COURSE TITLE: ENTREPRENEURSHIP COURSE CODE: MAN 875 …
Transcript of COURSE TITLE: ENTREPRENEURSHIP COURSE CODE: MAN 875 …
i
UNIVERSITY OF NIGERIA
CENTRE FOR DISTANCE AND e-LEARNING (CDeL)
COURSE TITLE: ENTREPRENEURSHIP
COURSE CODE: MAN 875
CREDIT UNITS: 3
ii
Course Development Team
DR. E.K AGBAEZE Course Developer
Kalu E. U Ph.D Co-Course Developer
Professor B. G. Nworgu Instructional Designer
Professor J.U.J Onwumere Chief Course Editor
Ogbo Ann I. Ph.D Associate Course Editor
iii
Foreword
Since inception, University of Nigeria (UNN) has been at the vanguard of manpower training
as well as research and development in the country. UNN has a tradition of excellence for
which the institution is known within and outside the country. This excellence is seen in our
preference for distinguished academics as faculty members, the state of infrastructure for
teaching and learning, curriculum content and research output. The Open and Distance
Learning (ODL) courses offered by our Centre for Distance and e-Learning [CDeL] represent
another important milestone in our commitment towards creating a functional, globally
competitive & research-focused university which is not just an ivory tower, but responsive to
the needs of the society, while delivering world-class education and knowledge.
E-Learning is a significant change to training delivery at University of Nigeria. While no
single medium is best for every situation and type of training, eLearning provides substantial
advantages over other methods in several areas, including reduced cost and improved access
to education. Accordingly, UNN is moving aggressively to adopt and apply e-learning, where
it is the best platform to deliver quality training and education to individuals who may not
have access to formal institutions of learning.
In line with our dedication to excellence, this courseware is designed to deliver the same
quality of academic and professional training that the university is known for, to open and
distance learners through various interactive and engaging e-learning platforms. All the
modules in this courseware were written in conformity with the distance learning principles,
to facilitate comprehension and the application of the learning outcomes to real life business
situations. For all categories of learners, including those across different time zones, who
require flexibility with time and teaching techniques, this courseware will be particularly
very helpful and beneficial. The various activities in the study units promise to ensure that
the learning process is progressive, exciting and rewarding. Other more specific instructions
on how to use or derive more benefits from this courseware can be found in the study guide
section.
I am pleased to affirm the commitment of UNN to this online education program and to also
assure learners that all the facilities and resources required for its successful implementation
have been provided in alignment with our determination to place the University in the
forefront of research and development, innovation, knowledge transfer and human resource
development in the global academic terrain, while promoting the core values which will
ensure the restoration of the dignity of man. I take pride in the synergy of efforts of our staff
in the Centre for Distance and e-Learning and the co-operating faculties which have made the
development of this courseware a huge success and also recognize the particular
contributions that this courseware authors are making to the global extension of our mission.
I am therefore delighted to approve this learning resource for our ODL training program.
Professor Benjamin Chukwuma Ozumba
Vice-Chancellor
iv
Preface
Given the pervasive influence and alluring benefits of technology, universities, like other
organizations world-wide are leveraging on technology to bring about socially and
economically beneficial changes in all aspects of their operations. Nowhere is this fact more
evident than in the way the application of emerging information communication technology
(ICT) infrastructure has transformed the landscape of teaching and learning in universities;
improving the quality and cost-effectiveness of the learning experience offered their students.
For example, in recent years, the practice of distance education has been fundamentally
altered by the Internet and the World Wide Web (www). At the University of Nigeria,
Nsukka (UNN), Open and Distance Learning (ODL) initiative represents a significant new
trajectory in our determination to harness emerging information communication technology
(ICT) to achieve excellence in manpower training, research and development.
This courseware is therefore a product of painstaking effort to deliver world-class standard
online education to all categories of distance learners. It is divided into 12 study units, spread
across different modules. Within the study units, there are various engaging components,
such as learner activities, info-graphics, case studies, in-text questions, (ITQs) and in-text
answers (ITAs), self-assessment questions (SAQs) and notes on the SAQs designed to test
the progress of learners from time to time, Tutor Marked Assignments (TMAs)etc. All the
activities in every study unit are expected to be concluded within a period of one week. It is
important to work with the correct pace and timing. As much as possible, learners should not
carry over activities or tasks meant to be completed in one week into the next week as that
could build up pressure that might interfere with the learning processes and outcomes.
To get the most from this courseware, it is advisable to read every unit carefully, complete all
the tasks required and surf the internet for additional reading materials. While the content of
this courseware has been developed in a very simple and easy-to-understand language,
learners are encouraged to contact the tutor if they require additional assistance or run into
any difficulty.
For this purpose, our team of experienced professionals is always at hand to provide critical
support to learners who may encounter any form of challenges be they administrative or
technical. A technical team is always available to help with difficulties in accessing the
online learning platform, issues with uploading assignments and downloading
assignment/questions and other technical issues that may arise in the process of working
through this material.
Professor Boniface G. Nworgu
Director
v
1. Course information
Course Title: Entrepreneurship
Course Code: MAN 875
Credit Units: 3
Semester Offered: Three
Course Study Time Requirement: 36 Hours
Course Type: Core
Email: [email protected]
2. Course Description
This course gives analysis and clarifications of entrepreneurship. This is achieved by discussing
introduction to entrepreneurship, socio-economic importance of entrepreneurship and types of
entrepreneurship. Entrepreneurial environment and process, business plan, raising capital are also
discussed so as to inculcate entrepreneurship skills into the students and making them ready to be self-
employed after graduation. In accomplishing this e-learning approach of delivery is utilized. The course
material is designed student friendly in a manner that compensates absence of physical contact. Students
will be evaluated by combination of Tutor Marked Assessments and Examination.
3. Purpose of the Course/Course rationale
This course is designed for Postgraduate Students. Its aim is to expose the students to the field of
entrepreneurship with detailed guide on how to start a business and run the business successfully.
This course is necessary in the programme as the optimal aim of any programme is producing self-
employable graduates.
COURSE STUDY GUIDE
vi
4. Course Goals
At the end of this course students should be able to:
1. Understand the concept of entrepreneurship, its socio economic importance and differentiate
it from other similar concepts;
2. Explain business environment, characteristics of the Entrepreneur and forms of business
ownership;
3. Discuss how to prepare business plan, how to raise capital for business and be able to
discover signs of business failure;
4. Understand the concepts of: business strategies, benchmarking and Entrepreneurship spirit.
5. Course Objectives:
i. To expose the students to the meaning of entrepreneurship;
ii. To give to the students a clear picture of how to become an entrepreneur;
iii. To make students equipped with entrepreneurial skills that can help them while in
practice.
6. Course prerequisites:
1. Introduction to Business;
2. Small Business Management.
7. Course Development Team
S/N Names of Team
Members
Roles
1 Dr. E. K Agbaeze Course Developer
2 Kalu E. U PhD Co-Course Developer
3. Professor B. G. Nworgu Instructional Designer
4. Professor J.U.J Onwumere Chief Course Editor
5. Ogbo Ann I. PhD Associate Course Editor
vii
8. Course Assessment
S/N Assessment Type Grade %
Continuous Assessment 30%
Examination 70%
9. Course work Breakdown
S/No Modules Brief Description Unit Title No.
1 Conceptual Clarifications This module contains
meaning of
entrepreneurship, its socio-
economic importance and
how entrepreneurship is
differentiated from other
similar concepts.
Unit 1.1:
Introduction to entrepreneurship
Unit 1. 2:
Socio-economic importance of
Entrepreneurship and types of
entrepreneurship
Unit 1.3:
Unit 1. 3 Motivation for entrepreneurial life
2 Environment,
Entrepreneurship
Characteristics and Forms
of Business Ownership
This module contains the
entrepreneurial
characteristics and
possible forms of business
ownership
Unit 2.1:
Entrepreneurial Environment and
Process.
Unit 2.2:
Characteristics, Disposition and
Theories of Entrepreneurship.
Unit 2.3:
Forms of Business Ownership
viii
3
Business Plan, Raising
Capital and Causes of
Business Failure
This module contains the
content of business plan,
how entrepreneurs can
raise capital for new
business ventures and
likely causes and
symptoms of business
failure.
Unit 3.1:
Business Plan
Unit 3.2:
Raising Capital for New Business
Venture
Unit 3.3:
Causes and Symptoms of
Business Failure
4
Business Strategies,
Benchmarking and
Entrepreneurship Spirit
This module contains the
concept of: business
strategies, benchmarking
and the spirit of
entrepreneurship
Unit 4.1:
Business Strategies
Unit 4.2:
Benchmarking
Unit 4.3:
The Spirit of Entrepreneurship
10. Course Sources
Uzoma, A.M. (1991) Entrepreneurial Development in Nigeria-A Tactical Approach for the
Organisation-Makers, Port Harcourt, New Age Educational Publishing Co. Ltd.
Wilken P.H., (1977) Entrepreneurship, New Jersey: Ablex Publishing
Corporation
Anyanwu, A. (1999) New Perspective of Entrepreneurial Development,Owerri, Kiet-Ken
Publishers.
Mbere, B. U. (1999) Infrastructural Sociology. Enugu: John Jacob’s Classical Publishers Ltd.
Sackman S.A. (ed) (1997) Cultural Complexity in Organizations, London: Saga.
ix
AnyanwuA.(1999) New Perspective of Entrepreneurial Development,Owerri, Kiet-Ken
Publishers.
Agbaeze E.K. (1995) Cultural Imperatives for Entrepreneurial Development in Item, Bende
L. G.A. Abia State, Being a Public Lecture Delivered to the Item Community on 26
December, 1995 during Okoko Day.
11. How to get the Most from this Course
To complete this course, you are required to read the study units and the recommended
textbooks and surf the internet for more materials. In this course, each unit consists of self-
assessment exercises to test your level of understanding from time to time. At a point in your
course, you are required to submit assignments for assessment. At the end of this course there
is a final examination. Pay attention to the time recommended for the completion of each
study unit and ensure that all tasks and activities are concluded on time. As much as possible,
try not to carry over assignments meant to be completed in a week to the next one as this may
build up unnecessary pressure on your schedule and could interfere with the learning process.
x
TABLE OF CONTENTS
Course Development Team ii
Foreword iii
Preface iv
Study Guide v
Main Course ix
Module 1: Conceptual Clarifications 1
Unit 1: Introduction to entrepreneurship 2
Unit Summary 10
Self Assessment Question 10
Unit 2: Socio-economic importance of Entrepreneurship and types of Entrepreneurship 12
Unit Summary 24
Self Assessment Question 25
Unit 3: Motivation for Entrepreneurial Life 26
Unit Summary 29
Self Assessment Question 30
Module2: Environment, Entrepreneurship Characteristics and Forms of Business
Ownership 31
Unit 1: Entrepreneurial Environment and Process 32
Unit Summary 37
Self Assessment Question 37
Unit 2: Characteristics, Disposition and Theories of Entrepreneurship. 39
Unit Summary 50
Self Assessment Question 51
Unit 3: Forms of Business Ownership 52
Unit Summary 72
Self Assessment Question 72
Module 3: Business Plan, Raising Capital and Causes of Business Failure 74
Unit 1: Business Plan 75
Unit Summary 89
Self Assessment Question 89
Unit 2: Raising Capital for New Business Venture 91
Unit Summary 98
Self Assessment Question 98
Unit 3: Causes and Symptoms of Business Failure 99
MAIN COURSE
xi
Unit Summary 110
Self Assessment Question 111
Module 4: Business Strategies, Benchmarking and Entrepreneurship Spirit 112
Unit 1: Business Strategies 113
Unit Summary 126
Self Assessment Question 126
Unit 2: Benchmarking 127
Unit Summary 135
Self-Assessment Question 135
Unit 3: The Spirit of Entrepreneurship 136
Unit Summary 148
Self-Assessment Question 148
References and Further Reading 150
Glossary 158
Appendix 159
1
Module 1: Conceptual Clarifications - Entrepreneurship
Module Overview
The concept of entrepreneurship has several meanings as those who propounded the concept
viewed it from different perspectives. Different variables also make different individual
entrepreneurs in dissimilar circumstances. All entrepreneurs are not the same and not all
private enterprises can be termed entrepreneurship business.
In this module, you will be acquainted with the definition of entrepreneurship and its
importance to the socio-economic development of society; the reasons why people venture
into entrepreneurship and the possible drawbacks and the benefits. You will also learn the
differences between entrepreneurship and other similar concepts. The module has the
following units:
Study Unit 1: Introduction to Entrepreneurship
Study Unit 2: Socio-economic importance of entrepreneurship and types of entrepreneurship
Study Unit 3: Motivation for entrepreneurial life
2
Study Unit 1: Introduction to Entrepreneurship
Expected Duration: 3 Hours
Introduction
Defining entrepreneur as a normal word makes it look like a derivative of enterprise which is
the fourth term in the factors of production; the word entrepreneur has a deeper meaning that
makes it multifaceted which demands further explanation. Unit 1 tries to cut-apart the term
entrepreneurship for your basic understanding. This leads you to learning about:
1. Development of Entrepreneurship
2. The concept of Entrepreneurship
3. Features of Entrepreneurship
4. Aspects of Entrepreneurs
Learning Outcomes of Unit 1
When you have studied this unit, you should be able to:
1.1 Give brief account of historical development of entrepreneurship
1.2 Define the concept of entrepreneurship
1.3 Explain the features of entrepreneurship
1.4 Discus aspects of entrepreneurs
1.5 Define the keywords in bold.
1.1 Development of Entrepreneurship
In today’s business world the conceptualization of the word entrepreneurship seems complex.
Authors are on the divide as to what the actual meaning is, simplifying the concept for better
assimilation entrepreneurship could be seen as the act and science of environmental scanning
with a view to identifying gap(s) in need(s) and mobilizing the necessary factors of
production to fill the gap(s) , and by so doing, make profits later, if not immediately. This
could manifest in the act of developing or running a business. It may also be seen as a
private initiative geared towards profiteering through taking advantage of windows of
opportunity in business in value creation and satisfaction. There may be other possible
definitions; however entrepreneurships in the final analysis deals with value creation,
satisfaction and profiteering. Entrepreneurial development and its creative response to need
have often been attributed to the enterprise of a minority groups, Notable among these are
3
Marco Polo in the far East, Chinese in South-East Asia, the Leventis in West Africa, the Ibos
inEastern Nigeria, Asians in East Africa, Parsees in India. Surnarai in nineteenth century.
Japan and the non-conformists (specially the Quakers) in seventeenth century England,
Napoleon at a point castigated England as a nation of ‘shopkeepers.’ These people did not
share common race or beliefs that predispose them to entrepreneurial spirit. However, they
were minorities and their feelings of insecurity and denial to traditional route to prestige and
honour appears to have motivated them to seek economic emancipation and leadership
through innovation and creative responses to gaps in need among various segments of the
society (Elkan, 1988:171 — 188; Uzoma, 1991:3)
Hisrich and Peters (1998:7-8) further classify the development into five periods - the earliest
period, the middle ages, the 17th century, the 18th century, the 19th and 20th century. In the
earliest period, the entrepreneur was primarily a go-between, a linkage between the producer
and the consumers. An instance is Marco Polo, who established trade routes between
America and the Far East. As a go-between Marco Polo would sign a contract with a
producer to sell his goods, a venture capitalist would finance the contract including the
insurance. The capitalist become a passive risk bearer, the merchant - adventurer took active
role in trading, bearing all the physical and emotional risks. When the merchant adventurer
successfully sells the goods and completes the trip, the profit arising from the venture is
divided between the merchant adventurer and the capitalist;’ most of the time, 75% to the
“capitalist, and 25% to the merchant adventurer.
In the middle ages, the concept was used in describing persons in charge of large-scale
government projects. Such an individual bears no risk. He is merely in charge of government
architectural works like castles and fortifications, public buildings, abbeys and cathedrals. A
typical entrepreneur at this period was the cleric. The entrepreneur was first seen as a risk
bearer in the 17th century. At this period entrepreneurs entered into contractual obligations
with the government to provide services or supply certain products at a contractual rate. After
execution of the contract, the resulting profit or loss as the case may be became that of such
an entrepreneur. One notable contractor/entrepreneur at this time was the French man – John
Law of the Mississippi Company. This company eventually failed when Law attempted to
push the company’s stock price higher than the value of its assets. Richard Cantillion, an
economist and author in the I700s, after under-studying Law’s business, developed one of the
4
earliest, theories of entrepreneurship - the theory of the entrepreneur as a risk bearer. He
observed that merchants buy at certain price and sell at an uncertain price, therefore,
operating at a risk” (Benson, 1993: 140 - 146). For this reason, Richard Cantillion is regarded
by some as the originator of the term.
The 18th century witnessed industrialization and factory system of production in most parts
of the world in particularly Europe. Most of the inventors and value creative minded
individuals had no money to finance their inventions. The entrepreneur in this changing
world situation, besides being a risk taker, was further differentiated from the capitalist. The
entrepreneur was then seen as an inventor not a capitalist (venture capitalist). Venture
capitalist is referred to as a professional money manager who makes risk investments from a
pool of equity capital to obtain a higher rate of returns on the capital investment. Reward for
capital is interest while the entrepreneur gets profit. Eli Whitney and Thomas Edison had
their inventions but no money to finance them. Both relied on external sources of finance to
enable them commercialize their inventions.
In the later part of the 19th century and early 20th, century, the entrepreneur was seen from
economic viewpoint. He was not very distinguishable from a manager. According to Bird,
Hayward and Allen (1993:57-77), “the entrepreneur organizes and operates an enterprise for
personal gains. He pays current prices for materials consumed in the business, for the use of
the land, for the personnel services he employs and for the capital he requires. He
contributes his own initiative, skill and ingenuity in planning, organizing and administering
the enterprise. He also assumes the chance of loss and gain consequent to unforeseen and
uncontrollable circumstances.” Chief Elechi D Ikoro and Andrew Carnegie are examples of
this definition. Both invented nothing, but created wealth through adaptation and
development of new technologies into existing products. Carnegie who descended from poor
Scottish family invented nothing but through unremitting competitiveness made the
American steel industry one of the wonders of the industrial world. Ikoro of Ikorotex Nigeria
Plc. also invented nothing rather through adequate environmental scanning and calculated
mass importation of textile materials contributed in no small measure in turning Aba into a
major textile market in Nigeria.
5
The notion of an entrepreneur as an innovator was established in the middle part of the 20th
century. His major function within this period was seen as revolutionizing the patterns of
production through exploitation of inventions or an untried technological possibility for
production of new goods or an old one in a new way, sourcing supply or outlet for products
by re-organizing a new industry (Schumpeter, 1952:72).This definition introduces the
concept of innovation and newness as integral part of the definition of’ entrepreneurship.
Innovation, as the act of introducing something new is one of the most difficult tasks of
entrepreneurs. This involves three major activities, environmental scanning,
conceptualization and creation. Newness in the definition refers to production of entirely new
thing or a new way of doing an old thing.
The Egyptians designed and built pyramid of stone blocks, the Easterners in Nigeria
developed traditional means of refining fuel and mass destruction weapons during the
Nigerian civil war, between 1967 – 1970, while Edward Hanima reorganized the Ontario and
Southern railroad through the northern pacific trust.
Table 1.1.1: Development of Entrepreneurship Theory and Term Entrepreneur
Steam From
French
Means Between Taker or Go-Between
Middle Ages Actor and person in charge or large scale production projects
17 century Person bearing risks of profits (loss) in a fixed price contract with
government
1725 Richard Cantillion – person bearing risk is different from one who is
supplying capital.
1803 Jean Baptiste Say:- Separated profits of an entrepreneur from profits of
capital
1876 Francis Walker:- Distinguished between those who supplied funds and
received interest and those receive profit from managerial capacities.
1934 Joseph Schumpter Entrepreneur is an innovator and develops untried
technology.
1961 David McClelland-entrepreneur is an energetic moderate risk taker
1964 Peter Crucker – entrepreneur maximizes opportunity
1975 Albert Shapero: entrepreneur takes initiative organizes social and
6
economic mechanisms and accepts risk of failure.
1980 Karl Vesper- entrepreneur seem differently by economists, psychologists,
business persons and politicians
1983 Gifford Pinchot – Entrepreneur is an entrepreneur within an already
established organization.
1985 Robert Hirsch – entrepreneurship is the process of creating something
different with value by devoting the necessary time and effort assuring
the accompanying financial psychological and social risks and receiving
the resulting rewards of monetary and personal satisfaction.
Source: Hirsch. RD. (1998) “Entrepreneurship and intrapreneurship methods for creating
new companies that impact on economic renaissance of an area,” in entrepreneurship,
intrapreneurship ‘and venture capital, Robert D. Hirsch (ed) Lexington Books, (l980) 1p. 96.
See also Hirsch, Peters and Shepherd (2008) Entrepreneurship, African Edition p. 6 - 11
1.2: Definition of Entrepreneurship
1.1 above gave you the historical background of entrepreneurship and the basic facts
that engendered the development of entrepreneurship. You should know that
entrepreneurship like most other concepts in social sciences has a variety of
definitions produced by differences in the perceptions of authors of the subject matter.
Let us explore these definitions:
1. Anyanwu (1999:216) sees the entrepreneur essentially as a path finder. He charts a
virgin course for others to follow. It may be necessary to point out that the entrepreneur,
besides investing his or her scarce resources, also performs managerial functions such as
planning, organizing, directing and controlling the affairs of the business enterprise. It is
important to note that the size and nature of the business is not material, big or small,
self- found or inherited. He sees entrepreneurship as a process of charting virgin course in
business with a view to profiteering through provision of the needful.
Activity 1.1.1: Development of Entrepreneurship
Think about any other definition that will be in agreement with that of economic viewpoint.
Record it in your study diary.
7
2. Hutt (1988:2) opines that the term is of French origin “an –trapra-rier” meaning
literally a go-between or a between-taker. Economists like Jean Baptist and Joseph
Schumpeter see the entrepreneur as the fourth factor of production, and the co-
coordinator of the other three (land, capital and labour) with a view to profit for his
innovation and risk. Sociologists see the entrepreneur as a deviant, who is driven/ led by
a number of factors such as personality, family and society towards a particular pattern of
behavior.
3. Psychologists see entrepreneurs as innovative creators occasioned by need — need to
obtain or attain something, need to experiment, need to accomplish or perhaps need to
escape the authority of others. For a businessman with an itinerant knowledge of the
concept, an entrepreneur appears a threat, an aggressive competitor or an ally, a source of
supply, someone who creates wealth for others, who finds better ways to utilize resources
and reduce waste, and who produces jobs others are glad to get (Hisrich and Peters, 1998;
Vesper 1980).
4. Drucker (1983) sees the entrepreneur as a person who is willing to risk his capital and
other resources in business ventures from which he expects substantial rewards, if not
immediately then in the near future.
5. Dollinger (1995) sees entrepreneurship as innovative economic creative process or
network for the purpose of profit or growth under risk and uncertainty conditions.
6. Kuratko (2009) perceives entrepreneurship as visionary change and creative process
that relies on passion and energy in the development of business ideas and solutions to
problems for profit purposes.
7. Ronstudt (in Agu 2010:12) “Entrepreneurship is the dynamic process of creating
incremental wealth”
8. Timmons (1999) in Agu 2010:12) opines that the entrepreneurship is merely a mental
state of mind involving reasoning and acting, obsessed in opportunity for profiteering.
8
9. Agu (2010) asserts that entrepreneurship is a process defined over a spectrum, starting
from the point where individuals come to the realization that business ownership as an
option is a viable alternative, proceeds to learn and, or develop the skills and talents
required for enterprise setting, develops ideas for business, and finally undertake the
initiation and development of a business.
10. Agbaeze (2007) sees the entrepreneur as an environmental scanner who looks for gaps
in need or unsatisfied need(s) and mobilizes the necessary factors of production to close
the gap or satisfy the unsatisfied need and assumes the necessary reward under conditions
of uncertainty. He thus concludes that entrepreneurship refers to process of conscious
need identification and satisfaction, through a creative and innovative engineering with a
view to profiteering in an ever changing risky socio-economic setting.
Now that you have been exposed to the various views captured by the definitions above,
how best can you reconcile the different streams of opinion?
1.3 Features of Entrepreneurship
Aside the definitions of entrepreneurship, always realize that there are some salient features
with which to identify it. Explore the views of Agbaeze (2007) as he identifies five features
of Entrepreneurship as follows:
i. Need identification and satisfaction through environmental scanning
ii. Creativity and innovative engineering
iii. Mobilization and investment of scarce resources
iv. Risk taking in risky unstable socio-economic setting
v. Inclination to profiteering. Profit is not calculated in terms of money in all cases in
particular in social entrepreneurship.
In-Text Questions 1.1.1
▪ Classify the development of entrepreneurship according to Hisrich and Peters
(1998)
▪ Hisrich and Peters (1998) classified the development of entrepreneurship into
five periods: (i) the earliest period, (ii) the middle ages,(iii) the 17th century,
(iv) the 18th century, and (v) the 19th and 20th century.
9
Okpara (2003: 3-4); perceives the entrepreneur as an individual who has the zeal and ability
to find and evaluate opportunities. He further observes that they are calculated risk-takers,
who enjoy the excitement of challenges, not necessarily gamblers.
Each of the definitions above, views entrepreneur from slightly different perspective. They
emphasize similar notions such as creating wealth, risk taking, newness, profiteering through
value creation, operating a business and the likes. They are found in all professions:
management, accountancy, marketing, education, medicine, law, research, architecture,
engineering, social work and the 1ikes. Some of the entrepreneurs may not have had any
good formal education.
1.4 Aspects of Entrepreneurs
The literature pinpoints four primary aspects of entrepreneurs, irrespective of the field. These
are as follows:
• Entrepreneurship is a developmental or creation process: That is development of
something new and of value to both the entrepreneur and the audience (relative segment). It
may start small and progressively increase in size and form.
• Devotion of necessary time and effort: Entrepreneurship calls for conscious devotion
of quality time and energy in creation/innovation.
• Entrepreneurship involves risk taking: This is predicated upon the fact that the future
is often unseen, and unpredictable. There is no comprehensiveness in reasoning and decision
making; rather the entrepreneur operates under self-bounded rationality in a dynamic
environment with so many key players. The risk may be financial, social or psychic or a
combination of them.
• The entrepreneur expects reward either immediately or in the near future: The
reward for the investment of the resources may be financial or non-financial (independence,
personal satisfaction, social reason, etc.).
From the fore-going we can now define the entrepreneur as any person who creates valuable
product or service for business in the face of risk and uncertainties in the business
environment. Entrepreneurs are environmental scanners, who look for gaps in need,
(windows of opportunity), assembles the necessary factors of production to close the gap, by
10
so doing creates wealth. It manifests in business creation or sustenance of an existing
business, with profiteering intentions.
1.5 Unit Summary
In Unit 1.1, you have learnt that:
1. Conceptualization of the word entrepreneurship seems complex and has several
definitions.
2. Development of entrepreneurship started even before the Middle Ages
3. Entrepreneurship deals with value creation, satisfaction and profiteering in the face of
risk and uncertainties of the business environment.
4. Entrepreneurs are found in all professions
5. Entrepreneurship according to Agbaeze (2007) has five fueatures
6. There are four primary aspects of entrepreneurs, irrespective of the field.
1.6 Self-Assessment Questions (SAQs)
At this stage, you have concluded unit 1.1; you are expected to attempt providing answers to
the following questions to show the extent you have achieved the learning outcomes of the
unit.
SAQ 1.1.1 (Tests Learning Outcome 1.1.1)
Compare the earliest period of development of entrepreneurship with that of the 19th and 20th
century.
SAQ 1.1.2 (Tests Learning Outcome 1.1.2)
Define entrepreneurship based on your understanding.
SAQ 1.1.3 (Tests Learning Outcome 1.1.3)
Identify five features of Entrepreneurship
SAQ 1.1.4 (Tests Learning Outcome 1.1.4)
Explain the four primary aspects of entrepreneurs
SAQ 1.1.5 (Tests Learning Outcome 1.1.5)
What are the similarities and differences if any between the definitions of Anyanwu (1999)
and Agu (2010)?
11
SAQ 1.1.6 (Tests Learning Outcome 1.1.6)
Trace the development of entrepreneurship from the earliest times to the 18th century.
References for further studies
Uzoma, A.M. (1991) Entrepreneurial Development in Nigeria-A Tactical Approach for the
Organisation-Makers, Port Harcourt, New Age Educational Publishing Co. Ltd.
Wilken P.H., (1977) Entrepreneurship, New Jersey: Ablex Publishing
Corporation.
For further information on Introduction to Entrepreneurship visit this link below
http://www.bbamantra.com/introduction-to-entrepreneurship/
12
Study Unit 2: Socio-economic importance of entrepreneurship
and types of entrepreneurship
Expected Duration: 3 Hours
Introduction
The impact of entrepreneurship on social and economic activities can never be over stressed.
Entrepreneurship is now accepted by numerous economies as the hub of economic growth.
As such, this Study Unit 1.2 explores the economic importance of entrepreneurship by
discussing the followings:
1. Role of the Entrepreneur
2. Entrepreneurship Functions
3. Types of Entrepreneurs
4. Entrepreneurship Differentiated from other Similar Concepts
Learning Outcomes of Unit 2
When you have studied this unit, you should be able to:
2.1 Explain the role of entrepreneur
2.2 Highlight the entrepreneurship functions
2.3 Mention the features of entrepreneurship
2.4 Discuss how entrepreneurship differs from other similar concepts
2.1 Role of the Entrepreneur
You recall that in the unit 1 of this module, you were exposed to the definitional issues
surrounding entrepreneurship. You were also made to know the attributes of
entrepreneurship. Now let us see the roles that entrepreneurs play.
According to Dean, Michael and Robert (2009:18), the importance of entrepreneurship in
economic development involves more than just increasing per capital output and income, it
includes initiating and constituting change in the structure of business and society.
The role of the entrepreneur from this point of view will include:
1. Employment Generation and Fostering economic growth
2. Enlargement of productivity
3. Creation of new technology, product or services
4. Changing and rejuvenating market competition (Stoner, Freeman and Gilbert, 2005).
13
1. Economic Growth: The birth of a new business in most cases is tantamount to creation of
fresh jobs. As the business expands, the economic activities expand further, thus widening
the economic growth. The multiplier effect of establishment of successful businesses in the
economy is enormous. It provides job for small families and their relations; others may also
be hired. This is probab1y why economists pay good attention to establishment of small
business firms for they have the capacity of creating new jobs and sustaining economic
growth. It is often said that more than four fifths of all new employment opening in America
comes from small business firms. This may not be very different in Nigeria in particular in
family owned and home based businesses.
2. Enlargement of productivity: Entrepreneurs create goods and services that are capable of
satisfying needs. The multiplicity of this creation enlarges productivity. Higher productivity,
calls for improving production techniques, and this is entrepreneurial function par
excellence. Two keys to higher productivity are research and development. The subsequent
investments as a result of the evidence based research lead to creation of goods and services.
The multiplier effect enlarges productivity.
3. Creation of New technologies, products and services: Entrepreneurs are usually thirsty
for creation and innovation. In a bid to have competitive advantage over each other’s
inventions, new technologies and products emerge. A simple creation may lead to a number
of other creations and subsequently new products. In the l8 century, James Watt in England
developed and perfected the steam engine in a bid to ease production process in the factory.
To take advantage of this invention and remove some of the bottlenecks associated with it, in
the mid 1760s. James Hargreaves invented the spinning Jenny, an invention linked to the
steam engine. Further in 1985, an English clergyman invented the power loom — a weaving
machine powered by the steam engine. Another example is the running battle among
producers of telecommunication gadgets in recent times.
4. Change and Rejuvenation of Market Competition: Entrepreneurs stir up the waters of
competition in the business arena. Ventures in small and medium scale enterprises serve as
agents of change in the market economy. Two possible types of technological changes
associated with products/services in the market place include quantum technological change
that results into quantum product innovations (a shift or jump from the existing product that
14
results in an entirely new product), and incremental technology change — that is a change
that refines an existing technology and leads to gradual improvements of refinements in
products and services over time. In any of the cases, competition is rejuvenated. Firms are
worked up and competitions are renewed. Relay race is instigated by changes in
innovation(s) and counter innovation(s). Destructive creativity follows. Goods considered
good today tomorrow becomes absolute. Technology and taste breeds motivation; creativity,
and war in fine-turning core and augmented products.
In addition to the above, the importance of entrepreneurship to the socio-economic
developments of the society can never be over emphasized. Its impact can be depicted as
thus:
• It creates employment opportunities
• It creates wealth and the redistribution of wealth.
• It creates new technology and taste.
• Contributes to the gross domestic product and by extension gross national product
• Create new market and product, etc.
The Role of Small Businesses in the Nigerian Business Environment
1. They perform certain services better than large firms;
2. They distribute to consumers most of the goods and services made by the big firms;
3. They provide goods and necessary services to the big firms;
4. They generate ideas for improvement and creation of goods and services for the big
firms.
5. They serve as custodians of consumer products;
6. They provide custom design services through flexibility in their mode and hours of
operation.
7. They are the link between the big firms and the consumers.
8. They create employment for some members of households.
2.2: Entrepreneurship Functions
Activity 1.2.1: Role of the Entrepreneur
Think about any other role of entrepreneur that is not included above. Record it in
your study diary.
15
Entrepreneurship is a process of conscious need identification and satisfaction through a
creative and innovative engineering with a view to profiteering. In the process something
new and of value is created with a business motive to make profit. The functions of the
entrepreneur in this process include:
1. Need identification often through environmental scanning. A business idea thus
is developed.
2. Appraisal of business ideas through feasibility and viability studies. A decision to
embark on the production of a product/service is then taken.
3. Assembling of the necessary factors of production (capital, labour and land) to
produce or make available the product/service that has “need-product fit” for the
target audience.
4. Creation and innovation – bring to reality something new and of value to the
market place.
5. Management and marketing of the products/service in order to sustain the creation
and innovation. Getting to the top is not easy; however remaining there
comfortably is also very difficult. This calls for effective management and
marketing of the products.
3.3: Types of Entrepreneurs
It is obvious that entrepreneurs function in different ways, forms and style. This
distinctiveness underscores the classification of entrepreneurs. Specifically speaking,
entrepreneurs are classified on the basis of their forms, style or ways of operations as you can
see below:
Nwoye (2011:5) lists types of entrepreneurs as follows:
• Soloist: A self-employed person operating alone, for example, in a specific trade or
profession.
• Key Partner: One stage on from the soloist, as an autonomous individual, but with a
partner in the background, sometimes as a financial backer only.
• Grouper: Those who prefer working in small groups with other partners who share
the decision making; for example, craftsmen working in their own firm as equals.
16
• Professional: Self-employed experts: e.g. traditional professionals (accountants,
solicitors, doctors, architects, etc.). Whilst not traditionally considered to be entrepreneurs
they do tend to work in small firms.
• Investor Researcher: Creative inventors, who may, or may not, have the practical
skills to turn creativity into innovations.
• High-tech: New technological developments have created opportunities for those
with the technical expertise, e.g. in electronics or computers.
• Work Force Builder: The delegator who manages the labour and expertise of others
in an effective way; e.g. in the building trade.
• Inveterate Initiator: The start-up expert, who only really enjoys the challenge of
initiating new enterprises, then loses interest, often selling the business in order to start
another.
• Concept Multiplier: Someone who identifies a successful concept that can be
duplicated by other, for example, through franchising or licensing arrangements.
• Acquirer: those that prefer to take-over a business that already exists rather than start
from scratch.
• Speculator: There are many property-based opportunities to buy and sell at a profit,
as well as collectables such as art, stamps and antique furniture which have spawned many
dealers as owner-managers of small firms.
• Turn-about artist: An acquirer who buys small businesses with problems, but has
potentials for profit.
• Value manipulator: An entrepreneur, who acquires assets at a low price and who
then, through manipulation of the financial structure, is able to sale at a higher price.
• Lifestyle entrepreneur: Small business is a means to the end of making possible the
good-life; however, this defined consistent cash flow is the primary business requirement
rather than high growth that might involve too much time commitment.
• Committed manager: The small business is regarded as a lifetime work; something
to be built up carefully. Personal satisfaction comes from the process of nurturing the
fledgling firm through all its various stages of growth.
17
• Conglomerate: An entrepreneur who builds up a portfolio of ownership in small
businesses, sometimes using shares or assets of one company to provide the financial base to
acquire another.
• Capital aggregator: A business owner with the necessary financial leverage to
acquire other substantial attractive businesses.
• Matriarch or patriarch: The head of a family owned business which often employs
several members of the family.
• Going public: Entrepreneurs who start-up in business with the clear aim of achieving
a quotation on the stock exchange, usually via an unlisted securities market in the first
instance.
• Alternative: Alternative new age belief in a return to simpler, more environmentally
sound lifestyle has been expressed in a wish to avoid conventional employment. Commercial
activities have developed in areas product, and new age publications and audio tapes.
Other classifications of entrepreneurs also exist. For instance, Karl Vesper classified
entrepreneurs into eight (Hutt, 1998:23). They are as follows:
• Solo Self-employed Individuals: This refers to owner-managers of enterprises. This
owner-manager may also employ few assistants. In most cases they perform the jobs
themselves. A case in point is the “Go Slow” Beer Parlour in Okoko Item or the popular
Shoe Mender’s shop in the daily market and villages. These types of entrepreneurs are the
most numerous of all the entrepreneurs. Their ranks include the single store, or mobile tailors
popularly called in Igbo (Ndi Obioma), small store and repair shop owners, independent sale
representatives, attorneys, physicians and the likes. They dominate the business world in
Aba, Onitsha and other major cities in Nigeria.
• Team Builders: This refers to solo self-employed entrepreneurs or one-man business
that expands into larger companies. A good example is as demonstrated by Hutt (1988:29) of
a self-employed electrician who gradually hires additional employees until a full-scale
electrical contracting firm is established. Many of the Nigeria nation’s largest firms started
this way. For example the revered Engr. Ajulu Uzodike’s cherished, reliable and dependable
Cuties Cables that have made a big name in the Nigerian Cable market started as a humble
sole enterprise.. Another instance could be drawn from America where in 1927 J. Willard
18
Morriott started a nine-stool root beer stand. Over the years, his root bear stand was built into
a cooperation that operates hotels and restaurants throughout the world and accounts for $4
billion in sales as at 1985 (Lestones, 1985:67).
• Independent Innovators: This refers to individuals who form companies to make
and sell their innovations. An example of such an individual is Edwin Land. Land invented
the first world’s polarizing sheet material. He subsequently created the Polaroid Corporation
to manufacture and sell his invention.
• Pattern Multipliers: This refers to entrepreneur who develops several separate units
of an effective business. In most cases such entrepreneurs design or develop an original
business and once the business becomes successful and profitable, he then gradually
establishes many others similar to elsewhere the first for profiteering. A typical example of
such an entrepreneur is the Ezeani-Tony Enukaeme’s, Tonimas Filling Station, makers of one
of the most reliable and utility based cost effective oil and lubricants in Nigeria. Their filling
stations and services-oriented outfits could be found in various major towns and crannies in
the country with similar customer oriented, synergistic services to the transport operators and
the general public. For the operators of Tonimas Filling Stations, they see customer
satisfaction as a major tool of market leadership. A further example of such entrepreneurs
include one who perfects a method of doing a business and sells it to others.
• Economy of Large Scale Exploiters: Entrepreneurs who take advantage of
economies of large-scale operations are referred to as economy of large scale exploiters.
Such entrepreneurs have lower average costs due to large volumes of operations. They may
also sell at lower prices and make profits from volume of sales or level of turnover. An
example of this type of entrepreneur is the discount store operator.
• Capital aggregators: Entrepreneurs who play major roles in the mobilization of
resources and commencement of operations of financial institutions that require large amount
of capital for a take-off are called capital aggregators. Examples of these include those who
undertake the establishment of banks, insurance companies, and the like.
19
• Acquirers: Those who become entrepreneurs though purchase of existing businesses
is referred to as acquirers. Some people are specialists in the acquisition of existing
businesses. Such businesses for sale are usually advertised either in the newspaper or other
such media. You could even run into one through association.
• Buy-sell Artists: Most entrepreneurs are opportunists. Some of them do not intend to
own a business perpetually; rather they make their profits by buying a business, refurbishing
it, and selling same at higher prices. Typical examples are those who buy companies with
operational problems. They correct such problems, re-package such a business and re-sale
same for higher returns. Thus, making their profits without necessarily owning the business
for a long time.
You have seen the different types of entrepreneurs, If you were to set up a business as an
entrepreneur, which of the above types would you find appealing.
However, in strict economic theory, entrepreneurs are generally categorized into three sub-
groups, namely:
• A pure Entrepreneur: A pure entrepreneur is anyone who innovates, takes risks,
organizes and manages an enterprise. He is seen as the leading actor in the enterprise; he
possesses the business skills that embrace the making of policies and coordinating of other
factors of production. In general, a pure entrepreneur creates something new, something
different from the existing commodities/services; he transforms or transmutes values.
• Franchise Operator: This refers to those who are granted rights by other party(ies)
or organization(s) (Franchisor) to use or sell some product(s) and/or service(s) that are the
property of the Franchisor (pure entrepreneur). In return, the Franchisee pays an initial fee
and thereafter, a continuing royalty, license fees or lease charges on equipments and
buildings. In the Nigerian business environment, the straight product franchise is the most
prevalent. A good example of this is petrol business dealers.
In-Text Questions 1.2.1
▪ Mention the first five Entrepreneurial types as listed by Nwoye
▪ They are: Soloist, Key Partner, Grouper, Professional, Investor Researcher
20
• Others: Other groups of entrepreneurs include all those who take over the
management of business ventures after the founder retires, dies or sells out the business.
From the classifications, it becomes clear that entrepreneurship as a process could be
classified in many ways. In same manner the opportunity for entrepreneurship cuts across
vocations and locations.
2.4 Entrepreneurship Differentiated from other Similar Concepts
There are some closely-related concepts to entrepreneurship that are most often used
interchangeably with entrepreneurship. You will be exposed to them as well as their dividing
lines with entrepreneurship.
1. Entrepreneurship and Management
Being a successful entrepreneur is the desire of most strong-willed individuals. However,
they are predisposed to activities that are somewhat adventurous and risky. Not many who
create something new or take over an existing business succeed in its effective and efficient
operationa1ization, aid substance there-after. In Item, Bende Local Government Area of Abia
State, when a hunter kills a very big animal in the night, by the day he will, require the
services of able bodied men and women to get it back to the village for celebration. If he tries
to do it alone, elders will remind him that it is a “kindred meat’ (anuikwunaibe), it’s a taboo
to do it alone. When creativity and innovation succeed, there is often the need to hire the
services of others to make it more profitable.
Entrepreneurs, who find new business, often have difficulty piloting the affairs of the
establishment as it grows. They may not have the expertise in running the venture profitably.
In order to ensure synergetic returns the need for management arises. Entrepreneurship
differs from management, Entrepreneurship is the act of noticing a gap in need and
mobilizing resources to make a product or service that satisfies that gap in need with a view
to profit. Management, on the other hand, encompasses all the activities involved in efficient
and effective combination of human and non-human resources of an organization in such a
manner as to minimize input while maximizing output in achieving organizational goals. It
includes the conscious decisions involved in planning, organizing, directing and controlling
resources in a rational and prudent manner in an organization.
Jones and George (2003: 660) observe that those who find new businesses often have
difficulty managing the organizations as they grow. When an entrepreneur has produced
21
something that customers, want, entrepreneurship gives way to management as the pressing
need becomes to provide the product both efficiently and effectively. Frequently founding
entrepreneurs lack the skills, patience and experience in the difficult and challenging work of
management. Some entrepreneurs find it very hard to share authority because they are afraid
to risk their company by letting others manage it. As a result they become over loaded, and
the quality of their decision-making declines. Other entrepreneurs lack the detailed
knowledge necessary to establish state-of-the-art information systems and technology or to
create the operations management procedures that are vital to increase the efficiency of their
organizations production systems. Thus, to succeed, it is necessary to do more than create a
new product, an entrepreneur must hire managers who can create an operating system that
will let a new venture survive and prosper. Entrepreneurs, who ignore this, often derail in
trying to go it alone.
2. Entrepreneurship
Established organizations or business often have the financial resources, business skills and
distribution channels to commercialize innovations profitably. However, highly bureaucratic
structure inhibits creativity and this prevents new products/services or business from being
developed. A manager within such an established system, who uses the entrepreneurial
approach to management, is referred to as an intrapreneur. Intrapreneurship is an act of
entrepreneurship within existing business structure or entrepreneurship.
As an act of strategic management with focus on entrepreneurial development, firms
encourage risk-taking and profit oriented behaviour among its managers by organizing a
business into a number of separate profit centres. Each centre may be responsible for its own
profit through intra-group trading and counter-trading. In some cases such centres may
develop their own external sales and clients.
This approach has been used by a number of Nigerian University Vice Chancellors, by
establishing Distance Education programmes for adult working staff within and outside the
university, as it is in University of Nigeria Nsukka, University of Lagos, University of
Ibadan, Abia State University, Uturu and others. Some others establish management
consultancy units. They use basically the university resource personnel for the purpose of
impacting knowledge to the clients at a profit to the university via the centre. This is an act of
interpreneurship, intrapreneurship within entrepreneurship.
22
3. Organizational Learning and Creativity
The intensity of competition in the developing countries today, particularly from the agile
small business firms, occasioned by technology and globalization has made it increasingly
important for on-going big firms to promote and encourage intrapreneurship through
organizational learning, creativity and product championship. Organizational learning refers
to the process through which managers seek to improve employees’ desires and abilities to
understand and manage the organization and its task environment so that employees can
make decisions that continuously raise organizational effectiveness. Organizational learning
appears pronounced among learning organizations in which the pilots or managers make
conscious efforts to maximize the ability of individuals and groups within the firm to think
and behave creatively. This maximizes the potential for organizational learning to take place.
Creativity lies at the heart of organizational learning. Creativity is merely a decision maker’s
ability to discover original and novel ideas that lead to feasible/viable alternative courses of
action. The importance of creativity among learning organizations cannot be over-
emphasized. Ensuring creativity among managers is such a pressing organizational concern
that many companies engage the services of experts to assist develop programs to train their
managers in the act of creativity thinking and problem solving.
The Process of Developing a Learning Organization Peter Senge, a learning theorist
identified five principles for creating a learning organization.
Figure 1.1: Senge’s Five-Step Principles for the Creation of a Learning Organization
Source: Jones G.R. and George J.M. (2003;23.8) Contemporary Management 2nd ed,
New York, McGi:aw - Hill Irwin.
23
1. Top Management must make Room for the Employee to Develop a Sense of Personal
Mastery: Super-ordinates must empower their subordinates and allow them to experiment,
create and explore what they want.
2. Encourage Employees to Develop and Use Complex Mental Models: Sophisticated
ways of thinking that helps them to discover fresh, better and enduring ways of performing a
task digging out the involvement and connotation of a particular activity through
experimentation and risk taking.
3.Promotion of Group Creativity: Team learning is preferred to individual learning. Complex
and non-programmed decision making is better done in subunits, groups or divisions.
4. Emphasis On, the Importance of Building ‘a Shared Vision. A model or figment that
guides organizational members in problem solving.
5. Management must Encourage Systems Thinking: Genuine relationship and inter-woveness
of the various sub units’ of the organization, including the effect of each unit’s action or
inaction on each other via the entire organization.
Caution - Developing a learning organization is neither a quick nor easy process. It requires
managers challenging management assumptions radically. To compete successfully in the
present and future centuries, managers need to be creative and innovative. This is made more
manifest in this day of competitive marketing and bench marking. Probably, this explains
university of Nigeria Nsukka persistent commitment towards organizational learning that
made her first among others in Nigeria in visibility and research.
4. Product Championship
A notable means of promoting entrepreneurship is by encouraging individuals within the firm
to play the role of product champions that is managers who take ownership of a project and
provide the leadership and vision that takes the product from the idea stage to the final
customer. Intrapreneurship encourages managers to become product champions and identify
new product ideas. Product champions are usually responsible for the development of
business plans for the products. However, such product champions may usually be required
to appear before a product development committee (in the University, the Senate) who
probes the strengths and weaknesses of the plan to decide whether it should be funded.
24
5. Small Business Management
Can small business owners be referred to as “entrepreneurs” as well? This question may be
bugging your mind. That is, what size of an establishment or activities of an establishment
qualifies a person as an entrepreneur?
Always bear in mind that Entrepreneurship and small business management’ are related
terms, yet different. ‘Entrepreneurship is the process of resources mobilization to take an
advantage of an opportunity to provide customers with new or improved goods and services.
It is the source from which all businesses, big and small spring. On the other hand, in the
small Business Act of 1953, United States of America Congress defines a small business as
one that is independently owned and operated, and which is not dominant in its field of
operation. In most cases they are localized. (Tale, Megginson, Scott and Truebloos, 1978:1).
The process of operating a small business is called smal1 business management.
In drawing a distinction between big business and small business, some of the criteria used
are relative size; type of customers, financial strength and number of employees. Most
emerging enterprises start small and have at least three of the under-listed primary features.
1. The owner is usually the manager
2. The owner supplies most of the money used in starting cum running the business.
3. Most of such businesses are localized and serve their immediate and nearby towns.
4. The owner-manager takes most of the decisions associated with the enterprise.
5. The owner manager bears the bulk of the risk and rewards (psychic and financial) of the
business.
2.5 Unit Summary
In Unit 1.2, you should have learnt that:
1. The importance of entrepreneurship in economic development cannot be over
emphasized.
2. The functions of the entrepreneur involves creative and innovative engineering with
a view to profiteering
3. Entrepreneurs can be classified in various ways
4. Entrepreneurship is not the same with management
25
2.6 Self-Assessment Questions (SAQs)
At this stage, you have concluded unit 1.3; you are expected to attempt providing answers to
the following questions to show the extent you have achieved the learning outcomes of the
unit.
SAQ 1.2.1 (Tests Learning Outcome 1.2.1)
What are the major roles of an entrepreneur in stabilizing the economy of a state?
SAQ 1.2.2 (Tests Learning Outcome 1.2.2)
Which entrepreneurship function is most important and why?
SAQ 1.2.3 (Tests Learning Outcome 1.2.3)
Why do you think that entrepreneurs are classified in various ways?
SAQ 1.2.4 (Tests Learning Outcome 1.2.4)
What are the primary features of most emerging enterprises?
SAQ 1.2.5 (Tests Learning Outcome 1.2.5)
Differentiate between entrepreneurship and management
References for further studies
Anyanwu, A. (1999) New Perspective of Entrepreneurial Development,Owerri, Kiet-Ken
Publishers.
Mbere, B. U. (1999) Infrastructural Sociology. Enugu: John Jacob’s Classical Publishers Ltd.
For further reading click the link below
http://www.yourarticlelibrary.com/entrepreneur/entrepreneurship-characteristicsimportance-
types-and-functions-of-entrepreneurship/5228/
http://www.investopedia.com/articles/personal-finance/101414/
http://wizznotes.com/pob/establishing-a-business/role-of-an-entrepreneur
26
Study Unit 3: Motivation for Entrepreneurial Life
Expected Duration: 3 Hours
Introduction
Primarily an entrepreneur is self-employed. He sees a gap in need and brings together the
necessary manpower, materials, machines and money required to meet the need. Thus, he
creates an organization as a way of offering something new to the market. Entrepreneurs
have sound mental outlook on life. Instead of conditions controlling their attitudes, they use
their attitudes to control conditions. Entrepreneurship as a matter of fact is more than a job or
a career. It is a life-style. This unit therefore surveys the driving forces of entrepreneurship.
1 Why people often settle for entrepreneurial career paths
2. Entrepreneurship drawbacks
3. Working for others
1. Pitfalls of salaried employment
Learning Outcomes of Unit .3
When you have studied this unit, you should be able to:
3.1 Understand why people often settle for entrepreneurship career paths
3.2 Know the possible drawbacks in entrepreneurship business
3.3 Identify the reasons why individuals go for paid employment
3.4 Recognize pitfalls of salaried employment
3.1 Settling for Entrepreneurship Career Paths
Several reasons abound why people venture into entrepreneurship. They include: fostering
economic growth; creating new technologies, product, and services; increasing productivity,
and changing/rejuvenating market competition.
Budding entrepreneurs are influenced physically and psychologically by the environment in
which they live. Most Igbos who grew up in Alaba, Idumota, Onitsha, Aba talk business.
Their other friends in Kano. Kaduna and Maduguri do exactly the same. The individual’s
family financial and career circumstances also play a major role in fine-turning of choice for
27
entrepreneurship and thereafter accepting it as a career path. The individual’s personal
circumstances and priorities, his abilities and traits also play a role in this regard.
The empire builders, the men at the centre of action, the self-confident, task and result-
oriented individuals who parade as strategists in the business milieu often settle for
entrepreneurial career paths for variety of reasons which include the under listed:
• Desire for Power and Authority
• Desire for Independence and Autonomy
• Impressive
• Security:
• A way of life/Ego — reaching full potential
• Service to the Community
• Need to protect inherited wealth
• Plan for retirement from salaried employment
Others reasons include:
• Utilization of spare time
• To try venture out of long conceived business idea
• Inability to secure an employment
• The need to proof one’s ability
• Desire to develop and sustain a legacy.
• For fun and creation of wealth by environment scanning. Potential Drawbacks of
Entrepreneurship or self-employment
3.2: Entrepreneurship Drawbacks
For every coin there are two faces. Potential entrepreneurs should also beware of the
drawback are:
Activity 1.3.1: Settling for Entrepreneurship Career Paths
Think about the people that have highest percentage of entrepreneurship career path in
Nigeria. Record it in your study diary.
28
• Uncertainty of income: - the risk is high during infant years, you may live on
transferred earnings or suffer loses, including having problems in breaking into your target
market.
• No guaranteed vacation:- not to talk of sure vacation with pay.
• The entire investment may be los:- often by no fault of yours, may be by art of God,
including sudden change in government policy.
• The stress level may be high — the over proportional demand on time, energy,
resources and self may be stressful and damaging to an unprepared mind.
• Long hours of hard work, often odd hours
• The responsibility is absolute: - no stories, no passing the bulk, you are responsible.
• Self-employment as an entrepreneur requires great deal of self-disciple, dedication
and tenacity. The business in all cases may not be smooth. Many obstacles may be
encountered. Some may appear early while others may be later. This may be a source of
discouragement and disillusionment.
3.3: Working for Others
People work for others or become employee of organizations for variety of reasons. These
include:
• Risk aversion to personal savings if any
• Acquisition of training and experience for later life entrepreneurial career, fresh
medical doctors working for General Hospitals or lawyers getting attached to
renowned law firms.
• Pride in association with prestigious organizations, you see I am a lecturer in the
University of Nigeria, the first indigenous Nigerian University, or I work with
Central Bank of Britain etc.
• Less demanding work and responsibility – organized work. Provides self-
actualization need for professionals, work life balance, specified working hours
and so on. Some professionals technically inclined personnel long for challenges
to prove their skills and abilities; such challenges are often found in well-
established organization with organized structures.
29
• Providing security for individuals who are phobic of their financial and economic
standing including their self-ability/confidence.
3.4 Pitfalls of Salaried Employment
The following factors have been identified as the pitfalls of salaried employment.
• Subordination to the next level of authority and sacrifice of self independence
• Specified and limited earnings
• Qualified right to exercise personal judgment this leading to dulled initiative and
drive.
• Risk of being in the wrong place and often bossed by less suitable and often
uncompromising super-ordinates.
• Risk of possible termination of appointment at the instance of employer. This
could happen when the employee is unprepared to separate from the employer.
East or West, home is the best, which is your home? This depends on your person, your
circumstances, your trait, and desire. Entrepreneurship and salaried employment are both
options depending on your situation.
3.5 Unit Summary
In Unit 1.3, you should have learnt that:
1. People often settle for entrepreneurial career paths for several reasons.
2. Entrepreneurship is not an easy venture, it has some drawbacks
3. People work for others for certain reasons
4. Salaried employment has some pitfalls
In-Text Questions 1.3.1
▪ What should the potential entrepreneurs be mindful of?
▪ Potential entrepreneurs should beware of drawbacks.
30
3.6 Self-Assessment Questions (SAQs)
At this stage, you have concluded unit 1.2; you are expected to attempt providing answers to
the following questions to show the extent you have achieved the learning outcomes of the
unit.
SAQ 1.2.1 (Tests Learning Outcome 1.2.1)
What are the motivations for entrepreneurial life?
SAQ 1.2.2 (Tests Learning Outcome 1.2.2)
What are the possible draw backs an entrepreneur faces?
SAQ 1.2.3 (Tests Learning Outcome 1.2.3)
Do a short note on the underlisted:
- entrepreneurship
- small business management
- intrapreneurship
SAQ 1.2.4 (Tests Learning Outcome 1.2.4)
Why do people work for others?
References/ further studies
Uzoma, A.M. (1991) Entrepreneurial Development in Nigeria-A Tactical
Approach for the Organisation-Makers, Port Harcourt, New Age Educational Publishing Co.
Ltd.
https://www.entrepreneur.com/article/251591
31
Module 2: Business Environment, Characteristics of the
Entrepreneurs and Forms of Business Ownership
Module Overview
Having learnt about the concept and socio-economic importance of entrepreneurship as well
as the motivations for entrepreneurial life; it becomes very necessary to understand the
business environment which is always challenging, characteristics of entrepreneurship, forms
of business a potential entrepreneur can go into. This module essentially makes an
exposition on the above topics by generating the following study units:
Unit 1: Entrepreneurial Environment and Process.
Unit 2: Characteristics, Disposition and theories of entrepreneurship.
Unit 3: Possible forms of business ownership
32
Study Unit 1: Entrepreneurial Environment and Process.
Expected Duration: 3 Hours
Introduction
Entrepreneurship outfit cannot exist in nothingness; there must be an environment that is
inherent with so many variables that may even pose challenges to the entrepreneur. You are
to examine this unit by going through the following:
1. Entrepreneurial environment
2. Entrepreneurial process
3. The entrepreneurial four Ps
Learning Outcomes of Unit 1
When you have studied this unit, you should be able to:
1.1 Understand the nature and features of the business environment
1.2 Discuss the entrepreneurial process
1.3 Mention the entrepreneurial four Ps
1.1 Entrepreneurial Environment and Process
Let it be known to you that entrepreneurs, irrespective of type from one man or solo self-
individuals to multi-national companies operate within the boundaries of organizations.
Organizations on the other hand operate within a system, referred to as business
environment. The environment of the entrepreneur/organization refers to forces and
conditions outside the entrepreneurs’ boundaries/control in the short run that has the capacity
to influence or impact on the entrepreneurial activities. These forces are generally,
multifaceted, turbulent dynamic and complex. The changes in the environment present to the
entrepreneur both opportunities and threats. How the entrepreneur responds to this, makes
the difference between success and failure. The environment of the entrepreneur is classified
into three sub-divisions. These are:
33
Figure 2.1: Business Environment
Take a look at fig. 2.1; you will see that the environment is made up of three segments with
some specified components:
i. Internal Environment - Structure, culture, human and non-human resources
ii. Task/Industrial Environment – Shareholders, suppliers, employees/labour
unions, competitors, trade associations, communities, creditors, special interest
groups and governments
Physical Resources
Natural Physical
Environment
Source: Thomas L. Wheelen and J. David Hunger (2010), Strategic Management and Business
Policy, Achieving sustainability, 12ed. New York, Prentice Hall p. 64.
Wildlife
climate
TECHNOLOGICAL
FORCES
SOCIO-CULTURAL
FORCES
SOCIAL ENVIRONMENT
ECONOMIC
FORCES
TASK/WORK/INDUSTRY
ENVIRONMENT
INTERNAL ENVIRONMENT
GOVERNMENT SHAREHOLDERS SUPPLIERS
SPECIAL INTEREST
GROUPS EMPLOYEES/
LABOUR
UNIONS
STRUCTURE CULTURE
RESOURCES
COMPETITORS
TRADE ASSOCIATIONS
COMMUNITIES
CUSTOMERS
POLITICAL –
CREDITORS
LEGAL
FORCES
34
iii. Social Environment – Economic forces, technological forces, political-legal
forces and socio-cultural forces.
Business entities are made up of inter-related parts which are intertwined with the outside
world. In the systems language, business organizations are but mere sub-systems that exist
within a supra-system. As a member of a system the entrepreneur merely draws its inputs
from the supra-system process/transforms such inputs to beget outputs. These outputs
become the products/services which the entrepreneur gives back to the society for profit.
Entrepreneurial activities are not carried out in a vacuum but in a fabric of inter-related
dynamic world setting. Business organizations are thus mere transformation systems
Figure 2.2: Business organizations as a transformation system
Inputs Outputs
Land, Premises Business Organizations Goods
Materials Entrepreneurial- Services
Labour setups. Processing Ideas
Technology units Information etc. Finance Managerial Skills, etc.
Source: Ian Worthington and Chris Britton (2003), the Business Environment 4thed,
England, F.T. Prentice Hall
Figure 2.2 speaks for itself. It showcases the inputs from the environment, the transformation
and the output that goes back to the environment/society.
Thus, the entrepreneurial firms are neither self-sufficient nor self-contained (not closed
systems). They are dependent on the external environment. The external environment has
both direct and indirect influence on the firm. The direct influence is through some of the
stakeholders. The stakeholders are classified into two: internal and external stakeholders.
The external stakeholders are competitors, suppliers, customers, special interest groups,
labour unions, financial institutions, the mass media, government and governmental agencies.
On the other hand, the internal stakeholder include: the shareholders (owners), the employees
(workers) and the board of directors (strategic managers).
35
Factors in the external environment that indirectly impact on the entrepreneurial
establishment has been broadly group into four by Fabey and Narayanan (Macro
environmental analysis in Stoner, Freeman and Gilbert 2007 101 – 105) namely:
i Social Values: – demographics, lifestyles, organization from the external environment
ii Economic Values: – economic conditions and trends
iii Political Variables: – political process and climate
iv Technological Variables - new developments in products and services, including
advancements in science and technology.
The entrepreneur needs to be conscious of these environmental factors as they affect the
entrepreneurial process, for the opportunity threats are enveloped in the environment. These
environmental factors also influence the entrepreneurial four Ps.
1.2: Entrepreneurial process
The Barringer and Ireland entrepreneurial process unfolds the map of the entrepreneurial
journey, making it vivid for the entrepreneurs what to experts in each stage in their journey.
It is a four step process summarized as shown below:
Decisional stage – Decision to become an entrepreneur
Idea generation stage – Developing successful business ideas
Actuating or
Implementation Stage – Moving from entrepreneurial ideas to operations or
entrepreneurial firms
Management Stage - Nurture, manage and growth of the entrepreneurial firm.
Nirjar citing Timmons and Spinelli (2014: 8 – 30) however grouped the process into nine
stages – namely:
Activity 2.1.1: Organizations operate within a system termed business environment
Think about how a new entrepreneur can face challenges in business environment in
Nigeria. Record it in your study diary.
36
Stage i - Entrepreneurial interest
Stage ii - Generate ideas for screening
Stage iii - Venture screening
Stage iv - Develop and refine the concept
Stage v - Determine the resources required
Stage vi - Acquire necessary financials
Stage vii - Developing the business plan
Stage viii - Implement and manage
Stage ix - Growth or exit
1.3 The Entrepreneurial Four Ps
The Economist Ma and Tan (2005) in Nirjar (2014:4), four entrepreneurial Ps are:
i. Pioneer: - Innovator or champion for innovation
ii. Perspective: - The entrepreneurial mindset
iii. Practice: - The entrepreneurial activities
iv. Performance: - The outcome of entrepreneurial actions and activities.
The four Ps are similar to the Barringer and Ireland (2013) model of entrepreneurial
process. However the four 4Ps capture the developmental stages of entrepreneurship to
product creation. Here the entrepreneur could be conceived as a situational analyst, who
plans, organizes, directs and creates “a product – need fit” with profit intent.
The entrepreneurial process as listed by various authors is mere reflections of their views.
These views could be compressed into seven – steps as shown in Figure 2.5
In-Text Questions 2.1.1
▪ Mention the two classifications of stakeholders.
▪ They are internal and external stakeholders. The external stakeholders are
competitors, suppliers, customers, special interest groups, labour unions, financial
institutions, the mass media, government and governmental agencies. On the other
hand, the internal stakeholder include: the shareholders (owners), the employees
(workers) and the board of directors (strategic managers).
37
Figure 2.5 Seven Step Approach to Entrepreneurship Process
1.4 Unit Summary
In Unit 2.1, you should have learnt that
1. Entrepreneurs operate within business environment
2. Entrepreneurship process has four stages
3. Entrepreneurial four Ps
1.5 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 2.1; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 2.1.1 (Tests Learning Outcome 2.1.1)
Can an entrepreneurial control all the variables in the environment?
SAQ 2.1.2 (Tests Learning Outcome 2.1.2)
What is the difference if any between internal and external environments?
SAQ 2.1.3 (Tests Learning Outcome 2.1.3)
Explain five variables in external environment.
SAQ 2.1.4 (Tests Learning Outcome 2.1.4)
How would you explain the entrepreneurial four Ps to a lay man?
SAQ 2.1.5 (Tests Learning Outcome 2.1.5)
Growth/Exist Management
Business Idea Generation
The Business Start-up
Resources Generation Implementation and Nurture of
the Business
Business Plan Development The Business Feasibility Studies
Entrepreneurship Development
38
Explain entrepreneurship business as a sub-system
References/For further studies
Hisich R.D. and Pofers M.P (1998): Entrepreneurs (Fourth Edition) Doston,
Irwin, McGraw Hill.
Ailsoppo M. (1975) Survival in Business the Dynamics of Success And Failure, London,
Business Books Ltd.
https://www.tutorialspoint.com/entrepreneurship_development/entrepreneurship_developme
nt_environment.htm
39
Study Unit 2: Characteristics, Dispositions, Theories of
Successful Entrepreneurship
Expected Duration: 3 Hours
Introduction
Business environment is seen as the interaction of internal and external forces that affect the
activities of businesses. Both entrepreneurship and other types of business outfits operate in
the same environment.t However, one can identify entrepreneurs by identifying who is an
entrepreneur in the environment. This unit therefore discusses:
1. Characteristics of Entrepreneurs
2. Dispositions of Entrepreneurship
3. Theories of Entrepreneurship
Learning Outcomes of Unit 2.2
When you have studied this unit, you should be able to:
2.1 Mention some characteristics of entrepreneurship
2.2 Explain the dispositions of entrepreneurship
2.3 Discuss theories of entrepreneurship
2.1 Characteristics of Entrepreneur
Authors are divided in opinion as to what the characteristics of a typical entrepreneur should
be but one generally agreeable fact you should know is that the entrepreneur is a creative,
innovative and action-oriented individual who scans, transmits environmental inputs to
outputs thereby creating valuable goods and services for consumption by the society. He is
the hub or driver of the entrepreneurial process.
Perception plays a major role in the defining the characteristics of an entrepreneur, however,
since the concept has a socio-psychological orientation, it will be proper to look at it from
various dimensions (sociological, psychological and economical).
Sociological Dimension – entrepreneurial behavioral pattern as a member of society
i. Creative and innovative goal oriented individuals
40
ii. Dynamic and unemotional with the capacity to adapt to change and changing
circumstances.
iii. They possess managerial abilities with the ability to influence human behaviour
and other organizational resources. Thus, has the capacity to efficiently and
effectively superintend over the four Ms of management (men, money, machines
and materials). They are unassuming with rare-zeal for learning and research.
iv. Calculated and selected socio-economic mixers.
Psychological Attributes – entrepreneurial behaviour pattern as occasioned by their psyche
or mental orientation
i. Entrepreneurs are high self-confident individuals
ii. Determined with high need for high standard of achievement and success they are
ambitious and self-motivated.
iii. Challenge motivated with hate for routine assignments.
iv. Independent minded, who under normal circumstances not only accept but seek
responsibility
v. Self-motivated with high level of intuition and initiative.
vi. Energetic
vii. Futuristic
viii. Inclined to immediate feedback in business relationship
Economic Features – entrepreneurial behaviourial pattern as influenced by self-interest for
profit making.
i. Calculated risk-takers-with a mix of intuition and rationality in decision making
ii. High degree of fore
iii. Casting abilities with a creative and innovative inclination.
iv. Profit orientation and aversive (stronger dislike) for non-profiteering ventures.
v. Action oriented with spontaneous cost-benefit analysis
vi. Expertise in need – product fit analysis and management.
Obi (2009:9) opines that recent researchers appear to agree that certain characteristics
distinguish successful entrepreneurs from those that fail. The favoured characteristics are
summarized as listed below:
i. They demonstrate high level of independence
41
ii. Have high self confidence
iii. Are highly determined and importunate
iv. Goal oriented
v. Proactive – Action oriented
vi. Always set high standard for themselves and are driven by the need to achieve
vii. Possess Great Spirit of creativity and innovation.
1. Entrepreneurial Disposition - attitude manifestation
Having seen the characteristics of the entrepreneurs, it is expected that this should reflect in
their behavioral disposition. Evidence based research in management thought and philosophy
show that successful entrepreneurs tend to behave alike. This is reflected in their attitudes.
These include the under listed:
i. They are generally ego busters and friendly
ii. They are financially conservative and disciplined
iii. Generally they are inclined to private sector life (Private sector initiative
inclination)
iv. They rely heavily in self-expertise in their choice of business; they are hardly
jumpstart business owners. (Obi, 2009).
1.2 Theories of Entrepreneurship
Thought and philosophy of entrepreneurship can hardly be discussed without reference to the
science and theory of entrepreneurship. Science explains phenomena. It is based on the
rationality of nature on the idea that relationship can be found between two or more sets of
events. The essential feature of science is that knowledge has been discovered and
systematized through the application of scientific method. Science refers to general truth in a
specific area of study.
Scientific method involves determination of facts through observation of events and
verifying the accuracy through continued observation. When generalization or hypotheses
Activity 2.2.1: Characteristics of Entrepreneur
Think about how an entrepreneur can be seen as creative and innovative action
oriented individual. Record it in your study diary.
42
are found and tested as having the capacity to explain reality and therefore ability to predict
what will happen in similar circumstances these are called principles. Principles are not cost
on stones. There do not totally eliminate doubt. There may be subjected to further research
and analysis. Without new facts they remain the principles. Principles enable man to
understand the world we live in (Koontz, O’Donnel and Weichrich, 1980). Theories are
systematic grouping of interrelated principles that pulls together significant knowledge about
a subject, thereby giving it a framework. The dependent and independent variables are
consequently brought to the fore. The principles are the building blocks of theory.
The historical evolution of entrepreneurship theory is a wide ranging, subject. It hardly could
be said at the moment that there is a lacuna in the theoretical frame - work needed to explain
the concept. One could organize the theoretical under-pinning from different perspective:
area by area, period by period, issue by issue, theorist by theorist and so forth.
The chronicle of entrepreneurship development and theory appears to date back to 1759
when Richard Cantillon an Irish economist of French descent introduced the concept to
economic theory as a specialist risk taker. In 1921 American economist Frank Knight
introduced the concept of insurable and uninsurable risk and avers that pure profit is the
reward of the entrepreneurs for bearing uninsurable risk. However, in 1934 the heroic
vision was put forward by Joseph A. Schumpeter who avers that the entrepreneur is a
creative and innovative personality that precipitates major structural changes in the economy.
This opinion seems to concentrate on high level type of entrepreneurship distinct from low
level entrepreneurship as described in the role of firms by Alfred Marshall in 1919.
Incidentally Alfred Marshall seems not to have specifically denoted except by connotation
the concept in his formal analysis of supply and demand chain. This lacuna by Alfred
Marshall was made up by Friedrich A. Von Hayek in 1937 and Israel M. Kirzner in 1973
who say that the entrepreneur provide price quotations as an invitation to trade. These views
were synthesized by Casson M. in 1982 who sees the entrepreneur as a middleman who buys
at a certain price and sells at uncertain price. To do this, needs to make decisions as to what
to buy or sale and at what prices. (Casson, Yeung, Basu and Wadeson, 2009:3).
This chronicle looks at entrepreneur both from the high level and low levels. With this view
in mind one considers it appropriate to look at the theories of entrepreneurship from both the
macro and micro perspectives.
43
Kuratko (2009) in Agu (2010) asserts that the macro perspective focus on broad array of
exogenous factors that relate to success or failure of the entrepreneur. This array of
exogenous factors is often outside the control of the entrepreneur. On the other hand, the
micro view concentrates on specifics factors that impact on entrepreneurial life. Such factors
are often interwoven with entrepreneurial phenomenon or entrepreneurs’ internal locus of
control. The distinctive difference is that the macro focus is on events from the outside
looking in while the micro concentrates on specific from the inside (personalized or
internalized personal qualities) looking outside.
Figure 3.1 Macro and Micro Perspectives to the Theories of Entrepreneurship
Source: Agu R.A., (2010), Frontiers of Entrepreneurship, Concepts, Theories and Practice,
Onitsha, Kawuriz and Manilas Publishers p. 37 See also Nirjar Abhishek, (2014),
Entrepreneurship Development, New Delhi, CBS Publishers and Distributor, p. 27 - 28.
Macro Perspective of Entrepreneurship Theory
From Fig. 3.1 above, you should see the theories under this approach as listed thus:
1. Sociological or environmental focused theories
2. Economic theories
3. Cultural theories
4. Displacement theories
Entrepreneurship Theories
Macro Perspective Micro
Perspectives
Sociological
Theories
Economic
Theories
Psychologica
l Theories
Venture
Opportunity
School of
Thought
Strategic
Formulation
School of
Thought
Displacement
Theories
Cultural
Theories
44
The Sociological or Environmental Theories
The theories under this sub-head are:
1. The religious beliefs theory
2. The social exchange theory
3. The marginal and tension theory
These theories are so grouped because of certain features they have in common. All of them
focus on external or exogenous factors that affect the life of the entrepreneur. These include
morals, values and institutional framework in the socio-political environment that influence
the actions or inactions of the entrepreneurs. They see the entrepreneur as a product of the
society with societal influences. They are not isolated from the society, as products of the
society, the society impacts on them significantly.
i. The Religious Belief Theory
Max Weber propounded this theory in his work published in 1958 titled protestant ethic and
the spirit of capitalism (Okpara 2000: 21). His major interest was in broad-sweep of
historical development of civilization through studies in sociology of religion and sociology
of economic life. He examined the world’s major religions such as Christianity, Buddhism
and Judaism in tracing the pattern of economic development from pre-feudal times. The
focus was in Western Europe and United Stated of America. He concluded that certain
religious beliefs create either positive or negative attitude towards profit generation and
wealth accumulation. He sees business empire builders and highly technically skilled persons
in the modern society as being overwhelmingly influenced by their religious belief and
inclinations. The theory is predicated on some major concepts.
a) Spirit of adventure
b) Spirit of capitalism
c) Protestant ethics
d) Profit inducement
Adventure spirit
Those who will become entrepreneurs are generally adventurous. They enjoy excitement
associated with adventure or doing new things. The innate force in them propels them into
45
doing certain things which under normal circumstances or in sober mood many would avoid
under normal circumstances.
Weber spirit in his studies concluded that certain religious beliefs create either positive or
negative attitude towards profit generation and economic wealth accumulation. He sees the
spirit of capitalism/preference for private enterprise life as being fostered by religious beliefs.
The adherence of religious beliefs that encourage capital acquisition, generally possess
entrepreneurial culture. This mindset encourages hard work that enables them to nurture
business and generate wealth for investment and re-investment.
Protestant ethics
Weber perceives majority of the successful entrepreneurs as protestants, that is those that
disagree with their environmental circumstances and want to make a difference. Their
attitudes and behaviours towards entrepreneurship are generally reflections of their
disagreement with their prevailing circumstances. Protestant ethics is a conscious “walk out”
out of status quo. This is also faith or religion related. Calvinistic logics or values are seen as
responsible f creation and multiplicity of business enterprises.
Profit Inducement
Profit refers to the reward associated with business engagement. The motivation for capital
accumulation through business activities is refered to as profit inducement. Weber is of the
view that the spirit of adventure, capitalism and Protestants logic or Calvinistic values
induces the zeal for profiteering. Those so induced generally end up in entrepreneurial
exploitation/and capital building.
ii. The Social Change Theory (Creativity and Technological Innovation Theory)
This theory was developed Everett Hagen. He perceives the entrepreneur as “a
creative problem solver, interested in things in the practical and technological realms and
driven by a duty to achieve” (Okpara 2000: 24). He further opines that the creative
personality in an individual is characterized by a high need for achievement and autonomy.
They are generally pure entrepreneurs rather than a jump and start or copy business concerns
businessmen. He further avers that economic development is an ecological process brought
about by technological creativity and innovation by entrepreneurs. It is his view that the
entrepreneur is a creative problem solver interested in solving practical problems, mostly
46
through the application of creative technology. A good number of them are energized by the
burning zeal (internal force) to make a unique contribution to the society.
iii) Marginal and Tension Theory
Rovert Park introduced the marginal and tension theory. The marginal man in this
context refers to a man that is condemned by faith to live in two societies with antagonistic
cultures like the Muslim and Christian traditions. In the circumstance because he lives in the
margin, he is tensed up and hardly accepted by any of the conflicting traditions, for he blows
neither hot nor cold. As an escape route he resorts to self-employment through acts of
entrepreneurship. This theory could be liken to the societal incorporation of relative sub-
groups theory by Frank Young. This theory unveils the effect of inter-group relationship on
entrepreneurial development. In his opinion non-incorporation of a relative sub-group in the
societal framework induces acts of entrepreneurship on the group. He sees a group becoming
relative in two circumstances.
1. If a group experiences low status recognition and denial of access to important social
network.
2. If the group possesses a greater range of institutional resources than other groups in the
society at the same system level.
Under the first circumstances, members of the group will work harder, and strive for
autonomy in those areas they are denied equal opportunity. In most cases they become very
successful. A case at hand is the Jews. Under the second condition, the group could use their
abundant resources to acquire or buy the entrepreneuria1 skills buy the entrepreneurial they
need. Young, thus, sees no relationship between personal factors and entrepreneurial
development value and society-wide phenomena on entrepreneurial advancement (Agu, 2010
and Okpara, 2000:21 – 27).
iv. Cultural Theories
The entrepreneur here is perceived by the proponents of the school as a product of culture.
That is, entrepreneurship is a cultural phenomenon. This school argues that the choice of
entrepreneurship is related to external factors beyond the individual’s control. Such external
factors include the influence of a person’s role model, family orientation, the society or
environment in which the person is brought up (e.g. is a child born in a Moslem dominated
47
community by Moslem parents likely to be a Christian? or a child born by Christian parents
in a Christian dominated society likely to be a Muslim? No).
Rejection experience could also be an inducement for entrepreneurship. The feeling of not
being in the main stream or being part of a system may contribute to the need to become an
entrepreneur. Minorities, immigrants, gender, ethnicity, religion, and segregation may
contribute to this. All Ghanaians in Nigeria known to this author are very industrious,
creative and of very high - entrepreneurial spirit. Consider the background and circumstances
of early Army Generals in Nigeria, the highly educated, the Christian Ministers, the early
successful entrepreneurs including those who emerged after Nigerian Biafran war.
McClelland, Schumpeter, Herbig and Miller, Young and Kunkel are among the major
proponents of this school of thought.
v. Displacement Theory
The theory is of the view that a man pushed out of a shed into the rain does not remain there,
but makes effort to relocate to another tent. The pushing out or displacement could come in
three ways
• Politically
• Culturally
• Economically
In any of the three cases when displaced the individual tend to seek private sector protection
through entrepreneurial activities. This is so when the man is reluctant to give zero-sum fight
back to the group.
vi Capital Theory
This theory sees capital or finance as the life blood of entrepreneurship. It concludes that
availability of fund or easy access to loan and proper financial management of same is a key
to entrepreneurial life.
In-Text Questions 2.2.1
▪ In the chronicle of entrepreneurship development, what did Richard Cantillon
introduced?
▪ Richard Cantillon introduced the concept to economic theory as a specialist risk
taker.
48
Economic Theories of Entrepreneurship
It is difficult to separate entrepreneurship theories from pure economic phenomenon for
the evolution of the concept has been traced back to economics. As a result of this, we may
look at the theory from economic perspective.
Two theories will be considered Schumpeter and Kizner’s economic theories of
entrepreneurship. Both theories see entrepreneurship as being propelled by economic
incentives profiteering through creativity and innovation and distortion on existing economic
orders. However, Schumpeter is of the opinion that equilibrium in the market setting is an
interaction between two forces – technology and economic forces, that the duo interact to
make the economy a producing organism. However, in a capitalist oriented economy,
economic logic takes precedence over technological consideration in the production process.
He concludes that true economic growth achievable in the economy through destruction of
the existing economic status quo and displacing them with better and new ways of production
by the entrepreneur. He thus avers that the entrepreneur is a creative destroyer. He destroys
and simultaneously replaces with enhance and better products/services. By so doing he
creates and rejuvenates market completion. This says is the true source of economic
development. He further assert that the entrepreneur relies heavily on use of self-initiative,
breaks away from old route and the resists impediments associated with the socio-political
environment in his rare zeal to make profit through creation and innovation.
Kirzner on the other hand sees the dynamic forces in economy like technology, taste,
population, income, distribution as forces that ensures that the economy is in a constant state
of disequilibrium. The role of the coordinator of other factors of production (entrepreneur) is
to constantly scan the environment to find the forces behind the shift and the economic
opportunities there-in and take advantage of them for profit. He concludes that the market is
in constant state of disequilibrium with opportunities hidden within them and it takes an
entrepreneur who is alert to continuously scan the environment to take advantage of the
changes and thus return the market to a state of equilibrium, by so doing makes his profit.
The process equilibrium and disequilibrium is a constant and ongoing process in the
capitalist economy. His interest is on equilibrating forces in the economy as against the dis-
equilibrating forces advocated by Schumpeter.
49
Micro Perspective
Micro-perspective is anchored on specific and often internalized (traits/in-born factors in the
entrepreneur that is responsible for his exploits. From the abundance of the inner-personality
of the entrepreneur, entrepreneurial activities manifest. Theories grouped under this include:
- Psychological theories
- Venture opportunist theory
- Strategic formation theory
The Traits/Psychological Theories
The traits model believes that entrepreneurs have certain internal (in-born) personality traits,
motives and values that propel them to the choice of entrepreneurship career. David
McClelland is a major proponent of this school of thought (Need for Achievement N- Ach
theory). Others include Alam J. and Hossan M.A, Shaver K. Fi and Scott L.L. the traits often
listed include the following:
Characteristics- Traits Associated with Entrepreneurs
1. High need for Achievement
2. High need for Independence and Autonomy (Self boss)
3. Risk taking propensity
4. Tolerance for ambiguity
5. Creativity
6. Intuition
7. Flexibility
8. Self confidence
9. Internal locus of control
10. Easy of adoptability
11. Dominance
12. Low need for conformity
13. Determined and Futuristic
14. Innovativeness (Ibrahim and Ellis 1990)
50
Venture Opportunities Theory
This school of thought merely sees the entrepreneur as an opportunist in an ever changing
business setting. The understanding is that to be successful as an entrepreneur one needs to
be agile and pro-active. Such individuals are generally able to detect product-need-gap and
come up with product-need-fit. This is done through development of the appropriate
business idea at the appropriate time with the appropriate strategy in the appropriate market
with appropriate mind set. When opportunity meets a prepared mind, the entrepreneur is said
to be an opportunist. In strict management language he could be referred to as an
environmental strategist. Agu (2010:49) relates this to the corridor principle which
“provides that new pathways will arise that the ability of the entrepreneurs to see and seize
the opportunities by taking the right actions are key factors in the entrepreneurial process”.
Forecasting, Planning and agility play major role in success of entrepreneurship.
Strategic Formation Theory
Strategic formulation theory anchors on strategic thinking and strategic management of
enterprises. It sees strategic thinking, strategic planning and being proactive as key to
success in business venture. It sees the business environment as turbulent, and as such,
requires careful planning and execution to be able to have an inch or operating advantage
over other competitors in the milieu. The mission and vision of the enterprise operators must
be faithfully aligned for the commission to be simplified. The contention here is that the
entrepreneur should be strategic. In the business environment he should carefully select an
industry, within the industry select a segment for targeting. The business segment must be
approached with the appropriate 4m input (man, machine, material and money) for
appropriate 4P output (product, promotion, place/distribution and price). The
appropriate mix of 4m input and 4P output is advocated. The advocates of this theory believe
that strategic planning is the first function of the entrepreneur. They contend that appropriate
human resources, technology and strategic planning constitute the sub-structure for
entrepreneurial success.
1.3 Unit Summary
In Unit 2.2, you should have learnt that
2.2.1 Entrepreneurship has distinct characteristics
51
2.2.2 There are dispositions of entrepreneurship
2.2.3 Theories of entrepreneurship explains who is an entrepreneur
1.4 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 2.2; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 2.2.1 (Tests Learning Outcome 2.2.1)
Briefly describe the chronicle development of entrepreneurship.
SAQ 2.2.2 (Tests Learning Outcome 2.2.2)
Classify theories of entrepreneurship based on Macro and Micro Perspectives
SAQ 2.2.3 (Tests Learning Outcome 2.2.3)
Explain briefly the environmental theories
SAQ 2.2.4 (Tests Learning Outcome 2.2.4)
Describe the spirit of capitalism in entrepreneurship
SAQ 2.2.5 (Tests Learning Outcome 2.2.5)
Differentiate between Marginal and Tension Theory and The Social Change Theory
SAQ 2.2.6 (Tests Learning Outcome 2.2.6)
Which characteristic are traits associated entrepreneurs
References/ further studies
Sackman S.A. (ed) (1997) Cultural Complexity in Organizations, London: Saga.
Anyanwu A.(1999) New Perspective of Entrepreneurial Development, Owerri, Kiet-Ken
Publishers.
Agbaeze E.K. (1995) Cultural Imperatives for Entrepreneurial Development in Item, Bende
L.G.A. Abia State, Being a Public Lecture Delivered to the Item Community on 26
December, 1995 during Okoko Day.
http://www.sjm06.com/SJM%20ISSN1452-4864/4_2_2009_November_137-282/4_2_239-257.pdf
http://www.investopedia.com/articles/personal-finance/101014/10-characteristics-successful-
entrepreneurs.asp
52
Study Unit 3: Business Ownership
Expected Duration: 3 Hours
Introduction
The art of entrepreneurship is generally expressed through the ownership of a business
venture. Business ventures or organizations exist within the business environment and
entrepreneurs are distinctive by their characteristics. Forms of business ownership which is
the focus of this unit will be discussed under the followings headings:
1. Forms of Business Ownership
2. Hybrid forms of Business Organizations
3. Cooperative Societies (COOP)
Learning Outcomes of Unit 2.3
When you have studied this unit, you should be able to:
1. Explain different types of business ownership
2. Highlight forms of business organizations that are termed hybrid
3. Discuss about cooperative societies
3.1 Forms of Business Ownership
Whether one starts a virgin business (from the scratch) or buys an existing one, or buys a
franchise, depends on his circumstances. The design and structure of a business enterprise
could be simple or complex. The simplicity or complexity of the design depends on the form
of business. According to Musselman and Hughes (1977: 138) “one of the first and most
critical questions anyone starting a business must ask is, which is the best form of ownership
for me to use? Each of the several legal forms has its peculiarities, advantages and
disadvantages. Because of this, the future of an undertaking may well depend on the
appropriateness of the form that is selected. Unfortunately, many a new owner is not fully
aware of why it is so important to make the proper choice”
You are to acquaint yourself with the classical types of business ownership by looking at fig.
3.1 below:
53
Classical Types of Business Ownership
Private Companies Public Companies
Sole Proprietorship Partnership Limited Liability Unlimited
Companies Companies
Limited by Limited by
Shares Guarantee
From fig. 3.1, you can see both businesses that are collectively owned and the form that are
individually owned. Whichever type of ownership one falls for, several considerations guide
the choice. These considerations are seen in the next section of this unit.
Factors to Consider in choosing Type of Business Ownership
Any entrepreneur planning to start a business venture must certainly address certain issues.
Some of the issues to be addressed include the under-listed:
1. How difficult is it to organize the business venture?
2. What are the legal requirements including the cost?
3. Possibility of transferability of the ownership
4. The entrepreneur’s ability and capacity
5. Degree of control desired
6. Extent of business liability
7. Tax position of the business
8. Ease of organization and dissolution
9. Government regulations
10. Continuity of ownership as an on-going concern.
11. Reason for the venture – profit maximization, social or political, interest.
Ownership of a business is a prerequisite for having the will of an enterprise. The ownership
refers to legal title to and the rights to property. This includes rights to possession and
54
disposal of such enterprise. There are two major types of business ownership – private and
public. Private ownership exists when individuals exercise the right and responsibility of
ownership, on the other hand, public ownership exists when the general public or political
bodies like the federal, state or local governments exercise the said rights. There could also
be a mixed ownership, including partnership of individuals and public bodies also called
private-public partnership (PPP) (Udu 2012: 47).
Private ownership design operates a simple organizational structure with limited bureaucratic
organizational levels of authority. It is organized as either sole proprietorship or partnership.
The Sole Proprietorship
You are not unfamiliar with the term sole proprietorship which is also known as one man
business. It is the commonest and the oldest form of business organization not just in Nigeria
but also in history. In fact, this form of business ownership is as old as civilization itself. The
legal structure of this form of business is non-corporate; in effect it could be established
without any authorization from any governmental agency, except probably to obtain the
required (if any) license(s) from the appropriate local governing authority or state licensing
authority. In the eyes of the law, the business and the owner are the same.
By definition, Sole (individual or single) proprietorship is a business owned and managed by
one person.
Operational Advantages
The reasons for the popularity of sole proprietorship cannot be separated from its operational
advantages which are presented below:
1. It is relatively easy to establish and run
2 The owner has absolute commitment; he is responsible for all the profits and losses.
3. The owner has a free hand in the running of the establish
4. The business has only few legal obligations.
5. Dissolution of the business is easy to accomplish.
6. The owner of the business is usually taxed not the business; consequently there is no
room for double taxation.
7. Emp1oyees and customers are personally known by the entrepreneur.
55
8. Customers can receive personal attention and good service.
Disadvantages
Don’t you think there are shortcomings or demerits of running a one man business? Can you
imagine some of them? Look at the ones below and reconcile them with your point of view.
1. Unlimited liability for debts of the enterprise.
2. Difficulty in raising fund for the firm.
3. Employees have limited opportunity for growth; this also makes it difficult for the
firm to attract experienced and highly qualified personnel.
4. The burden of operational responsibility as the business grows could overwhelm the
sole proprietor.
5. Uncertainty of the life span. Death, permanent illness or bankruptcy of the sole
proprietor could lead to sudden death of the establishment.
6. The employees work for long hours; holidays are seldom observed.
Partnership
Sometimes we see partnership as an extension of the sole proprietorship with the primary
distinguishing factor being the fact that it is designed to have more than one owner. The
partnership is also a form of business that had a very early beginning.
In the opinion of The American Uniform Partnership Act, partnership is “an association of
two or more persons who carry on as co-owners of a business for profit”. The very popular
Partnership Act of 1890 which is a landmark Act that governs ordinary partnership defines
partnership as “the relation which subsists between persons carrying on a business in
common with a view to profit.” The legality of its creation rests on the common-law right of
voluntary association. Thus for a partnership to come into being, there must be an ‘expressed
intention to do so by all the partners.
Customarily, a partnership is guided by partnership agreement or article of partnership.
However, this is not a legal requirement. It is advisable that the agreement should always be
in writing. In the absence of an agreement, profits and losses generated from the business are
to be shared equally among the partners.
56
A typical partnership agreement (or deed of partnership) is expected to contain the
following information.
• Name of the partners
• Name, purpose and location of the business
• Duration of the agreement
• Nature of the partners (general, limited, active or silent)
• Contributions by partners (at the inception and thereafter)
• How business expenses are to be handled
• Individual partners authority in the conduct of the business
• The partnership records and method of accounting
• How the profits and losses are shared
• Method of payment of salaries and other cash withdrawals
• Sales of partnership interest
• Disengagement of a partner(s)
• Settlement of disputes
• Amendment of partnership agreement, etc.
• Method of determining a partner’s investment, if he wishes to withdraw.
Partnership is a common business arrangement in advanced countries. In Nigeria, it is not
very much favoured due to distrust and high level of illiteracy. Few partnerships in Nigeria
are mostly those formed by professionals like Management Consultants, Lawyers, Medical
Doctors, Surveyors, Architects, Accountants and the likes. There are two types of
partnership:
i. The ordinary partnership
ii. The limited partnership
In ordinary partnership all the partners have equal level of authority and responsibility.
Each active partner may also take part in the management of the venture. In the same manner
each of them is responsible for the debts of the establishment.
The limited partnership is an association of two kinds of partners - the general and the
limited. There may be any number of each, but there must be at least one of each kind. In
57
effect, it is not a partnership composed wholly of limited partners. One or more partner(s)
may have limited liability as long as at least one partner has unlimited liability. The limited
partner cannot be active or seen to be active in the management of the business venture. The
aim of the limited partnership is to allow a person to invest capital in business venture from
which he expects return without assuming liability for the debts of the firm beyond the
amount invested. Limited partnership, however, is not recognized in many countries, Nigeria
inclusive.
Kinds of Partners
Common law and statutes recognizes various types of partners in a general partnership.
They are as listed below:
Active Partner: An owner who contributes money and also takes an active part in the
organization and management of the business.
Secret Partner: An owner who takes an active part in the affairs of the partnership but does
not reveal his identity to the public.
Silent Partner: An owner who plays no active role in the business venture though he may be
known to the public as a partner.
Dormant Partner: An owner who contributes money and plays no active role in the business
venture, and at the same time, he remains unknown to the public.
Nominal Partner: This is not really one of the owners of the business; however, he suggests
to others by his actions or words that he is a partner. This is mostly done by allowing his
name to be identified with the partnership.
Senior Partner: This is a general (active) partner who has been with the partnership for a
long time and who owns large share of the partnership.
Junior Partner: A co-owner for a short period, he may not be required to assume
responsibility for major decisions of the establishment.
58
Advantages of Partnership
Comparatively, partnership is seen as a better business option than one man business. Some
of the reasons for this are presented below:
1. Minimal legal requirements are required for its formation and dissolution.
2. It offers the possibility of raising more capital resources than the sole proprietorship
3. The partners are taxed only, unlike corporations where both the business and the individual
owners are taxed
4. It is possible to utilize the combination of individual talents, judgment and skill of the
partners in the running of the business.
5. It is relatively free from governmental control.
Disadvantages
There are factors that make partnership not desirable to many. These represent the demerits
of it and are presented below:
1. There is the possibility of disagreement among partners as a result of the joint venture
and collective responsibility and authority, differences in education, gender, view-point,
orientation, and communication gaps may bread disagreement.
2. The liability of the partners is generally unlimited
3. It could be difficult for a partner to withdraw his interest/assets in the partnership.
4. The life span of a partnership business is often not stable.
5. Decision may take longer time to reach since each partner may want his opinion to
prevail.
Public Ownership Design
We have gone through private form of business ownership, be it one man or two or more
persons. Now you will be exposed to a corporate form of business ownership which is largely
seen as public enterprises.
Activity 2.3.1: Business Ownership
Think about the kind business ownership you intend to explore upon completion of this
programme. State what informed your choice and record it in your study diary.
59
Public enterprises are commonly referred to as companies or corporations. The usage of the
concept varies among countries. Britain prefers the world `company’ while United States of
America uses the world `corporation’. (Anyanwu, 1999). In the context of this text we will
use the words as synonymous.
The United States Supreme Court sees a corporation as “an associations, of individuals
united for some common purpose, and permitted by law to use a common name, and to
exchange its members without dissolution of the association.” Corporations are granted
charter by the government of the country in which it operates. In 1819 in the famous
Deartmouth College case, the Chief Justice, John Marshall offered a definition of corporation
that has stood the test time. He asserts that a corporation is “an intangible reality: an
artificial but legal “person” who in spite of the twilight zone of semi-existence, can be held
responsible, for many of the same things, for which a real person can.”
Corporation is a symbol of big business just like sole proprietorship and partnership are
symbols of small business. Corporations have far more formal structures than either the
proprietorship or partnership. It has the right to buy, sell, own, manage, mortgage and
otherwise dispose properties. The owners are the stock or shareholders.
Chartered Companies
The evolution of chartered companies dates back to Britain. Britain in the past grants Royal
Charter to some companies specifying rights and privileges to trade. On incorporation the
charter incorporating the company clearly state the powers including conferring on the
membership of the company limited liability. In the present dispensation charter is conferred
to non-commercial companies only.
Statutory Corporations
Statutory companies or corporations are established by acts of parliament (or Decree). The
essence of their establishment is to provide public and quasi-public goods and services to the
public. They are mostly non-profit oriented. Public welfare is the yardstick for measurement
of their performance. When profit minded public/individuals criticize the statutory
companies on the grounds for not making profits, they do so out of ignorance of not
understanding their cardinal role in the society. Two different things – profit and non-profit
making establishments, are not to be measured by the same yardstick. The logic for the
establishment includes:
60
i. Societal welfare
ii. Security reason
iii. Provision of capital intensive projects
iv. Employment generation
v. Provision of Public Services
vi. Protection of National Economy
vii. Co-ordination of efforts/activities
Indigenization Decree 1977 and CBN Report in Anyanwu 1999:5)
Statutory Corporations are classified into two: Monopolies and Regulatory, Welfare and
Service Agencies. The state monopolies are established for the purposes of rendering
essential economic activities to the citizens. Their services are general subsidized. Examples
include Electricity Distribution Companies (EDC Electricity Distribution Companies)
formally, Power Holding Company of Nigeria or Nigeria Electrify Power Authority. Virgin
Nigeria or Nigerian Airways, the Railway Corporation). The regulatory, welfare and service
agencies – as the name suggests, they are merely regulatory agencies concerned mainly with
ensuring that specified standards are maintained. Examples of this in Nigeria include the
Standard Organization of Nigeria (SON), the Nigerian Communication Commission and so
on.
Registered Companies
Registered companies refer to companies registered under the Companies and Allied
Matters Acts. (1990 Act and the subsequent legislations). The acts deal with regulation of
the business of such companies from coming into life (incorporation). Life journey
(operations and death (winding up). In Nigeria such companies come into existence through
fulfilling the specified legal requirements, registration and obtaining the certificate of
incorporation by the Registrar of Companies. There are three classifications of registered
companies under the act.
• Unlimited companies
• Limited companies by guarantee
• Limited companies by shares
61
Unlimited Companies
Unlimited Companies are companies registered under the Companies and Allied Matters
Act with specified share capital but with liability of her membership as unlimited. The
implication is simply that though incorporated but the companies’ liabilities on event of
shock or business difficulties/failure are not divorced or separated from the
owners/shareholders, personal assets/belongings. It puts the shareholders in difficult
situation if the company fails. The company’s legal personality here is not differentiated from
the individual owners’ personality in time of trouble. In the Nigeria business environment
they are rare except probably in the non-profit making business set-ups.
Company Limited by Guarantee
They are generally nonprofit oriented business ventures. On incorporation of such
companies the owners clearly specify in the memorandum of association the limit of their
liability contributions both individually and collectively. In event of financial crisis the
members liability is restricted to the declared, amount otherwise called guarantee. The
amount guaranteed can hardly be called a share- capital. It is fashionable among charitable
organizations like religious bodies, Red-Cross Society, Bible Society of Nigeria, professional
bodies, orphanage homes and the likes.
Companies Limited by Shares
The limited liability companies are mainly profit oriented. As the name suggests the
liability of her membership is limited to shares not paid up at the point of crisis/failure by
each member, beyond this no obligation to the owners/shareholders. This type of company
generally is popular in Nigeria and is referred to as limited liability companies. Companies
limited by shares are classified into two-public and private companies.
Private Limited Company
Private Corporation are formed and owned by close private individuals. The essence is
usually for profit making. Two fundamental features of such companies are as listed below:
• The number of shareholders ranges from two to fifty only. This excludes past and
present employees of the establishment.
• The shares are not transferable without the consent of the other shareholders: neither can
the company invite the public to subscribe for her shares. Examples of such: companies
62
include Ekene Dili Chukwu Transport Limited, Flaab Nigeria Limited, COPA Nigeria
Limited, Ikorotex Nigeria Limited, etc.
Advantages of Private Limited Company
1. It provides a small firm with limited liability label.
2. Longer life and continuity is ensured.
3. Infiltration of outsiders is cumbersome.
4. It ensures high degree of personal contact between the directors, workers and
customers.
5. Though Limited, business secretes and confidentiality is easier to manage Public
Limited Liability Company (PLC)
Disadvantages
1. Highly qualified personnel’s are often reluctant to join the employee of the firms.
2. Their shares are not easily transferable.
3. Job security of their employees is questionable.
4. Its often difficult for them to resist capital for her shares are not sold over the counter.
5. It operates more like a family business rather than limited liability company.
6. The membership need not be more than fifty. This parts limit to its membership.
Public Limited Liability Companies are formed and owned by individuals and
organizations they need not be closely related. The law stipulates that the membership must
not be less than seven; however, there is no maximum. Its shares can be bought and sold over
the counter in the Stock Exchange, if there is a stock Exchange quotation for its shares. The
Company’s ba1ance sheet must be lodged yearly with the Registrar of companies; in
addit1on, it must be published yearly in a national newspaper.
Procedure for Formation of a Company
Once the decision for incorporation has been taken; what next they are usually noted by
inclusion of “PLC” after their name the entrepreneur do?
The incorporators will proceed as follows:
1. Complete an application form for charter from the Registrar of Companies.
2. File the application for incorporation; and
3. Pay the required fees.
63
The application for incorporation is accompanied with two vital documents as enunciated in
the Companies and Allied Matters Decree of 1990. These documents are;
1. Memorandum of Association
2. Articles of Association
The Memorandum of Association is an aspect of the company’s charter that defines the
firm’s relationship with the outside world. It defines the scope and limits of the company’s
powers. Other information contained in the Memorandum includes:
1. The name of the company with Limited or “PLC” as the last word.
2. Address of the principal or head office.
3. The objects of the company.
4. Names and address of the incorporators
5. Indication in writing that the liabilities of the shareholders are limited and the like.
This document needs to be signed by at least two directors in the ease of private company or
seven in the ease of public company.
On the other hand the Articles of Association deal with the regulation governing the internal
management of the firm. The articles of association are derived from and controlled the
Memorandum of Association, Every public company is required to draw up both the
Memorandum of Association and Articles of Association, However, a private company may
draw up Articles of Association with the Memorandum but if it fails to do so, it will be
implied that it has adopted the articles as provided in ‘TABLE A” in the Companies and
Allied Matters Decree.
The Articles of Association specify the rules governing management of internal problems of
the firm. Issues covered in the articles, among others, include the following:
1. Procedure for summoning general meetings and the voting procedure in such meeting
2. The qualifications, powers and functions of the Directors.
3. Methods of declaring dividends and sharing of profits.
4. Auditing procedures and other domestic affairs of the company.
5. Method of issue, transfer or forfeiture of shares.
6. Method of dealing with alterations in the company’s capital. Other documents that are
submitted along with the Memorandum and Articles of Association include:
i. List of shareholders who have consented to become directors.
64
ii. A written declaration by a lawyer that the provisions of the companies and Allied
Matters Decree of 1990 have been compiled with
iii. Official statement on the position of the Company’s Authorized and Nominal capital.
In addition, the promoters of the company will be required to pay the necessary fees and
stamp duties, which are determined by the amount of the authorized capital in the
Memorandum of Association.
After due inspection of the documentations and payment. The Registrar General, at the
Corporate Affairs Commission, could then issue the certificate of incorporation to the
company to commence business if he so considers it appropriate.
The certificate of incorporation when issued enables the company to commence business. It
is expected that this certificate be displayed at the company’s head office. The content of the
certificate include:
i. The name of the company and its registered number
ii. A statement that it has been registered in accordance with the law
iii. The, signature of the Registrar General (Okpara 2000:135).
It is after incorporation that the companies can issue their prospectus, inviting the public to
subscribe to its shares. This applies only to the public company.
Procedure for Registration
According to Igwe (2000:385-387), the procedure for registration is as contained in CAMA
Section 657. It provides as follows:
1. That every firm, individual or corporations which can be registered under the Act
shall within twenty eight days after incorporation of business in respect of which registration
is required or within three months of the operationalization of this Act furnish the Registrar
at the Registry in the state where the major business (head office) is domiciled a statement in
writing in the prescribed form, duly signed. The statement is required to contain the
following information.
a) The business name or the business names if it is carried on under two or more
business names, each of such business names.
b) General nature of the business (mission statement).
65
c) Full postal address of the head office or principal place of operation.
d) Full postal address of each and every other place of business.
e) In the case of a firm:
i) The partners present forenames and surname, any former forenames or surname,
the partners nationality and, if that nationality is not the nationality of origin, the
nationality of origin, the age, the sex, the usual residence and any other business
occupation of each of the individuals who are partners and
ii) The Corporate name and registered office of any corporation which is a partner.
f) In case of an individual - the present forenames and surname, the former forenames
and surnames of any, the nationality and if the nationality is not the nationality of
origin, the nationality of origin, the age, sex, usual residence and any other business
occupation of the individual.
g) Where a company is to be registered, the name and the registered office of the
Company
h) The date of commencement of operation of the business before or after
coming into effect of this Act.
2. If the registration to be effected, consist of individuals or a firm consisting of
individuals only, it is required that the certified photograph of the individuals be submitted to
the Registrar. The certification of the photographs must be in a manner as required by the
Registrar.
3. If the registration is that of a firm or an individual carrying on a business on behalf of
another individual, firm or corporation whether as a nominee or a trustee, it is required that
the under-listed particulars be furnished.
This is in addition to any other such provision.
a) The present forenames and surnames, any former forenames or surname, the
nationality and if the nationality is different from the nationality of origin, the
nationality of origin also has to be stated. In addition, the usual residence of every
individual on whose behalf the business is carried on.
b) The names of each firm or corporation in whose behalf the business is carried
on.
66
4. If the registration to be effected is that of a firm, or an individual carrying on business
as a general agent for any’ concern carrying on business outside the Nigerian nation, and
having no place of business within Nigeria, it is further required that name, and full postal
address of each such concerns be provided. Where a firm or an individual is carrying on a
business as a general agent for three or more such concerns, it is required that it he so stated,
including the countries of operation of such concerns.
After due registration, the Registrar usually will issue a certificate of registration.
Registration of business name firms, companies or individuals under the Act are usually
simplified when handled by lawyers.
Winding-Up of a Company
Winding-up refers to bringing to an end the activities of a company. CAMA Section 401
asserts that winding-up may be affected:
a) By court
b) Voluntarily
c) By Supervision of the Court: Section 408, provides grounds for winding—up by the
Federal high Court as follows:
a) By special resolution of the company
b) The company is unable to pay its debts
c) Membership is reduced below two
d) If in the opinion of the court it is just and equitable
e) For a public company if it is in default in delivering the Statutory Report to
the Commission or in holding statutory meetings.
In-Text Questions 2.3.1
▪ Define a corporation
▪ A corporation is an intangible reality: an artificial but legal “person” who in spite of
the twilight zone of semi-existence can be held responsible, for many of the same
things, for which a real person can.
67
3.2 Hybrid Forms of Business Organisations
There is hardly any business organization that is perfect when viewed from all angles.
Consequently crossbreeds and hybrids have emerged to take care of unequal circumstances.
These include
1. Franchise
2. Joint Venture
3. Cooperatives.
Franchise
One other way of entering into a business relationship is franchise. In the political milieu,
franchise refers to right to vote in a public election. However, in business, it refers to formal
permission or ‘right to sell a given company’s goods or services in a particular area. In law it
is a two-party legal agreement in which one party called the Franchisor provides the product,
service, trademarks and expertise in return for a consideration from the second party called
the Franchisee. The Franchisor is the originator or owner of the product while the Franchisee
merely markets the product of the Franchisor. The Franchisor is furnished with consideration
(pay) for the use of the product of his ingenuity by the assigned second party, the Franchisee.
Both parties generate their individual incomes from the product. In other words, Franchising
refers to a system of distribution in which semi-independent business owners (franchisees)
pay fees and royalties to a parent company (franchisor) in return for the right to become
identified with its trademark, to sell its products or services, and often to use its business
format and system.
Types of Franchise
There are three basic types of franchise, namely;
1. Trade name franchising
2. Product distribution franchising
3. Pure franchising
Trade Name Franchising
It refers to a franchisee purchasing the right to become affiliated with the franchisor’s trade
name/produce without necessarily distributing its products exclusively. On the other hand,
product distribution franchising involves granting a franchisee a license to sell products or
services of the franchise (the parent company) under the franchisor’s brand name through a
68
specific limited distribution network. The franchise thus lives on commission. Gasoline
service stations and automobile dealers are major examples of this system in Nigeria.
Pure franchising involves the franchisor selling to the franchisee complete business format.
It is also called comprehensive or business format franchising. By implication the franchise
or makes available to the franchisee the complete business format, including a license for a
trade name, product and services to be sold, the physical plant the methods of operation, a
strategic plan, quality control process, a two way communication system and the necessary
business services.
Thus, the franchisee buys the right to use all the elements of a fully integrated business
operation. This is fast food common in fast food restaurants, hotels, business service
companies and the like. Typical examples include Presidential Hotel, Mr. Biggs, the
Kingswav among others
The trade and product franchising forms are the traditional (oldest) and the most
conventional types of franchise. The system format (pure) franchising is re1atively new and
is often referred to as non-traditional franchising method. However, the most recent, and
which is still a subject of debate as whether it is really a type of franchising is collective type.
Collective - Type Franchise
This is the most recent classification of franchising. Some find it difficult to accord it a
separate classification, but recent events give room for this. Collective - type franchise
consists of a group of small business owners/managers who form a cooperative group to be
able to make a bulk purchase on behalf of their members, thus obtaining better bargaining
ability as well as volume discount.
Selection of a Franchise
A potential franchisee about to enter into franchise relationship is advised to consider the
following factors:
1. Soundness of the business concept
2. Objective and life style
3. Time span of the opportunity
4. Proven track record and support system including financial, training and development
support as well as local and national business environment.
69
For a franchisee to undertake a franchise relationship, he must be certain of the soundness of
the business concept. This he will do by assessing the market acceptance of the product
through detailed market research cum analysis of the Franchise prospectus.
The franchisee has also to do self-keeping in mind his life. This includes an appraisal of his
weaknesses and strengths.
Time span of the opportunity has to be taken into cognizance. This is to ensure that the
opportunity does not fade with a short life cycle. The life span of the opportunity will, to a
great extent, determine the content and the handling of the franchise relationship.
The assessment of the financial statement provided by the franchisor as well as information
gathered from other franchisees and franchise organization is required. The positive and
negative aspects of the specific franchise need to be studied, including the general and
specific business environments as they effect the franchise outing.
The checklist for buying a franchise according to Ellis and Bakr (1990:121 – 3) is as shown
in figure
Table 2.1: Checklist for Buying a Franchise
S/N Process Critical Issues Basis and Sources of
Judgment
1. Business Concept Windows of opportunity. niches,
unique appeal of the product or
service and time span (life cycle)
Market research the franchise
prospectus. Trade for
2. Objective Life style. Expected rate of
return, strength and weakness
(self assessment)
Self-assessment
3. Franchise Support
System
Training and financial support,
local and national promotion
campaign, standard management
policies and accounting system.
Visits to different outlets
employees working in
Franchised outlets. other
franchisees, the franchisors
prospectus.
4.
Proven Track Record Rate of return, product quality
and appeal, market provision and
share, innovation
Financial statement provided
by the Franchisor. Franchising
associations and other
franchisees.
70
S/N To the Franchisor Advantages S/N To the Franchisee Disadvantages
1. Ability to expand and grow in short
span of time with minimal resources.
Little capital investment and human
resources are required.
1 The support system offered by franchisor
including financial training, marketing
selection of locating, design of layout.
National promotion and general guidance in
management,
2. Shared cost. cost items transferred
shared franchisees.
2 The proven and tested business concept
product or service is a built in protection to
many budding enterprises against the risk
involved in the start-up phase
3. assurance of consumer acceptance in
different locations and regions.
Having franchise a local is an
3. Economics of scale as a result of bulk
purchases and thus volume discount.
4. Ability to maintain control. The
franchise agreement allows the
Franchisor to exercise control over
certain critical aspects of the business
such as quality control.
4. A massive national or local campaign is
provided by the Franchisor.
5. 5. Ability to start with limited skills and
experience compared with independent
business. The Franchisee gats free advice on
the different aspects of the business on the
day to day operations.
Table 2.2 Disadvantages
S/N To the Franchisor S/N To the Franchisee
1. Difficulties in maintaining control over
large number of Franchisees in different
locations
1 ,Partial loss of independence, a trait
many entrepreneurs value.
2. Risk of losing image and credibility as a
result of poor selection of franchisees.
2 Contractual obligations may restrict
the franchisee’s freedom. For
example; royalty clause; profit
sharing plan, restriction on
expansion and/or buying back
provisions
71
3.3 Cooperative Societies (COOP)
The industrial revolution and the factory system of production in Europe paved the way for
social reformers to introduce different theories about how the society should be managed.
The Qwenities led the crusade between 1800 and 1820. Their interest was on equality of
welfare and quality of life. They proposed the establishment of co-operative societies as
means of pooling resources together in order to have synergistic effect. They thus started a
cooperative movement. However in 1844 the first cooperative society emerged in Rockdale
called Equitable Society of Rockdale Pioneers, but in 1937 the Gbedun Cooperative Cocoa
sale Society came on board as the first formal registered cooperative society. 1844 Charles
Howarth draw the Rockdale cooperative society principles
Rockdale Principles
1. Voluntary and Open membership
2. Democratic control
3. Limited interest on share capital
4. Patronage Rebate
5. Political and Religious Neutrality
6. Cooperation among co-operatives
7. Continuous education of members
8. Cash sales basis only
9. Sale of unadulterated goods
(Udu and Okafor 2012: 66-69)
Cooperative Society defined as voluntary socio-economic association of persons, often with
limited resources to achieve an equitable commercial goal through establishment of
democratized joint business partnership for its membership.
Cooperative Societies in Nigeria are generally self-help organizations, created for the main
purpose of assisting consumers and producers, who in most cases are their members. They
also organize thrift or credit facilities for its membership. It is common in Agriculture and
Consumer products distribution; they are commonly found in rural areas. Typical examples
of co-operative societies are the consumer co-operative societies in Item, Bende Local
Government Area of Abia State Nigeria, University of Nigeria Enugu Campus Cooperative
Society and the likes.
72
Advantages
1. Members have a sense of duty and loyalty to it.
2. The products are cheap due to absence of middlemen.
3. Co-operatives have easy access to loans.
4. They enjoy economy of scale
5. Decision making is democratized
Disadvantages
1. Often managed by inexperienced and nonprofessional people.
2. It is often short lived.
3. Enforcement of order is often difficult
4. Possession of inadequate capital
5. Their fund is often used for political activities
6. Members are often compelled. to buy from the cooperative
7. There would be fraudulent attachment among the leadership. .
Joint Venture
This is a hybrid or special temporary partnership arrangement of business firms for the
purpose of synergy in a common area of business interest. Joint ventures are formed to take
advantage of a business opportunity that under normal circumstances may be difficult for an
individual firm to go alone. Aliens often go into joint venture with host nationals. Economy
of scale and common pool of resources are among their principal advantages. They are
temporary and often without long term plans. They live in the short run, sharing short run
profits/losses.
3.4 Unit Summary
In Unit 2.2, you should have learnt that
2.3.1 There are different types of business ownership
2.3.2 Some forms of business organizations are termed hybrid
2.3.3 Cooperative societies are means of pooling resources together to make profit
3.5 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 2.3; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 2.3.1 (Tests Learning Outcome 2.3.1)
73
What factors influence the choice of form of business ownership?
SAQ 2.3.2 (Tests Learning Outcome 2.3.2)
List and explain six major contents of a typical partnership agreement
SAQ 2.3.3 (Tests Learning Outcome 2.3.3)
Differentiate between statutory corporations registered companies
SAQ 2.3.4 (Tests Learning Outcome 2.3.4)
How can youbring to an end the activities of a company?
SAQ 2.3.5 (Tests Learning Outcome 2.3.5)
Explain the concept of joint venture
SAQ 2.3.6 (Tests Learning Outcome 2.3.6)
Do a check-list for bringing a franchise.
References and further studies
Callaghan P. (ed) (1994) Business Advanced Level, 2nd ed, Great Britain, Bath Press.
https://www.allbusiness.com/forms-of-business-ownership-674-1.html
https://www.boundless.com/business/textbooks/boundless-business-textbook/small-business-
and-entrepreneurship-7/starting-a-small-business-58/types-of-ownership-280-7209/
.
74
Module 3: Business Plan, Raising Capital, and Causes of Business
Failure
Module Overview
Embarking on any business activity involves commitment of resources which entails an
element of risk. Consequently, it is important that one accurately assesses this risk before
committing one’s resources. This will largely help the prediction of the potential issues that
can guarantee successes even those that can pose challenges.
In order to be well-equipped after one has decided on the form of entrepreneurship to start;
there is the need to prepare a suitable business plan. This module throws light on this issue by
discussing some sub-topics like:
Study Unit 1: Business Plan
Study Unit 2: Raising Capital for New Business Venture
Study Unit 3: Causes and Symptoms of Business Failure
75
Study Unit 1: Business Plan
Expected Duration: 3 Hours
Introduction
Entrepreneurship outfit cannot exist in nothingness; there must be an environment that is
inherent with so many variables that position challenges to the entrepreneur. This unit 3.1
examines business plan by delving into the followings:
1. Meaning of Business Plan
2. Writing of Business Plan
3. Types of Production Plan
4. Causes of Business Plan Failure
Learning Outcomes of Unit 1
When you have studied this unit, you should be able to:
1.1 Know why business plan is important
1.2 Understand how to write business plan
1.3 Explain types of production plan
1.4 Know why some business plan fail
1.1 Meaning of Business Plan
A business plan is generally done after feasibility and visibility studies have shown that the
business adventure in view is feasible and viable. The building of air castle before the ground
castle in business is akin to making a business plan. To many business men, it is an
anathema and amounts to sheer waste of time but to strategic entrepreneurs, it is a pre-
requisite for business success.
Precisely Speaking, a business plan is a written document prepared by an entrepreneur that
describes all the relevant internal and external variables involved in starting a new business
venture or continuing with an existing one. It is often an integration of all functional business
plans such as the marketing, finance, production and human resources plans. In the short
76
term, it may cover three years of operations or less. The plan could be referred to as the game
plan or road map. It addresses such questions as –
Where are we?
Where are we going to?
How will we get there?
It generally depicts the network of movements or travel plans for a business in motion or one
that is about to set sail.
Importance of Business Plan
A business plan is of great importance to the entrepreneurs, potential investors and
financiers. These classes of people may wish to familiarize themselves with the venture, its
goals and its objectives for various reasons. The business plan is important in many ways.
These include:
1. It provides guidance to the entrepreneur in organizing their planning activities.
2. It helps determine the viability/feasibility of a given venture in a designated
market(s).
3. It serves as a major instrument for identification of sources of finance and soliciting
for financial aids from financiers.
4. It helps in the establishment of accurate controls in the operations of the business.
5. It brings to the fore the weaknesses and the strengths of the venture within the
industry through a realistic self-assessment.
6. It provides the entrepreneur with a tool for assessing the window(s) of opportunity
and their economic feasibility and viability.
7. It provides the entrepreneur with the vehicle for analysis/assessment of the venture’s
opportunities in view of its capacity.
Characteristics of a Business Plan
Business plan that is worthy of acceptance as guide to the entrepreneur, investors, and
financial institutions should possess the following simple but important characteristics:
1. It should be concise, simple and clear: Given that you will not be there all the time to
explain the details to the readers, some of whom may be far away from you, you need to
77
make the plan understandable to any person reading it for the first time. It must sound
convincing. Any plan that does not convey the necessary information to the desired audience
(target) cannot be said to have communicated and consequently does not worth its salt.
2. It should be accurate and supported with the necessary and convincing data and
figures: The investors and financiers think in terms of money. They want to know what you
will spend. What you will earn and what profit you will be making. Your underestimation or
miscalculation of your potential sales or degree of competition is likely to make your
predictions fallible. Your prediction for need of’ cash or competitors’ role and even earnings
may be e1Toneou. Always underestimate your likely earnings for sales rarely work out in the
real market economy as optimistically as they initially appear on paper. However, always
assume the worst when it comes to your expenses - for the unexpected drain on your finances
is capable of pushing you out of the business. Conservation is the rule in prediction of profits.
It is far better to return to your financiers later with an explanation that you may not need all
the money you initially requested than to run to them asking for more because of your
misjudgment. Surfacing huge profit margin does not necessarily make a business plan
acceptable to banks.
3. The plan should be realistic and truthful (RT): Financiers at some time in their
careers would have been presented with business plans that are simple; profitable but not
feasible. An inexperienced entrepreneur in Nigeria in the financial market who predicts that
his business is going to compete with First Bank Nigeria Plc. or Union Bank Nigeria Plc.
within months will be regarded as time wasting crank that has no good business plan or one
that contains blatant lies. It is good that you establish a relationship with your financiers that
are open, honest and based on mutual trust. A business based on lies, half-truths or
exaggerations has its foundations on sand.
Activity 3.1.1: Business Plan
Imagine what you will tell a lay person who approached you and asked whether he
needs a business plan to start his small and ordinary business. Record it in your
study diary.
78
1.2: Writing of Business Plan
The length of time taken to develop a business plan is usually about three weeks depending
on the experience and expertise of the entrepreneur. However, the nature of this investment
or proposed business, or use of the plan will to a very great extent influence the time required
to do a good business plan. A good business plan needs to be comprehensive enough as to
give a potential investor a complete picture and understanding of the proposed business. It of
course, will enable the entrepreneur to put in writing his thinking and views about the
business. After all, planning is more of an art writing than just a thought.
The contents of a business plan are discusses below:
1. The Introductory Page
This refers to the title or cover page. It provides a brief summary of the plan. It sets out the
basic concept that the planner intends to develop. It brings to the fore the amount of
investment contemplated by the budding entrepreneur.
Sample of the Introductory Page
JCK ENTERPRISES
A Division of Emkavision Nigeria PLC
34 Umuchima Road Okigwe
Imo State Nigeria
0803534000
Co- Owners: COK Agbaeze, JCK Agbaeze, SAK Agbaeze and KOK Agbaeze
Description of Business
The business will provide cleaning services on contract basis to medium and large scale
governmental or non-governmental establishments. The services among others include
regular sweeping, dusting, washing, cleaning of floors, carpets, draperies, and windows.
Contracts will be a minimum of one year and will specify the specific services and
scheduling for completion of services.
Financing
The takeoff capital will be N2, 500,000.00 loan to be paid off within 6 years excluding the
first year. This amount will cover the office space, office equipment and supplies, two office
79
vehicles, advertising, salaries and other logistics. This report is the property of the co-owner
of Emka vision listed above. It is confidential. Any reproduction or divulgence of any of its
contents without the prior written consent of the said Emeka vision is prohibited.
2. The Executive Summary
It is a short sleeve view of the total business plan (long sleeve). It is usually, about three to
four pages. It serves as a stimulant to the potential investor. It highlights in a precise, concise
and persuasive manner the key points of the business plan. It includes the nature of the
business, capital requirements, market potentialities, and other necessary logistics. It is the
degree of conviction exhibited by the executive summary that will determine if the entire
plan is worth reading at all.
3. Industry Analysis
The entrepreneur while evaluating his envisaged establishment on a number of performance
indexes also needs an analysis of the industry. This will give him an overview of the industry
he is going to do business in, including the historical analysis of the industry and a forecast of
the likely future trend. He should know the customer, his competitors, the various segments
of the market and the specific segment he intends to target.
Critical issues to consider in the analysis include the under- listed.
1. The total industry sales over the past five years.
2. The anticipated growth in the industry
3. Number of new firms that have joined the industry within the last three years.
4. New products that have recently been introduced in the industry.
5. The leading and recent competitors.
6. How will the proposed business operation be better than the leading or recent
competitors?
7. What is the status of the sales value of the major competitor, steady, growing or
declining?
8. The weaknesses and strengths of the competitors.
9. The profile of the customers
80
10. How does the customer(s) profile differ from that of the competitor(s).
4 Description of Venture
This provides a comprehensive overview of the goods, services and operations of the
venture. The size and scope could be ascertained from this holistic picture including the
location. To a great extent, the success of a business could be dependent on its location. This
is particularly important for a retail or service business. In the choice of location the
entrepreneur must take into account factors like parking, access from roadways to the
facility, access to customers, suppliers, distributors, delivery rates, the economic
demographic profile of the area, labour pool, sewage, pool, sewage, electricity, plumbing,
water and the town planning authorities regulations. Consider the location of the First Bank
Nigeria Plc. Enugu Main. Okpara Avenue, Firs Bank Plc Okigwe, the Genesis Restaurant,
Enugu or the ACB on Okpara Avenue Enugu. Basic issues to be addressed venture
description are as contained below.
Describing the Venture
1. What products and/or services does the business offer to the market?
2. Description of the products/services - patent, copyright, trademark status and the like.
3. State the location and site of the business.
4. State whether the building is old or new. If renovation is needed, what is the
estimated cost?
5. Is the building owned or leased (if leased what are the terms)?
6. Why is this building, site and location right for this business?
7. What skills or personnel including additions will be needed to run the business
effectively?
8. What office equipment will be needed, what is the estimated cost, and how will it be
procured?
10. What is the entrepreneur’s business background?
11. What is the entrepreneurs’ business management experience? What other experiences
does the entrepreneur possess?
81
12. What are the entrepreneurs’ personal data - education, age, special abilities and
interests?
13. The entrepreneurs’ reasons for going into business.
14. What is the degree of readiness of the business in specific terms? What development
work has been completed as at date?
The venture description gives a microscopic view of the intended business venture as a
whole. All the above critical questions are answered here.
1.3: Types of Production Plan
Production or Merchandising Plan
If the intended outfit is a manufacturing business, this section will be entitled production plan
and describe the entire manufacturing process. Where an aspect of the process is to be
contracted, this should be stated including the names and locations of such contractors, why
such contractors were selected, the contract fees and the contracts that have been completed.
if any. The production plan should prescribe the physical plant layout, the machinery, the
equipment, the raw materials, suppliers’ names and location; ‘tariffs and future capital
equipment requirements. To intending investors this picture enables them to come to terms
with the financial needs of the budding, venture.
However, for retail or service business this is titled Merchandising Plan. The
merchandising plan describes the process of procurement of the merchandise, the stock or
inventory, control system, and the storage needs of the business. In brief the production or
merchandising plan addresses the issues raised below.
1. Will the entrepreneur be responsible for all or part of the manufacturing
operations?
2. Where some manufacturing is to be sub-contracted, what are the names and
specific addresses of such sub-contractor.
3. The rationale for the selection of the sub-contractors.
4. The cost of the sub-contracted manufacturing (include documented evidence of
the contracts).
5. Show the layout of the production process step by step.
82
6. Immediate equipment requirements for the manufacturing.
7. Raw materials requirements for the manufacturing.
8. The suppliers of the raw materials and their costs.
9. The cost of manufacturing the products.
10. The estimate of future capital requirements of the venture.
Retail or Service Business
1. Source of procurement of the merchandise.
2. The stock or inventory management system.
3. Possible storage needs of the venture and promotion means.
The production plan gives a sequential picture of the transformation of the input into output.
It is a central function of the venture.
Marketing Plan
Marketing is the process of planning and executing the conception, pricing, promotion and
distribution of ideas, goods, and services to create exchanges that satisfy individuals and
organizational objectives (Schoel and Guiltinam, 1992:7). However, the creation of the
customer satisfaction or utility has to be at a reasonable profit, if not immediately, later. The
marketing plan is an important aspect of the business plan. It brings to the fore, the marketing
condition and strategies for distribution, pricing and promotion of the goods and services, of
the entrepreneur. The marketing plan is considered vital to potential investors because it
shows in clear terms the goals of the venture and how (strategies) the firm intends to achieve
the said goals. It is an annual event with careful scanning of monthly and weekly changes in
the business environment to ensure conformity with pre-determined plans. It is a road map to
short term decision making in consummation of exchange and the related functions.
The market plan attempts to answer the under listed ten questions.
1. Who are the firm’s customers, their location, their buying abilities, whom they
patronize and their rationale?
2. The promotional and advertising strategies of the firm and its effectiveness?
3. Price changes in the market, the initiators and their reasons?
83
4. Attitudes of the market towards competitive products.
5. The distribution channels and. their functionality?
6. Who are the firms competitors, their locations ca address, what are their strengths and
weaknesses
7. What marketing techniques are used by the least and the most successful competitors
in the market.
8. What is the mission cum objectives of the firm? What are their philosophical
dispositions (vision statement)?
9. What are the company’s strengths and weaknesses?
10. What are the firm’s production capacities by products.
In summary, the marketing plan is an action-packed: strategy for using an organizational
resource to meet the marketing objectives of the firm with due recognition of the
entrepreneur’s strengths weaknesses opportunities and threats in the business environment.
Its concentration is on effective consummation of exchange that puts the firm at a viable and
feasible strategic advantage.
Organizational Plan
The Organization plan is an integral aspect of the business plan that describes the ownership
structure of the business. It pinpoints the form of the business ownership. (Sole, partnership
or corporation), 1ine of authority, and responsibilities of members of the new venture.
It also shows the ratio of or proportion of ownership of the business among the co-
entrepreneurs. The organizational structure or chart is also made manifest at this point. It
gives an investor the understanding of who controls the business and how he relates with
other members of the establishment. The key issues raised in the organization plan are as
shown below.
Organization Plan/Structure: Key Questions.
1. What is the form of business ownership: - sole, partnership or corporation?
2. If partnership who are the partners and the content of the partnership deed? .
3. If incorporated —
(a) Who are the major shareholders and how much shares do they have?
b) What type and how many stock of voting and non-voting have been issued?
c) Who are the directors?
84
4. Who has cheque -signing authority and control?
5. What is the background of each of the members in the management team, and what
are the roles and responsibilities of each of them. .
6. What are the salaries, bonus and other forms of payment if any for each member of
the management team?
The Financial Plan
The Financial Plan is the monetary (naira) expression of the entrepreneur’s operational plans.
In other words, it ties together all the other previous plans by translating them (production,
marketing, and organizational plans) into monetary terms. It provides a. common
denominator for all the similar and dissimilar parts of the venture. This simplifies
communication and assessment of worth. It is financial projection that enables thee
entrepreneur to determine the economic viability and feasibility of the envisioned
establishment.
You should clearly note that a typical business plan should be made up of four statements
which are:
1. Budget
2. Income statement
3. The balance sheet
4. Profitability (Break-even chart,).
The Cash Budget
The cash budget is the most important of the four statements. This is because it accomplishes
two things, namely:
• It brings to the fore before the entrepreneur how much money he needs before he
can start business.
• It tells the entrepreneur how much money he needs after he had started business.
In-Text Questions 3.1.1
▪ What is the major aim of marketing plan?
▪ It brings to the fore, the marketing condition and strategies for distribution, pricing
and promotion of the goods and services, of the entrepreneur.
85
The cash budget in effect enables the management to make sure that the money will be there
when the time comes to pay bills to avoid problems. It also acts as a signal enabling the
entrepreneur to pinpoint future cash shortages and surpluses. A shortage ‘signals a need to
raise money; otherwise production and marketing plans may, have to be adjusted. Further,
the cash budget as a financial tool helps management of the venture stay on the money track
and gives investors and creditors precise answers to strategic questions like:
1. How much money does the entrepreneur need to carry out the business?
2. When is it needed?
3. How will it be spent?
4. How soon can it be repaid?
Pro Forma Balance Sheet
This is required only if corporations; however, it may be considered necessary for other
forms of business ownership for the purposes of establishing credit with suppliers and
obtaining outside financing from banks and other lending institutions. A proforma balance
sheet reflects the position (envisaged) of the business at the end of the first year.
The pro forma balance sheet summarizes the projected financial position of the business in
terms of assets, liabilities and net worth as at a specific date. To have a convincing projected
balance sheet. Proforma income and cash flow statements will be required to help justify
some of the figures. Exhibit 5.1 is a hypothetical balance sheet of EMKA VISION NIGERL4
PLC.
The proforma balance sheet depicts the hypothetical condition of the Emeka vision business
venture at the end of the first year of operation. It summarizes the anticipated assets,
liabilities and net worth of the envisaged venture. !h the balance sheet, the asset represents he
items owed or available to be used in the business operations. On the other hand, the liability
represents the money that is owed to the business creditors.
86
Exhibit 3.1.1
EMKAVISION CORNER STORES NIGERIA PLC PRO FORMA BALANCE SHEET AS AT THE END OF
THE FIRST YEAR
Assets
Current Assts N N
Cash 40,400
Accounts receivable 45,000
Goods inventory 10,450
Sup1ies 1,200
Total Current Assets 97,050.00
Fixed asses
Equipment 250,000
Less Depreciation 549,600 00,400.00
N297,450.00
Liabilities and Owner’s Equity
Current Liabilities
Accounts Payable 20,700.00
Current Portion of Long-Term Debt 15,800.00
Total Current Liabilities 36,500.00
Long - Term Liabilities
Notes Payable 211,200.00
Total Liabilities 247,760.00
Owner’s Equity
Comfort OjiugoChizurum 15,000
ChinweotitoAloy 13,000
Johnson OnyenucheyaChima 13,000
Retained Earnings 8,750
Total Owners’ Equity 49,750.00
Total Liabilities and Owners’ Equity 97,450.00
Further, the owners’ equity refers to the amount, owners have invested in the business (it
includes their retained earnings).
The proforma income statement mentioned in the financial plan refers to the business’
projected net profit derived from the projected revenues less projected cost of operations and
expenses. Before the firm is able to make profit, it must at first instance be able to break-
87
even. The breakeven point is the point where the business neither makes profit nor sustains
any losses.
Quantitatively speaking breakeven quantity is expressed as
BF(p) = TFC
SP-VC per unit (Marginal Contribution)
Once SP > VC per unit, some contribution is being made. The contribution, at a point will be sufficient to off-
set the cost of the fixed costs. Thus the firm will breakeven.
FORMULA FOR BREAK - EVEN ANALYSIS
BE = TR = TC
TR = SP x Q
TC = TFC+TVC
SP x Q = TFC+TVC.
TVC = VC per Unit x Quantity
This SP x Q = TFC + VC per unit TFC x Q
(SP x Q) - (VC per unit x Q) = Q(SP - VC per unit) = TFC
Q = TFC
SP - C per unit
Note:
BE = Breakeven
TR = Total Revenue
TC = Total Cost
Q = Quantity
SP = Selling Price
TFC = Total Fixed Cost
TVC = Total variable cost
The proforma cash flow refers to projected cash available derived from projected cash
accumulations minus projected cash disbursements while the pro-forma sources and
application of funds summarize all the projected sources of funds available to the venture and
88
how these funds will be disbursed. The sources and .application of fund: aid the entrepreneur
in understanding how the net income for the year was disposed of and the consequences on
the movement cash through the business. It shows the interrelationship between the assets,
liabilities, and stockholders’ equity to the working capital.
1.4 Causes of Failure of Some Business Plan
Planning is a continuous process. No plan is ever perfect. Plans need to be up-dated as
circumstances change. This is specifically so when we realize that the business environment
is dynamic. The measuring of the progress being made of implementing some plans is made
cumbersome by inadequacy of the plans. Plans fail due to one or combination of the reasons
listed below.
Some entrepreneurs rush into business without establishing a need gap (customer need) they
intend to close. Consequently, the product or service produced by the entrepreneur may not
be properly articulated or tailored toward a specific need of the customers.
Goals set by some planned actions are not specific or measurable. How then do you access its
suitability or otherwise including the degree of accomplishment?
Some goals set by the plan may be measurable but unreasonable. When goals are
unreasonable, their accomplishment is made difficult either because the implementers not
believe in them or they are viewed as unachievable or non-consequential. This feeling works
hardship on the morale of the workers.
Often the entrepreneur may have no insight into the threats available in his business segment.
Consequently, such threats may have been swept under carpet during the planning stage. The
entrepreneur finds himself unprepared and cannot wish it away, when the threats emerge.
Some entrepreneurs get into business they have no experience of, when technical issues arise
in such a business, the entrepreneurs find themselves failing like packs of cards.
Some of the entrepreneurs are elephants on paper, lacking total commitment with their family
in the realization of the declared plan objectives of their businesses. This often leads to delay
in analysis of situations, and lateness in decision making. Even when often made, the
decisions are made without all the facts being available to such decision makers.
89
1.5 Unit Summary
In Unit 3.1, you should have learnt that
3.1.1 Business plan is important in starting a business
3.1.2 The skill of writing business plan shapes business
3.1.3 There are many types of business plans
3.1.4 Business plan can fail
1.6 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 3.1; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 3.1.1 (Tests Learning Outcome 3.1.1)
Why do say that business plan is important to a potential entrepreneur?
SAQ 3.1.2 (Tests Learning Outcome 3.1.2)
What are the factors that influence writing business plan?
SAQ 3.1.3 (Tests Learning Outcome 3.1.3)
What are the reasons why business plan fail?
SAQ 3.1.4 (Tests Learning Outcome 3.1.4)
What are the basic issues to be addressed on venture description?
SAQ 2.1.5 (Tests Learning Outcome 3.1.5)
Explain the following terms: Cash Budget, Break Even Point,
SAQ 3.1.6 (Tests Learning Outcome 3.1.6)
Analysis of the industry may not be relevant to an entrepreneur. Why?
SAQ 3.1.7 (Tests Learning Outcome 3.1.7)
Attempt a development of an introductory page or any business of your choice.
SAQ 3.1.8 (Tests Learning Outcome 3.1.8)
Why do you consider development of a business plan necessary before commencement of a
business?
90
References and Further studies
Zimmerer ‘LW and Scarborough N.M. (2005), Essentials of
Entrepreneurship and Small Business Management (4th ed), New Jersey, Pearson Education
International.
Hisich R.D. and Pofers M.P (1998): Entrepreneurs (Fourth Edition) Boston,
Irwin, McGraw Hill.
https://www.entrepreneur.com/article/247574
https://en.wikipedia.org/wiki/Business_plan
91
Study Unit 2: Raising Capital for New Business Venture
Expected Duration: 3 Hours
Introduction
Any new business requires capital for its take-off. Capital refers to any form of wealth
employed to produce more wealth. In this unit, you will be exposed to the following topics:
1. Types of Capital Required by the Entrepreneur
2. Sources of Fund available to existing and emerging Entrepreneurs
Learning Outcomes of Unit 2
When you have studied this unit, you should be able to:
2.1 Understand Types of Capital Required by the Entrepreneur
2.2 Know sources of fund available to emerging entrepreneur
2.1: Types of Capital Required by the Entrepreneur
To a layman, capital is the money required to establish or run a business. How true do you
think this is? Technically, capital can be seen as all man-made productive wealth or
resources. The entrepreneur needs not just capital but enough of it to stay afloat in business.
Three basic different kinds of capital are desired by the entrepreneur.
1. Fixed Capital refers to capital used in procurement of assets of permanent nature or
fixed assets. They include assets like land, buildings, computers, equipment, and the
likes.
2. Working Capital refers to liquid and semi-liquid assets of the company. It is the
firm’s temporary funds that support short-term operations.
3. Growth Capital refers to funds required for financing of growth cum-expansion of
the business.
Other types of capital are:
EquityCapital is also called risk capital. It is the personal investment of the entrepreneur in
a business. The investors assume the primary risk of losing this capital should the business
hit the rock. This explains why it is often called risk capital.
92
DebtCapital refers to financing that the business owner(s) borrowed from outside. In most
cases it is repayable with interest. How do investors cope with these in the beginning of their
venture?
The beginnings of most things are usually difficult. The take-off of a new business requires
various kinds of resources. When good business ideas are originated, the dreams and ideas
may never see the light of the day, unless backed by effective financial support business will
to work the talk into reality. This is why it is advisable for a would-be entrepreneur to
understand.
1. How to estimate his financial requirement
2. How to raise the required fund and
3. How to service the debts if acquired.
After the determination of the financial requirement of’ the business, the entrepreneur
suddenly finds that it is frustrating to raise the required capital. This problem often stems
from the fact that most operators of new businesses are neither experienced nor sufficiently
educated. This is disheartening, in particular, when one realizes that small-scale industries
occupy a large and significant portion of the Nigerian economy. In fact “in the developing
economies they occupy about 85% (eight five percent) of the total number of enterprises’
(Okpara in Qnuoha, 1998:190). Further the shortage of financial resources in such economies
is caused by low level of personal income which further endangers the savings capacity.
2.2 Sources of Fund available to emerging Entrepreneur
In spite of evident large number of small scale businesses in Nigeria coupled with the
industry’s expected crucial role in grassroots mobilization, development even the existence
of many special credit schemes in the country; the emerging business firms hardly have
access to formal credit facilities. However, in these circumstances, they resort to informal
fund raising based on goodwill. The basic sources of fund available to emerging
entrepreneurs in the Nigerian business environment include the under-listed:
93
1. Personal Funds-Saved or Inherited
An apprentice about to begin a business is likely to secure financial assistance by getting
financial aid (being settled) as the case may be from the entrepreneur (often called master)
who trained him. In addition to his personal savings, inherited funds or proceeds from sale of
inherited property such as land, houses, household property and other estate may constitute
his takeoff capital. This personal fund when raised forms the sub-structure upon which any
other financial sources may rest.
You also be aware that due to the uncertainty and risky nature of the business world, other
investors or creditors will always be interested in the amount of personal investment of the
entrepreneur before the final decision to invest on the new business or not. This is
understandable because a rational investor will not want to invest or” trade on too thin an
equity.”
2. Loan from Relatives and Friends
To succeed in securing this form of loan, the entrepreneur must be able to convince his
relatives and friends that he is dynamic, has some relevant experience and is of good and
proper character. This explains the fact that many successful businessmen enter into business
orbit on sheer influence of their parents, relations and friends, who give them the initial
financial and moral boost. However, it will be necessary to ensure that the terms of such
financial assistance is properly defined and stated in clear terms in order to avoid
unnecessary, but avoidable misunderstanding in the future. The loans should be made in a
business-like manner, after-all it is for a business transaction.
However, if some or all of such money advanced to the emerging entrepreneur are mere
unconditional assistance, it ought to be so specified, including expected mode of
repayment/non-repayment of the sum advanced as a loan in the true sense of business
transactions.
Activity 3.2.1: Types of Capital Required by the Entrepreneur
Think about what happens when an operator of new businesses is an orphan and has
no relatives. Record it in your study diary.
94
3. Loan from Thrift Associations (ESUSU)
The thrift association is an informal financial market. It is often referred to as contribution or
pooling or rotating club. It is common among low-income group in the developing countries.
In Nigeria it is popularly known as “ESUSU”. In the thrift association, a certain number of
friends or colleagues, in the office, come together and agree on a specific sum of money to
contribute periodically (say monthly) over a specific period (say one year). For each period
(month) the money so contributed or pooled together or the lump sum, is advanced to a
member of the association. It will continue in that manner until every contributor to the pool
gets his own lump sum.
According to Okpara in Onuoha (1998:196), the ESUSU arrangement is helpful in business
finance as “it provides its members or contributors with a lump sum that could be employed
in their business.” Considering the fact that most of the contributors are usually friends or
workmates, it is easy for any one to obtain his/her collection well in advance of his or her
turn, in particular when he or she has an urgent need of fund for business or other pressing
commitments.
4. Trade Credit
In the words of Eze (1999:140) “business firms generally provide products or services to
each other on credit”; for instance with trade or business-to-business credit the merging
entrepreneur can have inventory for sale, sells the inventory before paying the supplier; with
this process the new business can go on in business without necessarily having all the capital
required for the smooth running of the firm. The firm could even pay in bits while selling the
stock already supplied. This however, forms to a great extent source of financing of small-
scale business..
5. Loans or Credit from Equipment Sellers
This is somehow elated to credit sales by business to business. It should be understood that
new business often needs fixed assets like machines, office equipment, delivery trucks, office
vehicles, furniture and fixtures. These require heavy initial capital outlays. According to
Uzoma (1991:85) “equipment sellers of this sort know such purchases are not done often,
consequently, purchases may attract generous credit terms from the sellers, a modest down-
95
payment and t1e balance spread over a period of one, two or three years” may be negotiated.
The only danger here is that too much of it may up-set the firm’s liquidity.
6. Plant and Equipment Leasing
Leasing of equipment and plants initially for the business operations of the company could be
encouraged provided they are not underutilized and their services sufficient enough to offset
their cost plus some returns, for the firm. Leasing of equipment does not tie down the capital
of the firm. It equally does not affect the borrowing power of the establishment. In addition,
it may not require any collateral.
7. Selling Shares
Many business men are of the opinion that incorporation are for the big firms only. This is
not necessarily true. An experienced entrepreneur can get his business even at the virgin
point incorporated as a limited liability firm and sells shares to outsiders in order to raise
bigger fund for his business operations. A lucky entrepreneur may also involve ‘angels in his
start-up business. Angels in this context refers to wealthy individuals, often entrepreneurs
themselves, who invest in business startups in exchange for equity stakes in the new venture,
or just as goodwill in making another entrepreneur.
8. Mortgage Loans
An emerging entrepreneur, who is fortunate to own/inherit a properly cited building, could
mortgage it for a good sum of money. The re-payment could be spread over several years.
This will give sufficient relief for the entrepreneur to build up fund from his business and
subsequently pay back the loan in small installments.
9. Loans from Commercial Banks
Commercial Banks lending are often limited to ‘working capitals of going-concerns.
However, in some special circumstances, the bank could grant new business credit facility to
finance new business ventures. According to Siropolis (1977:5) the condition for this
depends on the entrepreneur’s character and the amount he has already put into the business
96
as equity capital. This source of finance may not work well for virgin business set-ups. In any
case collateral is often required for this type of loans.
In the Nigerian setting there are at least five methods used by banks to extend credit facilities
to business. They are as listed below:
1. Loans
2. Overdrafts
3. Discounted Draft and Advances
4. Bank Guarantees
5. Letters of Credit
10. Taking in Partners
Emerging entrepreneur in difficulty to raise fund could invite one or two persons to join him
in the venture as partners, provided such invitees have sufficient money and/or experience, to
invest in the business. In this manner, the capital of the business could be enlarged. However,
the original entrepreneur may lose his monopolistic control over the
management/profits/losses of the firm. Depending on the circumstances, this could lead to
friction among the partners.
11. State Government Investment Corporation
According to Umoren (1987:18), “some state governments in the state have established
finance corporations to provide finance for agriculture, small and medium-scale industry and
housing”. The Abia State government established the vehicle loan scheme and poverty
alleviation scheme under Governor Orji ‘UzorKalu (many consider it a ‘mere paper tiger,
satisfying the interest of few politicians only) while the Imo State government established the
following credit schemes;
i. Fund& for small, scale industries - operated through the Imo State Ministry of
Commerce and industries.
ii. Special emergency loan schemes for small scale farmers.
iii. Development Finance and Investment Corporation (DFIC).
97
12. Federal Development Institutions
The Federal government has put in place some establishments to encourage the development
and. sustenance of economic and entrepreneurial development in the country. These
establishments have specified guidelines for the granting of loans to the emerging and
established entrepreneurs. These institutions and banks are as listed below:
1. The Federal Government operated entrepreneurial development programme (EDP)
2. Graduate self-employment guarantee scheme- established to encourage small-scale
business among unemployed graduates.
3. The Nigerian Industrial Development Bank (NIDB)
4. The Nigerian Bank for Commerce and Industry (NBCI)
5. The Nigerian Agricultural Co-operative Bank NACB)
These federal establishments could be of assistance to entrepreneurs in the area of, fund
raising and technical advice, depending on circumstance of the entrepreneur’s firm. It is
however, regrettable that some of them are mere paper tigers in the area of fund raising for
the emerging entrepreneurs.
13. Merchant Banks
These are specialized banking establishments that provide specialized services such as the
acceptance of bills of exchange, portfolio management, corporate finance, equipment leasing
and long/medium term lending. The merchant banks are wholesale bankers, accepting large
amount of money as deposits. In most cases, they have few branches.
14. Money Lenders
Moneylenders are individuals with surplus cash, who engage in professional money lending
the law frowns at the, money’ lending business cönsequent1y, they operate under conditions
of secrecy. The operators of this venture do so in familiar environments where they have
In-Text Questions 3.2.1
▪ Mention five methods used by banks to extend credit facilities to business.
▪ They are: Loans, Overdrafts, Discounted Draft and Advances, Bank
Guarantees, and Letters of Credit
98
good knowledge of the clients. The seeming advantage of this institution over commercial
banks is that there may not be many formalities in obtaining the loans (Namin, 1995:14).
However, the interest on such loans could be very high.
15. Hire Purchase
The Consumer Credit Act 1974 section 189 defines hire purchase as “an agreement, other
than a conditional sale agreement under which
a. goods are bailed or hired in return for periodical payments by the person to whom
they are bailed or hired and
b. the property in the goods will pass to that person if the terms of the agreement are,
complied with “(Borrie,1975:133).
Hire purchase arrangement could be a source of short, medium or long term loan depending
on the agreement and the nature of goods involved. The advantage is that it affords the bailey
the opportunity to take possession and keep utilizing the goods, on payment of small amount
‘of money pending when he will fulfill the stated conditions in the hire purchase agreement.
However, it could be an expensive means of obtaining financial ass4stance.
2.3 Unit Summary
In Unit 3.2, you should have learnt that:
2.1 Capital is required by the Entrepreneur to start a business outfit
2.2 a lot of sources of fund are available for emerging entrepreneur
2.4 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 3.2; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 3.2.1 (Tests Learning Outcome 3.2.1)
Differentiate between loan from thrift associations and loan from relatives and friends
SAQ 3.2.2 (Tests Learning Outcome 3.2.2)
How do you think that Plant and Equipment Leasing can affect entrepreneurship outfit?
SAQ 3.2.3 (Tests Learning Outcome 3.2.3)
Will you advice any entrepreneur to source found from money lender?
SAQ 3.2.4(Tests Learning Outcome 3.2.4)
What type of capital do you think an entrepreneur requires starting a business?
99
Study Unit 3: Causes and Symptoms of Business Failure
Expected Duration: 3 Hours
Introduction
A good number of entrepreneurs go into business with great zeal and ambition. However,
some of them suddenly fail. Business failure can be attributed to ineffective and inefficient
policies; even where there are good policies, they could be poorly implemented. This unit
throws light on why businesses fail with attention on the under listed topic:s
1. Causes of Business Failure
2. Symptoms of Business Failure
3. Averting Failure and Ensuring Success in Entrepreneurship: A Way Out
Learning Outcomes of Unit 3
When you have studied this unit, you should be able to:
3.1 Know the causes of business failure
3.2 Identify the symptoms of business failure
3.3 Know how to prevent failure and ensure success in entrepreneurship
3.4 Know the causes of Business Failure
3.2 Causes of Business Failure
In Nigeria, the emerging entrepreneurs’ major problem lies in his management of his time,
material and human resources. In most Nigerian communities, there is usually high demand
for the entrepreneur’s (man) time by the community for communal services. How does the
entrepreneur, then, pay adequate attention to managerial functions, with due regard to
inventory control, customer/public demands/relations? In the view of Uzoma (199 1:33),
“the ostensible causes of failure such as inadequate sales, poor location, and excessive fixed
assets, are merely proofs of the venture owner’s or operator’s managerial inadequacy”.
However, there could be so many other reasons for failure; but the general reason for this is
“Lack of Managerial Expertise.”
Allsopp (1975:17) writing on the dynamics of success and failure in business identified
major causes of business failure as explained below:
100
Competition
An entrepreneur should be conscious of the fact that he is not alone in the business arena. He
may just be one of the many dealers of the same product or service in same market
environment. If he does not keep his eyes open with his ears on the ground, he may be
bought off or sold out of the business. In periods like this, intensive competition, aggressive
marketing aimed at customer satisfaction, however at a profit, obviously will help. Where
constant environmental scanning, coupled with the necessary house dressing is not regularly
done, the business could be heading for a fall through the activities of competitors.
Lack of or Inadequate Capital
Within the life cycle of a business, the business may have two periods of financial
difficulties. It could be at the starting point or somewhere along the life. If at the beginning,
it will be advised that the business should be allowed to start at a very low scale and
develop subsequently. However, reliance on external sources of fund with the necessary
securities would assist. If the ‘business has already been developed, it should be noted that
effective/efficient utilization of the available fund is relatively more important than the tc1
fund available to t1 firm. In effect good financial planning and control should be considered a
tool for success.
Site and Location
Site refers to the specific positioning of a business in a locality, while location refers to the
totality of the area where a business is sited. Research findings indicate that a business could
fail as a result of poor site even in a relatively good location. In effect, entrepreneurs are
advised to do environmental scanning of the available sites and locations before sitting their
business outlets, or else the business runs a risk of failure due to its position in a site and/or
location.
Premature Expansion
Business expansion is a good development, but when it is premature, it becomes negatively
oriented. It simply follows that capital will be invested in fixed assets without the
accompanying returns on such tied up investments. This could at best be described as ostrich
101
diplomacy. The fixed assets will be under-utilized; thus return on the total assets employed
will be minimal. This is capable of leading to business failure.
Inexperience
Experience simply refers to knowledge or skill acquired through the act of practice rather
than book reading Business, as an art and craft, requires a period of apprenticeship (practical
knowledge) before one could comfortably embark on it. The un-preparedness of an
entrepreneur to acquire this skill before launching into his business venture may lead to
business failure.
Lack of Connection
Business ventures do not exist in isolation; in fact no enterprise is an island unto itself.
Consequently, it follows that if a business is not properly related to its environment, it runs a
risk of failure, because in periods of crisis it will have no place to lean on for support.
Poor Management
Eze (1999:63) opines that lack of effective, competent and dedicated management could be a
major cause of entrepreneurial failure. He also asserts that the success or failure of any
business depends to a great extent how it is managed.
Poor Health
The entire management of a good number of small entrepreneurial ventures are often
anchored on one man (the owner manager). Such a man becomes the general manager, the
marketing, accounting, purchasing manager and the auditor. He is also the chief security
officer. All to himself, sickness or falling health situation of the “Jack of all trades” could
spell disaster for the business.
Changes in Government Policies
The Nigerian economy is made up of two sectors: the business and government sectors. Their
level of relationship is pervasive and covers a myriad of activities. In a brief manner, the
relationship could be said to be that of control and regulation, on one hand, and assistance on
the other hand. The control and regulation of government over business ventures are usually,
102
in the form of enactment of law and statutes. Government law could bring a business
enterprise to abrupt death depending on the circumstance.
There is the need for continuous monitoring of po1icies and intended decisions of
government by the private sector in order to remain operational within the framework of the
societal laws. For instance, consider the government take-over of schools in Nigeria before
the war or more recently, the liquidation of some commercial banks in Nigeria in the middle
1990s. The control and regulation of business by government are for good but it could spring
up dangerous signals to some firms. Figure 7.1 below demonstrates the relationship between
government and business.
The Act of God (Accidents)
Sheer accidents could lead to a business failure despite the enthusiasm and hard work
exhibited by the entrepreneur. For instance, the capsizing of a boat or ship and the like could
bring ‘an entrepreneurial dream to a halt.
Other Causes of Failure include:
i). Inadequate sales
ii). Heavy operating cost
iii). Inventory difficulties -
103
iv). Excessive fixed costs
v). Bad debts
vi). Payment of dividends whether earned or not.
vii). Ignorance concerning the market and
viii). Difficulty in providing for management succession In Nigeria, other factors may
include:
(ix). Mix up between personal and business earnings
(x). Excessive involvement in traditional and non-business related activities
(xi). The extended family relation’s syndrome.
Jones (1996: 11 – 12) lists out why some start-ups fail what could be done to save their lives
as listed below:
Primary Reasons why Business Fail
• Undercapitalization – spending more than actual earning.
• Poor leadership[/direction – Poor management/influence
• Shaky Business Plan – Poor blue print/guide
• Miscalculated market potential – Poor analysis and mismatch strategy
• Ineffective marketing – Ineffective/poor marketing mix (4Ps)
Primary Strategies for Survival
• Hard stand on debts – effective credit/debt management
• Work out alternative payment plans where you can – liquid/cash flow management
• Realistic expansion management
• Cut expenses across the board
• Be conservative and often consider the worse situation
• Keep a positive attitude
• Re-treat or de-invest when necessary
Activity 3.3.1: Types of Capital Required by the Entrepreneur
Think about what happens when an operator of new businesses has neither experiencenor
sufficiently educated. Record it in your study diary.
104
3.2 Symptoms of Business Failure
Okpara (2000:244) opines that there are basically two types of business failure: Financial and
economic fai1ure. He asserts that:
A business is said to have financial failure if it is suffering from technical insolvency. This
means that the business is unab1e to meet its current legitimate obligations as they fail due,
even though its total assets exceed its liabilities. Economic failure results from a situation
where total revenue does not cover total expenditure. Hazel and Reid (1977) identify four
symptoms of business failure, which should attract the attention of the entrepreneur in the
course of development of his business estate. These warning signals are as, follows:
1. Deteriorating working capital
2. Declining sales
3. Declining profits
4. Higher debt ratio
In the Nigerian context other dangerous signals include:
5. High turnover of labour hands/absenteeism.
6. Shortening of business hours, occasioned by incessant closure of the business
premises.
A good number of these signals may converge at a time; however, the message remains that
the water is being troubled. We will attempt to offer an explanation of the above symptoms
below for non-business related reasons.
Deteriorating Working Capital
Deterioration of an entrepreneurial working capital is evidenced by progressive fall in the
entrepreneurs operating capital. Working or operating capital in this context refers to
physical cash, stock, accounts receivable etc. Besides the deteriorating state of the working
capital, it is also dangerous to notice that the bulk of working capital is gradually becoming
less liquid, that is not easily convertible to cash.
105
Certain factors account for this dangerous state. They include:
1. Excessive investment in fixed assets from working capital
2. Payment of unearned salaries and dividends from working capital.
3. Losses occasioned by theft, fines, accidents etc.
4. Re-occurrence of operating losses.
5. Payment of long-term debt from working capital in excess of annual profits.
6. Unnecessary expenses from the working capital.
The above are serious signals of intended failure that must be watched closely.
Declining Sales
Declining sales is a serious business failure indicator. It will be recalled that operating costs
particularly overhead costs do not decline in proportion to sales. The overheads are fixed;
consequently declining sales wilt automatically lead to fall in profit margin or actual losses,
unless properly controlled.
However, once it is noticed, it is advisable for the entrepreneur to embark on the following in
order to brighten the situation.
1. Detailed environmental scanning cum marketing research aimed at improving sales.
2. Segmentation and targeting of profitable market segment/customers.
3. Aggressive advertising with focus on the target audience.
4. Reconsider your marketing mix....; develop new products; improve on your
packaging, pricing and distribution channels.
Declining Profits
The business environment is dynamic; consequently there could be series of changes from
time to time. Such changes include change in cost of production, taxes, theft, decline in sales,
loss of man hours occasioned by closure of business outlet, fines, penalty, change of taste,
loss of good customers and the like any of these factors could lead to decline in profit margin
or outright loss. Whenever this happens, may not be an indicator of failure, if the cause,
could be. traced and ratified immediately’ However, if it becomes consistent then it is a sure
sign of intending business failure. Some drastic measures have to be taken if the situation
106
must change. In managerial philosophy key ratios to be watched under such circumstances
include the following:
1. Net Profit to Net Sales = Net Profit before Taxes
Net Sales
2. Net Profit to Tangible Net Worth = Net Profit before Taxes
Net Worth
Once any of the above listed ratios falls below e accepted industry level for the
entrepreneur’s business within his locality, it is then clear that the business is about to fail,
except fresh blood is pumped into the system.
Higher Debt Ratio
Key ratios that indicate intending business failure include the under listed
1. Current Liability to Net Worth = Current Liabilities
Owners’ Equity
2. Debt to Net Worth = Total Liabilities
Net Worth
3. Fixed Assets to Net worth = . Fixed assets .
Owners’ Equity
4. Long Term Liability to Working Capital = Long Term Liabilities
Working Capital
The presence of high debt ratio is bad signal and the cause should be sought and ratified
immediately. However, if it becomes consistent, it is certainly an obvious sign of a business
about to fail. It should be understood that if current liabilities get out of hand and obligations
on outstanding bills and payments cannot be met, it points to leaning towards involuntary
bankruptcy. It could also be critical if the entrepreneur’s fixed, long-term liabilities get out of
hand.
107
Financial Ratios
The ratios and percentages are valuable assets to the entrepreneur in appraising the financial
performance of his enterprise. The ratios could guide the entrepreneur in answering certain
basic questions about his firm and consequently assist him in planning and correction of
anomaly or irregularities in his business operations. The ratios are related to the relevant
industry ratios for comparative analysis.
Questions that could be answered by the ratio analysis include whether you are making
adequate or reasonable returns on your investment? The ratio of net profit to net worth (also
called return on investment (ROT) is used for this evaluation. The term “Return on
Investment” (ROT) could be misleading. In reality it is Ret-urn on Equity (ROE). Besides
this, other ratios should be considered for the purposes of profit planning and general
decision-making. Other questions that could be answered with the aid of ratio, analysis
include the following:
1. How much does the entrepreneur make per naira sale? The answer could be sought
through the aid of the ratio of net profit lo net sales.
2. Does firm obtain enough sales from its producing assets? The ratio of net sales to
fixed assets offers a solution to this question.
3. Does the entrepreneur have enough sales for the amount invested? A net sale to net
worth ratio offers the explanation. -
4. Can the entrepreneur make good his current obligations? The ratio of current assets to
current liabilities answers this question, among others.
Many other questions could still be answered through the use of one ratio analysis or the
other. However, it is pertinent to state that the ratios are tools for analyzing the firm’s
conditions and operations.
108
Figure 7.2: Ratios used in Evaluating a Financial position
Source: Tate, Megginson, Scott and Trueblood (1978:385),
Successful Small Business Management, Dallas, Irwin-Dorsey Limited.
In-Text Questions 3.3.1
▪ What changes can occur in business environment? ▪ The changes include change in cost of production, taxes, theft, decline in sales, loss
of man hours occasioned by closure of business outlet, fines, penalty, change of taste, loss of good customers, etc.
109
3.3 Averting Failure and Ensuring Success in Entrepreneurship: A Way Out
It is one thing to have the entrepreneurial urge, and another to succeed in the art of
entrepreneurship. Even where one seems to have succeeded in the business, how does he
ensure that he does not fail. To do this he need to avert possible failure? ‘This is the focus of
this sub-section.
Eze (1999:78) paints a six level pyramid for entrepreneurial success; it is as shown in figure
7.2.
Source: Eze J.A. (1999: 78) Fundamentals of Small Business Management, Enugu, Glanic
Ventures.
The Eze pyramid above highlights the rudiments for ensuring success in the business
enterprise. In as much as it is a solid contribution to knowledge in the area of entrepreneurial
success, it appears that there remains a gap on how to sustain the success and thus avert
possible failure thereafter. To sustain success in business and avert possible failure, the
entrepreneur needs to continuously do six basic things. It is presupposed here that the
entrepreneur is already in business and consequently requires averting failure. In this case the
followings are prerequisites for continuous success.
110
1. Evaluate your financial position and operations regularly
2. Maintain adequate and accurate records.
3. Plan for profit
4. Control the financial structure and operations of your enterprise.
5. Safeguard your assets
6. Develop and maintain an acceptable marketing mix for your target market.
Marketing mix refers to a set of controllable marketing variables (Products, price, place and
promotion) that the firm blends to produce the response it wants in the target market. It is
greatly influenced by the entrepreneur’s positioning of his products in the market arena
(Kotler, 1984: 41 - 43), through the accomplishment of the above six cardinal assignments.
The entrepreneurs have to:
1. Be sensitive to internal and external changes affecting the business;
2. React quickly and positively to changes;
3. Obtain accurate and useful operating and marketing information;
4. Be efficient, effective and humane in use of human resources;
5. Obtain sufficient investment capital at a reasonable price whenever the need arises;
6. Be knowledgeable, effective and factual in handling government laws, rules and
regulations;
7. Be sensitive and alive to social responsibilities;
8. Be optimistic, confident and persevering;
9. Always have an air castle (plan of action) before any real castle (action)
10 The tradition and culture of the Community where the entrepreneur operates must be
given due consideration. The above, form the guide for the successful operation of the
entrepreneur. This maintaining a product-need fit continuously in the market place.
3.4 Unit Summary
In Unit 3.3, you should have learnt that:
3.3.1. Some factors can cause failure in business
3.3.2. Symptoms of business failure can be identified
3.3.3. Averting failure and ensuring success in entrepreneurship is possible
111
3.5 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 3.3; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 3.3.3 (Tests Learning Outcome 3.3.3)
Why has it been relatively difficult for a good, number of Nigerian entrepreneurs to obtain
lank loans?
SAQ 3.3.4 (Tests Learning Outcome 3.3.4)
What is the nature of government business relationship?
SAQ 2.3.5 (Tests Learning Outcome 3.3.5)
Produce a list of causes of business failure
SAQ 2.3.6 (Tests Learning Outcome 3.3.6)
How would a businessman checkmate possible failure of his business?
References and further studies
Wilken P.H., (1977) Entrepreneurship, New Jersey: Ablex Publishing Corporation.
https://www.entrepreneur.com/howto/raisemoney/index.html
http://www.raise-capital.com/raise-capital-for-business.php
https://www.forbes.com/sites/drewhendricks/2014/07/16/the-5-best-ways-to-raise-
capital/#4ec6fc705f42
112
Module 4: Business Strategies, Benchmarking and
Entrepreneurship Spirit
Module Overview
The role of strategy and benchmarking in entrepreneurial activities cannot be underplayed.
Once a decision on what to be achieved is taken, the next thing becomes how to achieve the
set target. This is where strategy comes in. The entrepreneur will either set his strategies from
the beginning giving considerations for his business peculiarities or he may decide to copy
preexisting best practices. The attempt to copy existing best practices, introduces the issue of
benchmarking. This module contains the concept of business strategies, benchmarking and
the spirit of entrepreneurship. The module is divided into three units and each unit would
take you a minimum of three hours to cover. The units you will encounter in this module will
include:
Study Unit 4.1: Business Strategies
Study Unit 4.2: Benchmarking
Study Unit 4.3: The Spirit of Entrepreneurship
113
Study Unit 1: Business Strategies
Expected Duration: 3 Hours
Introduction
Any viable business organization achieves success through the application of effective
strategies in its business practices. Strategic planning therefore becomes necessary for the
accomplishment of predetermined goals. In this study unit you will look into some topics in
order to provide for comprehensive understanding of business strategy. The topics are:
1 Strategic planning
2 Forces that govern industrial competition
3 Approaches to strategizing
4 Four typologies of strategic direction and types of generic strategies
Learning Outcomes of Unit 1
At the end of this module, it is expected that the learner should be able to know:
1.1 Meaning of strategic plan, its importance, and the process
1.2 The difference between a vision and a mission
1.3 The levels of strategy
1.4 Forces that govern industrial competition
1.5 Approaches to strategizing.
1. 1: Strategic Planning
Good plans start from the top. A business must have an overall plan if it is to operate in a
coherent and consistent manner. It is from such an overall (Corporate Strategy) that all other
plans evolve. To develop a human resources plan, or production plan, even marketing plan in
isolation from the overall plan would be like attempting to fashion the various parts of a suit
without ‘an overall blue print. In any such endeavour, when the time to fit the pieces together
comes, there obviously would be no guarantee that they would come together to form a
coherent desirable whole piece of suit. It is therefore implied that first things should come
first – overall Business Plan or Strategic Plan
114
What then is a strategic plan? A strategic plan is an interactive holistic long range plan of a
business that guides its internal activities and relates the business to the external
environments. In effect, it is an overall strategy for a firm that coordinates the separate
functional areas of a business, it defines the business objectives, analyses the internal and
external environments and determines the strategic direction of the firm. It is the stream from
which all other plans of the organization draw their validity, relevance and guide for details.
Its focus is on the whole instead of individualistic parts. It is concerned with the mission,
vision and commission of the enterprise. Like the guiding star, it is a lead to the wise men,
(the entrepreneur and manager).
The Importance of strategic plan is seen on how it enables an entrepreneur to build a
tent/castle in the sky before developing a real one on the ground. This enables the
entrepreneur to develop a model or a guide before operations. Planning is a continuous
process. Once an entrepreneur stops planning, he starts planning to fail. Strategic plans are
critical to the survival of business organizations through creation of competitive edge. This
brings to fore, before the entrepreneur, his weaknesses, strengths, threats in the environment
as well as opportunities. Strategic planning compels the entrepreneur to confront the realities
of the business situation or warfare. Strategizing tells the entrepreneur what, how, when and
whom to go to the business warfare with, and how and when to withdraw if the need be. It
guides the design of the managerial job and the business structure. As a guide, it makes
deviation noticeable and corrective action taken ahead of time to avoid damages to the firm’s
life.
Examinations are not the best test of knowledge, argued some students; but what is the true
test of knowledge? Examinations have no substitutes for now - In ‘same manner there is no
substitute for strategic planning. Before an entrepreneur launches his business, basic
questions are addressed. This is strategic thinking process. This process forces the
entrepreneur to evaluate in clear realities the business world ideas, where they seem to lead
and how they will really fare in the competitive business environment. Strategies are of
military origin. The business world is seen as a warfare, where strategies should be
formulated, implemented and evaluated for survival operations.
115
Strategic Planning Process
Every successful venture starts with an idea. Such ideas are usually converted to goods and
or services that are valuable to the society. This is done at a cost to the entrepreneur and a
price to the society. Strategic planning is merely a comprehensive process of anticipating the
future and designing logically the activities of the firm in such a manner as to take advantage
of such a future. It is a continuous process of scanning, adjusting and adoption of approach
that actualizes set goals. Strategic plan may not necessarily mean a strategic planning.
Strategic planning may not necessarily mean a strategic plan. A plan may be given but
planning is continuous. It involves giving and taking. In the view, of Zimmerer and
Scarborough (1988: 35 - 45) eight steps are involved in strategic planning. They include:
(a) Development of Clear Mission
The entrepreneur who wants to succeed must first plan. To plan involves a statement of the
mission and vision. Mission statement is an enduring declaration of a company’s purpose that
addresses the first questions of any business venture. What is our business? Vision, on the
other hand, is a statement of the entrepreneurs dream. It is compelling and futuristic; a clearly
defined vision statement helps the firm in three ways:
1. It provides direction
2. It determines the firm’s decisions
116
3. It motivates the people.
In the words of Peter Drucker, management must be able to ask and answer some
fundamental questions such as
What is our business?
What should our business be?
Who is our customer?
To do this, the entrepreneur must identify the following:
1 Its expectations
2. Its competitive advantages
3. Its domain or scope of operation be it specific industry, market segment or
geographical scope.
In effect, a mission refers to “a broad declaration of an organization’s purpose that identifies
the organization’s products and customer and distinguishes the organization from its
competitors” (Jones and George, 2003 :251). On the other hand, the strategy merely refers to
a cluster of decisions about what goals to pursue,, what actions to take and how to use the
resources to achieve1e goals. It could also be seen as the determination of the mission or
purpose and the basic long-term objectives of an enterprise, followed by the adoption of
courses of action and allocation of resources necessary to achieve these aims (Weibrich and
Koontz, 2005:122). For further clarification planning at this point will refer to identifying
and selecting appropriate goals and causes of action. It is a principal function of management
to determine mission, and then develop strategy, and plan. Note the entire process consists of
one type of planning or the other, for planning is continuous.
(b) Assessment of Self-Strengths and Weaknesses
Quality, adequate (complete), timely, and relevant information is a prerequisite for sound
mission statements. However, there are three information needs facing the entrepreneur.
These include self, industry and market, and the competitors. It is the synthesis and analysis
of these three stakeholders: self, industry and market, and the competitors that will enable the
entrepreneur to define self in the context of his environment to be able to fit-in well in
deducing appropriate strategy from the knowledge of his strengths and weaknesses.
117
(c) Conduct a Thorough Market Segment Analysis
For the entrepreneur to have a competitive advantage or edge it will be based on detailed
study of the specific market segment of operation, thus surfacing the abilities and weaknesses
of the competitors, and bringing to the fore the opportunities, and threats in the environment.
(d) Analyze Your Competitors
The business environment is likened to warfare; they are victors and vanquished. For you to
come up with a war plan against an enemy, you need to know him. In the same vain, you
need to know your competitors before you can make good plans to fight with them. For
instance when David in the Holy Bible fought Goliath, knowing Goliath, he, David did not
play by the big league rules, rather he had to hit Goliath where Goliath least expected. David,
however, anchored on unknown strategy to Goliath (the name of God).
(e) Develop your Goals and Objectives
Goals and objectives are the essence of business. They are futuristic. Goals and objectives are
about the same. However, goals refer to the broad, long-range attributes or broad long-range
values the entrepreneur hopes to accomplish. Objectives are precise values the firm hopes to
accomplish. Good goals are specific, measurable, attainable, realistic, timed and written
objectives are more specific and precise than goals. Management by objectives (MBO) is
advocated. It is a process of joint management and subordinate involvement in goals and
objectives setting. It enlists subordinates’ commitment to the organizational goals and
objectives. Consequent upon that, it psychologically propels the workforce to, strike towards
the goals achievement without force. Prudent entrepreneurs are goal focused.
(f) Formulation of Strategy and Selection Appropriate Strategies
Strategic plan embodies and revolves around the statement of a strategy. It is a game planner,
the broad program for defining and achieving an organization’s objectives. That is the
organization’s response to its environment over time. In 1962 a business historian Alfred D.
Chandler avers that strategy is “the determination of the basic long-term goals and objectives
of an enterprise, and the adoption of courses of action, and the allocation of resources
necessary for carrying out these goals.” Records also trace the usage of the term to a Second
World War general and president of Sears, Raebuck and Company, General Robert E. Wood
in 1920s. It is, an ancient Greek word, strategic referring to the art and science of a general.
118
The entrepreneurs must identify’ suitable game plans to enable the firm achieve its
predetermined goals and mission (Stoner, Freeman and Gilber. 2005:263 - 267).
(g) Translation of the Strategic Plans into Action Plans
Strategic plans are designed to meet organizational broad goals. It looks ahead of several
years. Operational plans deal with the details for carrying out or implementing those strategic
plans in day-to-day activities. Usually a year or less may constitute its time horizon. In effect,
the two differ in time horizon, scope and degree of detail. No air castle is real until it is put
down on a solid ground; likewise no strategic plan means anything but paper work until it is
put into action. The translating of the strategic plans into operational action plans enables
these obvious goals to be accomplished.
(h) Establishment of Accurate Controls and Feedback Mechanism
Plans fail but planning does not. Plan could be static but planning is continuous. Actual
operation/performance rarely matches plans exactly. Operational data from the business
errand services act as the yardstick for detection of deviations from plans. Such operational
information constitutes essential ingredients for plotting future strategies even implementing
the on-going strategy. There would be no control without plans. Strategic planning does not
end with these eight sub steps. It is a continuous process. The entrepreneur will need to go
over it continuously.
Levels of Strategy
You must have come across the fact that there are basically three levels of strategy -
corporate level, business unit level and functional level strategy. The entrepreneur must be
conscious of the level of strategy he is handling at each point in time. This is illustrated in
Fig. 8.2 below and is discussed in the following section:
i) The corporate level strategy refers to strategy that is formulated by top management
to oversee the interests and operations of multi-line corporations. Note, the
organization must be conceptualized by the author, made up of more than one line
of business. The questions that will arise include:
• What kind of businesses is the firm involved in?
• What are the goals, objectives and expectations of each of the individual businesses?
• How should the available resources be allocated to each of the businesses in order to
ensure achievement of their planned goals and objectives.
119
ii) The business level strategy is also called line of business strategy. It is a strategy
formulated to meet the need and aspirations of a particular line of business. It
poses questions like:
• Hew would the business compete within its market segment?
• What product/services will it offer?
• Which customers does the firm seek to service?
• How would resources be distributed within the business?
iii) In effect, business unit or line strategy seeks to determine appropriate approach to its
market segment, including how to conduct itself, gives its resources and the
condition of the market, in order to have a competitive advantage over its
competitors. Functional level strategy is drawn from the corporate and business
level strategies. It is the last of the strategies in the hierarchy. They are strategies
that create a framework for managers in each function or department such as
personnel/human resources, marketing, production, etc. It is from the
departmental functional strategies that operational plan emerge.
Activity 4.1.1: Strategic Planning
Imagine the situation of an entrepreneur who could not understand strategic
planning process. Record it in your study diary.
120
1.2: Forces that Govern Industrial Competition
When you hear of Competitive competence, it refers to skills or activities a firm could
display in the business environment better than its rivalries (Better competence level than
opponents). This of course gives the entrepreneur an edge (competitive advantage) over the
other competitors - cost leadership, superior product, technology, quality and reliability of
service. The entrepreneurial strategies are focused on creation of distinctive competence
as a cornerstone, for establishment of competitive advantage.
Michael Porter of the 1Iarvard Business School identified five forces that shape and
influence strategic direction whether defensive or offensive.
Examination of the forces
1. Threat of New Entrants - In the absence of entry difficulties (barriers) such cost
advantages, as a result of economy of scale or learning curve, potential entry of budding
entrepreneurs could constitute real fear or threat to other on-going firms especially in high
growth Industries. This is because the new entrepreneur may have something new, may have
discovered a gap in the already existing firms.
2 Threat from Customers – The supremacy of the customer cannot be taken for granted.
Powerful few customers, who are large buyers, are capable of bargaining to drive down the
prices of a product, thus cutting down the profit margin of producer(s)
3 Threat of Substitute Products- A firm producing products that have very close
substitutes may not charge high prices for fear of loosing the market to the opponents
that deal on the substitutes. This threat is capable of keeping an entrepreneurial’s price
under control; for instance, plastic containers and steel containers, Ovaltine and Milo.
4. Threat from Suppliers – An entrepreneur who has few suppliers of an important input
of his output runs a risk. If such suppliers are powerful, they could team up and drive up the
price of the input, thus increasing the cost of production. This may automatically mean
lower profit margin for the entrepreneur.
5. Rivalry among the entrepreneurs in the same industry (competitors) The more the
rivalry or competition among firms in the same industry for customers, the more likely
fluctuations, in price, the more intense innovations, creativity, advertising and possible subtle
121
in-fighting. These have possibility of bringing prices and increasing cost of production, and
the obvious implications of increasing cost of production thereby reducing profit margin.
Porter’s Summary of Forces Governing Industrial Competition
It is Porter’s contention that entrepreneurs in their environmental scanning for opportunities
and threats should pay particular attention to these five Forces because they constitute the
major threats or obstacles that the firm will encounter. It is the function of strategic
entrepreneur to formulate corporate, business and functional strategies that will checkmate or
counter these threats so that the firm could respond to its task and general environments from
point of strength, competence and competitive advantage. Thus being ahead and generating
high profit.
In-Text Questions 4.1.1
▪ Identify levels of strategy
▪ There are basically three levels of strategy:
i) Corporate level,
ii) Business unit level and
iii) Functional level strategy.
122
1.3 Approaches to Strategizing
You have seen what existing and new entrepreneurs contend against in 1.2 above, how they
are able to deal with these forces depends on their approaches to strategizing.
Generic strategies are strategies that allow organizations to gain competitive advantage from
three different bases: cost leadership, differentiation, and focus.
1. Cost Leadership
This emphasizes produces standard goods and services at very low per unit cost. It is
recommended for price sensitive customers. This is achievable through cost efficiency
throughout the ganizationa1 operations. The entrepreneur interested in cost leadership must
have in-depth knowledge of the firm’s cost structure and cost control systems. Cost
efficiency is the substructure for competitive advantage. If sustained over a long period of
time, cost advantages will thus emerge.
• Experience curve (process learning and experience which will reduce cost and time of
production per unit of output).
• Capacity utilization - increasing capacity reduces fixed cost per unit.
• Economies of scale - as volume of production increases cost per unit tends to
decrease.
2. Differentiation.
This aims at producing goods and services that are considered unique in the industry It works
for a market that is relatively insensitive to price A product could be differentiated by
improved quality, features, appearance, durability, reliability, product design, maintenance
and repair services, warrant, information to the customers etc. The approach to
differentiation to be adopted by an entrepreneur depends on his self-analysis and situational
variables in his industry.
3. Focus (Niche Strategy)
This involves concentrating on a specific market; group of customers, product or services.
This form creates a competitive advantage in a narrow and well defined niche to avoid head-
on collision with large rivals/competitors. This is achievable through identification,
development and sustenance of distinctive competence in what it does best. The firm erects
123
barriers to entry in its niche and, defends that niche aggressively. The entrepreneur adopting
this approach this would need to ensure that the niche is big enough to generate enough
return in order to be profitable. After all he is not a mere good doer but a businessman.
Four Typologies of Strategic Direction (Mills and Snow Typology)
Raymond Miles and Charles Snow identified four typologies of strategic direction. These
are: The prospectors, the defender, the analyzers and the reactors (Ibrahirn and Ellis, 1990:
53-58).
1. The Defenders carve narrow product/market domain and protect it heavily by
building strong competitive advantages. They hardly scan the environment for new
opportunities outside their area of operations. Defenders like in a good football team plan
intensively, possess centralized control systems, and are functionally structured with high
degree of formalization and cost efficiency. They are countered as successful in their bid.
2. The Prospectors are continuous environmental scanners for windows of opportunities
such as new product/new service or new market. They tend to be highly decentralized,
flexible, less formalized and structured on divisional or product basis. They are research and
development oriented with in-built flexible type of technology. They arc the aggressors in the
business environment. They are also considered successful.
3. Analyzers are found in between the prospectors and defenders. They combine the
attributes of the prospectors and defenders, while maintaining their traditional lines or
domains; they scan for new opportunities. ‘They are mixed strategists while in their
traditional domain; they are highly centralized, formalized and cost effective. However, as
scanners for opportunities they are highly decentralized, flexible and less formalized. That is
to say such a strategist could become both an aggressor and a defendant. They may not be as
successful prospectors and defenders.
4. Reactors are entrepreneurs who are consistently poor performers as a result of lack of
appropriate strategies. Reactors are unable to respond effectively to developments in their
environments.
If you were to be an entrepreneur, what kind of strategist would you have been, a
prospector, a reactor, an analyzer or a defender.
124
1.4 Types of Generic Strategies
This term generic is used here because each strategy has countless variations. Some authors
group generic strategies available to a Nigerian entrepreneur into fourteen. However,
according to Aluo, Odugbesan, Gbadamosi and Osuagwu (2004: 31 - 34) David F. R.
grouped strategies the entrepreneur could adopt into four broad categories:
1. Integration Strategy
The primary aim of integration strategy is to gain cost leadership. Cost leadership also has, to
be pursued in conjunction with a degree of product differentiation. Integration, strategies arc
sub-classified into three:
i. Forward Integration - Distributors/Retailers
Forward integration involves gaining ownership or increase control over the
distributors/retailers. Forward integration s recommended as an effective tool when the
entrepreneurs’ distributors are expensive, unreliable or lacking in meeting, the entrepreneurs
distribution needs. From self-analysis, if the entrepreneur possesses the capacity in terms of
capital and human resources for distribution of new products, forward integration will be
highly recommended
ii. Backward Integration - Suppliers
In situations where the entrepreneur’s spheres are unreliable, expensive or incapable of
meeting the entrepreneur’s demands when required, the firm will be advised to make effort in
ownership or control over the sources of supply. This strategy is referred to as backward
integration.
iii. Horizontal Integration - Competitors
Seeking ownership or increased control over the entrepreneur’s competitors is referred to as
horizontal integration. It could take the form of merger between direct competitors in order to
create competitive efficiencies. Other forms of horizontal integration include acquisitions
and take-over. In the Nigerian banking industry, this is the order of the day.
125
2. Intensive Strategies
The entrepreneur’s strategies that require intensive effort to improve the firm’s competitive
position with already existing product(s) arc referred to as intensive strategies. Such
strategies include: ‘
i. Market Penetration seeks to enlarge an entrepreneur market share in the same market
using its present products or services. It could be by way of extensive sales promotion,
improved salesmanship or intensive advertisement.
ii Market Development is an act of introducing the firm’s products and services into new
markets probably new geographical areas. This is preferably adopted when there are new
channels of distribution that are reliable, inexpensive and of good quality.
iii Product Development refers to modification or improvement of firm existing
products/services as a way of boosting sales. Usually this involves market research and
development. This is control among firms in industries characterized by rapid technological
transformations. It is used also when a product appears successful but is approaching a
maturity stage.
3. Diversification Strategies
Diversification strategies seek to break new grounds, so as not to be dependent on any single
industry. In broad terms diversification could be:
i Concentric Diversification which deals with adding new, but related product or service to a
firm’s product line. It is common when a firm operates in a no-growth industry or when the
firm’s product is on the decline stage.
ii Horizontal Diversification which is the strategy of adding new but unrelated products or
services for the existing customers.
iii Conglomerate Diversification which a firm use when a firm is facing declining annual
sales and profits, it may add new, related products or services to its existing product lines for
its customers.
4. Deliberate and Emergent Strategies
There could also be deliberate and emergent strategies.
i Deliberate Strategies come from the top as a result of planned or calculated process. ii
Emergent Strategies come from the bottom as an outcome of operations.
5. Other Strategies
126
These sets of strategies include the under-listed.
a) Joint Venture
b) Retrenchment
c) Divestiture
d) Liquidation
e) Combination
1.5 Unit Summary
In Unit 4.1 you should have learnt:
1. The meaning of strategic plan, its importance, and the process.
2. How to distinguish between a vision and a mission.
3. The levels of strategy
4. The forces that govern industrial competition.
5. Approaches to strategizing
1.6 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 4.1.1; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 4.1.1 (Tests Learning Outcome 4.1.1)
Examine thefive forces that shape and influence strategic direction whether defensive or
offensive.
SAQ 4.1.2 (Tests Learning Outcome 4.1.2)
Explain the four topologies of strategic direction
SAQ 4.1.3 (Tests Learning Outcome 4.1.3)
Why is planning is a continuous process?
SAQ 4.1.4 (Tests Learning Outcome 4.1.4)
Which approach is the best in strategizing?
References and further studies
Udu, A.A. and Okafor, L. (2012), Essentials of Business Management 3rd
edition, Enugu, RhyceKerex Publishers.
http://www.macquarie.com/au/business-banking/business-strategy/expertise/entrepreneurial-
mindset-enterprise-building
127
Study Unit 2: Benchmarking
Expected Duration: 3 Hours
Introduction
Once a bird is flying, it is most likely to be watched by those above and below it. The bird is
likely to be doing same to those above and below it, including those at the same level with
the bird on the sky. This is the fate of an entrepreneur who appears successful. He is most
likely to be benchmarked by other entrepreneurs. The entrepreneur thus needs to be
acquainted with the various forms and ways of benchmarking. He also needs to benchmark
others in order to know the best practices in his industry including gaps to take advantage of.
For better understanding, this unit 4.2 discusses the following topics:
1. The meaning and relevance of benchmarking
2. Types of benchmarking
3. Benchmarking process
Learning Outcomes of Unit 2
At the end of this module, it is expected that the learner should be able to:
2.1: Explain the meaning and relevance of benchmarking
2.2: State the various types of benchmarking
2.3: Discuss benchmarking process
2.1: Meaning and Relevance of Benchmarking
Real quality comes from being sensitive to actual customer requirements, continually trying
to produce consistently to the agreed specification and at the same time, ensuring that all
areas of the company work more effectively, thus making sure that their own customers in
the “process chain” are satisfied every time. Most times, this can be done by copying or
following best practices in the industry you find yourself. This is precisely where
benchmarking comes in.
Benchmarking is a tool that is used to learn the best practice within and outside the industry.
It is relevant in that it can help the firm find ways to improve processes and systems. It may
involve comparing company’s financial and operating performance against a competitor’s
performance or comparing the performance of various internal departments against each
128
other. Internal comparisons allow best practices within a company to be identified. So,
department that are not performing up to expectation can find out why and adopt the new
standard.
Bellie (1995: 15 - 16) maintains that quality-based organization use benchmarking to
identify and study other firms that perform effectively a process that the benchmarking firm
wants to improve. Health care organizations, for instance, use a practice known as clinical
benchmarking to collect and analyze data from a number of service providers to determine
the most effective way to organize a process.
Benchmarking is a process that involves sharing information between and within an
organization. This agrees with Imaga (1996: 184) as he stresses that Total Quality
Management (TQM) uses benchmarking as a solid tool for its implementation. They do not
depend on quick fix, for they are not a quick fix; require patience and willingness to share
power and information. Such cross fertilization of information and ideas are geared towards
improvement of products and processes benchmarking bring to the fore the best ways of
operations that ensures continuous improvement of the performance of the organization.
To do this, Mill (1993:51) suggests that one should have knowledge of how one’s own
organization performance stands in relation to other companies’ performance. This of course,
is benchmarking, which is a key tool in achieving total quality in practice. This means that
through benchmarking, total, quality management as a management philosophy would appear
to be essential for any manufacturing firm that aspires to quality excellence. Thus, any
organization that discovers its customers’ needs and gives them consistently a product that
meets these needs, (delivered on time every time and at a fair price) will automatically obtain
a major market share. This requires a programme that emphasizes continuous improvement
of the whole organization.
In fact, just as improvement should be looked at as a continuous process, so must the firm
also constantly maintain its competitive edge over others. This is because benchmarking is
something that has to be part and parcel of the daily work culture.
129
Definitions of Benchmarking
i) Garvin (1993: 86) defines benchmarking as an ongoing investigation and learning
experiences that ensure that best industry practices are uncovered, analyzed, adopted and
implemented.
ii) Orgland (1997: 203) sees benchmarking as a process that provides an insight into the gap
between best-in-class performance targets and the company’s own ability to beat them.
iii) Hammer and Champy (1993: 32) describe benchmarking as “looking for companies that
are doing something best and learning how they do it in other to emulate them”
Relevance of Benchmarking
1. Through benchmarking companies search out the very best practice around the world
and quickly replicate them.
2. Benchmarking competitors in the same industry are important in order to understand
their capabilities in product, and service design and cost position.
3. Benchmarking provides insights into the gap between what customers need and how
these are achieved.
4. Benchmarking helps to set strategies and learn new approaches
5. Benchmarking maintains the stimulus for continuous improvement.
6. Benchmarking enables any organization to focus on the changes in management
capability on areas where it yields the best through improving quality, productivity
and customer satisfaction.
7. Benchmarking brings out the best performance in organizations
8. Benchmarking encourages specialization
9. Benchmarking improves human resources.
The application of benchmarking as a tool of Total Quality Management in the
manufacturing firms may usher in the climate of change and continuous improvement in all
the areas of operations. In other words, benchmarking may be a very good intervention
technique for a positive change and for manufacturing firms to survive in a competitive
business environment, there is the need for the acquisition and exchange of practices among
the firms.
130
2.2: Types of Benchmarking
Hodder and Stoughton (1999: 22) group it into three broad categories:
• Metric Benchmarking
• Diagnostic Benchmarking
• Process Benchmarking
These three categories of benchmarking form an umbrella for other types of benchmarking.
1. Metric Benchmarking
Metric benchmarking helps define performance gap. This form of benchmarking provides
indications of relative performance and helps identifies leading competitors, but it is unlikely
to yield any real ideas on how to change. Many organizations both in manufacturing and in
service-oriented sectors use benchmarking as a means of direct comparison both internally
and externally with other organization. Metrics are performance indicators used as
comparative measures.
There are five forms of benchmarking under the metric type and they are follows:
• Internal benchmarking. This is the comparison of different processes within
the same firm. It has nothing to do with outside firm or external environment.
Internal benchmarking gives the organization iii understanding of its own
performance level and it has the following advantages.
i. It ensures that the best practice existing within the firm is identified.
ii. It identifies those processes that will be compared within the external benchmarking.
iii. It helps the personnel to have a clear knowledge of benchmarking so that external
benchmarking will be performed easily with an aim clearly known.
• Competitive benchmarking. This has been described by Ivancerich et al (1997: 159)
as another approach to assessing current conditions that are widely used among quality-based
Activity 4.1.1: Strategic Planning
Think about how benchmarking could be applied in a very new entrepreneurship
outfit. Record it in your study diary.
131
organization. Competitive benchmarking sets standards for performance and is based on
what others have been able to achieve.
Advantages
1. It makes firms to maintain their competitive edge
2. It makes firms gain superiority over their rivals
3. It makes firms under the same competitive product wise, thereby maintaining
their standard.
• Product Benchmarking. Product benchmarking is the long-standing practice of
carefully examining other organizations products. Not only is the cost of the competitor’s
product examined, but also often methods, such as reverse engineering are used. Buying a
rival’s product to take part and test is a common practice.
• Statistical Benchmarking. This is the numerical or statistical comparison of a
company’s performance. It has to do with comparison of firm’s performance over the years
with a view to determining when the best practice was achieved.
• Customer Benchmarking
This has to do with the relationship between the external customers that will help the firm to
achieve competitive edge. Emphasis here is that quality should be defined as perceived by
the customer by viewing it externally from the customer’s perspective.
2. Diagnostic Benchmarking
Diagnostic benchmarking requires a little more effort but in return will identify areas of
strength and give more details on areas of weaknesses, which might help in formulating
strategies on how business practices can he improved upon in order to enhance performance
in manufacturing firms. Diagnostic benchmarking helps firms to identify and transfer
improvement into their operations and strategies. Strategy drives performance and hence
quality. Indeed, quality can and should become the central theme of strategy. This leads to
Strategic Benchmarking the study of other organizations with a view to improving upon
them.
3. Process Benchmarking
This is the most involving form of benchmarking. It is where the most substantial benefits
can be found. These terms are interchangeably used to mean process benchmarking.
However, the focus here is on any key business processes which have been identified as an
132
area of improvement. Process benchmarking requires considerably more resources, efforts
and time, but it is said that organizations that successfully complete the process are usually
rewarded with many benefits of transferred best practice. These include generic, operational,
and functional benchmarking
i Generic Benchmarking. Hodder and Stoughton (1999:22) define generic benchmarking as
a type of benchmarking which involves the best practice of recognized world-class
organizations. This type of benchmarking offers a great opportunity for innovation, creative
and stimulating ideas.
ii Operational Benchmarking. Omachoun and Ross (12995: 144) see it as the type, which
focuses on the particular activity within a firm’s functional operation and then identifies
ways to emulate or improve on the practices of best-in-class. They further state that this type
of benchmarking is more detailed in terms of data gathering and the rigour of analysis. Here,
much of the focus is on cost and differentiation. Owing to the fact that the customer’s
purchasing decision (PD) is a function of price and differentiation, it is necessary to
differentiate through quality and improve price through cost reduction. PD = F (P x Q).
Both lead to an analysis of the cost and activity chains of inter connected processes. The
essence here is to reduce operation cost in the process of manufacturing goods.
iii Functional Benchmarking. This is explained by Foster and Sjoblom(1996) as the type that
positions a firm in such a way that it studies other organization practices and cost with
respect to functions or processes such as assembly or distribution. All these are done in a bid
to manufacture a standard and the best in world-class products. From another perspective,
benchmarking can be grouped into two, depending on how information is acquired by the
bench markers or form the benchmarks. This might be informal or formal method of
gathering information, which may then give rise to cooperative or formal and informal
benchmarking.
a cooperative benchmarking
This involves the voluntary sharing of information through mutual agreements. Elnathan
and Kim (1995: 345 – 364) model how cooperative benchmarking groups are formed among
firms that possess different amount of’ technological information contained in their
operations. They show that there is a unique equilibrium group structure characterized by
grouping among firms with similar amount of technological information.Elnathan and Kim
133
(1995), in a comparative static analysis, also show that group size and the number of’ firm
participating on cooperative benchmarking tend to increase learning becomes more efficient.
Technology also becomes more complementary as firm’s technological information
uniformly increases and as the cost of’ benchmarking is reduced. They argue that today’s
changing business environment is likely to encourage cooperative benchmark and increase
group size, because increased competition and technological progress in information
processing increase benefits of benchmarking relative to costs.
b informal benchmarking
Most organizations carry out what Orgland (1997) regards as informal benchmarking. He
further lists two approaches adopted by such organizations, in benchmarking as follows:
• By visits to other businesses, ideas can be gleaned which can be used to facilitate
improvements in their own organization.
• The collection in a variety of ways, of data, about competitions.
These two approaches arc not carried out in any planned manner and they are limited in their
value.
Wall Street Journal (1993:10) reports also those small firms executives who created a
network of what can be described as informal benchmarking. One reason cited was that,
they felt that, the best way of learning about improvement of their operations comes from
discussions with other small firms. On the surface, it seems that the segregation occurred due
to high degree of leaning among small firms but on a closer look, firms preferred to
benchmark with large firms but were not able to, because they were not accepted.
The type of benchmarking adopted by any firm should be based on the fact that the firm
understands its processes before starting to look at other firms. It may also be reasonable to
suggest that due to the nature of benchmarking; a manufacturing firm can apply or use either
one or a mixture of decent types of benchmarking to achieve its goals.
In-Text Questions 4.2.1
▪ Which type of benchmarking leads to Strategic Benchmarking
▪ Diagnostic Benchmarking
134
2.3 Benchmarking Process
Benchmarking is used to compare with others the effectiveness of various processes of
products and procedures. The objective is to identify where superior performance is found in
whatever variable that is being used for comparison. The normal thing one might suggest is
that once the company with the highest performance is identified, the exercise becomes to
explore the behind their superior performance.
Benchmarking process in the manufacturing firms involves decision on:
• What the firm is going to benchmark? (non-financial or financial data)
• What the firm is going to benchmark? (sample selection)?
• How will the company analyze information?
• How will the company use the information?
However, there is no standard or commonly accepted approach to the benchmarking process.
Each consulting group like Kaiser Associates (1991) uses its own method, Harrington and
Harrington (1996: 38) list eight steps, which have been further expanded to nine steps by
Hodder and Stoughton (1999). Camp (1995: 65) however suggests seven steps in
benchmarking. Camp’s seven steps method is shown in fig. 4.2.1
Another approach to benchmarking process similar to that of camp is the three major steps of
Omachoun and Ross (1995: 146). These steps are as follows:
i. Measuring the performance variables
ii. Determining how the levels of performance are achieved; and
iii. Using the information to develop and implement a plan for improvement (Nwuba,
2006).
Fig. 4.2.1 Camp’s Seven-Step Benchmarking Process
135
2.4 Unit Summary
In Unit 4.2, you should have learnt:
1. The meaning of strategic plan, its importance, and the process.
2. How to distinguish between a vision and a mission.
3. The levels of strategy
4. The forces that govern industrial competition.
5. Approaches to strategizing
2.5 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 4.2.1; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 4.2.1 (Tests Learning Outcome 4.2.1)
Enumerate the relevance of benchmarking
SAQ 4.2.2 (Tests Learning Outcome 4.2.2)
What is the relationship between benchmarking and Total Quality Management?
SAQ 4.2.3 (Tests Learning Outcome 4.2.3)
Explain the three types of benchmarking
SAQ 4.2.4 (Tests Learning Outcome 4.2.4)
What are the advantages of competitive benchmarking?
SAQ 4.2.4 (Tests Learning Outcome 4.2.4)
In what areas do benchmarking process in manufacturing organizations involves decision-
making?
References and Further Studies
Stoner J.A.F., Freeman R.E., Gilbert DR (JR) (2005) Management (6th ed),
India BarkhaNath Printers.
http://www.academicjournals.org/journal/AJBM/article-full-text-pdf/94C94A923521
136
Study Unit 3: The Spirit of Entrepreneurship
Expected Duration: 3 Hours
Introduction
A participant in an academic session asked the presenter what was inside the entrepreneurial
mind and whether entrepreneurship could be taught? These two apparently simple questions
generated severe disagreement among members of the Board. However, at the end of the
discourse, it was resolved that what is inside the entrepreneurial mind is the spirit of profit
making anchored on creativity and innovation, as a strategizing tool in achieving competitive
advantage in the face of threats and opportunities occasioned by the dynamics of the
tribulations of the business milieu. This study unit 4.2 exposes the contents of the following
topics for smooth comprehension.
1. Creativity and innovation.
2. The secrets of leading creative organizations.
3. The methods of improving creative process
Learning Outcomes of Unit 3
At the end of this module, it is expected that the learner should be able to know:
3.1 Meaning of creativity and innovation
3.2 The secrets of leading creative organizations
3.3 The methods of improving creative process
3.1: Creativity and Innovation
A German scientist Robert Koch in the late 1800s discovered that bacteria cause many
diseases. He later found a specific bacterium that causes anthrax (diseases of the beep and
cattle, as well as tuberculosis and cholera). Pasteur then later discovered how to protect
animals and humans from diseases caused by bacteria. This was instrumental to the
development of immunization of people against diseases. An English Surgeon Joseph Lister
anchoring on the findings of Koch and Pasteur developed ways to kill bacteria on surgeons’
hands and surgical instruments so that bacteria would not be introduced into a patient’s body
137
during surgery. The adoption of Lister’s Methods in the medical field led to drastic decline in
deaths associated with post-operative infection (Beers, 1991:501). These are all acts of
entrepreneurship in medicine through creativity and innovation, re-action to threats and
opportunities in their field.
What then is creativity and innovation? Creativity is the mother of invention. We were told in
our early days. What then specifically is creativity? It is the capacity of to develop new ideas
coupled with new ways of looking at problems and opportunities in the business setting.
Innovation, on the other hand is the ability to apply creative solutions to problems and
opportunities with a view to enhancing or enriching the lives of the people concerned.
Invention thus is the by-product of creativity and innovation. Theodere Levitt of Harvard has
it that creativity is the act of thinking new things while innovation is the act of doing new
things. He thus opines that entrepreneurs succeed by thinking and doing new things or old
things in new ways. Peter Drucker the Management legend avers that innovation is the
specific instrument of entrepreneurs, the means by which they exploit change as an
opportunity for a different business or a different service” (Buchanan, 2002:53; Zimnierer
and Scarborough, 2005: 35).
Development of an idea is good but it is not enough; transformation of the idea into a
product, service or business venture is the ultimate. It is the completion of the circle that
leads to invention, which attempts/closes a need-gap.Innovation is a continuous process.
Most ideas do not work, nor this innovation close need gap completely at the first instance.
Consequently, just like planning, creativity and innovation must be perceived as a continuous
process. Trial and error is accepted until perfection is actua1ized.
Creative Thinking Process
Convention holds the view that creativity is not taught. Human beings are adjudged logical,
rigid, and narrow minded. Recent studies show that tradition could be faulted in this regard.
Creativity could be taught. However, even for a creative minded individual, creativity tends
to decline with age, education and lack of use. Perception, culture, emotion and peer group
influence are also capable of stifling latent potentials for an individual creativity.
138
Studies in science about the functionalities of the human brain unveil that each hemisphere of
the human brain processes information differently one side of the brain tends to dominate the
other. The development of the brain is asymmetrical, with each hemisphere specializing in
different functions. Linear, vertical thinking guides the left brain (reasoning from one logical
conclusion to another), while Kaleidoscopic, lateral thinking guides the right brain
(speculation). The left brain takes care of issues like logic, symbols and language. It
processes information on a logical and systematic manner. Its vertical thinking process is
narrowly focused and operates in a highly logical fashion.
On the other hand, the right brain processes information intuitively and relies heavily on
images. Its lateral thinking appears unconventional, unstructured and unscientific. It is
unsystematic in its reasoning approach. The right brain is thus creative oriented in its
approach to problem and threats. The right brain generates ideas that are inventive and
entrepreneurial. Entrepreneurs need the two sides of the brain for effective creation.
Sources of new ideas
For a budding Nigerian entrepreneur, sources of new ideas are numerous. Such sources
include:
• The Indigenous Cu1ture
• Peer Groups
• Consumers and Consumer Associations
• The Channels of Distribution
• Existing Companies and their Product
• Research Institutes
• Governments — Local, State and Federal
• Socio-economic, socio-political groups, socio-cultural and other formations.
Possible Methods of Encouraging Organizational Creativity
For creativity to flourish, the organization needs to create the necessary enabling
environment for its development and sustenance. New ideas are fragile just like weak truth
that may be driven away by apparently established falsehood. The organization needs to
develop a corporate culture that both fosters and rewards creativity before acts of creativity
139
will foster. The organization can stimulate creativity within its workforce by the following
means:
• Hiring of Diverse Workforce
People from different cultural backgrounds, work experiences, different colleges and
universities, different interests and mind frames may provide the diversity needed to form the
crucial raw material for creativity and innovation. In the Department of Management, UNN
Enugu Campus, for instance, the cream of the workforce is made up of extraordinarily well
trained scholars from various areas of management. You will find legal experts, public
administrators, economists, psychologists, statisticians, to mention but a few.
• Creation of Opportunity for Creativity
Make it clear to the employees that they are expected to be creative and that they will be
rewarded for sound inventions.
• Tolerating Failure
Not all new ideas will succeed. Tolerate failures that are occasioned by new ideas. Trial and
error should be accommodated when genuine.
• Reward acts of creativity
• Be supportive to creative effort
• See problems as challenge
• Develop a procedure for capturing and taking advantage of new ideas
• Provide development and capturing and taking advantage of new idea
• Encourage curiosity and intuitive thinking.
• Model creative behaviour
• Creativity could be taught and development finds a means of modeling acts of
creativity.
3.2: Secrets of Leading Creative Organizations
Leaders at innovative companies know that their roles in stimulating creativity find
establishing a culture that embraces and encourages creativity are vital. Katherine Catlln
founder of a consulting firm specializing in leadership and innovation has identified the
following characteristics exhibited by leaders of innovation.
1. They Think: These leaders invest time in thinking because they recognize the power of
their own creativity and the ideas it generates.
2. They are Visionaries: These people are totally focused on the values, vision, and
140
mission of their companies and express them through their companies’ products and
services as well as through its culture. They are able to accomplish.
3. They Listen to Customers: They recognize that customers or potential customers can be
a valuable source of new ideas for product or service development and improvement,
sales techniques, and market positioning
4. They understand how to Manage Ideas: As they search for new ideas and creative
solutions, these managers look on a variety of sources: customers, employees, the board
of directors, and even their own dreams.
5. They are People Centred: these leaders hire people for their creative abilities and then
place them in a setting that enables that creativity to blossom. They see their employees
and their employees’ ideas as an important part of their companies’ competitive edge.
6. They maintain a Culture of “Change”. These leaders do not simply manage change;
they embrace it. They seek out change, recognizing that there is a constant need to
improve.
7. They maximize team synergy; balance, and focus, Realizing that teamwork fosters
creativity and innovation. These leaders bring together people from diverse
backgrounds into teams to maximize their companies’ creative output.
8. They hold themselves and others accountable for extremely high standards of
performance: These leaders demand best of the highest quality from themselves and
their employees and are unwilling to settle for anything less.
9. They use to take “no” for an answer: These leaders in the face of adversity even when
others say it cannot be done.
10. They love what they do and have fun doing it. These leaders’ passion for their work is
contagious; empowering everyone organization to accomplish everything they possibly
can.
Source: Zimmerer and Scarborough (20050. Essentials of Entrepreneurship and Small
Business management. International Edition U.S.A. Pearson prentice Hall, p. 47. Re-
produced from Katherine Cathin. “10 Secrets to leading innovation” Entrepreneurs,
September 2002, p. 72 with permission of Entrepreneur Media, Inc. www.entreprenuer.com
141
Creative Process
Some creative ideas may be seen as emerging out of accidents or unplanned activities.
However, the truth remains that creative ideas emerge out of a planned process. This process
involves seven steps commonly referred to as P1TI2VI by students. These steps are as
follows. It is a continuous process.
Fig. 3.1: The Creative Process
1. Preparation - Condition your mind for creative thinking. To do this you need formal
training and education, including on the job training versatile experience. This
provides the foundation for creative ideas and innovations. Mr. Biro would not have
developed the biro pen, if he did not know the need it would be put to. Prepared
minds always take advantage of creative ideas even when the ideas do not originate
from them. Solomon King of Israel in the Holy Bible wrote 3,000 proverbs due to his
training exposure and office. Creativity and innovation could be an act of building or
shaping of an idea, but the mind has to be prepared. To prepare you need to:
• Develop a learning attitude; see every situation or gathering as an opportunity to
learn; see life itself as a learning process. Make yourself a professional student.
• Read widely, related and unrelated topics in your field of study.
• Pick up articles of interest and create a file for them. After a while you may discover
you have developed encyclopedia for yourself, from which you could draw new ideas and
inspiration.
Activity 4.3.1: Creativity and Innovation
Think about what an entrepreneur wants to achieve in terms of creativity and
innovation. Record it in your study diary.
142
• Discuss your ideas freely with the knowledgeable. Any of them could help you in
sharpening the idea.
• Attend meetings of trade association and professional bodies. This may give you an
opportunity to brainstorm with others. It could be an eye opener into possible solutions to felt
problems.
• Study other codes and their culture their belief system, values and attitudinal capacity
create an opportunity for development of new opportunity for development of new
ideas and inventions. You can run into an exposure, traveling and association.
• Make yourself a good listener. Through effective listening to the elders, professionals
and people, you may amazingly learn more than you ever would have imagined.
2. Investigation — for yon to be creative and innovative, about a problem, you need
details surrounding the problem. You cannot proffer a solution to a problem without
of the circumstances, including the causes and effect. A Scottish physicist, James
Clerk Maxwell discovered that electric and magnetic energy move in waves.
Thereafter in 1895 Wilhelm Roentgen, a German physicist, based on his investigation
of the findings of Maxwell, unveils that energy waves that could penetrate solid
matter. Roentgen named these waves x-rays. Medical scientists based on this
investigation and solid understanding of the waves that are capable of penetrating
solid matter (x-rays) had to inculcate them into modern machine (this is the
background of the creation of the popular x-rays in machine).
3. Transformation — Transformation simple means complete or holistic change from
one state to the other. For a holistic change to take place, it requires critical look at the
similarities and differences in the data already generated. The creative thinking must be
involved in convergent and divergent thinking. Convergent thinking is like consideration of
centripetal forces. It deals with pondering over similarities and connection among various
variable incidents and events. On the other hand, divergent opinion or centrifugal forces need
to be considered. It deals with identification of differences among various variable incidents
and events. To do this successfully, you may need an intrinsic study of the various sub-units
(elements) of the object. This initial study or assessment will enable you have an overview or
a clear picture of the relationship among the variables. After that, reorganize the elements in
the situation. Study their functionalities or otherwise, from different perspective this may
143
enable you to uncover or unmask hidden attributes of the various components. Also study
the components as extrinsic elements. This three-process analysis will likely widen your
understanding of the situation.
3. Incubation — the subconscious mind, works under an environment of freedom, free
from stress, free from pressure. Under such an air of freedom and relaxed mind, often
during rest, sleep or leafing, the subconscious mind goes to pork, unveiling
unimaginable things. Early musicians from old Bende in Abia State, Nigeria,
including creative thinkers and fabricators (ndiuzu) machine men, attribute solutions,
to critical problems to answer raised for them by their subconscious minds, most
cases during rest, sleep or while doing other things un-related to the issues under
content. Froever, Zimmerer and Scarborough (2005: 52) opine that, creative thinkers
need to follow the under listed five steps
i. Walk away from the situation and allow ideas to emerge on its own.
ii. Take time to daydream, allow mind to water far away. In that process it may stumble
onto a creative solution.
iii. Relax and play regularly, for whenever fatigue walks in, creativity walks away. They
are no friends. Great ideas are after incubated in the toilet, on the way to or from the
farmland, or during a walk or the like.
iv. Dream lucidly - It may not be possible for you to dream about an issue on directive;
but it is possible for you to consciously speculate about a matter as you are about
sleeping off. Such matter speculated upon before drifting off to sleep has the capacity
of sending signals to your subconscious mind to work on the matter and proffer
solutions through dreams. The solutions proffered have to be harvested between the
time you wake from the sleep and the period you open your eyes. A prolific inventor
and accomplished entrepreneur and author, Ray Kurzweil, outstanding Igbo
musicians and soul winners, Friday. Uguru Okwa, Paulson Kalu opine that lucid
dreaming to very great extent were responsible for their various successful records in
life.
v. Work on the problem or opportunity under different circumstances under different
environmental settings. Go out to the one field or site on log or on top of a rock to
144
speculate on the matter. Different environmental settings have different stimulating
forces on creativity.
2. Illumination — In the process of incubation a spontaneous breakthrough there
could arise that explains the problem. This will serve as an illumination
(bright light) that now guides the creative thinker to a conclusive end course
of the enquiry. It could take the form of hallucination with the associated joy
of discovery that energized and sustain the enquiry.
3. Verification - After what appears to be a breakthrough has been unverified,
the next stage will be to subject innovative idea to a test of accuracy through
verification. Once the discovery passed this test, it could then be said to be
valid and reliable. The aim of this stage is to subject the apparent discovery to
a test of reality. To achieve this, to do this, some of the questions that need to
be asked include:
• Is it substantially a better solution to the problem?
• Is the solution feasible and viable (is it workable and profitable)?
• Does the need for exist?
• If yes, what is the most viable application of the innovation in the market place?
• Does the innovation fit into the core competencies of the establishment?
• What inputs (cost) will be required to produce or provide the innovation?
7. Implementation - This is the act of transforming an idea into reality. For it is one
thing to come up with an idea and another for it to materialize into the reality. It is an
entrepreneurial philosophy to “be ready, aim and fire” not “ready, aim, aim and aim”. Nearly
is not known for killing birds.
145
Obstacles to Creativity
Roger Von Oech in his book, “a whack on the side of the head” published in New York by
Warner Blocks in 1990 pages 21 — 167 identified mental locks with limit an individuals’
creativity. These are in addition to firm’s imposed barriers such as:
• Time pressures
• Unsupportive management
• Pessimistic co-workers
• Rigid company policies
• Fear of failure.
The mental lock include the under listed:
1. Searching for the one “right” answer
2. Focusing on being logical
3. Blindly following the rules
4. Constantly being practical
5. Viewing play as frivolous — note there is a relationship between the “haha” of humor
and the “aha” of discovery; playful attitude is fundamental to creative thinking.
6. Becoming overtly specialized
7. Avoiding ambiguity — be ambiguous if need be
3.3 Methods of Improving Creative Process
There are various techniques for improving the creativity of a team these include:
1 Brainstorming
Brainstorming appears to be the most widely known and used technique for problem solving
and idea generation. It is an unstructured approach to generating possible ideas about a felt
problem within a limited time frame through spontaneous contribution of a team of small
membership. Such statement of problem need not be too wide or too narrow. In course of
In-Text Questions 4.3.1
▪ What stages make up creativity process?
▪ The stages that make up creative process are: preparation, investigation,
transformation, incubation, illumination, verification, and implementation
146
brainstorming, no group member should be accorded the recognition of inhibiting responses.
The aim is to generate as many ideas as possible on the solution to the felt problem.
Therefore all ideas or suggestions are recorded, no matter how illogical they may appear.
Criticisms or outright evaluation of the suggestions are not allowed during brainstorming.
The evaluation or assessments are done much later.
The opposite of brainstorming is not no-brain storming, but reverse brain storming. - Reserve
brainstorming is like brainstorming. The only exception is that criticisms are allowed. It is a
technique that focuses attention on finding fault with ideas generated. It tries to elucidate the
various ways through which an idea generated could fail. It asks the question - how many
ways can this idea fail. Because it is negative oriented, efforts must made to sustain the zeal
of the participants. After the identification of all the perceived errors or possible ways they
could fail, the team will then proceed with finding possible solutions to overcome the
identified short comings of the idea.
Brainstorming attempts to produce large quantity of novel and imaginative ideas. The
essence is to create an open, uninhibited atmosphere that allows the participants to freewheel
ideas.
The following are the recommended guidelines for brainstorming
• The team should have small membership, say, five to ten. The background, rank and
perspectives of the members should vary.
• Status and department affiliation should be deemphasized.
• The problem to be addressed by the group should be well defined, but should not be
made known to the participants ahead of time. The questions if possible should be
probing like “why”, “how” or “what”.
• Limit the session to one hour or less to avoid the participants getting weary.
• Appoint a non-participant a recorder.
• Use circular or U-shaped seating arrangement in order to encourage free
communication and interaction
• Make the brainstorming session humorous/playful. It need not be logical. Logic
often drives away creativity.
• Encourage all sorts of ideas from the participants, including wild and extreme ones. A
crazy idea is capable to stimulating creativity
147
• Generate as many ideas as possible. Be more interested in the number of ideas
generated than the quality of the ideas.
• Do not criticize or evaluate any of the ideas during the brainstorming session.
Criticisms slow down the creative thinking process instantly.
• Encourage development of new ideas from those already suggested.
2 Mind-Mapping
It is a creative thinking process that involves both sides of the brain, whereby spontaneous
ideas are recorded and related to the problem at stalk. It makes room for analysis of a
problem from various angles. As a graphic technique it makes possible vision (display of
ideas and their relationship). Effective mind mapping process will involve stating in writing
the problem under focus on the centre of a wide paper and writing down the various ideas
that come into your mind on the various sides of the paper without necessarily justifying
them. If fresh ideas emerge, write them down beside the initial one. Connect such ideas that
are not related and they should be connected straight to the problem already stated at the
centre. As soon as the flow of ideas slows down, stop ilea generation. After few minutes
brake, develop a mind map rough integration of the avaricious ideas on the solution to the
problem. Through this process beautiful solutions to the problem may emerge. Then develop
this, after due assessment, into a business action plan
3 Rapid Prototyping
Prototype refers to “like the original”, a model, a paradigm, version of the initial type.
Rapid prototyping deals with continuous creation of models of the original idea.
Transformation of the idea into a model will enable the entrepreneur to see how workable the
idea is thus surfacing the flaws in the initial idea. As the entrepreneur continuously re-models
the initial idea, he will keep perfecting that product of his endeavour, consequently,
improvements will be made on the product/design before the entrepreneur eventually
presents the product to the market.
148
Enhancement of Individual Creative Thinking
• Make yourself creative believe in self and assure yourself that you can do it and start
doing so.
• Make your mind free and fresh. Take in new ideas daily.
• Recognize the creative power of mistakes; innovations may result from serendipity.
• Make a jotter and biro pen handy – capture new ideas and thoughts in writing as soon
as you get them.
• Listen to others. If possibly benchmark; capture ideas from others improve upon
them if you can and act upon them.
• It’s not illegal to utilize unutilized or un-harvested ideas of others.
• Read stimulating books on creativity/innovation. Attend seminars and classes on
creative thinking and innovations.
• Talk and listen to children on difficult creative issues children have creative minds
that are practically boundless. They are full of experiments factions.
• Take some time off for relaxation. The subconscious mind reflects and generates
solutions to critical problems, in particular those bordering on creativity during
relaxation. If you like pose the problem to your subconscious mind without
necessarily thinking about it before going to bed at night, and review solutions
generated by your sub consciousness your eyes in the morning.
3.4 Unit Summary
In Unit 4.3: you should have learnt:
1. The meaning of creativity and innovation
2. The secrets of leading creative organizations
3. The methods of improving creative process
3.5 Self-Assessment Questions (SAQs)
At this stage, you have completed unit 4.3; you are expected to answer the following
questions to show how well you have accomplished the learning outcomes of the unit.
SAQ 4.3.1 (Tests Learning Outcome 4.2.1)
How can an organization stimulate creativity within its workforce?
SAQ 4.3.2 (Tests Learning Outcome 4.3.2)
Differentiate between creativity and innovation. Can creativity be taught? How?
149
SAQ 4.3.3 (Tests Learning Outcome 4.3.3)
List the ten secrets of leading creative organizations.
SAQ 4.3.4 (Tests Learning Outcome 4.3.4)
What are the mental blocks that hinder an individual’s creativity?
SAQ 4.3.5 (Tests Learning Outcome 4.3.5)
Prepare a guideline for brainstorming.
SAQ 4.3.6 (Tests Learning Outcome 4.3.6)
Discuss the various techniques for improving a team’s creativity.
References and Further studies
Hisich R.D. and Pofers M.P (1998): Entrepreneurs (Fourth Edition) Boston, Irwin, McGraw
Hill.
Hutt R.W. (1988) Entrepreneurship: Starting Your Own Business, Ohio, South-West
Publishing Co.
https://www.entrepreneur.com/article/190986
https://www.boundless.com/business/textbooks/boundless-business-textbook/small-business-
and-entrepreneurship-7/small-business-owners-a-profile-56/key-characteristics-of-
entrepreneurs-273-2430/
http://lexicon.ft.com/Term?term=entrepreneurial-mindset
150
REFERENCES
Abhishek. N. (2014), Entrepreneurship Development, New Delhi, CBS Publishers &
Distributors PVE Ltd.
Agu, R. A. (2010), Frontiers of Entrepreneurship, concepts, Theories and Practice, Vol. 1,
Ontisha, Kawariz& Manilas Publishers Ltd.
Agwu, J. U. (1999) Ruralisrn. The Correct Approach to Economic Independence of Abia
State. Uturu, being a distinguished person lecture series delivered to the Abia State
University Community.
Agbaeze, E. K. (1995) Cultural Imperatives for Entrepreneurial Development in Item,
Bende L. G.A. Abia State, Being a Public Lecture Delivered to the Item Community on 26
December, 1995 during Okoko Day.
Akanwa, P. U. (2004) “The Influence of Cultures on Decision Making in Nigerian
Organisations,” The Enterprise International Research Journal for Development, Vol. No. 2
by Nigeria Research Center for African Development NIRECAD).
Akubukwe, D.O. (1997) Sociology Concepts and Explanations, Owerri, Opinion Research.
Alder, N. J. (1992) International Dimension of OrganisationalBehaviour, 3rd ed. Ohio:
South Western.
Ailsoppo, M. (1975) Survival in Business the Dynamics of Success and Failure, London,
Business Books Ltd.
Anyanwu, A. (1999) New Perspective of Entrepreneurial Development,Owerri, Kiet-Ken
Publishers.
Arvind, S. and Everett, M. R. (1989) India‘s Information Revolution, New Delhi, Sage.
Asika, N. (1991) Research Methodology in the Behavioural Science,Ikeja, Longman.
151
Asiwaju, A. I. U. (1984) Artificial Boundaries, Lagos, University of Lagos Inaugural lecture
Series
Banjoko, S. A. (1998) Production Management in lyanda O and Belln J. A. Elements of
Business in Nigeria, Lagos, University of Lagos Press.
Baunmback, C. M. and Lawyer, K. (1979) Flow to Organize and Operate Small Business,
Englewood Cliffs, N.J. Prentice- Hall Inc.
Behling J.H. (1984) Guidelines for Preparation of the Research Proposal, Revised Edition,
New York, University Press of America.
Boise G.J. (1975) Commercial law: London, Butterworths.
Buagh, F. K. (1967) West Africa and Europe, London, Macmillan Education Limited.
CAMA and ISA (2012), Companies and Allied Matters Act 2004, Nigeria, Princeton.
Central Bank of Nigeria (I989) Annual Report and Statement of Accountants for the Year
Ended 31 December.
Cole, G. A. (1986) Management - Theory and Practice, Channel Islands: The Guemeey
Press Co. Ltd.
Cowi A.P. (ed) (1989) Oxford Advanced Dictionaay4 ed, New York, Oxford University
Press.
— (1993) Concise Oxford Dictionary, New York, University Press.
Delbert C.M. (1977) Handbook of Research Design and Social Measurement 3rd Ed. New
York, Longman.
152
Drucker, P.F. (1985) Innovation and Entrepreneurship London, Pan Books Ltd.
Eboh E.C. (1998) Social and Economic Research: Principles and Methods, Lagos: Academic
Publications and Development Resources Ltd.
Elkan W. (1988) “Entrepreneurs and Entrepreneurship in Africa,” The World Bank Research
Observer, Vol. 3 No. 2
Ewurum, U. J. F. (1983) “Development and Effective Utilization Indigenous Manpower in Nigeria”
Public Services Management Journal Vol. 1 No. 4 Cross River State Nigeria.
Ewurum, U. J. F. (2000) Trado-Cultural Factors of Directing Fusible with Management
System in Igbo Speaking State, a Monograph Series No. 1, Enugu, Institute for Development
Studies, University of Nigeria, Enugu Campus.
Eyo E. (1985) Fundamentals of Small Business Management, Enugu: Glanic Ventures.
Ezejelue, A.C. and Ogwo E.O. (1990), Asia Principles in Managing Research Project,
Onitsha: Africana-Fep Publishers Ltd.
Ezigbo, C. A. (2000) A Fundamental Approach to International Business, Enugu:
Immaculate Publications Limited.
Freud, J. E. and Williams, F. J. (1984) Modern Business Statistics, New York, Pitman
Publishing Inc.
Freeman, D., Pisani R., Purves R., and Adhikari, A. (1978) Statistics (2 ed), New York,
Norton and Company.
153
Hazel A.C. and Reid A.S. (1977) Managing the Survival of Smaller Companies, 2’ ed.,
London, Business Books Ltd.
Hofstede G. (1980) Cultures Consequences. International Differences in Work Related
Values, California, Sage.
Hisich R.D. and Pofers M.P (1998): Entrepreneurs (Fourth Edition) Boston, Irwin, McGraw
Hill.
Hutt R.W. (1988) Entrepreneurship: Starting Your Own Business, Ohio, South-West
Publishing Co.
IkimeObara E.D. (1995) Operarionalizing Management in Nigeria through indigenous
Culture and Philosophy, Institute of Development Studies, University of Nigeria Enugu
Campus. (Mimeograph).
Imaga, EU.L. (1997) Operationalizing Management in Nigeria Through Indigenous Culture
and Philosophy. Institute of Development Studies, University of Nigeria, Enugu Campus
(Mimeograph).
— (2001) Elements of Management and Culture in OrganisationalBehaviour, Enugu,
RhyceKerex Publishers
Ile, N.M. (2011) Entrepreneurship Development – the Nigerian Perspective, Enugu, Bencilia
Ventures.
Iroegbu (2004) Think Home Philosophy, Okigwe, Whyten Prints
Kalu S.M.O. (2000) Entrepreneurial “Challenges of the Local Manufactures of Machinery
and Spare Parts in Aba and Nnewi Urban Areas of Abia and Anambra State. Being an MBA
Thesis Submitted to -the Department of Management University of Nigeria, Enugu Campus.
154
Kotler P. (1984) Marketing Essentials, Cliffs, Prentice Hall Incorporated.
Kroeber, A.L. and Kluckhohn F. (1952) “Culture a Critical Review of Concepts and
Definitions,” Peabody Museum Papers, Vol. 47, No.1, Cambridge Mass, Harvard University.
Laurent, A (1983), “The Cultural Diversity of Western Conception of Management,” The
International Studies of Management and Organization, Vol. 13,No. 1-2.
Mbere, B.U (1999) Infrastructural Sociology. Enugu: John Jacob’s Classical Publishers Ltd.
Montgomery, J.D. and Siffin ed. (1966) Approaches to Development, Politics Administration
and Change, New York, McGraw Hill.
Nanim R. (1995) Sources of Financing Business in Nigeria,Uturu, Seminar Paper Presented
to College of Business, Abia State University.
Nwuba C.O. (2006), Benchmarking. Unpublished MBA Seminar Paper,
AwkaNnamdiAzikiwe University.
OdoC..M. (1992), Guide to Proposal Writing in Social and Behavioural Sciences, Enugu,
SNAPP Press Limited.
Onuoha BC. (1998) Fundamentals of Business and Management in Nigeria, Abia, Avan
Global Publications.
Ojiako O.F. (1978), “Problems of Small Scale Enterprises in Nigeria,” The Business
Administrator, Vol. 15, UNN, Enugu.
Okpara, F.O. (2000), Entrepreneurship: Test and Cases, Enugu: Precision Printers and
Publishers.
155
Olewe B.N. (1995) Development Administration, Aba, Grace Ventures.
Olugbile, F. (1997) Nigena.o.t4’ork, Lagos, Maithous Press’ Limited.
Ononuju, E. (1996) Igbo: A Missing Tribe in Israel? Aba, Uju Gospel Publications.
Orjiezoke ES.D. (2003) Environmental Influences on Re-Engineering in Banking Industry,
being MBA Thesis Submitted to Department of Management University of Nigeria, Enugu
Campus.
Owuala S.I (1990) “How to Design Your Small Scale Business Plan;” Business Times, Vol.
15, No. 35.
Callaghan P. (ed) (1994) Business Advanced Level, 2nd ed, Great Britain, Bath Press.
Pugha D.S., Hickson D.J. and Hinings C.R. (1985) Writers on, Organisations (3’ ed), New
York, Richard Clay.
Read M. (1955) Educational and Social Change in Tropical Areas,London, Thomas Nelson
and Sons.
Sackman S.A. (ed) (1997) Cultural Complexity in Organizations, London: Saga.
Schumpeter, J.A. (1934) The Theory of Economic Development, New York: Oxford
University Press.
Schneider S.C. and Barsonx J. (1997) Managing Across Culture, London, Prentice Hall.
Selltiz, Jahoda, I)eutsch, Cook (1965) Research Methods in Social Relations
(Revised,) U.S.A. Holt, Rinehart and Winston, Inc.
156
Siropolis, N.C. (1977) Small Business Management: A Guide to
Entrepreneurship, Georgia; Houghton Mifflin Co.
Stoner J.A.F., Freeman R.E., Gilbert DR (JR) (2005) Management (6th ed),
India Baba BarkhaNath Printers.
Tate C.E. Megginson L.C., Scott C.R., Trueblood L.R. (1975) Successful
Small Business Management, Texas, Business Publications Inc.
Thirkettle, G.L. (1994) Wheldon ‘s Business Statistics, 7th ed., London:
Macdonald and Evans Ltd.
Trompenaars, F. and Hampden-Tumer, L. (1997) Riding the Waves of
Culture, 2nd ed., London: Nichols Brealey.
Udu, A.A. and Okafor, L. (2012), Essentials of Business Management 3rd
edition, Enugu, RhyceKerex Publishers.
Umeham, E. (1997) Cultural Influences on Motivation in Modern Nigerian
Workplaces, Uturu: Being a Master’s Degree Thesis in Business Management submitted to
the College of Postgraduate Studies, Abia State University.
Umoh S.A. (1994) Analysis of Management Principles and Practice, Enugu.
JEE Communication.
Umoren R. (1987) “Getting a House Loan” in Business Concord. Lagos,
Concord News Papers.
UN Science and Technology for Development (1963) UN Science and
Technology for Development: Report on UN Conference on the Application of Science and
Technology for the Benefit of the Less Developed Areas, New York, UN. Vol. 1.
157
Uzoma, A.M. (1991) Entrepreneurial Development in Nigeria-A Tactical
Approach for the Organisation-Makers, Port Harcourt, New Age Educational Publishing Co.
Ltd.
Weidner, E.W: (1962) “Development Administration: A New Focus for
Research,” in FerrelFleady and Sybil L. Strokes (eds), Papers in Comparative Public
Administration. Institute of Public Administration, Michigan, University of Michigan.
Wilken P.H., (1977) Entrepreneurship, New Jersey: Ablex Publishing
Corporation.
Yamane T. (1964) Statistics: An Introductory Analysis, 3d ed. New York,
Hamper and RowPublishers.
Zimmerer ‘LW and Scarborough N.M. (2005), Essentials of
Entrepreneurship and Small Business Management (4th ed), New Jersey, Pearson Education
International.
158
Glossary
Budding Entrepreneur A fresher or beginner in entrepreneurial ventures.
Companies an association of people contributing to a common fund, having perpetual life
succession whose aim is to do business and make profit.
Competitive Advantage an edge or position of advantage which a business has over and
above its competitors.
Environmental Scanning assessment of the internal and external variables, with inherent
threats and opportunities, occasioned by the environment under which a business operates.
Financier a provider of funds and financial resources for a venture.
Incorporation the act of bringing a company to existence which creates it as a corporate
personality different from its owners or creators.
Interest the reward for capital as a factor of production.
Investor a businessman that commits resources into ventures with the expectation of yield or
returns.
Market Economy an economy where the forces of demand and supply operate unhindered in
influencing major economic questions and decisions.
Profit the excess of aggregate revenue over cost
Profiteering is the objective of driving towards excessive profit
Promoters those who take the initial steps in establishing a corporate organization.
Threats these are constraints to opportunities
Uncertainty the risk or hazards in business
Uninsurable Risk these are risks that are not specific enough to be covered by an insurance
policy
Unlimited Liability a concept that does not limit the liability of shareholders or business
owners to the amount of money invested in a business.
159
Appendix
Some Possible Small Businesses One Can Start
Management consultation
Arts Festival promoter
Arts Festival Promoter
Athletic Recruiter/Scout
Aviation House
Auto Paint Touch-up Professionals
Blade-sharpening Services
Barbering/Hair Saloon
Buying and Selling
Fashion Design/Tailoring
House Cleaning
Home Cleaning
Home Laundry
Book Indexer
Cake Decorator
Candle Maker
Cartoonist
Catering
Child Care Referrals Services
Comedy Writer
Commercial Plant/Watering Services
Book Binding
Commercial Photographing
Credit Consultancy
Dance Instructor
Day Care Services
Farming of Fruits/Vegetables
Mobile Store Business
Mobile Hair Salon
160
Mobile Hair Barbing
Motivational Speaking
Motivational Speaking
Recycling Service
Travel Agency
Upholsterer
Venture Capitalists
Advertising Agency
Ambulatory Services
Coupon Distribution
Family History Writing or Genealogical Service
Graphologist
Home Schooling Consultancy
Ice Sculpting
Hospitality Services
Business Name Registration/Business Incorporation
Laundry/Ironing Services
Law Library Management
Make-up Artist
Motor Vehicle Transportation
Events Management
Nutrition Consultancy
Private Tutor
Personal Instructor/Fitness Trainer
Story Telling
Stress Management Counsellor
Toy Cleaning Services
For over 500 business ideas and how to start them refer to:
Katina J. (1996), Business you can start Almanco, Canada, Adams Media.
161
Developing Successful Business Idea
(Environmental Scanning and Idea
Generation Stage)
Moving from ideas to an Entrepreneurial firm
(creation and innovation stage)
Managing, and growing an entrepreneurial firm
(Management stage)
Recognizing
opportunities
and
generating
ideas
Feasibility
analysis
Writing
Business
Plan
Industry and
Competitors
analysis
Developing an
affective
business
model
Preparing the proper
ethical and legal
foundation
Assessing
Financial
strength
and
viability
Building
the new
venture’s
team
Getting
Financing and
funding
Unique
marketing
Decision to become an Entrepreneur (Decision Stage) Figure 2.3 Entrepreneurial Process
162
issues
The
importance of
intellectual
property
Preparing
for and
evaluating
the
challenges
of growth
Strategies for firm
growth
Franchising
Source: Barrlinger B.R. and Ireland R.d. (2013), Entrepreneurship Successfully Launching New Ventures 4th ed. England, Pearson
Education Limited.
163
The process may also assume a different dimension. This dimension is a preferred approach and may appear thus.
Figure 2.4 Entrepreneurial Ladder
Decision
to become an
Entrepreneur
(Decision Stage)
Developing Successful Business Idea (Environmental Scanning and
Idea Generation Stage)
Moving from ideas to an Entrepreneurial firm
(creation and innovation stage)
Managing, and growing an entrepreneurial firm
(Management stage)
Getting
Financing
and
funding
Building the
new venture’s
team
Assessing
Financial
strength and
viability
Preparing the
Unique
Marketing
issues
The importance
of intellectual
property
Preparing for
and evaluating
the challenges
of growth
Strategies for
firm growth
Franchising
and other
related growth
strategies
164
Recognizing
opportunities
and generating
ideas
Feasibility
analysis
Developing an
affective
business
Industry and
Competitors
Analysis
Writing
Business
Plan
proper ethical
and legal
foundation