evaluating the success of the project

Basically innovator is “a person who identifies an unfulfilled need, creates


ideas that will fulfill the unmet need, and incorporate the skills of an
entrepreneur

Broad forms of innovation

• Innovations can take an incremental or radical form as regards their


effects on existing economic structures:

• Incremental innovation - Minor change at the industry level

• Radical innovation - Major change at the industry level

• Change in technological system - New industry and/or change at the


intersectoral level

• Change in techno-economic paradigm - New industry and/or change at


the intersectoral level with heavy socioeconomic consequences

TYPES OF INNOVATION

Innovation
# Description
Type

1. Profit Model How you make money

2. Network Connections with others to create value

3. Structure Alignment of your talent and assets

Signature of superior methods for doing your


4. Process
work

Product
5. Distinguishing features and functionality
Performance
Product
6. Complementary products and services
System

Support and enhancements that surround your


7. Service
offerings

How your offerings are delivered to customers


8. Channel
and users

9. Brand Representation of your offerings and business

Customer
10. Distinctive interactions you foster
Engagement

Innovation vs Invention

• In the Theory of Economic Development, Schumpeter distinguished


between the invention and innovation. The invention is the discovery of a
new technical knowledge and the innovation is its application to industry.

• The innovation, in its broader sense, is the introduction of new technical


methods, new products, and new sources of supply and new forms of
organization.

• Invention is used in order to define a fundamental technological change,


the apparition of which is usually depending on scientific changes which
would affect our way of life.

• Innovation expresses the way that aims to derive anticipated benefits


from change and concerns new commercial uses that the decision-making
unit perceives to be profitable in economic terms.

• The innovation can be a new idea, new practice, method, or process,


product, or market opportunity.

Creativity, Innovation, and Invention


Concept Description

Creativity ability to develop something original, particularly an idea or a


representation of an idea, with an element of aesthetic flair

Innovatio change that adds value to an existing product or service


n

Invention truly novel product, service, or process that, though based on


ideas and products that have come before, represents a leap, a
creation truly novel and different

Drucker’s Seven Sources of Innovation

Source Description

The Looking for new opportunities in the market;


unexpected unexpected product performance; unexpected new
products as examples

The Discrepancies between what you think should be and


incongruity what is reality

Process need Weaknesses in the organization, product, or service

Changes in New regulations; new technologies


industry/mark
et

Demographics Understanding needs and wants of target markets

Changes in Changes in perceptions of life events and values


perceptions
Source Description

New New technologies; advancements in thinking; new


knowledge research

The Creative Process: The Five Stages of Creativity

Raw creativity and an affinity for lateral thinking may be innate, but creative
people must refine these skills in order to become masters in their respective
fields. They practice in order to apply their skills readily and consistently, and
to integrate them with other thought processes and emotions. Anyone can
improve in creative efforts with practice. For our purposes, practice is a model
for applied creativity that is derived from an entrepreneurial approach. It
requires:

1. Preparation (problem assessment)

2. Incubation (conscious and unconscious mental dynamic)

3. Insight (new idea conception)

4. Evaluation (new idea conception)

5. Elaboration (evaluation of idea/s).

Preparation

Preparation involves investigating a chosen field of interest, opening your


mind, and becoming immersed in materials, mindset, and meaning. If you have
ever tried to produce something creative without first absorbing relevant
information and observing skilled practitioners at work, then you understand
how difficult it is. This base of knowledge and experience mixed with an ability
to integrate new thoughts and practices can help you sift through the ideas
quicker. However, relying too heavily on prior knowledge can restrict the
creative process. When you immerse yourself in a creative practice, you make
use of the products or the materials of others’ creativity. For example, a video-
game designer plays different types of video games on different consoles,
computers, and online in networks. They may play alone, with friends in
collaboration, or in competition. Consuming the products in a field gives you a
sense of what is possible and indicates boundaries that you may attempt to push
with your own creative work. Preparation broadens your mind and lets you
study the products, practice, and culture in a field. It is also a time for goal
setting. Whether your chosen field is directly related to art and design, such as
publishing, or involves human-centric design, which includes all sorts of
software and product design efforts, you need a period of open-minded
reception to ideas. Repetitive practice is also part of the preparation stage, so
that you can understand the current field of production and become aware of
best practices, whether or not you are currently capable of matching them.
During the preparation stage, you can begin to see how other creative people put
meaning into their products, and you can establish benchmarks against which to
measure your own creative work.

Incubation

Incubation refers to giving yourself, and your subconscious mind in particular,


time to incorporate what you learned and practiced in the preparation stage.
Incubation involves the absence of practice. It may look to an outsider as though
you are at rest, but your mind is at work. A change of environment is key to
incubating ideas. A new environment allows you to receive stimuli other than
those directly associated with the creative problem you are working on. It could
be as simple as taking a walk or going to a new coffee shop to allow your mind
to wander and take in the information you gathered in the previous
stage. Mozart stated, “When I am, as it were, completely myself, entirely alone,
and of good cheer—say, traveling in a carriage, or walking after a good meal, or
during the night when I cannot sleep; it is on such occasions that my ideas flow
best and most abundantly.” Incubation allows your mind to integrate your
creative problem with your stored memories and with other thoughts or
emotions you might have. This simply is not possible to do when you are
consciously fixated on the creative problem and related tasks and practice.
Incubation can take a short or a long time, and you can perform other activities
while allowing this process to take place. One theory about incubation is that it
takes language out of the thought process. If you are not working to apply
words to your creative problems and interests, you can free your mind to make
associations that go deeper, so to speak, than language. Patiently waiting for
incubation to work is quite difficult. Many creative and innovative people
develop hobbies involving physical activity to keep their minds busy while they
allow ideas to incubate.

Insight

Insight or “illumination” is a term for the “aha!” moment—when the solution to


a creative problem suddenly becomes readily accessible to your conscious
mind. The “aha!” moment has been observed in literature, in history, and in
cognitive studies of creativity. Insights may come all at once or in increments.
They are not easily understood because, by their very nature, they are difficult
to isolate in research and experimental settings. For the creative entrepreneur,
however, insights are a delight. An insight is the fleeting time when your
preparation, practice, and period of incubation coalesce into a stroke of genius.
Whether the illumination is the solution to a seemingly impossible problem or
the creation of a particularly clever melody or turn of phrase, creative people
often consider it a highlight in their lives. For an entrepreneur, an insight holds
the promise of success and the potential to help massive numbers of people
overcome a pain point or problem. Not every insight will have a global impact,
but coming up with a solution that your subconscious mind has been working
on for some time is a real joy.

Evaluation

Evaluation is the purposeful examination of ideas. You will want to compare


your insights with the products and ideas you encountered during preparation.
You also will want to compare your ideas and product prototypes to the goals
you set out for yourself during the preparation phase. Creative professionals will
often invite others to critique their work at this stage. Because evaluation is
specific to the expectations, best practices, and existing product leaders in each
field, evaluation can take on many forms. You are looking for assurance that
your standards for evaluation are appropriate. Judge yourself fairly, even as you
apply strict criteria and the well-developed sense of taste you acquired during
the preparation phase. For example, you might choose to interview a few
customers in your target demographics for your product or service. The primary
objective is to understand the customer perspective and the extent to which your
idea aligns with their position.

Elaboration

The last stage in the creative process is elaboration, that is, actual production.
Elaboration can involve the release of a minimum viable product (MVP). This
version of your invention may not be polished or complete, but it should
function well enough that you can begin to market it while still elaborating on it
in an iterative development process. Elaboration also can involve the
development and launch of a prototype, the release of a software beta, or the
production of some piece of artistic work for sale. Many consumer-product
companies, such as Johnson & Johnson or Procter & Gamble, will establish a
small test market to garner feedback and evaluations of new products from
actual customers. These insights can give the company valuable information
that can help make the product or service as successful as possible.

At this stage what matters most in the entrepreneurial creative process is that the
work becomes available to the public so that they have a chance to adopt it.

Innovation as More than Problem Solving

Innovative entrepreneurs are essentially problem solvers, but this level of


innovation—identifying a pain point and working to overcome it—is only one
in a series of innovative steps. In the influential business publication Forbes, the
entrepreneur Larry Myler notes that problem solving is inherently reactive.

That is, you have to wait for a problem to happen in order to recognize the need
to solve the problem. Solving problems is an important part of the practice of
innovation, but to elevate the practice and the field, innovators should anticipate
problems and strive to prevent them. In many cases, they create systems for
continuous improvement, which Myler notes may involve “breaking” previous
systems that seem to function perfectly well. Striving for continuous
improvement helps innovators stay ahead of market changes. Thus, they have
products ready for emerging markets, rather than developing projects that chase
change, which can occur constantly in some tech-driven fields. One issue with
building a system for constant improvement is that you are in essence creating
problems in order to solve them, which goes against established culture in many
firms. Innovators look for organizations that can handle purposeful innovation,
or they attempt to start them. Some innovators even have the goal of innovating
far ahead into the future, beyond current capacities. In order to do this, Myler
suggests bringing people of disparate experiential backgrounds with different
expertise together. These relationships are not guarantees of successful
innovation, but such groups can generate ideas independent of institutional
inertia. Thus, innovators are problem solvers but also can work with forms of
problem creation and problem imagination. They tackle problems that have yet
to exist in order to solve them ahead of time.

Multilevel approach to innovation

Characteristics of innovative products

Deep

Deep products are based on the logic of innovation that we’ve just established
and anticipate users’ needs before they have them. These types of innovations
often have masterful designs that are intuitive for new users while still being
capable of completing complex tasks. Adobe is an innovative corporation
working in several fields, such as software, marketing, and artificial
intelligence. Adobe often creates software applications with basic functions that
are easily accessible to new users but that also enable experienced users to
innovate on their own. Creating a platform for innovation is a hallmark of deep,
forward-thinking innovation.
Indulgent

Innovations with lasting power engage users in ways that make them feel
special for having purchased the product or for having found the
service. Indulgence refers to a depth of quality that does not come from being
the fastest solution to a problem. Indulgence may even sound like a negative
trait. In humans, it certainly can be, but for someone using an innovative
product, feeling indulgent can relate to a richness of experience with the user
interface (UI). The UI of a product, particularly a software product, is what the
user sees and interacts with. A feeling of indulgence imbues your product with a
sense of value and durability that reassures users and encourages them to use
your product confidently.

Complete

Kawasaki’s vision of a complete product includes the services wrapped around


it and underlying it such that users understand the product well enough to be
comfortable using it. Information about how it works and how it is meant to
work is readily available. Thus, product innovation must include marketing and
other communication efforts. For Kawasaki, this builds the “total user
experience.” If you truly have solved a problem in the marketplace, users will
understand what that problem is and how your product and related services
deliver.

Elegant

Elegance also is part of a product’s UI. It refers to intuitive design that


immediately makes sense to consumers. Elegance conveys more information
with fewer words. Elegant design is not afraid of negative space or of the
occasional pause. Elegant innovations solve problems without creating new
ones. For Kawasaki, elegance is the difference between a pragmatic, good
innovation and something great.

Emotive

Emotive innovations evoke the intended emotion and demand to be admired and
shared. In other words, truly great innovations create fandoms, not just
consumer bases. You can’t force people to love your product, but you can give
them experiences that create a sense of excitement and anticipation of what you
might come up with next.
Methods of protecting Innovation and creativity

Intellectual property rights:

 Branding.

 Trademarks.

 Patents.

 Copyrights.

 Registered design protection.

 Trade secrets (processes, techniques, confidential disclosure agreements).

CHAPTER 3 KEYS TO RECOGNISING AND EVALUATING BUSINESS


OPPORTUNITIES

How You Can Recognise Entrepreneurial Opportunities


1. Economic Trends
These help determine areas that are ripe for new start-ups and areas that
start-ups should avoid.
2. Social trends
They alter how people and businesses behave and set their priorities.
These trends provide opportunities for new businesses to accommodate
the changes. For example, interest in health, diversity of the workplace
etc.
3. Technological advancement
Once technology is created, products often emerge to advance it.
An entrepreneur might decide to introduce a new technology to produce a
new product, introduce an existing technology to produce a new product
or use an existing technology to produce an old product in a new way.
4. Political and Regulatory changes
It provides the basis for opportunities for example, laws to protect the
environment have created opportunities for entrepreneurs to start firms
that help other firms comply with environmental laws and regulations.
5. Solving a Problem
This involves noticing a problems and finding a way to solve it. The
problems can be pinpointed through intuition, serendipity or change.
6. Finding Gaps in the Market place
Product gaps in the market place represent potentially viable business
opportunities.
7. Consumer comments/complaints
What the consumers say about a product or services can be the sources of
ideas to improve them.
8. Distribution Channels
Sometime certain products or services may not have well established
distribution channels right to the convenience of customers.
9. Research and Development
The results and recommendations could provide a basis for new business
opportunities.
10.The unexpected success or failure of a product or service can provide
opportunities to an entrepreneur.
11.The incongruity- this is an anomaly or a discrepancy between the reality
and what everyone assumes it to be
12.Process Needs- there may be need for certain processes to complete a
service.
13.Changes in the industry or market structure create gaps in the market
place.
14.Demographics give information on the products and service required by
certain group
15.Changes in perception or mood create opportunities for new products or
services
16.New knowledge may create opportunities to solve existing problems.
17.Developing a new market for an existing product.
18.Finding a new supply of resources that might enable the entrepreneur to
produce a product more economically.
19.Competitive advantages in price, location, quality, reputation, reliability,
speed or other attributes of importance to customers.
20.Technology Transfer and Licensing
Universities and research institutes develop a range of new technologies,
but never do anything with them. These universities can offer a licensing
arrangement. A licence is a legal agreement granting one rights to use a
particular piece of intellectual property. In return, the licensee is required
to pay the owner of the license. These payments can consist of an upfront
or annual flat licensing fee or royalty. Often the licensor will provide
access to the idea’s creator to help make the move to market as successful
as possible.

How You Can Evaluate Entrepreneurial Opportunities


Successful entrepreneurship is comprised of a number of crucial elements:
markets, industries and the key people who make up the entrepreneurial team.
These elements brought together offer a clearer way to answer the crucial that
every aspiring entrepreneur must ask themselves: why will or won’t this work?
The model offers a toolkit for assessing and shaping market opportunities and a
better way for entrepreneurs and their teams to assess the adequacy of what they
bring to the table as individuals and as a group.
Is the market attractive? Macro and Micro considerations
Macro Level
One first assesses how large the market is. Market size can be measured in
many ways. Assessment is done by gathering secondary data from trade
publications and the business press. Measures include:
The number of customers in the market, say for workplace snacks;
The aggregate money spent by these customers on the relevant class of goods or
services in this case workplace snacks;
The number of units of relevant products or usage on occasions, such as
workplace snacks bought annually.
You can also collect recent historical data to ascertain how fast the market has
been growing, together with any available forecasts about how fast it is likely to
grow in the future.
For instance investors want to know the size and growth rate of the market, so
that if the product catches on, they should have a substantial upside. Others may
want to know whether the overall market opportunity is big, and also if the
market size of this particular offering is robust.
You need to assess broad macro-environmental trends- democratic,
sociocultural, economic, technological, and regulatory and national- to
determine whether things are likely to get better or worse in the future. Do the
trends favour the opportunity or will you be swimming against a powerful tide?
Being able to assess, spot and maybe even create trends is key to decision
making.
The broad, macro-level market assessment is important to an entrepreneur, for
you to invest years committed to an idea that, in the end, may not be substantial
enough to be worth all your time and effort. Its important for an entrepreneur to
know whether the opportunity is a substantial one, serving a large and attractive
market, or niche opportunity with limited potential. Either may be acceptable: it
depends on the entrepreneur’s aspirations. It is also important to know which
way the tides are flowing. So, reaching a clear conclusion about market
attractiveness is critical.
Micro Level
Most successful entrepreneurs, rather than targeting the entire market, identify a
much smaller segment of customers within the overall market. The micro-level
market assessment involves asking four key questions relevant to such segment.
Is there a target market segment where we might enter the market in which we
offer customers clear compelling benefits, or better yet resolve their pain at a
price they are willing to pay?
Are these benefits, in the customers’ minds different from superior in some
way- better, faster, cheaper or whatever to what’s currently offered by other
solutions? Differentiation is crucial.
How large is this segment and how fast is it growing?
Is it likely that our entry into this segment will provide us with access to other
segments that we may wish to target in the future?
These questions can be answered through a combination of first hand primary
data (talking to prospective customers) and secondary data (available on the
internet, libraries and other sources.)
Most aspiring entrepreneurs make the mistake of examining only the macro
level. Through failing to identify the first customers who will buy- almost by
name and why they will benefit and by ignoring how entry into this segment
might create one or more options into other market segments, they risk persuing
a dead-end path on two counts:
Without differentiated benefits, most customers won’t buy and
Without a pathway to growth, most investors won’t invest.
Is the Industry attractive? Macro and Micro considerations
Serious entrepreneurs prefer to compete on the basis of some sustainable
advantage that their competitors do not enjoy, and with a business model that
won’t soon run out of cash.

Macro Level
Michel Porter identified five forces to determine the overall profitability of any
industry as; threat of entry; buyer power; supplier power; threat of substitute
and competitive rivalry.
The aspiring entrepreneur first identifies what industry his or her business will
be in. The entrepreneur then asks a series of questions about each of the five
forces to determine whether that force is favourable or unfavourable on balance.
The more forces that are favourable, the more attractive the industry and vice
versa.
Once all five forces have been assessed, the key outcome is to reach a clear
conclusion about the attractiveness of your industry. This step is crucial to the
overall assessment of your opportunity.
Micro Level
Identifying and assessing the competitive and economic sustainability of the
proposed venture is necessary to fill in the micro-level industry piece of the
opportunity assessment puzzle. Assessing the sustainability of the proposed
venture requires examining, in relationship to its competitors, the proposed
venture itself- whether a new firm or a venture within an existing firm. The goal
is to determine whether certain factors are present that would enhance the
ability of the venture to sustain any advantage that it might have at the outset,
without quickly running out of cash. These competitive and economic factors
are the following:
The presence of proprietary elements- patents, trade secrets that other firms are
unable to duplicate.
The likely presence of superior organisational processes, capabilities or
resources that other would have difficulty duplicating or imitating.
The presence of an economically sustainable business model- one that won’t
quickly run out of cash. This factor, in turn, involves a careful look at some
more detailed issues:
Revenue, in relation to the capital investments required and margins obtainable;
Customer acquisition and retention costs, and the time it will take to obtain
customers;
Contribution margins and their adequacy to cover the necessary fixed cost
structure to operate the business;
Operating cash cycle characteristics, that is, how much cash must be tied up in
working capital such as inventory, how quickly customers will pay, and how
slowly suppliers and employees can be paid, in relation to the margins the
business generates.
Can the Team Deliver?
There are three elements relating to the entrepreneurial team. Examining these
elements is necessary in order to complete the opportunity assessment task.
Does the opportunity fit the team’s business mission, personal aspirations and
risk propensity, and does all of that align with that of a prospective investor?
Does the team have what it takes, in a human sense- in experience and industry
know-how- to deliver superior performance for this particular opportunity,
given its critical success factors, that is those factors that done right, almost
guarantee superior performance, even if other things aren’t done so well or done
wrong, will have severely negative effects on performance regardless of doing
other things right?
Is the team well connected up, down and across the value chain so it will be
quick to notice any opportunity or need to change its approach if conditions
warrant?
The Team’s Business Mission, Personal Aspirations and Risk Propensity
Individual entrepreneurs and investors come to the opportunity assessment task
with certain preconceived preferences, often defined in terms of:
Markets they wish to serve;
Industries in which they are willing to compete;
Their own aspirations;
Risks they are willing to undertake.
Opportunities that do not match these preferences will be seen as unattractive.
The Team’s Ability to Execute on the Critical Success Factors
The backgrounds and prior experiences brought to the venture by particular
entrepreneurs make them better able to execute on some critical success factors
than on others. Understanding the critical success factors relevant to a particular
opportunity and the industry within which it will compete and matching them
against the team’s ability to perform on them is one of the most compelling
aspects investors consider when assessing opportunities.
Entrepreneurs who fail to assess accurately whether they and their team what it
takes to execute on the critical success factors they will face take a huge
personal risk- beyond the business risk they already take- if they seek external
capital.
The Team’s Connectedness Up, Down, Across the Value Chain
The ability to combine tenacity with a willingness to change course- sometimes
due to changes in the market place, fortuitous or others can make all the
difference. Entrepreneurial teams should ask how connected they are, both up
and down the value chain- with suppliers and customers and across their
industry to address this concern. How can they get connected if they are not?
One partial answer: network.
By assessing themselves with respect to the three elements as part of their
broader opportunity assessment efforts, entrepreneurial teams gain in three
ways.
If the team needs to be strengthened to better suit an otherwise promising
opportunity, the best time to do so is before getting started. Doing this early
enables the venture to benefit from the talents, insights and perspectives of the
team’s new members from square one.
Viewing investors as part of the team also builds trust and can reduce the risk
investors perceive in the venture, since many investors like to help build the
team. Entrepreneurs who are willing to admit they don’t have all the skills
required often rate highly with the investor community.
If external funding is to be sought, then pitching an inadequate team is not only
likely to be successful but also undermines the credibility and reputation of the
team members, thereby hampering their ability to raise capital in the future. Get
the right team first, then pitch. You’ll need to make a convincing case that the
team will be able to deliver the results it seeks and those it promises to investors
and other stakeholders.

CHAPTER 4 ASSESSING FINANCIAL VIABILITY

Start-Up Investment
Start-up investment or seed capital is the one-time0 expense of opening a
business. In a restaurant, for example, start-up expenses would include stoves,
refrigeration, utensils, tables, chairs and other items that would not be replaced
often. Also included might be the cost of buying land and constructing the
building or the cost of renovating an existing space. Some entrepreneurs also
choose to consider the time they put into getting their business off the ground as
part of the start-up investment. To do so, place a value on your time per hour
and multiply by the number of hours you think you will need to get your
business going.
For a …, the start-up investment might look like this:
Beginning inventory
Business Cards and Flyers
Business Licenses
Hot dog cart
Cashbox and other
Total investment without contingency
Contingency @10% of start-up investment
Total start-up investment with contingency

For a more complex business like a franchise, the items would be broken down
into greater detail in order to secure quotations or prices. For example, each
piece of equipment would be identified and a quote secured.
For a manufacturing business, developing a prototype for the item being
manufactured may be a major start-up cost. A prototype is a model or pattern
that serves as an example of how a product would look like and operate if it
were manufactured.
Before starting your business, try to anticipate every possible cost by analysing
all components and possibilities. Talk to others in your industry and ask them
what start-up costs they failed to anticipate. Research industry information and
obtain quotations from potential suppliers.
Start-up Investment checklist
Item/Category Cost Explanation/Note
Land and Building (if constructing or purchasing)
Equipment and machinery
Furniture and fixtures
Leasehold improvements (if renting)
Installation of equipment and fixtures
Computers and other technology
Employee wages, salaries and benefits
Owner time (valued at $- per hour)
Professional services (attorney, accountant etc
Promotions and advertising
Licenses and permits
Deposits on rent and utilities
Rent
Utilities
Insurance
Debt service
Taxes
Memberships (trade associations, chambers of
commerce etc
Registration fees
Trainings, conventions and seminars
Licensing or franchise fees
Financing costs and fees
Supplies
Inventory
Petty cash
Total pre-opening investment
Allowance for contingencies/emergencies (10%)
Initial investment

When compiling and analysing start-up costs, one consideration will be on how
long it will take for you to earn back your start-up investment. The payback
period is an estimate of how long it will take your business to generate enough
cash to cover the start-up costs. It is measured in months.
Payback= start-up investment
Net cash flow per month
Knowing the payback period is important for a firm, so that the time horizon is
known and timing of funds availability is clear. However, the payback period
does not take into consideration future earnings, opportunities for alternative
investments or the overall value of the company. It is based on net cash and is a
good indicator of the time needed to earn back initial disbursements.
The Cost Model
Fixed and variable costs
Small business owners divide their costs into two categories. Variable costs
change based on the volume of units sold or produced. Fixed costs are expenses
that must be paid regardless of whether sales are being generated.
Variable costs change with production and sales. They fall into two
subcategories:
1. Cost of Goods Sold (COGS) or Cost of Services sold (COSS) each is
associated specifically with a single unit of sale including:
The cost of materials used to make the product (or deliver the service)
The cost of labour used to make the product (or deliver the service)
2. Other variable costs, including:
Commissions or other compensation based on sales volume
Transport and handling charges
Fixed costs stay constant over a range of productions, whether you sell
many units or very few. Examples of fixed costs include rent, salaries,
insurance, equipment and manufacturing facilities.
For any product, you can study its economics of one unit (EOU) to figure
out what it costs to make that sale.
Manufacturing Business Unit = 1 Hand-Painted T-Shirt
Economics of One Unit (EOU) Analysis
(Define unit of Sale)
Selling price (per unit) $35.00
COGS (Cost of Goods
Sold)
Materials per unit $7.00
Labour per hour $10.00
# of hours per unit 0.75
Total labour per unit 7.50 7.50
Total COGS (per unit) $14.50 14.50 14.50
Gross Profit (per unit) $20.50
Other variable costs
Commission (10%) 3.50
Packaging 0.50
Total other variable $4.00 4.00 4.00
Costs
Total variable costs (per $18.50
unit)
Contribution margin $16.50

Calculating Total Gross Profit (Contribution Margin)


You can use EOU to calculate whether and by how much you will come out
ahead on your per unit costs for each sale. By using the EOU, you can figure the
gross profit per unit (contribution margin per unit sold, which is the selling price
minus all variable costs).
Calculating EOU when you are selling multiple products
Most businesses sell more than a single product, and they can also EOU as a
measure of product profitability. A business selling a variety of products has to
create a separate EOU for each item to determine whether each is profitable.
When there are many similar products with comparable prices and cost
structures a ‘typical’ EOU can be used.
For example you sell four types of sweets at school. You sell each sweet for $1,
but you pay a different wholesale price for each.
Chocolate $0.36
Almond $0.38
Fruit $0.42
Crunch bar $0.44

Rather than make separate EOUs, you can use the average cost of your four
types of sweets.
Costs of the four types of sweets= ($0.36+$0.38+$0.42+$0.44)/4
Average cost of the four types of sweets =$1.60/4
Average cost of each sweet =$0.40
Using a simple average works as long as you sell roughly the same number of
each brand of sweets. If you can no longer get chocolate and almond at some
point, for example, you should then change your EOU to reflect the higher
prices of the other two types of sweets.
Fixed Operating Costs
Costs that do not vary per unit of production or service, such as rent are called
fixed operating costs. Total fixed costs do not change based on volume. Fixed
costs per unit decreases as the number of units increases.
Fixed operating costs do not change based on sales activity levels; therefore,
they are not included in the EOU. A hamburger shop has to pay the same rent
each month whether it sells one hamburger or a hundred. However the owner of
the shop can change the cost of the rent by moving or can increase or decrease
the advertising budget. These changes are not calculated on a per unit basis.
It is easier to remember several of the most common categories of fixed
expenses by remembering the phrase: I SAID U R + Other FXs
This stands for
Insurance
Salaries (indirect labour- managers, office staff, sales force)
Advertising
Interest
Depreciation
Utilities (gas, electricity, internet access)
Rent
Other Fixed expenses

Break- Even Analysis

The Value proposition

How do you intend to generate revenue?

What are the sources of revenue for your business? What are your value
offerings?

What is the price of these value offerings?

And who will be paying for the value?

How do you intend to generate revenue?


Investors really love this part. You have to clearly show how your business will
make money and when stating, you have to use key words, but keep it simple;
For example, my start-up generates revenue using the commission-based model
of charging 20% from all service transactions. i.e., our revenue model is the
subscription model or we use the Premium model or we generate revenue using
the recurring revenue model, tiered pricing model etc.
We generate revenue by charging buyer 20%, 30% of the cost of goods sold
What are your value offerings?
Warren Buffet said “price is what you pay, value is what you get” you pay for a
service because of the benefit you will derive from it. So here, you are required
to state the benefit your solution offers to your purchasing customers i.e., time
savings, overhead cost savings, durable plastics etc.
What is the price?
Simply state the price of your solution, but keep it at a median value i.e. our
upper bound price is ZWL$500, our lower bound price is ZWL$50
Who will be paying for your value?
Here, you describe your stereotypical customer i.e. female business executives
in working in Gweru, or early-stage business owners. Be very specific in your
description.

CHAPTER 5 THE FINANCING/FUNDING MODEL

Financing is not a one size fits all proposition. Each venture has unique
requirements and circumstances, along with the structure and challenges of the
selected industry. For some businesses, such as restaurants, standard
commercial loans may not be an option because commercial lenders see them as
too risky and are not willing to make them. For others, such as research based
technology firms, equity will be needed. Regardless of your preferences and the
types of financing available, you will invariably have to be the first investor in
your business. Lenders and investors alike insist that entrepreneurs have their
personal resources involved before they put in additional funding. It is easier to
persist and work hard when you have a personal financial stake in success. If
putting your personal assets at risk is not something you are willing to do,
expect to be rejected by investors and lenders.
Your risk tolerance, meaning the amount of risk (threat of loss) you are willing
to sustain, will also help to define possible financing options. For example if
you own assets and are seeking a commercial loan, you will likely have to put it
up as security (collateral), in case you cannot repay the debt. Or, if you are
giving up ownership through equity, you may have to give up control of the
company you founded to your investors so that you can obtain needed financial
resources. Be prepared to face these types of decisions as you seek financing
that works.
There are three ways for a business to raise the capital it needs to grow.
1. Finance with earnings. If a company is profitable and has positive cash
flow, it can use some of its profits to finance expansion. This will help
ensure that the company does not take on too much debt or grow more
quickly than its finance can handle.
2. Finance with equity. If a company is incorporated, it can sell stock
privately or on the stock market, to raise capital. People who purchase
shares of stock are getting equity. Other types of businesses may also
have equity investors.
3. Finance with debt. Any type of business, depending on its
creditworthiness and that of its owners, can borrow money. An
incorporated company can also sell bonds, although it is difficult and
cost- prohibitive for small businesses to do so. People who purchase
bonds will receive interest on the loan they are making to the company,
with repayment of the principal in a lump sum at maturity.
Debt Financing
Some businesses have a combination of debt and equity financing. One
challenge you may face is determining what type of debt financing to pursue,
based on your business type and life-cycle stage, your personal finances, wealth,
preferences and the options available to you. Before pursuing debt for your
business, calculate your personal net worth by tallying your assets (i.e cash,
investment accounts, personal property, real estate and its intangibles) and
subtracting your debts (i.e credit balances, vehicle loans, student loans,
mortgages and other loans). Your lenders will want to know what you own,
what you owe and what your business finances are.
Debt financing comes in many forms, with widely varying repayment and
qualification terms. Different types of lenders will have various rates and fees,
so it’s worthwhile to compare the total package costs.
Debt Financing: Pros and Cons
To finance through debt, the entrepreneur applies to and contracts with a person
or an institution that has money, borrows it, signing a promissory note, a
document agreeing to repay a certain sum of money (with interest) by a
specified date.
Interest is determined as a percentage of the loan principal. The principal is the
amount of the loan or outstanding balance on the loan amount, not including
interest. Typically, the borrower makes monthly payments until the loan is fully
paid. The term, or length, of the loan generally depends on what is being
financed, with working capital having the shortest term and real estate the
longest.
The lender essentially has no say in the operations of the business, as long as the
loan payments are made on time and loan terms are met. The lender will have a
say in how the funds are initially disbursed and may set restrictions. The
payments are predictable, although they may vary with changes in key interest
rate measures, if the interest rate is variable rather than fixed. If the loan
payments are not made in a timely way, the lender can force the business into
liquidation or bankruptcy, even if that loan balance is only a fraction of what the
business is worth. Also the lender can take the home and personal possessions
of the owner, depending on the agreement.
Debt should be carefully considered by the beginning entrepreneur because it
often takes time for the new business to generate cash flow for repayment. One
risk of debt is that failure to make payments can destroy the business before it
can generate positive cash flow.
Debt Advantages
The lender has no say in the management or direction of the business, as long as
the loan payments are made and the contracts are not violated.
Loan payments are predictable; they do not change with the fortunes of the
business.
Loan payments can be set up so that they are matched with the seasonal sales of
the business.
Lenders do not share in the business profits.

Debt Disadvantages
If loan payments are not made, the lender can force the business into
bankruptcy.
The lender can take the home and possessions of the owner to settle a debt in
case of default- when the borrower fails to meet the repayment agreement.
Debt payments increase in a business’s fixed costs, thereby lowering profits.
Repayment reduces available cash.
Lenders expect regular financial reporting and compliance with the loan
contracts.

Equity financing
Equity means that in return for money an investor will receive a percentage of
ownership in a company. For a $120,000 investment in the company, an equity
investor might want 10% ownership, which would mean 10%of the business
profits. This would indicate that the business was valued at $1.2 million. The
investor is hoping that 10% of the profits will provide a high rate of return, over
time, on the initial investment of $120,000.
Equity Financing: Pros and Cons
The equity investor assumes greater risk than the lender. If the business does not
make a profit, neither does the investor. The equity investor cannot force the
business into bankruptcy to get back the investment. If creditors force a
business into bankruptcy, equity investors have a claim on whatever is left over
after the debt lenders have been paid. However, the potential for return is also
higher. The equity investor should make an investment back many times over if
the business prospers.
Money raised via equity does not have to be paid unless the business is
successful. Equity investors may offer helpful advice and provide valuable
contacts. However, if the entrepreneur gives up more than 50% ownership,
control of the business may be taken by the equity holders. Even with less than
half the ownership, investors may assert managerial influence.
Equity Advantages
If the business does not make a profit, the investor does not get paid.
There are no required regular payments in the form of principal or interest and
dividends for common stockholders are distributed at the discretion of the board
of directors.
The equity investor cannot force the business into bankruptcy in order to recoup
the investment.
The equity investor has an interest in seeing the business succeed and may,
therefore, offer helpful advice and provide valuable contacts.
Equity Disadvantages
Through giving up too much ownership, the entrepreneur could lose control of
the business to the equity holders.
Even with small amounts of equity, investors may interfere with the business
via unsolicited advice and or continuous enquiries.
Equity financing is riskier for the investor, so she frequently wants both to be
able to influence how the company is run and to receive higher rate of return
than the lender.
The entrepreneur must share profits with other equity investors.

CHAPTER 6: DEVELOPING THE BUSINESS MODEL

Business Model Canvas

Key Partners

Who are our key partners?

Who are key suppliers?

Which key resources are we acquiring form partners?

Which key activities do partners perform?

Motivations for partnerships optimization and economy: reduction of risk and


uncertainty; acquisition of particular resources and activities.

Key Activities

What key activities do our value propositions require?

Our distribution channels

Customer relationships

Revenue streams

Categories: production; problem solving; platform/network

Key Resources
What key resources do our value propositions require?

Our distribution channels

Customer relationships

Revenues streams

Types of resources: physical; intellectual (brand patents, copyrights, data)


human; financial.

Value proposition

What value do we deliver to the customer?

Which one of our customer problems are we helping to solve?

What bundles of products and services are we offering to each customer


segment?

Which customer needs are we satisfying?

For example: newness; performance; customization; getting the job done;


design ; brand/status; price; cost reduction; risk reduction; accessibility;
convenience/usability.

Customer Relationships

What type of relationship does each of our customer segments expect us to


establish and maintain with them?

Which ones have we established?

How are they integrated with the rest of our business model?

How costly are they?

Examples; personal assistance; dedicated personal assistance; self-service;


automated services; communities; co-creation.

Customer Segments

For whom are we creating value?

Who are our most important customers?

Mass market; niche market; segment; diversified; multi-sided platform.


Channels

Through which channels do our customer segments want to be reached?

How are we reaching them now?

How are our channels integrated?

Which ones work best?

Which ones are most cost efficient?

How are we integrating with customer routines?

Channel phases

Awareness- how do we raise awareness about our company’s products and


services?

Evaluation- how do we help customers evaluate our organisation’s value


proposition?

Purchase-how do we allow customers to purchase specific products and


services?

Delivery-how do we deliver a value proposition to customers?

After sales- how do we provide post-purchase customer support?

Revenue Streams

For what value are our customers really willing to pay?

For what do they currently pay?

How are they currently paying?

How would they prefer to pay?

How much does each revenue stream contribute to overall revenues?

Types: asset sale: usage fee; subscription fees; lending/renting/leasing;


licensing; brokerage fees; advertising.

Fixed pricing; list price; product feature dependent; customer segment


dependent; volume dependent; dynamic pricing; negotiation (bargaining); yield
management; relative market.
Cost structure

What are the most important costs inherent in our business model?

Which key resources are most expensive?

Which key activities are most expensive?

Is your business more cost driven (leanest cost structure, low price value
proposition, maximum atomization, extensive outsource); value driven (focused
on value creation, premium value proposition)

Sample characteristics; fixed costs (salaries, rent, utilities); variable costs;


economies of scale, economies of scope.

CHAPTER 7: DEVELOPING THE ENTRY STRATEGY

An entry strategy is a way an organization can access a market based on its


structure. The entry strategy will highly depend on the definition of potential
customers in that market and whether those are ready to get value from your
potential offering. It all starts by developing your smallest viable market.

Things you should consider during developing the market entry strategy

a) The risks of entry

Entry to a new market is attractive to businesses due to its advantages, and


promising extra income. Overall, it can be risky. As a business person, you
should get a review of your aims to develop a detailed plan of entering a new
market. You are never going to be 100% sure in the successful market entry, but
the help of an experienced marketing agency can minimize the risks.

Ultimately companies must try new things and take risks to flourish — that is the
nature of entrepreneurship. If you break the daunting project of new market entry
into a rational step by step process, it is much easier to see the whole picture and
avoid failure. Start by gaining a thorough understanding of the new market,
ensure that you have sufficient internal capabilities, and do not be discouraged
by losing small battles along the way.

b) The cost of the market entry strategy


The budget is the pain point of most business owners. I am confident that you do
not want to spend more than it needed, so you have to set a budget for the new
market entry process.

We honor the business achievements of our clients and put our backs into their
cases. On average, the creation of the digital market entry strategy costs
$6,000. But the price depends on the size of your business, your business aims,
and your target market. I can assure you that the results of the strategy will
impress you.

c) The expected outcome of entering the market

A new market can provide new sources of revenue, higher ROI (Returns on
Investments), and secure long-term success for a business. The digital strategy
can even easier to reach out to the world for business.

One more point to remember, you cannot sell your product to everyone. If you
try to make a product that meets everyone’s needs, that product does not appeal
to any particular group of consumers. Also, trying to please everyone will almost
certainly cause you to panic and be overwhelmed by all the demands you try to
satisfy. Do not fall into that trap.
Which market entry strategy is the best to choose?

As a digital marketing agency, we know everything about marketing, the latest


trends, and the market in general. From our experience, we can assure you that
the digital market entry strategy is the most effective strategy for businesses.

This strategy is appropriate if you run or if you want to run a prosperous online
business. The main advantage of it is that you do not need to open new offline
offices. On the initial stage, you have to conduct the online market research,
create a step-by-step strategy, develop a website or a mobile application (both
can be even effective), and set up digital advertising. With this method, you can
save investments and put them into the promotion of your brand on the new
market.

Market Types
A market type is a way a given group of consumers and producers interact,
based on the context determined by the readiness of consumers to understand
the product, the complexity of the product; how big is the existing market and
how much it can potentially expand in the future.
Market types will influence the whole organizational structure, the funding
needed and the strategy adopted to enter or sustain a business in the marketplace
Professor Steve Blank helps us with a simpler definition of markets, also more
in line with the kind of context often start-ups have to deal with.
You can read the full guide on the market types below. In the next paragraphs,
we’ll see how to tackle each market and what entry strategy you can use.

In an existing market made of existing customers and potential competitors, a


business can already gain a lot of traction and feedback from an existing
customer base. The real matter is really understanding how to provide more
value.

In those cases, some powerful entry strategies are:

 A 2x better solution priced the same than existing alternatives


 A solution that offers much more value to a subset of the customers of
existing alternatives

Existing Market: Bootstrap and niche down

In short, in an existing well-defined market, there might be many ways to enter.


An effective strategy is to identify a subset of customers (a niche) which you
can target and provide the most value to.

The general concept of Bootstrapping connects to “a self-starting process that is


supposed to proceed without external input.” In business, Bootstrapping means
financing the growth of the company from the available cash flows produced by
a viable business model. Bootstrapping requires the mastery of the key
customers driving growth.

Identifying a niche, is a key element to get started with a small set of potential
customers able to give you feedback as you grow. Sometimes whether to start
from a niche or micro niche is a matter of understanding how competitive and
saturated is an existing market. As a rule of thumb, a market that is extremely
saturated will require you to drill it down until you find the smallest customer
base to kick off your business. For instance, if you’re starting today an online
bookstore, sure you can start by making it the “everything store” ( that seems it
was already invented two decades ago and it is called “Amazon”) but that might
be soon doomed to failure.

Instead, you want to be very specific. Something like, “I’ll start an online
bookstore with the most curated books you can find about biographies from
entrepreneurs of the 18th century.” There might be a few thousand people
across the world, interested in that. But those few thousand people are ready to
become your raving fans and customers

A micro-niche is a subset of potential customers within a niche. In the era of


dominating digital super-platforms, identifying a micro-niche can kick off
the strategy of digital businesses to prevent competition against large platforms.
As the micro-niche becomes a niche, then a market, scale becomes an option.
Re-segmented market: craft a value proposition based on the key players’
weaknesses

Identify a gap in the value proposition of existing competitors. What is that


those large companies or existing, consolidated players can’t offer which you
can instead?
Imagine you enter an industry dominated by other players. For instance, what
about starting a search engine today?
Thus, when entering a re-segmented market, where there might be an
opportunity at the low-end of this market.

Find a gap in the existing value proposition of existing, dominating players


(incumbents’ value gap analysis)
Offer what they can’t, because it’s against their core business model (an offer
they can’t replicate)
Look for the smallest set of unhappy customers for those incumbents ready to
buy an alternative (minimum viable market)
New market: figure out a commercial use case

Opening up a new market seems to be the hidden dream of many entrepreneurs.


That’s because, for a while, that new market might be extremely profitable, and
with low competition (the so-called first-mover advantage).

Yet opening up a new market, not only is a risky move, but if that market holds
up, new companies might quickly replicate what you’re doing, thus making
your first-mover advantage turn in their favor (Google was a latecomer in
search, and so Facebook was a latecomer in social media).

But how do you enter (actually create and define) a new market? In that case,
it’s all about finding the commercial use case, which is initially big enough
either to develop an initial, potential customer base (made mostly
of innovators).

In this case, it makes sense to look for funding, because, potential investors can
validate your idea in the first place (if they’re willing to put money it might be
the first sign of a potentially worth it commercial application).

Or ask “is there a way for me to test the idea without making it technically
complex?”

For instance, let’s say your idea is to start a software company, yet developing
that would require hundreds of thousands of dollars.

What if you develop a simple App instead? Costing a tenth of that, developed in
a tenth of the time, yet a good starting point to understand whether the idea is
commercially viable at that moment (what’s not commercially viable today
might be so in the future)?

That would give you the option to expand the project (and its technical
requirements) and ask for funding based on a concrete idea backed up by data
from potential customers.

Clone market: borrow whole or part of the successful business model


When some business models have proved viable in specific industries, instead
of starting from scratch, why not take what exists out there and apply it in a new
geographical area?

Similarly, if a business model proved viable in industry, would this work in


other industries? For instance, when Uber model proved viable (at least from a
scalability standpoint), new applications of the model started to sprout:

Key takeaways

Entering a new market requires also a basic understanding of the structure of


that market
There are several entry strategies we can use, and some of them depend from
the market type we’re entering
There isn’t a definite strategy to enter each market, however, we can draw from
some examples in the business world and apply it back to our business.

Because the South African market is sophisticated, entry should be well-


planned, taking into consideration the following factors: the demographic
income distribution pattern where 10 percent of the population earns 45 percent
of national income (Gini coefficient is 0.61, which means the closer to 1, the
more inequality there is. Zero would indicate there is no inequality); the price-
sensitive nature of consumer demand; volatile Rand-dollar exchange rate (the
rate tends to be very predictable over the medium term, but can spike in the
short term); an unreliable and under-capacitated electricity supply network;
distribution issues, given that large retail centers are concentrated in five
metropolitan regions; well-developed consumer protection rules and, recently,
better enforcement; conservative market bias that tends to stick to known
suppliers and therefore requires sustained market development, and

South Africa’s position as a stepping-stone for developing market opportunities


in Sub-Saharan Africa (the marketing mix should anticipate this medium-term
option); Localization measures such as the imposition of quotas or tariff
increases on imports and local content requirements to prioritize local supply
chains; Increasingly complicated mergers and enterprise sales environment after
2019 amendments to the Competition Act;

Entry strategies for Start-ups


Based on the context, an effective way to determine the market entry is by
understanding the stage of development for the industry you’re about to enter.

From there, you can evaluate whether it makes sense to:

Unbundling the product: in a market context, where there are consolidated


players, that have been offering a bundle or portfolio of products for years. Or
perhaps a single product with many features, but only a few of those features
are interesting to customers. You can take the existing offerings and only
develop the single product or killer feature that customers really want. This will
be your entry point to unbundle the current market offering.
Cutting out intermediaries: in a context where the market is plenty of
fragmented intermediaries, that extract much of the value from that, but offer a
little overall value, a platform that connects customers with service providers,
and cuts out those fragmented intermediaries will be very appealing to both
sides of the marketplace, looking forward to help you make those intermediaries
irrelevant. Think of how Uber, Airbnb, and many other platforms business
models have been disintermediating entire industries.
 Value innovation: in a digital world where it becomes possible to craft an
offering that can scale, the player that figures out how to enter a market by
offering more at lower cost, can go far. Companies like Amazon in e-
commerce and Netflix in media have been following the value
innovation approach.
 Or perhaps use all three above, which make up the formula for business
model innovation. Indeed, over time companies that do develop a
competitive advantage tend to control the three aspects above. From product,
to distribution and value innovation, as long as those elements are in balance,
a competitive advantage might hold.
Below, a series of case studies that show how several companies used different
strategies to achieve initial traction.

Airbnb, OPN entry strategy

As the story goes, in 2007, Brian Chesky and Joe Gebbia couldn’t afford the
rent on their San Francisco apartment that is why they decided to transform
their loft in a lodging space.
Yet instead of relying on Craiglist, they built their site, which they
called Airbed & Breakfast and leveraged on Craigslist to drive users back to
their website,

Therefore, Airbnb, to gain initial traction, used what is known in growth


marketing as OPN (or other people’s network). It surfed a giant at the time (and
still), Craigslist.

To be sure, Airbnb didn’t just gain visibility on Craigslist. Instead, it surfed the
site to push its platform. A platform business model to take off run into the so-
called chicken and egg problem.

In short, a platform differently from a linear business, to gain initial traction has
to kick off its operations on often different sides. For instance, for Airbnb, it
was critical to enhance the listings available on the platform to make it valuable
for users, and vice versa.

The more users joined, the more it would attract listings. Where to start? Back
in 2010, Airbnb figured a mechanism and automation that enabled listings on
the platform to be reposted on Craigslist, thus generating substantial traffic.

In addition, those who searched for listings on Airbnb were users looking for
alternatives to Hotels, so a great target. By using this initial strategy Airbnb
managed to solve its initial growth phase.

Coca-Cola, franchained entry strategy

In a Four Week MBA analysis to dissect the Coca-Cola system, the company
uses a template wherein the short term its new operations are controlled and the
company keeps a controlling equity stake in the new venture.

As soon as it takes off, the operation goes back from chain to the franchise.
Thus the company divests its controlling stakes and in the long-run that
becomes a franchising agreement.

From there, the concept of “franchained.” This go-to-market strategy has


worked pretty well for Coca-Cola since 2003, to enter new markets by
leveraging on its scale, by controlling the new venture, and after that leaving it
independent, by tied to Coca-Cola with a franchising agreement.

Coca-Cola follows a business strategy (implemented since 2006) where through


its operating arm – the Bottling Investment Group – it invests initially in
bottling partners operations. As they take off, Coca-Cola divests its equity
stakes, and it establishes a franchising model, as long-term growth
and distribution strategy.
Netflix niche entry strategy

When Netflix started its operations, it did that in the most feasible way at the
time, as a DVD-rental company.

That was the most viable way to start a business that could compete with
existing players like Blockbuster. Netflix could have tried to play it
bigger. Netflix had known for years that being a competitive player in the DVD-
rental space, was “just the beginning of something else.”

Yet the first time “streaming” was announced on Netflix plan was in the 2007
annual report, presented in 2008, and by 2009 annual report the term
“streaming” would be mentioned 88 times (FourWeekMBA analysis). That is
when things started to pick up and Netflix moved away from its go-to-
market strategy.

It took over a decade from its foundation, for Netflix, to see its strategy to roll
out fully!

OYO octopus entry strategy

OYO business model is a mixture of platform and brand, where the company
started primarily as an aggregator of homes across India, and it quickly moved
to other verticals, from leisure to co-working and corporate travel. In a sort of
octopus business strategy of expansion to cover the whole spectrum of short-
term real estate.
The process of standardization of the experience starts with what OYO claims
to be a 150 point checklist that goes from the booking experience to the support
centre and the on-ground Cluster Managers, ready to solve any problem it might
arise during the experience of guests.
Thus the go-to-market (expansion) strategy looks like the following:

Identification of the next opportunity/area/vertical to tackle.


Acquisition via a growth representative expert in building up partnerships.
The expansion team will apply the 150 point checklist to make the property in
line with the OYO standard.
Support and assistance provided by ad hoc OYO’s representatives.
The expansion process ends when the company is able to properly manage the
end-to-end customer experience.
This sort of go-to-market is skewed toward distribution.

Partnerships entry strategy

With partnership marketing, two or more companies team up to


create marketing campaigns that help them grow organically with a mutual
agreement, thus making it possible to reach shared business goals.
Partnership marketing leverages time and resources of partners that help them
expand their market.
In some other cases, a successful go-to-market strategy can be primarily about
finding the platform or the partner that can help your product to gain the right
amount of traction.

Tesla’s MVP entry strategy

Tesla’s vision is to “create the most compelling car company of the 21st century
by driving the world’s transition to electric vehicles,” while its mission is “to
accelerate the advent of sustainable transport by bringing compelling mass-
market electric cars to market as soon as possible.” Tesla used a
transitional business model as its ecosystem grows.
From Tesla’s mission, it’s clear that the company wants to become in the long
run a mass-adopted car company. Yet, when it launched, it was all but a mass-
market organization. An outside looker might have had the impression that
Tesla was just a sports car company, coming up with a great electric alternative.

However, that was just a go-to-market strategy used by Tesla to enter an


extremely competitive market, which required massive capital to survive in the
first place. Tesla, instead of going for a model that would compete with all the
other sedan car companies in the middle and lower segment of the market.
The company opted for a go-to-market strategy that was only feasible at the
time. It built a sport’s car, that was interesting only to a relatively small
audience, and yet it was competitive.

Sport’s cars have much higher prices compared to other models (like sedans),
and perhaps the person buying that type of car might be less sensitive to price
itself. That is how Tesla slowly built up its strategy to cover larger spaces
within the car industry.

And while Tesla is still a smaller player in terms of the volume of cars
produced, as of 2020, compared to companies like Ford and GM, it is rolling
out its strategy to become a mass-market electric car company. As this is a
complete market change, it will still require a few years for this strategy to roll
out successfully.

Zoom multipronged entry strategy

Zoom is a video communication platform; which mission is to “make video


communications frictionless.” Leveraging on the viral growth from its freemium
model, Zoom then uses its direct sales force to identify the opportunity and
channel those in B2B and enterprise accounts.

Zoom defines its go-to-market as a “multipronged go-to-market strategy for


optimal efficiency.” It starts with “viral enthusiasm” triggered by users as they
join the platform for free.

The good experience is channelled by sales efforts to identify customers


opportunities, such to transform a non-paying user into an enterprise customer.

For instance, as pointed out by Zoom in its 2019, 10K “back in 2019, 55% of
the 344 customers that contributed more than $100,000 of revenue started with
at least one free host prior to subscribing.”

Therefore, the sales model combines the viral demand generation from the free
Zoom Meeting plan with direct sales looking for potential customer
opportunities.

The Zoom direct sales force includes:


Inside sales
Field sales
Those are organized by customer employee count and vertical.

In short, Zoom the workflow looks like the following:

Free accounts are channelled through the right sales representative.


SMBs opportunities will be assigned to an inside sales team member for the
acquisition of the paid account.
Larger SMBs accounts or potential enterprise accounts are assigned to field
sales.
This sort of go-to-market is skewed toward product and distribution.
CHAPTER 8: DEVELOPING THE MARKETING STRATEGY

This is a highly detailed, heavily researched and well written report.


Purpose
It is needed as part of the yearly planning process within the marketing
functional area
It is needed for a specialized strategy to fix an existing problem.
It is a component within an overall plan.
The purpose is to give an overview of what the business is all about.
It should include summaries of:
INTRODUCTION
This part contains two key components:
Purpose of the Marketing Plan
Organization Mission Statement
SITUATIONAL ANALYSIS: where are you and where are you going?
It is designed to take a snap short of where things stand at the time the plan is
presented.
It covers the following key areas:
Current Products: describe the offerings in terms of product attributes, pricing,
distribution, promotion and services offered.
Current Target Market: it examines the company’s target market in terms of
target market approach, demographic profile of the market, characteristics of
targeted customers, product positioning, and market size estimates.
Current distributor networks: it evaluates how the company’s product is
distributed in terms of channels employed to sell and deliver the product
Current competitors: it examines the main competitors serving the same target
market in terms of target markets served, product attributes, pricing, promotion,
distribution and services offered.
Current financial condition: it provides a spreadsheet layout showing detailed
breakdown of marketing revenues and expenses in terms of current sales and
profitability analysis and marketing expenses.
External forces: it describes the trends, events and conditions that are external
that may impact the company’s product such as socio-cultural, demographic,
economic, technological political and regulatory issues.

Market Summary: where is the market now and where is it going?


Target Market: your niche
Market Analysis: break down the niche into groups
Market Demographics: Geographic: Where? Demographic: Who?
Behavior Factors: why your customers
Market Needs: problems to be solved and how you will solve them.
Market Trends: the movement of the market over time.
Market Growth: is it growing or declining?
Target Market Growth: where is it growing?
SWOT Analysis: includes strength, weaknesses, opportunities, threats and
competition
Your Service Offering: what is so unique about you?
How does your business differentiate from your competition?

MARKETING OBJECTIVES
It consists of two major issues:
Determining financial objective which is the impact on the bottom line.
Determining marketing objective which indicates the targets to be achieved
across several marketing decision areas.
MARKETING STRATEGY
Identify the general marketing strategy under which the plan is being developed.

Target market –this is the specific market segment on which the business is
going to concentrate its efforts. It should be measurable and large enough to be
potentially profitable. Potential customers should be able to reach it and
information on its products and services should be readily available. It should
also be responsive meaning that there should be members interested in the
product and willing to buy it.

Marketing Mix

Product
This deals with goods/services that the business will provide. Product features
include distinctive characteristics, color and quality. It may also include
intangibles like warranties, service contracts, delivery, installation and
instructions. Branding is the name or symbol used to identify the product. The
package is the physical container or wrapper that holds it. The label is that part
of the package used to present information. Product positioning refers to how
consumers see the product compared to that of the competition. Positioning can
also be achieved through differences in quality, availability, pricing and uses.
Product mix refers to all the products a company makes or sells.

Product decisions

What products should the business sell or manufacture? What quality should the
products or services be? How much inventory should the business maintain?
How will the company’s products/services be different or better from the
competitors? How will the products be positioned? What will be the company’s
customer service policy?

Price

Factors affecting price-Is demand for the product high and supply low? Is
demand so high that people are willing to pay almost any amount for it? How
many series of businesses are involved in selling/distributing the company’s
product? How much product does each require to make handling the company’s
product worthwhile? What are the profit margins? How is the competition
pricing their products? What impact are the company’s costs and expenses on
the product’s price?

Pricing decisions

What motivates the customers who will buy the company’s product/service?
Are they price sensitive or status conscious? How much will the customers be
willing and able to buy and at what price? What is the pricing strategy and
policy?

Place/Distribution Strategy

This involves how the company will deliver the product/service to its
customers. Where will they go to buy, when will they buy. Will the product
actually be there? The movement of the product to its location and the
customers is at the core of all the questions. A channel of distribution is the path
a product takes from producer to the final user. Direct is from producer to the
customer. An indirect channel employs intermediaries. These are people that
move the products between producers and final users such as wholesalers,
retailers, distributors and agents. A channel of distribution raises the product’s
costs and determines how quickly the product reaches the customers.

Place decisions

How will the company’s product be sold and distributed? Will the product go
directly from producer to user or will it go through an intermediary? Are there
opportunities to use more efficient channels of distribution? Who are the
channel members the company will use to obtain and distribute the products?
How intensively will the company distribute its products? Is the company’s
location appropriate for the target market?

Promotion

This is designed to tell customers about the product or service. It should discuss
the product’s characteristics, benefits, and availability. It should also explain
where and how to purchase the product/service.

Advertising presentation of ideas, products/services directed toward a mass


audience by an identified sponsor. The media used can be either print or
broadcast.

Sales promotion, this is the use of incentives to stimulate sales eg. Displays or
contests.

Personal selling, these are oral presentations to potential buyer

Public relations, this ensures that the organization portrays a good image to its
stakeholders. These are activities and news items that are placed to give a
positive image to the company’ customers and potential customers.

Promotional decisions

What kind of advertising media should the company use? What will be the
message or theme? What public relation effort should the company plan? What
sales promotion activities should be appropriate for the business? How will
promotional activities be coordinated?

TACTICAL MARKETING PROGRAMS


This is the heart of the marketing plan. It contains descriptions of detailed
tactics to be carried out to achieve the objectives and goals established.
It details the following key decision areas:
Target Market in terms of target market description, product description and
sales forecast.
Product it discusses the decisions to be made for existing or new products and
services.
Promotion: it describes the decisions related to how the product will be
promoted. Promotion consists of advertising, sales promotion, public relations
and personal selling.
Distribution: it lays out the distribution plan for the product or service.
Distribution includes all activities responsible for getting the product or service
to the customer.
Pricing: decisions require knowledge of the market, competitors, economic
conditions and customers.
BUDGETING, PERFORMANCE AND IMPLEMENTATION
It consists of the following areas:
Marketing budget which presents a clear picture of the financial implications of
the plan
Performance analysis which presents the expected results of the plan including
its financial impact
Implementation schedule which shows timelines and identifies those
responsible for performing tasks.
EVALUATION
It should include plans and procedures for tracking each type of marketing
activity being used.
CHAPTER 9: DEVELOPING THE BUSINESS COMPETITIVE STRATEGY

In his classic book Competitive Strategy, Michael Porter defines these


strategies: (1) cost leadership, (2) differentiation, and (3) focus

COST LEADERSHIP

A company pursuing a cost leadership strategy strives to be the lowest-cost


producer relative to its competitors in the industry.

Low-cost leaders have a competitive advantage in reaching buyers whose


primary purchase criterion is price, and they have the power to set the industry’s
price floor. This strategy works well when buyers are sensitive to price changes,
when competing firms sell the same commodity products and compete on the
basis of price, and when companies can benefit from economies of scale

A low-cost leader can use its power to attack competitors with the lowest price
in the industry.

There are many ways to build a low-cost strategy, but the most successful cost
leaders know where they have cost advantages over their competitors, and they
use these as the foundation for their strategies. They also are committed to
squeezing unnecessary costs out of their operations.

DIFFERENTIATION

A company following a differentiation strategy seeks to build customer loyalty


by positioning its goods or services in a unique or different fashion. That, in
turn, enables the business to command a higher price for its products or services
than competitors. There are many ways to create a differentiation strategy, but
the key is to be special at something that is important to the customer. In other
words, a business strives to be better than its competitors at something
customers value.

Companies that execute a differentiation strategy successfully can charge


premium prices for their products and services, increase their market share, and
reap the benefits of customer loyalty and retention. To be successful, a business
must make its product or service truly different, at least in the eyes of its
customers.

FOCUS

A focus strategy recognizes that not all markets are homogeneous. In fact, in
any given market, there are many different customer segments, each having
different needs, wants, and characteristics.

The principal idea of this strategy is to select one or more market segments,
identify customers’ special needs, wants, and interests, and approach them with
a good or service designed to excel in meeting these needs, wants, and interests.

Focus strategies build on differences among market segments. For instance,


most markets contains a population of customers who are willing and able to
pay for premium goods and services, giving small companies the opportunity to
follow a focus strategy aimed at the premium segment of the market.

Small companies must develop strategies that exploit all of the competitive
advantages of their size by:

Responding quickly to customers’ needs. Remaining flexible and willing to


change. Constantly searching for new, emerging market segments.

Innovation Strategy
Product Innovation
Service Innovation
Process Innovation
Business Model Innovation
CHAPTER 10: DEVELOPING THE BUSINESS OPERATIONS STRATEGY

Operating System Requirements

To help the owner manager in their seemingly impossible task of juggling all
the important tasks in the day to day running of their firm computerized
business processes using ICT have become increasingly available and
affordable. ICT systems increasingly help small firms to develop processes,
records and controls.

The economies of scale available to large firms in computerization of important


processes and operations have been eroded by the availability of hardware and
software which has reduced in price while it has increased in scope, power,
flexibility, user friendliness. Quite sophisticated systems are now available to a
small business to cover all major management processes and functions.

These include: Accounting and financial management; Personnel records,


admin and payroll; Sales order systems; Customer relationship management;
Marketing communications and promotions; Production management or service
delivery; Purchasing and stock control; Asset management; Internal
communications.

Many owner-managers, however have learned the lesson that it is more


important to keep basic records in a methodical way right from the start of a
new business that to spend the installing sophisticated systems while
overlooking more fundamental paperwork flows, and information requirement.

Another common error is to assume that systems and record keeping are
primarily financial in function while accounting records are at the heart of any
small firm’s systems every management function and business process can
benefit from a systematic approach.

Administration especially that generated by government regulations, is a


constant source of complaint by many owner managers. Unfortunately, these
complaints often overlook the real benefits which can result from the use of
information and formalized processes in all areas of small business
management.
Equipment, Supplies and Inventory planning

Every business needs equipment, supplies and inventory in order to function.


Equipment refers to implements used in a business operation. Supplies are items
that are used up in the operation of the business. Inventory consists of goods a
business has stored for eventual resale. Each type of business has its own
particular needs which are peculiar to it. However there some items that almost
all businesses use. They include the following:

Furniture, desks, chairs and filing cabinets; Fixtures and appliances; Office
supplies, stationery, paper clips, staples, and punchers; Maintenance supplies
and equipment, cleaning products and tools for minor repairs.

Identifying specific needs

Review operations

This involves mentally reviewing the business proposed operation and what it
will take to carry it out. List the specific equipment, supplies and inventory
which is needed. Then estimate the quantities needed to start up the business.

Confirm projections

This requires getting the input from others who have experience in the business.
Entrepreneurs in a similar field can point out things which have been
overlooked in the business lists and estimates. They can also tell which are high
volume and low volume months in the business. This information is essential if
the business is to project the operating costs accurately.

Trade associations often have prepared informational packages that include both
needs and cost data for their field. Typically the packages give industry
averages for operating and start-up costs.

How can the business meet its needs.

The owner must determine where and how to get it. The owner needs to contact
several different suppliers. Business associations in a similar field can help by
identifying some. Others can be found by looking in the local and telephone
directories.
Equipment

There is need to determine the purpose of the item in question. Identify the
space that it will occupy in the facility and whether that space is enough

Check whether it is compatible with all the other equipment

Check on how much it costs and how it has to be maintained, whether it


requires a great deal of maintenance, the availability of replacement parts and
how long it takes for repairs.

Supplies

Supply decisions can be relatively complex depending on how important they


are to the business. Suppliers can have tremendous power that can directly
affect the business profit margins.

Inventory

Inventories for the business must be thoroughly researched and planned. They
are critical to the ultimate success of the business.

Purchasing/Supply Chain Management

Obtaining all items, including goods and services in the proper form, quantity
and quality and at the proper place, time and cost is the main objective of
purchasing. Purchasing identifies the needs of the company and then finds and
negotiates for, orders and assures delivery of those items. There is need to
coordinate the business needs with the operations of suppliers, establish
standardized procedures and set up and maintain controls to ensure proper
performance.

Selecting the right supplier

Supply chain management or logistics is the process of coordinating the


movement, storage and all processes form beginning to end. It integrates supply
and demand between many companies and within some. Selection of suppliers
should be carefully investigated by the small business owner.
Investigating potential suppliers

Potential supply sources should be checked for factors such as quality of output,
price, desire to serve, reliability, transportation, terms of payment and
guarantees. Suppliers should not be chosen on the basis of price alone, for
quality or service may suffer if the supplier has to lower prices to obtain an
order. Instead suppliers should be chosen to meet carefully set quality and
service standards. These standards can be used to ensure acceptable quality
without paying for quality and higher than needed.

Evaluating supplier performance

There is need to develop a rating system in selecting, evaluating and retaining


suppliers. Rating systems pick out important factors such as quality, service and
reliability as well as price and then use those to elevate each supplier.

Establishing an effective purchasing procedure

There is need to establish a purchasing procedure to ensure effective ordering


and receiving of materials. The procedure should accomplish several major
objectives concerned with purchasing. The proper materials, parts/goods needed
to produce the goods /services must be obtained. The total price paid for the
items purchased must be satisfactory for sale of the finished product. Moreover,
the amount of resulting inventory should be in balance with customer demand to
minimize total costs. A simple yet effective inventory control systems should be
established.
CHAPTER 11: ASSESSING THE BUSINESS REGISTRATION AND
LICENSING REQUIREMENTS

Company Registration procedures are as follows:

Name search

The owners of the company should come up with a list names for the company,
with the Registrar of Companies. The list of names are filled on the CR21 form
and the form is submitted to the Company Registration Office upon a payment
of the prescribed amount. Six different names should be on the list and arranged
in order of preference. A waiting period is given which the file will be collected.
One of the names may be approved by the Chief Registrar of Companies.

Memorandum and articles of association

The directors fill in the CR14 form which requires their particulars such as
names, physical addresses and national identity numbers. This form notifies the
Registrar of Companies of the appointment of the company’s directors and
secretary. The CR6 form gives details of the company’s physical and postal
addresses.

The directors then should come up with the memorandum and articles of
association. The memorandum of association contains the approved name of the
company and its physical address as well as its operational objectives. The
articles of association should contain the company’s operational details and its
purpose. It should also show share contributions of each director. These forms
are filled and submitted to the Registrar of companies upon payment of a
prescribed sum of money and the company will be issued with a registration
certificate.

The company can then commence operations by complying with various


regulations of taxes and opening bank accounts.

A Private Business Corporation is a corporate body formed by one or more


natural persons not exceeding twenty by subscribing their names to an
incorporation statement. It is registered under the Private Business Corporations
Act.

Name search

A PBC 1 form is filled with the list of possible names for the corporation. This
form is submitted to the Registrar of Companies.

Incorporation statement PBC 2.

It states the following:

The name of the private business corporation with “Private Business


Corporation” as the last words of the name or the abbreviation “PBC” in capital
letters at the end of the name.

The postal address of the private business corporation and the physical address

The full name of each member and his national identity number.

The percentage of each member’s interest in the private business corporation.

The amount of each member’s contribution to the assets of the private business
corporation.

The name and postal address of an accounting officer to whom the members of
the private business corporation intend to submit their financial statements.

The date of the end of the financial year of the private business corporation.

Signing of the incorporation statement

This statement is to be signed by every person who is to become a member of


the private business corporation upon it incorporation and the accounting officer
for the PBC.

Registration of the incorporation statement

The incorporation statement is to be delivered to the Registrar. The Registrar


shall upon payment of a prescribed fee, register the incorporation statement
delivered to him. The Registrar shall assign a registered number to the private
business corporation and endorse on each copy of the incorporation statement a
certificate that the private business corporation is incorporated.

An incorporation statement bearing the certificate of incorporation shall be


conclusive evidence that all the requirements have been complied with.

Tax Regulations

Corporate tax

It is the tax collected from companies and its amount is based on the net income
the company obtained during the trading year. The tax stands at 25.75%. Taxes
in Zimbabwe are paid based on projections which companies make and then
these are divided into quarter which are then called Quarterly Payment Dates
(QPD). At the end of every quarter then they pay a prescribed percentage of the
tax until the last quarter. At the end of the year they then fill tax returns which
then reconcile the projected taxes which were paid against the actual
performance of the company. The tax returns form is called ITF 12B.

The following table summarises the tax projections procedures

QPD DUE DATE % OF INSTALMENT


DUE
1st QPD 25 MARCH 10%
2ND QPD 25 JUNE 25%
3RD QPD 25 SEPTEMBER 30%
4TH QPD 20 DECEMBER 35%

Presumptive tax

It was introduced to broaden the tax revenue base in view of the increase of the
informal activities. Every operator of hairdressing, taxi cabs, omnibus operators,
driving schools, small scale miners, cottage industry operators, fishing rigs,
informal traders and operators of restaurants are required to pay presumptive
tax. These taxes are divided into quarters with deadlines for payments.

1st quarter 10 April; 2 nd quarter 10 July; 3 rd quarter 10 October; 4 th


quarter 10 January of the following year
Failure to remit tax attracts a penalty of 100% per annum. All late payments
attract interest at the rate of 10% per annum. Late submission of tax returns
attracts civil penalties of US $30.00 per day up to a maximum of 181days.

VAT

It means value added tax. From the perspective of the buyer it is a tax on the
purchase price and from the sellers perspective it is a tax only on the value
added to a product, material or service. In Zimbabwe only operators registered
for VAT may charge VAT on the supplier of goods and services. Any business
which trades in taxable supplies whose revenue exceeds $60000.00 must apply
to register for VAT. Penalties and interest are chargeable if a client fails or
delays to pay VAT on due dates. VAT returns are to be completed and
submitted to ZIMRA every month on prescribed due dates.

PAYE

Every business person who becomes an employer is required to apply to the


commissioner general for registration of becoming an employer. The employer
will be given relevant tax deduction tables and informed of his/her obligations
which include among others, calculation of deduction PAYE in accordance with
the tax deduction tables and remittance PAYE to ZIMRA within 10 days after
the end of the month during which the amount was withheld. The employer is
also obliged to submit a tax return ITF 16 which contains details on the annual
earnings, deductions, credits and PAYE for each employee within 30 days after
the end of the year.

Tax Clearance ITF 263

It is given to a person whose tax affairs are up to date. It is issued to confirm


that the client’s tax position is satisfactory and there is no need for the payer to
withhold 10% of the tax.

Business Licensing
Most of the major sectors of the economy have regulatory authority agencies
which regulate the operations of the sector. They state the licenses and other
compliance requirements for the players in the particular sector.

Shop licenses

This is a license given to a person who is starting business within a particular


local authority. The person has to comply with several procedures before being
issued with a shop license. The Shop License Act Ch 14:17, deals with the
control of business trade.
CHAPTER 12 GOVERNMENT SUPPORT PROGRAMS

ENT131/205

Assignment Questions

Using Zimbabwe’s National Development Strategy, identify an


opportunity/gap/ problem which you would want to solve or take advantage of.
Describe the Zimbabwean context of the opportunity/gap/problem in relation to
the Strategy, and compare it with global and regional trends and developments.

You can answer the question by responding to the following questions:

1. The Business Opportunity/ gap/problem


Before picking a business product/service to sell, ask yourself the following
questions:

a. What are my potential customers’ problems and needs?


b. What are their areas of pain?
c. Would they be willing to pay to have these problems solved and their
pain relieved?
d. What alternatives exist today to meet these needs?
e. Who are the potential competitors in the space today?
f. What are their strengths and weaknesses?
g. What are the opportunities to better meet the needs of the market place?
h. Can I provide a better product or service at a reasonable price?

2. The Market
a. Who is your target market? (these are the different groups of
customers who will buy the product/service)
b. Who are your potential customers? What are their numbers? Where
are they located?
c. How big/attractive is the market for your product/service?
d. What proportion of the market can you capture?
e. What are the buying patterns of your customers?
3. The Industry
a. What is the size of the industry? How fast is it growing?
b. Is the industry as a whole profitable?
c. Is it characterised by high profit margins or razor thin margins?
d. How intense is the level of competition?
e. What trends are shaping the industry’s future?

4. Macro analysis
a. Economic Trends
Interest rates, foreign exchange rates, tax rates, inflation rates, supply
and demand.
b. Socio-cultural Trends
Education level, buying habits, disposable income levels, belief
systems and practices, traditions and behaviours of people, acceptance
of e-commerce, comfort with technology, age distribution and
population density.
c. Political/Regulatory Changes
Tax policy, labour law, environmental law, trade restrictions, tariffs
and political stability, health and safety laws, employment law,
consumer laws and political stability.
d. Technological Changes
Internet connectivity, automation.
e. Ecological Changes
Issues of eco-friendly products climate change etc.
f. Regional & Global trends- what is happening in Africa and the rest of
the world in relation to this opportunity/gap/problem?

5. Team Skills
a. Does the opportunity fit the team’s business mission, personal
aspirations and risk propensity, and does all of that align with that of a
prospective investor?
b. Does the team have what it takes, in a human sense- in experience and
industry know-how- to deliver superior performance for this particular
opportunity, given its critical success factors, that is those factors that
done right, almost guarantee superior performance, even if other
things aren’t done so well or done wrong, will have severely negative
effects on performance regardless of doing other things right?
c. Is the team well connected up, down and across the value chain so it
will be quick to notice any opportunity or need to change its approach
if conditions warrant?
d. What is the Team’s Business Mission, Personal Aspirations and Risk
Propensity?
e. Is the Team Able to Execute on the Critical Success Factors?

6. Financial Requirements
a. How much money do you require to start the business? Explain how
you will use this money.
b. How will you obtain this money? When borrowing, only borrow for
expansion not for consumption.
c. What does it cost to produce, distribute your product/service?
d. Give an estimate of the fixed and variable expenses?
e. What is your expected profit?
f. Develop your break even analysis.

7. Business Model
a. Value proposition: what value do we deliver to the customer?
b. Customer relationships: what type of relationship does each of our
customer segments expect us to establish and maintain with them?
c. Customer segments: for whom are we creating value?
d. Channels: through which channels do our customer segments want to
be reached?
e. Cost structure: what are the most important costs inherent in our
business model?

8. Market Entry Strategy


a. Describe the structure of your proposed market
b. Which niche will you focus on
c. What is your value proposition for the niche market
d. Describe the gap that you are filling in the niche
e. Explain the stage of development of your industry
9. Marketing Strategy
a. Describe the characteristics of the targeted customers and the estimate
market size
b. How will the product or service be distributed?
c. How will the product or service be promoted?
d. What pricing strategy will you use?
e. What are the product/service attributes?

10.Competitive Strategy
a. How will you compete in the market? Is it through:
b. Cost leadership? How will you cut costs
c. Differentiation? How will you differentiate?
d. Focus? How will you choose your niche?
e. Innovation? How will you innovate?

11.Operations Strategy and Regulatory Compliance


a. Describe the equipment required for the business
b. Describe the key inputs required to provide the product/service
c. What procedures do you have to comply with to register the
business
d. Describe the Industry regulations that you must comply with.
e. Describe the local authority licences required for you to resume
operations
12.Government Support Programs
a. Discuss the Government Support Programs that are available to
support Entrepreneurs in Zimbabwe.

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