ENTREPRENEURSHIP
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TABLE OF CONTENTS
CHAPTER ONE ................................................................................................................................................................... 5
1.1 DEFINITION OF ENTREPRENEURSHIP....................................................................................................... 5
1.2 CHARACTERISTICS /QUALITIES OF AN ENTREPRENEUR ................................................................. 6
1.3 CLASSIFICATION OF ENTREPRENEURS ..................................................................................................... 8
1.4 ROLES OF AN ENTREPRENEUR .................................................................................................................. 10
1.5 STAGES OF THE ENTREPRENEURIAL PROCESS .................................................................................. 12
1.6 BARRIERS TO ENTREPRENEURSHIP DEVELOPMENT IN UGANDA ............................................ 12
CHAPTER TWO ............................................................................................................................................................... 14
2.1 THE CONCEPT OF INNOVATION AND CREATIVITY ........................................................................... 14
2.2 INNOVATION TYPES ........................................................................................................................................ 14
2.3 STEPS IN INNOVATION................................................................................................................................... 15
2.4 BARRIERS TO CREATIVITY OR INNOVATION IN UGANDA ............................................................. 15
2.5 TECHNIQUES/WAYS FOR DEVELOPING CREATIVITY ...................................................................... 16
2.6 CHARACTERISTICS OF A NON-CREATIVE PERSON............................................................................ 17
2.7 CHARACTERISTICS OF A CREATIVE PERSON ....................................................................................... 17
2.8 STAGES OF THE CREATIVE PROCESS....................................................................................................... 18
2.9 IMPORTANCE IS CREATIVITY TO AN ENTERPRISE/ENTREPRENEUR ..................................... 19
2.10 INNOVATION .................................................................................................................................................... 19
2.10.1 Types of Innovation ................................................................................................................................... 20
2.10.2 HOW TO BECOME INNOVATIVE........................................................................................................... 21
2.10.3 BENEFITS OR ADVANTAGES OF INNOVATION.............................................................................. 21
2.10.4 DISADVANTAGES OF INNOVATION .................................................................................................... 22
CHAPTER THREE ........................................................................................................................................................... 30
3.0 BUSINESS OPPORTUNITIES AND IDENTIFICATION ............................................................................... 30
3.1 CHARACTERISTICS OF A GOOD BUSINESS OPPORUTNITY ............................................................ 30
3.1.1 IDENTIFYING BUSINESS OPPORTUNITIES ........................................................................................ 30
3.1.2 SCREENING A BUSINESS OPPORTUNITY ............................................................................................ 31
3.1.3 REASONS FOR SUCCESS.............................................................................................................................. 32
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CHAPTER FOUR.............................................................................................................................................................. 34
4.0 ENVIRONMENT ANALYSIS ............................................................................................................................ 34
4.1 DEFINITION ......................................................................................................................................................... 34
4.2 CHARACTERISTICS OF THE ENTREPRENEURSHIP ENVIRONMENT .......................................... 34
4.3 TYPES OF ENVIRONMENTS .......................................................................................................................... 35
4.4 SWOT Analysis (Internal And External Environment) ..................................................................... 44
4.5 IMPORTANCE OF ENVIRONMENTAL ANALYSIS ................................................................................. 46
4.6 CHALLENGES IN ANALYZING BUSINESS ENVIRONMENT .............................................................. 47
4.7 POSSIBLE SOLUTIONS TO THE CHALLENGES ...................................................................................... 49
CHAPTER FIVE................................................................................................................................................................ 51
5.1FEASIBILITY STUDY AND BUSINESS PLANNING.................................................................................. 51
5.1.1 FORMS /TYPES OF FEASIBILITY ANALYSIS....................................................................................... 51
5.1.2 IMPORTANCE OF A FEASIBILITY STUDY ............................................................................................ 53
5.2 SOURCES OF BUSINESS FINANCE. ............................................................................................................. 53
5.3 THE BUSINESS PLAN OVERVIEW............................................................................................................... 57
5.3.1 MEANING OF BUSINESS PLAN ................................................................................................................. 57
5.3.2 IMPORTANCE OF A BUSINESS PLAN..................................................................................................... 57
5.3.3 STEPS IN WRIITING A BUSINESS PLAN ............................................................................................... 59
CHAPTER SIX ................................................................................................................................................................... 63
6.0 BUSINESS CLASSIFICATION AND TYPES ................................................................................................ 63
6.1 Formal and Informal Businesses ................................................................................................................ 63
6.3 Small Businesses................................................................................................................................................ 66
6.4 Roles of small enterprises in promoting development ..................................................................... 67
6.5 Challenges faced by small scale businesses............................................................................................ 69
6.6 Measures to overcome challenges faced by small scale businesses ............................................ 70
6.7 Sole Proprietorship Business/ individual entrepreneurship ......................................................... 72
6.7.1 Main features or characteristics of proprietorship ......................................................................... 72
6.7.2 Advantages of proprietorship business ............................................................................................... 72
6.7.3 Disadvantages ................................................................................................................................................ 73
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6.7.4 PARTNERSHIP BUSINESS .......................................................................................................................... 73
6.7.5 ADVANTAGES OF PARTNERSHIP BUSINESS ..................................................................................... 76
6.7.6 DISADVANTAGES........................................................................................................................................... 77
6.8 ESTABLISHING A BUSINESS ......................................................................................................................... 77
CHAPTER SEVEN ........................................................................................................................................................... 81
7.0 BALANCE AND CONFLICT IN ORGANISATIONS ................................................................................... 81
7.1 Conflict ................................................................................................................................................................... 81
CHAPTER EIGHT ............................................................................................................................................................ 86
BUSINESS ETHICS ......................................................................................................................................................... 86
8.1 PRINCIPLES OF GOOD BUSINESS ETHICS .............................................................................................. 86
8.2 BUSINESS ETHICS TOWARDS CUSTOMERS........................................................................................... 87
8.3 BUSINESS ETHICS TOWARDS EMPLOYEES ........................................................................................... 87
8.4 ETHICS TOWARDS THE GOVERNMENT .................................................................................................. 88
8.5 ETHICS TOWARDS SOCIETY ......................................................................................................................... 88
8.6 IMPORTANCE /BENEFITS OF PRACTICING BUSINESS ETHICS TO AN ENTREPRENEUR . 89
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CHAPTER ONE
1.1 DEFINITION OF ENTREPRENEURSHIP
Entrepreneurship is the process of creating an opportunity and pursuing it
regardless of the resources currently controlled
Meaning of an entrepreneur
Definitions
An entrepreneur is a person who organises, operates and assumes risks for a
business venture.
An entrepreneur is also defined as a person who observes the economic, social
and natural environment, identifies opportunities in the business or non
business environment, gathers the necessary resources for the activity,
implements the activity, receives financial or social rewards and is concerned
about possible damages to the natural and social environment,
An entrepreneur is also defined as a person who produces new and better
goods/services with a view of selling them to customers to make profit.
An entrepreneur is also defined as a person who conceptualizes, implements,
maintains and expands business in the face of risks and uncertainties.
An entrepreneur can be a person who;
a) Observes or scans the economic, social and natural environment for
opportunities
b) Identifies opportunities in the business or non-business environment
c) Gathers the necessary resources for the identified activity
d) Initiates or Implements the activity and assumes its risks
e) Receives financial or social rewards
f) Is concerned about the likely damages to the natural and social
environment
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1.2 CHARACTERISTICS /QUALITIES OF AN ENTREPRENEUR
These are qualities possessed by successful entrepreneurs and include the
following:
1. Self confidence. This is having strong belief in oneself and his/her ability
to achieve the set goals regardless of the challenges or difficulty in his or
her way.
2. Hard working. This is putting in extra effort, commitment; resources and
time in order achieve the set goals in the set period of time. Running a
business involves a lot of energy and drives. Hard work therefore involves
the ability to work intensely and for long hours and sleep for less than
normal sleeping time. Hard work therefore involves sacrifice of personal
resources and time.
3. Goal oriented. This is the ability to set good goals that are "SMART" that
is, specific, measurable, achievable, given the available resources, realistic
and time bound and also to work with determination towards achieving
them
4. Persistent. This is the strong desire to do something consistently and
continuously until the set goals are achieved despite the various
problems/challenges and disappointments in business and involves
perseverance/persistence in problem solving. Persistence is about never
giving up until the set goals are achieved.
5. Profit-oriented, This means having strong interest and direction towards
generating money or profit in a business. "This can be achieved through
maximising sales and minimizing costs and hence requires the
entrepreneur to realize that business comes first and therefore family
cares roles have to be re-organized to keep him focused on business goals
achievement.
6. Builds for the future. Most successful entrepreneurs aim at creating longterm enterprises that can even outlive them and hence provide a secure
job and income for themselves and improved welfare and sustainable
wealth for their families,
7. Risk taking. Successful entrepreneurs are those who assess risks
(measure the likely costs and benefits both on the business and their
private life and chances of success/failure) before committing their
resources to identified business ventures and then take
moderate/calculated risk which can be foreseen and managed for instance
by shifting them to insurance companies. The higher the risks, the higher
the rewards.
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8. Commitment: Success in business demand total commitment by the
entrepreneur in terms of time, money and lifestyle and the business has to
be the major priority in the entrepreneurs life.
9. Reliability and integrity. Success in business requires honesty, fairness
in dealing and reliability in terms of doing what the entrepreneur has
promised to do (commitment to work contracts of customers). This helps
to achieve satisfaction of customers and other parties the entrepreneur
deals with in business.
10. Copes with failures. Successful entrepreneurs are those who recognise
their failures, learn from them and seek new opportunities. All business
ventures have challenges, disappointments and failures yet failure to cope
with them leads to giving up and failure to achieve self employment and
entrepreneurship.
11. Willingness to listen. Success in business requires one to be willing to
seek and listen to advice and information from others for instance
bankers, customers, business advisors, even employees, and government
officials among others. Successful entrepreneurs take advantage of outside
resources to ensure success of their businesses.
12. Demonstrates initiative. Successful entrepreneurs take initiative and
put themselves in positions of being responsible for success or failure.
They act on opportunities before waiting to be told.
13. Setting own standards. Success in business requires setting standards for
instance about sales, quality, income and output among others and
working to achieve them and this involves the desire to do better and
achieve higher standards year after year.
14. Responding to feedback. Successful entrepreneurs constantly monitor
how well they are doing and keep track of their performance and then
constructively use the feedback obtained to improve performance.
15. Coping with uncertainty: Entrepreneurship apu self employment
involves more uncertainty than paid/wage employment about sales and
income/profit, prices, inputs/materials delivery and business support
services. Success in business therefore requires ability to cope with such
uncertainties.
16. Building on strengths. Successful business people base their work upon
the strengths they possess such as knowledge of a particular
product/service, interpersonal skills; organisational skills, ability to make
and use a network of contacts, selling skills, and communication skills
among others and also try to identify and minimise their weaknesses.
17. Creativity and innovation. This is the ability to come up with new,
innovative and better solutions to needs in terms of new products, and
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production techniques through working on and re-shaping existing ideas
with desire to be independent and successful. This requires creative
thinking and imaginative ability.
18. Coping with change. Success in business requires ability to understand,
appreciate and adopt or cope with change because enange is inevitable in
every organisation. This helps to entrepreneur to maintain competitive
advantage by keeping up-breast with new changes usually in regard to
customers' tastes and preference, technology, market trends and
government policies.
1.3 CLASSIFICATION OF ENTREPRENEURS
1. ENTREPRENEUR
ENTREPRENEUR IS A PERSON WHO:
Owns and manages his/her own business.
Identifies new products/services or opportunities.
Organises/gathers and controls resources in his/her own business to ensure
profit.
Initiates a business and is willing to take calculated risks,
Has financial means or can obtain financing externally to support his/her
business
Has the ability to market, produce and finance his/her business products.
2. INTRAPRENEUR
Intrapreneur is a person focuses on innovation and creativity and who
transforms a dream and an idea into a profitable by operating within the
organizational environment where he/she is hired.
Intrapreneur is also a person who does not own a business but uses his
business and entrepreneurial skills in an existing where he/she works) to
identify opportunities and create profits for the business from this opportunity.
3. ENTERPRISING PERSON
Enterprising person is a person who takes an imagination and risky projects. To
be enterprising is to keep your eyes seen and your minds active to visualize and
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see/look for opportunities and act on them or take initiative in order to come
successful.
Characteristics of enterprising persons
They always see the future in the present.
They find a way of taking advantage of every situation even situations others see
as a problem.
They go after or constantly look for opportunities instead of waiting for them to
come their way. They act on opportunities identified or take initiative in order to
become successful.
GENERAL TYPES OF ENTREPRENEURS
Innovative Entrepreneur: This is an entrepreneur who introduces new goods,
inaugurates new methods of production, discovers new markets, etc. They
assemble a large variety of information and combine a range of factors
experimentally to produce new possibilities in terms of markets, techniques, or
products,
Imitative or adoptive Entrepreneurs: These are characterised by readiness to
adopt successful innovation inaugurated by successful innovating entrepreneurs,
i.e. they do not innovate the changes themselves, but only imitate the techniques
and technology innovated by others. They are particularly important in under
developed courtiers although not highly regarded in more developed economies.
Fabian Entrepreneurs: These ones are characterised by very great caution in
trying or experimenting any change in their businesses, (they are so reluctant to
change but sometimes forced by circumstances to change), they respond very
slowly to changes in the market, they only imitate when it becomes very clear
that failure to do so would result into a loss in the business, hence they lack the
will to new methods c f production.
Drone Entrepreneurs: Such entrepreneurs do not adopt to new opportunities /
changes in production methods, even if they are to experience losses, they may
refuse to change in their existing methods. Such entrepreneurs struggle to exist
but not to grow, in such a way they are laggards as they continue to operate in
their traditional way and resist changes. i.e. those entrepreneurs that will not
change under any circumstances, slowly but surely, they will be forced to close.
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Craftman Entrepreneurs: These own businesses in which they operate, but
they tend to restrict their businesses to their individual skills and experiences
usually accumulated from limited education and exposure. They have minimal
growth ambitions, keeping their enterprises small as a means of maintaining
control. Control is normally autocratic with limited or little delegation.
Opportunistic Entrepreneurs: These constantly look for and exploit serial
opportunities because of their wide skills and knowledge accumulated from a
wider educational background, experience or exposure. They start by exploiting
small opportunities seeking and exploiting a series of, often varied, opportunities
as they grow.
Visionary Entrepreneurs: These have almost similar features of opportunistic
entrepreneurs; however, while opportunistic entrepreneurs pursue a series of
business opportunities, the visionary entrepreneurs concentrate on the
unwavering pursuit of a single powerful opportunity.
Part-time Entrepreneurs: These start businesses on a part time basis, this is a
popular gateway to entrepreneurship that allows one to get the best of both
worlds by getting the benefits of entrepreneurship and the security of a regularly
salary. They are normally suited for young enterprises because as an enterprise
grow, they tend to take up more time until the entrepreneur decides to become
full time.
Corporate cast offs or Drop outs: These are produced by retrenched and
retiring employees and have become an important source of entrepreneurial
activity. Armed with adequate experience, several packages, knowledge of the
industry and a network of connections; these former employees will normally
have better start-up options and a higher chance of entrepreneurial success.
1.4 ROLES OF AN ENTREPRENEUR
When Starting and operating one's own business enterprise yields a number of
roles/benefits/gains/advantages to the entrepreneur, some of which include the
following:
1. Increased income: Owning and operating a business enterprise, gives the
entrepreneur additional income, in form of profits generated by the
business. This increased income can be used by the entrepreneur to
increase personal consumption, expand his business and also increase
investment in other business opportunities.
2. Self actualization/personal fulfillment and improved standards of
living: Being an entrepreneur helps one to generated from the business
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enable the entrepreneur to increase the quantity and quality of goods and
services lie purchases, thus meeting many of his/her personal needs and
improving his/her standard of living.
3. Employment creation and other benefits: When a person becomes an
entrepreneur, he/she can employ him/her self and therefore enjoy the
benefits of self employment such as increased income, self-reliance and
independence (becomes own boss), high job security, society respect and
recognition, etc, and even employ others or even provide benefits to others
such as suppliers, subcontractors, bankers, among others.
4. Feeling of freedom and Independence and flexibility in decision
making: Entrepreneurs always enjoy the opportunity to make
independent decisions and also to change such decisions whenever need
arises since they are in control and have authority to decide on both the
present and future trends of the business. Entrepreneurs also enjoy
independence in terms of financial matters as they earn their own income
and meet much of their needs and also determine/decide how to spend
both personal income and the business funds.
5. Creating economic value: Entrepreneurs enjoy the opportunity of
creating economic value in terms of provision of products or services for
consumers, incomes to workers and profits to share holders.
6. Social recognition and respect in community: Entrepreneurs are
always highly respected and socially recognised in society because of the
goods and services they provide and the employment opportunities they
create for the people in the community. More so, they are seen as wealthy
people.
7. Self confidence: When one becomes an entrepreneur, he/she develops
confidence in him/her self and abilities since he/she does things by
him/her self or independently.
8. Job security. In self employment there is job security whereby the person
is assured of permanent employment as long as the business continues
since he/she is his/her own boss and therefore carit dismiss him/her self.
9. Provides opportunity for creativity and innovation. Self employment
allows a person opportunity to try out his/her creative ideas without
having to get permission from anyone.
10. Provides opportunity for one to lead rather than follow. The self
employed person leads and gives orders rather than following orders and
instructions as it is in paid employment.
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1.5 STAGES OF THE ENTREPRENEURIAL PROCESS
1. Income Generation: This is a where a person tries to generate a surplus
or profit through paid employment or other income sources, which can
then be but into a fixed deposit account in a bank.
2. Self-employment: This is full time involvement of an individual in his own
income generating activity using his/her personal or externally sourced
resources. In self employment, there is no diversification of markets
geographically because it means creating branches yet an individual
cannot be fully involved in all the branches. However diversification of
products and diversification of markets in terms of income levels (where
goods and services are sold to both the low income and high income
groups) and gender (where goods and services are sold to both females
and males) among other forms of categorisation can take place.
Geographical diversification of markets makes an individual move to the
Entrepreneurship stage, the third stage in the Entrepreneurial Process.
3. Entrepreneurship: This is final/terminal stage where one looks for
diversification and growth after setting a business venture. The
diversification that distinguishes this stage is in terms of geographical
markets.
1.6 BARRIERS TO ENTREPRENEURSHIP DEVELOPMENT IN UGANDA
1. Small market size. The small market is due to the high poverty levels in
Uganda and the stiff competition from imported goods. This discourages
potential entrepreneurs as they fear making losses.
2. Poorly developed infrastructures. Poor roads limit movement of raw
materials to the enterprises and entrepreneurs'; goods to the market. This
in addition to the unstable power supply among other poor infrastructures
increases production costs and hence reduces profit which discourages
many potential entrepreneurs.
3. Political instability and insecurity in some parts of the country. This
discourages investment as potential investors fear losing their lives and
investments/property.
4. Limited capital for business establishment. This is due to the low
income levels of the majority of Uganda. Limited capital fails the
acquisition of resources like raw materials and land for enterprise creation
hence limiting entrepreneurship development.
5. High interest rates charged on loans. This discourages borrowing for
investment by investors who don't have enough money to start business
enterprise they desire.
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6. Heavy taxation by government. Heavy taxes charged by the government
increase production costs and hence reduces profit which discourages
many potential entrepreneurs.
7. Inappropriate education orientation. The education system of Uganda
is still theoretical and puts less emphasis on vocational subjects and skills
which would have increased enterprise creation.
8. Resource scarcity. Resources such as raw materials, skilled labour and
capital are scarce and the cost of acquiring them is therefore very high
which discourages potential entrepreneurs.
9. Negative Asocial-cultural factors. Negative cultures and religious beliefs
that discourage, look at entrepreneurship as a witchcraft supported career
and also discourage women entrepreneurship limit the rate of enterprise
creation.
10. Inefficient legal system concerning copy right and patent rights. The
weak laws and inefficient judicial or legal system gives potential investors
no assurance of protection of their property rights and discourages them
since they can easily lose their land and innovations/inventions.
11. Long, strict and expensive business registration and licensing procedures
discourage many people from starting business enterprises.
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CHAPTER TWO
2.1 THE CONCEPT OF INNOVATION AND CREATIVITY
One of the most important principles of entrepreneurship is the ability to create
new and useful ideas that solve the problems and challenges people face every
day. Entrepreneurs achieve success by creating value in the market place. They
combine resources in new and different ways to gain a competitive age over their
rivals.
WHAT IS INNOVATION?
Is the ability to apply creative solutions to those problems and opportunities to
enhance people's lives? Creativity is thinking new things and innovation is doing
new things. In short, entrepreneurs succeed by thinking and doing new things or
old things into a new way.
WHAT IS CREATIVITY?
Is the ability to develop new ideas and discover new ways of looking at problems
and opportunities to enhance people's lives. Creativity is all about generating
new ideas. Creativity does not necessary translate into visible goods until
innovation has come in.
Key attributes of creative people.
,
Observant
Sensitive to changes in the environment around them
-
Relatively free from fear.
-
Always curious/ questioning.
2.2 INNOVATION TYPES
There are two major types;
1. Invention; this refers to coming up with something new on the market, it
can only be innovation only when it implemented. '
2. Adaptation; this is the physical alternation of an already existing product,
service, process to suit the changing environment.
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2.3 STEPS IN INNOVATION
1. Initiation; it is a process which starts with creating ideas in relation to a
defined problem.
2. Agenda setting; this is looking into the environment for a suitable solution.
3. Feasibility; matching the new or existing idea with the environment you
are going to use.
4. Production process; combining all factors of production to change the idea
into the actual product or altering an existing product into something new.
5. Adoption; analysing how the product will disseminate the market. First
use a few sample customers to see if they will find the product useful.
' Implementation; putting the new product on the market to suit an
identified problem.
INNOVATION TRIGGERS.






Un expected occurrences. - Market changes.
Demographic changes.
Availability of raw materials.
Government policies.
Improved technology.
Adequate capital. And etc.
2.4 BARRIERS TO CREATIVITY OR INNOVATION IN UGANDA
1. Inadequate funds: Creativity or innovation involves a lot of financial
planning and if the innovators are not financially prepared, implementing
the creative ideas may never happen.
2. Too little information about the perceived opportunity. You have identified
a need and consequently you jump into coming up with new ideas without
analyzing the potential markets.
3. Lack of perseverance. Creativity and innovation demands endurance, time,
patience and effort. Giving up prematurely does not promote or complete
the creative process.
4. Fearing to make mistakes and failure. Creative realize that trying
something new leads to failure. They shouldn't see failure as an end
because it is a learning process to success. Many entrepreneurs failed
many times before they succeeded.
5. Negative thinking. The tendency to focus on the negative aspects of
problems and spend all the energy on worry may be a barrier for
creativity.
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6. Government policies. Failure for the government to support the
entrepreneurs may hinder them to become creative and innovative.
2.5 TECHNIQUES/WAYS FOR DEVELOPING CREATIVITY
 Development of ideas from more than one source, for example, the news
papers, internet, among others.
 Transferring of technology from one field to another.
 Recognising when assumptions are being made and challenging them. This
creates new dimensions or directions of thinking hence developing of new
solutions to problems in a real or practical way
 Identifying/spotting narrow minded thinking and widen the field of vision
by drawing on the experience of other businesses and individuals
 Noting down ideas that suddenly drop into the mind before they are
forgotten.
 Suspending judgment and avoiding premature criticism to encourage the
creative process to continue.
 Stimulating one's curiosity in everything including travel and developing
skills of observation, listening, reading and recording. This helps to
develop innovative solutions from a variety of thing or fields.
 Knowing when to leave a problem (remaining aware but detached) until
solutions emerge, that is, being patient for solutions to emerge.
 Using one's analogy (to improve imaginative thinking) to find models and
solutions in nature, in existing products and services and in other
organisations that have already developed similar solutions.
 Having awide attention span and range of interests or practicing fortune
(finding valuable and agreeable things when not particularly seeking ,them
This helps to develop innovative solutions from a variety of activities for
instance music, sports, drama among others.
 Making connection with points that are apparently irrelevant, disguised or
not easily accessible, outside one's sphere of expertise and lacking in
authority
 Using one's unconscious mind for example by sleeping on a problem to
generate creative solutions.
 Being ready to use unpredictable events to one's advantage
 Trying when appropriate to make strange things familiar and the familiar
things strange to spark new ideas.
 Tolerating ambiguity (doubtfulness or uncertainly as regards
interpretation) and occasionally living with doubt and uncertainty.
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 Things that don't seem clear make one to be curious leading to creative
thinking.
 Thinking beyond the invisible frameworks, that surround
problems/situations.
 Exploring through processes and the key elements of the mind at work in
analysing, valuing and synthesizing.
 Brainstorming as a group or as an individual. This technique helps to
generate a large number of ideas.
2.6 CHARACTERISTICS OF A NON-CREATIVE PERSON
 Not able to think positively about problems and does not see them as
opportunities
 Too busy or stressed to think objectively or think at all.
 Very self critical: Criticizing yourself leads to loss of confidence on your
ability to come up with original and exciting ideas. For example always
thinking that your ideas are not good enough.
 Timid or have fear in putting forward-new ideas and fears being ridiculed
for or fearing being laughed at
 Viewed as a conformist by friends and colleagues, that is, excessively
conforms" to set rules and regulations.
 Prone to apply logic or too much reasoning and argument as first and last
resort <*" Skeptical (negative or doubtful thinking) that many people are
capable of being creative.
 Unable to think laterally (lateral thinking means trying to look at the
problem from many angles instead of tackling it head-on). People who
don't think laterally have one line of thinking and one point of view to a
problem.
 Uninspired even when confronted by a new idea yet new ideas should
throw some one into creative thinking. Characteristics of creative people.
2.7 CHARACTERISTICS OF A CREATIVE PERSON
 They are able to think positively about problems and does not see them as
opportunities
 They are able to create time within their busy schedule or stressing issues
to think objectively.
 They are not timid and have no fear in putting forward new ideas and have
no fears forbeing ridiculed or being laughed at.
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 They are able to think laterally (lateral thinking means trying to look at the
-problem from many angles instead of tackling it head-on) and hence have
more than one line of thinking and different points of view to a problem)
 They are inspired when confronted by a new idea.
 They don't like following set rules and regulations and hence are not
viewed a sa conformist by friends and colleagues.
 They are not prone to apply logic or too much reasoning and argument as
first and last resort
 They believe in themselves rather than being Very self critical and always
think that their ideas are good enough.
 They-are not skeptical (negative or doubtful thinking) that many people
are capable of being creative.
2.8 STAGES OF THE CREATIVE PROCESS
Creativity can be improved by working properly through the following stages:
i.
ii.
iii.
Preparation stage: This involves gathering of information about the
problem or need to be met or solved, analyzing the gathered Information,
and exploring various solution to the problem. Information gathering
involves performing ; research or investigation to collect facts an*d
materials necessary for finding new solutions while information analysis
here involves detailed examination of the gathered information by looking
at the facts from different angles; viewing the similarities and differences
in the information collected and trying to re-organise ideas through
experimenting with fitting various ideas together.
Incubation stage. This stage involves letting the mind work to continue the
process. It involves letting the mind to continue working over or
processing the information gathered in the preparation stage. It involves
stepping away from the problem and take some time off to reflect on the
information gathered and. daring this time individual does not actively try
a find a solution but mind is subconsciously processing the information in
the back of his/her head as he/she is doing other things,
Illumination stage. During this stage, an individual receives an
illumination, that is, the inspiration which can come when the individual is
not necessarily thinking about the problem but is in a relaxed state of mind
for example when a person is sleeping on a problem. It is during this stage
that the solution hits the individual's mind and the idea becomes a visible
creation. The moment of illumination can happen unexpectedly for
example when showering, tailing a walk or driving home from work.
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iv.
Verification stage. This stage involves testing ideas, solutions, and insights
whether they are applicable. In case the ideas or solutions-to the problem
are slow to come or are not applicable, sometimes it works to rest the
matter for a moment and then re-assess the situation with a new starting
point different perspective (point of view or another angle to the same
thing), fresh motivation and further consultation. Verification or testing of
ideas can involve conducting experiments, making prototypes, testing the
market for a product or service, and establishing small scale pilot
programmes.
2.9 IMPORTANCE IS CREATIVITY TO AN ENTERPRISE/ENTREPRENEUR
 It helps in solving everyday problems by providing innovative solutions to
problems that arise hi the enterprise.
 It enables the enterprise to efficiently and effectively use its limited
resources.
 It helps in promoting products/goods and services of a business
enterprises.
 It helps updating products/goods and services of a business enterprises
using the innovative ideas developed through creativity which helps the
enterprise to gain competitive advantage.
 It promotes innovation since ideas used to transform business resources
(products, technology, market and human resources) during innovation
are developed through creativity, of people.
 It facilitates, development of new and original ideas by using the already
existing or developed ideas as a starting point. Existing ideas can-be
changed in many ways by making them bigger or smaller, rearranging
them, reversing them, combining them, substituting them and modifying
them in terms of colour, taste and style hence coming up with new ideas.
 It helps to open one's mind to new ways of thinking by learning to pay
attention to insights and sounds we ordinarily ignore.
 It helps entrepreneurs to make their working situations more pleasant and
efficient.
2.10 INNOVATION
Innovation is the way of transforming the resources of an enterprise through the
creativity of people into new resources and wealth. The resources transformed
through the innovative process include business products, business technology
human resources like labour and management and the business market among
others.
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Innovation in business differs from, creativity in that creativity is generally
associated with the generation of new ideas while innovation involves applying
the new ideas developed in the creative process to transform business products,
technology, human resources like labour and management and the market into
new resources, In summary creativity is simply thinking new things while
innovation is doing hew things.
2.10.1 Types of Innovation
1. Business model innovation: This involves changing the way business is
done in terms of capturing value. BUKEDDE TV for instance changed the
way movies are broadcasted by translating them into a local language
(Luganda) different from the way NTV, UBC-TV and other TVs do it.
2. Marketing innovation: This involves development of development of new
marketing methods with improvement in product design or packaging,
pricing and product promotion.
3. Organizational innovation. This involves or alteration of business
structures practices and models and may include process, marketing and
business model innovation
4. Process innovation: this involves the introduction/implementation of a
new or significantly improved production or delivery" method:
5. Product innovation: This involves introduction of a new or significantly
improved product/good and this may involve improvements in the
products' functional characteristics, technical abilities, ease of use, or any
other dimensions.
6. Service innovation: This involves introduction a new or significantly
improved service. This is similar to product innovation except that it only
relates to services.
7. Supply chain innovation: This is innovation that occurs in the
sourcing/obtaining of inputs from suppliers and delivery of output or
products to customers.
8. Financial innovation: This occurs when new financial products and
services are developed combining basic financial attributes (risk-sharing;
liquidity and credit) in innovative ways as well as exploiting the
weaknesses of the tax law.
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2.10.2 HOW TO BECOME INNOVATIVE
Developing an innovative approach requires the following:
i.
Improving one's questioning skills: this can be done by identifying a
problem and then writing questions about it for 10 minutes a day for 30
days, and over the 30 days period of time the questions will change along
with the understanding of the problem.
ii.
Enhancing observation skills: This can be done by choosing a business,
customer, supplier or client and spending a few days trying to see how
they operate in order to understand better the issues they have to deal
with.
iii.
Net-working with various people: Becoming innovative requires
developing a diverse net work of contacts which y ; exposes a .person to
varied ideas from die different people since people have different back
grounds, different skill, working different industries and deal with
different issues, .
2.10.3 BENEFITS OR ADVANTAGES OF INNOVATION
 Increases productivity: Innovation increases output in an enterprise due to
creation of new and more effective production methods.
 Widens consumer choice: Innovation results into new product lines which
increases variety for customers to make choice.
 Reduces production costs and increases profitability: Innovation results
into optimum production where maximum output is produced at lowest
cost due to use of production techniques that use less resources. This
increases the profit margin of innovative enterprises and shareholder
returns inform of dividends. Increases customer satisfaction: Innovation
results into improvement in quality of the products and brings new
products on market that meet the changing needs of customers.
 Leads to market Expansion: Innovation helps to attract new customers as
well as maintaining old customers of the enterprise. This is through
marketing innovations that range from packaging and repositioning of
products for global distribution, development of state-of-the-art electronic
commerce and distribution programmes, extending product lines and
information commercials use of Internet web-site and social media
platforms like Face book and Twitter.
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 Enables development of new distribution channels and ways of adding
value that makes the business products to stand out. This benefits both
service providers and enterprises selling goods.
 Enables the enterprise to respond to customers needs. This is through
developing new products based on the review of customers’ needs and the
environment.
 Helps/enables the business to overcome or cope with competition.
Innovation gives the business enterprise competitive advantage over its
rivals as a result of development of new and competitive products and
services.
 It helps the enterprise in seeking and obtaining business finance. This is
through creating alliances with different venture partners, repositioning
one's opportunity to match the interests of the investors, bringing in
experienced management and improving the organizational focus and
objectives.
 It enables non-profit institutions to create new value equations for their
constituencies including services that bring revenue to the organisation,
creation of innovations that add value delivery and also innovative funding
methods.
 It
enables
business
enterprises
to
meet
government
standards/regulations. This is by developing the required production
technology and products for example, environment standards by designing
technology that is not harmful to the natural environment and quality
standards by coming up with new and better technology that produces
better quality goods and services.
2.10.4 DISADVANTAGES OF INNOVATION
 Leads to technological unemployment due to job changes and redundancy
of workers. This is due to process innovations that involve the use of
capital intensive technology
 Involves advance or upfront costs which is a risky investment: While
innovations like new technology can result in savings in the long run, it
sometimes results in significant upfront expenses which may lead to losses
and the collapse, of the business in case the innovation doesn't increase
production and revenue or reduce expenses over
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SOURCES OF INNOVATION
Drucker (1909) identified four internal and three external sources of innovation.
INTERNAL SOURCES OF INNOVATION
 Unexpected occurrences: These may include events such as a failed
product introduction, accidents, among others. It is often through such
unexpected failures (or successes) that new ideas are born from new
information brought TO light. Such occurrences make business men
restless in their effort to find solutions to the obstacles to success by trying
out or experimenting different ways of achieving the same goal.
 Incongruities (Disparities/divergence/deviation between ideal and real
situations);These result from difference in a company’s or industry’s
perception and reality for example reduction in profit yet demand for a
product is increasing. Between 1950 and 1970 for instance profits in thesteel industry fell although the demand for steel continued to grow. This
incongruity/divergence caused some innovators to develop the steel minimill, a less expensive method of making steel that was also more conducive
to changing market demand
 Process needs: Innovations inspired by process needs are those created
to support some other product or process. For example, advertising was
introduced to make mass-produced newspapers possible. Newspaper
publishers devised adverts to cover the expense of printing the
newspapers on the new equipment that made such printing possible.
 Industry or market changes: These changes in the industry or market
conditions such as changes in demand or tastes and preferences and
changes in technology often result into the rise (and decline) of successful
innovators since they result into new products and services developed by
innovative newcomers. For example the failure of International Business
Machines Corporation (IBM) to respond to the market change during the
1980s|pom mainframes to smaller computer systems, particularly
workstations and personal computer networks led to decline in its share
of the computer market and profits reduced as more innovative
newcomers emerged who provided the preferred products/services,
particularly Hewlett-Packard.
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EXTERNAL SOURCES OF INNOVATION
 Demographic (Population) changes: Changes in population size, age
structure, gender composition, level of education and level of income affect
all aspects of business and can generate innovative opportunities. For
instance, an influx of Rwandan and Sudanese immigrants into Uganda has
created new market opportunities for business enterprises calling for.
innovations, Likewise, an increase in the level of education in European
countries resulted into shortage of qualified workers for some low-paying
jobsvcausing many companies to develop new automation techniques as a
solution (machines doing the work due to labour shortage) for example
washing machines.
 Shifts in perception: Changes in people's understanding, beliefs and
attitude also open the door to innovation. For example, despite the fact
that health care,in the Uganda has continually become better and more
accessible, people have become increasingly concerned about their health
arid the need for better and more accessible care which change in
perception has generated a huge market for health magazines, vitamin
supplements, exercise equipment and the significant innovation of herbal
medicines.
 New knowledge or technology: Emergence of new technology or new
knowledge provides opportunity for innovation as innovative companies
try to gain profit by exploiting it in new applications and markets hence
coming up with new produces and services. The emergence of touch
screen technology in the 1960s for instance provided many innovative
opportunities where by it is technology has been applied in many different
production processes to come up with new products such as touch screen
phones commonly called smart phones, touch screen personal computers,
touch screen ATM machines, among others.
Characteristics of innovators
 Innovators have compelling visions. Innovators have the ability to
formulate compelling visions for their enterprises or departments and also
articulate them to those (usually employees or subordinates) who can
make these visions happen. This motivates people since it makes them
believe that they are part of something better to come and that their
willingness to contribute to the vision will turn it into reality and their
efforts rewarded with success.
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 Innovators are opportunity-oriented. They seek to find an opportunity in
any situation even where others see only problems. They constantly think
about new ways of doing things and are not afraid of trying something new
and the likely resultant failure because they always s believe something
else will work out if one fails.
 Innovators, are self .disciplined and know that self discipline is important
in achieving success. They sacrifice and work hard to achieve desired
results and prioritise their time, goals and objectives so that they devote
their resources ' "and time to important things first.
 Innovators surround themselves with positive people who have positive
attitude towards creating new things.
 Innovators are passionate about what they believe or do. They focus on
one thing and give it everything they have, fully going after ft with all their
resources, mind and effort until its achieved.
 Innovators are extraordinary persistent. They keep on going forward
without fearing whatever sort of challenges that lie in-their way and are
committed, to achieving their goals at all costs.
 Innovators are trend-spotters with the ability to identify something new
and its social responsibility.
 Innovators are inner directed. They are goal oriented and know what to do
without being told by any one and don’t need any one else to motivate
them.
WAYS OF FOSTERING INNOVATIONS IN SMALL BUSINESSES
 Expecting change: The high/increased rate of .unpredictability, complexity
and velocity of change creates a new hyper-competitive international
environment..
 Implementing new rules: An innovator who goes beyond the existing
parameters of competition achieves greater comparative advantage and
profits
 Developing innovative strategies and mechanisms to promote consistent
innovation since entrepreneurs innovate all the time
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 Avoiding barriers that separate people and departments, and barriers or
boundaries between firms, outsider suppliers, customers and competitors.
This allows idea exchange.
 Being a continuous learner: Achieving greater competitive advantages
requires the entrepreneur to have the ability to learn faster and better
than competitors when it comes to coming up with new products and
production technologies before competitors imitate your last innovation.'

Being fast when it comes to implementation of innovations. It's better to
be fast and fair than being perfect but late, (Being fast in learning, thinking
and implementation of ideas)
 Thinking globally because the fastest growing markets are at international
level.
 Thinking like an entrepreneur because entrepreneurs make things happen
and allow themselves to fail and improve because of it.
 Measuring and focusing on performance indicators: Entrepreneurs need to
identify strategies and factors that drive the profitability and success of the
business and therefore concentrate on that.
 Doing well for others to attain success easily.
Reasons for capacity of small businesses to use innovation more
successfully than larger businesses (Qualities that make small businesses
to use innovations successfully than larger businesses)
i.
Most small business owners are willing to try new approaches to make
their businesses more successful.
ii.
Small businesses understand customers' needs due to the personal contact
with them identify new opportunities and fix problems quickly and
efficiently due to quick and short decision making procedures,
iii.
Small business can implement new business practices and adapt to
changing market conditions,
iv.
Many small businesses experiment and improvise when pursuing
opportunities and accept failure as the path to success,
v.
Small businesses traditionally rely on strong logical networks to share
information needed for innovation.
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vi.
Small businesses are well versed and skilled at doing more with less
resources and have resource constraint which forces them to be
innovative to overcome it.
BARRIERS TO CREATIVITY OR INNOVATION IN UGANDA
1. Inadequate funds: Creativity or innovation involves a lot of financial
planning and if the innovators are not financially prepared, implementing
the creative ideas may never happen.
2. Too little information about the perceived opportunity. You have identified
a need and consequently you jump into coming up with new ideas without
analyzing the potential markets.
3. Lack of perseverance. Creativity and innovation demands endurance, time,
patience and effort. Giving up prematurely does not promote or complete
the creative process.
4. Fearing to make mistakes and failure. Creative realize that trying
something new leads to failure. They shouldn't see failure as an end
because it is a learning process to success. Many entrepreneurs failed
many times before they succeeded.
5. Negative thinking. The tendency to focus on the negative aspects of
problems and spend all the energy on worry may be a barrier for
creativity.
6. Government policies. Failure for the government to support the
entrepreneurs may hinder them to become creative and innovative.
7. Lack of market. Failure to get market for the innovative commodities can
hinder entrepreneurs to be innovative,
8. Too much dependence on western commodities.
9. Inadequate expertise or experts in the field of innovation.
10. . Inadequate raw materials
,
11. Poor technology
SOURCES OF BUSINESS IDEAS
There are many-sources of business ideas but the most commons ones the
following:
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1. News paper: Many business ideas such as buying an already existing and
offering personal services among others can be got in local news papers
from the classified advertising section under areas for commercial
opportunities and personal services. The classified advertising section
consists of advertising messages grouped together in one part of the news
paper under headings such as, “cars for sale,” “help wanted,” “commercial
opportunities” or “personal services”.
Commercial opportunities are those involving people selling their
businesses and these are often advertised in the commercial section of
classified advertisements. A commercial advertisement usually describes
the enterprise to be sold, location and sometimes the selling price.
Personal services are services provided by persons with specialised
business or technical skills which they sell to customers through personal
service advertisements. In these advertisements, it's the service being sold
not the “business enterprise.
Commercial opportunities help in identifying business for sale in the
community which one can buy and become an entrepreneur while
personal services advertisements can help one to think about starting a
personal service business to sell his specialised or technical skill for
examples an accountant starting an auditing firm.
2. Magazine articles: Entrepreneurs can generate business ideas from
magazines by looking for articles that describe new types of business and
changing business trends, market needs that are becoming important for
example increased need for physical fitness indicating increased demand
for physical fitness equipment importation and gyms to offer the service.
3. Hobbies: These are activities perused by a person for personal pleasure
and relaxation. Hobbies, can be turned into profitable business
enterprises, for example, a: hobby in photography, charity work can lead
to social enterprise creation, a hobby in caring for animals or pets, among
others. A business related to one's hobby enable him/her to spend time
doing what he/she enjoys most.
4. Trade shows and exhibitions: Attending trade shows and exhibitions
organised by government departments, manufacturers and distributors
such as organised by Uganda Manufacturers Association at Lugogo every
October annually in Uganda can help a potential entrepreneur identify
businesses that match with his/her interests and abilities due to the
valuable information given by sales men and demonstrators using oral,
visual, audio-visual and written communication (leaflets and brochures)
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about various businesses. Business technology which can be used for
business is for example exhibited and one can even observe imported
products that he/she can start producing locally or import for sale.
5. Surveys: Market survey helps to identify customers needs which can be
turned into profitable businesses. Market survey can be done formally
through questionnaires or interviews or informally using personal
contacts and observation,
6. Brainstorming: This is a technique used to solve a problem by generating
as many ideas as possible. Brain storming can be done by the entrepreneur
as an individual and also with other people as a group, a case where
someone must be assigned the task of recording the ideas being discussed
and another person as a leader. Brainstorming begins with the leader
throwing a question to which other people respond to with answers and
other give additional ideas hence leading to a chain of reactions.
7. Vocational training and experience: Business ideas can also be
developed from an area of training where the entrepreneur has acquired
technical skills and experience. For example, a doctor starts a clinic, an
employee in a carpentry workshop starting his own carpentry workshop.
8. Customers' complaints. Customer's complaints give entrepreneurs ideas
for improvement of existing business products into better ones or
development of new unique products.
9. Franchises. This leads to business idea identification when the owner of a
product or service grants exclusive right to local individuals to distribute
the product or service in a specific geographical area on specified terms
and conditions.
10.
Internet.
Rules that should be followed while brainstorming
 Don’t criticize another person's idea: This discourages group members to
bring up more ideas yet the more ideas brought up the better the results.
 Encourage freewheeling. This means encouraging ideas from all angles,
fields, and perspectives. The wider the range of ideas, the better the
results.
 Try as many ideas as possible for quantity: Encourage the group members
to bring out as more ideas as possible since the larger the number of ideas,
the higher the chances of getting good ones.
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CHAPTER THREE
3.0 BUSINESS OPPORTUNITIES AND IDENTIFICATION
WHAT IS A BUSINESS?
It can be described as any activity that involves the selling of goods and services
for profit where risk is involved.
BUSINESS OPPORTUNITY
This is an attractive investment idea or proposition that provides the possibility
of a monetary return to the person taking the risk.
3.1 CHARACTERISTICS OF A GOOD BUSINESS OPPORUTNITY
 Good income potential: it should be in position to give sufficient incomes
to support oneself in a reasonable life style. It should have the ability to
produce a good, steady, fulltime income.
 Reasonable ease entry, into the market: it should allow the inventor to
enter into market without hindrances.
 Low or moderate startup cost: the initial cost for a business opportunity
should be low as possible.
 Good growth potential: a good business opportunity should have the
potential for long term survival.
 Availability of resources: select an opportunity whose resources to
implement it are readily available. Such as skills
 Acceptability: select an opportunity that is accepted in society to be
implemented
3.1.1 IDENTIFYING BUSINESS OPPORTUNITIES
Interviewing
This involves dialoguing with different people, so as to identify the needs that
should be satisfied. This helps to generate business ideas.
Brain storming
This involves identifying different business ideas and screens them and selects
one. Its also known as problem solving inventory.
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Market research
This involves collecting and analysing marketing information with a possibility of
identifying marketing opportunities and problems.
Observation
This involves scanning the environment using naked eyes and see what is taking
place in the environment so as to identify potential opportunities one can engage
in.
3.1.2 SCREENING A BUSINESS OPPORTUNITY
A key skill that successful entrepreneurs must learn is to more effectively and
quickly screen possible opportunities before they make extensive commitment of
time and money.
It allows them to weed out ideas that do not have a good chance or working. In
effect it gives the entrepreneur a chance to fail on paper
Is there a market?
Examine the size of the market as customers are the people who make your
business work. Make sure that they are interested in, and more importantly need
your product or service. Begin to get an idea of how much they will be willing to
pay. Too many times this becomes a last minute guess by the entrepreneur.
Is there a profit margin?
Figure out the basic economics of the business. How much will the product or
service sell for and how much will it cost to produce the product or offer the
service?
At this stage you should really look for opportunities that offer at least a 50%
margin. Generally, when all is said done this will typically result in actual profits
of about 15-20% once the business plan is developed and all of the true costs are
determined.
Do you have the existing skills, knowledge and capabilities?
For example, you have noticed that the northern region has few schools and you
feel you want to start up a new modern school but do you have the management
and technical skills? It should however be noted that some entrepreneurs get
attracted to opportunities even if they lack the necessary capabilities. They
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believe in learning something new and move beyond their existing sphere of
activity.
What is the degree of competition?
Before embarking on your business opportunity, an entrepreneur should
consider his competitor's strengths and weaknesses.
Government policies and regulations in relation to your line of entrepreneurship
should be considered.
The availability of raw materials should be considered.
3.1.3 REASONS FOR SUCCESS
1. Availability of ready markets
This implies that people in the community are ready and willing to purchase the
product that your business is planning to offer.
2. Government policies
The government provides various business opportunities to entrepreneurs
through the following; grants, this is the money issued out by the government to
individuals but not paid back. Grants are usually given to upcoming
entrepreneurs who are going to invest in business ventures that are to benefit
the public such as health facilities, agriculture etc.
3. Demographic information
This refers to information regarding population trends in a country. It is collected
in a variety of ways and includes statistics relating to population, age, education,
ethnicity/ race and income.
Ministry may release information indicating for example, that there has been an
increase in the youth population in the central region. An upcoming entrepreneur
may see this as an opportunity to start up a business venture producing
consumer products that are targeting the youth population in that particular
area.
4. Contracts
There are binding agreements between the government and an upcoming
entrepreneur. These mainly include business opportunities that are to benefit the
whole country. The government may decide to get a certain percentage of profits
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from these business ventures. For example many prominent entrepreneurs who
were involved in building CHOGM hotels had financial contract agreements with
the government.
5. Trade union Associations
These are the individuals and companies in a specific business or industry
organized to promoted common interests.
Trade union associations provide financial assistance and first hand information
on investment opportunities to retrenched employees (push entrepreneurs).
They help them implement their project ideas through assistance in locating
relevant project support services.
6. Survey
This involves the upcoming entrepreneur to go in the field, use instruments such
as questioners, oral interviews to find out from the customers the kind of
products they want on the market. From the information collected, an
entrepreneur can find out the kind of goods and services customers want and
start up a venture dealing in those particular goods.
7. Improve an existing product
If you notice a particular product or service that is obviously unable to fully
satisfy its target market, that situation can be immediately transformed into a
business opportunity. If you have an idea on how to improve it, that is. These
business opportunities represent lower risks and consequently lower rewards as
well compared to those associate with creating a completely new product.
8. Creating a product for an unsatisfied need
There are a lot of unsatisfied needs in all types of markets and although taking
advantage of these business opportunities promises a lot of rewards, keep in
mind that they also represent greater risk. Also be sure that your product or
services satisfy needs.
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CHAPTER FOUR
4.0 ENVIRONMENT ANALYSIS
4.1 DEFINITION
The entrepreneurial environment refers to a combination of external factors and
their organic integration which make an impact on the start-up process by the
entrepreneur.
Note:
i.
ii.
iii.
iv.
The entrepreneurial decision (Decision whether to become an
entrepreneur or not) is influenced by both internal and external factors.
The internal factors are the strength and weaknesses of the individual. The
strength are reflected in the entrepreneurial competencies (knowledge,
skills and traits) possessed while the weaknesses are reflected in the
entrepreneurial competencies lacking or not possessed by the individual.
The external factors are not from within the individual but are factors in
the environment and therefore external to the individual.
No single external factor affects the entrepreneurial decision or start-up
process in isolation of the others. An individual's decision to become an
entrepreneur or not is affected by a combination of external factors but for
analysis purposes we assume other factors constant and hence isolate
each factor to look at it independently.
4.2 CHARACTERISTICS OF THE ENTREPRENEURSHIP ENVIRONMENT
1. Resource scarcity: This refers to limitedness in supply of resources or
factor inputs or factors of production such as land, capital, technology,
social capital (network of contacts), market access and human skills. The
limited resources that characterise the entrepreneurial environment limit
the ability of new firms to enter this environment.
2. Opportunity orientation: The entrepreneurship environment is
characterised by chances or opportunities that
3. individuals can take advantage of. Opportunity orientation is the ability of
an individual to recognise and analyse market opportunities. Therefore
opportunity oriented people who interact with such an environment are
able to develop entrepreneurial intentions as a response.
4. Flexibility: The entrepreneurial environment is fluid and dynamic in
nature or constantly changing in a way that it presents various
opportunities which may not remain open for long which implies that
entrepreneurs have to rapidly react in time, seize and quickly take
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advantage of the opportunities before they are lost or seized by the
competitors.
5. Uncertainty: This means the possibility of unexpected occurrence or risk.
The entrepreneurship environment in Uganda today is characterised by
many risks such as changes in customers' tastes and fashions, and changes
in competition and technology among others. Entrepreneurs therefore
have to demonstrate a high ability to accommodate and manage
uncertainty if they are to explore the various opportunities in the
entrepreneurial environment.
4.3 TYPES OF ENVIRONMENTS
The entrepreneurial environment can be divided into a five-dimension
framework for entrepreneurship development and these dimensions influence
the entrepreneurial attitudes and opportunity identification among individuals in
different societies. These dimensions include economic, demographic, socialcultural, political and global environment or dimensions.
1. ECONOMIC ENVIRONMENT
This refers to the nature of the economic systems of a particular society that
directly affects the level of entrepreneurial development. The economic
environment constitutes factors like economic policy, infrastructure, financial
systems, legal requirements, resource availability and cost of operating business.
Economic factors that influence the entrepreneurial attitudes and
opportunity identification
i.
ii.
Nature of Economic policy: This looks at the degree of business and trade
regulations (free market economy vs. restrictive market economy) and the
market/economic system established by government. An open or free
market system/economy where the government allows the forces of
demand and supply to control the distribution of resources encourages
entrepreneurial intentions since it allows private ownership of resources
and people are free to do any business of their choice. A restrictive market
economy on the other hand discourages many people from becoming
entrepreneurs since it doesn't allow private resource ownership and there
is no freedom of choice of enterprise.
Nature of Infrastructures/Level of development of Infrastructures: A
well developed and accessible infrastructural system comprised of good
roads, stable power supply and communication facilities among others
encourages many people to become entrepreneurs due to reduced cost of
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iii.
iv.
v.
vi.
vii.
viii.
accessing raw materials, reaching market with finished goods and hence
reduced cost of operating business which assures entrepreneurs of
increased profit, developed and inaccessible infrastructures on the other
hand discourages entrepreneurs due-to increased cost accessing raw
materials, reaching the market with finished goods and hence increased
cost of operating business which leads to reduced profit.
Nature of the financial system: A favourable financial system
characterized by well development and spread of financial institutions
which have reasonable lending terms, and a well developed, securities,
market encourages entrepreneurship due to easy and low cost access to
loan capital and other forms of short and long term finance and.
investment opportunities in capital markets. A poorly developed and
inefficient financial system on the other hand discourages
entrepreneurship due to low access to loan capital and other forms of
short and long term finance and investment opportunities in capital
markets.
Economic incentives: Provision of economic privileges such as tax
holidays, tax exemptions, monetary and physical subsidies like land grants
among others encourages many people to become entrepreneurs due to
reduced cost of operating business than when such economic privileges
are unavailable.
Level of resource availability: Presence of resources such as capital,
human resources, land, natural resources and raw materials among others
encourages many people to become entrepreneurs since the resources are
easily accessible and at low cost which reduces the cost of operating
business and increases profitability as opposed to the situation where
resources are scarce.
Legal requirements/issues/matters/procedures/considerations:
Clear and effective legal requirements or procedures encourage many
people to become entrepreneurs due to adequate protection provided
against fraud and protection of property ownership rights while stringent
legal requirements hinder entrepreneurship development.
Cost of business: Low cost of establishing and operating business due to
low cost space, low overhead cost, fair tax structures, low insurance costs,
low inflation and raw material cost, low interest rates for borrowed
capital, and low transport costs among others encourages entrepreneurial
intension since it is easier to break even and high profitability than when
the cost of establishing and operating business is high.
Administrative issues: Excessive rules and procedures/procedural
requirements for business registration and licensing, taxes and financial
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reporting discourage entrepreneurial development than when
procedures/procedural requirements are minimal since most small
business entrepreneurs consider paper work time consuming and
cumbersome.
2. SOCIAL-CULTURAL ENVIRONMENT
This dimension looks at the entrepreneurial environment in terms of social and
cultural values, attitudes and practices of a given society that affect
entrepreneurship development. For instance the value attached to innovation,
risk taking, entrepreneurship, hard work and independence, and the
scorn/shame associated with failure are important in encouraging 1 people to
venture into entrepreneurship.
Social-cultural factors that influence the entrepreneurial attitudes and
opportunity identification
i. Culture: This refers to the customary practices and beliefs that people
hold. Favourable/positive cultural beliefs and practices which attach
high value to risk taking, hard work, innovation and entrepreneurship
by both men and women lead to higher rate of entrepreneurship
development compared to the cultural environment in which people
are risk averse and don't attach much importance to hard work,
innovation and entrepreneurship by both men and women.
ii. Religion; Religions or religious beliefs and practices thafc provides some
kind of support for entrepreneurship encourage entrepreneurship
development for instance Islam and Christianity while religions that
don't support entrepreneurship and look at high profit, risk taking,
hard work, innovation and entrepreneurship as evil discourage
entrepreneurial attitudes and intentions;.
iii. Social financial support: The availability of social financial support from
personal savings and contributions from relatives and from financial
institutions developed by ethnic groups to support new business
ventures encourages many people to become entrepreneurs than when
such social financial support is unavailable since investment capital is
available at low cost.
iv. Role models: Presence of many successful entrepreneurs who act as role
models that young people or potential entrepreneurs interact with at
work, home or school promotes entrepreneurial development since
they become inspired and motivated to become entrepreneurs while
lack of entrepreneurial role models in a society limits entrepreneurial
motivation and development.
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v. Social identification: In a society or an environment where
entrepreneurs are more appreciated and people are proud about
entrepreneurship as a career many are encouraged to become
entrepreneurs than in-a society or an environment where
entrepreneurs are less appreciated and people are ashamed of
entrepreneurship as a. career.
Social responsibilities of a business
 Creating jobs since more employees are needed as new products and
services are introduced.
 Meeting the needs of the customers or community by providing goods and
services.
 Paying taxes to the government.
 Championing social causes by supporting community activities such as
provision of clean water and environmental conservation, among others.
In this way businesses engage in social entrepreneurship.
 Utilising the would be idle resources.
 Improving infrastructures. They develop and extend infrastructures within
their power like electricity and encourage/attract government to develop
those outside their power like roads.
 Increasing opportunities for the disadvantaged groups for instance
teaching skills and providing supporting facilities to the disabled.
 Conserving of natural environment. This is through re-using and recycling
waste materials
 Supporting schools, communities and churches for example community
development programmes. This is done by businesses in effort to market
and promote their products/services.
 Providing market for society output for instance agricultural output.
 Training of local labour buffering internship and volunteering
opportunities and on-job and off-the-job training.
3. THE POLITICAL ENVIRONMENT
This includes all laws, government agencies and lobbying groups that influence
or restrict individuals and organisations in society. The political parties in power
represent the popular opinions of the people and have great influence on
development of entrepreneurial opportunities and markets in different ways.
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Political factors that influence the entrepreneurial attitudes and
opportunity identification
i.
ii.
iii.
iv.
v.
vi.
Political climate: Political instability and insecurity discourages
entrepreneurial intentions of both potential local and foreign investors
due to fear of leasing their life and investments or business assets while a
politically stable and relatively secure environment encourages potential
entrepreneurs to venture into business enterprise creation due to assured
security of life and property;
Government policy regarding
entrepreneurship/investment/taxation and subsidization:
Favourable government policies such as imposing low taxes on Individuals
and business entities and giving subsidies to entrepreneurs increase the
rate of enterprise creation since demand is stimulated and the cost of
operating business reduces which increases profitability On the other
hand, unfavourable government policies that increase taxes, complex and
burdensome regulations, favouritism and corruption discourage
entrepreneurial intentions and development.
Level of Taxation: A friendly taxation system characterised by tax
incentives like tax holidays and exemptions to local entrepreneurs
encourage entrepreneurial development due to reduced cost of operating
business which ; increases; profitability while an unfriendly tax system
characterised by very high tax rates and corruption discourage potential
entrepreneurs.
Nature of the legal environment: This concerns the laws and legal
procedures in a country. Existence of efficient legal systems; good laws,
good legal procedures and efficient judicial administration encourages
entrepreneurial intentions due to provision of adequate protection to
entrepreneurs regarding property ownership like land ownership and
protection from fraud. On the other hand, existence of weak laws that they
are impossible to implement and corrupt law enforcement organs and
judicial systems discourages entrepreneurial intentions due to inadequate
protection provided to entrepreneurs.
Government expenditure: In sectors where government expenditure is
high, for example, health and education many entrepreneurs tend to
emerge to respond to the entrepreneurial opportunities created while in
sectors where government expenditure is low entrepreneurial
development is discouraged due to few entrepreneurial opportunities
created.
Government institutions and departments: Insensitive government
institutions and departments discourage entrepreneurial intentions due to
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vii.
limited access to these institutions by potential entrepreneurs for relevant
support while sensitive government institutions and departments that
appreciate and understand the importance of business and business
formation in the economy encourage entrepreneurial development since
entrepreneurs can access them for relevant support.
Political and religious refugees: Negative displacement of people as a
result of job loss, closing of business firms, wars, political and religious
persecution encourages entrepreneurial development since there is
increased creation of business or social organisations/enterprises by
displaced people in effort to make a change in their lives compared to
situations where there is less extreme displacement.
Business Laws And Regulations governing entrepreneurial activities in
Uganda
i.
ii.
iii.
iv.
v.
Company Law: This law governs the formation, registration, conduct, and
operations of businesses in Uganda.
The Public health Law/Act: This law is concerned with the protection of
people's health and lives. It provides a legal framework for regulating
development on land, specifying rules and regulations on building,
drainage, and sanitation. Under this law, the ministry is supposed to check
standards of hygiene relating to facilities such as toilets, ventilation, space
provided and the general cleanliness for example in bars, restaurants,
hotels, clinics and to advise, or close any business which does not comply
with the expected standards.
Food and Drug Law: This law seeks to protect consumers by controlling
the quality of the food and the drugs they consume. Under this law, the
ministry of health ensures that expired drugs and bad foods are not sold to
the consumers. The entrepreneur who wishes to open up a drug shop for
example, has to obtain an operating license from the National Drug
Authority (NDA), which will only be issued when conditions set by the
Food and Drug Act are satisfied, for instance the drug shop operator must
be a licensed pharmacist.
Consumer protection Law: Under this law, the government protects
consumers from exploitation by ensuring that correct information is
provided by producers through advertisements or labels put on the
products for example the specified weight and quantity, production and
expiry dates, and that goods sold to the consumers are of the acceptable
quality, quantity, and price.
Weights and measures Law/Act: This law ensures that entrepreneurs
use approved weighing scales and measurements when selling goods to
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vii.
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ix.
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consumers and it is meant to ensure that consumers are not cheated by
selling to them under weight goods. It is implemented through the Uganda
National Bureau of Standards (UNBS).
Environmental law: Under this law, the government ensures that
entrepreneurs' activities do not lead to environmental degradation. It is
implemented through the National Environmental Authority (NEMA). It
ensures that businesses use the natural environment in a sustainable
manner and that their business operations don't inconvenience other
business units or the public.
The Trade Licensing Act: This Law/Act requires all businesses to obtain
operating licenses before commencing their operations, and also
empowers local administration authorities to levy and collect licensing
fees.
The business Name Registration Act: This Act provides for registration
of enterprises carrying out business under names different from those of
their owners.
The Land Act: This Act deals with land ownership and management. It
provides for tenure, owner ship, and management of land. Any
entrepreneur wishing to start a business based on land acquisition and
utilization therefore needs to be fully aware of the provision and limits
made by this Law/Act.
Employee Act/Law/Statate. This is meant to protect employees against
exploitation by employer!
Factory Law/Statute. This requires factories to meet the set factory
standards and regulations.
4. THE DEMOGRAPHIC ENVIRONMENT
This dimension deals with variables like family, population size and growth rate,
gender, marital status, age, education level of parents and self, social-economic
status, work experience and work habits.
Demographic factors that influence the entrepreneurial attitudes a0d
opportunity identification
 Family background, family size, family responsibility, family
structure and inheritance. Large and low income families which pose
many challenges to individuals, families where parents are
entrepreneurial and inheritance of assets encourage people to become
entrepreneurs while small and high income families and families where
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parents are not entrepreneurial and families with less inheritance of assets
provide low motivation for people to become entrepreneurs,
Income level of the people. People with lower income levels tend to seek
for opportunities to earn a living and are therefore more likely to
undertake entrepreneurial careers as compared to their higher income
counterpart.
Population size/growth rate. A big population encourages
entrepreneurial intentions since it provides opportunities to
entrepreneurs like wide market and cheap labour because a growing
population is associated with changing needs for infrastructure, resources,
new products and jobs. A small population on the other hand provides
limited opportunities and hence low motivation for entrepreneurial
development.
Level of education. High level of education encourages entrepreneurial
intentions due to increased entrepreneurial alertness regarding
opportunities and ability to exploit them as a result of the formal business
knowledge and skills acquired while low level of education leads to low
entrepreneurial development.
Age structure. There is a high level of entrepreneurial intentions among
the young people of about 25 years old who are single and without many
assets and dependants than the aged of about 45 years who are married,
have children and therefore many responsibilities to take care of which
leaves them with less money to save and invest in business activities.
Gender differences. Men tend to have a higher level of entrepreneurial
interest than women/females since women tend to be risk averse, make
non-entrepreneurial career choices like being in paid employment or full
time house wives in order to attain their life goals, face more difficulty in
acquiring resources to start and support their businesses and more so the
traditional cultural orientation trains them for household activities instead
of entrepreneurial activity.
Marital status. People who are single usually tend to be more
entrepreneurial since they have fewer dependants and responsibilities
than their married counterparts who have children, other dependants and
many other responsibilities to take care of which leaves them with less
money to save and invest in business activities.
Changing age structure: Changing age structure of the population
presents entrepreneurial opportunities in terms of physically strong,
innovative, intelligent, risk taking and visionary labour force and greater
market or purchasing power for luxury goods and services from the
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middle aged population while the aging population presents opportunities
in sectors like health and home developers for retirees.
5. THE GLOBAL ENVIRONMENT
This kind of environment looks at international issues such as opening up of the
world trade, development or advanced means of communication,
internationalization of capital markets, a growing importance of multi- national
corporations, population, migrations, and more generally the increased mobility
of persons, goods, capital, data and how they encourage people to become
entrepreneurs or discourage them from becoming entrepreneurs.
Meaning of Globalisation
Globalisation is the "greater movement of people, goods, capital and ideas due to
increased economic integration which in turn is propelled by increased trade and
investment".
Factors in the global environment that influence the entrepreneurial
intentions and opportunity identification
 Global finance: Globalisation has brought new opportunities to
entrepreneurs in terms of international finance in the area of international
payment systems, currency exchange rates, and international finance
bodies like the World Bank and international monetary fund which have
increased the investment capital available for entrepreneurs to exploit.
Limited global finance on the other hand discourages entrepreneurial
decision due to limited opportunities to exploit and scarcity of investment
capital.
 Global trade: Increased global/international trade encourages
entrepreneurial decisions since it provides opportunities to different
individuals and industries such as accessibility to international markets
without threats of protectionism, and wide market created through
strengthened trade agreements among regional blocks such as the East
African Community (EAC), Common Market for East and Southern Africa
(COMESA), African Union and European Union. On the other hand, reduced
international trade due to trade restrictions/protections discourages
business decisions.
 Market openness: Increased market openness encourages many people
to become entrepreneurs since it eases entry of entrepreneurs into
international markets of countries like Chile, Colombia and Singapore with
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good international/ global practice than when market openness is reduced
due to absence of globalisation.
Export policy: A liberal export policy expands market for entrepreneurs
hence encouraging entrepreneurial intentions since it offers investors
preferential access to different international markets like the case where
Uganda offers investors preferential market access into the European
Union and the USA for a number of exports; for instance Uganda's exports
enjoy preferential access to USA markets under the African Growth
Opportunity Act (AGOA). A restrictive export policy on the other hand
discourages entrepreneurial intentions due to limited market growth.
Import policy: A conducive import policy for instance giving of giving
import duty exemption for importing production plants and machinery,
motor vehicles and personal effects/items for investors and expatriates
among others encourages entrepreneurial intentions since it helps
entrepreneurs to get resources that are not locally available at reduced
costs while an unfavourable import policy discourages entrepreneurial
intentions due to high cost of importing resources that are not locally
available.
Democracy: Existence of democracy encourages entrepreneurial
intentions since it implies existence of freedom of individual initiative and
freedom of thought, speech and action which therefore
supports/promotes innovation and creative recognition and exploitation
of opportunities while absence of democracy discourages entrepreneurial
intentions since opportunity exploitation is not encouraged.
Global government policy: Favourable global government policy of
economic liberalisation as promoted by world bank and the donor
community encourages entrepreneurs' business decisions since it removes
unnecessary restrictions on different sectors of the economy including
trade, foreign exchange and export markets among others which
encourages many people to carry out entrepreneurial activities in the
liberalised sectors while a restrictive global government policy
discourages entrepreneurs' business decisions.
4.4 SWOT Analysis (Internal And External Environment)
Analyzing a business opportunity with a SWOT analysis.
SWOT analysis is also another way to analyze a business opportunity.
It stands for strengths, Weaknesses, Opportunities, and Threats.
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Example of SWOT analysis
Let's look around the environment and identify one business opportunity.
A well stocked retail shop, and now let's use the SWOT analysis to analyze/ asses
our business opportunity.
We first analyze the Strengths.
These are the internal positive aspects/ attributes of a person or company that
are helpful to achieving the objective(s).\From our business opportunity,
strengths can include;
 Good location of the business
 Strong technical knowledge with in your field.
 Personal characteristics. E.g. creativity, self confidence, communication
skills, flexibility etc.
 Good education background in the field of business.
Weaknesses
These are internal negative aspects /attributes of a person or company that are
harmful to achieving the objectives, but can be improved.
 Lack of marketing expertise.
 Limited work experience.
 Failure to use the business plan.
 Weak skills (leadership, interpersonal, communication, team work etc,)
 Damaged reputation of the business.
 Undifferentiated products or services, that is to say in relation to your
competitor.
Opportunities
These are the positive external conditions that you do not control but of which
you can plan to take advantage and achieve your objectives.
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 A market vacated by an ineffective competitor. Grants to successful
individuals.
 Opportunities to advancement in your business. (Setting up other
branches in other area). Opportunities for professional advancement in
your field.
Threats
These are negative external conditions that you do not control but can affect
achieving your objectives.
 A new competitor in your home market.
 Price wars with competitors.
 A competitor has a new innovative product or service:'
 Taxes introduced on your product or service.
 Competitors have superior access to channels of distribution.4.5 IMPORTANCE OF ENVIRONMENTAL ANALYSIS
An opportunity is the availability of chance to do something, the perception of
opportunity that is assumed to affect entrepreneurs' intentions. Entrepreneurs
are urged to search for opportunities in their environment rather than waiting
for opportunities to alert them.
 Favorable government policies; these are like keeping rules and
regulations at minimal, offering tax incentives; provide training and
counseling services to startup entrepreneurs. These create an opportunity
for entrepreneurial skills and for entrepreneurs to begin their business.
 High degree of competition; since entrepreneurs are risk takers, where
there is competition they will want to be because they feel can do better
than their competitors and to them it's an opportunity. For example the
telecommunication companies are so many but because of stiff
competition, they instigate other entrepreneurial telecoms to startup
because they feel can out compete they found.
 Presence of experienced existing entrepreneurs; entrepreneurs like
Kirumila of Kirumilatowrs, SudriRupareila, Patrick Bitature of
sambatelcom motivate startup entrepreneurs to begin their own business
because of their skill and knowledge in the field.
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 Supportive infrastructure: infrastructure like buildings, good roads,
creates an opportunity for entrepreneurs because they have where to
apply their skills. For example the building will be used as offices and
roads will make the transportation of goods easier.
 Characteristics of people; people with skills, experience and motivation
play an important role in venture creation.
 Availability of financial resources; without financial resources it's very
hard to startup business that is why the availability of capital, loans from
banks, incentives create an opportunity to startup an entrepreneurial
enterprise.
 Large size urban area; places like the city center provide the labour
market and raw material for the business
 Accessibility of customers; where there is customers will always provide
an opportunity to, entrepreneurs to startup a business.
 Improved risk taking ability since risk taking is a big characteristic of
entrepreneurs, the higher the risk ability, the bigger the opportunity of
creating business.
 Establishment of national and international bodies that support business
among nations
 Presence of universities for training and research
 Benefits of specialization
 Peace
4.6 CHALLENGES IN ANALYZING BUSINESS ENVIRONMENT
An environment of entrepreneurship may pose some challenges that may hinder
the smooth running of the opportunity exploitation.
 Lack of Financial Assistance: Many lenders are unwilling to invest in
high risk projects or want to fund the capital when the business has been
established; getting loans from banks is also hard because use of the lack
of collateral security.
 Policies and procedures: Entrepreneurs may find it difficult to start a
business if they have to adhere to an excessive number of rules and
regulations for example Registration and licensing, taxes and financial
reporting may hinder entrepreneurial activities.
 Scarcity of skilled human resource: The scarcity of skilled human
resource who works in the enterprise primarily for the purpose of making
or selling a service is a challenge because most of them prefer greener
pasture. This has become a hindrance to the smooth functioning of the
entrepreneurial activities like operating machines, transporting goods
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from place to place. Scarcity of advanced technology: Most of the least
developed countries have backward technology therefore this does not
encourage entrepreneurs to develop.
Scarcity of raw materials: Enterprises utilize raw materials as If puts in
order to produce. However in tile entrepreneurial environment these
materials are always scarce. This manes the acquisition of such raw
materials very difficult thus reducing the entrepreneur' level of
productivity.
Scarcity of advanced infrastructure: Like poor road, facilities like
storage, warehouse and electricity to the smooth running of
entrepreneurial activities. In conclusion scarcity of resources greatly
influences entrepreneurial activities by making good use of the few
available resources to succeed in business.
Political uncertainties: The political environment contains challenges
like instability that greatly hider the smooth running of entrepreneurial
activities in Uganda, for example in the North political instability has
robbed it off many entrepreneurs that would have invested there while
others have lost lives, businesses and assets, this therefore proves to be a
major challenge to entrepreneurs.
Problems in raising equity capital: This is because of poverty whereby
you find someone wants to start up a business but they don't have any
startup capital
Lack of adequate social support groups: To support entrepreneurs and
innovators 'who are out to challenge the status quo. The people in. the
society are always conservatives and they oppose any one who emerge to
challenge the status quo this always discourage entrepreneurs who would
want to introduce new products and services.
Lack of advice from experienced entrepreneurs: Most of the
experienced entrepreneurs do not want to help the upcoming
entrepreneurs they do not want upcoming competition therefore many of
the advanced entrepreneurs do not have compassion for upcoming
entrepreneurs to teach them how to start in business. This makes it hard
for them to succeed because they lack advice on how to successfully run
their business hence they end up failing in their activities since they do not
know what they are doing.
In conclusion it's the obligation of the entrepreneur to understand what kind of
challenges are being faced during that time of opportunity exploitation and then
come up with means of handling these challenges faced in order to minimize the
impact on the business startup and opportunities.
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 Resource scarcity in the entrepreneurial environment
 Resources are raw materials used in the production process; we are
looking at how entrepreneurs behave when resources are scarce. An
entrepreneur will always know that he has limited resources or that
resources are scarce, this makes him more creative and innovative and
open minded to effectively and efficiently utilize the available resources.
Here are some of the scarcities faced by entrepreneurs.
 Scarcity of finance: Scarcity of finance makes it hard for entrepreneurs to
start in their business or to get off the ground when starting.
 Lack of skilled personnel: Unless entrepreneurs are well equipped with
technical skills theymay not be able to overcome
 problems at different stages of the firm's development.
 Infrastructure sickness: For example Uganda, some places are plagued
with poor physical and social infrastructure in terms of roads where they
are potholes, these hinders venture creation.
 Power failure or load shedding: This affects the big and small industries
that use power, when the power is off their work comes to a standstill.
 Lacks of technical know who: You find there are many skilled
entrepreneurs but because no one knows them in high power or authority
they cannot put their skills to good use.
4.7 POSSIBLE SOLUTIONS TO THE CHALLENGES
 Improving infrastructures: - development of infrastructures for example
roads and stable power supply reduces production costs and allows cheap
and easy access to market
 Improving the political climate: - this assures potential local and foreign
investors safety of their lives and property hence encourages them to set
up enterprises.
 Providing investment incentives. This involves giving tax holidays and
exemptions and subsidies that reduce production costs for starting
entrepreneurs.
 Carrying out land reform policies such as lease holding: -makes land
available to those who are landless but with capacity to utilize it in
establishment of business enterprises.
 Encouraging consumption of locally produced goods. This is through
protecting the domestic market for locally produced goods by charging
high taxes on imported goods.
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 Carrying out further privatisation: Selling of government owned
enterprises to private individuals allows setting up of more enterprises to
compete with them.
 Carrying out further liberalisation of the economy. The removal of
unnecessary restrictions on economic activities allows increased
participation by the public hence creation of more enterprise.
 Improving the financial system by providing low interest loan capital for
starting personal income generating activities for instance the youth
entrepreneurship fund.
 Improving the legal system in order to provide investor protection and
property rights.
 Lobbying for financial assistance or loans from different sources such as
government, financial institutions and development partners or donors for
business development.
 Lobbying for tax incentives from government such as tax holidays or tax
reductions.
 Ensuring proper use of the available scarce resources
 Fulfilling all legal requirements for starting and operating businesses like
registration, obtaining of operating licenses and payment of taxes.
 Forming or joining business associations in their field of business for
instance UMA, KACITA, UWEA among others.
 Developing saving culture to raise personal resources for investment in
business for expansion.
 Expanding one's social network to have as many colleagues and business
partners as possible from whom information, possible solutions and
advice can be obtained.
 Recognizing and analyzing market opportunities that can make money and
taking advantage of them.
 Identifying valuable role models and learning from them.
 Identifying successful business people to provide mentorship in the
business field.
 Taking on education opportunities to learn and acquire business
management skills such as risk management skills.
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CHAPTER FIVE
5.1FEASIBILITY STUDY AND BUSINESS PLANNING
This refers to the analysis taken to establish the commercial viability and
practicability of the business idea selected by the entrepreneur. It's the work
plan devised to achieve specific objectives for a given activity. When the
entrepreneur perceives the business 4dea, must asses first before starting the
business in order to establish its viability in all aspects of operations.
5.1.1 FORMS /TYPES OF FEASIBILITY ANALYSIS
1. Technical feasibility.
The technical feasibility study assesses the details of how you will deliver a
product or service.
Think of the technical feasibility study as a tactical plan of how your business will
produce, store, deliver, and track its products. The basic things that most
businesses need to include in their technical feasibility study include; materials,
labor, transportation or shipping, physical location, technology.
In this section you list the materials you need to produce a product or service,
and where you will get those materials. If there are any arrangements to train
labor in certain skills like accounting, they should also be mentioned.
2. Economic feasibility,
Economic feasibility of a new small venture can be judged by; Assessing the
market size for a new business is tricky but critical part of a feasibility analysis.
For a business idea to work, you must have enough customers willing to spend
enough money on your product or service provide sales revenue that covers your
expenses and hopefully earns you a profit.
Accordingly, determining how many potential customers exist might be an
essential part of discovering whether your small business is going to work. Begin
with a little market research, which is the process of discovering what makes -a
specific market work. Typical questions answered in a preliminary; market
research study might include; who are your customers? how many product
providers are there already?, how does each compete?, how successful are they?,
what does it take to succeed in this business?, these are questions that must be
answerable or at least understood, before.
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No matter what it is, there must be something about your business that makes it
distinctive, different and competitively superior to the businesses your
customers will compare you to. To attract them you must convince that you are
providing something better, more convenient, healthier, more durable, cheaper
or of higher quality at the same price. In short, you must create a perception that
you have a competitive advantage. This advantage can be based on many
different characteristics; location, technology, products, etc. It is important to
identify potential competitors their strengths, their strategies and their impact
on the new venture.
3. Financial feasibility.
It comprises of; assessment of total financial requirements. Business consists of
non- recurring and recurring expenses. Non -recurring expenses or fixed
investments includes; land and buildings, and machinery. While assessing, the
fixed capital requirements, the costs of assets, electrification charges, etc. should
be taken into consideration.
Working capital or recurring expenses include; raw materials, rent and interest,
sales promotion expenses, wages and salaries. Etc.
4. Schedule feasibility
This investigates the time frame in which the business idea should be
implemented. It looks at the project activities and the time frame in which they
should be implemented, project deadlines and schedule risks.
5. Market feasibility
This investigates the existence of potential market for goods and services to be
offered by the business enterprise. It investigates the target market in terms of
number of potential customers, customer- buying behaviour, competition and its
trends.
6. Operational feasibility
This investigates how various stakeholders will feel and react about the new
business proposed idea. It helps to predict whatever the idea will meet resistance
or support from various stakeholders and how human and social issues will be
addressed.
Legal feasibility
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This one determines whether the proposed small business conflicts with legal
requirements of the country. E.g. reclaiming a swampy area and construct a
premise there.
5.1.2 IMPORTANCE OF A FEASIBILITY STUDY
 Helps to assess and understand the practicability or possibility of the
business ideas which determines the start up decision of the business.
 Helps to establish whether the business idea is commercially viable
(profitably).
 Helps in prospecting entrepreneur to understand the dynamic business
environment and the existing challenges.
 Helps the entrepreneur to determine the resources needed to start up the
business enterprises.
 It helps the entrepreneur to make a decision on whether to start or not to
start up the business basing on the feasibility report.
 It helps to show facts and figures needed to aid decision making.
 Helps to identify alternative approaches and solutions available for putting
the idea into practice.
5.2 SOURCES OF BUSINESS FINANCE.
Where can a person get finance or startup capital to start up a small business?
Sources of business funds
There 2 main categories of sources of funds which include:1. Internal sources
a) Retained earnings (savings)
Under this, for a business which is doing well can put back a proportion of the
profit to finance its operations.
The main advantage is that no cost is involved in acquiring capital but share
holders interest of earning high dividends is not fulfilled.
b) Advance income
This involves charging customers in advance in the ways of making deposits.
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Effective credit control
Better credit ensures that the funds are available when required. The firm should
come up with a credit policy showing how credit shall be extended to customers.
Debtor factoring
This involves selling the debtors of the business at a discounting rate to the
debtor collectors to avoid lying up capital related to the credit it allows to
customers.
External sources Bank over draft
This is a short term source of finance and provides useful working capital. It is
simple and flexible because interest is paid only on the amount of money over
drawn at any given time.
* Bank loans ( Debt financing)
The business may finance its operations using loans it has obtained from
financial institutions inorder to supplement the available funds.
Advantages of loans as a source of finance
 Avails large sums of money in the shortest period possible.
 Enables businesses to acquire fixed assets such as equipment, buildings
and machinery.
 Enables businesses to have sufficient money to finance its operations on
daily basis.
Disadvantages

Requires a collateral security to be pledged against the loan acquired.
 Involves high costs of financing such as loan servicing fees inform of
interests.
 Increases financial leverage to the firm which may result into bankruptcy.
c) Mortgage
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This is a loan acquired to construct a building and if it's a commercial building it
is called equity release where the borrower gives out land title as security to
acquire funds.
d) Trade credit (suppliers credit)
A business can acquire goods for resale on credit and pays it back if they are sold.
Advantages
1. It has no explicit costs. Interest rates or dividends are not paid here
which makes it a cheap source of financing.
2. It is flexible implying that a business can easily obtain any amount
of goods it wants to acquire.
3. It creates an understanding between the firms and the supplier.
These mountains a good relationship between the parties involved.
4. It is simple to obtain. This is because it does not involve a lot of
procedures inobtaining it as compared to loans.
5. It does not stretch the working capital of the business which makes
it more liquid.
6. The business can acquire large sums or amount of stock at a
shortest period of time as possible lo meet the market demands.
Disadvantages
1. Distorts the relationship between the supplier and the firm in case
the firm Mis to pay for the goods supplied on credit.
2. Goods sold on credit are offered at high prices which reduces the
profit of the business while paying for them.
3. Results into loss of independence in business since the supplier
directly gets involved in business affairs.
e) Issuing new shares
A share is a unit of capital that is transferable freely from one person to another.
If there is a need to expand a business, additional capital can be acquired from
issuing new shares so as to bring new partners.
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f) Venture capital
This is raised for only a specific period of time where companies or individuals
can come in with capital into the venture, implement the venture and pull out at
the end of the investment period.
g) Hire purchase
This involves buying an assets and paying in installments. The project can benefit
from using the proper before finishing payments and when all payments, it owns
the asset.
Lease financing
The project or company can agree with a leasing company (lessor) to use a
capital asset for a specific period of time after paying the lease fees.
Types of lease financing
1. Operating lease (part pay out).
The lessor supplies the equipment to the project or organization to use it for a
fairly shorter period than the economic life of the asset, at the end of the lease the
lessor can lease the same equipments to someone else.
2. Finance lease (full pay out)
The project uses the asset leased for most on or asset expects useful and at the
end of the period the project can own property.
3. Sales and lease back
A company that owns an asset can obtain finance by selling its assets for the
leasing co for immediate cash and leases it back.
Disadvantages
1. The company loses ownership of a valuable asset which is almost
certain to appropriate over time.
2. The future borrowing capacity of a firm will be reduced since the
property will no longer be used as security.
3. The company is contractually committed to occupying the property
for many years ahead and this can be restricting.
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The real cost is likely to be high, particularly when there will be frequent rent
reviews.
5.3 THE BUSINESS PLAN OVERVIEW
The business plan answers every question you need to ask to launch a new
business or major research and development effort, and it answers them before
you start.
But note that a plan is an anticipation of the future. It is not a guarantee of the
future. Therefore, your plan needs contingency pathways and some are built in
flexibility.
 It is often used for planning a new venture, expansion and renewing a
business or failure. It is most often used as a tool for investors, bankers,
venture capitalists, and angles in acquiring startup capital.
 It is a document that clearly demonstrates vision, mission, general rules
and standards. The vision states where the business is going and mission
states what the business is dealing in/ nature of how the entrepreneur
proposes to get there
 In general a business plan serves as the firm's resume.
5.3.1 MEANING OF BUSINESS PLAN
Is a written document describing the nature of the business, the sales and
marketing strategy, the financial back ground, and containing a projected profit
and loss statement. It is a formal written document that clearly defines a business
idea and its feasibility. It acts as road map that provides directions so as a
business can plan its future and helps it avoid bumps in the road.
5.3.2 IMPORTANCE OF A BUSINESS PLAN
 To convince oneself that the new venture is worthwhile before making a
significant financial and personal commitment.
 To assist management in goal setting and long range planning.
 To attract investors and get financing.
 To explain the business to other companies with which it would be useful
to create alliance or contract.
 It helps the employs to understand the company mission. It can help an
entrepreneur to allocate resources appropriately, handle un expected
problems and make good business decisions. A well organized plan is an
essential part of any loan application. It would specify how the business
would repay my borrowed money.
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Some entrepreneurs create two plans,
 A planning document for internal use and
 A marketing document for attracting outside investment.
In this situation, the information in each plan is essentially the same, but the
emphasis is somehow different.
An internal document is intended to guide the business, does not need detailed
biographies of the management.
However in a plan intended for marketing, the back ground and experience of
management may be the most important feature.
Characteristics of a business plan.
Standard business plan is usually about 40 pages in length.
 It should use good visual formatting, such as bulleted lists and short
paragraphs. The language should be free of jargon and easy to
understand. The tone should be businesslike and enthusiastic. It should
be strong on facts in order to convince people to invest money or time in
the new venture.
 Your business plan uncovers omissions/ weaknesses in your planning
process.
 You can use the plan to solicit opinions from people, including those in
your intended field of business, who will freely give you valuable advice.
The basic characteristics of a standard business plan include;
Title page Table of contents
Executive summary
Company description.
Product or service.
Market and competition.
Marketing and selling strategy
Operation plan.
Marketing / organization
 Financing
Risk management
References.
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5.3.3 STEPS IN WRIITING A BUSINESS PLAN
a. Title page
A business plan should have a title page which provides the name of the
company, company logo, website or email address and date.
Its address and the name and phone number of the company's principal contact.
It may also have a notice stating the conditions of confidentiality- under which
the document should be handled. This may also be combined with an agreement
of non- disclosure which persons to whom the plan is presented are asked to
sign.
b. Table of contents
This is a list of the appropriate titles and sections within the document,
formatted in a clear and organized manner, i.e. using headings, subheadings, and
pages indicated on the right side.
c. The executive summary
Is the cornerstone of a good plan. This is the section that people read in order to
decide whether to read the rest. It should appear on its fresh page. Summarize,
company description, product or service, market and competition, marketing and
selling strategy, operating plan, management or organization. More importantly,
it needs to convince the reader that the new venture is a worth investment.
d. The company description,
This highlights the company history or back ground, short explanation of
company industry, when describing the industry; discuss what is going on now as
well as the outlook for the future.
Do necessary research so that you can provide information on all tlWvarious
markets within the industry, including references to new products or
developments that could benefit or hinder your business. When describing your
business, say which sector it follows into (whole sale, retail, food service,
manufacturing, health and so on.), whether the business is new or. Continue with information on who the business' customers are, how big the
market is, and how the product or service is distributed and marketed.
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e. The product / service section;
This should explain how people use your product and talk about what makes
your product different from others available in the market. What is the good or
service you intend to sell?, what does it do to make the buyer happy?, why do you
think your product does it better than existing products? Be specific about what
sets your business a part from those of your competitors.
f. Market analysis.
Thorough market analysis will help you define your prospects as well as help you
establish pricing, distribution, and promotional strategies that will allow your
company to be successful, both in short and long term.
Begin your market analysis by defining the market in terms of size,
demographics, structure, growth prospects, trends and sales potential. Next,
determine how often your product will be purchased by your target market.
Then figure out the potential annual purchase. Then figure out what percentage
of this annual sum you either have or can attain. Keep in mind that no one gets
100 percent market share, and that something as small 25% is considered a
dominant share. Your market will be a benchmark that tells you how well you're
doing in light of your market-planning projection. You will also have to describe
your positioning strategy. How you differentiate your product from that of your
competitors and then determine which market share to fill.
You will also have to determine distribution, which includes the entire process of
moving the product from the factory to the end user. Make sure that you analyze
your competitor's distribution channels before deciding whether to use the same
type of channel or an alternative that will provide you with a strategic advantage.
Finally, your promotion strategy should include all the ways you communicate
with your markets to make them aware of your products or services.
To be successful, your promotion strategy "should address advertising,
packaging, public relations and sales promotions.
g. Competitive analysis
The purpose of the competitive analysis is to determine, the strengths and
weaknesses of the competitors with in your market.
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Strategies will provide you with a distinct advantage, barriers that can be
developed to prevent competition from entering your market and any
weaknesses that can be exploited in the product development cycle.
The first step in a competitor analysis is to identify both direct and indirect
competition for your business, both now and in the future.
Once you have grouped your competitors, start analyzing their market strategies
and identifying their vulnerable areas by examining their strengths and
weaknesses. This will help you determine your distinct competitive advantage.
Whoever reads your business plan should be very clear on who your target
market is. And how will you be successful.
h. Operating schedule
The operations and management component of your plan is designed to describe
how the business functions on a continuing basis.
It also high lights the logistics of the organization, such as the responsibilities of
the management team.
The tasks assigned to each division within the company, and capital and expense
requirements related to the operations of the business.
i. Management/ organization
The organization;
What legal organizational structure has been chosen and why?
Are the legalities completed? Who are the legal officers of the company?
What is the structure of authority and responsibility?'What are the major job
descriptions?.
j. The management of the venture
Who are the chief decision makers? What are their backgrounds (educational,
work experience etc,), are they the owners? If not, do they have adequate
authority to act? What are their long-rage goals?
k. Financial components;
These typically include three projections;
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• A balance sheet
• Income statement
• Cash flow analysis.
It also includes the key investors, friends and family, existing loans and liabilities,
the funding plan. The financial component therefore answers the following
questions; What are your capital requirements, including working (operating)
capital?, what are your projected profits?, how and from whom are you going to
raise your capital?, how is the capital to be used?, what is your pro-forma
budget?, projected assets and liabilities, projected cash flow.
1. Risk management
Under this a risk is defined as a probability of unfavorable conditions. It can
sometimes be termed as the probability of the actual return being less than the
expected return. Risks can be different forms like staffing risks (inadequate
skills) or the marketing risks (no customers) or natural calamities. In the plan
you should show how you intend to deal with uncertainties showing the methods
and procedures you have in place to limit liabilities. They can be achieved by
reserving funds or provision of insurance services to handle the risks.
m. Supporting Documents
This is the last chapter before referencing. It includes documents like appendices,
tables, pictures, and structures. The tabular presentation of the whole plan is
included or any other table necessary for clarification. The balance sheet
structures and the financial statement are supposed
to be included
n. Referencing
This includes recognizing work done by other people. These may be researchers,
‘academicians in business practices. Referencing is necessary because it avoids
plagiarism to verify quotations and enable readers follow up.
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CHAPTER SIX
6.0 BUSINESS CLASSIFICATION AND TYPES
An important decision which an entrepreneur has to make is the legal structure/
set up of his enterprise.
This decision is important because the choice ownership form affects the rights,
duties and obligations of owner as well as tax liability.
Several structural alternatives are available from which the choice can be made.
The main forms of ownership are as follows;
6.1 Formal and Informal Businesses
Formal businesses are those that are registered with the registrar of companies.
Starting a business requires an entrepreneur to have knowledge about the legal
requirements of businesses such as licenses, labour laws, taxes and permits to
avoid facing the country's laws and regulation governing business
establishments.
Characteristics of formal business enterprises
They are registered businesses
They are mainly urban based.
They mainly use skilled labour.
They produce quality products.
They produce good or high quality products.
They use advanced or improved technology.
They have or employee or labour
unions/associations.
 They have proper record keeping.
 They are mostly limited liability companies.







unions
and
employers'
Advantages of formal businesses
i.
They are legally recognized. This is because they are registered with the
registrar of companies. Formalising a business implies that it can sue
other entities/individuals or be sued in courts of law, contracts can be
enforced and bank accounts can be frozen in cases of wrong-doing. This
gives the formal business good image and reputation. customers
suppliers, different organisation both-governmental and nongovernmental organisations today, prefer to relate with legally recognised
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ii.
iii.
and registered businesses whose future legal survival is assured since
there is no risk of being closed by government over legality of business
They are properly organized. Positions of responsibility or flow of
authority and communication lines, goals and objectives and tasks to be
done are clearly defined;
Easy access to credit. Banks prefer to lend to registered business and
consider it less risky-since they have legal recognition. Financial
institutions like banks usually demand for registration documents such as
certificate of trading and certificate of incorporation and the annual
business licenses to confirm that they are dealing with formally registered
businesses.
iv.
Access to government support and services. These include security, credit
from government, tenders or supply contracts and legal protection such as
granting and protection of patent right. This is because most governments
today prefer to deal with the tax-paying and registered businesses.
v.
They usually have a sound base for growth and development. This is
because their formal status gives them easy access credit, increased
customer base among other opportunities.
vi.
They are reliable and somehow permanent which makes it easy for them
to attract skilled manpower. This is due to some degree of job security
ensured.
vii.
They comply with social security regulations for instance NSSF regulations
in relation to business employees, (viii) They enjoy separate legal
existence from the owners. This is because they are mainly registered as
limited liability companies.
Disadvantages of formal businesses
i.
ii.
They are always governed by laws and rigid regulations. This limits their
flexibility and the scope of creativity.
Expensive to form/register: formalization is expensive, both in terms of
long registration procedure, paperwork and taxes (and the corruption that
goes along with all that). Many documents have to be prepared like
memorandum and articles of association among others which demand
costly legal help by lawyers.
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iii.
Heavy tax requirements: Registering a business makes it eligible for tax
payment which sometimes negatively affects small and medium
businesses in form of increased production and operation costs. This is
especially if their annual turnover is above the tax threshold. <
They are not flexible. They don't easily adjust to new changes in the
market partly because they operate on strict laws and regulations.
They don't lead to fast employment generation. This is because they
advanced/improved technology which is capital intensive and hence
employ more machines than human labour in their operations.
iv.
v.
Informal Businesses
Informal businesses are those that are not registered though they may have
licenses. Characteristics of informal business enterprises













They are not registered with the registrar of companies.
They are mostly small-scale enterprises.
They mainly produce for the local market.
They mainly use simple production technology which is usually labour
intensive.
They mostly produce consumer goods.
There is limited record keeping in these enterprises
They are mainly semi-urban based and rural based.
They mostly produce low quality goods.
They rely on locally available resources.
The mainly use unskilled and semi-skilled labour.
They are mainly sole proprietorships (one man's business)
They are mainly characterised low productivity.
There is low adhere to government regulations for instance many of
people with such business don't pay taxes and don't comply with social
security regulations.
Examples of common informal sector activities in Uganda







Blacksmithing
Crafts making
Making and selling of herbal medicines
Traditional healers
Retail trading of some basic necessities like food staffs.
Carpentry
Small scale artisan
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Advantages of informal businesses
i.
ii.
iii.
iv.
They lead to fast employment generation. This is because they are easy to
start and are wide spread and mainly use intermediate technology which
is labour intensive.
They form the basis of initiating new industries. Informal businesses are
incubation processes of formal industrial establishments since most
formal businesses start small and unregistered.
They are adaptable to changes. This is partly because they don't operate
on strict laws and regulations.
They are easy to start and so most people can run on full or part time
basis. This is because they require little capital to start, don't require
formal documentation and registration though my have to obtain
operating licenses from relevant authorities,
Disadvantages of informal businesses
i.
ii.
iii.
iv.
v.
vi.
They are not legally recognised. This reduces the credibility and
trustworthiness of such businesses in face of their customers, suppliers,
government and non-governmental organisations.
They are not always reliable as profit making enterprises
They don't have clear access to loans from financial institutions. This is
because financial institutions like banks consider lending to unregistered
business risky since they don't have legal recognition.
They don't comply with social security regulations hence exposed to a risk
of disruption of business activities by; government regulatory authorities.
They are not properly organised. Positions of responsibility or flow of
authority and communication lines, goals and objective and tasks to be
done are not clearly denned.
Limited access to government services. Informal businesses fail to access
government services and support such as tax holiday, tax exemptions, tax
reductions, security, credit from government, tenders or supply contracts
and legal protection such as granting and protection of patent right since
they are not legally recognised.
6.3 Small Businesses
A small enterprise is an enterprise that employs a maximum of 50 people with
annual sales/turnover of maximum Shs 500million and total assets of maximum
Shs 360 millions.
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Characteristics of small business enterprises
 They require little capital to be started though more than that required by
micro businesses.
 They use moderately improved technology
 They employ a small number of workers who may not exceed 50 people
but mostly family labour.
 Their sales are relatively higher than those of micro-businesses.
 They are generally easy to start and operate and may not; require formal
registration

They operate from fixed and permanent premises for example shops.

They mostly produce for local markets but may also produce for export
6.4 Roles of small enterprises in promoting development
 Checking regional imbalances. This is because they can be located
anywhere even in rural areas thus helping the areas lagging behind in
terms of development to develop.
 Creation of employment opportunities. This is because unlike the large
enterprises, small and medium enterprises mainly use intermediate
technology which is labour intensive in their operations which uses more
labour than capital especially machines in production.

Facilitation of infrastructural development. In addition to the
infrastructures they put up like buildings and extending electricity to their
business locations, small and medium enterprises encourage government
to extend infrastructures like roads and electricity supply to the areas
where they are operating from for their efficient operation because they
contribute to the development of the country.
 Encouraging technological progress. This is mainly through creativity and
innovation in the small and medium enterprises which leads to
development or improvement of local technology. Some small and medium
enterprises can however carry out technological transfer from the
developed countries hence leading to technological progress.
 Promoting of economic growth or raises size of Gross Domestic Product.
Through producing goods and services, small and medium enterprises
contribute to Gross Domestic Product or total national output.
 Utilising/exploitation of idle local resources. This is because small and
medium enterprises mainly use local resource compared to their
counterparts the large enterprises which use a large amount of imported
resources such as imported raw materials.
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 Saving the scarce foreign exchange of the country. This is by using mainly
local resources which saves the scarce foreign exchange which would have
been used in importing resources.

Reduction of income inequality. This is through employment creation to
the people who may not be employable by larger business enterprises
which increases incomes of the low-income groups hence reducing the gap
between the rich and the poor groups.
 Generation of government revenue. This is through payment of taxes to
the government which revenue is used by government to provide social
services and economic infrastructures.
 Forming basis for industrialization. This is because small and medium
enterprises act as the incubation stage for large industrial establishments.

Facilitating training/skill development. This is because they mainly use
local labour in their operations hence acting as centres for training and
development of local manpower through provision of on-job and off-thejob training, and internship opportunities.
 Improving the balance of payment position. This is reducing importation
of goods and services since they produce partly for the domestic market
thereby reducing the country's expenditure abroad and by exporting
goods and services thereby increasing earnings of the country from
abroad.
 Provision of market for society products. This is through buying the local
products like the agricultural products for use as raw materials in
production.
 Protecting of the environment. This is by recycling or re-using waste
products into useful products thereby avoiding the harm these wastes
would have caused to the environment and also reducing the rate of
resource exploitation hence avoiding resource depletion.
 Source of income. Small and medium enterprises act as a source of income
to their owners in form profit.
 Improvement of food security. This is by processing agricultural produce
so that they can be stored and made available for consumption in the postharvest times. ®"
Participating in community development. This is
through sponsoring community development activities like education
programmes, environmental conservation programmes,
 Providing information for research. They provide opportunity for research
and information to students and researcher for instance field trip and field
attachment opportunities to students.

Facilitating rural development/urbanisation/development of towns. This
is because small and medium enterprises encourage infrastructural
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development in the areas where they are established for instance roads
are improved, power supply is extended among other modern facilities
which encourages population increase in the area hence urbanization.
6.5 Challenges faced by small scale businesses
Unsuitable business locations: Businesses located in areas that have limited
market or raw materials for the products especially when either the products or
raw materials are bulky and expensive to transport or perishable, absena-of
cheap land, labour, transport and communication, water, and stable power
supply usually face high production costs leading to low profits and consequently
business collapse.
Inadequate cash reserves/limited capital: Many small and medium businesses
fail to generate enough cash to run for some time for instance for the first six
months before they start getting substantial revenue that can cover their j
operating expenses and hence end up failing due to shortage of working capital.
This is partly because they fail to access credit from the banking institutions as
they consider lending to them highly risky due to lack of collateral \ security,
their high failure rate among other reasons. This limits their ability to grow and
expand.
Limited market/Low demand/Over dependence on a single customer: This
usually results from stiff competition, changing customers' tastes and preference
among others and leads to business collapse due to insufficient working 1 capital
as a result of the losses or low sales and profit made. Over depending on a single
customer puts the businesses at a high risk of closing up in case it loses that
customer.
Poor management of the business/poor planning: Many small and medium
businesses are poorly managed in away that there is poor planning, inefficient
resource utilisation, absence of record keeping, wrong costing and pricing
methods, uncontrolled credit to customers among others partly because of
growing beyond the managerial skill-, and resources of the entrepreneurs or
management thereby making losses and end up closing down.
Poor handling of customers. This leads to loss of customers and market share
to the rival businesses hence leading to the collapse of the business due to losses
made which leaves the business without sufficient working capital.
Improper pricing/Failure to price business products correctly: Charging of
lower prices below the cost not production and charging of very high prices that
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are not competitive lead to losses and hence business failure due insufficient
working capital.
Founder's inability/Mistakes made by the entrepreneur: This is manifested
in form of failure to plan, failure to delegate, failure to react appropriately to
competition and change, mistaking of one's product to be the best, poor
supervision, limited creativity and innovation among others. This results into
inefficiency and loss of direction by
6.6 Measures to overcome challenges faced by small scale businesses
Starting a business for the good reasons: Business success is likely to be
achieved if the business is started for good reasons other than passing time since
the entrepreneur has strong passion and love for what he is to be doing and
strongly believes in> business is based on a careful and evidence based
investigation that the business product is to fulfill a real need in the market place,
the entrepreneur is physically fit and has the mental stamina to withstand
potential challenges, knows that failure is a learning point, and possesses the
strong drive, determination, patience and positive attitude to carry on even when
others give up.
Ensuring proper management/supervision of business activities and workers.
This involves creating favourable environment that encourages productivity,
hiring competent people, training them and also are able to delegate
responsibility and authority.
Proper planning: Preparing a business plan before starting a business
enterprise is important for the small and medium enterprise owners as it helps
them to determine how much money the business requires for its establishment
and also for staying in business until sales can cover the business operational
costs hence avoiding business failure.
Avoiding over-expansion/ Ensuring appropriate business size: Expansion of
business by adding capital into it should be done after careful analysis of what
and who needs to be added in order for the business to grow such that the right
systems and people are made available for business growth. This helps to avoid
increasing business operational expenses beyond the level at which revenue
from sales can cover them hence avoiding losses and business failure.
Selecting of appropriate business location/site. Locating the business in an
area where it can easily access raw materials, market and business support
services helps to reduce business operating expenses thereby increasing its
profitability hence avoiding business failure.
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Ensuring proper pricing of business products. This helps the business to
generate enough revenue from sales and therefore make sufficient profit margins
that aid it to stay in business.
Practicing good customer care to sustain customers. This helps the business
to expand its market share by attracting new customers as well as retaining old
customers hence generating sufficient revenue and working capital for its
continuous operation or survival.
Using appropriate technology/production of high quality products. This
gives the business competitive advantage over its rivals hence generating
sufficient revenue and working capital for its continuous operation or survival.
Ensuring adequate working capital for the business. This can be made
possible by saving and re-investing business profits and also by registering the
small and medium enterprises so that they change from informal to formal
business enterprises and hence attract capital from banking institutions in form
of loans.
Registering the business enterprises. This change these small and medium
enterprises from informal to formal business enterprises which helps them to
attract support in form of capital from banking institutions in form of loans,
supply tenders from government among others.
Carrying out advertising and sales promotion. This helps the business to
expand its market share by attracting new customers as well as retaining old
customers hence generating sufficient revenue and working capital for its
continuous operation or survival. "
Regularly training of workers. This helps the business to overcome the
challenge of limited skilled labour hence increasing productivity and efficiency.
On-job and off-the-job training can be provided.
Identifying and starting a profitable business. This ensures that there is real
demand for the business products hence enabling it to generate sufficient
revenue and profit for its operation and expansion.
Conducting regular market research. This helps the business to provide
products that meet the changing customers' needs and hence overcome
competition.
Forming or joining and being active members of relevant business
associations. This enables the small and medium enterprises to access a wide
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range of services and assistance and also network or exchange information with
other firms on various issues.
6.7 Sole Proprietorship Business/ individual entrepreneurship
This where by a business enterprise is owned and controlled by one person. He is
the master of his show. He sows, reaps, and harvests the output of his effort. He
manages the business on his own if necessary; he may take the help of his family
members, relatives and employ some employees. He is the supreme judge of all
matters pertaining to his business. A sole proprietorship business does not
require legal recognition and attendant formalities. This form of business is more
popular in developing countries like Uganda, Etc.
6.7.1 Main features or characteristics of proprietorship
One man ownership; under this business its only one man is responsible of the
enterprise. No separate business entity. No distinction is made between the
business concern and the proprietor.
 Un limited liability. This means that in case the enterprise incurs
losses, the private property of the proprietor can also be utilized
for meeting the business obligations to outside parties.
 All profits or losses to the proprietor. Being the sole owner of the
enterprise, the proprietor enjoys all the profits earned and bears
the full brunt of losses incurred by the enterprise.
 Fewer formalities. A proprietorship business can get started
without completing many legal formalities like formal registration
6.7.2 Advantages of proprietorship business
 Simple form of organization. Here the entrepreneur can start his or her
business or enterprise after obtaining license and permits. There is no
need to go through legal formalities. Fv starting a small enterprise, no
formal registration is statutory needed.
 Owner's freedom to take decisions. The owner is free to make-'all
decisions, and reap all ' fruits of his labor. No other person can interfere
jbr weigh him down.
 High secrecy. This is because the whole business is handled by him alone,
therefore the business secrets are known to him only he is not bound to
reveal his accounts.
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 Tax advantage. As compared to other forms of ownership,, the
proprietorship form of business enjoys certain tax advantages e.g. his
income is faxed once while a cooperate income is taxed twice.
 Easy dissolution. Since it is owned by one person he/she can decide to
dissolve the business since in most cases it is started to test business ideas.
6.7.3 Disadvantages
Limited funds
The proprietor mainly relies on his or her finds and savings and to a limited
extent, borrowings from relatives and friends. Thus the scope for raising funds is
highly limited in proprietorship. This deters the expansion and development of
an enterprise.
Limited ability
One man may be an expert in one or two areas, but not in all areas like
production, finance, marketing, personnel, etc. due to lack of adequate and
relevant knowledge, the decisions taken by him be imbalanced.
Unlimited liability
It means that in case of loss, private property of the proprietor will also be used
to clear the business obligations.
Limited life of enterprise form
The life of a proprietor enterprise depends solely upon the life of the proprietor.
When he dies or becomes insane or permanently incapacitated, the enterprise
also dies with its proprietor,
6.7.4 PARTNERSHIP BUSINESS
You have just seen that the proprietorship form of ownership suffers from
certain limitations such as limited resources, limited skills and unlimited liability.
Expansion in business requires more capital and managerial skills and also
involves more risks. A proprietor finds him/her unable to fulfill these
requirements. The call for more persons comes together with different ages and
starts a business. For example, a person who lacks managerial skills may have
capital, another person who is a good manager but may not have capital. "When
these persons come together, pool their capital and skills and organize a
business, it is called partnership. Partnership grows essentially because of the
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limitations or disadvantages of proprietorship. Now define partnership as an
association of two or more persons who have agreed to share the profits of a
business when they are together. This business may be carried on by all or any
one of them acting for all.
 Like proprietorship, each partner has unlimited liability in the firm. This
means that if the assets of the partnership firm fall short to meet the firm’s
obligations, the partners' private assets will also be used for the purpose.
 Restrictions on transfer of share. No partner can transfer his share to
any outside person without seeking the consent of all other partners.
MAIN FEATURES OF PARTNERSHIP BUSINESS.
More persons
As against proprietorship, there should be at least two persons subject to a maximum
of ten.
Profit and loss sharing
There is an agreement among the partners to share the profits earned and losses
incurred in partnership business.
Contractual relationship
Partnership is formed by an agreement, oral or written among the partners.
Utmost good faith and honest
A partnership business solely rests on utmost good faith and trust among the partners.
Unlimited liability
Like proprietorship, each partner has unlimited liability in the firm. This means that if
(the assets of the partnership firm fall short to meet the firm's obligations, the partners'
private assets will also be used for the purpose.
Restrictions on transfer of share
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No partner can transfer his share to any outside person without seeking the consent of
all other partners.
TYPES OF PARTNERSHIP
There are two main kinds of partnerships.
 General partnerships and
 Limited partnership.
General partnership;
This means that all partners are liable for the acts of all other partners. Also all
have unlimited personal liability for business debts.
Limited partnership;
This allows a firm -to have limited partners. A limited partner is one whose
liability towards the debts incurred by the business is limited to a stated sum,
usually contributed by him. This means that should the business fail to meet its
debts, a limited partner would not be required to contribute anything more than
the amount already contributed as capital.
Partnership deed
By now, you have learnt that partnership is an agreement between persons to
carry on a business. The agreement entered into between partners may be either
oral or written. But it is always desirable to have a written agreement so as to
avoid misunderstandings in future. When the agreement is in written form, it
called a partnership deed. It must be duly signed by the partners, stamped and
registered. Any alternation in partnership deed can be made with the mutual
consent of all partners.
Although it is left to the choice of partners of the firm to decide for themselves as
to what should be mentioned in their partnership deed. A partnership deed
usually contains the following details.
 Name of the firm.
 Nature of the business.
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 Names and addresses of all partners.
 Place of the business.
 Amount of capital to be contributed by each partner.
 Profit sharing ratio between the partners.
;
^
 Amount of withdrawal allowed to each partner.
 Duties, powers and obligations of partners.
 Amount of salary if any payable to the partners.
 Settlement of accounts in the case of dissolution of the firm.
Registration of the partnership business may not be compulsory, but
unregistered firms suffer from certain limitation, hence registration of the firm is
desirable. The registration can be done at any time. The procedure for
registration is as follows;
The firm will have to apply to Registrar of firm of the respective state
Government in a prescribed application form. The form should be fully signed by
all the partners.
The application form should contain the following information.
 The name of the firm.
 The name of the business place.
 Date of commencement of business.
 Permanent names and addresses of partners.
 Name of other places, if any, where the firm is carrying on its business.
6.7.5 ADVANTAGES OF PARTNERSHIP BUSINESS
Easy formation
Partnership is a contractual agreement between the partners to run an
enterprise. Hence, it is relatively easy to form. Legal formalities associated with
formation are minimal. Though registration of a partnership is desirable, but not
obligatory.
More capital available
We have just seen that sole proprietorship suffers from the limitation of limited
funds. Partnership overcomes this problem, to a great extent, because now there
are more than one person who provide funds to the enterprise. It also increases
the borrowing capacity of the firm.
Combined talent, judgment and skill
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As there are more than one owner in partnership, all the partners are involved in
decision making. Usually partners are pooled from different specialized areas to
complement each other.
Diffusion of risk
You have just seen that the entire loses are barred by the sole proprietor only but
in this case of partnership, the losses of the firm are shared 5y all the partners.
Flexibility
Like proprietorship the partnership business is also flexibility. The partners can
quickly react to the changing conditions.
Tax advantage
Low taxes are levied from partnership businesses compared to other businesses.
6.7.6 DISADVANTAGES
 Un limited liability
In partnership firm, the liability of partners is unlimited. Just as in
proprietorship, the partner's personal assets may be at risk if the business
cannot pay its debts.
 Lack of continuity
Death or withdrawal of one partner causes the partnership to end. So there
remains uncertainty in continuity of partnership.
 Any unsatisfied or discontent partner can also give notice at any time for
the dissolution of the partnership.
 The success of a partnership depends upon mutual understanding and
cooperation among partners. Once there are misunderstandings, the
partnership may not be able to succeed.
 No transfer of shares. If you are a partner in any firm, you cannot transfer
6.8 ESTABLISHING A BUSINESS
 Availability of raw materials: entrepreneurs prefer to locate their
businesses in area were there are raw materials to support their
operations compared to area where there are no raw materials.
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 Availability of market: Businesses owners prefer to locate their businesses
in areas were markets are available to whom they will buy their products.
 Availability of cheap and skilled labour: entrepreneurs prefer to set up
their businesses in areas where there is plenty of labour which is cheap
and skilled.
 Availability of power. Businesses are situated in areas where power supply
is very stable so as to run the machines.
 Availability of enough land for expansion. Businesses owners prefer to
locate their businesses with enough land that can support expansion.
 Availability of water. This should be available for businesses which use
water as their raw materials and also use water as a coolant of machines.
 Availability of security; business owners prefer to establish their business
in areas where there is good security to enable them to carry out their
operations without disturbance.
 Availability of good transport and communication networks; these help to
reduce on production costs so as to maximize profits. That is they ease
transportation of raw materials and finished products.
PRIVATE LIMITED COMPANIES
Limited company
Is a type of company which when set- up allows an entrepreneur to keep their own
assets and finances separate from the business itself.
Private limited companies, these are companies which are not allowed to sale shares to
the public and it offers limited liability to its shareholders. Membership is limited
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from a minimum of 2 to a maximum of 50. to form it you require documents like
memorandum of association, articles of association.
Features of private limited companies
It is a company limited by shares.
Minimum number of members is 2, and maximum 50.
It imposes a document called articles of association, which lays down the rules and
regulations for the internal organization of a company. These include; the rights and
powers of each share holder, the powers of directors, the method of calling and
conducting general meetings, rules governing elections of directors.
Alterations in the articles of association may be made fairly simple. A meeting of all
share holders is called and a resolution seeking alteration is passed by the majority.
This alteration is then forwarded to the registrar of companies and alterations are
affected.
Memorandum of association
This is the most important document to be prepared when forming a private company.
It lies down and defines the powers and limitations of the company. It is also defined
as a company's document which sets out the basis on which a company is established,
giving such details as its name, capital and the extent of the liabilities of its members.
It covers the company's external dealings. It has the following clauses;
Name clause. This states the name of the company
Situation clause. Every company must have a registered office to which notices can be
sent.
It is enough to mention in the memorandum of association the name of the country in
which the office is situated. The company is then governed by the laws of that
country.
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Objects clause. This is the most important clause and outlines the aims and objectives
for which the company is being formed. The main and specific objectives should be
included in this clause.
Public limited companies
These are companies which are allowed to sell shares to the public in order to raise
capital. Membership is unlimited with a minimum of 7 members.
Features of public limited companies
 Liability of members is limited.
 Minimum number of members is 7 and has no upper limit.
 It can offer its shares and debentures to the public large.
 Cannot commence business without a certificate of commencement of
business.
 Shares are transferable without any restrictions.
Advantages of both the private and public limited companies
 Limited liability.
 They can raise large capital as a result of selling shares and debentures to the
public.
 Death of one member does not affect the company.
 Entrepreneurs enjoy advantages of large scale operations.
 Can employ experts to be more efficient and enjoy economies of scale.
 They have the right sue and be sued.
 They have flexible borrowing powers.
 Pension schemes are provide (public limited workers).
 Public confidence. They are regulated by law.
Limitations of private and public limited companies
 Difficult and costly formation. Delays in decision making..
 Lack of secrecy.
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 Legal regulations which inhibit the smooth operations of the business.
 Management problem
 Both administrative and management bureaucracy
 Profit sharing is uneven in most cases
 Abuse of office by few persons at the cost of shareholders.
CHAPTER SEVEN
7.0 BALANCE AND CONFLICT IN ORGANISATIONS
Balance means harmony, equilibrium in an organization. Harmony is in terms of
resources, stalling, technology, acceptable remuneration etc. It’s a state where
management is accepted, where management is fair, instructions are clear etc.
However, commonly internal and external factors can influence the state of
balance in an organization. A state of balance is a desirable state. Because of this,
organizations tend to engage in activities that ensure stability. These activities
are many and they include fairness to workers, paying promptly, giving clear
instructions, coordinating of activities etc. It is strictly the role of the managers to
bring or create a state of balance. In spite of all the efforts of managers, there are
likely to be situations of conflict and struggle that can be a problem to the
organization.
7.1 Conflict
This can be understood as the struggle between opposing parties.
Stoner looks at con diet as a disagreement between two or more members or
between groups and it arises due to the fact that members have to share scarce
resources or due to different status, goals values or perceptions.
Conception of conflict in organ organisations
Robins traces the evolution of the changing views about conflict in the
organization. He notes that there is a difference .between the traditional view of
conflict and the interactionist view.
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The traditional view
It stales that if there was a conflict in an organization, (hen it was a bad state
(pathological). It reflected failure on the part of management. The proponents of
the classical / traditional views said that conflict was unnecessary. They thought
that conflict arose when managers failed to communicate to employees.
However, later people realized that conflict in an organization was a matter of
fact and had to arise whether or not the 14 principles of Henry Fayol were
followed.
According to this view, there is less possibility of eliminating conflict in an
organization as long as there is interaction.
That when people of different origins interact, there is a possibility that they
will come into conflict. That conflict is nearly a form of struggle in society.
What creates conflicts in organization (sources)
Richard Hall emphasizes that in different organizations, the subunits that have
different tasks and these tasks can be incompatible at some point. He also
postulated that where there are similar functions to perform in different sections
of the organization, there will arise a state of conflict.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
He says that conflicts can arise over the disagreement of hierarchy
especially in bureaucratic organizations.
Conflict can arise from communication problems e.g. misinformation or
rum ours.
The structures of the organization may be too large and it creates conflicts.
Different groups may have different interpretation and perception about
the existence of the organization.
According to James Stoner, he says conflict arises due to the need to create
or allocate scarce resources.
It may arise due to the need for money, equipment, space.
Difference in goals especially in interdepartmental relations e.g. the sales
department may be interested in keeping prices down and it can conflict
with the production department which may be interested in keeping
prices up.
Interdependence in jobs e.g. an individual does a job and complains that
another one is a poor performer.
Difference in reward system.
Differences in values and perceptions of different people.
Poor management style,
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xii.
xiii.
xiv.
Unclear objectives and tasks.
It may result from hidden agenda of different people.
Nepotism. Managers who always bring in their relatives in an organization
are likely to brine about conflict among members.
Types of conflicts.
i.
ii.
iii.
iv.
v.
Conflict within the individual (intra-psychic)
Conflict between individuals in the same organization arising from
differences in personality. It may also be due to role related pressures.
Conflict between groups in the same organization e.g. drivers and the
management, accounts department and production department etc. There
can be conflict between lab our and management in form of strikes.
Conflicts between organizations in the same sphere e.g. within the radio
industry like CBS and Super f.m, mobile phone companies like MTN &
WARID, etc. They may be struggling for resources, technology, market etc.
Conflict between individuals and groups.
Functions of conflicts
 When conflict is left at mild level (low level)), it can improve the internal
operations / functioning of the organization. It can lead to the general
improvement of internal operations as various issues are exposed and
assessed.
 It can lead to modification of goals, targets and objectives.
 It can lead to resolution of outstanding problems and to get ride of issues
that were present and hidden in the organization.
 Conflict according to Stoner increases cohesion (solidarity), people form
caucuses to share same feelings or problems and these caucuses remain
permanent.
 It also leads to rise of leaders especially informal leaders and this leads to
future bonding within the groups
Negative consequences of conflict
Conflict is bas when it's at a high level.
 It leads to distorted perception. The groups perception of its view is
objectively seen and of the opposition become distorted.
 There is increase in negative stereo types. One group tries to dilute ideas
of the other. The difference of the two groups is exaggerated.
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 There is development of blind spots. The apparent ability to grasp and
think accurately about your own side and of the other group is distorted.
The blind spots arise due to the fear to be seen as losers. The fear to be
defeated blinds the two parties in conflict of their similarities and this
perpetuates the problem.
 High levels of conflict can increase other discontentment which should not
have been part of the story. And these are recalled from the bad
experiences only. This is done because they want to convince other people
that they were not in wrong.
 When there is conflict, there is a tendency for the conflict to continue even
after the initial problem which caused the problem has been solved.
Human beings tend to be persistent in their behavior.
Role of a manager in conflict resolution.
Given the benefits of mild conflict, and the losses from high levels of conflict, the
task of managers is not to suppress or eliminate all conflicts but to manage
aspects and minimize its benefits.
Methods of managing high level conflict.
1. Dominance / suppression of conflict
2. Compromise
3. Integrative problem solving
1. Dominance/suppression of conflict
This relates to a method of suppressing conflict rather than solving it but
sweeping the conflict underground i.e. a manager tries to create a win - loss
situation. The ways which the manager uses include:
i.
ii.
Forcing one group to accept demands of another. It's the easiest method of
stopping conflict. It’s called malicious obedience. Instead of resolving the
conflict, he brings it under ground, but the problem is that the problem
may rise up again,
Smoothing - Here, the manager tries to minimize the extent of the conflict.
The manager just relaxes one side. The problem here is that when a
manager fails to understand or is seen as favoring one side, the losing side
is likely to lose temper.
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iii.
iv.
Avoidance. The manager fails to take a position. The manager can keep on
warning groups in conflict. He also pretends to be unaware that the
conflict exists.However, postponement may have problems later.
Majority rule: This involves majority voting. The problem is that when the
two parties do not come to a compromise one party is likely to remain
unsatisfied.
2. Compromise
This means convincing each party or group in conflict to sacrifice some objectives
in order to gain some other objectives. This doesn't help; it only helps to get a
solution which the parties can live with.
Forms of compromise:
i.
ii.
iii.
iv.
v.
Separation: Here, parlies are left apart while searching for a solution.
Arbitration: Here, you bring conflicting parties to submit to the judgment
of the third party. Usually but not always, an arbitrator can be a manager.
Arbitration here will succeed if the third party is not seen as biased.
Settling by chance: This involves tossing a coin. It's a random method to
determine a decision.
Resorting to the rules: The manager refers to the company rules and
policies to determine
Bribing one party into giving in i.e. one party accepts compensation.
3. Integrative problem solving.
This is a method in which the parties in conflict try to solve problems between
them by openly trying to line! a solution which they all accept. The manager gives
his feelings about the conflict and that all the members are important to the
organization and should work together for the common goal.
The manager emphasizes the benefit of finding an optimum solution.
Forms of integrative methods
i.
ii.
Consensus: The conflicting parties meet to find the best solutions rather
than trying to achieve a victory for either side. But it's important not to
come to premature consensus; the conflicting parties should speak out all
their mind. The solution is only intended to end the conflict.
Confrontation: Here, the opposing parties state their opposing views
directly to each other. The reasons for the conflict are examined and the
solutions to the conflict are sought. However, confrontational problem
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solving requires that parties in conflict are willing to accept the associated
stress / pressure associated with confrontation.
Sample question:
Using examples clearly explain how you could handle high levels of conflict
in an organization.
CHAPTER EIGHT
BUSINESS ETHICS
These are acceptable behaviors of how entrepreneurs must conduct themselves
when dealing with different parties making decisions.
Business ethics are the good virtues /behaviors that business people must apply
when making business decisions
8.1 PRINCIPLES OF GOOD BUSINESS ETHICS
Ethical principles are the values that set the ground rules that should be followed
for good decisions
The following are the principles of business ethics:
Honesty. This involves being open and telling the truth and avoiding to say
something that is false.
Keeping promises. This involved being able to fulfill the promises that one has
made and avoiding promising what one cannot fulfill.
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Fairness. This involves creating and following a process whose outcomes are
just and acceptable to any reasonable person.
Respect for others. This involves honoring and valuing the abilities and
contributions of others through proper communication and appreciations form
the entrepreneurs or management of the business.
Compassion. This involves maintaining awareness of the needs of others and
acting to meet these needs wherever possible. Entrepreneurs can show this
through caring for the needs of the customers and workers and also showing
social responsibilities.
Integrity. This involves living up the ethical principles despite being contented
with the business risks and challenges
8.2 BUSINESS ETHICS TOWARDS CUSTOMERS
Honesty. An entrepreneur should be honest in terms of qualities and the prices
they charge on their products that they bought by the customers.
Courteous. This involves being rightful, polite, patient and sincere when dealing
with customers in the way the business /entrepreneurs communicate to them.
Keeping promises/Being responsible. An entrepreneur should keep his or her
obligations to the customers by supplying what is agreed upon in the contract
he/she has with the customers.
Producing quality products. So as to satisfy the customer’s needs.
Providing adequate information about the product to the customers e.g.
information about the uses/directions of use of the product
8.3 BUSINESS ETHICS TOWARDS EMPLOYEES
Providing fair and prompt payment. This is done basing on duties and
responsibilities they perform plus their level of experience.
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Provision of dear and fair terms of employment. This is through giving clear
appointment letters that specify items like the working hours plus the duties they
are supposed to perform.
Provision of good working conditions through providing them with
adequate facilities, protective equipment e.g. gloves and gumboots.
Ensuring job security through giving clear contracts and appointment
letters to the workers so that they are certain of employment for a given period
of time.
Politeness. This involves communicating dearly and meeting workers well even
if they make a mistake
Respect for workers. Works shouldn’t be abused or harassed and they should
be appreciated and rewarded for their contribution on the business.
8.4 ETHICS TOWARDS THE GOVERNMENT
Complying with the business slaws e.g. registration and licensing of the business.
Fulfilling the tax obligations through being able to pay taxes that are required
and in time by dearly showing the information that is required by tax collectors
and even paying the taxes in appropriate time.
Meeting of production standards in terms of quality and weight as set by the
government authorities e.g. UNBS.
Complying with hygiene and environmental regulations e.g. maintaining proper
waste disposal and avoid using swamps for business activities.
8.5 ETHICS TOWARDS SOCIETY
Conserving the environment e.g. business people should avoid releasing
poisonous gases to the natural environment because these cause pollution which
is dangerous to people’s health.
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Business should have consideration for people’s norms e.g. entrepreneurs should
do business that are acceptable for a given culture/religion of /society e.g. avoid
selling alcoholic drinks near schools.
Contributing to the societies needs e.g. construction of roads.
Providing employment opportunities to the members at that community before
the foreigners
Sharing the society’s problem or needs e.g. helping the poor, the disabled,
orphans by providing them to some goods and services.
8.6 IMPORTANCE /BENEFITS OF PRACTICING BUSINESS ETHICS TO AN
ENTREPRENEUR
It enables the business to expand its market by maintaining its customers and
attracting new ones and this enables the business to increase the sales.
It enables the business to grow and expand due to an increase in sales and
products
It enables the business to stay ahead of competition through practicing good
ethics like charging fair prices and being honest. This enables it to capture more
customers than the competitors.
Business ethics enables the entrepreneurs to acquire human resource on labour
from the society due to practicing good ethics like employing members of the
society and showing concern for the society needs.
It enables the business to get protection/security from the society as the
members shall protect the business operations and assets due to the good morals
shown by the business.
It enables the business to easily access raw materials from the society as the
society members are able to freely provide them to the ethical business.
It enables the business to have a good reputation and image in the society
because of the ethical behaviors that the business shows.
It enables the business to acquire government support e.g. a business may be
able to get a government loan/donation because of its willingness to pay taxes.
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It enables the business to acquire government contracts or tenders because the
government usually decides business which we are when giving out contracts.
It enables the business to move smoothly without being closed down due to
failure to pay taxes or licenses
Question
State any five ethical behaviors that entrepreneurs and avoid
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Rudeness
Pollution of the environment
Production of poor quality products
Doesn’t fulfill promises
Failure to pay taxes
Arrogance
Smuggling of goods
Poor working conditions
Breaking business laws
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90