Chapter One

The Nature of Entrepreneurship

Chapter Contents
1.1 Introduction
1.2 Historical Origin of Entrepreneurship
1.3 Definitions of Entrepreneurship and Entrepreneur
1.4 Types of Entrepreneurs
1.5 Role of Entrepreneurs in Economic Development
1.6 Entrepreneurial Competence and Environment
1.7 Creativity, Innovation and Entrepreneurship
Introduction…
 The word ‘entrepreneur’ is widely used, both in everyday
conversation and as a technical term in management and
economics.
 Its origin from a French word, entreprender, where an
entrepreneur was an individual commissioned to
undertake a particular commercial project.
 A number of concepts have been derived from the idea
of the entrepreneur such as
 Entrepreneurial
 Entrepreneurship
 Entrepreneurial process
Introduction…
 Entrepreneur is someone who undertakes certain projects
offers an opening to developing an understanding of the
nature of entrepreneurship.

 Entrepreneurship is what the entrepreneur does.

 Entrepreneurial is an adjective describing how the

entrepreneur undertakes what he or she does.

 The entrepreneurial process in which the entrepreneur

engages is the means through which new value is created.
1.2 Historical Origin of Entrepreneurship
 During the ancient period
 The word entrepreneur was used to refer to a person
managing large commercial projects through the
resources provided to him.

 During that time a entrepreneur were more descried as:

Actor, Person, Manager

 He was merely managing the business while the

risk was borne bythe government of the
country and not the entrepreneur
Historical ...
 In the 17thCentury
 A person who has signed a contractual agreement with the
government to provide stipulated products or to perform
service was considered as entrepreneur.

 The connection of the risk with entrepreneurship

developed in the 17th century.

 In this case the contract price is fixed so any resulting

profit or loss reflects the effort of the entrepreneur.
Historical con…
 In the 18th Century
 The first theory of entrepreneur has been developed
by Richard Cantillon. He said that an entrepreneur is
a risk taker.

 The other development during the 18th Century is the

differentiation of the entrepreneurial role from capital
providing role. The later role is the base for today’s
venture capitalist.
Historical con…

 In the late 19th and early 20th Century

 An entrepreneur were frequently distinguished from
managers and was viewed from economic perspectives.

 The entrepreneur organizes and operates an enterprise

for personal gain.
Historical con…

 In the middle of the 20th Century the notion of an

entrepreneur as an inventor as established. “

The function of the entrepreneur

 Is to reform or revolutionize the pattern of production by
exploiting an invention or more generally untried
technological possibility for producing new commodities
or producing an old one in a new way or opening a new
outlet for products by reorganizing a new industry.”
Historical con…
 The concept of innovation and newness are at the heart
of the above definition.

 From the historical development it is possible to

understand the fact that the perception of the word
entrepreneur was evolved from managing commercial
project to the application of innovation (creativity) in
the business idea.
Historical con…
 During the present 21st century,
 Two characteristics are associated with the
entrepreneur; they are, innovation and creativity

 Creativity is the ability to bring something new into

existence

 While innovators are practical people and create from the

opportunities available in reality
Historical con…

 The following principles of innovation have

emerged leading to success of entrepreneur :

A. Action oriented and searching for new ideas

B. Making the product service simple and understandabl
e
C. Trying, testing and revising
D. Learning from failures
E. Hard work is the key to success
1.3 Definitions of Entrepreneurship and
Entrepreneur

Definition of Entrepreneurship
The term entrepreneurship thus refers to the following:

 The process of:

 identifying opportunities in the market place,
 arranging the resources required to pursue these
opportunities and
 investing the resources to exploit the opportunities for
long term gains.
Definition…
 Is the processes through which individuals become
aware of business ownership then develop ideas for,
and initiate a business.

 Entrepreneurship can also be defined as the process

of:
 creating something different and better with value
by devoting the necessary time and effort
Definition…
 Is the art of identifying viable business
opportunities and mobilizing resources to convert
those opportunities into a successful enterprise
through:
 creativity,
 innovation,
 risk taking and
 progressive imagination.

 Entrepreneurship shifts people from being “job

seekers” to “job creators”, which is critical in
countries that have high levels of unemployment.
Definitions of Entrepreneur

An entrepreneur
Is any person who creates and develops a
business idea and takes the risk of setting up
an enterprise to produce a product or service
which satisfies customer needs.
Definition…

 An entrepreneur is therefore a business-minded person

who always finds ways to improve and grow in business

 An entrepreneur is who:
1. has the ability to identify and pursue a business
opportunity
2. raises the capital to finance it
3. gathers the necessary physical, financial and human
resources needed to operate the business venture;
4. sets goals for him/herself and others and
5. Assumes all or a major portion of the risk!

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Definition…
 An entrepreneur is a job-creator not a job-seeker.

 An entrepreneur is a person who:

 Has a dream/vision.
 Is willing to take the risk
 Makes something out of nothing

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1.4 Types of Entrepreneurs
Entrepreneurship can take three different forms:
1. The individual entrepreneur: is someone who started; acquired or
franchised his/her own independent organization.
2. Intrapreneur: is a person who does entrepreneurial work within
large organization. The process by which an intrapreneur affects
change is called Intrapreneurship

3. The Entrepreneurial Organization: an organization can create an

environment in which all its members can contribute in some
function to the entrepreneurial functions. An organization that
creates such an internal environment is defined as entrepreneurial
organization.
1.5 Role of Entrepreneurs in Economic
Development
 Entrepreneurs are at the core of industrial development
which results

 Creating greater employment opportunities to the

unemployed
 Increased revenue to the government in the form of
income
 Inspire others Towards Entrepreneurship
 Balanced Regional Development
 Provide Diversity in Firms
 Economic Independence
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.

1.6 Entrepreneurial Compétence and

environment

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1.6.1 Competence
1. Qualities of an Entrepreneur

Successful entrepreneur should have the following qualities:

1. Opportunity-seeking
2. Risk Taking
3. Demanding for efficiency and quality
4. Information-seeking
5. Goal Setting
6. Planning
7. Persuasion and networking
8. Building self-confidence
9. Listening to others
10. Demonstrating Leadership
Opportunity-seeking

 An opportunity is a favorable set of circumstances

that creates a need for a new product, service or
business.

 It includes access to credit, working premises,

education, trainings etc.

 An entrepreneur always seeks out and identifies

opportunities.
Risk Taking

The best entrepreneurs tend to:-

• Set their own objectives where there is
moderate risk of failure and take calculated
risks
• Gain satisfaction from completing a job well
• Take responsibility for their own actions
Demanding for quality and Efficiency

• Efficient means producing results with little

wasted effort.

Quality refers to:

• The ability of a product or service to meet a
customer’s expectations for that product or
service.
Information-seeking
Successful entrepreneurs spend time collecting
information about their customers,
competitors, suppliers, relevant technology
and markets.

Gathering relevant information is important to

ensure that the entrepreneur makes well
informed decisions.
Goal Setting
• A Goal - is a general direction, or long-term aim that you want
to accomplish.
• It is not specific enough to be measured.
• It is large in scope, not necessarily time-bound, and is
something that people strive for by meeting certain objectives
which will hopefully add up to eventually achieving the goal.

• Objectives - are specific and measurable.

• An entrepreneur must have a goal and an objective which is
specific, measurable, attainable, relevant, and time bound
(SMART).
Planning

Planning is making a decision about the future

in terms of what to do, when to do, where to
do, how to do, by whom to do and using what
resources.
Persuasion and networking

• Persuasion is
• a way of convincing someone to get
something or make a decision in your favor

• Networking is an extended group of people

with similar interests or concerns who interact
and remain in informal contact for mutual
assistance or support.
Building self-confidence

• Self-confidence is the state of being certain that a

chosen course of action is the best or most

effective given the circumstances.

• Self-confidence is having confidence in oneself

when considering a capability.

Listening to others

An entrepreneur does not simply impose

his/her idea on others.

Rather, they listens to other people in their

sphere of influence, analyses their input in line
with his/her own thinking and makes an
informed decision.
Demonstrating leadership

• An entrepreneur does not only do things by

him/herself, but also gets things done through
others.

• Entrepreneurs inspire, encourage and lead

others to undertake the given duties in time.
2. Entrepreneurial Skills
2. Entrepreneurial Skills
General management
It is an skills People
ability to perform Management
in a certain way. Skills
An
 Strategy Skills is someone who has a good
entrepreneur
business
Planning idea
Skillsand can turnthat idea into reality.
Communication Skills
 Marketing Skills  Leadership Skills
Depending on the
 Financial Skills above points Entrepreneurial Skills
classified in to two sorts of  Motivation
skills, these Skills
are:
 Project Management 
1. Skills
General management skills and Delegation Skills
 Negotiation Skills
2. People
 Time management skills
Management
Skills
32 03/29/2024
General Management Skills
 These are skills required to organize the physical and
financial resources needed to run the venture.

General management business skills are:

1. Strategy Skills
An ability to understand:
 how it fits within its market place,
 how it can organize itself to deliver value to its
customers, and
 the ways in which it does this better than its
competitors.
General Management Skills…
2. Planning Skills
An ability to consider:
 what the future might offer,
 how it will impact on the business and
 what needs to be done to prepare for it now.

3. Marketing Skills
 An ability to see how they satisfy the customer’s
needs and
 why the customer finds them attractive (their
features).
34
General Management Skills…
4. Financial Skills
 An ability to manage money; to be able to keep
track of expenditure and to monitor cash-flow.
5. Project Management Skills
 An ability to organize projects, to set specific
objectives, to set schedules and to ensure that the
necessary resources are in the right plat of the right
time.
6. Time Management Skills
 An ability to use time productively, to be able to
priorities important jobs and to get things done to
schedule. 35
People Management Skills
 Businesses are made by people.
 A business can only be successful if the peoples who
make it up are properly directed and are committed to
make an effort on its behalf.
Important skills we might include under this heading are:
1. Communication Skills
 An ability to use spoken and written language to express
ideas and inform others.
2. Leadership Skills
 An ability to inspire people to work in a specific way
and to undertake the tasks that are necessary for the
success of the venture.
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People Management Skills…
3. Motivation Skills
 An ability to enthuse people and get them to give their full
commitment to the tasks in hand.

4. Delegation Skills
 An ability to allocate tasks to different people. Effective
delegation involves more than instructing.

5. Negotiation Skills
 An ability to understand what is wanted from a situations, what
is motivating others in that situation and recognize the
possibilities of maximizing the outcomes for all parties.

37
3. Wealth of the Entrepreneur
Wealth is money and anything that money can buy.
It includes money, knowledge and assets of the
entrepreneur.
Who Benefits from the entrepreneur’s Wealth?
To drive his/her venture forward, the entrepreneur
calls up on the support of a number of different
groups.
Peoples who have a part to play in the
entrepreneurial venture generally are called
stakeholder.
Who Benefits from the entrepreneur’s Wealth?...

The stakeholder groups are:

Employees
Investors
Supplier
Customers
The local community
Government
1.6.2 Entrepreneurship and Environment
Business environment refers to the factors external
to a business enterprise which influence its
operations and determine its effectiveness.

Business environment may be healthy or unhealthy.

 Healthy business environment means the conditions
are favorable to the growth of business
 Unhealthy environment implies conditions hostile or
unfavorable to business operations.
Entrepreneurship and Environment…
A study of business environment offers the following
benefits:
 It provides information about environment which is
essential for successful operation of business firms.
 It opens up fresh avenues for the expansion of new
entrepreneurial operations.

 Knowledge about changing environment enables

businessmen to adopt a dynamic approach and
maintain harmony of business operations with the
environment.
Phases of Business Environment
Business environment may be classified into
two broad categories; namely external; and
internal environment

External Environment
1. Economic Environment
2. Legal Environment
3. Political Environment
4. Socio-Cultural Environment
5. Demographic Environment
Phases of Business Environment…

Internal Environment

1. Raw Material

2. Production/Operation

3. Finance

4. Human Resource
Environmental Factors Affecting Entrepreneurship
 Sudden changes in Government policy.
 Sudden political upsurge.
 Outbreak of war or regional conflicts.
 Excessive red-tapism and corruption among Government
agencies.
 Ideological and social conflicts.
 Unreliable supply of power, materials, finance, labor and
other inputs.
 Rise in the cost of inputs.
 Unfavorable market fluctuations.
 Non-cooperative attitude of banks and financial
institutions.
1.7 Creativity, Innovation and Entrepreneurship
1.7.1 Creativity
 It is the tendency to generate or recognize ideas, alternatives, or
possibilities that may be useful in solving problems,
communicating with others, and entertaining ourselves and others.

 Is the ability to come up with new idea and different ways of

looking at a problem and opportunities.

 It is a process of assembling ideas by recombining elements

already known but wrongly assumed to be unrelated to each other.
 Thus, creativity is the development of ideas about products,
practices, services, or procedures that are novel and
potentially useful to the organization.
Steps in the Creative Process
 Step1: Opportunity or problem Recognition: A person
discovers that a new opportunity exists or a problem
needs resolution.
 Step2: Immersion: the individual concentrates on the
problem and becomes immersed in it.
 Step 3: Incubation: the person keeps the assembled
information in mind for a while
 Step 4: Insight: the problem-conquering solution flashes
into the person’s mind at an unexpected time
 Step 5: Verification and Application: the individual sets
out to prove that the creative solution has merit and
experimenting with new ideas
Barriers to Creativity
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
6. becoming overly specialized
7. avoiding ambiguity
8. fearing looking foolish
9. fearing mistakes and failure
10. believing that ‘I’m not creative
1.7. 2 Innovation
Innovation
it is a means to the exploitation of opportunity.
It is the implementation of new idea at the
individual, group or organizational level.
it is a process of intentional change made to rate
value by meeting opportunity and seeking
advantage.
Innovation…
There are four distinct types of innovation, these are
as follows:

 Invention described as the creation of a new product,

service or process
 Extension the expansion of a product, service or
process
 Duplication defined as replication of an already
existing product, service or process
 Synthesis the combination of existing concepts and
factors into a new formulation
Innovation con…
The Innovation Process
1. Analytical planning: carefully identifying the
product or service features, design as well as the
resources that will be needed.
2. Resources organization: obtaining the required
resources, materials, technology, human or capital
resources
3. Implementation: applying the resources in order to
accomplish the plans
4. Commercial application: the provision of values to
customers, reward employees and satisfy the
stakeholders.
Innovation con…
Areas of Innovation
1. New product & Services
2. New Production Techniques & New Way of
Delivering the Product or Service to the Customer
3. New Operating Practices
4. New Means of Informing the Customer about the
Product
5. New Means of Managing Relationship within the
Organization
6. New Ways of Managing Relationships between
Organizations
1.7.3 Flow of Creativity to Entrepreneurship
Creativity is the ability to develop new ideas
and to discover new ways of looking at
problems and opportunities.
Innovation is the ability to apply creative
solution to those problems and opportunities
in order to enhance people’s lives or to enrich
society.

Entrepreneurship = creativity + innovation

Flow of Creativity, Innovation and
Entrepreneurship
r
Creativity
Thinking new things

Innovation
Doing new things

Entrepreneurship
Creating value in marketplace
Chapter Two
..
2. Developing
.
Business Plan

54
Concept of Business Plan

A business plan
 is a road map for starting and running a business.
 It provides information about the various
functional requirements (marketing, finance,
operations and human resources) for running a
business.

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Concept of Business Plan…

 It describe the direction of the company where it

want to be & how it going to get there.

 it is a written summary of your proposed business.

 A business plan is a document used to summaries an

entrepreneur’s business aspirations, secure legal
authority and mobilize resources to launch the
business.

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What is a business idea?
Every business is born from an idea.

Business ideas should come from observation, to

find a potential opportunity, or try to forecast what
people or other businesses might want.

It sometimes developed from someone’s education

and past experience
A successful business meets the needs of its
customers.
How do people find good business ideas?
• A good business idea is based on the needs of customers
• Every good business idea is based on knowledge of what the
market wants.

Methods for Generating Business Ideas

1. Learn from successful business owners
2. Draw From Experience
2.1 Your own Experience
2.2 Other People’s Experience
3. Survey Your Local Business Area
4. Scanning Your Environment

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1. Opportunity Identification and Evaluation

• 1) Scanning the Environment/ Getting the

Idea
• 2) Opportunity Identification
• 3) Opportunity Development
• 4) Opportunity Evaluation
• 5) Assessment of the Entrepreneurial Team
2 Business Idea Development
 A business idea is a short and precise description of
the basic operation of an intended business.
 There are three types of business ideas. They are:
1. Old Idea – Here an individual copies an existing
business idea from someone.
2. 2. Old Idea with Modification – In this case the
person accepts an old idea from someone and then
modifies it in some way to fit a potential customer’s
demand.
3. A New Idea – This one involves the invention of
something new for the first time
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3. Business Idea Identification
Your business idea will tell you;
Which need your business will fulfill for its
customers.
What product or service your business will sell.
Who your business will sell to.
How your business is going to sell its products or
services.

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4. Business Idea Screening

By now you probably have quite a few possible

ideas for your own business - at least five or
perhaps over five.
Your next task is try to bring it down to between
three and six ideas- the ones that are most suitable
for you.
You can select the most suitable ideas from your
list by thinking carefully about each idea.
Go through your list of business ideas and make
notes about each by answering these questions:
03/29/2024 62
Business Idea Screening …

During Business Idea Screening answering these

questions is important
Which?
• Which customer needs do you want to satisfy?
What ?
• What product or service do your customers want?
• What quality of the product do your customers
want?
• What do you know about the product or service for
this business?
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Business Idea Screening …
Who
 Who are your likely customers for this particular
business?
 Will they be enough in number to keep your business
viable?
 Who are your competitors?
How
 How will you be able to supply goods and services the
customers want?
 How does running this sort of business suit your personal
characteristics and abilities?
 How do you know there is need for this business in your
area?
03/29/2024 64
Business Planning Process

1) Preliminary Investigation
Before preparing the plan entrepreneur should:
 Review available business plans (if any).
 Scan the external environment and internal
environment to assess the strengths, weakness,
opportunities and threats.
 Seek professional advice from a friend/relative or a
person who is already into similar business (if any).

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Developing a Business Plan…

2. Feasibility Analysis
 is done to find whether the proposed project would
be feasible or not (considering the above
environmental scanning).
 Environmental scanning is carried out to assess
the external and internal environment of the
geographical area/areas where, entrepreneur intends
to set up his business enterprise,
 whereas feasibility study is carried out to assess
the feasibility o f the project itself in a particular
environment in greater detail.
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Developing a Business Plan…

3. Report Preparation
After environmental scanning and feasibility
analysis, a business plan report is prepared.

It is a written document that describes step-by-

step, the strategies involved in starting and
running a business.

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Essential Components of Business Plan

1. Cover sheet
2. Table of content
3. Executive summery
4. About The Business
5. Funding requirement
6. The product or service
7. The plan: operational plan, organizational
plan, financial plan
8. Critical risks
9. Exit strategy
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Chapter Three
..
3. BUSINESS
.
FORMATION

69
Chapter Objectives

After completing this chapter, students will be able

to:
 Identify the Forms of Business Ownership;
 Analyze the Importance/Role of MSEs;
 Distinguish the Failure and Success Factors of
MSEs;
 Identify the Problems of Small Scale Business ;
and
Develop Organizational Culture
3.1 INTRODUCTION

• A business formation deals with the formalization

and actual implementation of business ideas in to
practice.
• MSE is the fact that it serves as vehicles for
employment opportunities both at urban center and
rural areas reinforcing the economic development.
• These firms can be operated by limited resources,
with fewer requirements of sophisticated machinery
and modern technology
INTRODUCTION…

 Micro Small Enterprise serves as sources for

sustainable job opportunities not only for
developing countries but also for developed
countries.
• In any country they are acting as engine of growth
through poverty and unemployment reductions.
• They are more flexible than large ones in the
products and services they offer.
3.2 The Concept & definition of Small Business
Development
• Based on socio- economic conditions, countries define
small business differently.
• But all may use size and economic criteria as a base to
define small business.
• Size criteria include number of employees and the
startup capital.
• Size does not always reflect the true nature of an
enterprise; in addition, qualitative characteristics are
used to differentiate small business from other
business.
The Concept & definition of SBB…
• some of the criteria used to measure size are:
Number of employees
Sales volume
Asset size
volume of deposits
Total capital investment
volume/value of production, and
a combination of the stated factors.
• N.B The number of employees is the most widely
used yardstick, the best criteria in any given case
depends up on the user’s purpose.
The Concept & definition of SBB…
• The economic/control definition covers market share,
independence and personalized management.
• Size does not always reflect the true nature of an
enterprise.
• In addition, qualitative characteristics may be used to
differentiate small business from other business.
The economic/control definition covers:
• Market Share
• Independence and
• Personalized Management
• Technology
• Geographical Area of Operation.
Cont’d…
• Micro and small enterprises (MSEs) cover a
wider spectrum of industries and play an important
role in both developed and developing economies.
• A small entrepreneurs can set up a unit even with
less capital, enjoy quick returns and have the
flexibility to handle the change of the market,
• They have to face many problems like lack of
finance, poor operations management, lack of
experience, poor financial management, etc,.
characteristics of small scale business:
High Labor Intensity
Less Capital Intensive
Use of Local Skills and Knowledge
Flexibility
Use of Indigenous Raw Materials
Localized Operation
Lesser Gestation Period - earn after a short
period of time
Workplace Culture – No work
specialization
3.3 Forms of Business

• There are three basic legal forms of business

formation.
They are:-
1) Proprietorship,
2) Partnership, and
3) Corporation
Cont’d…
Cont’d…

 These three basic legal forms are compared with regard to:
 ownership,
 liability,
 start-up costs,
 continuity,
 transferability of interest,
 capital requirements,
 management control,
 distribution of profits, and
 attractiveness for raising capital.
 It is very important that the entrepreneur carefully evaluate
the pros and cons of the various legal forms of organizing the
new venture.
3.4 Importance of Small Business
1) Providing Job Opportunities
2) Introducing Innovation
3) Stimulating Economic Competition
4) Balanced Regional Development
5) Dispersal over Wide Areas
6) Mobilization of Locals Resources
7) Less Dependence on Foreign Capital/ Export
Promotion
8) Protection of Environment
9) Facilitate Development of Large Scale Enterprises
3.5 Classification of MSE
1. In Case of Manufacturing Enterprise
(Manufacturing, Construction and Mining):
• A Micro Enterprise is one in which the investment in
plant and machinery (total asset) does not exceed birr
100, 000 (one hundred thousand); and operates with 5
people including the owner.
• Small Enterprises is one in which the investment in
plant and machinery (a paid up capital of total asset)
of birr 100, 000 (one hundred thousand) and not more
than Birr 1.5 million; and operates with 6-30 persons.
Cont’d…
2. In Case of Service Enterprise (Retailing,
Transport, Hotel and Tourism, ICT and
Maintenance):
• A micro enterprise is one with the values of total
asset is not exceeding Birr 50,000(fifty thousands);
and operates with 5 persons including the owner of
the enterprise.
• Small Enterprises is one in which the total asset
value or a paid up capital of birr100, 000 (one
hundred thousand) and not more than Birr 1.5
million; and operates with 6-30 persons.
Cont’d…

NB : When ambiguity is encountered

between manpower and total assets as
explained above, total asset is taken as
primary yardstick.
Priority Sectors and Sub-Sectors for
MSEs Engagement In Ethiopia
1) Manufacturing Sector
2) Construction Sectors
3) Trade Sectors
4) Service Sectors
5) Agriculture Sector (Urban Agriculture)
Cont’d…
Environmental Analysis:
• Entrepreneurship does not exist in a vacuum. It is
affected by and affects the environment.
• Figure: Entrepreneurship vs Environment
Cont’d…
a) Macro Environment

• It consists of the political, technological, social,

legal and economic environments.

• All of these are not immediate part of the

entrepreneur’s venture yet they have an impact
on his/her enterprise.
Cont’d…
b) Sectoral Analysis
• After having understood the general
environment in which the business has to take
birth, it is important to study the sector or
industry conditions in which the entrepreneur
proposes to launch a venture.

• The purpose of industry analysis is to determine

what makes an industry attractive
Cont’d…
• For such analysis one should study the:
 history of the industry,
 the future trends,
 new products developed in the industry,
 forecasts made by the government or the
industry.
 It is also advisable to study the existing or
potential competition, threat of substitutes and
entry barriers.
Cont’d…
SWOT Analysis
At this stage, conducting a SWOT analysis will help
the entrepreneur to clearly identify his/her own
strengths and weaknesses as well as the
opportunities and threats in the environment.
Strengths
Are positive internal factors that contribute to an
individual’s ability
Weaknesses
Are negative internal factors that inhibit an
individual’s ability
Cont’d…
SWOT Analysis…
Opportunities
• are positive external options that an individual could
exploit to accomplish his/her mission, goals and
objectives.

Threats
• are negative external forces that hinder an individual from
accomplishing his/her mission, goals and objectives.
• These could arise due to competition, change in
government policy, economic recession, technological
advances etc.
Levels of MSEs in Ethiopia
Start-up level  those who . completed the required
profession/skill from various
institutions
Growth Level when an enterprise become competent
in price, quality and supply and
profitable

Maturity when an enterprise able to be

Level profitable and invest further
Growth- When transformed from small to
Medium Level medium level of growth
3.6 Small Business Failure and Success Factors
 The most Common Causes of Small Business
Failure
o Inadequate Management : refers to the owner’s lack of
knowledge about how to manage a people.
o Inadequate Financing: -can be caused by improper
managerial control as well as shortage of capital .
• Neglect- occurs whenever an owner does not pay
sufficient attention to the enterprise.
• Fraud- involves intentional misrepresentation or
dishonesty.
• Disaster- refers to some unforeseen happenings. E.g
flood , fires, robberies, or extended strikes.
Business Termination versus Failure

• There is a difference between a business

termination and a business failure.
• A termination occurs when a business no longer
exists for any reason.
• A failure occurs when a business closes with a
financial loss to a creditor.
• Reasons for a termination is the owner may have
an opportunity to sell her business to someone
else for a healthy profit, or be ready to move on to
a new business or to retire, or s/he may have
simply lost interest in the business.
Small Business Success Factors
1. Conducive Environment;
2. Adequate Credit Assistance;
3. Markets and Marketing Support.
Main Supporting Packages for MSEs
Development in Ethiopia
• Awareness creation about the sector;
• Provision of legal services to form legal business
enterprises;
• Providing Technical and business management
training;
• Financial support based on personal saving,
20/80 (the beneficiaries are save 20% and the
MFIs provide Loan 80% of the projects);
• Facilitate working premises;
3.10 Organizational Structure and
Entrepreneurial Team Formation
Organization structure
• defines members’ jobs and the communication and
relationship these jobs have with each other.
• These relationships are depicted in an organization chart.
• Rewards : Members of an organization will require
rewards in the form of promotions, bonuses, praise, and
so on.
• Selection criteria- The entrepreneur will need to
determine a set of guidelines for selecting individuals for
each position.
• Training- Training, on or off the job, must be specified.
The entrepreneur needs to understand the
significance of leadership in the
organization.