13.2 TOPIC 1 INTRODUCTION TO ENTREPRENEURSHIP

13 TOPIC 1 INTRODUCTION TO ENTREPRENEURSHIP

INTRODUCTION
Welcome to the world of entrepreneurship!
The economists of the eighteenth-century introduced entrepreneurship as a topic
for discussion and analysis and it continued to attract the interest of economists
in the nineteenth-century. In the twentieth-century, the word entrepreneurship
became synonymous with free enterprise. It was generally recognised that
entrepreneurs act as agents of change, provide creative, innovative ideas
for business enterprises and help businesses grow and become profitable.
Entrepreneurship is the symbol of business tenacity and achievement.
Entrepreneurship is important to individuals, society and the country and is

Topic 1
XIntroduction to Entrepreneurship

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the evolution and concepts of entrepreneurship;
2. Discuss the importance of entrepreneurship;
3. Identify the ten myths of entrepreneurship; and
4. Discuss entrepreneurship development in Malaysia.

recognised throughout the world as a catalyst for economic growth. This
topic discusses the evolution and concepts of entrepreneurship, the importance
of entrepreneurship, the myths of entrepreneurship and entrepreneurship
development in Malaysia.

THE EVOLUTION OF ENTREPRENEURSHIP
The word entrepreneur is derived from the French entreprendre, meaning „to
undertake‰. The evolution and development of the theory of entrepreneurship
can be summarised as shown in Table 1.1.
The concepts of the entrepreneur and entrepreneurship are elaborated further in
the following discussion.

Table 1.1: The Evolution and Development of the Theory of Entrepreneurship
Period Theory and Concept

The Earliest Period
An early example of the definition of an entrepreneur as a gobetween
is Marco Polo, who attempted to establish trade routes to the
Far East. As a go-between, Marco Polo would sign a contract with a
financier (capitalist) to sell his goods. The capitalist was a passive risk
bearer. The merchant-adventurer took the active role in trading, bearing
all the physical and emotional risks. Once the merchant adventurer
had successfully sold the goods, the profits would be divided
between the capitalist and the merchant-adventurer.

The Middle Ages
During this period, the term entrepreneur was used to describe both
an actor and a person who was in charge of and managed large
production projects. This person merely managed the projects using
the resources provided by the government. In this case, he did not
assume any risks. The entrepreneur in this age was the person who
was in charge of great architectural works, such as public buildings
and cathedrals.

The 17th Century

In this century, there was a connection between risk and
entrepreneurship. The entrepreneur was a person who entered into a
contractual arrangement with the government to perform a service or
to supply stipulated products. The contract price was fixed.
Therefore, any profits or losses were the entrepreneur's. During this
century, Richard Cantillon, an economist, developed one of the early
theories of the entrepreneur. He is regarded as the founder of the
term 'entrepreneur'. He viewed the entrepreneur as a risk taker.
The entrepreneurs in the 17th century as observed by Richard
were merchants, farmers, craftsmen and other sole proprietors. They
bought at a certain price and sold at an uncertain price, therefore
operating at a risk.
1.1

18th Century In the 18th century, the entrepreneur was differentiated from the
capital provider. This happened because of the industrialisation that
occurred throughout the world. Many of the inventions developed
during this time were reactions to the changing world. For example,
the case with the inventions of Eli Whitney and Thomas Edison. Both
Eli Whitney and Thomas Edison were developing new technologies
and were unable to finance their inventions. Eli Whitney and Thomas
Edison were capital users (entrepreneurs), not providers (venture
capitalists).

19th and 20th Centuries
 In the late 19th and 20th centuries, entrepreneurs were not
frequently distinguished from managers. In the middle of the
20th century, the notion of an entrepreneur as an innovator
was established. The function of the entrepreneur is to reform or
revolutionise the pattern of production by exploiting an invention or,
more generally, an untried technological possibility for producing a
new commodity or producing an old one in a new way.
21st Century Entrepreneurs in the twenty-first century are considered the heroes
of free enterprise. Many of them have used innovation and creativity
to build multimillion-dollar enterprises from fledgling businesses.
Entrepreneurs have created new products and services and have
assumed the risks associated with these ventures. Today, many
people regard entrepreneurship as „pioneership‰ on the frontiers of
business (Kuratko & Hodgetts, 2004).

CONCEPTS OF ENTREPRENEURSHIP
1.2.1 Entrepreneurship
According to Histrich and Peter (1998), entrepreneurship is the dynamic process
of creating incremental wealth. The wealth is created by individuals who assume
major risks in terms of equity, time, and career commitment or provide value for
some product or service. It is the process of creating something new with value
by devoting the necessary time and effort, assuming the accompanying financial,
psychological and social risks and receiving the resulting rewards of monetary,
personal satisfaction and independence. This definition focuses on four basic
aspects, as shown in Figure 1.1.
1.2
According to Peter Drucker, entrepreneurship is a discipline which can
be learned. What do you think of this statement? Discuss with your
coursemates.

ACTIVITY 1.1

Figure 1.1: The four basic aspects of entrepreneurship according to Histrich
and Peter (1998)
Entrepreneurship as defined by Kuratko and Hodgetts (2004) is a process of
innovation and new venture creation through four major dimensions:
(a) Individuals
(b) Organisational
(c) Environmental
(d) Process
Those dimensions are aided by collaborative networks in government, education,
and institution.

In recognising the importance of entrepreneurship in the twenty-first century,
Kuratko and Hodgetts (2004) have developed an integrated definition of
entrepreneurship as follows:
1.2.2 Who are Entrepreneurs?
Entrepreneurs are the pioneers of today's business success. Their sense of
opportunity, their drive to innovate, and their capacity for accomplishment have
become the standard by which free enterprise is now measured.
1. What is entrepreneurship?
2. What are the four basic aspects of entrepreneurship?

SELF-CHECK 1.1
Today, an entrepreneur is an innovator or developer who recognises and seizes
opportunities; converts those opportunities into workable or marketable ideas;
adds value through time, effort, money, or skills; assumes the risks of the
competitive marketplace to implement these ideas; and realises the rewards from
the efforts.
The meaning and definition of an entrepreneur varies with discipline. For
example, an economist sees entrepreneurs as those who bring resources,
labour, materials, and other assets into unusual combinations that make their
value greater than before and also those who introduce changes, innovations,
and a new order to generate profit. A psychologist defines entrepreneurs
at the behavioural term of achievement. To a psychologist, entrepreneurs are
individuals who are driven to seek challenges and accomplishments.
Although each of these definitions views entrepreneurs from a slightly different
perspective, they all contain similar notions, such as:
(a) Newness
(b) Wealth
(c) Organising
(d) Creating
(e) Risk taking

Entrepreneurs are catalysts for economic change who use purposeful searching,
careful planning and sound judgement when carrying out the entrepreneurial
process.
You are an entrepreneur who is about to open a franchise restaurant.
What should you do before you start your business? Present your
ideas in class.

ACTIVITY 1.2

THE IMPORTANCE Of ENTREPRENEURSHIP
Entrepreneurship is important in today's world. It is a catalyst for economic
change and growth. The role of entrepreneurship in economic development
involves more than just increasing per capita output and income. It involves
initiating and constituting change in the structure of business and society. This
change is accompanied by growth and increased output. One theory of economic
growth depicts innovation as the key for economic growth in developing
new products or services for the market. Innovative activities also stimulate
investment interest in the new ventures being created. Thus, entrepreneurship
through its process of innovation creates new investment of new ventures, which
result in economic development. As more ventures are being created, new jobs
will be produced, thus reducing the unemployment rate.
Entrepreneurship, through its creativity and innovation process produces new
products and services to fulfil human needs. It provides specific products or
services needed by customers. In producing goods and services, they will find
better ways to utilise resources, and reduce waste. For that, society will get better
goods and services at a cheaper price.
Entrepreneurship helps to improve the lives of millions of people through the
new products and services they bring to the market. Moreover, entrepreneurs
are also extremely generous in donating substantial portions of their wealth to
eminently worthy causes. Therefore, entrepreneurs are individuals who create
wealth, as well as promote wealth distribution.

What do you think is the importance of entrepreneurship to
individuals, society and the country? Discuss in class.

ACTIVITY 1.3

There are many myths about entrepreneurship. These myths arise because of
the lack of research on entrepreneurship. Kuratko and Hodgetts (2004) have
discussed ten myths of entrepreneurship as follows:

Table 1.2: The Ten Myths of Entrepreneurship
Myths Facts
Myth 1
Entrepreneurs are doers, not thinkers

Although entrepreneurs tend to be action oriented, they are also
thinkers. They are actually often very methodical people who plan
their moves carefully. They also have other alternatives set if
their plan fails. This shows that entrepreneurs are both thinkers
and doers.

Myth 2
Entrepreneurs are born, not made

Some entrepreneurs and non-entrepreneurs say that the
characteristics of entrepreneurs cannot be taught or learned.
Entrepreneurial characteristics are innate traits and one must
be born with it to become entrepreneurs. However, research
has proven that entrepreneurship can be taught and studied.
Entrepreneurship has models, processes and case studies that
allow it to be learned.

Myth 3.
Entrepreneurs are always inventors

Although many inventors are also entrepreneurs, numerous
successful entrepreneurs are not inventors. For example, Ray
Kroc did not invent the fast-food franchise but his innovative
ideas made McDonald's the largest fast-food enterprise in the
world. Successful entrepreneurs use creative and innovative
ideas in their ventures and these characteristics can be learned.

Myth 4
Entrepreneurs are academic and social misfits

This belief arises because some business owners started their
successful enterprise only after dropping out of school or
quitting a job. Historically, educational and social organisations
did not recognise entrepreneurs. Today, the entrepreneur is
no longer considered a misfit. They are now viewed as
professionals.

Myth 5
Entrepreneurs must fit the „Profile‰

Many books and articles have presented checklists of
characteristics of the successful entrepreneur. These lists were
neither validated nor complete; they were based on case studies
and on research findings among achievement-oriented people.
Today, we realise that a standard entrepreneurial profile is hard
to compile. Many successful entrepreneurs today did not have
all the profile of the successful entrepreneur when they started
their venture.

Myth 6
All entrepreneurs
need is money
It is true that venture needs capital to survive; it is also true that
a large number of business failures occur because of a lack of
adequate financing. To entrepreneurs, money is a resource but
not an end in itself.

Myth 7
All entrepreneurs need is luck

To be at „the right place at the right time‰ is always an
advantage. However, „luck happens when preparation meets
opportunity‰. What are important and needed for the
entrepreneur to seize an opportunity are planning, preparation,
determination, desire, knowledge and innovativeness.

Myth 8
Ignorance is bliss for entrepreneurs

„Too much planning and evaluation lead to constant problems‰.
This statement is not true in today's competitive markets. The
key factors to be successful entrepreneurs are detailed planning
and preparation. Entrepreneurs identify a venture's strength and
weaknesses, set up clear timetables with contingencies for
handling problems, and minimise these problems through
careful strategy formulation.

Myth 9
Entrepreneurs seek success but experience high failure rates

It is true that many entrepreneurs suffer a number of failures
before they are successful. In fact, failures can teach many
lessons to entrepreneurs and often lead to future successes.
Entrepreneurs always learn from their failures and also the
failures of others, which act as a form of guidance and direction
for their future

Myth 10
Entrepreneurs are extreme risktakers (gamblers)

The concept of risk is a major element in the entrepreneurial
process. However, the public's perception is that most
entrepreneurs are high risk-takers. In fact, entrepreneurs always
search for information and do planning before taking any action.
This means that entrepreneurs are usually working on moderate
and calculated risks.

These myths can provide a view of today's current thinking on entrepreneurship.
It also provides a framework and foundation for researching the contemporary
theories and processes of entrepreneurship.

Entrepreneurship has existed in Malaysia (Malaya) since the interaction of
Malacca with foreign traders. However, when the British colonised the Malay
Peninsular, they changed the structure of the society and practised the „divide
and rule‰ system in which the Malays were engaged in administration and
agriculture, the Chinese in mining and business, and the Indians in rubber
plantations. As a result of this system, the Chinese society was far ahead in
business compared to the Malays and Indians.
After independence, the Malaysian Government realised the importance of
entrepreneurship to individuals, society and the country, and how it contributes
to the nationÊs prosperity. Since then, the government has been focusing on the
field of entrepreneurship until today. The New Economic Policy (1971a1990), the
National Development Policy (1990a2000) and Vision 2020, all encourage and
support entrepreneurship development in Malaysia.
The government encourages entrepreneurship development and gives
recognition to entrepreneurs because they can contribute to the development
of the country. In 1995, the government incorporated the Ministry of
Entrepreneurship Development as a specific body to manage and promote the
growth of entrepreneurship in Malaysia. Today, this ministry is named the
Ministry of Entrepreneurship Development and Co-operation.
1.5
How far does the Malaysian government recognise and also
restructure entrepreneurship development in the country? Do
research on this topic and share your findings. You may use the
Internet, newspapers and books as resources for your research.

ACTIVITY 1.5
Name some policies enacted by the Malaysian government to
promote local entrepreneurship.

ACTIVITY 1.4

• The study of entrepreneurship has relevance today, not only because it helps
entrepreneurs to better fulfil their personal needs but also because of the
contribution it gives to the individual, society, country and to the world.
• This topic examines the evolution and concepts of entrepreneurship and
discusses the importance of entrepreneurship.
• In addition, the ten major myths of entrepreneurship are presented to
provide a better understanding of the assumptions surrounding this newly
developing field of study.
• It also provides a framework and foundation for researching contemporary
theories and processes of entrepreneurship.
• The discussion on the entrepreneurship development in Malaysia is
presented to give a brief history and scenarios of entrepreneurship in
Malaysia. The government should continuously promote the growth of this
area in the future.
• Furthermore, to foster entrepreneurship development, entrepreneurship
education is a vital element to further educate society in the area of
entrepreneurship.

Divide and rule

Entrepreneur

Entrepreneurship

Myths

New venture

Risk

1. What are the ten myths of entrepreneurship?
2. Discuss the importance of entrepreneurship.
3. Give the scenarios of entrepreneurship development in Malaysia.

13 T3 Developing Entrepreneurial Creativity and Innovation

13 T3 Developing Entrepreneurial Creativity and Innovation

INTRODUCTION
Today's competitive business environment requires an entrepreneur to think of
ways to produce new products, services or processes for new purposes to the
customers. This, in turn, could enable the organisation to survive and attract the
attention of customers to the organisation's new inventions as well as generate
revenues. Hence, creativity and innovation are vital elements for all levels of
businesses in order for them to grow and expand. Besides, it is also essential both
for survival and for building competitive advantage (Kirby, 2003).
Continuously seeking new paradigms of solving a business problem is the
precondition for successful entrepreneurs. As a creative person, the entrepreneur
must be able to think creatively to find solutions to existing problems. One
should, however, remember that, efficiency and effectiveness no longer
guarantee the survival of business nowadays. Creativity and innovation are
constantly pushing business forward.

Topic 3 Developing Entrepreneurial Creativity and Innovation

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define the concepts of creativity and innovation;
2. Explain four main phases in the creative process;
3. Explain five creativity techniques;
4. Describe four basic types of innovation; and
5. Discuss the barriers to creativity and innovation.

As a result, the ability to create or invent something new is the answer for
business to remain in the market.
The first section discusses what creativity is, the process of creativity, barriers to
creativity, how to generate creativity and characteristics of creative entrepreneurs.

WHAT IS CREATIVITY?
There are a few definitions for creativity. According to Schermerhorn, Hunt
and Osborn (2003), creativity involves the development of unique and novel
responses to problems and opportunities. Creativity is imperative for responding
to the complex challenges in a dynamic business environment which is often full
of non-routine problems. Thus, creativity is:
„The ability to produce work that is novel (i.e. original and unexpected), high
in quality and appropriate (i.e. useful, meets task constraints).‰
(Sternberg, Kaufman and Pretz, 2002)

Give the definition for creativity based on your understanding.

SELF-CHECK 3.1
An entrepreneur needs to think of ideas to implement new strategies. Generally,
ideas evolve from the creative process in which an imaginative individual will
imagine, inculcate and develop an idea into a form that can be implemented and
in return, benefit both the entrepreneur and the organisation.
According to Kuratko and Hodgetts (2004), there are four main phases or steps in
the creative process, as shown in Figure 3.1.
Figure 3.1: The creative thinking process
Source: Kuratko and Hodgetts (2004)

3.2
The elaboration of the phases is shown in Figure 3.2.
Figure 3.2: Four phases in the creative process

BARRIERS TO CREATIVITY
We should bear in mind that not all novel ideas generated during the creative
thinking process are acceptable. Creativity does not ensure that there will be no
barriers, no frustrations and no failures. There are four barriers to creativity, as
shown in Figure 3.3.
Figure 3.3: Barriers to creativity

3.3
Briefly explain what creativity is and the main phases involved in the
process of creative thinking.

EXERCISE 3.1

HOW TO GENERATE CREATIVE IDEAS
Different people have different ways of thinking. There are several techniques to
improve creativity. Five techniques that can be used to foster creativity are:
C Brainstorming;
C Forced Analogy;
C DO IT;
C Mind Mapping; and
C Nominal Group.

(a) Brainstorming
Brainstorming is the most common and powerful technique used to hatch
ideas. During a brainstorming session, all members of the group suggest
ideas that are then discussed. The ideal number of group members
involved in a brainstorming session is four to seven. There are four rules of
brainstorming (Williams, 2000), namely:
(i) The more ideas, the better;
(ii) All ideas are acceptable, no matter how wild or crazy they might be;
(ii) Use other group member's ideas to come up with even more ideas;
and
(iv) Criticism or evaluation of ideas is not allowed.

(b) Forced Analogy
 This is a very useful and fun-filled technique of generating ideas. An idea is
compared to a problem and something else that has little or nothing in
common to get a new insight. There are several ways that you can 'force' a
relationship between almost everything and gain new solutions, such as
you and a pen, music and computers, products and markets. Forcing
relationships can help to develop new insights as well as new alternatives.
To develop a relationship is to have a selection of objects or a card with
pictures or images that help to generate ideas. Choose an object or card
randomly and see what kind of relationship can be forced.
(Adapted from members.optus.net.com/au/~charles57/Creative/Techniques/
forced_analogy.htm or www.si.hhs.nl/~runda/Creativity.pdf)

3.4
(c) DO IT
At the first stage of the DO IT technique, we must analyse the problem
to ensure that the correct question is being asked. Studying and
understanding the problem is crucial in order to identify the main cause of
the problem. If the problem appears to be very large, break it into smaller
parts and summarise the problem as concisely as possible.
Secondly, once we have successfully identified a problem, generate as
many ideas as possible to get possible solutions to overcome it. Every
attempt to generate an idea is essential, regardless of whether the ideas are
good or bad.
Thirdly, we need to examine and analyse in detail before choosing the best
ideas to solve a problem, and all the solutions should come from the second
stage.
Finally, once the best solution is identified, it is time to implement it. This
stage involves the development of a reliable product from the ideal,
marketing and business strategies and it normally incurs time, cost, and
energy.

(d) Mind Mapping
This technique allows one to use pictures and/or word phrases to organise
and develop thoughts in a non-linear fashion. It helps people to „see‰ a
problem and its solution.
Many people use mind mapping during:
(i) Brainstorming;
(ii) Taking notes; and
(iii) Refreshing their memory.

Mind mapping can also be used to generate new products, solve a problem,
plan strategy, or develop a process. The key to its effective use to generate
ideas and solve problems is to not necessarily think logically. If one idea
triggers another, do not try to analyse it; just mark it down on the mind
map. Similar to brainstorming, the crazier the association, the better. That is
how truly innovative solutions come about.

(e) Nominal Group
The use of nominal groups is to generate ideas and evaluate solutions faceto-face
in non-threatening group circumstances; members do so by writing
down silently as many ideas as possible. After that, group members engage
in recording the ideas given and then discuss the ideas to obtain
clarification and evaluation. Finally, each member will vote privately on the
priority of ideas.

CHARACTERISTICS OF CREATIVE INDIVIDUALS
Entrepreneurs are somehow creative individuals. However, not all creative
individuals can be entrepreneurs. Figure 3.4 shows the eight characteristics of
creative individuals.
3.5

EXERCISE 3.2
List and briefly explain the techniques for generating creative ideas.

Figure 3.4: Characteristics of creative individuals

WHAT IS INNOVATION?
Once entrepreneurs have undergone a creative process and found the best
solution, the next step will be application and eventually innovation. Creativity is
a pre-condition to innovation. Today, innovation is widely believed to be the key
to sustainable success for many organisations. Companies that are able to
compete and win are those that develop new products or new systems of
producing products and continue doing so over time.

Why is innovation imperative? What is innovation? In this section, we will
discuss what innovation is, its types, sources and barriers.

According to Kinicki and Williams (2003), innovation is „finding ways to deliver
new or better goods or services‰. It means that every organisation, regardless of
profit or non-profit, will not allow itself to become complacent, especially when
rivals are coming up with creative ideas. Innovation is also deemed as the
creation of something new in the marketplace that alters the supply-demand
equation (Chell, 2001). An entrepreneur creates a new demand in the market by
recombining the factors of production to create something new. Therefore,
innovation is the key to survival for entrepreneurs in today's intense business
environment. 'Innovate or die' should become every entrepreneur's principle of
daily life.

3.6.1 Types of Innovation
Everyone in an enterprise must be innovative so as to enable the enterprise to
change fast enough to cater to the customer's needs and demands. Essentially,
there are four basic types of innovation (Kuratko and Hodgetts, 2004) as shown
in Figure 3.5.

3.6
What do you understand by the term innovation? In your opinion,
how does this term apply to entrepreneurs and why is it important?
Discuss in your class.

ACTIVITY 3.1

Figure 3.5: Types of innovation and examples

3.6.2 Sources of Innovation
An entrepreneur needs powerful ideas before he or she can inspire a new
product, service or process. The following are four sources of innovation for
entrepreneurs (Drucker, 1985; Kuratko and Hodgetts, 2004).

(a) Unexpected Events
Entrepreneurs frequently notice that they get ideas from something that is
out of their expectations. Unexpected events offer immense opportunities
for entrepreneurs to apply their expertise to a new application or formula.
Besides that, unexpected success or failure is also a major source of
innovation when things go unnoticed or unplanned.

(b) New-Knowledge Concept
In today's marketplace, we can find out new products or services easily.
Indeed, most of these products or services are knowledge-based
innovations that need a long time to research and to be developed by
experts. New knowledge can be obtained through reading, attending
seminars or conferences or discussions among the professionals.

(c) Changes of Demographics
Changes of demographic characteristics in age, educational levels, income
and types of employment have been a main source of innovation for
entrepreneurs. The transformation of demographic characteristics has
created huge opportunities for entrepreneurs to explore. For example, as
the standard of living and income increase, the demands for luxury goods
and health care products also accelerate.

(d) Process Needs
Process needs exist within the process of business, an industry or a service.
It perfects a process which already exists, replaces a link that is weak,
redesigns an existing process and so on. All these provide opportunities for
entrepreneurs to produce products, services or processes that suit the
customer's demands and needs. For example, in the process of creating a
healthy society, people will want to do more exercise. Thus, entrepreneurs
could provide more health facilities or centres for those who desire them.

1. What are the sources of innovation? Give examples based on your
surrounding observation.
2. Based on the types of innovation, give appropriate examples and
explain. Compare it with your friend's examples.

SELF-CHECK 3.2

3.6.3 Barriers to Innovation
Even though entrepreneurs have a pool of ideas to innovate, there are some
glitches that can hinder one from becoming innovative. Barriers to innovation
always come from within an organisation, especially from its staff. The barriers
to innovation are as follows:

(a) Organisation Does Not Encourage Innovation

Some organisations are comfortable with the current status quo and refuse
to change. For them, any change means a threat that could affect the
organisational culture and procedures, and more importantly their current
position. Thus, to avoid such things from happening, the management will
try to avoid or refuse to recognise the need for innovation within the
organisation. Moreover, interdepartmental borders prevent communication
of innovative ideas among its staff.

(b) Insufficient Resources
Some organisations are keen to change and innovate but are let down by
insufficient resources like human resources, funds and facilities that are
vital in implementing an innovation.

(c) Traditional Management Behaviour
Management's desire to be in control prevents its staff from being creative.
This happens especially when the management is controlled by senior staff
members that maintain traditional ways of thinking and resist changing.
Sometimes, a creative staff member is hindered by the management's
excessive rules, constraints and bureaucracy.

In addition to all those, barriers to innovation could be derived from personal or
individual behaviour as shown in Figure 3.6.
Figure 3.6: Personal or individual behaviour

THE IMPORTANCE OF CREATIVITY AND
INNOVATION FOR ENTREPRENEURS

In the dynamic world of global competition, entrepreneurs must embrace
creativity and innovation as part of their crucial ingredient for success.
Entrepreneurs must be able to create new products or services and be willing to
adopt cutting-edge technology if they are to compete successfully. Thus, it is
essential for entrepreneurs to recognise and reward themselves and their staff
who are creative and innovative. There are three reasons why creativity and
innovation is important. They are explained as follows:

(a) To Ensure an Organisation's Survival
Creativity and innovation is essential to long term organisation survival.
The future of a business depends on the ability of the organisation to create
new products or services. In doing so, it can increase the organisation's
capability to compete with its rivals. It also makes the entire organisation
respond speedily and collectively to the environmental change. An organisation can no longer wait for demands from customers; rather, it must engage in continuing supply of something novel to satisfy customer's wants.

3.7

(b) To Explore New Markets
With the presence of new products or services, entrepreneurs have the
advantage of exploring untapped markets. A creative and innovative
entrepreneur will always think of conquering a new market by introducing
new products or services. For example, when Phillips introduced the first
DVD (Digital Video Disc) player in the market in 1995, it successfully
penetrated the worldwide market.

(c) To Exploit Natural Resources
There are plenty of natural resources on Earth. Thus, entrepreneurs should
ensure that they can get these benefits by exploiting the wealth of resources
without causing harm to the environment. Indeed, creativity and
innovation create resources. There is no such thing as a 'resource' until man
(entrepreneur) finds a use for something in nature and thus endows it with
economic value (Drucker, 1985). Therefore, an entrepreneur is a person who
is responsible for creating the 'value' for every natural resource to benefit
human beings.

STRATEGIES TO ENCOURAGE CREATIVITY AND INNOVATION

There are four strategies that can be used to encourage creativity and innovation
in an organisation. These strategies are summarised in Figure 3.7.

Figure 3.7: Four strategies to encourage creativity and innovation in the organisation
3.8

(a) Recognise your Own Abilities
It is important to know your abilities so that you can tackle the problems or
opportunities which arise creatively and innovatively. Be aware of your
own limitations that might block you from possible solutions.

(b) Change your Perception
Try to look at problems or opportunities from various perspectives.
Examine the problems and opportunities by breaking them into small
pieces, then find the real or best solutions for them.

(c) Change the Organisational Culture
Organisations must encourage their staff to be creative and innovative.
Reward the members of staff who really excel in creating novelties.

(d) Dare to Fail
Treat every failure or mistake as a motivator that drives you to go further in
finding the best solution.

• The definition of the concept of creativity is „the ability to produce work that
is novel (original and unexpected), high in quality and appropriate (useful,
meets task constraints)‰.
• The definition of the concept of innovation is „finding ways to deliver new or
better goods or services‰.
1. What are the strategies that you can use to encourage creativity and
innovation in an organisation?
2. To take some creativity tests, please browse the following websites:
• http://www.creax.com/csa/frame.asp?session=zero
• http://enchantedmind.com/html/creativity/iq_tests/creativity_test.html

ACTIVITY 3.2

• The four main phases in the creative phase are:
a Knowledge accumulation
a Incubation
a Ideas
a Evaluation and implementation
• The five creativity techniques are:
a Brainstorming
a Forced analogy
a DO IT
a Mind mapping
a Nominal group
• The four basic types of innovation are:
a Invention
a Extension
a Duplication
a Synthesis
• The barriers to creativity are:
a Personal belief
a Fear of criticism
a Over-management
a Stress
• The barriers to innovation are:
a Organisations which do not encourage innovation
a Insufficient resources
a Traditional management behaviour

Brainstorming
Creativity
Creative process
DO IT
Forced analogy
Innovation
Mind-mapping
Nominal group

13 Topic 5 Business Plan

13 Topic 5 Business Plan

INTRODUCTION
Business environments today are dynamic, complex and subject to continual
change. In order to gain and retain sustainable competitive advantage, achieve
stated objectives and a range of efficiencies, an entrepreneur must have a good
business plan. Business planning is one of the management tools used to achieve
business objectives.
Therefore, a company should prepare a convincing business plan to attract
investors. Investors are more prepared to invest in a business when they believe
that the business planning is realistic and profitable based on their forecast of
the business viability. When a business plan is prepared based on correct
information, investors will have confidence in the market, product or service of
the company. The accuracy of a business plan will reflect the management's
ability, experience and history in running the business.

Topic 5 Business Plan

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain what a business plan is;
2. Explain the importance of business plans;
3. Identify the parties who need business plans;
4. Explain eight essential elements of a good business plan;
5. Discuss six guidelines for preparing a business plan; and
6. Describe five factors that contribute to the failure of business plans.

WHAT IS A BUSINESS PLAN?
A business plan is a written document, which describes in detail the overall plans
of a business in which an entrepreneur aims to get involved. Even if the
entrepreneur has been in business for a number of years, committing plan to
paper allows the entrepreneur to re-examine his business as well as to consider
new business opportunities. Therefore, a business plan is the blueprint of a
company, presented in a standard business format that is logical and realistic. A
business plan must communicate ideas and goals clearly. To accomplish this, a
plan should include three things as shown in Figure 5.1:

Figure 5.1: Three main things that an entrepreneur should include in a business plan

According to Patricia Utton (2001), a business plan is a detailed programme or
roadmap outlining every conceivable aspect of an entrepreneur's proposed
business venture. It is a comprehensive, self-explanatory plan of what the
entrepreneur intends to do; how the entrepreneur intends to do it, when the
entrepreneur intends to do it; where the entrepreneur intends to do it and why
he believes his idea is viable and profitable. It is, in essence, a structured
guideline to achieve the entrepreneur's goals, in operating the business.
Besides that, a business plan is an ideal tool to check facts and to
comprehensively examine the practicality of an idea before putting it into action.
It gives the entrepreneur opportunities for realistic expectations and action when
taking the business into operation. On the other hand, it also helps the
entrepreneur to identify areas of strength and weakness, and the details for the
entrepreneur to look over, the opportunity to be gained and the threat to be
faced. All these aspects will determine how they can best achieve their business
goals.

Generally, an entrepreneur needs to prepare a workable business plan for the
following purposes:

(a) It forces entrepreneurs to arrange their thoughts in a logical and
structured order.
(b) It helps them to create business frameworks by defining the activities,
responsibilities and objectives to be achieved.
(c) It encourages entrepreneurs to stimulate reality and anticipate pitfalls
before they actually occur.
(d) It helps entrepreneurs to develop strategies to meet those objectives.
(e) It serves as a working action plan or guideline in operating their business.
(f) It enables them to identify constraints that they may face when running the
business.

IMPORTANCE OF BUSINESS PLANNING
A business plan is very important to an entrepreneur for various reasons
(refer Figure 5.2).
Figure 5.2: The importance of a business plan

(a) Increase Opportunities for Success
Comprehensive business planning can identify the level of performance
that is supposed to be achieved in business. A business plan will determine
the changes that need to be taken to ensure its success. Such changes
that need to be taken into consideration are organisational structure, introduction of new technology, new manufacturing techniques and
new programmes for subordinates to increase their commitment and
productivity. Entrepreneurs need to update their knowledge and skills, to
increase their opportunity for success.

(b) Develop Mission and Vision
A business plan can set a clear mission and vision for a business. It enables
the entrepreneur to make the right decisions and take appropriate actions
in the future. The mission and vision will act as a lighthouse to enable
the entrepreneurs to know exactly where they are moving towards. The
entrepreneurs should communicate mission and vision to the entire
stakeholder to gain confidence from them.

(c) Identify the Main Competitor(s)
Business planning will enable entrepreneurs to determine who their main
competitors are, their strengths and weaknesses and determine the right
strategy to face them. All these can be done by competitive analysis to
identify the competitor's product line or service as well as their market
segment. The entrepreneur should be sure to identify all key competitors
for each of the products or services and try to estimate how long it will take
before new competitors enter the market place.

(d) Identify the Right Way of Managing the Business
A business plan gives room for the entrepreneurs and their employees to
develop effective strategy to run the business. They can define who, when
and how to tender their knowledge, skills and abilities in implementing the
business. The entrepreneurs should also ensure that their products and
services are in line with the customer's taste, government policies and other
changes in the business environment.

(e) Increase the Stakeholder's Confidence
Every stakeholder who has an interest in a business will be eager to know
the company's strengths like finances, resources and company viability.
This information is necessary for the stakeholder to determine his return on
investment. For example, before a financial institution agrees to provide the
loan needed by the entrepreneur either to start or to expand his business,
they would want to know the prospects of the business, and the ability to
repay the loan. On the other hand, suppliers also want to know the strength
of the entrepreneur's financial position before they prepare to give credit
for their materials. Also, government agencies would want to know the
background and the nature of the business before they allow the company
to operate.

(f) Identify Barriers to Business
When implementing a business, an entrepreneur will definitely face many
barriers. These barriers will cause failure or slow down the entrepreneur's
progress if it is not properly managed. Therefore, the entrepreneur should
identify the barriers he may face before implementing the business and take
the necessary action to face it. The entrepreneur knows how far those
barriers will affect him and his business.

(g) As a Performance Tool
A business plan is an operating tool which, if properly prepared, will help
the entrepreneur to work effectively towards its success. The business plan
will allow the entrepreneur to set a realistic target to be achieved as a
performance yardstick. Therefore, the business plan will provide the basics
for evaluating and controlling the company's performance in the future, in
terms of profit, cost and quality. It is also used to achieve performance
targets, to analyse customer's behaviour trends, competitor's strengths, and
internal and external economic performances.

WHO NEEDS THE BUSINESS PLAN?
A business plan is very important to various parties. Among those who need
business plans are:

(a) The Management Team
A business plan will enable the management team to consider the time,
effort and support needed to achieve the company's goal. It will provide
them with opportunities to analyse critical situations that will hinder
business progress. Besides, it will enable them to forecast changes that
might happen in the future. The management team must also analyse the
reason for the success and the failure of the company as well as threats and
opportunities that would be faced in the future. Therefore, the team must
build and examine the strategies and priorities that should be clearly
described and communicated to ensure company growth. The management
team is responsible for setting a reasonable benchmark as a comparison
for the company's success. Besides that, a business plan will enable the
management team to identify difficulties and constraints faced by the
employees in achieving the target.
5.3

Why are business plans important for entrepreneurs?
EXERCISE 5.1

(b) The Shareholders
Business planning is also important to shareholders. They must know how
the business is to be conducted since their approval is necessary if changes
in target and strategy are to be made. So, they need to know about any new
decisions made before executing them. A business plan is an essential
document for shareholders because it plays a vital role in critically
reviewing the draft plan. The entrepreneur should inform them about the
future market of the products or services, business operations, financial
projections and future plans, such as expanding the business to
international markets. The business plan is also important for new ventures
or new businesses in order to secure potential new shareholders.

(c) Bankers or Creditors

Before approving a loan application, bankers will need to study the
entrepreneur's business plan. This plan will give them an indication of the
returns they may expect from their loan and also enable them to gauge the
viability of the venture and its profitability within a reasonable time frame.
The business plan will also give bankers an idea of the companyÊs strategies
and priorities. These must be clearly described in the plan and consistent
with the overall departmental strategy policy, functional objectives and
reporting requirement. From the business plan, bankers will also be able to
ascertain government grants and tax incentives available to the
entrepreneur.

(d) Customers
Customers will also be interested in the business plan for information
regarding the company which will influence their decision to use its
products or services. Issues of interest include the quality and safety of the
company's product. To gain customer's confidence, the business plan
should also include the price of the product, durability, features and
additional support or after sales services. Customers will have more
confidence if the product uses new technologies, is authorised by parties
such as SIRIM and JAKIM, and is in line with their culture.

(e) Suppliers
Suppliers need a business plan when considering approval for business
procurement on credit terms. Suppliers want to see the ability of a business
to pay back the credit on time. Thus, a good business plan is able to give a
clear picture on the capability of the business.

(f) The Employees
Most potential employees want information about business developments
and performance before they decide to join an organisation. They can get
this information from the business plan.

ESSENTIAL ELEMENTS OF A GOOD BUSINESS PLAN.

Every successful business plan should include something about each of the
following areas since these are what make up the essential elements of a good
business plan (refer to Figure 5.3).

Figure 5.3: The eight essential elements of a good business plan

(a) Executive Summary
The executive summary is the most important section of a business plan.
This is the first section that needs to be looked at and it should tell readers
where the company is and where it wants to go. Among the elements
included in the executive summary are the mission statement, the date
when the business started, the name of the founders and the roles they
play, the number of employees, location of the business and their branches
or subsidiaries (if any), description of plans or facilities, products
manufactured, banker's names, the progress of the company and its
growth, financial status and a summary of the management's future plans.

(b) Market Analysis
The market analysis section illustrates the entrepreneur's knowledge about
a particular industry which the business is in. It should also present a
general overview and conclusion of any marketing research data that has
been collected. However, specific details of marketing research studies
should be moved to the appendix section of the business plan. This
section should include an industry description and outlook, target
market information, market test result, lead times and an evaluation of
competition.

(c) Marketing and Sales Strategies
Marketing is the process of creating and attracting customers to the
business. The entrepreneur should realise that customers are the lifeblood
of a business. A business plan should include a sales forecast based on
market analysis. In this section, the most important thing to do is to define
the marketing strategy. Marketing strategy should be a part of an ongoing
self-evaluation process and unique to the company. An overall marketing
strategy would include strategies for market penetration, business growth,
channels of distribution and communication. Overall sales strategy should
include sales force strategies and sales activities. It is also important to
include the marketing budget in this section.

(d) Services or Product Line
This section describes the uniqueness of the company's services or products
and the benefits to potential and current customers. The entrepreneur
should focus on the areas where a distinct advantage exists by identifying
the problem for which the service or product provides a solution.

(e) Organisation and Management
This section includes company's organisational structure, details about
the ownership of the company, a profile of management teams and the
qualifications of members of the board of directors, the remuneration plan
and the administrative budget.

(f) Funding Request
This section focuses on the amount of funding needed to start or expand the
business. If necessary, it can include different funding scenarios such as
with and without funding and its implication to the business. Therefore,
this section consists of project implementation cost, which includes capital
expenditure, operational expenditure, sources of finance or funding. It also
includes funding requirements, future funding requirements over the next
five years, how they will utilise the funds received and any long term
financial strategies that would have an impact on the company's financial
progress.

(g) Financials
Financials should be developed after analysing the market and setting clear
objectives. In this section, the entrepreneur shows clearly the financial
projections such as cash flow pro forma, profit and loss pro forma, balance
sheets projections, etc.

(h) Appendix
The appendix section should be provided to readers on an as-needed basis.
In other words, it should not be included with the main body of business
plan. The business plan is a communication tool. As such, it will be seen by
many people. The appendix includes a credit history, resume of key
managers, product pictures, letters of reference, details of market studies,
relevant magazine articles, licenses, permits, legal documents, copies of
leases, building permits, contracts and list of business consultants,
including attorneys and accountants.

You are an entrepreneur who is running a bakery selling traditional
cakes in Ampang Plaza. What are the details you will include under
the Marketing and Sales Strategy in your business plan? Discuss in a
group and write the details.

ACTIVITY 5.1
What are the important elements in a good business plan?

GUIDELINES IN PREPARING BUSINESS PLANS

Figure 5.4 shows the six guidelines to be followed in order to produce an
effective business plan.
Figure 5.4: The guidelines in preparing a business plan

According to Kuratko (2004), there are a number of pitfalls that should be avoided
by entrepreneurs in the formulation of a business plan. Some of these are common
errors that are usually committed by entrepreneurs and are easily noticed. Table 5.1
shows five pitfalls and strategic steps to be taken to avoid them.

Table 5.1: Pitfalls in Planning
No Pitfalls Facts How to Avoid

1. No realistic goals.

• Some of the business plans do not contain attainable and clear goals that entrepreneurs are trying to achieve.
• Lack of time frame.
• No priorities.
• No action steps in the business plan.

Good business plan should
include a clear schedule with
specific steps of action to be
accomplished within specific
time frame.

2. Failure to anticipate obstacles.

Sometimes, entrepreneurs are so immersed
in their ideas that they are unable to see the
possible problems that may arise. There are
no indicators to recognise the problems, no
admission of possible mistakes or
weaknesses in the plan and contingency
plans do not exist.

To avoid this pitfall, list
down possible obstacles that
may arise and steps or
contingency plans if the
problems occur.

3. No commitment or dedication

Many entrepreneurs appear to lack
commitment to their business.
Entrepreneurs should not give the
impression that they don't take matters
seriously in doing business. The obvious
indicators for lack of commitment are:

• Excessive procrastination.
• Missed appointments.
• No desire to invest personal money.
• Desire to make a quick profit.
Entrepreneurs should follow
up important appointments
and be willing to
demonstrate financial
commitment to their
business.

4. Lack of business or technical experience.

Many investors look for the entrepreneurs
with actual experience and not merely with
ideas, and who have true knowledge in the
proposed business. Thus, entrepreneurs
should demonstrate their knowledge and
background experience in their business
areas.

They should give evidence of
personal experience and
background for this venture.

If they lack specific
knowledge or skills, they
should get assistance from
those with qualifications.

5. No market niche

Many entrepreneurs do not identify
potential customers for their products.
Many new potential products never reach
the hand of the customer because of the
lack of a market niche or no market was
ever established for that product.

The best way to avoid this
pitfall is to establish a
specifically targeted market
segment and demonstrate
why and how specific
product or service will meet
that target group.

Entrepreneurs should avoid the pitfalls discussed in order to better the chances
of their business plan to succeed. These critical areas must be handled carefully
before developing their business plan. This will help the entrepreneur to
establish a solid foundation on which to develop an effective business plan.
• Business planning is a management system. It integrates the management
functions of planning, organising, implementing and controlling.
• The business planning process provides management with basic tools and
information that describe the management and resource environment, and
contribute to establishing the accountability framework needed to manage in
a dynamic environment. So, the execution of business planning is very
important to ensure the survival and expansion of the business.

Business plan
Executive summary
Management function
Market analysis
Product line
Pitfalls
Shareholders
Stakeholders
Describe the factors which contribute to the failure of business plans.

13 Topic 7 Entrepreneurial Networking

13 Topic 7 Entrepreneurial Networking
INTRODUCTION
Networking is a business tool that plays a very significant role for the
entrepreneur's success. If entrepreneurs have very good networking with both
external and internal customers, it will be easier for them to take advantage of
business opportunities and settle some of the problems related to their business.
Good networking relationships will enable them to gain support and cooperation
from networking circles. Therefore, every entrepreneur should develop
networking skills, as it will act as a catalyst to achieve business goals and
objectives.

WHAT IS NETWORKING?
Networking is both an outcome of a past relationship strategy and a resource
for future strategy. Relationship rights and obligations are the results of the
resources, which the company initially brought to the network, the experience
it gained and the investment it has made in its relationships. This means
that in addition to the analysis of the companyÊs relationship portfolio and
7.1

Topic 7 Entrepreneurial Networking

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe three advantages of having good networking;
2. Explain two types of networking;
3. Discuss six important reasons for networking;
4. Explain seven techniques in establishing and building confidence in
networking; and
5. Identify five barriers in network building.

understanding of networking, this also involves a listing of those additional
resources that have been built through interaction. These could be analysed using
a conventional view of the bases of power which the company may possess.

ADVANTAGES OF HAVING GOOD NETWORKING

The advantages gained by an entrepreneur from having good networking are as
follows:

(a) Accessibility
Networking is very important for the entrepreneur to gain either tangible
or intangible resources directly or indirectly. Among the tangible resources
are financial support, transfer of technology and accessibility in gaining
information to produce the right product at the right cost and the right time
as demanded by the market. Intangible resources are the moral support,
guidance and confidence provided by various groups to entrepreneurs in
operating their business.

(b) Reputation
Reputation refers to the ability of entrepreneurs to exercise leadership or to
influence the decision making of other network members, based on the
expertise that they have. A good reputation enables the entrepreneur to
attract members in networking circles to give priority to the products or
services they produce.

(c) Expectations
These can both facilitate and restrict the freedom of the company's actions.
For example, network members could have the expectation that a particular
company will effectively set prices for a number of other companies. On the
other hand, a company may be expected not to take advantage of product
shortages by raising prices or to conform to conventional competition or to
set higher ethical standards than others.

WHAT IS STRATEGIC NETWORKING?
Being a strategic entrepreneur is to envision the future and take the necessary
steps to create that future. Strategic networking, then, is gaining clarity on an
entrepreneur's goals and objectives to be achieved in running the business by
utilising their interaction with others and determining the best action that should
be taken. While it is tempting to jump into action, it is essential for entrepreneurs
to understand where they are now and where they want to go. Successful
networking is the result of proper planning and careful construction and
execution. Entrepreneurs need to find ways and means to create good
networking and gain maximum benefit from it. Networking should be one of the
core marketing tactics of most independent professionals and small business
owners. Entrepreneurs may use client-centred networking to lessen their reliance
on cost and time in getting and distributing information. Over time, this business
building strategy will reward the entrepreneur with a steady stream of new
clients, besides maintaining the existing ones.

TYPES OF NETWORKING
The two types of networking are as follows:

(a) Formal Networking
Formal networking is the existing relationship between various people
who have a symbiotic relationship with the entrepreneur. Those who
have networking correlation are better prepared to take the initiative for
creating business opportunities and solving the problems they face in the
networking chain. Every member in the networking circle is ready to share
his experience and strength for mutual advantage.

(b) Informal Networking
Informal networking is established through relationships with childhood
friends, members of oneÊs family and people sharing common interests or
hobbies. It enables an entrepreneur to discuss his business informally,
without making appointments.
Informal networking provides opportunities for the entrepreneur to gain
new information or exchange of information. Services provided by informal
networking members are usually free of charge or with minimal charges.
Usually informal networking will enable the entrepreneur to get opinion,
advice, moral and financial support. Such support will help entrepreneurs
to be more confident and increase their ability for effective decision making
and minimises business risks. Members in informal networking circles
include friends, mentors and professionals. Figure 7.1 illustrates the
members in an informal networking circle.

7.4
Outline the advantages that an entrepreneur would gain from good
networking.
EXERCISE 7.1

Figure 7.1: Informal networking circle

THE IMPORTANCE OF NETWORKING

Now let us look at the importance of networking. Figure 7.2 shows the
importance of networking.

Figure 7.2: The importance of networking

(a) Build Confidence
In business, entrepreneurs may face uncertainties, for example, investment,
losses, competitors and products which cannot penetrate into the market.
Good networking can reduce these uncertainties. An entrepreneur may
obtain reliable information on investment opportunities, market share and
product preferences. Networking also helps the entrepreneur to face
changes in business environments, such as:
(i) Changes in competitorsÊ strategies
(ii) Demographic changes
(iii) Changes in customer satisfaction
7.5

(b) Reduce Bureaucracy
Rigid bureaucracy delays the process of business activities. Networking
helps to reduce red tape in decision-making by:
(i) Speeding up the application process.
(ii) Saving time, finance and other resources.
(iii) Preventing entrepreneurs from repeating mistakes.
(iv) Eliminating irresponsibility („passing the buck‰).

(c) Increase Information
Networking will build an entrepreneur's reputation as everybody in the
networking circle will know what the entrepreneur is doing. At the same
time, information like who is who in the networking circles will enable the
entrepreneur to get the information necessary for successful progress of his
business.

(d) Develop Trust
Trust is one of the most important factors when establishing networking.
With trust, a member in the networking circle will be prepared to give
priority to the entrepreneur's products or services. Trust also motivates
people to promote the entrepreneurs products or services by word of
mouth.

(e) Create an Interdependent Situation
Someone's success might come from another's contribution. Maybe your
success too comes from someone else's contribution. People, thus, rely on
others. So whatever we do must benefit others. Everybody must react with
a symbiotic spirit. So, the concept of give-and-take is a must for developing
good networking relationships.

(f) Source of Creativity
Networking is also a source of creativity for an entrepreneur operating a
business. Various groups in networking circles will help to develop new
ideas to create new products or services, and new ways of producing and
marketing. In addition, members in the networking circle will provide new
business opportunity. All these ideas may come from friends, workers,
customers and distributors. Support and various contributions from
various members of the networking circle will enable entrepreneurs to:
(i) Improve product quality
(ii) Improve distribution

(iii) Improve techniques of production
(iv) Improve the technique for better after sales services
(v) Suggest new ways of promoting the product

HOW TO ESTABLISH STRATEGIC NETWORKING FOR ENTREPRENEURS

There are three ways for entrepreneurs to establish strategic networking as
shown in Figure 7.3:

Figure 7.3: Three ways to establish strategic networking
7.6

Describe three ways to establish strategic networking for entrepreneurs.

EXERCISE 7.2

To be a successful entrepreneur, one must have the strength to work together
with others. Here are some strategies for developing effective networking.
(a) Ready to listen;
(b) Ready to compromise;
(c) Skills in giving confidence; and
(d) Very much at peace.

When we are ready to listen to other people, we will get some ideas that could
help us change. We need to compromise with others and show our confidence.
Every entrepreneur who wishes to engage good networking strategies must
possess these qualities. Any failure to build good networking will:
(a) Increase cost;
(b) Waste time;
(c) Waste the resources of the company;
(d) Damage the entrepreneur's reputation;
(e) Damage the company's reputation; and
(f) Create dilemmas.

STRATEGIC NETWORKING CONSOLIDATION

These strategies are techniques in developing relationships between
entrepreneurs and other people to build good networking. Good relationships
with other people could help us to make positive changes. These strategies also
help entrepreneurs to overcome changes. The strategies are as follows:

(a) Strategy for Networking Consolidation
This strategy is a technique for developing relationships between
entrepreneurs and other people who have business experience and those
who will be involved in the business in the future. In addition, the
entrepreneur must also make the effort to keep other people in mind even
though they may not have any business dealings now. There are many
ways to develop strategic networking consolidation. These include:
• Paying visits;
• Participating in formal functions;

7.8
7.7

• Networking through third persons;
• Giving souvenirs;
• Sending cards e.g. Congratulatory cards, condolence cards,
invitation cards;
• Writing letters and e-mails as well as replying them;
• Giving out business cards;
• Sending facsimiles; and
• Talking on the phone.

(b) Strategy for Developing Self-confidence
Entrepreneurs must show their capacity, personality and skills when
responsibility is given to them. They should also show their responsibility
and make sure the person who gave the responsibility will be satisfied and
ready to give more responsibility in future. When we make changes, we
must be responsible and do our best, so that our ideas will not fail. Some
important matters for attention include the following:
C Ability to do something which others cannot do.
C Ability to solve problems which others cannot solve.
C Ability to generate ideas constructively when needed.
C Ability to show that we can compete with others.
C Ability to make interpretations.
C Ability to show we are a place of reference for others.
C Always be right in decision-making.
C Make someone comfortable or happy when communicating with us.
C Expression, which does not suggest dominating leadership.
C Ability to control tone of voice when talking.
C Not taking advantage of others.
C Always ready to talk frankly.
C Ready to accept opinions other than one's own.
C Ready to accept and appreciate other people and their abilities.
C Accept other's advice and give advice to others.
C Be able to control ourselves.
C Flexible.
C Give and take when conflicts start.

Such strategies will help an entrepreneur overcome many personal shortcomings
and enable him to conduct his business as smoothly as possible with the people
he is involved with.

TECHNIQUES FOR DEVELOPING CONFIDENCE AMONG ENTREPRENEURS

As an entrepreneur, you must have the trust of many people. People will have
confidence in an entrepreneur who shows that he can successfully do the work
given. These are some strategies that could help you to be confident.

(a) Communicate Effectively and with Full Confidence
An inability to deliver a message or opinion effectively will affect the
confidence people have in you. To communicate well, be prepared with
accurate information and data. Also, keep in mind that your audience may
have a perspective quite different from your own. Face changes confidently
and be prepared to talk about any problems and ideas for solutions that
you have.

(b) Prove Your Abilities to Others
You must remember that people develop confidence in you when they
know that you are capable of doing the work assigned to you. As an
entrepreneur, you must prove that you are capable of managing changes
and guiding others to cope with the changes.

(c) Show Concern for Other People
Show that you are ready to help others. When you are ready to help a
person who needs help, you will make them remember you. You can also
guide the people who find it difficult to adapt to the changes.
7.9

You have planned a Thanks giving party in your house. You have
invited your friends and relatives to the party. Explain how you will
develop good networking with them in the party.

ACTIVITY 7.1

(d) Always be Fair
If you are not fair in your actions, you will destroy the network that you
have built. So, to avoid problems you must be fair when mentoring, as well
as giving help, benefits and attention. You must adapt to changes in a team.

(e) Always be Ready to Admit Your Own Mistakes
Every human being will make mistakes. So when you make mistakes, you
must be ready to admit your mistakes. Such humility will show others that
you are sincere. You must always be ready to ask whatever you do not
understand. Avoid asking questions which purposely test other people.
When you share an idea with others, you help yourself to cope with
changes. This is because you will have many new ideas and thus, you
should be able to make good decisions.

(f) Show Teamwork Spirit
We must always consider ourselves a team member and make sure others
feel they belong to the same team. Avoid being a loner or dissipating
others. We must be friendly with all team members to know how they feel
about the organisation so that we are able to work together to solve
problems and make any new changes.

(g) Be Confident of Others
When we show our confidence in others, they will also tend to be confident
in us. One of the ways we could prove our faith in others is to be ready to
share information. When we show confidence, people accept our ideas
more readily and their co-operation is more easily gained.
You have just been appointed as the team leader in your organisation.
How would you react if your team members do not agree with your
opinions?

Describe some strategies that you could use to bolster your confidence.

ACTIVITY 7.2
SELF-CHECK 7.1

BARRIERS IN BUILDING STRATEGIC NETWORKS

There are five main barriers, which must be avoided by entrepreneurs keen on
building effective strategic networking. If we fail to implement an effective
network strategy, we will also fail to adapt to changes. First, entrepreneurs must
take the initiative to identify their own weaknesses. The five barriers are shown
in Figure 7.4.

Figure 7.4: Five barriers in building strategic networks

(a) Emotional
Barriers may arise from emotional flaws apparent in the characteristics,
personality and ego of an entrepreneur. These barriers will create a social
space which will separate the entrepreneur from others. A social space
could cause entrepreneurs to fail to adapt to changes. Emotional barriers
are caused by the following elements or flaws in the personality of an
entrepreneur:
(i) Overly aggressive;
(ii) Fearful;
(iii) Speech which reveals a negative tendency to assume the authority
of a principal leader;
(iv) Carelessness in actions;
(v) Thinking and acting in ways that suggest one is better than others;
(vi) Arrogance;
7.10

(vii) Hypocrisy;
(viii) Being a perfectionist but taking perfection to extremes;
(ix) Indecorous assumption of leadership;
(x) Never punctual;
(xi) Unwilling to admit one's mistakes; and
(xii) Unwilling to recognise other people's talents and abilities.

(b) Physical
Physical barriers might arise from an entrepreneur's personal lack of
confidence in himself or from his inattention to other important matters
with respect to manners and attire. An entrepreneur who has little regard
for his own personal deportment could easily fail to inspire confidence
among his fellow colleagues. People often feel that an individual whose
manners, appearance or attire are wanting will likewise be incapable of
running an organisation well. They will thus have a greater tendency to
resist any changes that such an entrepreneur may seek to introduce. The
following are pitfalls in physical deportment which will raise unnecessary
barriers to strategic networking:

(i) Improper attire;
(ii) Physical appearance suggesting poor health or exhaustion;
(iii) Poor or total lack of self-management;
(iv) Nervous behaviour;
(v) Manners or speech that betray a lack of confidence;
(vi) Habitually avoiding eye contact when speaking to others;
(vii) An unfriendly countenance;
(viii) Overly expressive body language when attempting to communicate
with others; and
(ix) Speaking in an unnecessarily high tone or pitch.

(c) Psychological
Factors and characteristics affecting the psychological make-up of an
entrepreneur will influence his ability to build strategic networks.
Psychological barriers affect an entrepreneur's interactions with other
people. If, for instance, he is one who is prone to feelings of loneliness or
inferiority, he will face difficulties building an effective network. An
entrepreneur who is psychologically well-balanced has a better chance of
inspiring support and confidence. He will also be in a position of strength
when attempting to bring about needed changes in an organisation. One
who lacks this balance will instead create a bad impression and face an
uphill battle mustering support.
Psychological barriers include behavioural characteristics indicative of:
(i) Nervousness;
(ii) Indecision;
(iii) Emotional problems resulting in strong feelings such as hatred or
anger towards others;
(iv) Loneliness;
(v) Frustration;
(vi) Failure to achieve goals;
(vii) Shyness;
(viii) Strong need for approval and acceptance;
(ix) Desire to be pre-eminent;
(x) Obsessive passion; and
(xi) Inability to discuss problems.

(d) Behavioural
 The way we behave will determine whether we are closed or distant from
others. Good behaviour will help us generate good changes. Bad behaviour
characteristics include:
(i) Slandering other people;
(ii) Carelessness in making decisions;
(iii) Always wanting to be first;
(iv) Always wanting to be the leader;
(v) Teasing other people;
(vi) Making other people appear foolish;
(vii) Pretending to know everything;
(viii) Thinking and acting as if other people were incapable of making
mistakes;
(ix) Reluctance to accept other people's opinion; and
(x) Not appreciative of other people's contributions.

(e) Negative Expressions

Expressions could help build, or spoil a strategic network. The way we
express ourselves, is important. When we are careless about the way we
express ourselves, we might easily offend others. Garnering their support in
a network will then be difficult. Expressions to avoid include the following:
(i) Expressions Indicating Dominance
(ii) Expressions Indicating Ridicule or Mockery

(iii) Expressions Indicating an Inferiority Complex

(iv) Expressions Indicating an Egoistic Nature

An entrepreneur must therefore do his best to avoid the five barriers to building
a strategic network. By confidently applying the knowledge that he possesses,
the entrepreneur should be able to set up an effective network for successful
business. Such a network would be mutually advantageous to both the
entrepreneur and others within the network. The entrepreneur who is keen on
achieving his full potential through a good network will understand that he
cannot strive to dominate others. Instead, it is important to seek cooperation from
all concerned. Also, in any situation where changes need to be implemented, the
opinions of other members must be considered. Treating fellow workers or
associates with consideration and respect yields better results than attempting to
control, intimidate or offend them into submission.

• Networking is both an outcome of past relationship strategy and resource for
future strategy.
• The advantages of networking include accessibility, reputation, and
expectations.
• There are two types of networking
(a) Formal networking and
(b) Informal networking.

Formal networking is the existing relationship between various
people who have a symbiotic relationship with the entrepreneur. Informal
networking is established through relationships with childhood friends,
members of one's family and people sharing common interests or hobbies.
• Networking is important because it builds confidence, reduces bureaucracy,
increases information, develops trust, creates an interdependent situation,
and generates creativity.
What kinds of expressions should you avoid in order to maintain
good networking?

SELF-CHECK 7.2

• To establish and build confidence in networking, you can apply the following
seven techniques:
a communicate effectively and with full confidence;
a prove your abilities to others;
a show concern for other people;
a always be fair;
a always be ready to admit your own mistakes;
a show team spirit; and
a be confident of others.
• Barriers to network building include physical, emotional, psychological,
behavioural, and expressive barriers.

Formal networking
Informal networking
Strategic networking
Barriers to network building

13.2 Topic 8 Evaluation of Entrepreneurial Opportunities.

13 Topic 8 Evaluation of Entrepreneurial Opportunities.

INTRODUCTION

The number of new ventures have been increasing in the past few years. There
are several reasons for entrepreneurs starting up new ventures. As ideas develop
into new ventures, the real challenge is for these companies to survive and grow.
What will make you a successful entrepreneur? Have you ever thought of the
necessary aspects that you should be familiar with? In order to face the real
challenges in the world of entrepreneurship, you need to have a very deep
knowledge and understanding of the common pitfalls in selecting a new venture.
This topic will help you to identify critical factors for new venture development
and underlying factors of venture success. We will also discuss an effective
evaluation process for new ventures.

Topic 8 Evaluation of Entrepreneurial Opportunities.

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Review six common pitfalls in the selection of new-venture ideas;
2. Explain eight critical factors involved in new-venture assessment;
3. Describe three major factors that underlie venture success;
4. Analyse four evaluation process methods; and
5. Outline the specific activities involved in a comprehensive feasibility
evaluation.

PITFALLS IN SELECTING NEW VENTURES

The stage of transition from an idea to a potential venture can be the most critical
for understanding new venture development. Below are six common pitfalls that
an entrepreneur may encounter in the process of selecting a new venture
(see Figure 8.1).

Figure 8.1: Six pitfalls in selecting new ventures

Okay, now let us look at a brief description of each pitfall.
(a) Lack of Objective Evaluation

Many entrepreneurs lack objectivity and do not realise the importance of
the careful examination they should do for their work. All ideas should be
studied and investigated to avoid this pitfall.

(b) No Real Insight into the Market
(i) The importance of developing a marketing approach as the basis for a
new venture is often ignored. According to Levitt (1960), „they show
managerial short sightedness‰.
(ii) They fail to take into account the life cycle of a new product/service.

(iii) Entrepreneurs must realise that timing is crucial. Projecting the life
cycle of new products is important as well as introducing the products
at the right moment.

(c) Inadequate Understanding of Technical Requirements
(i) Before initiating a new venture, entrepreneurs should conduct a
thorough study of the project.
(ii) Technical problems often arise, taking up a lot of the entrepreneur's
time, thus resulting in costly issues.

(d) Poor Financial Understanding
(i) Costs are often ignored by entrepreneurs. They might also not
conduct proper planning.
(ii) Underestimation of development costs by huge margins is not
unusual.

(e) Lack of Venture Uniqueness
(i) Concepts with special designs and characteristics will attract
customers to a venture. Entrepreneurs would not be able to attract
customers if there is no uniqueness in their ventures.
(ii) Product differentiation is the best way to create awareness among
customers of differences between rival's products and their own.

(f) Ignorance of Legal Issues
(i) Major problems can arise if legal issues are overlooked.
(ii) Examples of legal requirements are creating a safe working
environment, ensuring quality control of products and services and
having copyrights and patents to protect one's products and creations.
Name two world-renowned firms that have failed in their „new‰
business ventures. What could have been their problems? Share this
information with your tutor and friends during a tutorial session.

ACTIVITY 8.1

CRITICAL FACTORS FOR NEW VENTURE DEVELOPMENT

Another thing we must consider in new venture development is the critical factors.
Vesper (1990) stated that an entrepreneur should use a checklist of new venture
ideas which covers eight areas as shown in Figure 8.2.

Figure 8.2: Eight areas to be considered in new venture development

Describe six pitballs in selecting new ventures.

EXERCISE 8.1

Table 8.1 shows a checklist of new venture ideas that an entrepreneur should
consider in the assessment of a new venture.
Table 8.1: A Checklist of New Venture Ideas

No. Area Assessment Question

(a) Basic Feasibility of the Venture
• Can the product or service work?
• Is it legal?

(b) Competitive Advantages of the Venture
• What specific competitive advantage will the product or service offer?
• How are the competitors likely to respond?

(c) Buyer Decision in the Venture
• Who are the customers likely to be?
• How much will each customer buy and how many customers are there?

(d) Marketing of the Goods
and Services
• How much will be spent on advertising?
• What share of the market will the company
capture?
• Who will perform the selling function?

(e) Production of the Goods
and Services
• Will the company make or buy what it sells?
• Are sources of supplies available at
reasonable prices?

(f) Staffing Decision in the
Venture
• How will competencies in each area of the
business be ensured?
• Who does the hiring?

(g) Control of the Venture • What records will be needed? When?
• Will any special controls be required?
(h) Financing the Venture • How much will be needed for development?
• How much is the working capital?
• Who will provide the financing? At what cost?

ACTIVITY 8.2
What are the critical factors that need to be considered for the
development of a new venture?

WHY NEW VENTURES FAIL

Many newly established businesses vanish within a year or two. Only a small
percentage are successful. According to Bruno et al (1987) and Karakaya and
Kobu (1994), there are three major causes that contribute to the failure of new
ventures as you can see in Figure 8.3.

Figure 8.3: Three major factors that contribute to the failure of new ventures
Meanwhile, Table 8.2 below describes the causes of failure.

Table 8.2: Causes of Failure

No Causes of Failure Factors

(a) Product/market problems
• Poor timing
• Product design problems
• Inappropriate distribution strategy
• Unclear business definition
• Over-reliance on one customer

(b) Financial difficulties
• Initial undercapitalisation
• Assuming debt too early
• Venture capital relationship problems

(c) Managerial problems
• Concept of a team approach (e.g. hiring and promotions
based on nepotism rather than qualifications; poor
relationships with parent companies and venture
capitalists; founders who focus on their weaknesses
rather than their strengths; incompetent support
professionals).
• Human resource problems (e.g. kickbacks and
subsequent firings; deceit on the part of the venture
capitalist; verbal agreements not honoured; protracted
lawsuits).

8.3

THE EVALUATION PROCESS
A critical task of starting a business enterprise is conducting solid analysis and
evaluation of the feasibility of the product/service idea. Entrepreneurs might
later discover that a proposal contains many fatal flaws if the initial analysis was
not properly conducted.

Figure 8.4 illustrates the evaluation process provided by Kuratko and Hodgetts
(2004).

Figure 8.4: Evaluation process
The evaluation process comprises the following steps.

(a) Asking the Right Questions

Many important evaluation-related questions should be asked. Examples of
questions that entrepreneurs should ask themselves are as follows:
(i) Is it a new product/service idea? Is it proprietary? Can it be patented
or copyrighted?
(ii) Has a prototype been tested by independent testers who try to blow
the system or rip the product to shreds? What are the weak points?
Will it stand up?
(iii) Has it been taken to a trade show? If so, what reactions did it receive?
Were there any sales made?

8.4

(iv) Is the product or service easily understood by customers, bankers,
venture capitalists, accountants, lawyers and insurance agents?
(v) What is the overall market? What are the market segments? Can
the product penetrate these segments? Can any special niche be
exploited?
(vi) Has market research been conducted? Who are the competitors?
(vii) What distribution and sales methods will be used?
(viii) How will the product be made? How much will it cost?
(ix) Will the business concept be developed and licensed to others or
developed and sold away?

(b) Profile Analysis
 A single strategic variable seldom shapes the ultimate success or failure
of a new business venture. In most instances, a combination of variables
influences the outcome. It is important to identify and investigate these
variables before new ideas are put into practice. The results of such a profile
analysis enable the entrepreneur to judge the business potential.

(c) Feasibility Criteria Approach
This approach was developed as a criteria selection list from which
entrepreneurs can gain insight into the viability of their venture. According
to Kuratko and Hodgetts (2004), the feasibility criteria approach asks the
following questions:
(i) Is it proprietary?
(ii) Are the initial production costs realistic?
(iii) Are the initial marketing costs realistic?
(iv) Does the product have potential for very high margins?
(v) Is the time required to get to market and to reach the break-even
point realistic?
(vi) Is the potential market large?
(vii) Is there any initial customer?
(viii) Is the cost of development and calender time realistic?
(ix) Is it a growing industry?
(x) Can the product and the need for it be understood by the financial
community?

(d) Comprehensive Feasibility Approach
It refers to a more comprehensive and systematic feasibility analysis that
incorporates external factors.
There are two major factors involved in a comprehensive feasilibility study
of a new venture (see Table 8.3).

Table 8.3: Two Major Factors Involved in a Comprehensive Feasibility Study
of a New Venture

Technical Feasibility Marketability
It means identifying the technical
requirements for producing a product or
service that will satisfy the expectations
of potential customers.
The important criteria for the
requirement are as follows:
• Functional design of the product and
attractiveness in appearance.
• Flexibility, for example, permitting
ready modification of the external
features of the product to meet
customer demands or technological
and competitive changes.
• Durability of the materials from
which the product is made.
• Reliability, for example, ensuring
performance as expected under
normal operating conditions.
It means how saleable the product or
service is in the market and what is the
demand like. Three major areas in this
type of analysis are:
• Investigating the full market potential
and identifying customers for the
goods or services.
• Analysing the extent to which the
enterprise might exploit this potential
market.
• Using the market analysis to
determine the opportunities and risks
associated with the venture.

To address these areas, a variety of informational sources must be found and
used. For a market feasibility analysis, general sources would include the
following:
(a) Trends in the general economy (various economic indicators etc.);
(b) Market information (customers, customer demand patterns);
(c) Pricing information (range of prices for similar, complementary and
substitute products; base prices and discount structures); and
(d) Competitive information (major competitors and their competitive
strength).

C New venture selection may foresee a few pitfalls such as insufficient objective
evaluation of the venture, lack of market potential knowledge, little
understanding of the technical requirements, insufficient financial
understanding, lack of unique ideas and being unaware of legal issues.
• Major factors that may cause the failure of new ventures are insufficient
market knowledge, faulty product, ineffective sales and marketing strategy,
lack of awareness of competitive pressure, timing problems and insufficient
capital.

C By asking the right questions, making a profile analysis and carrying out a
feasibility criteria study, the feasibility of an entrepreneur's product or
service can be assessed.
State the main reasons why new ventures fail.

EXERCISE 8.2
Critical factors
Customer availability
Legal requirements
Marketability
Product availability
Product differentiation
Profile analysis
Technical feasibility
Uniqueness