MODULE 1: CONCEPT OF BUSINESS AND NEW VALUE CREATION

1. Business Planning Process

Introduction/Definition of Concepts
A business is an activity or entity, normally engaged in the provision of products and or
services, for commercial gain, extending to non-Commercial organizations that may or may not
be profit oriented. This is irrespective of the size and autonomy. With this definition, non-
governmental organizations, private, public service sector like schools and hospitals are
regarded as 'businesses‟. Meanwhile, a plan is a statement of calculated intention to
organize effort and resource to achieve an outcome. This may or may not be in written
form, but essentially comprising explanations, justifications and relevant numerical
and financial statistical data.
Business can be classified into the following groups but not limited to: a small
company; a large company; a corner shop; a local business; a regional business; a multi-million
naira business, multi-national corporation; a charity organization, a Federal, State or Local
Government Ministry, Agency or Department, an hospital, a joint-venture; a project within a
business or department; a business unit, division, or department within another bigger
organization or company, a profit centre or cost centre within an organization or venture, an
individual or joint ventures, etc. Business plan therefore could be referred to as the activities
and aims of any entity, individual, group or organization with the purpose of converting efforts
to results. It is a formal statement of a set of business goals, the reasons why they are believed
attainable, and the plan for reaching those goals. It may also contain background information
about the organization or team attempting to reach those goals.
Business plans may also target changes in perception and branding by the customer,
client, taxpayer or larger community. When the existing business is to assume a major change
or when planning a new venture, a 3 to 5 year business plan is required, since investors will
look for their returns within that timeframe. Invariably, the business plan simply serves as
the detailed map of the venture that will guarantee a steady start up, a steady but gradual
growth and vitality of the business.
The process of determining all the goals, strategies and projected actions that you intend taking
to promote and ensure the survival and progress of your business within a given time
frame is referred to as business planning process. This characteristically has two key
aspects, one focused on making profits and the other focused on dealing with risks that might
negatively impact the business. Business plan serves as a blueprint to guide the organization‟s

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policies and strategies which are continually modified as conditions change and new
opportunities or threats appear. If this is prepared for external audience like lenders and
prospective investors; it has to include details of the past, the present, and a forecasted
performance of the business. Typically, this also contains pro-forma balance sheet, income
and cash flow statements to show how the required fund shall positively affect the financial
position of the business.
Business Planning Process:
When writing a business plan from the scratch, from a template or from the guide of an
experienced business plan consultant, there are five required steps to create a new business
plan. It is a detailed process here referred to as business planning process. These steps are:
Research: Business planning process starts with a detailed research into the industry, its
customers, competitors, and costs of the business. This research comes in various forms
like information from articles, collected data or direct interviews with prospective clients,
experienced consultants or entrepreneurs. The result of the research should be meticulously
organized and properly documented with its source.
Strategize: The second step is to strategize based on the information gathered from the
research. A good major source of strategizing is to watch the current practices in that business
environment to have a foundation to build the necessary competitive distinctiveness. One
needs to ponder over the strategy meticulously to consider the appropriate location, start
up finances, equipment, operations, marketing and legal formalities.
Calculate: From the decided strategy activities, comes the third step to calculate. It is essential
to calculate and have a rough draft of the financial implications in terms of the expected
expenditure and revenues to ascertain a possible profitability at the end of the day. There is the
need to bring up all assumptions for start up expenses up to maturity at calculations for running
early operations. Most start up businesses pack up before gestation stage due to financial
assumptions.
Draft: The fourth step of a business planning process is to begin to draft and flesh up the
background work made in the decided strategy and the financial calculations for the actual
business plan detailed content. One may require the services of a business plan writer or
consultant, if there is any challenge in respect of this.
Revisitation and Proof-reading to finalize: The fifth step is to revisit the entire business plan
details and reconsider any ambiguity or inappropriate wordings and ideas featuring in the plan.
There may be the need to give it further fresh looks after setting it aside for some time.

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Soliciting for the assistance of an experienced proof-reader may be necessary to prevent
grammatical, spelling and formatting errors to finalize the plan.
Typical Structure for a Business Plan for a Start-up Venture
From the foregoing, one will agree that business plans are decision-making tools. There is no
fixed content for a business plan. Rather the content and format of the business plan is
determined by the goals and audience of that enterprise. Some entrepreneurs simply see a
business plan representing all aspects of business planning process that include only the
vision and strategy with sub-plans to cover marketing, finance, operations, human resources
as well as a legal plan when required. To some others, it has to be more detailed than that. It
has to typically include an introduction/overview, a short description of the business idea
and opportunity, what makes it different, who will be involved in the business, how you will
provide your product or service, your marketing and sales strategy and financial situations and
forecasts for the expected profitability. Consequently, it is essential to know that the structure of
business plans varies. However, this discussion uses a typical structure for a business plan for a
start up venture.
Executive Summary: This is the general overview of the entire business. It is a summary of
the business idea, the mission statement, a sketchy report of where your business fits in
the market place and why it will succeed. Questions that have to be answered here include:
What is the business?
A brief description of the business idea and why it should be a success, History of the
enterprise and its ownership, Information about the entrepreneur‟s qualifications, experience
and financial status and location.
What is the market?
A description of the product and what it does, an explanation of ways in which the product
is distinctive and unique, Analysis of the competition, How the product will be
developed and what new products are being considered as replacements, Intangible assets
& protection (e.g. copyright, trade marks)
What is the potential for the business?
Size and expected growth of the market, Analysis of market by segments,
Identification of target segments, Competitors - who they are, ownership, size, market share,
likely response to the challenge, Customers (existing & potential) -who they are, how they buy,
why they buy, Distribution channels
What are the forecast profit figures?

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A statement of what the business should achieve over a given time target (three or five year
period)
What are the Funding requirements?
What are the prospects for investors and lender?
Please note that all these need not be in detail as they are only the overview of the whole plan.
Business Description: This is a detailed description of the business, with an in-depth
explanation of the product or service being planned for the market and its benefits to those who
will buy or use it.
Business Environment Analysis: This should explain the detailed strategy and tactics to
be employed for bringing the product or service to the market. Strategy is the broad approach to
the achievement of objectives while tactics refer to the details of the strategy. This includes the
business name, the image and how they will be protected.
• Determines how to get to the market?
• Summarizes how to fulfill the entrepreneur‟s objectives.
• The detail will be contained in programmes and budgets.
• the pricing structure to be established.
• the estimated sales projections.
Market Analysis: This should thoroughly describe the customers, your competitors, the need
for your product or service, and the health and vitality of the market place. This cannot be guess
work. It must be based on a careful and reliable research. Other key questions it must answer
are:
• What is the size and growth rate of the market?
• How is the market segmented?
• What is special about the product or service?
• What are the competitive advantages?
• What is the marketing strategy?
Marketing Plan: The marketing has to be adequately planned for and must include the:
• Market research
• Segmentation and targeting
• Detailed outline of the product or service
• Unique selling points
• Chosen pricing strategy
• Promotional plans

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• Distribution strategy
• Customer service strategy
Operations Plan: Operations plan include the production process which must be explicitly
explained. The process of bringing your product or service to the market, office space,
production schedules, inventories, suppliers, supplies, official licenses, and insurance, meeting
and existing business regulations must all be thoroughly discussed. The following may also be
included depending on the type of business.
• Physical location
• Facilities
• Equipment
• Scale & location of operations
• Capacity - potential and effective
• ICT strategy
• Engineering and design support
• Materials required
• Inventory levels and stock control plans
• Purchasing arrangements
• Sources of supply of key resources
• Quality control plans
• Staffing requirements
Management and Organization: This explains the organizational structure of the
enterprise whether it will be sole proprietorship, partnership, Limited Liability Corporation, or
other status and those to be involved. Others are
• Details of senior management
• Corporate governance
• Staffing requirements
• Key personnel
• Recruitment and selection
• Training
• Rewards (financial & non-financial)
• Labour relations
• Employment and related costs

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Financial Plan: This offers the idea about the finances to be involved. The available amount,
the required amount and how and where you will secure the difference. It should also be able to
give the investment appraisal – payback and discounted cash flow as well as break even
analysis. Other expectations from the plan are:
• Details of capital required and uses
• The plan must include details of the external finance required. This will be
equal to the finance required, less the finance raised internally from existing owners and
from operations
• The plan will outline how it is proposed to raise the finance
• Sources of finance: Short, medium and long term; Debt equity
• Evaluation criteria for performance review
Ratio analysis: net profit margin, Gross profit margin, return on capital employed, liquidity
and solvency analysis effective business planning has to begin with an honest and realistic
appraisal of the current position of the business.
Reasons for a Business Plan:
Planning about your business is a necessary process to undertake before, during and after start
up. The business venture could be a fresh proposed start-up, a new one developing within an
existing corporation, a new joint-venture, or any new organizational or business project for as
long as it is purposely to convert action into results. As the backbone of any enterprise, it is
very essential for an entrepreneur to ask him or herself why he needs a business plan. An axiom
says if you fail to plan, then you have planned to fail. A business plan serves as:
Road Map/Guide for the Business: It is not everyone that starts a business with a plan but it
is better to have one to guide one. It guides the entrepreneur through the various phases of his
business. Note that it is not a static document that you write once and put away. It should be
simply taken as a guide or checklist of questions that constantly need to be attended to at every
stage of gestation, growth, maturity and decline of the business.
Assurance of potentiality: The headings in a business plan will reassure all that the venture
will work. The plan helps to clarify the entrepreneurs thinking and demonstrates his
commitment to carry on as planned. It also identifies where he/she intends to get to and how to
get there. This will also convince them that the tools, talent and team to make your plan work
are already available.
Define a Business: It helps to identify the business, its objectives/goals and programmes that
must be achieved.

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Serves as Résumé for the Business: This happens when there is the need for communications
to attract more investments, loans and profit potentials of the business. Regular Business
Review and Course Corrections: The business plan is your regular reference to ensure you stay
focused on its objectives. It will need to be constantly reviewed as the business develops. It
provides the chance to focus one‟s mind on how one intends to run the business and to identify
early on any areas or issues that might have been forgotten or neglected.
Review Current Progress against the Initial Forecast: The progress of the business shall
easily be feasible against the earlier forecasts. This makes any review or necessary adjustments
to get it back on track possible. Having a clearly presented business plan document will also
make it easier for any specialist support needed.
Support For A Loan Application Or Raise Equity Funding: Whenever a business is
seeking fund from a bankers, venture capitalist or investor, a comprehensive business plan
that is clear, focused, realistic and contains sound business reasoning shall be a necessary
requirement to show that it is worthy of financial support. Banks are more favourably disposed
to applications with a business plan whenever it is approached for capital to expand.
Defines Agreements Between Partners: It helps to define agreements, shares, etc between
partners, shareholders and other stakeholders in the business. Proper Allocation of
Resources: It helps to allocate resources properly, handle unforeseen complications and
thereby assist in making adequate business decisions.
Sets a Value on a Business for Sale or Other Legal Purposes: Whenever the business is
placed on sale, it helps to set a value for it. This is also required at most times for legal
purposes.
CONTENT CURRENT STATUS DEVELOPMENT PLAN
1. Executive Summary
2. Business Description
3. Business Environment Analysis
4. Market Analysis
5. Marketing Plan
6 Operations Plan
7. Management & Organization
8. Financial Plan
9. Conclusion

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WORKSHEET A: Typical Structure for a Business Plan. Parents and some of the students are
involved in one business venture or the other. These ventures need to be developed. Use the
worksheet below, to provide information that could be in a business plan that will improve the
business.
Name of the Business venture____________________________________________
Students Names:_______________________________________________________
Matriculation Number:___________________________________________________
Faculty/Department:____________________________________________________

Group work assignment, individual assignments/ test questions

1.) What is a business plan and why would an entrepreneur need a business plan?
2.) Itemize and discuss briefly the process of business planning.
3.) Can you recognize some business ventures being run within the University campus? List ten
of them. Start Up Decision - What Motivates People to Begin New Businesses
A. Introduction/Definition of Concepts It is worthy of note to consider what motivates
people to begin new businesses particularly when one reflects on what it takes to start a
new one in the Nigerian environment. It should be understood that new businesses are not
created by accident, but clearly intentional. Entrepreneurs are driven by challenges which they
pursue and overpower. These challenges in Nigeria include the fears of funding, hardworking,
complete failure and universal delayed profit in the stabilizing years.
With the current problems of joblessness, poverty, miss-trained graduates and graduates in
unneeded courses, many Nigerians are venturing into entrepreneurship without considering
their personality. Only your interest to be an entrepreneur is not enough, your personalities,
whether in-born or developed in skills, experiences, lifestyles and resources along with your
individual suitability for the different available options; majorly determine your success at
business creation. Your personality has a lot do in determining the choice of business that is
right for you.
In Nigeria, a lot of successful entrepreneurs today failed at several attempts in business before
achieving the desired outcome in just one or two. They always claim to „hit it‟ in the successful
one. Yet a lot are still beginning their own businesses on daily basis. Besides the personality,
certain factors available to individuals also assist to motivate them to begin a business. What
are these factors?
Factors That Motivate People to Begin New Businesses

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Joblessness: As students the main factor that could motivate you to begin a new business
on graduation is non availability of Government or private jobs in Nigeria. However, there are
several other factors motivating people to begin businesses.
Financial Ambition: The necessity to be rich legally and fast may motivate someone to begin
a new business. His interest is the financial reward that entrepreneurship can bring him. It has
to generate enough profit. This is very common in Nigeria.
Desire to Control the Economy: There are some entrepreneurs who want to control the
entire or certain aspects of the economy of their people. In Nigeria today, Odua Group of
Companies, Jimoh Braimoh, Wale Tinubu, Otedola, Dangote are individuals being motivated
by their desire to control certain aspects of the Nigerian industry. Today is controlling the
building industry, haulage; petroleum and food industries. The desire of such persons or their
group motivates them to continue to start new businesses.
Desire to pursue a business idea: A business idea may occur from any source to a prospective
entrepreneur. He may eventually be motivated to pursue this idea and begin a new business.
Advantage of an opportunity in the market: When an opportunity opens up in the market,
some entrepreneurs could take advantage of this, explore it and eventually get motivated to start
a new business.
Inherited Family Business: An inherited family business can be a motivating factor for the
establishment of a new one.
Desire to be their own boss: An employee could be motivated by his desire to be his own boss
and become an entrepreneur. He/she eventually begins a new business that will be under his or
her full control. They want to be their own boss and in charge of all of the day-to-day
operations of a company. He entrepreneur wants to be the one making the important
business decisions, determining the direction the company will take, making the call on
product development and marketing and being responsible for every aspect of the
company's operation.
Replicating a Business Idea found in Another Environment: Some entrepreneur who travel
may come in contact with a business idea that is new to his environment. This may be
replicated in the new place by the entrepreneur on his own or with the assistance of the original
environment.
Frustration with low Pay: A worker frustration in a company may decide to get out to
establish his own outfit which he believes can compete favourably with his previous employer.

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Note that he must have acquired enough experience from them. He knows the weaknesses and
strength of the previous company. The desire to control their own destiny,
Preference for a Smaller Company Environment: The preference for a small company
environment with the desire to put a personal touch back into doing business may be a
motivator for beginning a new business. The drive to start a business comes from. Someone
might feel upset working in a large corporation/company, can become very impersonal.
Lack of opportunity in previous employer: Just like being frustrated with low pay, an
employee that lack opportunities one way or the other may be frustrated. This may be the
motivating factor that will turn him into an entrepreneur with a new business. A talented
person that the employers could not retain could be motivated to begin a new business.
The desire "to make things improve the world": someone can be motivated to begin a new
business if he/she feels highly pressed to make things that will improve the lot of common man
in his society.
Invite to begin someone else's business: There are situations where an entrepreneur invites
someone to begin a new business for him/her.
Maintain own ethical values which their employer didn't share: The desire by a
prospective entrepreneur to maintain his own ethical values may motivate him to
establish a new business. The mis-match between the values, goals and ambitions of these
entrepreneurial spirits and their employers is a very strong motivating factor for establishing a
new business
Desire to be involved in operations: Some entrepreneurs could be frustrated in a business and
feels confident that he/she possesses the necessary capacity and interest in running a successful
business. This motivates him/her to start his own and be directly involved in all operations - the
design team, sales, marketing, engineering and production.
Exposure to Some Available Fund: The availability of some excess fund that is not being
used may motivate the idea of beginning a new business. A lot of bankers, civil servants
politicians retire with a lot of gratuity to become entrepreneurs.
Spirit of returning to the society: Whilst a number of motivations could come from
entrepreneurs driven by the spirit of returning to the society who already feels
accomplished but now want to contribute back to the society by offering valuable
services to their customers. He/she may then decide to start for them new businesses that may
or not even compliment his/her original business

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Life after Retirement: The fear of what to do to augment their pension salary challenges
retirees to begin a new business. Retirement age in Nigeria is between 60 and 70 year
depending on one‟s profession. To prevent their early death, medical doctors have
recommended that retirees at that age range should be involved in continuous activities like that
of their offices while in service. Retirees are therefore motivated by these two challenges to
begin their own businesses.
Favourable Government Policies and Procedures: A favourable Government policies
and registration procedures can motivate entrepreneurs to begin new businesses. The Nigerian
Government has a lot of polices in place to assist entrepreneur. These include the establishment
of special banks like the bank of commerce, agriculture and industries, Government policy
tolerates Civil Servants to venture into any area of agriculture while still in service and
the protection of creativity and innovations of original works with the Nigerian.
Copy right Law policy. Several registration rules and procedural requirements of businesses in
Nigeria are also made less cumbersome and majorly and electronically online.
Opportunity Search and Identification
Introduction/definition of concepts
Opportunity refers to the extent to which possibilities for new ventures exist and the extent
to which entrepreneurs have the leeway to influence their odds for success through their
own actions. Simply put, opportunity is a perceived means of generating incomes that
previously have not been exploited and are not currently being exploited by others. Opportunity
identification can, in turn, be defined as the cognitive process or processes through which
individuals conclude that they have identified an opportunity. It is important to note that
opportunity identification is only the initial step in a continuing process, and is distinct both
from detailed evaluation of the feasibility and potential economic value of identified
opportunities and from active steps to develop them through new ventures. It is essentially
a situation in which new goods, raw materials, markets and organizational strategies can be
introduced through the formation of new means, ends or means-ends relationships.
The focus these days is on innovative opportunities which are the ones that truly break new
grounds rather than merely expand or repeat existing business models. Opening a new Hausa or
Igbo cafeteria in a neighbourhood dominated by a populace from these extractions that
currently do not have one is an example. Not everyone can identify opportunities. Some
individuals are more likely to identify and exploit opportunities than are others. Opportunity is
a major process of self-evaluation of one‟s ability to start, operate and run a business venture

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with the popular analysis often referred to as SWOT (Strength, Weaknesses, Opportunity and
Threat). It helps to check the chances of succeeding in a particular choice of venture
open to an individual through his experiences. These experiences include family, religious
or professional linkages, membership of any network group.
Searching for a business opportunity that is right for them is the major challenge would- be
entrepreneurs face. New start ups always focus on introducing a new product or service
based on an unmet need, select an existing product or service from one market and offer it in
another where they are not available; and sometimes the firm relies on a tried and tested
formula that has worked elsewhere in a franchise setup.
Business Opportunity Identification Process
It is pertinent to know how entrepreneurs identify and decide a new business
opportunity with the best chance to succeed. The most important part of all business attempts
common to most successful start ups is answering an unmet need in the market. Customers are
always interested in products that add value. They buy products needed only to satisfy some
problems. In actual fact, there is no substitute for indulging the unmet needs of customers. Most
entrepreneurs searching for new business ideas fundamentally consider three central issues. The
main one is the potential economic value. He first considers if the venture has the capacity to
generate profit. The second is the newness of such a venture. He / She will prefer products,
services or technology that does not previously exist in that environment. The third is the
perceived desirability whether their product has the moral or legal acceptability in that
environment. He then considers if:
• his final business decision idea corrects a deficiency in the market.
• the resources and capability to carry out this business idea are available to him/her.
• the market for it are readily available and at profit sales.
• the new business idea can compete favourably with existing related competitors
and their market.
• this business market is growing or not and how one should prepare to join that business.
ii. The Stages of Opportunity Identification process Opportunity identification is the
collection of three main factors, which are the entrepreneur‟s background, the business
influence and the general business environment. Opportunity identification has five stages
that lead to „recognition‟. The five stages are discussed in relationship with the
process of opportunity identification. These stages are:
a. Preparation

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 b. Incubation
c. Insight
d. Evaluation
e. Elaboration
Preparation stage is that knowledge and experience exercised just before the opportunity
discovery process. These knowledge and experience are not often deliberately acquired.
However, preparation itself is usually a deliberate attempt to widen capability in an area and
become sensitive to concerns in a field of interest. In an organized situation, the background of
the business, the products or services or the technological knowledge must have majorly
informed the main ideas of the successful venture. One cannot however, rule out the role
of new ideas and expertise originating from individuals in the organization that will
eventually result in a new business.
Incubation
Incubation stage is the part of the opportunity identification process that involves the
consideration of a concept or a specific problem ordinarily not subjected to conscious or
formal analysis by a businessman or his team. It is usually not consciously done and
therefore more often than not, an instinctive and unempirical approach for the consideration of
several potential alternatives.
Insight
Insight stage occurs at the moment a fundamental solution suddenly becomes recognized
unexpectedly. It is a particular moment that keeps occurring persistently right through the
process of opportunity identification. Insights have been found to be extensive channels to the
discovery of startup businesses and sometimes reveal additional knowledge for the
development of a current process of discovery. In respect of a business venture,
insight predictably encompasses the abrupt recognition of an opportunity in business, the
answer to an adequately pondered crisis and the possession of a concept from social networks
and associates.
Evaluation
Evaluation stage is about investigating if the recognized and developed ideas are feasible, if the
businessman has the required abilities to realize the ideas and if the idea is sufficiently
innovative for prospects. It sometime involves full feasibility analysis of the ideas through all
forms of research instruments and criticisms from relevant business acquaintances. It is

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fundamental to also investigate the prospect and viability of the new insight ideas as the spirit
of entrepreneurship is to make satisfactory and sensible profits.

Elaboration
Elaboration is that stage that exposes the opportunity/ideas to external analysis with the
tedious and time–consuming options selection, choice decision and organization of
resources. It is customarily in search of all legalities that could build confidence and guarantee
the practicability of the business. Elaboration also reduces uncertainties by providing the
detailed planning activities after the evaluation viability confirmation. This will eventually
reveal the concept areas that still need further analysis and attention
Types of Opportunity
The main purpose of any type of opportunity is to strategize to achieve appropriate search. In
other words, appropriate searching strategies are a function of the type of opportunity. Business
search opportunities could be classified into three types, these are the:
i. recognized type
ii. discovered type
iii. created/enacted type
Each of this type of opportunity is associated with a certain level of uncertainty. These are low
uncertainty for recognition opportunity, moderate uncertainty for discovery opportunity and
ultimate uncertainty for created/enacted opportunity.
Recognition Type: For opportunities that are recognized, deductive reasoning is used to either
actively or passively filter for venture worthy ideas. Entrepreneurial alertness attitude enables
recognition because the entrepreneur will be very sensitive and alert to information available in
his/her environment. Personal insights and intuition are equally important for identifying
opportunities as a purposeful search. Recognition type consists of accidental recognition of an
opportunity for a business solution to a challenge and realization of idea or ideas from others
like colleagues and associates. Accidental recognition occurs in the passive search style and is
more likely when the entrepreneur possesses a very sensitive entrepreneurial alertness. It could
also be noticed that businesses established through accidental recognition break even earlier
than any other formal one. Recognition type is characterized by
several other factors such as the background of the entrepreneur, the influence of the business
and its general environment. This type of opportunity has to do with the exploitation of the
existing markets where both sources of supply and demand that exist are recognized and

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brought together. Opportunity recognition occurs under condition of near certainty. This low
uncertainty or near certainty opportunity in recognition type is referred to as analysis inducing.
Discovered Type: In this type of opportunity, when only the demand exists, but supply does
not, and vice versa , then the non-existent side has to be discovered. This type of opportunity
has to do with the exploration of existing and latent markets. For the discovered type
opportunities to occur, a purposeful search is necessary. The entrepreneurs of the discovery
type narrowed their search to areas where they had specific prior knowledge and they basically
do not rely on alertness. An example is demand exists for „Published texts in entrepreneur
education in Nigeria‟ while the supply has to be discovered. Another example is the
existence of supply for „application of computers in Nigerian rural schools,‟ demand has to
be discovered. As earlier mentioned, with opportunity discovery the uncertainty level is
moderate. With this moderate uncertainty task, the discovery opportunity is known as quasi-
rationality inducing.
Creation/Enactment Type: This type of opportunity is based on the principle of
enactment where the entrepreneur creates new means and new ends by using effectual
reasoning. This reasoning includes three types of means. The entrepreneur themselves, prior
knowledge and experience, whom they know especially in the social, religious and professional
sector. In this type of opportunity, the supply and demand will not apparently exist; one or both
of them have to be created. This demands that several economic inventions like marketing,
financing and others have to be created for the opportunity to exist.
This opportunity exploits principally the creation of new markets. The entrepreneurs
imagine, rather than recognize or actively search for opportunities that represent the execution
of a selection of possible futures. Creation or enactment opportunity is associated with true or
ultimate uncertainty. This high uncertainty task in opportunity creation can be recognized as
intuition-inducing. Factors that Influence Business Opportunity Identification There are five
factors that influence identification of opportunities. These are:
a. Entrepreneurial Alertness
b. Prior Knowledge
c. Discovery versus Purposeful Search
d. Networking versus Solo Entrepreneur
e. Creativity
f. Entrepreneurial Alertness Factor

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This is a predisposition to observe and be responsive to information about objects, incidents,
and patterns of behaviour in the environment, with special sensitivity to maker and user
problems, unmet needs and interests, and novel combinations of resources. This is usually
preceded by a position of enthusiastic awareness of information. Entrepreneurs constantly
search about for opportunities that have been overlooked before then but unfortunately not all
that have entrepreneurial alertness become successful entrepreneurs. Opportunity identification
is only an indispensable stage of a process in initiating a new successful business.
There are two types of alertness. These are the potentially worthwhile goals that have remained
unnoticed and the unnoticed but potentially valuable resources. The alert entrepreneur is said to
be alert to the receipt of information rather than already being in possession of it.
Entrepreneurial alertness is of major importance in opportunity identification. Alertness
for a venture is built upon the three ideas of personality traits, social networks and prior
knowledge.
People‟s self-perception of creativity, high intelligence and a supportive family
environment that encourages creative thinking contributes highly to execution of
entrepreneurial plans. The optimism acquired from these builds up a self confidence attitude
and eventually success in recognizing entrepreneurial opportunities when it comes. It is the
belief by many people that they are very good experts in decision making, thereby detect
opportunities and take risks.
Prior Knowledge Factor
People tend to discover opportunities from the information that is related to the
information they already know. Prior knowledge and experience are the primary source
of searching for opportunities. Entrepreneurs narrowed their search to areas where they had
specific prior knowledge. Prior knowledge triggers identification of the value of new
information. There are two main areas of prior knowledge relevant to the identification
process. The first one is the knowledge that is of special fascinating interest to the
entrepreneur. The second area is the knowledge accumulated over the years and
eventually got familiar with customer problems and issues involved. The fascinating interest
compels the entrepreneur to intensify his or her competences that eventually result in an
insightful knowledge of the subject matter.
Discovery versus Purposeful Search Factor
Some entrepreneurs absolutely believe that opportunity identification has to be through a
purposeful search for opportunities while others believe that opportunity is something that had

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been readily available and overlooked but now discovered accidentally. Businesses
established on accidentally discovered venture ideas and which had not been subjected to
prescribed screening achieved break-even sales faster than those businesses that had undergone
purposeful searches.
Networking versus Solo Entrepreneurship Factor
Entrepreneurs‟ network is vital in opportunity identification. The main contribution of network
to identifying potential venture opportunities is from information gathered from social
exchange of ideas. The common sources for such opportunity are from friends, relatives,
businessmen, lawyers, bankers, participation in professional seminars, workshops and
conferences, newspapers, books, periodicals and manuals. It is the belief that an
individual‟s strong-tie network within the family and friends set up are fragile information
sources compared with weak ties that are casual acquaintances. People with widespread
networks discover more pungent opportunities than those businessmen who do not have social
networks. There are three categories of opportunity recognition attitudes from social networks.
These are the solo, the network and the informal categories. The solo entrepreneur category has
a very creative, opportunistic and distinctive alertness attitude. They develop business ideas on
their own with the belief that new opportunities which is claimed to be theirs alone, come
naturally. Network entrepreneurs obtain their ideas from their social networks. With them,
enduring opportunities are not related to each other while entrepreneurial ideas emanate only
from accidental routes. Entrepreneurs with informal attitudes get their ideas when relaxed.
Creativity Factor
There is a link between creativity and entrepreneurship and are sometimes refer to be same. The
nature of creativity is about innovation leading to the creation of new ventures while
entrepreneurship itself is a form of creativity or can even be referred to as business creativity
and in most cases new businesses are creatively original and functional. Most successful
entrepreneurs identify opportunities that others do not see due to the special creativity attribute
they possess. These creative attributes has a lot to do in business decision making and
therefore very significant inopportunity- identification process. To entrepreneurs, the more
innovative the idea the better the idea this makes creativity a fundamental component
in the entrepreneurial process. Hence creative entrepreneurship is described as the
accomplishment of original useful ideas to start a new business to product and Service delivery
level.
Opportunities from SWOT Analysis

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Some opportunities are sometimes identified while the entrepreneur is having his or her self
assessment in terms of strength, weakness, opportunities and threats universally referred to as
SWOT. SWOT Analysis is a useful self-appraisal system for your strengths and weaknesses
that help establish your business or develop your business by exploiting your abilities, talents
and opportunities. It is frequently used to understand, underline and identify the opportunities
open to you and the threats you are likely to encounter. SWOT Analysis could also be that
initial self appraisal of the ability of the business opportunity to start and survive.
SWOT analysis was originated in the 1960s by Albert S Humphrey and has remained useful till
date as a simple start for strategy articulation or as a vital strategy instrument. SWOT also
allows achievable goals or objectives to be set for the business while future procedure for the
accomplishment of the planning and development of the objectives could easily be derived
from its SWOT. With your understanding of the weaknesses of your business, unexpected
threats can be eradicated or controlled well ahead, thereby compete favorably in the market
environment. In essence, there is Business SWOT Analysis (BSA), and there is Personal
SWOT Analysis (PSA). It all depends on what you want to evaluate but both are good sources
of opportunity identification and with little efforts, it can facilitate identification of
exploitable opportunities. To use SWOT Analysis, one should understand that Strengths and
weaknesses are internal to your organization while opportunities and threats generally relate to
external factors. Hence SWOT analysis is often described as internal/external analysis.
Strengths:
Your strengths should be perceived from both an internal position, and from the
judgment of the customers and others in the market. You should also be realistic and a list of
your company's characteristics of the business or project team that give it an advantage
over others should help. In the study of your strengths, consider them with your competitors in
mind. The situation where your competitors manufacture good products, but of less
quality packaging to yours; your own strength will be quality packaging. However,
quality product remains a necessity and therefore a weakness and a threat to your own product.
Such strengths could be economical, availability of adequate funding, abundant raw materials,
etc.
Weaknesses:
Your weaknesses are your limitations that characteristically place you or the team at a
disadvantage when compared with others. You are aware of your own weaknesses than any
other. It is a time to be truthful to yourself by asking yourself some unpleasant

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questions and answers about your weaknesses. Like your strength, this should also be
considered from an internal and external pedestal. Such weaknesses in Business SWOT
Analysis (BSA) are poor funding, unconducive location, inadequate infrastructure, outdated and
poor equipment, poor staffing, while poor comportment, restlessness, drunkenness, low
education, irresponsible attitudes, unwarranted socializing, reckless financial management,
lack of skill and general ineptitude are mostly the weaknesses in Personal SWOT
Analysis (PSA). Constant survey of the market and your competitors‟ progress should be done
to inform you of your weakness.
Opportunities
Opportunities are external chances for accomplishing the goals and objectives of the venture.
These objectives may be to improve productions and achieve better profits in the market or to
start up a new business from emergence to survival. In considering opportunities, it is best to
search your strengths for possible business or development opportunities. Another tactic is to
search your weaknesses for possible reduction of your weaknesses to identify and
explore opportunities from them. Such opportunities may open up from associations,
connections and affiliations in ones religious, political group, family especially inheritance
and an acquired experience by the entrepreneur.
Threats:
This refers to external factors usually outside the control of person or persons in the market
environment that could impede the business or the entrepreneur from achieving the expected
goals and objectives. These external factors include unpleasant environment, new
government regulations, technological upgrades in the industry, Government support for local
production of cassava – a major drug component and the ban on imported drugs, Chief
Omotosho is deciding to establish a new pharmaceutical venture of international standard in
Aawe, Nigeria, to commemorate his 60th birthday. He is thinking of handing over the business
to his children in three years time and would need a SWOT analysis for the new venture. This
has been prepared for him.
Legal Issues at Start Up
A. Introduction/Definition Of Concepts
Starting a business venture can be a difficult task involving many important decisions, but it is
highly exciting that the business idea is taking shape with every decision ready for takeoff.
However, one major decision prospective Nigerian entrepreneurs often jump is the legal aspect.
All over the world, there are some laws that entrepreneurs must follow to ensure their

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businesses are legally sound right from its foundation. One needs to make sure that all legal
formalities have been put in place. To avoid severe legal and liability consequences in future, a
targeted business plan should list all legal concerns that might negatively affect the business
and invariably other investors. The right legal structure that will suit ones particular type of
business or circumstances and ambitions should be considered.
In Nigeria, whether it is a corporate or limited company or even an enterprise, you will need to
register with some Government bodies, parastatals, agencies or even some professional bodies.
It all depends on your business idea and hence you need to seek specialist legal advice that
could cover copyright, trade marking, design registration or patenting. The summary is that all
start up business owners need the legal lowdown on the little-known legal issues that often
collapse new enterprises. You need a good attorney. Whether you are going alone or joint your
company is structured so that it protects your interests and fits your goals. It is important to
converse with a lawyer experienced in Nigerian business formation law to help you evaluate all
the options available at start up. Lawyers are not as expensive as you may be assuming and the
value one gets is very significant. You should know that lawyers are regularly abreast of tax
and corporate laws that keep changing all the time. These also vary significantly from one state
to the other. Some metropolitan urban states like Lagos often charge more as tax. To be sure of
the business being successful, the business team should probably include a lawyer who can
keep up with changes in the laws, legal and tax codes and advice as one progress in the
business. This will reduce unknown legal issues and thereby save money and negative images.
In conclusion, Start-up must make provisions for legal expenses right from the onset to avoid
significant legal problems later.
Legal Formalities for Business Start up Legal issues at start up involves dealing with setting up
the business entity, business name and trademark registrations, labour and employment issues,
intellectual property and vendor contracts among others. It is advisable to run your plans along
with an experienced lawyer that can handle the unique start up requirement of your business. It
is paramount to set up proprietary rights in the business and avoid infringing on the
rights of others. As just earlier mentioned, start up is a vital time to consider certain legal
issues. The legal formalities you must meet will depend on the entity you choose and the state
in which you live. To learn more, speak with a business formations lawyer near you. However,
four major legal issues that should be attended to are:
Address legal restrictions/Limits:

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There are some Legal restrictions by the Federal and State Governments which have
regulations for the establishment of businesses in Nigeria. Business operation permits and
licenses are obtained for the establishment of businesses, business name permit, their
premises, their operations, their materials and even the quality of their products. You have to
fill and file certain forms with the Corporate Affairs Commission (CAC); the autonomous body
responsible for regulating the formation and management of companies in Nigeria. Besides the
Corporate Affairs Commission (CAC), some common Government agencies involved in
business start up are Standard Organization of Nigeria (SON), Nigerian Copyright Council,
National Agency for Food and Drug Control (NAFDAC), Customs and Immigrations, State
Licensing Offices, health Departments, fire Department, land use Department, tax offices,
liquor licensing offices, professional bodies, and other licensing or permit offices. All these
depend on the type of business. It should however be noted that the CAC requires the
inclusion of a Lawyer or Accountant as Company Secretary for the registration of business
liability companies. Sometimes states determine the formalities peculiar to it for permits and
licenses. All these may involve signing agreements that may require the services of lawyers or
other professionals.
Choose a Business Entity Type
There are several corporate structures in the Nigerian business registration system which
includes sole proprietorships, partnerships, Limited Liability Corporation and Corporations.
The business structure one chooses depends on some number of factors. These consist of the
number of business partners to be accommodated in the business, the number of employees, the
amount of personal liability for business debts one can afford and how one would like to be
taxed among several others. It is best to contact an experienced business lawyer. Each of these
types of business entity has its strengths and weaknesses. Some of them are:

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Sole Proprietorship:
A sole proprietorship lets the entrepreneur/proprietor/business owner to have full control over
the business. It is therefore easy and cheap to start and run. For sole proprietorships and
partnerships, the core strength is that income is only taxed once – as personal income.
The weaknesses are that there is no protection for liability in a sole proprietorship while there is
limited ability to raise capital. There is lack of continuity or transferability whenever the
proprietor has problem with the venture.
Partnership:
Partnerships have few formal requirements making them inexpensive to run in comparison to
corporations. In this business entity, not only is there no protection for the corporation, but also
the one partner could be liable for the unscrupulous acts of another. It has tax advantages while
management flexibility is high. It is also easy and cheap to start. There is also no limit of
liability for partners. Just like sole proprietorship, there is Lack of continuity/ or
transferability while the ability to raise capital is unlimited.
Limited Liability Corporation:
Limited Liability Corporations are created and controlled by an operating agreement
which is a complex contract. It is extremely important that the operating agreement be properly
written even though it may involve additional charges from the lawyer, especially as this
entity seem the most attractive. Limited Liability Corporation is a combination of corporation
and partnership entities with a weakness of being a recent conception that still has to evolve.
Like corporation, limited liability company entity reduces personal liabilities. It has some tax
advantages as well as continuity or transferability. It has greater ability to raise capital while its
management flexibility is higher.
Corporations:
Corporation is the most common business entity that offers protection for its
shareholders. Its disadvantage is that income may be taxed twice, in the corporate and
at individual levels. Corporation has an advantage of having a clearly define structure where
shareholders who own the corporation, appoint officers to run the corporation and directors
that oversee the officers.
The percentage of rights of ownership by all stakeholders is determined by the number of
shares. This sometimes attracts different voting rights. It has restricted liability continuity and
transferability as well as greater ability to raise capital. Its other weaknesses include more

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limited tax advantages that require additional filing, more formalities while more expenses are
required. It has a very marginal tax management flexibility.
Protect Intellectual property
However, there are several aspects of intellectual property that a start-up needs to put in proper
place. People often misconstrue the entire intellectual property for patents only. Patent is just
the main type of Intellectual Property for the protection of invention. Others aspects are
trademarks for the protection of logo while copyright for the protection of artistic, dramatic and
literary works. Shareholder's Agreement is another aspect of Intellectual property required
to regulate the relationship of shareholder in a company that has them. Company trademarks
also include trade names and trade dress like its colours. Companies need to register all their
Intellectual Property Rights from start up to protect their intellectual property marks and
prevent litigations on plagiarism at later stages.
Generating and Registering a Business/company name:
Finding a befitting business name could be an interesting aspect of legal issues at start up. It is
however required by the Government that this name is registered. Such a registration is to
guarantees that no other business can exploit that your trade name. The idea of creating a
business name for some people may be easy, while others may have to toil with it for long. A
good business plan can be marred with an unbefitting business name or trade mark.
To assist you generate business name ideas is mainly by brainstorming and listing. Think about
and jot down as many keywords related to your product or service, your mission, add your own
name or names of your loved ones‟, your hero or heroes, your location etc. You may need to
build up on this list from dictionaries. It is advised that the more words, the easier for you to
find exciting and interesting words that will fit your dream business name. Consider if you can
combine some words or phrase from your list.
It is essential to keep these characteristics of a business name at hand while choosing a
new one:
• It should be easily and proudly expressible.
• It should be easy to comprehend and spell.
• It has to be creative and imaginative. (Sound well)
• avoid common or generic names.
• It must clearly advertise your business ideas and represent all you do so that your
production line will not be limited.

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• It should be distinctive and concise and without ambiguous words. consider the
generated name in an alphabetical list such as the yellow pages.

It is also advisable that the chosen name be subjected to family and associates‟ criticism.
Ruminate over it for some days before confirming it the chosen. After generating the
business name, it has to undergo registration at the Corporate Affairs Commission (CAC)
office. The trade marks like trade names, logo, colours, trade dress, etc which can be obtained
from an artist can be carried and registered along.
Checking the Company name and trademark
When your business name is submitted to the Corporate Affairs Commission
(CAC), the body will help you check if the proposed company name or trade mark is not
already in existence or similar to one earlier registered. This will be checked on their computer
which has the search facility (database) with the full list of registered businesses in Nigeria.
It is better to check the proposed company names and trademarks at the same moment once you
have decided to have the two. This will ensure you don‟t infringe on other peoples‟ trademarks.
At the end of the detailed checking, the CAC‟s business checker will report the availability or
otherwise of your proposed business name. Detailed checking at the CAC is to confirm the
registration of your intellectual property which no other business in Nigeria can ever use
again. It becomes the business link and marketing strategies with your customers.
Develop Basic Legal Documents
After the registration of the business name and trademarks, the business can now develop its
basic legal documents and common forms needed. Purchase and services agreement that have
to be signed should be prepared for the customer. Apparently, the business has to employ
staff to assist run it. Employment legislation should be abided with by ensuring that employees
receive their terms and conditions of service document, not too long upon assumption of duty.
Company policies and procedure in respect of staff health, safety and general welfare should be
documented, and be handed over to them on employment. There should be a general
employment manual while agreement forms should also be prepared. Business companies
are required to file an annual return with the Corporate Affairs Commission (CAC).
This may include the company account depending on the type of entity and the annual turnover.
There are penalties for not complying every year. Where there is the need for capital, directors
should consider and declare shareholding for potential investors. The potential type of shares
including rights each shares attract in the company should be specified. All these presumably

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attest to the fact that a professionally qualified and experienced lawyer and or an accountant be
employed to prepare the company documents including forms and agreements. Feasibility
Analysis of New Ventures and New Venture Financing
Introduction/definition of concepts
Feasibility analysis is a comprehensive research study required by the entrepreneur or his agent
to determine the practicability, profitability and viability of the business idea. Before jumping
into a start up business, expanding an existing one or even acquiring an existing one, it is very
necessary to analyze the feasibility of that business. For whatever purpose, the main task of
feasibility analysis is to express the model of the business and its marketability; check its
prospect for financial profitability and success; and convey the managing group‟s
capability to implement and accomplish the business objectives. Feasibility analysis is
therefore an overview of the business and a preliminary appraisal of the business idea to
consider if it merits pursuing. It reasonably reveals without prejudice the strengths and
weaknesses of the business, its opportunities and threats through the background and the assets
required to carry through as well as the eventual diagnosis for achievement. A feasibility
analysis provides the entrepreneur the opportunity to flesh up the initial business plan,
consider the missing and available features needed to be put in position for the business to
succeed. It is an opportunity to consider if it is visibly feasible and viable; despite the
challenges one is likely to experience and how to solve those challenges. The main concern
and tool of feasibility analysis are the necessary expenditure and the profit to be accomplished.
This means it is all about finance.
A new start up business requires some financial funding which comes in several unique
categories of financing options. Some universal and reliable funding sources easily available to
most entrepreneurs are through the entrepreneur‟s savings and personal bank soft loans,
financial supports from friends and family which may or may not involve interests. These are
typically the first stage of financing whereby the entrepreneur invests his own funds and
raise funds from friends and family. For more ambitious businesses, the next stage source is
usually the funding from angel investors. These are private investors who use their own capital
to finance businesses. After this is the next stage of financing from institutional investors
like venture capitalists companies who are specialists in funding new businesses for
profitable gains. Such venture capitalists also sometimes provide any observable potential
weakness in the business. These include legal, marketing or operational deficiencies that may
be threatening the survival of the business. Sometimes angel investors and Venture capital

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companies‟ bargain cash exchanges for an equity stake in start up businesses struggling to start
operating.
Reasons for Feasibility Analysis
Feasibility analysis is all about questioning your concept, ascertaining which components are in
place to make it realistic to easily execute and recognizing the biggest obstacles you're likely to
face.
Feasibility analysis mainly assists to:
Appraise the business marketplace for the new business idea; assess if the Managing team have
the personality generally known with successful business persons. It is advisable to have self
assessment first. One must have that personality suited, skilled and knowledgeable to run a
business and lead a group to success. Identify the challenges of start ups and how one can
overcome those challenges, consider the financial feasibility of the business viz-a-viz its
expected sales incomes, fixed and variable costs as well as break-even calculations;
decide to continue with the business plan due to its viability and other attractions or
not. Sometime it takes asking oneself some bitter but pertinent questions whether to scrap the
idea if it is no longer as originally envisaged or needs to be amended, redirected or altered
immensely. In this wise, an ingenious suitable feasibility analysis will supply the historical
setting of the business, describe the products and services, the account/financial
profile/data, information on its operations as well as management, marketing research and
strategy, including legal necessities. In actual fact, for such a serious research, all strata of the
Businesses are subjected to feasibility analysis, depending on the type.
How to Write a Feasibility Analysis Report
A feasibility analysis report for a start up business can be a simple or complex exercise,
depending on the type of business. The best approach is to first determine what the entrepreneur
requires it for and what interests him/her. Then, set the criteria that need to be fulfilled in order
to justify the start up business or convince decision makers who have to approve whatever for
the business. The structure/contents template of a feasibility analysis report is neither rigid nor
limited, and depends only on the needs, type and organization that require it. The template set
out below is therefore a general model that could satisfy most businesses. This report
template is comprehensive so some items may not be relevant to the needs of some
businesses while some specific requirements may be added. However, in writing a business
feasibility report the write up should be creatively kept simple, clear and concise, straight to the
facts and figures, evidences laden and stylishly assertive.

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Template and Structure for a Feasibility Analysis Report
a. Proposing Entrepreneurs‟ Profile:
b. Team Members Names:
c. e-mail addresses:
d. GSM Telephone Members:
e. Positions of Team members in the Business:
f. Postal and Residential Addresses:
g. Educational Qualifications:
Business Name: This indicates the type of registration, whether a sole proprietorship,
partnership, corporation or limited liability venture. Please note that a public limited
liability company carries the “Plc” after the name or the “Ltd” when proposed as a private
limited company.
Business Location Headquarters and Branches: A good description of the possible
headquarters location of the company, its branches and facilities including offices and
manufacturing plant. The report needs to specify the required size of the location, its adequacy
and the costs to be involved in acquiring, constructing or renovating buildings and
required utilities that will suit their operations. The proposed location should have adequate
access to infrastructure and services like highways, railway, airport and other utilities in relation
to customers.
Background History of the Business: This refers to the business overview and
should briefly describe the proposed business. It should be specifically spelt out how it shall be
organized and a proposed aspiration of the venture to be a small company forever or to be
developed into an international standard later.
Business Objective: This is always as conceived by the business team. It describes the main
concept and the essence of the business. The main objectives usually put forward by most
entrepreneurs are the generation of income, provision of jobs for the youth, improving the
economic status of the business location and setting new standards or products in the business
environment. Along with their own views, the feasibility report should consider the products
and services being offered to highlight the essence. It is only when a business is able to produce
products and services, distribute them to the market environment and still makes return a profit
to its investors that it can be described as economically feasible.
Required Technical skills: This section assesses the technical and professional readiness of
the business. A business can only be considered technically and operationally feasible if it

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has the necessary expertise, infrastructure and capital to develop, install, operate and
maintain the proposed venture, and be able to deliver the proposed goods or services at a profit.
Proposed financial Contributions (Capitalization): A start up business requires a lot of fund
to provide sufficient access to resources. Most businesses die prematurely for the primary
reason of under-capitalization. Financial provisions from all proposed sources of funding the
business must be ensured to keep the business running from start up until it starts to make
profits and breakeven.
Management and its Strategy: This section should spell out the organizational
structure appropriate for the business and decide whether management would run the business
by direct labour, contract, consultancy, etc. There is the need to specify the management
team‟s needed experience to identify the required staff positions that must be filled. The
management team‟s key skills and areas of expertise for executing this plan should be critically
scrutinized to determine their competences. If there is any need to advise an additional key skill
area of expertise; don‟t hesitate to do so. Likewise, stipulate the qualifications needed to
supervise operations and how easy or otherwise it could be to find potential qualified
and experienced staff in their environment. It is also imperative to detail what it will cost to
acquire and retain such staff on the job. Lastly, the management should be made aware of
the significance of distribution and delivery contracts to the business growth.
Sources of finance at Start up: The report is supposed to give details of capital fund required
and to enumerate the various sources of raising capital to sustain the business for the first one
year. It should identify the short, medium and long term sources of funding. This could be
from personal savings, contributions from other owners including shareholders, donations,
Bank loans and other loans, existing operations in the first year, etc.
Production and operational requirements: Operations must define the production and other
operational processes necessary to deliver the products and services from pre-production
level to the market environment. These include manufacturing, consulting, logistics, after-sales
service, travel and transportations, printing, etc. This section delineates how to run the business
and deliver the products and services to the market.
A vital aspect of operations which the report must emphasize is the production line. The
required technological equipment and human resources for the business, its purchase set up and
running costs for profitability must be determined. The production process should be clarified
whether it is full automation, semi-automation, mechanical or manual operation. Expectedly,

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most of the working employees, expenses and time will be used up on production and
operational challenges.
Market Potential Assessment and Strategy: This is essentially all about distribution and sales
strategy. Product or service businesses are considered feasible based only on evidences
that it has sufficient market demand. This means that it must have enough customers to
purchase a sufficient quantity of products or services in the target location and provide the
strong potential that the product or service will return pleasant profit figures. Please note
in the report that it is much easier entering a market where demand exceeds supply. In such an
environment, customers will buy the product or services without much effort from the business.
The report has to decide the distribution channel whether the marketing strategy ought
to adopt the cash-and-carry, direct sales, credit sales, wholesale outlet, commission
agents or middlemen structure or the combination of the arrangements. The growth
characteristics and the key drivers of the market, existing and potential competitors should be
identified with the aim to suggest how they could be outwitted. The essence of this section is
for all interested stakeholders and decision makers to understand the developments,
opportunities and challenges obtainable in the business market and its environment.

Financial Assessments and Projections: The main essence of the financial assessment and
projections is to determine whether the business is financially feasible or not. This is a
vital aspect of the entire feasibility report. This financial appraisal also entails the payback
and discounted cash flow as well as break even analysis. It offers the expected expenses and
incomes of the business including the sales and advertising projections as well as how long it
will take the business to break even. It should also be able to predict the total start-up
costs required to begin operations right through the cost of land and buildings,
plants and equipment, legal costs, accounting costs, day-to-day running costs, wages, rent,
utilities, interest payments on debts, etc. All these will eventually be weighed against the
business‟s projected revenue on weekly, monthly, and or annual/bi-annual basis to determine
the projected profit or loss of the business. However, it is important to note that just because a
business has potential, is not a guarantee for its success. There are a lot of other financial
factors. The report should formulate an evaluation criterion for regular performance self
assessment.
Growth and the break-even period: A business must have a lifecycle. The starts up stage are
always the planning and take off period. All resources are put into it to ensure its birth and

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survival in the market. The feasibility report should be able to predict the timing of the various
growth stages especially the break even, peak period in the life cycle of the product and the
revenue dropping period. An average feasible start up business ought not to aim longer than 18
months to break even, depending on its type. The report should know what stage of the
product life-cycle is a particular target population in. if it is a mature industry, it may mean
the market has been saturated, or that sales are no longer growing and may even be dropping.

Re-investment Policy: The feasibility report would need to find out the current status of the
business, examine the up to date developmental programme of the business and be able to
predict how the business should be in the future. It should also be able to define the basis for
the business signposts for predictable periods of time. These are to aid the setting up of re-
Investment policy for the business in the next 2, 5 or 10 years.
Risk analysis: Risks especially the financial one is a major consideration for any business. The
feasibility analysis ought to envisage and prepare for risks which sometimes could be major.
These major risks could be in the organization, competitive, regulatory, etc sectors
associated with the business. It must also be able to calculate how to alleviate such possible
risks. Some entrepreneurs insure their entire system including staff and equipment.
Conclusions and Recommendations: When it has been decided to establish a business entity the
business feasibility analysis must after all consideration conclude whether the business is
viable, promising and gainful. This is to guide the entrepreneurs to go ahead with it or
start thinking of another business. Feasibility analysis must also show when is the best time for
the business to start for a rapid generation of income, its maturity time, its decline a possible
natural death time. Recommendations must be clear and straight to the points. Other Feasibility
Considerations They assess certain specifics when there is a challenge in a particular identified
section of the business. These depend on the section but they are: iv.i. Economic feasibility
Economic analysis commonly known as cost-benefit analysis is the most frequent
approach for evaluating the effectiveness of a business by determining the benefits
and savings expected from it after comparing them with costs. It is crucial to
objectively weigh the cost against the benefits before going ahead with the start up.
The benefits must outweigh the costs, if it is viable.
iv.ii. Legal feasibility
This is to investigate and ensure that the proposed business conforms with all legal
prerequisites. All registrations are already done with the various Government and

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professional bodies. They all depend on the type of business.
iv.iii.Operational feasibility
Operational feasibility assesses how competently the proposed business gets to the bottom of
challenges and exploits all the opportunities earlier noted during capacity description. It also
checks how the business complies with the necessities established in the requirements
analysis part of the business development .
iv.iv. Schedule feasibility
Schedule feasibility is a appraisal to determine how suitable the business take off
timetable is. It considers the available technical skills, how realistic the business
deadlines are, how compulsory and considered necessary are those time limits. Some
businesses may require certain time span to develop and mature, to be viable. For
example a few months time limit for a Cocoa plantation business is unrealistic when it
is obvious that it will require some years to start yielding. It however becomes a highly
rewarding at pay off subsequently.
iv.v. Resource feasibility
Resource feasibility entails examining and determining the availability of the type and
amount of required resources for the business start up. Such resources include the time/period
available, its dependencies, its interferences with other operations, etc
Financial feasibility: In a start up business, the financial feasibility tests the financial
viability of the proposed business based on the total estimated cost of the business,
financing format like the intended capital configuration, debt equity ratio and promoter's share
of total cost, existing investment by the promoter in other businesses and the expected
cost–benefit analysis. New Venture Financing Startup businesses are usually much easier to
finance and source fund for than established businesses because they have the potential to grow
rapidly with limited resources of fund, land and labour. Funding such startup businesses
provide the opportunity for providing a progressing chain of financing. This fund sources leads
from one link to the other at a particular time from gestation stage to maturity. See the diagram
on page. These funding sources are arranged below in progressively required.
Founders, Friends & Family or Bootstrapping Phase
Business Angels
Venture Capital (VC)
Initial Public Offering (IPO)
Founders, Friends and Family

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The most simple and familiar method used to raise capital funds for a start up business
is through you as founders, family and friends often referred to as the “3Fs”. It is a group that
could be interested in investing in your ideas due to your time-honored personal relationship
with them. Despite the possible substantial danger inherent in such with mixing personal
relationships with business, they are not likely to be interested in the details of your idea as
other business financiers. A similar means of self-funding a business by limiting or avoiding
outside investment or running a business venture on a shoestring financial plan is
bootstrapping. This is a means of funding a small scale business with highly creative attainment
and exploit of all available resources without elicit borrowing money from any bank or other
finance houses. It strictly rely greatly on internally generated earnings, credit cards, second
mortgages, and customer advances and other few sources. It provides the main strategy
of positioning an operating venture to seek equity capital from external investors later.
Angel Financing
Some individuals who invest their money in business ventures for high financial profits better
than what they can get from banks and other investments are Angels doing angel financing.
They are majorly motivated to offer this second round financing by the profit in it usually
calculated in percentages. The business of angel investing is becoming very lucrative in Nigeria
not just for businesses but to other people in financial stress. For start-ups, angels are usually
ready to grant the required finances before incomes and administrative supports. Some of them
are well known while others are not, but they are mostly professionals who have made their
money in their businesses. These include engineers, lawyers, medical doctors, company
executives, public servants, academicians, entrepreneurs, etc. They sometimes willingly take
the risk to have a slice in your business that could hopefully become big in future. Affiliated
and non-affiliated are the two types of angels known. An affiliated angel has some sort of
contact with you and or your business but not necessarily related to you. With this familiarity, it
is advisable to approach the affiliated angel since he will be interested in your affairs. However,
a non-affiliated angel has no association with either you or your business. They are both more
accommodating than banks and other financial sources to tap the ingenuity of startup
businesses. They play a very contributive roles in finance, knowledge and other supports.
Venture Capital Financing
Some investors are interested in financing early stage and more risk-oriented ventures by
offering seed funding to early-stage businesses with high potential growth ventures for

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high profit generation. Known as venture investors, they are often not interested in innovations
and high-tech developments and to be the first investor for start up businesses.
Initial Public Offering (IPO) or mergers & acquisitions (M&A) Initial public offering (IPO) or
merger and acquisitions (M&A) or the stock market is the first sale of stock by a small or large
scale company to the public to raise expansion capitals and become a publicly traded enterprise.
It allows a company to source for capitals from a wide pool of investors for growth and debt
repayment. This first fund from the shares goes directly to the Company while further trade of
shares on the stock market has to pass between investors. A company selling common shares is
never required to repay the capital to investors. This financing source was first employed by the
Dutch East Indian Company to issue stocks and bonds in an initial public offering. A company
proposing this funding source will through the assistance of an investment bank as underwriters
help to correctly assess their shares price.
MODULE: 2 THEORIES OF GROWTH: AN OVERVIEW
Entrepreneurship is recognized as the engine of economic growth and poverty reduction
worldwide. This is because the social and economic value added through innovation and
employment generation is critical to the increase in the overall productiveness of the economy.
The more the enterprises produce the more inputs in the form of raw materials, labour and other
supplies are required. Thus, it is essential for businesses to grow in order to serve the interest of
the owners and also contribute positively to the economic development of regions and nations
(Acs, 2006 and Autio, 2007). Thus, managers and owners are expected to design and
implement effective strategies to ensure the survival and growth of businesses.

Ironically, governments in many developing countries, including Nigeria, have not done well in
providing enabling environments for businesses to flourish. However, the ultimate
responsibility for growing businesses rest on the shoulders of owners/managers. This module is
designed to equip potential entrepreneurs with the tools and framework to assist them in
their journey towards creating viable and expanding ventures.
Concept of Business Growth
Business growth means expanding firm‟s products and services or expanding its target markets,
or some combination of each. Any increase in the volume of activities of enterprises is a clear
indication of growth. Businesses grow for a number of reasons including to take advantage of a
gap in the market, to gain a competitive advantage over rivals, and to win increased market
share. Usually ventures start small because of limited knowledge of the market, shortage of

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capital and lack of skilled employees etc. It is expected that as the entrepreneur gains more
skills, knowledge and acquire additional resources, the volume of activities of the business will
expand. An entrepreneur may also capitalize on changes in the environment to expand his
operations in order to exploit new opportunities. Theorists have shown that behavioral traits are
significant influence to entrepreneurs desire to grow his business. Some people inherently
derive satisfaction from being excellent in what they do; they tend to have insatiable desire to
grow and positively affect the world around them. Other people tend to be comfortable with
average results while others are “easy come easy go”.

In explaining the pattern of business growth, many theories rely on “The life-cycle approach.
This approach posits that just as humans pass through stages of physiological and psychological
development from infancy to adulthood, businesses also evolve in predictable ways and
encounter similar problems in their growth” (Bhidé, 2000). It is proposed that businesses pass
though infancy, growth, maturity and then decline or even close shop. Some scholars suggest
more or fewer stages of development. However, there is no consensus on the number of stages,
nor on how they are related. Moreover, the proposition that all businesses follow the set
sequence is not at all supported by the empirical evidence. The main issue is that companies are
started at one point and they need to be nurtured and managed to grow bigger and bigger. There
are companies around the world that survive decades or centuries. The question is why do
some businesses survive and grow while others do not.
Reason for Business growth
Researchers have shown that more than half of all businesses fail in less than two years of
commencement. Also, a large number of those businesses that survive the first two years hardly
grow. It is only few businesses that survive, grow, regenerate and even create other businesses.
Conventionally, people ascribe businesses success or failures to fate/chance or
certain environmental conditions including family background. Even though one could not
entirely rule out the influence of changes in the environmental factors, the entrepreneur's
positive attitude, discipline, skills, competences, resilience and experience are real factors
determining the transition of an enterprise from start up to a fully grown or diversifies venture.

The question often asked is what motivates people commit to starting and growing their
businesses. Usually, entrepreneurs tend to make critical investments, take acceptable risks and
learn consistently because of their desire to make money and enjoy all the rights and privileges

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that come along with wealth. Other reasons include improved social status and well being,
greater opportunity for philanthropy and community services, and gaining control over their
own destiny. Employees attribute increase in income/ benefits and advancement with
businesses that grow. Government tends to favor business growth because it lessens
unemployment and social tension in addition to raising more revenue from taxes. Thus, it is in
the best interest of business owners and other stakeholders in the society for businesses to grow
and flourish because growth tends to create social and economic value for all.

On general note, start ups and small businesses generate employments opportunities. ILO
(2007) estimated that about 70% of the people in Sub-Saharan Africa rely on small and
informal establishment for their livelihood. For example in South Africa, the share of
employment provided by SMEs sector is estimated at 60% and generated about 40% output
(Lukacs, 2005). In Botswana, small business contributed between 30–45% to the nations GDP
and accounted for more than 60% of wage employment. Thus, any increase in the activities of
small enterprises will lead to corresponding increase in employment. As employments are
nerated, the increase productivity raises the level of wealth creation in a given economic
environment. This is why the productiveness of an economy is related to increasing
income and improving standards of living. Businesses combine human and material resources
to create value. So, as activities of enterprises increase due to increase in labour
productivity and efficient use of resources, all things being equal lead to high wages
for individual worker, more profit for the company and rise in GDP for the nation.
When productivity is higher, cost of production tends to be lower. With lower cost of
production, citizens obtain products cheaper and these, in turn, increase living standards.
Types of Business Growth
There are two main types of business growth:
1. Internal Growth and
2. External Growth
1. Internal growth: Internal growth is typically a steady process of expansion from within the
firm. The owner(s) of the business contribute more capital, or plough back profits into
the business to acquire new assets, employ more staff, build additional plant or deploy
new technology. The main advantage of this approach is that the business is able to leverage its
assets and experience over time. The main disadvantage is that it takes time, and rivals
may be expanding and gaining competitive advantage as well. NASCO Nigeria plc used this

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approach by expanding into the production of detergents and carpets. Thus, through hard work
and careful planning owners can grow their businesses successfully.

2. External Growth: External growth can be carried out by seeking external finance, or by
merger and acquisition. These approaches tend to rely on bringing external resources into the
business in order to fund expansion. In this case, there is the possibility of changes in the
ownership structure of the firm or changes in its gearing position. See topic 2 for more details
on mergers and acquisition.
Strategies for Growth
Business organizations must grow in order to remain relevant and competitive. A firm is
required to constantly search for and make use of knowledge of its changing market in order to
identify and exploit growth opportunities. Businesses tend to grow in order to deliver their
products or services better than competitors. But, the capacity of the firm to deliver resides in
the range and quality products or services offered to the customers, the skills and the service
offered by the staff, technical knowledge/ technology and customer/supplier relationships.

Therefore, entrepreneurs are expected to create an environment that will fit the growth agenda
of the firm. This entails continues assessment of structures, policies, procedures, systems,
activities, decisions making, coordination, and communication networks. All of these factors
are vital to achieving optimum growth. When a firm is better organized, there are a number of
alternative path for growth. They include:
1. Expanding Product Line or Service Offerings: A firm may increase its products
offerings by serving the existing market or discovering an entirely new market. This requires
market research and intelligence to enable the firm gauge the acceptability of the new products
to the target market. For example, Dangote Group of companies‟ plc introduced Dangote
noodles to its product lines to serve the existing large market for fast meals in Africa.
2. Opening new branches/division: In order to expand to new market, entrepreneurs make
efforts to set up branches in other locations. Opening new branches or divisions allows
firms to expand to new locations, other local governments or states with new or existing
products depending on market requirements. The key to creating and successfully
operating in a new location is to ensure that a demand already exists or the company is capable
of stimulating demand in the new target market.

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3. Exporting: Many firms tend to remain domestic throughout their existence. Today,
markets, customer taste, competition and knowledge are global. Regardless of the
business one undertakes there are numerous opportunities for growth in the international
market. Besides, exporting to other nations enables a company to have a unique
competence (Porter, 1990). This is because, unlike broadening domestically, expanding
globally is likely to leverage and re-enforce a company‟s unique position and identity. Lee
Group of companies in Kano State exports rubber shoes to the United States. The volume of
sales/profit generated by the company placed it as one of biggest and most successful
manufacturing concerns in Northern Nigeria.
4. Innovation: Innovation is the greatest source of sustained growth. Peters and Waterman
(1994) observed that innovative companies are skillful at continually responding to
changes in customers‟ needs and are better prepared to overcome new competitive or other
environmental challenges. Innovation signifies continuous change in the way a firm serves its
customers or conducts its business. This suggests that without constant flows of ideas that
reinvent work process, a business is condemned to obsolescence (Hamel and Valinkangas,
2003). Innovation can be bolstered when people are considered as assets, (not simply cost of
production) and are given opportunities and reward for bringing good ideas (Fafawora, 1998).
It is true that a number of businesses in Africa are informal or family operated. To be
successful, there is the need for a shift towards modernization and employing global good
practices for managing ventures. Sticking to traditional methods of operations whether in
farms, shops or factories no longer work. Entrepreneurs are required to drive change process
that will create unique value by tapping into the creative talents of members of the organization.
Mobile phone companies such as Nokia and Sony Ericson continually alter and improve their
product features to create new value thereby retaining existing customers and attracting new
customers worldwide.
5. Creating and Maintaining Online Presence: Today‟s world is divided not by ideology but by
technology. When a firm employs modern information and communication technology it gains
an edge over its competitors (Marco and Levien, 2004; Mitra, 2012). Instead of a firm setting
up branches physically within and outside national borders, it can reach global market using
internet. To be successful, a firm is expected to create and promote a website that is user
friendly. Today, universities around the world conduct their businesses online by advertising
programmes, admitting and registering students and receiving tuitions. In fact, some
universities run online degree programmes to thousands of people annually. Also, there are

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businesses such as Amazon.com and e-bay that reach millions of people across the world
mainly by using internet.
6. Franchising and Licensing: Franchising and licensing are used by companies that have
successful products or services in order to expand to other markets more efficiently.
Franchising is a growth strategy where a firm allows another firm or firms to use its successful
business model. When a business reaches certain level of maturity, it can franchise its product
offerings. In this case, a firm enters into a contractual relationship with other firms known as
franchisees to conduct business under the franchisor's trade name for a fee. United States has
some of the most popular franchises in the world. They include McDonalds, Subway and 7-
Eleven among others. Licensing however, is a contractual arrangement where a firm known
as a licensor allows another firm called licensee to use its brand name, patent, or other
proprietary right, in exchange for a fee or royalty. License agreement provides both firms to
expand and drive mutual benefits. The licensor benefits from the knowledge, technology, skills,
assets and other competencies of the licensee. It also allows the Licensor to enter foreign
markets by using local firms. This arrangement is popularly used by manufacturing firms
such as pharmaceutical companies, clothing, toys, technology based firms etc.

7. Merger and Acquisition: Formally the term “merger” applies to the consolidation of two or
more companies about equal in size. Acquisition involves a larger firm taking over smaller
ones. The two terms are however used interchangeably. Companies merge with or buy other
companies to expand or consolidate their operations. In many cases companies engaged in
merger or acquisition in order to get access to real estate or other facilities; to get access to
brand, trademarks, patents or technology and sometimes to get competent employees. But the
most common reason is to acquire customers (Selden and Colvin, 2003). In advanced nations
growth by merger and acquisition date as far back as 1889. In the 1990s, the tendency for
companies to use merger and acquisition as a diversification strategy has even been more
pronounced. The business could expand to other markets or produce more products by merging
with one or more firms that produces similar or different products. In Nigeria,
merger/acquisition is used to better use resources and achieve greater adaptability to changing
economic environment. The consolidation in the Nigerian banking sector where some banks
merged and others got acquired enabled banks to grow in size rather than operating
independently. This has allowed the banks to respond to both local and international

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competitive challenges. Unity Bank Plc is created out of the merger of nine banks and recently
Oceanic Bank plc acquired intercontinental Bank plc.

8. Competition: In the global corporate scene, companies cannot afford to ignore the need to
collaborate with other companies or competitors to create new value. This is not to undermine
competition, but to allow firms to compete at one level and collaborate in another level with
the aim of taking advantage of new market, or developing new products which they could
otherwise not achieve independently. Also, firms collaborate to take advantage of foreign
markets. This explains why about 50% of North American based corporations use
collaborations to gain access to new markets (Casseras, 1997). This form of alliance facilitates
learning, access to modern technological advances and reduced transition time. The computer
and photographic film industry are good examples of how an active alliance could help
companies add superior value. The IBM‟s personal computer business relies on partnership
with other companies such as Microsoft, Intel and recently Apple Computers (Casseras, 1997).
IBM has more than 100 alliances worldwide. Again, the joint venture (Fuji Xerox) between
Xerox, a photocopy machine company and Fuji, a camera film company, resulted in the
creation of photographic film company second only to Kodak.

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Challenges of Business Growth in Nigeria

It is well understood that Small Scale Enterprises (SMEs) are the most effective means
of generating employment and fostering growth. Typically, SMEs adapt with greater ease under
Changing business conditions because of flexibility and low capital involved. In spite of their
resilience, small businesses encounter numerous challenges which limit their ability to grow.
These challenges are not only peculiar to start ups but also limit the capacity of medium and
large enterprises. It is pertinent to recognize that, like many African countries, Nigeria‟s
economy is mono-cultural, relying overwhelmingly on oil resources. Oil and gas contributed
about 99 percent of exports and provides about 85 percent of government revenues (World
Bank/DFID, 2006). Over the years, the country has failed to diversify its economy away from
the extractive sectors which increasingly limits its ability to grow and develop. This problem
further prevented Nigerian entrepreneurs from moving towards higher productivity in value
added sectors. Hausman and Rodrick (2005) posit that poor countries tend to rely on low-
income goods even though when they overcome certain externalities, they can successively
move to higher value goods. The years of inaction in this regard resulted in the low productivity
and non-competitiveness of Nigerian industries.

Interestingly, Nigerian people have demonstrated that even without government support and
direction, they are capable of staring and growing ventures. This resilience of Nigerians can be
found in the following trades:
• Movie and music
• Internet cafes
• Phone cards and call stands
• Business centres
• Satellite installation and repairs
• Computer soft and hard wares
• Transportation
Other business activities that experienced significant growth in the last few years include:
• Furniture making
• Printing press
• Steel works
• Bread and confectioneries

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• Photo studious and video coverage
• Automobile dealership and repair
• Electric generators and repairs
• Electronics and repairs
• Restaurants
• Chemists
• Super markets
• Traditional medication
• Tailoring and design
• Block making
The problems of many of ventures listed above remains lack of expansion, low technology and
skills; and limited capital. In fact, significant numbers of youth that have low skills are either
unemployed or are engaged in street hawking and road side petty trades because the ventures
that are expected to absorb them do not frequently grow. Thus, there is the need to carefully
address the binding constraints to growth of businesses in order to regenerate the economy.
Some of the key challenges are as follows:
1. Lack of coherent economic empowerment policy: There is yet to be a comprehensive long
term agenda for youth development which would draw momentum from reliable data bank for
skilled and unskilled; employed and unemployed youth in the country. There is almost total
absence of coordination among various agencies concern with employment generation in
the country.
2. Technical constraints: Although there are few vocational and other skills acquisition centers
in the country, their number and competencies are inadequate to improve the technical capacity
of many Nigerians. Also, the technical skills provided are skewed towards low technology and
low skill trades.
3. Deteriorating economic condition: Due to weak economic policies that engender high
inflation, high interest and exchange rates couple with the smuggling of foreign cheap products
into the country, many people consider it extremely risky to invest in agri-business and
manufacturing.
4. Lack of productive culture: People are accustomed to being dependent on parents, relative,
friends and government. Without social re-orientation, it will be difficult to free the enormous
talent and energies of people to think and act their way to financial independence.
5. Weak Investment climate and Doing Business Indicators:

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  Low Access to finance: Even with the introduction of Micro Finance Banks and the
consolidation of the banking sector, a large number of businesses in Nigeria do not have
access to finance. Access to Business Development Services: Entrepreneurs require
services such as tax planning and accounting, business plans, advice on marketing,
production, IT systems, legal services etc. However, due to lack of access to finance and
technical skills, many do not appreciate the relevance of the services and some cannot
afford the services. Hence, they remain small.
- Low Access to infrastructure: Nigerian businesses grapple with inadequate power,
water, sanitation, security, rails and roads networks. This tends to increase the cost of doing
business which drains resources required for expansion. Low Access to Investments: many
companies that operate outside the extractive sectors find it difficult to attract foreign
investment and foreign lending. The Federal Ministry of Commerce and Nigerian Investment
Promotion Council have a unique role to play in this regard.

Even though the list of challenges is not exhaustive, it is pertinent to begin to consciously foster
an environment that encourages entrepreneurs to invest in new technology and new activities
which is critical to the economic growth of the country.
Critical Success Factors for Growing Businesses
In an effort to create enduring and growing ventures, entrepreneurs require the following if they
are to succeed.
1. Clarity: An entrepreneur is required to be clear of her vision in life. This will help her to set
challenging goals for the business. The starting point is to begin with personal values; what do
one believes in and stands for. The greater clarity an entrepreneur has regarding values, vision,
mission, purpose and goals, the greater the probability that her venture will grow and succeed.
2. Competence: Even when goals are clearly defined, there is the need for an entrepreneur to
constantly learn new skills and acquire experiences to permit making informed decisions.
Formal and informal trainings are available locally and internationally to equip business owners
and managers with special skills needed to create unique value to the society.
3. Reputation. The most valuable asset a firm can develop is its reputation. Reputation is how
the business is known by its customers. Building reputation around quality, reliability, and
service is critical to the survival and growth of businesses.
4. Resilience: There are numerous challenges confronting businesses especially at the initial
stage. The ability to identify and remove obstacles with focus and speed is critical.

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5. Creativity: Successful businesses are innovative. The ability to think differently, faster and to
figure out new and easier ways to produce and deliver products and services are very crucial to
growth.
6. Concentration: Entrepreneur‟s ability to avoid distractions and focus on what she does best is
one of secret for success. Many people spend so much time copying others and jumping from
one business to the next. They are unable to focus their energy, resources and time to what they
are good at. Bill Gate can expand to automobiles and pharmaceuticals, but he chooses to
concentrate his attention to software and related businesses where he possessed special talent
and advantages.
6. Courage: Many people tend to avoid risks and difficult endeavours. Many studies have
shown that the courage to take the "first step” makes all the difference. This entails audacity to
explore and venture into the unknown with no guarantee of success.
7. Learning from failure and moving on: As entrepreneurs target growth they sometimes fail.
The ability to learn from the failure and venture out on the next exhibition makes entrepreneurs
different from the “rest of the pack”.
8. Financial Discipline: There are instances where entrepreneurs get carried away by short term
financial successes. They tend to acquire assets and liabilities that contribute little or nothing to
the business. In some cultures, they acquire more wives and invest massively in luxury items in
an attempt to change their social outlook. This is one of common reasons why businesses
stagnate and die eventually.
9. Investment in people: Businesses that grow consistently develop the capacity of managers
and employees. Also, they tend to appreciate and reward the creative talents and efforts of their
employees.
MODULE 3: SOURCES OF FUNDS
Finance has long been considered by Small and Medium Enterprises (SMEs) operators as an
important issue. Obtaining financial resources assistance in the amount required and when they
are needed can be more difficult for small scale entrepreneurial ventures than for established
organizations. The critical issue is to ensure that sufficient cash is available for current
operations and growth of the business. The owner must also ensure that money is available to
settle current liabilities when due; these may include inventory, rent, telephone bills,
office supplies etc. Other reasons for sourcing business finance include the following:

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 i. upgrading facilities to comply with stricter environmental regulations
ii. financing production in cases where there is significant lag between when
costs are incurred and when payments are received;
iii. purchasing of new equipment or facilities;
iv. purchasing of business vehicles; and
v. building up inventory in advance of a busy season.
Irrespective of the reason(s) for which funds are required, it is the sole responsibility of the
business owner to ensure that funding is obtained at the right time, at the right cost and from the
right source. Before raising the required funds, the business owner must estimate the actual
funds needed in order to avoid encountering unnecessary high cost of capital or excess capital.

SOURCES OF FUNDS FOR NEW AND ENTREPRENEURIAL VENTURES

There are several sources of finance for both new and old entrepreneurial ventures. These
sources are:
(i) Personal Savings
(ii) Borrowing from Friends and Relations
(iii) Trade Credit
(iv) Accrual Accounts
(v) Retained Earnings
(vi) Equity Financing
(vii) Bank Loans
(viii) Project Financing
(ix) Venture Capital
(x) Debt Financing
(xi) Commercial Draft
(xii) Banker‟s Acceptance
(xiii) Bills Discounting
(xiv) Commercial Paper
(xv) Inventory Financing
(xvi) Bank Overdraft
(xvii) Loans from Corporative Societies

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(xviii) Hire Purchase
(xix) Leasing
(xx) Factoring
(xxi) Microfinance Bank
(xxii) Public Offerings
(xxiii) Small Business Investment Organizations

(i) Personal Savings

Personal savings is the most common source of financing for small business enterprises. It has
to do with the personal money which the entrepreneur has been able to set aside for an intended
business venture. This includes cash and any personal assets convertible into cash or to business
use, for example, cash from family/friends which is an informal form of financing falls into this
category. This may also be from past savings, trust accounts or some other form of personal
equity of the business owner. This is the least expensive method of financing and also the
easiest as the decision to lend is made by the same persons wishing to borrow the fund.

(ii) Borrowing from Friends and Relations

Funds can be raised for entrepreneurial ventures through borrowing from friends and relations.
The amount to be raised through this source however, depends on the financial capabilities of
the friends and relations and the relationship that exists between the business owner and his
friends or relations. The repayment period and the interest payable are a function of the
terms of borrowing which are usually determined by the lender.

Trade Credit
Trade credit as a source of fund occurs when a buyer makes an arrangement with the seller to
buy goods on credit and pay later. However, this arrangement depends on the customer‟s good
reputation and it often requires a pre-arrangement between the buyer and the seller. Trade
credit is one of the most widely used short term sources of funds and the term normally falls
within the range of thirty to ninety days which can still be extended after the expiration period,
depending on the relationship between the parties involved.

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(iv)Accrual Accounts Accrual accounts can also be called account payable. It represents the
continually occurring current liability of a particular business. These include wages, interest,
taxes and other expenses that are payable in arrears. They are due but yet to be paid. Their
repayment period is usually within a period of one year.

(v) Retained Earnings

Funds can also be obtained through undistributed profits. A business owner may decide
to reinvest part of his or her profit back to business for efficient operations of the business. This
is also called plough-back profit and it shows the naira value of ownership rights that result
from the business retention of its past income. In business, retained earnings are usually
considered as an additional fund for financing the future growth of the business. Retained
earnings are helpful as a last resort in business finance. The inability of the business owners in
meeting up with the stringent conditions of the financial institutions usually makes the business
owner come to fall back to their business reserves for funds raising.

(vi) Equity Financing

Equity finance is a form of business finance in which funds borrowed to operate a business
venture are not taken as loan but converted to equity (stake in ownership) which now makes the
lender a part owner of the business venture, risk and profit are shared together. The amount of
equity finance in a particular business may be substantial subject to factors such as the nature of
the business, the total amount of capital required and the interest of the investor. The advantage
of equity financing is that its infusion of capital does not have to be repaid like a loan.
(vii) Bank Loan
A small business entrepreneur can approach bank for a loan. This is a common practice among
established small business enterprises with good reputation doing business with a particular
bank. Banks usually charge their borrowers a prime rate and an additional charge usually called
handling charge.The actual interest rate charged depends on the creditworthiness of the
customers. Banks usually charge a higher interest rate to borrowers whom they perceive as
having a higher risk of default. The bank interest rate also depends on the type of loan involved
whether is fixed or variable. If the loan is fixed rate loan, the interest rate will be the same for
the amount of money over the number of years involved. But if the loan is variable rate loan,
the interest payable will vary periodically over the terms of the loan subject to the fluctuation of
the market interest rates. Bank loan can be given either on short term or long term basis. Short

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term bank loan usually covers between one month and less than one year, while long term bank
loan covers a period that is more than year one. Short term loans are used to replenish the
working capital account, such as purchase of inventory, supply of consumables in an
organization, finance of credit sales or taking of advantage of cash/bulk discounts etc. This is
repaid after converting inventory or receivables into cash. The relationship of the borrower
with the bank matters a lot. The reason for this is that banks are more likely to give loans to
business owners they know very well and whom they have their business and personal records.
The amount of money that banks are willing to give per time depends on the nature of
business, the size of business, the repayment period and the creditworthiness of the business
owner.

(viii) Project Financing

Project financing is the funding of a particular project by a financial institution. This can be a
source of funds only when the proceeds from the project are sufficient to repay the capital sum
usually known as the principal which is the amount of money borrowed for the execution of the
project with interest accrued. The project will be used as the security for such loan and the
advance is self–liquidating. In this case, the borrower„s financial standing or position is less
important because the institution must ascertain the value of the project and ensure that the
value is high enough to settle the amount of money borrowed by the contractor.

(ix) Venture Capital

Venture capital is the money invested by individuals or venture capital firms in small and high
risk business enterprises. Venture capitalists are investors that invest in other people‟s
businesses for the sole aim of profit. They receive equity participation i.e. the equity ownership
right of some proportion in the business enterprises they have invested their money in. They
participate substantially in the management of the enterprises in which they have invested,
holding board positions and working in close liaison with the enterprise‟s management team.
The venture capital industry may consist of:

(a) wealthy individuals

(b) foreign investors
(c) private investment funds
(d) pension funds or

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(e) major corporations.

(x) Debt Financing

These are funds that the business owner borrows and must repay with interest. Borrowed capital
maintains ownership of the business (unlike equity financing, which dilutes ownership) but is
carried as a liability on Balance Sheet. In general, small businesses are required to pay more
interest than large businesses because of perceived higher risks, that is, few percent above
prime rate. Entrepreneurs seeking debt capital can have access to a range of credit options
varying in Complexity, availability and flexibility, both from commercial and government
sponsored lenders.

(xi) Commercial Draft

Commercial draft is a short term financing source credit. It is an unconditional order in writing
made by one party. The drawer addressed to a second party, the drawee ordering the drawee to
pay a specified sum of money to a third party called the payee. Commercial draft may be a
sight or time draft. The type depends on the negotiation terms.

(xii) Banker‟s Acceptance

This is credit facility that involves a bank and its customer. It is a time draft payable at a
stipulated date. It is an arrangement between the businessmen who produce goods for sale.
The businessman customer then draws the acceptance credit paper requiring his banker to
accept the responsibility of settling the bills pending when the goods will be sold. By placing its
acceptance on the bill (acceptance credit) the bank has accepted a contingent liability as well as
giving an indication that it will honour the bill upon presentation at maturity in case the
customer defaults. A discount house usually evaluates the creditworthiness and reputation of
the accepting bank. The maturity date is usually less than six months and it is mainly used in
international trade.
(xii) Bills Discounting
Bills discounting is a source of finance where the supplier of goods (creditor) writes a bill of
exchange for the customer for acceptance. Immediate cash may be obtained by the supplier for
his goods after the goods have been dispatched to the customer by discounting the bill with the
bank or discount house after the bill has been accepted by the debtor (customer). Other aspects
of bill discounting involves Government securities such as Treasury Bills and certificates which

48

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can be surrendered before their maturity dates to banks or discount houses for purchase. The
amount paid to the bill owner is less than face value.

(xiii) Commercial Paper

This is an instrument of the money market (commercial Bank) that is usually used by many
organisations to raise short- term funds. Under this source of funds, an issuing house issues it
on behalf of a company. The issuing house only finds investors to buy the commercial paper,
the investors deal directly with the company issuing the note. The issuing house does not even
guarantee the note. The issuing house charges commission for the service through a coupon rate
which is usually stated on the commercial paper. The maturity date of a commercial paper
ranges between 90 and 180 days and it is usually written out to contain details such as the date
of issue, the maturity date, the amount per coupon, etc. The coupon rate and the issuing house
commission make up the cost of commercial paper.

(xiv) Bank Overdraft

Another financial facility is an overdraft facility, which banks give to its business clients. Bank
overdraft is an overdrawn bank current account and a short-term financial facility which
is renegotiated every year depending on the performance of the business. It may be secured or
unsecured depending on the amount of money involved. Bank overdraft is usually covered by
personal guarantee of SME owners and carries a higher interest rate than a normal loan. Often
this interest rate is higher than profit margin percentages, which makes it a very short-term loan
for covering cash flow problems rather than to finance acquisitions or buy stocks. Before banks
grant overdraft, the following factors are considered:
(i) The purpose for which the fund is required;
(ii) The character of the entrepreneur;
(iii) The management and financial position of the business;
(iv) The capacity of the business and
(v) Collateral security (this depends on the amount of money involved).

(xv) Inventory Financing

Inventory financing is the use of inventory or stocks as collateral security for borrowing of
fund. The stocks are usually placed under the control of the lender pending when the loan will

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be repaid. Note that not all stocks are qualified for such transaction. The marketability,
durability and the price stability of the stocks must be considered before such stocks will be
used for inventory financing.

(xvi) Borrowing from Cooperative Societies

A cooperative society is an association established by group of individuals who pooled their
resources together to engage in a business transaction for profit making but mainly for
the benefit of members. Depending on the financial capability of the cooperative society, it can
provide funds for its members to start business or finance their business transactions.
The amount that can be raised from cooperative society is subject to the financial commitment
of the membershe repayment period is not usually beyond two years since the fund is provided
on short-term sources of finance. The interest charged is also considerable low compared with
Commercial bank interest rates.

(xvii) Hire Purchase

Hire purchase is used when purchasing assets such as plant, equipment, machinery and
vehicles. An initial deposit may be required followed by a series of installment payment with an
attached interest. The interest rate is usually controlled by the prevailing bank rate (e.g. 4
percent above bank lending rate when regulated by government). Under hire purchase,
agreement periods can range between 1 to 3 years depending on life span of the asset. Hire
purchase is quick and easy to arrange, the security for agreement being the asset itself. Upon the
payment of the initial deposit, the customer enjoys immediate use of the asset. The asset legally
belongs to the owner of the asset and if the buyer defaults, the owner of the assets automatically
repossesses his or her asset.
(xviii) Leasing
A lease is an agreement whereby the owner-manager (lessee) undertakes to make
regular monthly payments to the financial institution (lessor) in return for the use of
equipment belonging legally to the latter.The leasing instrument is used by SMEs to finance
equipment (including vehicles) acquisitions. Operating leases function in such a way that
the leasing company retains ownership and risks associated with the equipment (although
insurance is mandatory). The lessor is therefore both the financier and the legal owner of the
equipment. When the tenure of the lease ends, the lessee can decide to elect to purchase the
equipment for a sum which must represent at 10% of the cost of the equipment. In lease

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financing, the following points are important and worth noting by any entrepreneur that
wants to enter into lease agreement.
(i) Ownership of the asset does not rest with the business until the asset is sold
at residual value at end of contract.
(ii) Capital allowances may be claimed by leasing institution but not by the business.
(iii) Lease payments are tax deductible that is, passed as expenses in Profit and Loss.
(iv) Leasing does not normally affect borrowing capacity unless financial
legislation requires balance sheets to reflect leasing finance.
(v) Period of repayment matches expected life of asset.
(vi) Immediate use of asset.

(xix) Factoring
Factoring is a financing source that allows a business owner to raise fund based on the value of
his or her invoices yet to be paid. Under factoring arrangement, an entrepreneur can outsource
their sales ledger operations and maximize the use of sophisticated credit rating systems for
their funding. Factoring arrangement can be with or without recourse. It is with recourse if the
factor company collects the amount due from other means upon the default of the debtor and
without recourse, if the factor company bears the consequence upon default of the debtor.

In factoring arrangements, an agreed proportion of the invoice value (about 80%) will be paid
within a pre-arranged time of say 24 hours. In return, the factor issues receipt on behalf the
organization upon collection of the payments. One of the advantages of factoring is that the
business owner will receive the majority of the cash from debtors within 24 hours rather than a
longer time. It also reduces the time and money an organization can spend on debt collection
since the factor will usually run your sales ledger for the organization. On the other hand,
factoring may impose constraints on the way business is being conducted thereby discouraging
the customer for future business transactions with the customers.

(xx) Microfinance Banks

Microfinance bank was established in 2005 by the Central Bank of Nigeria according to the
provisions of Section 28, sub-section (1) (b) of the CBN Act 24 of 1991(as amended) and in
pursuance of the provisions of Sections 56-60(a) of the Banks and other Financial Institutions
Act (BOFIA) 25 of 1991. This was mainly to promote monetary stability and a sound financial

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system in the country. The establishment of microfinance banks is meant to expand the
financial infrastructure of the country so as to meet the financial requirements of the Micro,
Small and Medium Enterprises (MSMEs).
Three features distinguish microfinance from other formal financial products. These are:
(i) the smallness of loans advanced and or savings collected,
(ii) the absence of asset-based collateral, and
(iii) simplicity of operations. The goals of microfinance banks include the following:
to provide diversified, affordable and dependable financial services to the active poor,
in a timely and competitive manner, that would enable them to undertake and develop
long-term, sustainable entrepreneurial activities;
(ii) to mobilize savings for intermediation;

(iii) to create employment opportunities and increase the productivity of the active poor in
the
country, thereby increasing their individual household income and uplifting their standard of
living; to enhance organized, systematic and focused participation of the poor in the socio-
economic development and resource allocation process; to provide veritable avenues for the
administration of the micro credit programmes of
government and high net worth individuals on a non-recourse case basis. In particular, this
policy
ensures that state governments shall dedicate an amount of not less than 1% of their annual
budgets for the on-lending activities of microfinance banks in favour of their residents.

(xxi) Public Offerings

Public offering is a financing option that is only available to companies that are well
established. Businesses with sustainable growth potentials in the course of expanding their
businesses might decide to use public offerings by „going public‟ to raise required funds
for their business operations. However, before a company decides to use public offerings as
financing means, certain factors need to be considered. These factors include; the cost of the
security, other financial obligation of the business, the prospect of the money market, issues
concerning the ownership and control of the business. Public offering usually starts with
selling of equity holding to the public and this is called initial public offering (IPO) in which

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stock is registered with the Securities and Exchange Commission (SEC). This is usually
offered to the public through a registered Brokerage firm or an investment Banker and this
gives the organization the opportunity to trade its shares in the floor of the stock exchange
market. To get firms‟ shares quoted in the stock exchange market, the firm needs to make
provision for the associated expenses, filling requirements and other equity considerations.
Many Small and Medium Scale Enterprises consider these requirements as stringent conditions
and this affects their readiness to undertake IPO as a financing option. Public offerings usually
result in long term sources of funds which include the following:

(a) ordinary shares

(b) preference shares
(c) debentures

(a) Ordinary Shares: Ordinary shares represent the ownership position in an organization.
Ordinary shares holders are also called shareholders and the risk bearers of the firm. Their rate
of dividend is not fixed rather it depends on the discretion of the management. Ordinary shares
can be issued at par, discount or premium. The rights of shareholders include:

(i) right to participate in the annual general meeting and vote;

(ii) right to appoint a proxy;
(iii) right to have access to the organization‟s books; and
(iv) right to contribute to the appointment of members of the board.

(b) Preference Shares: Preference shares as a long term source of funds are certificates of
ownership in organizations that usually have a fixed rate of dividends which must be paid
before ordinary share dividends. It is considered as a hybrid security because it has many
features of both ordinary shares and debentures. The types of preference shares include:
cumulative and non-cumulative preference shares, redeemable and non-redeemable
preference shares, participating and non-participating preference shares. The following features
make preference shares to be in the class of ordinary share
(i) the non-payment of dividends when the company is insolvent;
(ii) dividends are not deductible for tax purposes; and

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(iii) some preference shares have no fixed maturity date.

On the other hand, the following features make preference share to be in the class of debenture:

(i) fixed rate of dividends;

(ii) preference shares do not share in the residual earning of the firm; and
(iii) preference shareholders have claims on the income and assets of the business before the
ordinary shareholders in the time of winding up.

(c) Debentures: Debentures are certificates of debts and they are long term sources of funds
that give the holders the opportunity to collect the principal amount at a fixed future date.
Debentures have definite interest rate which is payable at annual basis until the capital sum of
the amount borrowed is fully paid. They are issued in units of hundred and the interest rates
depend on the prevailing interest rate in the money market and financial condition of the firm.
The following are the features of debenture:
(i) debentures are negotiable instruments;
(ii) the interests on debenture are tax-deductible;
(iii) they have a fixed coupon rate;
(iv) debentures are redeemable at specific date;
(v) debenture holders do not participate in the control of the firm; and
(vi) debentures are secured either on floating or fixed assets.

(xxii) Small Business Investment Organizations. These can be government owned or private
owned with debts being government guaranteed. Small business investment organizations can
be regular or specialized, for example, giving loans only to agro-business or manufacturing
firms, business research, product research and development, business start-ups and
minority/vulnerable groups. Unlike traditional venture capital companies, they use private
funds or government funds to provide both for debt and equity financing to small businesses.
Examples of institutions under this category are – Small and Medium Industries Equity
Investment Scheme (SMIEIS), Central Bank of Nigeria (CBN, National Economic
Reconstruction Fund (NERFUND), National Bank for Commerce and Industry (NBCI), Small
Scale Industries Credit Scheme (SSICS).

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INTERNAL AND EXTERNAL SOURCES OF FUNDS

Internal financing is the term for a firm using its profits as a source of capital for new
investment, rather than distributing them to firm's owners or other investors and obtaining
capital elsewhere while external financing consists of new money from outside of the firm
brought in for investment. External financing is the phrase used to describe funds that firms
obtain from outside of the firm. It is contrasted to internal financing which consists mainly of
profits retained by the firm for investment. There are many kinds of external financing. The two
main ones are equity issue which is also considered as external financing are accounts payable,
and taxes owed to the government. External financing is generally thought to be more
expensive than internal financing, because the firm often has to pay a transaction cost to obtain
it. Internal financing is generally thought to be less expensive for the firm than external
financing because the firm does not have to incur transaction costs to obtain it, nor does it have
to pay the taxes associated with paying dividends.
Advantages and Disadvantages of internal financing

Advantages of internal sources of finance include the following:

i. capital is immediately available;

ii there is no interest payable on such fund;
iii. there is no control procedures regarding the credit worthiness of the owners; and
iv there is no third party‟s influence.

Disadvantages of internally sourced funds

i. It is somehow expensive.
ii. It does not easily increase capital.
iii. It is not as flexible as external financing.
iv. It is not tax-deductible.
v. It is limited in volume because it is subject to the capability of the owner(s) to raise fund
internally.

FORMAL AND INFORMAL SOURCES OF FUNDS

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Formal sources of funds represent those institutions that are registered with appropriate
authorities to transact the business of finance with entrepreneurs. Examples of formal sources
of funds include loans from commercial banks, insurance company etc. Formal financial
services are usually provided by financial institutions that are controlled by the government and
subject to banking regulations and supervision. On the other hand, informal sources of funds
are provided outside the structure of government regulations and supervision. Examples of
informal sources of funds include those groups or individuals that are involved in loan
disbursement with little or no formal regulations e.g. Esusu, thrift savings scheme, cooperative
society etc.

Advantages of formal sources of finance

(i) Provides proper guidelines and documentation for loans.
(ii) Business advisory support from the banks that is lending.
(iii) Helps the entrepreneur to stay focused on the business because of interest rates.

Advantages of informal sources of finance

(i) It helps entrepreneurs to have easy access to funding.
(ii) Less documentation is involved in loan process.
(iii) Entrepreneurs do not stand the risk of loss of assets or business to the institution.

MODULE 3: SOURCES OF FUNDS

Finance has long been considered by Small and Medium Enterprises (SMEs) operators as an
important issue. Obtaining financial resources assistance in the amount required and when they
are needed can be more difficult for small scale entrepreneurial ventures than for established
organizations. The critical issue is to ensure that sufficient cash is available for current
operations and growth of the business. The owner must also ensure that money is available to
settle current liabilities when due; these may include inventory, rent, telephone bills,
office supplies etc. Other reasons for sourcing business finance include the following:

vi. upgrading facilities to comply with stricter environmental regulations

vii. financing production in cases where there is significant lag between when
costs are incurred and when payments are received;
viii. purchasing of new equipment or facilities;

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 ix. purchasing of business vehicles; and
x. building up inventory in advance of a busy season.
Irrespective of the reason(s) for which funds are required, it is the sole responsibility of the
business owner to ensure that funding is obtained at the right time, at the right cost and from the
right source. Before raising the required funds, the business owner must estimate the actual
funds needed in order to avoid encountering unnecessary high cost of capital or excess capital.

SOURCES OF FUNDS FOR NEW AND ENTREPRENEURIAL VENTURES

There are several sources of finance for both new and old entrepreneurial ventures. These
sources are:
(i) Personal Savings
(ii) Borrowing from Friends and Relations
(iii) Trade Credit
(iv) Accrual Accounts
(v) Retained Earnings
(vi) Equity Financing
(vii) Bank Loans
(viii) Project Financing
(ix) Venture Capital
(x) Debt Financing
(xi) Commercial Draft
(xii) Banker‟s Acceptance
(xiii) Bills Discounting
(xiv) Commercial Paper
(xv) Inventory Financing
(xvi) Bank Overdraft
(xvii) Loans from Corporative Societies
(xviii) Hire Purchase
(xix) Leasing
(xx) Factoring
(xxi) Microfinance Bank
(xxii) Public Offerings

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(xxiii) Small Business Investment Organizations

(i) Personal Savings

Personal savings is the most common source of financing for small business enterprises. It has
to do with the personal money which the entrepreneur has been able to set aside for an intended
business venture. This includes cash and any personal assets convertible into cash or to business
use, for example, cash from family/friends which is an informal form of financing falls into this
category. This may also be from past savings, trust accounts or some other form of personal
equity of the business owner. This is the least expensive method of financing and also the
easiest as the decision to lend is made by the same persons wishing to borrow the fund.

(ii) Borrowing from Friends and Relations

Funds can be raised for entrepreneurial ventures through borrowing from friends and relations.
The amount to be raised through this source however, depends on the financial capabilities of
the friends and relations and the relationship that exists between the business owner and his
friends or relations. The repayment period and the interest payable are a function of the
terms of borrowing which are usually determined by the lender.

Trade Credit
Trade credit as a source of fund occurs when a buyer makes an arrangement with the seller to
buy goods on credit and pay later. However, this arrangement depends on the customer‟s good
reputation and it often requires a pre-arrangement between the buyer and the seller. Trade
credit is one of the most widely used short term sources of funds and the term normally falls
within the range of thirty to ninety days which can still be extended after the expiration period,
depending on the relationship between the parties involved.

(iv)Accrual Accounts Accrual accounts can also be called account payable. It represents the
continually occurring current liability of a particular business. These include wages, interest,
taxes and other expenses that are payable in arrears. They are due but yet to be paid. Their
repayment period is usually within a period of one year.

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(v) Retained Earnings
Funds can also be obtained through undistributed profits. A business owner may decide
to reinvest part of his or her profit back to business for efficient operations of the business. This
is also called plough-back profit and it shows the naira value of ownership rights that result
from the business retention of its past income. In business, retained earnings are usually
considered as an additional fund for financing the future growth of the business. Retained
earnings are helpful as a last resort in business finance. The inability of the business owners in
meeting up with the stringent conditions of the financial institutions usually makes the business
owner come to fall back to their business reserves for funds raising.

(vi) Equity Financing

Equity finance is a form of business finance in which funds borrowed to operate a business
venture are not taken as loan but converted to equity (stake in ownership) which now makes the
lender a part owner of the business venture, risk and profit are shared together. The amount of
equity finance in a particular business may be substantial subject to factors such as the nature of
the business, the total amount of capital required and the interest of the investor. The advantage
of equity financing is that its infusion of capital does not have to be repaid like a loan.
(vii) Bank Loan
A small business entrepreneur can approach bank for a loan. This is a common practice among
established small business enterprises with good reputation doing business with a particular
bank. Banks usually charge their borrowers a prime rate and an additional charge usually called
handling charge.The actual interest rate charged depends on the creditworthiness of the
customers. Banks usually charge a higher interest rate to borrowers whom they perceive as
having a higher risk of default. The bank interest rate also depends on the type of loan involved
whether is fixed or variable. If the loan is fixed rate loan, the interest rate will be the same for
the amount of money over the number of years involved. But if the loan is variable rate loan,
the interest payable will vary periodically over the terms of the loan subject to the fluctuation of
the market interest rates. Bank loan can be given either on short term or long term basis. Short
term bank loan usually covers between one month and less than one year, while long term bank
loan covers a period that is more than year one. Short term loans are used to replenish the
working capital account, such as purchase of inventory, supply of consumables in an
organization, finance of credit sales or taking of advantage of cash/bulk discounts etc. This is
repaid after converting inventory or receivables into cash. The relationship of the borrower

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with the bank matters a lot. The reason for this is that banks are more likely to give loans to
business owners they know very well and whom they have their business and personal records.
The amount of money that banks are willing to give per time depends on the nature of
business, the size of business, the repayment period and the creditworthiness of the business
owner.

(viii) Project Financing

Project financing is the funding of a particular project by a financial institution. This can be a
source of funds only when the proceeds from the project are sufficient to repay the capital sum
usually known as the principal which is the amount of money borrowed for the execution of the
project with interest accrued. The project will be used as the security for such loan and the
advance is self–liquidating. In this case, the borrower„s financial standing or position is less
important because the institution must ascertain the value of the project and ensure that the
value is high enough to settle the amount of money borrowed by the contractor.

(ix) Venture Capital

Venture capital is the money invested by individuals or venture capital firms in small and high
risk business enterprises. Venture capitalists are investors that invest in other people‟s
businesses for the sole aim of profit. They receive equity participation i.e. the equity ownership
right of some proportion in the business enterprises they have invested their money in. They
participate substantially in the management of the enterprises in which they have invested,
holding board positions and working in close liaison with the enterprise‟s management team.
The venture capital industry may consist of:

(a) wealthy individuals

(b) foreign investors
(c) private investment funds
(d) pension funds or
(e) major corporations.

(x) Debt Financing

These are funds that the business owner borrows and must repay with interest. Borrowed capital
maintains ownership of the business (unlike equity financing, which dilutes ownership) but is

60

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carried as a liability on Balance Sheet. In general, small businesses are required to pay more
interest than large businesses because of perceived higher risks, that is, few percent above
prime rate. Entrepreneurs seeking debt capital can have access to a range of credit options
varying in Complexity, availability and flexibility, both from commercial and government
sponsored lenders.

(xi) Commercial Draft

Commercial draft is a short term financing source credit. It is an unconditional order in writing
made by one party. The drawer addressed to a second party, the drawee ordering the drawee to
pay a specified sum of money to a third party called the payee. Commercial draft may be a
sight or time draft. The type depends on the negotiation terms.

(xii) Banker‟s Acceptance

This is credit facility that involves a bank and its customer. It is a time draft payable at a
stipulated date. It is an arrangement between the businessmen who produce goods for sale.
The businessman customer then draws the acceptance credit paper requiring his banker to
accept the responsibility of settling the bills pending when the goods will be sold. By placing its
acceptance on the bill (acceptance credit) the bank has accepted a contingent liability as well as
giving an indication that it will honour the bill upon presentation at maturity in case the
customer defaults. A discount house usually evaluates the creditworthiness and reputation of
the accepting bank. The maturity date is usually less than six months and it is mainly used in
international trade.
(xii) Bills Discounting
Bills discounting is a source of finance where the supplier of goods (creditor) writes a bill of
exchange for the customer for acceptance. Immediate cash may be obtained by the supplier for
his goods after the goods have been dispatched to the customer by discounting the bill with the
bank or discount house after the bill has been accepted by the debtor (customer). Other aspects
of bill discounting involves Government securities such as Treasury Bills and certificates which
can be surrendered before their maturity dates to banks or discount houses for purchase. The
amount paid to the bill owner is less than face value.

(xiii) Commercial Paper

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This is an instrument of the money market (commercial Bank) that is usually used by many
organisations to raise short- term funds. Under this source of funds, an issuing house issues it
on behalf of a company. The issuing house only finds investors to buy the commercial paper,
the investors deal directly with the company issuing the note. The issuing house does not even
guarantee the note. The issuing house charges commission for the service through a coupon rate
which is usually stated on the commercial paper. The maturity date of a commercial paper
ranges between 90 and 180 days and it is usually written out to contain details such as the date
of issue, the maturity date, the amount per coupon, etc. The coupon rate and the issuing house
commission make up the cost of commercial paper.

(xiv) Bank Overdraft

Another financial facility is an overdraft facility, which banks give to its business clients. Bank
overdraft is an overdrawn bank current account and a short-term financial facility which
is renegotiated every year depending on the performance of the business. It may be secured or
unsecured depending on the amount of money involved. Bank overdraft is usually covered by
personal guarantee of SME owners and carries a higher interest rate than a normal loan. Often
this interest rate is higher than profit margin percentages, which makes it a very short-term loan
for covering cash flow problems rather than to finance acquisitions or buy stocks. Before banks
grant overdraft, the following factors are considered:
(i) The purpose for which the fund is required;
(ii) The character of the entrepreneur;
(iii) The management and financial position of the business;
(iv) The capacity of the business and
(v) Collateral security (this depends on the amount of money involved).

(xv) Inventory Financing

Inventory financing is the use of inventory or stocks as collateral security for borrowing of
fund. The stocks are usually placed under the control of the lender pending when the loan will
be repaid. Note that not all stocks are qualified for such transaction. The marketability,
durability and the price stability of the stocks must be considered before such stocks will be
used for inventory financing.

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(xvi) Borrowing from Cooperative Societies
A cooperative society is an association established by group of individuals who pooled their
resources together to engage in a business transaction for profit making but mainly for
the benefit of members. Depending on the financial capability of the cooperative society, it can
provide funds for its members to start business or finance their business transactions.
The amount that can be raised from cooperative society is subject to the financial commitment
of the membershe repayment period is not usually beyond two years since the fund is provided
on short-term sources of finance. The interest charged is also considerable low compared with
Commercial bank interest rates.

(xvii) Hire Purchase

Hire purchase is used when purchasing assets such as plant, equipment, machinery and
vehicles. An initial deposit may be required followed by a series of installment payment with an
attached interest. The interest rate is usually controlled by the prevailing bank rate (e.g. 4
percent above bank lending rate when regulated by government). Under hire purchase,
agreement periods can range between 1 to 3 years depending on life span of the asset. Hire
purchase is quick and easy to arrange, the security for agreement being the asset itself. Upon the
payment of the initial deposit, the customer enjoys immediate use of the asset. The asset legally
belongs to the owner of the asset and if the buyer defaults, the owner of the assets automatically
repossesses his or her asset.
(xviii) Leasing
A lease is an agreement whereby the owner-manager (lessee) undertakes to make
regular monthly payments to the financial institution (lessor) in return for the use of
equipment belonging legally to the latter.The leasing instrument is used by SMEs to finance
equipment (including vehicles) acquisitions. Operating leases function in such a way that
the leasing company retains ownership and risks associated with the equipment (although
insurance is mandatory). The lessor is therefore both the financier and the legal owner of the
equipment. When the tenure of the lease ends, the lessee can decide to elect to purchase the
equipment for a sum which must represent at 10% of the cost of the equipment. In lease
financing, the following points are important and worth noting by any entrepreneur that
wants to enter into lease agreement.
(vi) Ownership of the asset does not rest with the business until the asset is sold
at residual value at end of contract.

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 (vii) Capital allowances may be claimed by leasing institution but not by the business.
(viii) Lease payments are tax deductible that is, passed as expenses in Profit and Loss.
(ix) Leasing does not normally affect borrowing capacity unless financial
legislation requires balance sheets to reflect leasing finance.
(x) Period of repayment matches expected life of asset.
(vi) Immediate use of asset.

(xix) Factoring
Factoring is a financing source that allows a business owner to raise fund based on the value of
his or her invoices yet to be paid. Under factoring arrangement, an entrepreneur can outsource
their sales ledger operations and maximize the use of sophisticated credit rating systems for
their funding. Factoring arrangement can be with or without recourse. It is with recourse if the
factor company collects the amount due from other means upon the default of the debtor and
without recourse, if the factor company bears the consequence upon default of the debtor.

In factoring arrangements, an agreed proportion of the invoice value (about 80%) will be paid
within a pre-arranged time of say 24 hours. In return, the factor issues receipt on behalf the
organization upon collection of the payments. One of the advantages of factoring is that the
business owner will receive the majority of the cash from debtors within 24 hours rather than a
longer time. It also reduces the time and money an organization can spend on debt collection
since the factor will usually run your sales ledger for the organization. On the other hand,
factoring may impose constraints on the way business is being conducted thereby discouraging
the customer for future business transactions with the customers.

(xx) Microfinance Banks

Microfinance bank was established in 2005 by the Central Bank of Nigeria according to the
provisions of Section 28, sub-section (1) (b) of the CBN Act 24 of 1991(as amended) and in
pursuance of the provisions of Sections 56-60(a) of the Banks and other Financial Institutions
Act (BOFIA) 25 of 1991. This was mainly to promote monetary stability and a sound financial
system in the country. The establishment of microfinance banks is meant to expand the
financial infrastructure of the country so as to meet the financial requirements of the Micro,
Small and Medium Enterprises (MSMEs).
Three features distinguish microfinance from other formal financial products. These are:

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(iv) the smallness of loans advanced and or savings collected,
(v) the absence of asset-based collateral, and
(vi) simplicity of operations. The goals of microfinance banks include the following:
to provide diversified, affordable and dependable financial services to the active poor,
in a timely and competitive manner, that would enable them to undertake and develop
long-term, sustainable entrepreneurial activities;
(ii) to mobilize savings for intermediation;

(iii) to create employment opportunities and increase the productivity of the active poor in
the
country, thereby increasing their individual household income and uplifting their standard of
living; to enhance organized, systematic and focused participation of the poor in the socio-
economic development and resource allocation process; to provide veritable avenues for the
administration of the micro credit programmes of
government and high net worth individuals on a non-recourse case basis. In particular, this
policy
ensures that state governments shall dedicate an amount of not less than 1% of their annual
budgets for the on-lending activities of microfinance banks in favour of their residents.

(xxi) Public Offerings

Public offering is a financing option that is only available to companies that are well
established. Businesses with sustainable growth potentials in the course of expanding their
businesses might decide to use public offerings by „going public‟ to raise required funds
for their business operations. However, before a company decides to use public offerings as
financing means, certain factors need to be considered. These factors include; the cost of the
security, other financial obligation of the business, the prospect of the money market, issues
concerning the ownership and control of the business. Public offering usually starts with
selling of equity holding to the public and this is called initial public offering (IPO) in which
stock is registered with the Securities and Exchange Commission (SEC). This is usually
offered to the public through a registered Brokerage firm or an investment Banker and this
gives the organization the opportunity to trade its shares in the floor of the stock exchange
market. To get firms‟ shares quoted in the stock exchange market, the firm needs to make

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provision for the associated expenses, filling requirements and other equity considerations.
Many Small and Medium Scale Enterprises consider these requirements as stringent conditions
and this affects their readiness to undertake IPO as a financing option. Public offerings usually
result in long term sources of funds which include the following:

(a) ordinary shares

(b) preference shares
(c) debentures

(a) Ordinary Shares: Ordinary shares represent the ownership position in an organization.
Ordinary shares holders are also called shareholders and the risk bearers of the firm. Their rate
of dividend is not fixed rather it depends on the discretion of the management. Ordinary shares
can be issued at par, discount or premium. The rights of shareholders include:

(i) right to participate in the annual general meeting and vote;

(ii) right to appoint a proxy;
(iii) right to have access to the organization‟s books; and
(iv) right to contribute to the appointment of members of the board.

(b) Preference Shares: Preference shares as a long term source of funds are certificates of
ownership in organizations that usually have a fixed rate of dividends which must be paid
before ordinary share dividends. It is considered as a hybrid security because it has many
features of both ordinary shares and debentures. The types of preference shares include:
cumulative and non-cumulative preference shares, redeemable and non-redeemable
preference shares, participating and non-participating preference shares. The following features
make preference shares to be in the class of ordinary share
(i) the non-payment of dividends when the company is insolvent;
(ii) dividends are not deductible for tax purposes; and
(iii) some preference shares have no fixed maturity date.

On the other hand, the following features make preference share to be in the class of debenture:

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(i) fixed rate of dividends;
(ii) preference shares do not share in the residual earning of the firm; and
(iii) preference shareholders have claims on the income and assets of the business before the
ordinary shareholders in the time of winding up.

(c) Debentures: Debentures are certificates of debts and they are long term sources of funds
that give the holders the opportunity to collect the principal amount at a fixed future date.
Debentures have definite interest rate which is payable at annual basis until the capital sum of
the amount borrowed is fully paid. They are issued in units of hundred and the interest rates
depend on the prevailing interest rate in the money market and financial condition of the firm.
The following are the features of debenture:
(i) debentures are negotiable instruments;
(ii) the interests on debenture are tax-deductible;
(iii) they have a fixed coupon rate;
(iv) debentures are redeemable at specific date;
(v) debenture holders do not participate in the control of the firm; and
(vi) debentures are secured either on floating or fixed assets.

(xxii) Small Business Investment Organizations. These can be government owned or private
owned with debts being government guaranteed. Small business investment organizations can
be regular or specialized, for example, giving loans only to agro-business or manufacturing
firms, business research, product research and development, business start-ups and
minority/vulnerable groups. Unlike traditional venture capital companies, they use private
funds or government funds to provide both for debt and equity financing to small businesses.
Examples of institutions under this category are – Small and Medium Industries Equity
Investment Scheme (SMIEIS), Central Bank of Nigeria (CBN, National Economic
Reconstruction Fund (NERFUND), National Bank for Commerce and Industry (NBCI), Small
Scale Industries Credit Scheme (SSICS).

INTERNAL AND EXTERNAL SOURCES OF FUNDS

Internal financing is the term for a firm using its profits as a source of capital for new
investment, rather than distributing them to firm's owners or other investors and obtaining

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capital elsewhere while external financing consists of new money from outside of the firm
brought in for investment. External financing is the phrase used to describe funds that firms
obtain from outside of the firm. It is contrasted to internal financing which consists mainly of
profits retained by the firm for investment. There are many kinds of external financing. The two
main ones are equity issue which is also considered as external financing are accounts payable,
and taxes owed to the government. External financing is generally thought to be more
expensive than internal financing, because the firm often has to pay a transaction cost to obtain
it. Internal financing is generally thought to be less expensive for the firm than external
financing because the firm does not have to incur transaction costs to obtain it, nor does it have
to pay the taxes associated with paying dividends.
Advantages and Disadvantages of internal financing

Advantages of internal sources of finance include the following:

i. capital is immediately available;

ii there is no interest payable on such fund;
iii. there is no control procedures regarding the credit worthiness of the owners; and
iv there is no third party‟s influence.

Disadvantages of internally sourced funds

i. It is somehow expensive.
ii. It does not easily increase capital.
iii. It is not as flexible as external financing.
iv. It is not tax-deductible.
v. It is limited in volume because it is subject to the capability of the owner(s) to raise fund
internally.

FORMAL AND INFORMAL SOURCES OF FUNDS

Formal sources of funds represent those institutions that are registered with appropriate
authorities to transact the business of finance with entrepreneurs. Examples of formal sources
of funds include loans from commercial banks, insurance company etc. Formal financial
services are usually provided by financial institutions that are controlled by the government and

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subject to banking regulations and supervision. On the other hand, informal sources of funds
are provided outside the structure of government regulations and supervision. Examples of
informal sources of funds include those groups or individuals that are involved in loan
disbursement with little or no formal regulations e.g. Esusu, thrift savings scheme, cooperative
society etc.

Advantages of formal sources of finance

(i) Provides proper guidelines and documentation for loans.
(ii) Business advisory support from the banks that is lending.
(iii) Helps the entrepreneur to stay focused on the business because of interest rates.

Advantages of informal sources of finance

(i) It helps entrepreneurs to have easy access to funding.
(ii) Less documentation is involved in loan process.
(iii) Entrepreneurs do not stand the risk of loss of assets or business to the institution.

MODULE 4: MARKETING
MARKETING FOR BOTH SMALL AND LARGE BUSINESSES

Marketing: Very often when people think of marketing, what comes to mind will include the
billboards that abound in various locations of the city where they reside; the radio jingles that
they heard over the radio the previous day; the handbills they were given when they visited a
shopping mall the previous week; the colourful advertorials they saw in center spread of
magazines or newspapers; the television advertorials promising that the product being
advertised is the best there is on earth; the recent promotion by a telecommunication
company promising 50% bonus airtime for all recharge in the next three days.

In essence, it will be right to say that marketing is one of the most misunderstood business
disciplines. Too often it is assumed to be just one aspect of what it involves – promotion. In
reality, marketing is a specialist activity that influences the success of any organization whether
small or large. In very pedestrian language, marketing can be conceptualized as a process that
enables people obtain their needs or wants from organizations that have developed products or
services that will help satisfy these needs or wants of people. These products or services are

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offered to people who are at liberty to exchange them for something of value. The implication
of this definition is that successful marketing rests on the premise that proper need assessment
has to be carried out to determine what the market desires or is lacking. Then, a product is
conceived and designed to fill that gap and priced appropriately and communicated to
the market and made available with minimum inconvenience for the customer. The
language in marketing is deliberately general. For instance, purchasers are referred to as
customers, though a service organization such as a firm of accountants will call them clients;
telecommunication company will call them subscribers; a school will call them students; a
hospital will call them patients and a hotel will call them guests. Similarly, a product may well
be a service but the word product is often used to refer to both. Small Business Marketing:
Marketing forms the cornerstone for the initiation, growth and subsequent profitability of a
small business. Without marketing and a marketing strategy, a business cannot survive and
prosper. For the entrepreneur or small business owner, marketing is a matter of determining
demand, matching a product or service with customer needs, and promoting those attributes in
the marketplace to produce sales and make profit in the process. Every marketing plan has to
adopt the same marketing procedure, but the similarities between small business and large
business marketing stop right there. Budget constraints, staffing, creative methods and
strategy vary considerably between Airtel Networks Limited and a relatively micro-
budget marketer and business owner like the small corner shop in your neighbourhood.
Large businesses measure the results of marketing campaign by how many people know and
recognize their brand. Their goal is to get their name out there into the world. They also have
larger budgets and want to spend that money to put their name into everyone‟s head. Small
business marketing measures results at a micro level. The concern is to determine how many
extra customers were got and whether there is any increase in sales. The budget is usually small
and campaigns are organized in a more refined way. The ultimate goal is to get the customers in
through the door to spend their money – not to get inside everyone‟s head.

Differences between Small Business Marketing and Large Business Marketing

a) Budget Constraints: In a small business one thing is very obvious and that is operating on a
lean budget particularly as it relates to marketing plan. The huge organizations sometimes
called corporate titans, have astronomical budgets to cover their promotions. They are
able to pay for airtime on TV which in some cases could cost as much as N1million for barely

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15 minutes (prime time) or sponsor certain programmes which cost a fortune. These activities
make their presence known to virtually everyone in the country. In essence, they have the
wherewithal to send out effective messages which are often sent to a mass audience. In the case
of the small business operator, One Hundred Thousand Naira is a major expenditure that must
be looked at very closely and justified before parting with value. They are better able to
send out personalized messages and distribute in a manner that guarantees a better chance of
reaching their audience.
b) Staffing: When you peruse through the organogram of a big corporation like Globacom
Nigeria Limited, you will find the Commercial Director Marketing at the helm of affairs. He
has six Divisional Directors with six Business Development Managers assisting them. Then
there are 48 Global Business Directors across the country and well over 50 Area Managers
across the 36 states in the country. In addition to these, you will find several professionals that
bother on other aspects that bother on the customer. In contrast, small businesses combine
marketing with the leadership role. The organization chart of a small business puts
responsibility for marketing in the top box, where the business owner manages the process as a
hands-on task. In essence, you will not have the luxury of professionals as in the Globacom
example.
c) Differences in Creativity: Large companies like Cadbury Nigeria Plc. routinely require
millions of Naira to produce advertorials with the single purpose of establishing
brandawareness and market orientation. Small businesses adopt a significantly different
method. They strive to establish brand awareness just like Cadbury does, but their
advertisements have to fulfill two tasks. One, the expenditure has to provide direct and
measurable marketing action. Two, each action has to stir adequate buying activity to
compensate the expenditure involve in producing and running the advertisement in the first
place.
d) Differences on Strategy: In large companies like Nigerian Bottling Company Plc.
documents of business plans are numerous and probably found on bookshelves in the company.
In the case of small businesses, the term marketing plan may sound like rocket science to the
owner. Interestingly, a marketing work plan is quite simple and fairly manageable. If you spend
a bit of your time to design your annual marketing plan, then implementation of this plan
becomes really easy. Note that without a proper marketing plan, you will spend the year
racing around to deal with competitive actions, media opportunities and market conditions that
may or may not match your present business expectations.

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e) Customer Interaction: Small businesses have the capacity to interact directly with their
customers, get to know them on a personal level, and learn exactly what their needs are. More
often than not, large organizations do not have this luxury. As entrepreneur, you may
occasionally envy the huge budget and staffing of large organizations, but being
small has its own unique advantages. Imagine the complexity of Cadbury Nigeria Plc.
trying to understand and know its numerous customers. Meanwhile, you are able to meet with
your customers personally perhaps on a daily basis at virtually no extra cost to you. Since the
significant point of marketing is to establish and sustain customer loyalty, it stands to reason
that nothing is more adaptable, more resilient and more flexible than the small business.

MARKETING MIX IN NEW VENTURES

Marketing is a process that encompasses a number of activities that are interrelated and
interdependent. Quite simply, the marketing mix is the unique blend of the elements of
marketing that will apply to the business. These elements are: product or service itself; the
location of the business; the distribution methods adopted by the business; the price at which
the products will be sold; the advertising and promotion alternatives available to the business;
and how the product will be sold as well as the level of customer service to be provided. These
elements are often summarized and commonly referred to as the 4Ps - product, price,
promotion and place. The understanding of these elements and flair with which they are mixed
is fundamental. In essence, creativity and imagination must be brought to bear. If this is done
well, it will put the organization ahead of the competition.

Product: This is anything offered that is capable of satisfying a particular need or want.
Products in the context of marketing discourse are tangible and when you pay for them you
hold onto something that you can see, touch and feel. It is important for entrepreneurs to
understand people never buy products but buy benefits. For example, one buys a car because he
needs something to commute with. So in the event that the car develops a major fault and has to
be parked in his garage before the spares are sourced, would he be happy looking at the car?
Certainly he would not be because what he bought can no longer provide the benefit he sought
during purchase. This part of marketing concentrates on the product / service the business is
going to sell. Retailers and manufacturers will concentrate their products whereas services
industry people (teachers, doctors, leisure centers) will concentrate on the service that their

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customers will receive. The term product is used to cover both tangibles and intangibles
(services). Product decisions require looking at the following areas: product mix; product
features and product support.
a) Product mix: This covers the range of products offered for sale by the organization. The
number of product lines which means the various range of products that are similar in end use
or mode of distribution. In essence, an organization could have one or more product lines. To
determine the product mix, it is important that small business owners engage in marketing
research by way of need assessment to determine what people lack or what is currently not
being delivered. It also entails knowing what kind of stock to have, what kind of customers you
will want to serve, what do they like to buy and how they want to buy. Imagine you live in a
neighbourhood where the households need a corner shop to buy cookies and packaged juice for
their kids early in the morning. The only corner shop in the locality does not open until 9am
which creates a lot of inconvenience for the numerous households. An entrepreneur will see
an opportunity here because should he start up a corner shop and open at 7am, the household
members will be glad he did and patronage is a given.
b) Product features: The customers view the product has as much to do with the success of the
business as does the product itself. This is a complex bundle of physical attributes and features.
It is important for the entrepreneur to remember that customer perception will determine
success rather than what he sees in his product. Product features include colour, packaging,
labels, quality, options, style design, brand names, freshness, consistency, sizes, durability,
ingredients and product image among others. For services issues that bother on promptness,
efficiency, expertise, reliability, guarantees, house-call, specialization, and pick up
delivery among others are very fundamental. Imagine a local vulcanizer in your area who
fixes tyres beneath a tree and relies on the old technology. For the most part you will have to sit
on a bench while he works on your tyre. He needs to use a locally fabricated equipment to
remove the tyre from the wheeland fits back afterwards while using a gauge system that is far
from accurate. Comparethis against another entrepreneur who decides to buy the modern
machines with accurate gauge equipment. Furthermore, there is small waiting area where you
can read newspapers or watch cable TV before your tyre is fixed. In addition, the shop provides
free tyre gauge services. The latter had built in more features in the service than the former.
c) Product support: For a business, a sale may be an end result but for the customer it is just
the beginning because he may have challenges with the product from time to time or the service
he is seeking may be too complicated for him to understand. For these reasons, he will require

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help by way of support from the bearing in mind that support will to a large extent determine
repeat patronage. Examples of support services include; pre-sale advices, installation, reliable
delivery, prompt follow up, availability of spare parts and after-sales service.

Place: In marketing, a business must have the right product, at the appropriate time and price,
and in the right place. In this context, place refers to two aspects; location and distribution.
Location as a component of marketing mix is critical to some and almost irrelevant to others.
For example it is critical to a retailer but not necessarily to a “pure water company”. It should
be noted that for many small business operators the choice of location is governed by personal
taste: the desire not to look beyond the local community may be very compelling. Some of the
benefits associated with such a disposition include: the fact that friends and family could be the
first customers and could advertise by word of mouth; the advantage of knowing the needs and
desires of the local market; and it may be easier to obtain micro credit from the microfinance
bank in the immediate environment. The cardinal rule for many business owners is to locate the
business where the market is.
It is important to know what kinds of persons are likely to be the customers for the goods /
services on offer. Imagine establishing a new dry cleaning business to cater for individual
customers. Through informal marketing research you discovered that most of those that will
require such a service are bankers who leave for work very early and close late. Your best bet
will be to get a location that will be easily accessible with minimum discomfort since for the
most part they will be in a hurry to drop off or pick up. This is not to say that other factors are
not important. For a manufacturing concern, access to raw materials is key as well as the
availability of skilled labour. Distribution has to do with the channels used to resolve the
question of how the products reach the customers - the place where the purchase will be made.
When you walk into a local store in your neighbourhood, you will probably find well over
seven different brands of bread lying on the shelves. Drive a couple of kilometres away and it is
very likely you will find another dozen brands being sold at a very prominent intersection in the
city. Now try to imagine the challenge of getting the raw materials together and making well
over a thousand loafs and then distribute them throughout the city. This is what
thousands of manufacturing firms (small or big) have to contend with every day.
Rarely do organizations deal directly with the final user of their products – consumer. Very
often they have to rely on marketing intermediaries (wholesalers and retailers) who join
together to transport and store goods in their path from producers to consumers. Due to the

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dynamic nature of our society the pattern of distribution and demand continues to change.
Restrictive thinking should not prevent the best distribution channel from being utilized. The
small business owner must recognize that there is a constantly changing market and the
distribution system represents an investment and is an asset to the business.
Promotion: This encompasses everything to do with the way an organization communicates
persuasively with people to influence them towards making a purchase. Marketers use many
different tools to promote their products and services. Promotion is sometimes seen as the most
important part of marketing; certainly it is the most visible, with elements of it –
advertisements, posters and so on – all around. It should be known that even the producer of the
best product or service will do no business if no one knows it exists. Similarly promoting a bad
product is certainly the fastest way to kill it. The combination of promotional tools an
organization uses is called its promotional mix.
a) Advertising: This is paid non personal communication through various media by
organizations and individuals who are in some way identified in the advertising message.
The medium of advertising include; television, radio, handbills, billboards (electronic and non-
electronic), newspapers, magazines, music and internet. The best medium is a function of the
product being advertised and the target customers to be reached. Generally speaking, securing
airtime for advertorials in television is quite expensive for most small businesses. Radio
jingles and handbills are fairly more affordable and fit into local advertising. Advertising is
carried out with the following objectives in mind: informing potential customers of a new
offering; increasing the frequency of purchase; increasing the use of a product; increasing
the quantity purchased; increasing frequency of replacement; presenting a promotional
programme; bringing a family of products together; and making the organization behind a range
of offerings known. In summary, advertising can help promote a business but it is
important to be aware that it has its limitations. Some small business owners believe that if their
business is failing they can advertise their way out the problem. Sadly, this is not the case
because advertising cannot force people to buy unneeded goods and services. If the
business is in the wrong market advertising will not be able to help. Furthermore, it cannot
improve an inferior product. If the product is not adequate or does not fit the overall marketing
mix, advertising cannot compensate.
b) Personal selling: This is face-to-face presentation and promotion of products and
services. It also involves the search for new prospects and follow-up service after the sale.
Effective selling is not simply a matter of persuading others to buy. In fact it is more accurately

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described as helping others to satisfy their wants and needs. The major strength of personal
selling over advertising is that it provides a two way communication where the
prospect can ask questions and seek clarification where necessary as against advertising
which is strictly one way. For large businesses this medium is very expensive because their
customers are spread all over as against the small business operator who usually has direct
access to his customers and sees them often.
c) Public relations: This is defined as the function that evaluates public attitudes, changes
policies and procedures in response to the public‟s requests, and executes a programme of
action and information to earn a public understanding and acceptance. In essence, a good public
relations (PR) programme has three steps.
(1) Listen to the public through marketing research.
(2) Change policies and procedures to accommodate the concerns and aspirations of the public.
(3) Inform people that you are being responsive to their needs. For most small businesses PR
means obtaining free publicity via stories placed in newspapers, radio and TV with the
objective of bringing attention to the business. The value of this approach is that it has a higher
degree of credibility than an advertisement. Sponsorship of a local sporting event is also good
publicity. Many businesses tend to overlook the importance of PR. Some are prepared to
develop their own PR strategies and have the talents within the business to achieve satisfactory
results, whilst some are unsure how to correctly handle this area and will employ outside
expertise.
d) Publicity: This is talking arm of PR. It is one of the major functions of almost all
organizations. Publicity is any information about an individual, product or organization that is
distributed to the public through the media and that is not paid for, or controlled by the seller. In
essence, it can be viewed as a form of free advertising. To use this properly, a small business
owner must attempt to feed to the media information that is of public interest. Whether the
media uses the information submitted to it depends on whether time and space are available
and whether it is considered “newsworthy”. Different publications have different audiences
and only stories that have high interest to the readership are likely to be chosen. Imagine
establishing a small kindergarten school where primary education has been a major challenge or
a small business engaged in nymph oil extraction for the treatment of skin diseases which has
been a cause for concern in that community. Note that in both cases, the public will be very
receptive to the news and help spread to others. The magic is that the various media will
publish these stories free since the material is interesting and newsworthy. It has a major

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advantage over advertising because publicity may reach people who will not want to read or
pay attention to an advert. In addition, when a newspaper or a magazine publishes a story as
news, the reader treats that story as news – and news is more believable than advertising. e)
Sales promotion: Sales promotions (SP) are used to help promote the sale of the
product or service. They are generally put into place for short time periods to achieve customer
attention and sales. The cost of such promotions must be well controlled and the small
business owner must ensure that results are worthwhile for the outlay involved. SP is
considered very effective because it creates instant demand booster and leverages on the
weakness of the average customer – greed – which makes him buy certain products that he may
ordinarily not want to buy at the time or may not buy that much quantity. SP campaigns could
be used in the following scenarios;
(1) To move products or services that have slowed down probably created by loss of buyer
interest or change of buying season.
(2) To win back customers who have moved to competitors for reasons such as price, delivery
of product, pedestrian packaging among others.
(3) To launch new products. This allows the customers to experience the new product or
service. In essence, it encourages new product trials and brand switching .SP could be deployed
in different ways but some of the very prominent ones include:

Offering a special price reduction for a given period;

selling two items for the price of one;
adding a product on or in another product without charging for the added on product; giving out
free samples; sponsoring a game or a contest and organizing raffle draws for those that qualify
based on volume of purchases made over a period of time. Note that the list is endless and only
needs some marketing imagination and flair to make a successful promotion.

Price: The phrase that goes mostly with cheap is poor quality, yet everyone wants a bargain.
But as a bargain is essentially something worth more than it costs (and therefore rare)
what they really want is value for money. ”I am not upset with someone who charges more for
a product but I am concerned with someone who might offer a better experience” – Jeff Bezos,
CEO, Amazon. In many ways way can think of price in terms of value. People are willing to
pay a price that is commensurate with the value to them of a product or service. How do you
make sure that your offering will be considered valuable to customers? Think about the

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quality in manufacture, the styling and fitness to need. When you focus on making
improvements in these areas, you will be increasing the value of your offerings to customers,
and that will allow you to charge a price that you and your customers will consider reasonable.
In consumer psychology, the tendency is to see high price as connoting high quality and low
price as connoting low quality. This may not necessarily be true in all cases but it always tends
to influence our judgement during purchase decisions. Imagine a man that walks into a
jewellery shop and sees two sets looking very much the same to him (does not have expertise)
and the first set costs N25, 000 while the second set costs N46, 000. What will come to his
mind is that the latter is of better quality than the former. The single basis for his judgement is
price. It should be noted that the term price could be used differently depending on the sector
and the context. For example, all these refer to the amount you pay in exchange for the value
received.

? Guest Lecturer - Honorarium

? Apartment - Rent
? Doctor - Consultation Fee
? Highway - Toll
? Import / Export - Duty
? PHCN / GSM - Tariff
? Insurance - Premium
? Association - Dues
? Bank - Interest
? School - Tuition

Factors Affecting Price

Competition in the market and marketing strategies: In free market economies, the level of
competition in the market place has a great influence on prices charged. The pricing structure
should reflect the competitive strategy the business has adopted. For example, to be a cost
leader, low prices will be the marketing tool to use to gain market share. Alternatively, if the
strategy is differentiation then the business owner must develop an “exclusive” image and be
able to charge more for the product or service. If the marketing strategy is penetration then the
business will consider a drop in price to induce new customers to purchase the product offered.
Demand for your product: Generally the demand for most products varies with price. Usually at

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high prices customers purchase less, where at low prices customers purchase more. Some
products or services are price insensitive, i.e. the price can be increased without having much
effect on demand. For other products if the price in increased it can have a huge gap on
demand. These products are said to be price sensitive.

Introducing a new product: The launching of a product that is novel in the market can be an
opportunity for a business to charge a premium without a backlash from the market. This
enables recovery of some of the costs that are associated with the introduction of the new
product or service. After the introduction it may be possible for the business to maintain a high
price until a competitor counters with something similar and the price may then need to be
adjusted to ensure a reasonable share of sales. It is certainly easier to reduce prices to meet a
competitor rather than starting at a price structure that is too low and then having to raise prices.
This is something that customers do not appreciate. If there is need for a small business owner
to increase prices, then he needs to consider some of the following:
Justify the reasons for the price increases. It cannot be simply on the grounds that it is time
prices were raised because there has not been an increase for some time. Research what the
competitors are currently doing. Is there any indication that they intend to increase their prices;
Never allow guess work to form part of the pricing strategies. If the pricing is too high to start
with and signs of slowing sales cause a reduction in prices it may be too late to redeem the
mistake. The majority of the customers will have a range of prices they consider to be
acceptable and this need to be known. Are prices beyond that range? There is a price point that
becomes a barrier to the customer, and beyond it they will no longer consider the product or
service. ? Understand clearly the minimum Gross Profit that is acceptable to the business.
There may be times when the price is determined by the competitors. If their prices are very
competitive then the business is not in a position to charge a price that causes a loss of market
share.

INTERNATIONAL MARKETING
International marketing is the process of planning and conducting transactions across national
borders to create exchanges that satisfy the objectives of individuals and organizations.
International marketing has forms ranging from export-import trade to licensing, joint ventures,
wholly owned subsidiaries, management contracting among others. International marketing

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very much retains the basic tenets of „satisfaction” and “exchange”. Standardization Vs.
Adaptation
This addresses the concern of whether companies should have identical products in all
countries or develop products to satisfy local tastes and desires. In the discourse of
International marketing, standardization is sometimes used interchangeably with globalization
i.e. treating entire market as a single one for both production and marketing reasons.
Modes of Market Entry
There are three broad strategies for foreign market entry and each one involves its own level of
commitment, risk and degree of profit. These are Exporting, Joint Venturing and Direct
Investment.
EXPORTING: This is the process of sending items, services or persons from one country to
another in return for goods, money or services. This involves occasional and active exporting of
goods and services. Occasional exporting is a passive level of investment where the company
exports surpluses from time to time and sells goods to resident buyers representing foreign
countries. On the other hand, active exporting takes place when the company makes a
commitment to expand exports to a particular market. However, in either of the two cases, the
company produces all of its goods in the home country and may or may not modify them before
exporting.

JOINT VENTURING

Joint venturing is the second method of entering a foreign market by teaming up with foreign
nationals to set up production and marketing facilities. Joint venturing differs from exporting in
that a partnership is formed that leads to some production facilities abroad, and it differs from
direct investment in that an association is formed with someone in the country. A joint venture
is the association of two or more people to carry out a particular business or contract.

A joint venture can be formed in four ways:

Licensing: - This represents a simple way for a manufacturer to become involved in

international marketing. The licensor enters an agreement with a licensee in the foreign market,
offering the right to use manufacturing process, trademarks, patent, trade secret or other item of
value for a fee or royalty. The licensor improves his market coverage at a little risk, while the

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licensee gains production expertise or a well-known product or name without having to start
from scratch. Example franchising – KFC in Nigeria.

Contract Manufacturing: - This involves a contract with local manufacturers to produce the
products, which the seller sells. It has the drawback of less control over the manufacturing
process and the loss of potential profits on manufacturing. On the other hand, it offers the
company a chance to start faster, with less risk and with the opportunities to form a
partnership or buy out the local manufacturer at a later date.

Management Contracting: - Here a foreign firm is invited to help run a venture on behalf of a
domestic firm. In this arrangement, the domestic firm usually provides the capital while the
foreign counterpart provides the know-how. This is considered on the strength that the foreign
firm is synonymous with exceptional skills in that particular line of business. They are normally
paid a fee and may be allowed to buy some shares over a specified time frame. Example of
management contracting – Hilton and hotel management.

Joint Ownership Ventures: - In joint ownership ventures foreign investors join with
local investors to create a local business in which they share joint ownership and control. The
foreign investor may buy an interest in a local company, or a local company may buy an
interest in an existing operation of a foreign company, or the two parties may form a new
business venture. This may be necessitated due to political consideration or economic
constraints or to satisfy a pre-condition for entry.

DIRECT INVESTMENT
The third strategy that could be employed in order to operate in a foreign market is through
direct investment. In this the firm may invest in foreign-based assembly or manufacturing
facilities by either building a new plant or buying substantial shares in an already existing plant,
or completely buying over an existing plant. The following benefits are derivable to the foreign
investor:
1. The firm may secure cost economies in the form of cheaper labour or raw materials,
government investment incentives, freight savings, and tax concession, etc.
2. The firm will also gain a better image in the host country because it creates job
opportunities to the local nationals.

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3. The firm can develop a deeper relationship with the government, customers, local
suppliers, and distributors, enabling it to adapt its products to the local market.
4. The firm retains full control over the investment and therefore, can develop
manufacturing and marketing policies that serve its long-term international
objectives.

However, it exposes a firm‟s large investment to risk, such risks as devaluation of currency,
worsening markets or expropriation.
MODULE 5: NEW OPPORTUNITIES FOR EXPANSION
Science and Technology have always influenced modes, practices and procedures of business
and trade. The advancement of Science and Technology, more particularly in electronics and
internet, has profoundly influenced the conduct of business in the world. The fast changing
information technology and convergence of various communication technologies have virtually
taken the business practices by storm. The use of Internet has made the world small and through
it, business transactions are conducted globally at a faster pace. The age of connectivity has
reduced distances and brought people closer. This can be directly attributed to the development
of electronics and communication technologies.

Computers and the Internet are now increasingly widely used to function as part of doing
business. Transactions conducted through the Internet have enormous implications on the
international competitiveness of every nation, giving rise to new and exciting opportunities in
national and international industries, the governments and for individuals. In this module we
describe the use of Internet and other electronic technologies as means of achieving New
Opportunities for Business Expansion.

WHAT IS E-BUSINESS?

Electronic Business or e-Business refers broadly to the use of technologies, particularly the
Information and Communication Technologies (ICTs), to conduct business or facilitate
improved business activities and processes, including procurement, operation, manufacturing,
marketing and sales, logistics, human resources management, finance, and research and
development. Originally, the term e-Business refers primarily to the digitally enabled

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transactions and processes within an organization, involving information systems under the
control of the organization. E-business does not include commercial transactions involving an
exchange of value across organizational boundaries. These online interactions are aimed at
improving or transforming business processes and efficiency. Over time, e-Business has been
known to cover online transactions, extending to all Internet- based interactions with business
partners, suppliers and customers such as selling direct to consumers, manufacturers and
suppliers; monitoring and exchanging information; auctioning surplus inventory; and
collaborative product design.

E-Business, therefore, relates to any commercial activity that is conducted in an electronic

format including commercial transactions conducted via the Internet, telephone and fax,
electronic banking and payment systems, electronic purchasing and restocking, etc. Like the
telephone, fax, and calculator, e-Business is a tool that can enable increased productivity,
improved customer services, and reduction in costs.

E-Business is not limited to certain type of business or technology, but includes networking,
allowing sales and marketing activities, purchasing and logistics, production, education, design
and engineering to take place. The most effective use of e-Business is when a business
combines several of these activities allowing information to flow from sales, to purchasing and
production. It facilitates creating more effective external interactions with customers, clients,
collaborators and suppliers, as well as helps improve internal business efficiency and even the
emergence of new products and services.

E-Business could be generally described as any ICT enabled system that suppliers,
distributors, or customers use, as the basis for conducting their business operations, such as:

• Communicate with clients or suppliers via email;

• Send email to other organizations to order supplies;
• Sell or promote products or services via a web site and/or email;
• Publish a web site to provide public information about the business;
• Use the Internet for online banking and paying bills;

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• Research information about customers and competitors using web sites;
• Provide technical or customer service by email or web site; and
• Manage and distribute internal organization documents via an intranet.

WHAT IS E-COMMERCE?
The advances in Information and Communication Technologies (ICTs) and the emergence of
the Internet have revolutionized business activities enabling new ways of conducting business
referred to as electronic commerce (Zwass 2003; Turban, King, Lee, & Viehland, 2004).
Electronic commerce (e-Commerce) describes the process of buying, selling, transferring, or
exchanging products, services, and/or information through computer networks, principally the
Internet (Turban et al., 2004). Electronic commerce can also be described as the sharing of
business information, maintaining of business relationships, and conducting of business
transactions by means of telecommunications networks (Zwass, 2003).

Due to the invention of internet, web technologies and other electronic devices, a new form of
commerce known as e-Commerce has emerged. Electronic Commerce (e-Commerce) is a set of
technologies, applications, and business processes that link businesses, consumers, and
communities for the purposes of buying, selling, and delivering products and services; as well
as for integrating and optimizing processes within and between participating entities. E-
Commerce builds on traditional commerce by adding the flexibility and speed offered by
electronic medium, thereby facilitating improvement in operations leading to substantial cost
savings, as well as increased efficiency and competitiveness through the redesign of
traditional business methods.

E-Commerce involves the application of ICTs to conduct commercial transactions between and
among organizations and individuals. It could be said to comprise of all commercial
transactions mediated by digital technology (landline telephone, fax, mobile phones,
electronic mail and Internet), between private individuals or commercial entities, which take
place in, or over, electronic networks. The object of the transactions could be tangible or
intangible. The only important factor is that the communication and transactions take place over
an electronic medium.

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DIFFERENCE BETWEEN E-BUSINESS AND E-COMMERCE

The terms „e-Business‟ and „e-Commerce‟ are often used interchangeably, but what do these
words really mean? While the meaning of the words Commerce and Business are essentially
the same in English as nouns describing organized profit-seeking activity, there is a
difference between e-Commerce and e-Business. The difference is quite artificial, but
different terms do carry different meanings.

As was mentioned earlier, e-Commerce refers to online transactions - buying and selling of
goods and/or services over the electronic medium especially the Internet. Electronic business
transactions involving money are "e-Commerce" activities.

However, there is much more to e-Business than selling products and services. What about
research, development, marketing, procurement and customer relations? To sell online
successfully, much more is required than merely having a website that accepts credit cards.
Selling online successfully requires a web site that people want to visit, accurate catalogue
information, good logistics, and much more. The term "e-Business" highlights the fact that
definition of e-Commerce was too narrow. To be successful, we need to think more broadly.

E-business goes far beyond e-Commerce or buying and selling over the Internet, and deep into
the processes and cultures of an enterprise. E-business is the powerful business
environment that is created when critical business systems are connected directly to
customers, employees, vendors, and business partners, using Intranets, Extranets, e-
Commerce technologies, collaborative applications, and the Web.

TYPES OF E-COMMERCE
Business-to-Consumer

Virtually all goods and services can be sold to customers online. Transactions of
commercial organizations selling their products and/or services directly to the consumers are
known as business-to-Consumer. In other words, it is an exchange and transaction of

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information, products or services between a business and a consumer(s). It is the interaction to
the purchase/sale of goods and services between a business and consumer(s) (i.e., retail
transactions), including tangible goods such as books, music, collectibles, clothing,
consumer electronics, real estate and airline tickets, as well as intangible services such as
financial information, health information, and digital goods. The “novelty” is that retail
transaction is done on the Internet/Web, rather than in a “brick and mortar” store location.

Business-to-Business
Business-to-Business e-Commerce refers to electronic business transactions directly
between two or more companies, relating to the purchase and sale of goods and services. In
other words, it involves electronic business transactions with other business(s), which
typically takes the form of automated processes between trading partners and is
performed in higher volumes. This is perhaps the largest form of e- Commerce based on
the value and/or volume of transactions. This is by far the most common type of e-Commerce
generally managed by larger companies that are supplying merchandise to smaller businesses
who then sell to their customers. Manufacturers, who are selling in large quantities, are a good
example of this. B2B can also encompass marketing activities between businesses, and not just
the final transactions that result from marketing, and also are used to identify sales transactions
between businesses. B2B e-Commerce focuses more on creating highly efficient and
transparent markets that would transform the structure of industry value chains.

Consumer-to-Consumer (C2C)
This model provides a way for consumers to sell to each other, with the help of an online
market maker. It is an Internet-enabled form of historical commerce in the form of barter, flea
markets, swap meets, garage/yard sales and the like.1 In other words, consumers sell directly to
other consumers. It includes any website where people are brought together to buy, sell, or
trade. Online auction such as eBay.com is a perfect example of this business model. Another
good example will be Craig-List.com in the USA.

Business-to-Government (B2G)
As the name implies, there is a form of electronic businesses transactions between
businesses and the government. In other words, government buys or provides goods,
services, or information to/from businesses or individual citizens. It may also involve

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transactions regarding various business licensing, legislative issues or reporting
requirements.

Business to Employee (B2E)

This is a model where information and services are made available to employees online. For
example, as in B2E portal, a company or organization Intranet or Extranet can be customized
for each employee. It includes specific information and personalized data such as personal
hyperlinks, stock quotes, sports scores and news clips. It could even include a video feed to
their children's day care center.

Mobile commerce (M-commerce)

In mobile commerce, wireless digital devices such as cell phones and handheld devices are used
to enable transactions on the Web. It takes traditional e-Commerce business models and
leverages emerging new wireless technologies. Key technologies are telephone network
based 3G; Wi-Fi; and Bluetooth. However, technology platform continues to evolve

E-COMMERCE AND SMALL BUSINESSES

The need for micro- and small enterprises to consider adopting e-Commerce is driven by
global, regional and national business trends. This relates to markets, costs, new technologies
and political factors including:
• Adaptation to rapid market changes that are impacting on export and domestic markets.
• Cost competition and the need to compete more effectively in both local and
international sectors.
• Globalization of the production and supply of goods and services – and the need to
integrate small enterprises more effectively into the supply chains of larger businesses.
• Increased customer expectations and consumer power – buyers expecting to be able to
access web-based information about products and services.
• Adaptation to new technologies – an overall need for technological upgrading.

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• Greater role for information in business and the need to access process and
communicate it efficiently and effectively.
• Government deregulation and liberalization – lowering costs of access.
• Bilateral and multilateral trade agreements – opening up markets to developing country
producers.
• Adaptation to higher quality standards such as ISO9000 – ICTs are acting as an enabler
in this area.

ADVANTAGES AND DISADVANTAGES OF E-COMMERCE

Modern e-Commerce/e-Business has been around since the mid 1990s, ever since the advent of
the World Wide Web. Now anyone can become a global seller of goods, services, and
information online. No longer do you need huge distribution networks and management teams
to run a successful business. We summarize below some of the well known e- Commerce
advantages and disadvantages.

A. Advantages

i. Cost Reduction Benefits:

One of the greatest benefits of e-Commerce is cost reduction benefits. It is simply the most cost
effective way to open and run a business. E-Commerce business has far fewer overheads than
traditional brick and mortar business. The cost benefits include:

• Reduced cost of establishment: There is little cost associated with establishment of e-

Commerce. Little rental expenses, employee costs, insurance, power, phone or any of the
hundred other bills that conventional store owners have to deal with on a regular basis.

• Reduced Running Cost: Low running costs and time effective management are also
benefits of e- Commerce. In Figure 4, the grey area in the chart depicts the running costs for a
typical e-Commerce business, compared to the blue area for traditional brick and mortar store.
These low running costs mean a far bigger profit margin, while staying competitive. A

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medium sized E-Commerce business can be run for $25 - $200 a month, while small to
average sized brick and mortar business will cost over $200 per square foot, per year in rent
in major business districts. When you start adding the other essential running costs
involved with the brick and mortar stores, the price of owning a business just keep increasing.

• Reduced travel costs: By using a mobile phone, email and other ICTs enabled devices to
substitute for journeys, travel cost will be greatly reduced.

• Reduced cost of materials: More information means better choice of suppliers and more
competitive prices.

• Reduced marketing and distribution costs: It is easier to market and distribute products
and services using e-Commerce. For example, publishing a brochure online can reach an
unlimited number of potential customers and allow for regular update.
• Reduced sales costs: E-Commerce provides unprecedented opportunities for businesses
to reduce the costs of trade locally and across borders.

ii. Market Benefits:

• Greater reach: A vital benefit of e-Commerce is access to global markets which

enables businesses to expand their reach. The Internet allows for unconstrained
awareness, visibility and opportunity for a business to promote its products and services
(Senn, 2000). A web presence can allow businesses to reach out to customers far beyond their
immediate location, and is open often 24 hours a day, every day. Time and distance are no
longer a problem, since customers can access product and services from anywhere in the world,
whatever time zone they live in. An e-Business doesn't need to close at the end of day;
• Improved customer service and brand awareness: With e-Commerce businesses can provide
more responsive order taking and after-sales service to customers, and therefore lead to
increased customer loyalty. E-Commerce also offers new avenues of promotion for products
and services.

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• Increased market awareness: Businesses can become more aware of competition within
their market and more aware of market changes, which can lead to
product/service innovation or quality improvement.

iii. Increased Efficiency

E-Commerce can provide substantial benefits to small enterprises via improved

efficiencies and raised revenues. E-Commerce not only reduces costs but it can also increase
the speed of buying and selling transactions. It enables a new way of working to emerge as
businesses face the future and embrace the new economy. E-Commerce enables businesses to
gain access to better quality information, and thus empowers them to take informed decisions in
their businesses. More efficient supply chain management: E-Commerce can eliminate the
need for middlemen leading to lower transaction costs (including marketing, sales, transaction
processing), reduced overhead, and reduced inventory and labor costs.

Improved internal functions: Cutting down on meetings, improving the exchange of critical
knowledge, eliminating red tape, and streamlining communications. Reduction in routine
administrative tasks frees staff to focus on more strategic activities.

Improved processes of activity – Both efficiency and effectiveness can be improved across a
wide range of activities using e-Commerce – particularly internal and external
communications (including advocacy with donors, government, etc) and procurement.

iv. Better Service Delivery

• With e-Commerce, a business will achieve improved accuracy, quality and time
required for updating and delivering information on products and/or services. E-
Commerce necessitates improved ease, speed and immediacy of customer ordering. With e-
Commerce it is not necessary to have vast quantities of stock. The store or business carries only
what is needed or better yet, carry none at all. Many suppliers will ship direct to the customers,
meaning stocking the merchandise is unnecessary.

v. Competitive Advantage:

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E-Commerce can give a competitive advantage if properly implemented. It can help strengthen
market position and open up new business opportunities with the potential of increased profits.
It can enhance market, industry or competitor intelligence acquired through information
gathering and research activities.

vi. Continuous Trading

This can be classified under market benefits. Online business gives you access to the largest
market available, with over 3 billion people currently connected and growing on a daily basis.
Access for customers to catalogues and services is on a 24 hours, 7 days a week basis. By
breaking the restraints of geographical boundaries, e- Commerce can be used to access the
global marketplace on a continuous basis. Huge difference is evident in the bar graph in Figure
5. With such a huge customer base, the potential reach of vast number of people, is one of the
greatest e-Commerce advantages

vii. Human Capital Development

E-Commerce can be used to improve business and organizational skills as well as technical
skills of the employee. The motivation and confidence of staff can be enhanced through e-
Commerce activities. With e-Commerce, information and knowledge capacity can be improved
to support marketing, communication and branding of products and services.

B. Disadvantages

As noted above, e-Commerce is generally presented in very positive terms but, along with the
potential benefits, come potential problems especially for developing countries. The few
pitfalls of going into e-Commerce are discussed below. They are the financial costs, the
business 'opportunity costs' and the dangers of failure. These disadvantages are far less than the
advantages and most can be overcome.
i. Extra Cost
Developing e-Commerce for a business will most certainly require extra costs. Initial start-up
costs (investment in a computer, network connection, bandwidth, etc) can be significant, and
there are additional running costs too. Even after start-up, e- Commerce activity will need

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to run in parallel with existing business methods (if applicable). For example, enterprises will
need to continue to produce paper-based marketing material (brochures, stationery, leaflets, etc)
as well as building up web presence. This will duplicate some activities adding to overall costs.
These costs are definite whereas the new revenue streams from e-Commerce are not,
particularly
given the relatively lower numbers of people online and with credit cards in developing
countries. Hence, many small businesses may be sceptical about e- Commerce benefits,
and should be encouraged to approach it in the step-by-step manner.

ii. Risk of Failure

Research has shown that any new business venture is likely to fail, unless careful steps were
taken to guide against it. As the dot.com boom and subsequent bust demonstrated, e-
Commerce ventures may be more likely to fail than conventional businesses. This emphasizes
the importance for small businesses to be careful and not throw all their eggs into the e-
Commerce basket. Failure can be avoided by first deciding not to adopt e-Commerce at all
or by taking a step-by-step approach that minimizes risk.

iii. Risk of Losing Focus

For conventional businesses running brick & mortar store, it is important that online and offline
efforts are not in competition with each other within a business. In fact, for most large and
medium sized enterprises, offline activities (such as face-to-face meetings) will remain far
more important than online communication. In the long term, risks can be minimised
through effective integration of online and offline activities – using e-Commerce to
complement existing business processes. In the short and medium terms, there is a risk that a
business could lose focus of its true business needs if e-Commerce is oversold. This has
happened before during the dot.com boom in the late 1990s.

Opportunity Cost
With e-Commerce, there will be risks for businesses if e-Commerce does not take off as
anticipated. Also, there are other costs involved in building capacity in the business as it relates
to e-Commerce in various ways:
i. Knowledge: improving management and staff's knowledge about e- Commerce.

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ii. Skills: gaining specific skills in using, advising and training on e-Commerce.
iii. Attitudes: developing positive but realistic attitudes towards e-Commerce among staff.
iv. Finance: affording the direct and ongoing costs of any investment in e- Commerce.

v. Risks of Ignoring e-Commerce

Technology and innovation are often described as the catalyst for change. Ignoring new
technology may have significant impact on the ways business is done in the future. For
example, having no website, or a badly designed or marketed website, may put a business at a
disadvantage compared with competitors. Over the medium and long term, unsuitable or
inadequate technology can mean that customers remain uninformed and therefore business
cannot compete effectively. The real risk to small business is NOT getting involved. Not
putting e-Business solutions into place will force small businesses to face the real threat of
declining business. Not having e-Business in place will squeeze a business out of the supply
chain by those who do business online. Some large industry firms require their suppliers to be
connected to their network. Most importantly a business may not be able to keep up with
competitors without the innovation that comes with e-Business affecting costs, sales and
eventually, revenue and profit. E-Commerce offers great benefits to any economy. As it
continues to gain acceptance in Nigeria, the initial divide between Nigerian consumers and
the rest of the global market will be bridged. Nigerian consumers will have direct contact
with merchants of their choice, in any region of the world. Nigerian businesses will also be able
to take advantage of the global reach, to open new and profitable markets for local goods and
services, in the not-too-distant future.

There is no denying the fact that by facilitating the integration of Nigeria economy and society
with rest of the world, e-Commerce will flourish in Nigeria. Today all countries are working
to achieve structural reforms in society under the key paradigms of liberalization and
globalization. The nation‟s competitive power will determine the trade and the nation‟s strength
in science and technology will play an important role to dominate the trade. All organizations
are making the best use of digitalization and use of the Internet to achieve the desired goal.
Computers and the Internet are now increasingly widely used to function as part of the
business. Transactions conducted through the Internet will have enormous implications on the

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international competitiveness of every nation, giving rise to new and exciting
opportunities in both the domestic and international arena.

vi. Sustainability
A business may be able to overcome initial investment, but it is sustainability in terms of
recurrent costs, required staffing and skills, maintenance and upkeep, that could become a
pitfall.

Technology Phobia:
The technology can be alien to owners or employees, especially those new to E- commerce.
Therefore all the normal fears and self doubts of engaging in something new and unknown is a
disadvantage. Without the e-Commerce technology, businesses remain without the tools that
they need to compete effectively. Technology should be an enabler and not a driver for the
realization of benefits, and risks need to be assessed in terms of actual costs, opportunity costs,
and the dangers of failure.

MODULE 5: NEW OPPORTUNITIES FOR EXPANSION

Science and Technology have always influenced modes, practices and procedures of business
and trade. The advancement of Science and Technology, more particularly in electronics and
internet, has profoundly influenced the conduct of business in the world. The fast changing
information technology and convergence of various communication technologies have virtually
taken the business practices by storm. The use of Internet has made the world small and through
it, business transactions are conducted globally at a faster pace. The age of connectivity has
reduced distances and brought people closer. This can be directly attributed to the development
of electronics and communication technologies.

Computers and the Internet are now increasingly widely used to function as part of doing
business. Transactions conducted through the Internet have enormous implications on the
international competitiveness of every nation, giving rise to new and exciting opportunities in
national and international industries, the governments and for individuals. In this module we

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describe the use of Internet and other electronic technologies as means of achieving New
Opportunities for Business Expansion.

WHAT IS E-BUSINESS?

Electronic Business or e-Business refers broadly to the use of technologies, particularly the
Information and Communication Technologies (ICTs), to conduct business or facilitate
improved business activities and processes, including procurement, operation, manufacturing,
marketing and sales, logistics, human resources management, finance, and research and
development. Originally, the term e-Business refers primarily to the digitally enabled
transactions and processes within an organization, involving information systems under the
control of the organization. E-business does not include commercial transactions involving an
exchange of value across organizational boundaries. These online interactions are aimed at
improving or transforming business processes and efficiency. Over time, e-Business has been
known to cover online transactions, extending to all Internet- based interactions with business
partners, suppliers and customers such as selling direct to consumers, manufacturers and
suppliers; monitoring and exchanging information; auctioning surplus inventory; and
collaborative product design.

E-Business, therefore, relates to any commercial activity that is conducted in an electronic

format including commercial transactions conducted via the Internet, telephone and fax,
electronic banking and payment systems, electronic purchasing and restocking, etc. Like the
telephone, fax, and calculator, e-Business is a tool that can enable increased productivity,
improved customer services, and reduction in costs.

E-Business is not limited to certain type of business or technology, but includes networking,
allowing sales and marketing activities, purchasing and logistics, production, education, design
and engineering to take place. The most effective use of e-Business is when a business
combines several of these activities allowing information to flow from sales, to purchasing and
production. It facilitates creating more effective external interactions with customers, clients,

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collaborators and suppliers, as well as helps improve internal business efficiency and even the
emergence of new products and services.

E-Business could be generally described as any ICT enabled system that suppliers,
distributors, or customers use, as the basis for conducting their business operations, such as:

• Communicate with clients or suppliers via email;

• Send email to other organizations to order supplies;
• Sell or promote products or services via a web site and/or email;
• Publish a web site to provide public information about the business;
• Use the Internet for online banking and paying bills;
• Research information about customers and competitors using web sites;
• Provide technical or customer service by email or web site; and
• Manage and distribute internal organization documents via an intranet.

WHAT IS E-COMMERCE?
The advances in Information and Communication Technologies (ICTs) and the emergence of
the Internet have revolutionized business activities enabling new ways of conducting business
referred to as electronic commerce (Zwass 2003; Turban, King, Lee, & Viehland, 2004).
Electronic commerce (e-Commerce) describes the process of buying, selling, transferring, or
exchanging products, services, and/or information through computer networks, principally the
Internet (Turban et al., 2004). Electronic commerce can also be described as the sharing of
business information, maintaining of business relationships, and conducting of business
transactions by means of telecommunications networks (Zwass, 2003).

Due to the invention of internet, web technologies and other electronic devices, a new form of
commerce known as e-Commerce has emerged. Electronic Commerce (e-Commerce) is a set of
technologies, applications, and business processes that link businesses, consumers, and
communities for the purposes of buying, selling, and delivering products and services; as well
as for integrating and optimizing processes within and between participating entities. E-
Commerce builds on traditional commerce by adding the flexibility and speed offered by
electronic medium, thereby facilitating improvement in operations leading to substantial cost

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savings, as well as increased efficiency and competitiveness through the redesign of
traditional business methods.

E-Commerce involves the application of ICTs to conduct commercial transactions between and
among organizations and individuals. It could be said to comprise of all commercial
transactions mediated by digital technology (landline telephone, fax, mobile phones,
electronic mail and Internet), between private individuals or commercial entities, which take
place in, or over, electronic networks. The object of the transactions could be tangible or
intangible. The only important factor is that the communication and transactions take place over
an electronic medium.

DIFFERENCE BETWEEN E-BUSINESS AND E-COMMERCE

The terms „e-Business‟ and „e-Commerce‟ are often used interchangeably, but what do these
words really mean? While the meaning of the words Commerce and Business are essentially
the same in English as nouns describing organized profit-seeking activity, there is a
difference between e-Commerce and e-Business. The difference is quite artificial, but
different terms do carry different meanings.

As was mentioned earlier, e-Commerce refers to online transactions - buying and selling of
goods and/or services over the electronic medium especially the Internet. Electronic business
transactions involving money are "e-Commerce" activities.

However, there is much more to e-Business than selling products and services. What about
research, development, marketing, procurement and customer relations? To sell online
successfully, much more is required than merely having a website that accepts credit cards.
Selling online successfully requires a web site that people want to visit, accurate catalogue
information, good logistics, and much more. The term "e-Business" highlights the fact that
definition of e-Commerce was too narrow. To be successful, we need to think more broadly.

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E-business goes far beyond e-Commerce or buying and selling over the Internet, and deep into
the processes and cultures of an enterprise. E-business is the powerful business
environment that is created when critical business systems are connected directly to
customers, employees, vendors, and business partners, using Intranets, Extranets, e-
Commerce technologies, collaborative applications, and the Web.

TYPES OF E-COMMERCE
Business-to-Consumer

Virtually all goods and services can be sold to customers online. Transactions of
commercial organizations selling their products and/or services directly to the consumers are
known as business-to-Consumer. In other words, it is an exchange and transaction of
information, products or services between a business and a consumer(s). It is the interaction to
the purchase/sale of goods and services between a business and consumer(s) (i.e., retail
transactions), including tangible goods such as books, music, collectibles, clothing,
consumer electronics, real estate and airline tickets, as well as intangible services such as
financial information, health information, and digital goods. The “novelty” is that retail
transaction is done on the Internet/Web, rather than in a “brick and mortar” store location.

Business-to-Business
Business-to-Business e-Commerce refers to electronic business transactions directly
between two or more companies, relating to the purchase and sale of goods and services. In
other words, it involves electronic business transactions with other business(s), which
typically takes the form of automated processes between trading partners and is
performed in higher volumes. This is perhaps the largest form of e- Commerce based on
the value and/or volume of transactions. This is by far the most common type of e-Commerce
generally managed by larger companies that are supplying merchandise to smaller businesses
who then sell to their customers. Manufacturers, who are selling in large quantities, are a good
example of this. B2B can also encompass marketing activities between businesses, and not just
the final transactions that result from marketing, and also are used to identify sales transactions
between businesses. B2B e-Commerce focuses more on creating highly efficient and
transparent markets that would transform the structure of industry value chains.

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Consumer-to-Consumer (C2C)
This model provides a way for consumers to sell to each other, with the help of an online
market maker. It is an Internet-enabled form of historical commerce in the form of barter, flea
markets, swap meets, garage/yard sales and the like.1 In other words, consumers sell directly to
other consumers. It includes any website where people are brought together to buy, sell, or
trade. Online auction such as eBay.com is a perfect example of this business model. Another
good example will be Craig-List.com in the USA.

Business-to-Government (B2G)
As the name implies, there is a form of electronic businesses transactions between
businesses and the government. In other words, government buys or provides goods,
services, or information to/from businesses or individual citizens. It may also involve
transactions regarding various business licensing, legislative issues or reporting
requirements.

Business to Employee (B2E)

This is a model where information and services are made available to employees online. For
example, as in B2E portal, a company or organization Intranet or Extranet can be customized
for each employee. It includes specific information and personalized data such as personal
hyperlinks, stock quotes, sports scores and news clips. It could even include a video feed to
their children's day care center.

Mobile commerce (M-commerce)

In mobile commerce, wireless digital devices such as cell phones and handheld devices are used
to enable transactions on the Web. It takes traditional e-Commerce business models and
leverages emerging new wireless technologies. Key technologies are telephone network
based 3G; Wi-Fi; and Bluetooth. However, technology platform continues to evolve

E-COMMERCE AND SMALL BUSINESSES

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The need for micro- and small enterprises to consider adopting e-Commerce is driven by
global, regional and national business trends. This relates to markets, costs, new technologies
and political factors including:
• Adaptation to rapid market changes that are impacting on export and domestic markets.
• Cost competition and the need to compete more effectively in both local and
international sectors.
• Globalization of the production and supply of goods and services – and the need to
integrate small enterprises more effectively into the supply chains of larger businesses.
• Increased customer expectations and consumer power – buyers expecting to be able to
access web-based information about products and services.
• Adaptation to new technologies – an overall need for technological upgrading.
• Greater role for information in business and the need to access process and
communicate it efficiently and effectively.
• Government deregulation and liberalization – lowering costs of access.
• Bilateral and multilateral trade agreements – opening up markets to developing country
producers.
• Adaptation to higher quality standards such as ISO9000 – ICTs are acting as an enabler
in this area.

ADVANTAGES AND DISADVANTAGES OF E-COMMERCE

Modern e-Commerce/e-Business has been around since the mid 1990s, ever since the advent of
the World Wide Web. Now anyone can become a global seller of goods, services, and
information online. No longer do you need huge distribution networks and management teams
to run a successful business. We summarize below some of the well known e- Commerce
advantages and disadvantages.

A. Advantages

i. Cost Reduction Benefits:

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One of the greatest benefits of e-Commerce is cost reduction benefits. It is simply the most cost
effective way to open and run a business. E-Commerce business has far fewer overheads than
traditional brick and mortar business. The cost benefits include:

• Reduced cost of establishment: There is little cost associated with establishment of e-

Commerce. Little rental expenses, employee costs, insurance, power, phone or any of the
hundred other bills that conventional store owners have to deal with on a regular basis.

• Reduced Running Cost: Low running costs and time effective management are also
benefits of e- Commerce. In Figure 4, the grey area in the chart depicts the running costs for a
typical e-Commerce business, compared to the blue area for traditional brick and mortar store.
These low running costs mean a far bigger profit margin, while staying competitive. A
medium sized E-Commerce business can be run for $25 - $200 a month, while small to
average sized brick and mortar business will cost over $200 per square foot, per year in rent
in major business districts. When you start adding the other essential running costs
involved with the brick and mortar stores, the price of owning a business just keep increasing.

• Reduced travel costs: By using a mobile phone, email and other ICTs enabled devices to
substitute for journeys, travel cost will be greatly reduced.

• Reduced cost of materials: More information means better choice of suppliers and more
competitive prices.

• Reduced marketing and distribution costs: It is easier to market and distribute products
and services using e-Commerce. For example, publishing a brochure online can reach an
unlimited number of potential customers and allow for regular update.
• Reduced sales costs: E-Commerce provides unprecedented opportunities for businesses
to reduce the costs of trade locally and across borders.

ii. Market Benefits:

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• Greater reach: A vital benefit of e-Commerce is access to global markets which
enables businesses to expand their reach. The Internet allows for unconstrained
awareness, visibility and opportunity for a business to promote its products and services
(Senn, 2000). A web presence can allow businesses to reach out to customers far beyond their
immediate location, and is open often 24 hours a day, every day. Time and distance are no
longer a problem, since customers can access product and services from anywhere in the world,
whatever time zone they live in. An e-Business doesn't need to close at the end of day;
• Improved customer service and brand awareness: With e-Commerce businesses can provide
more responsive order taking and after-sales service to customers, and therefore lead to
increased customer loyalty. E-Commerce also offers new avenues of promotion for products
and services.

• Increased market awareness: Businesses can become more aware of competition within
their market and more aware of market changes, which can lead to
product/service innovation or quality improvement.

iii. Increased Efficiency

E-Commerce can provide substantial benefits to small enterprises via improved

efficiencies and raised revenues. E-Commerce not only reduces costs but it can also increase
the speed of buying and selling transactions. It enables a new way of working to emerge as
businesses face the future and embrace the new economy. E-Commerce enables businesses to
gain access to better quality information, and thus empowers them to take informed decisions in
their businesses. More efficient supply chain management: E-Commerce can eliminate the
need for middlemen leading to lower transaction costs (including marketing, sales, transaction
processing), reduced overhead, and reduced inventory and labor costs.

Improved internal functions: Cutting down on meetings, improving the exchange of critical
knowledge, eliminating red tape, and streamlining communications. Reduction in routine
administrative tasks frees staff to focus on more strategic activities.

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Improved processes of activity – Both efficiency and effectiveness can be improved across a
wide range of activities using e-Commerce – particularly internal and external
communications (including advocacy with donors, government, etc) and procurement.

iv. Better Service Delivery

• With e-Commerce, a business will achieve improved accuracy, quality and time
required for updating and delivering information on products and/or services. E-
Commerce necessitates improved ease, speed and immediacy of customer ordering. With e-
Commerce it is not necessary to have vast quantities of stock. The store or business carries only
what is needed or better yet, carry none at all. Many suppliers will ship direct to the customers,
meaning stocking the merchandise is unnecessary.

v. Competitive Advantage:
E-Commerce can give a competitive advantage if properly implemented. It can help strengthen
market position and open up new business opportunities with the potential of increased profits.
It can enhance market, industry or competitor intelligence acquired through information
gathering and research activities.

vi. Continuous Trading

This can be classified under market benefits. Online business gives you access to the largest
market available, with over 3 billion people currently connected and growing on a daily basis.
Access for customers to catalogues and services is on a 24 hours, 7 days a week basis. By
breaking the restraints of geographical boundaries, e- Commerce can be used to access the
global marketplace on a continuous basis. Huge difference is evident in the bar graph in Figure
5. With such a huge customer base, the potential reach of vast number of people, is one of the
greatest e-Commerce advantages

vii. Human Capital Development

E-Commerce can be used to improve business and organizational skills as well as technical
skills of the employee. The motivation and confidence of staff can be enhanced through e-
Commerce activities. With e-Commerce, information and knowledge capacity can be improved
to support marketing, communication and branding of products and services.

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B. Disadvantages

As noted above, e-Commerce is generally presented in very positive terms but, along with the
potential benefits, come potential problems especially for developing countries. The few
pitfalls of going into e-Commerce are discussed below. They are the financial costs, the
business 'opportunity costs' and the dangers of failure. These disadvantages are far less than the
advantages and most can be overcome.
i. Extra Cost
Developing e-Commerce for a business will most certainly require extra costs. Initial start-up
costs (investment in a computer, network connection, bandwidth, etc) can be significant, and
there are additional running costs too. Even after start-up, e- Commerce activity will need
to run in parallel with existing business methods (if applicable). For example, enterprises will
need to continue to produce paper-based marketing material (brochures, stationery, leaflets, etc)
as well as building up web presence. This will duplicate some activities adding to overall costs.
These costs are definite whereas the new revenue streams from e-Commerce are not,
particularly
given the relatively lower numbers of people online and with credit cards in developing
countries. Hence, many small businesses may be sceptical about e- Commerce benefits,
and should be encouraged to approach it in the step-by-step manner.

ii. Risk of Failure

Research has shown that any new business venture is likely to fail, unless careful steps were
taken to guide against it. As the dot.com boom and subsequent bust demonstrated, e-
Commerce ventures may be more likely to fail than conventional businesses. This emphasizes
the importance for small businesses to be careful and not throw all their eggs into the e-
Commerce basket. Failure can be avoided by first deciding not to adopt e-Commerce at all
or by taking a step-by-step approach that minimizes risk.

iii. Risk of Losing Focus

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For conventional businesses running brick & mortar store, it is important that online and offline
efforts are not in competition with each other within a business. In fact, for most large and
medium sized enterprises, offline activities (such as face-to-face meetings) will remain far
more important than online communication. In the long term, risks can be minimised
through effective integration of online and offline activities – using e-Commerce to
complement existing business processes. In the short and medium terms, there is a risk that a
business could lose focus of its true business needs if e-Commerce is oversold. This has
happened before during the dot.com boom in the late 1990s.

Opportunity Cost
With e-Commerce, there will be risks for businesses if e-Commerce does not take off as
anticipated. Also, there are other costs involved in building capacity in the business as it relates
to e-Commerce in various ways:
i. Knowledge: improving management and staff's knowledge about e- Commerce.
ii. Skills: gaining specific skills in using, advising and training on e-Commerce.
iii. Attitudes: developing positive but realistic attitudes towards e-Commerce among staff.
iv. Finance: affording the direct and ongoing costs of any investment in e- Commerce.

v. Risks of Ignoring e-Commerce

Technology and innovation are often described as the catalyst for change. Ignoring new
technology may have significant impact on the ways business is done in the future. For
example, having no website, or a badly designed or marketed website, may put a business at a
disadvantage compared with competitors. Over the medium and long term, unsuitable or
inadequate technology can mean that customers remain uninformed and therefore business
cannot compete effectively. The real risk to small business is NOT getting involved. Not
putting e-Business solutions into place will force small businesses to face the real threat of
declining business. Not having e-Business in place will squeeze a business out of the supply
chain by those who do business online. Some large industry firms require their suppliers to be
connected to their network. Most importantly a business may not be able to keep up with
competitors without the innovation that comes with e-Business affecting costs, sales and
eventually, revenue and profit. E-Commerce offers great benefits to any economy. As it
continues to gain acceptance in Nigeria, the initial divide between Nigerian consumers and

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the rest of the global market will be bridged. Nigerian consumers will have direct contact
with merchants of their choice, in any region of the world. Nigerian businesses will also be able
to take advantage of the global reach, to open new and profitable markets for local goods and
services, in the not-too-distant future.

There is no denying the fact that by facilitating the integration of Nigeria economy and society
with rest of the world, e-Commerce will flourish in Nigeria. Today all countries are working
to achieve structural reforms in society under the key paradigms of liberalization and
globalization. The nation‟s competitive power will determine the trade and the nation‟s strength
in science and technology will play an important role to dominate the trade. All organizations
are making the best use of digitalization and use of the Internet to achieve the desired goal.
Computers and the Internet are now increasingly widely used to function as part of the
business. Transactions conducted through the Internet will have enormous implications on the
international competitiveness of every nation, giving rise to new and exciting
opportunities in both the domestic and international arena.

vi. Sustainability
A business may be able to overcome initial investment, but it is sustainability in terms of
recurrent costs, required staffing and skills, maintenance and upkeep, that could become a
pitfall.

Technology Phobia:
The technology can be alien to owners or employees, especially those new to E- commerce.
Therefore all the normal fears and self doubts of engaging in something new and unknown is a
disadvantage. Without the e-Commerce technology, businesses remain without the tools that
they need to compete effectively. Technology should be an enabler and not a driver for the
realization of benefits, and risks need to be assessed in terms of actual costs, opportunity costs,
and the dangers of failure.

CONCEPTS OF BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

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Ethics, in the simplest term, involves learning what is right or wrong. When this word is applied
to the world of business it is called business ethics. Simply put, business ethics involves
knowing what is right or wrong in a business environment and doing what is right with regard
to effects of products or services and in relationships with stakeholders (Gebler, 2012).
Business ethics is the applied ethics discipline that addresses the moral features of commercial
activity. According to Wikipedia (2012a), business ethics otherwise referred to as corporate
ethics represent a form of applied ethics or professional ethics that examines ethical problems
that arise in a business environment. It applies to all aspects of business conduct. The range and
quality of business ethical issues reflect the interactions of profit – maximizing behaviour with
non-economic concerns. Business ethics and the resulting behaviour are in state of constant
evolution. It is a form of applied ethics that examines just rules and principles within a
commercial context, the various moral or ethical problems that can arise in a business setting
and any special duties or obligations that apply to persons who are engaged in commerce.
Generally speaking, business ethics is a normative discipline whereby particular ethical
standards are advocated and then applied (Tabije, 2012). On the other hand, social
responsibility is an aspect of business ethics concerned with the need for business to try and
serve their local community and help its employees lead better life. Social responsibility
requires that the entrepreneur looks beyond making profits alone but pays attention also to how
to relate with the host community of his venture and his employees in a way that promotes
good will. This may take the form of sinking water borehole within the company‟s
premises and extending the taps outside the walls of the company so that members of the
community can source their drinking water there from. According to Uadiale and Fagbemi
(2011), corporate social responsibility (CSR) is a strategy for demonstrating good faith, social
legitimacy, and a commitment that goes beyond the financial bottom line. This definition
appears to be further amplified by Yusuf (2012) in his description of the concept of CSR.
According to him, CSR is a form of self-regulation, conscious attempts and self-efforts
undertaken by organizations for self preservation and enhancement of their operations. CSR,
according to him, is usually integrated into a business model for an organization to be able to
live in harmony with its operating environment. Yusuf further explained that CSR policy
functions as a built-in, self-regulating mechanism for a business entity to monitor and ensure
its adherence to laws, ethical standards, and norms and nuances of its environment. CSR when
proactively undertaken promotes the public interest by encouraging community growth and
development, and by voluntarily eliminating practices that harm the public sphere, regardless

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of legality. It is the deliberate inclusion of public interest into corporate decision-making and
the honouring of a triple bottom line known as People, Planet and Profit (Yusuf, 2012).

In a nutshell, social responsibility otherwise referred to as corporate social

responsibility (CSR) is a mode of ethics that implores the entrepreneur to act in a way to benefit
society (Pairier, 2012). It is a subcategory of business ethics. Entrepreneurs who adhere to
the principles of social responsibility make business related decisions based on the principle
that the best decision is the one that will do the most for the community hosting their ventures
and the society at large even if that means sacrificing their own personal wants and/or needs.
The goal of CSR is to embrace responsibility for the company‟s actions and encourage a
positive impact through its activities on the environment, consumers, employees, communities,
stakeholders, and all other members of the public sphere who may also be considered as
stakeholders (Wikipedia, 2012b).

Features of Business Ethics

The following are the features of business ethics as identified by Akrani (2011):

1. Code of conduct: Business ethics is a code of conduct. It tells what to do and what not to
do for the welfare of the society.

2. Based on moral and social values: Business ethics is based on moral and social
values. It contains moral and social principles (rules) for doing business. This includes self-
control, consumer protection and welfare, service to society and fair treatment to social
groups amongst others.

3. Gives protection to social groups: Business ethics give protection to different social
groups such as consumers, employees, small businessmen, government, shareholders,
creditors, etc.

4. Provides basic framework: Business ethics provide a basic framework for doing
business. It gives the socio- cultural, economic, legal and other limits of business.
Business must be conducted within these limits.

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5. Voluntary: Business ethics must be voluntary. The businessmen must accept business
ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law.

6. Requires education and guidance: Businessmen must be given proper education and
guidance before introducing business ethics. The businessmen must be motivated to use
business ethics. They must be informed about the advantages of using business ethics. Trade
Associations and Chambers of Commerce must also play an active role in this matter.

7. Relative Term: Business ethics is a relative term. That is, it changes from one
business to another. It also changes from one country to another. What is considered as good
in one country may be taboo in another country.

The Need for Business Ethics

The points below discuss the need for ethics in business:

1. Stop business malpractices: Some businessmen engage in business malpractices by

indulging in unfair trade practices like black-marketing, artificial high pricing,
adulteration, cheating in weights and measures, selling of duplicate and harmful products,
hoarding, etc. These business malpractices are harmful to the consumers. Business ethics help
to stop these business malpractices.

2. Improve customers' confidence: Business ethics are needed to improve the customers'
confidence about the quality, quantity, price, etc. of the products. The customers have more
trust and confidence in the businessmen who follow ethical rules.

3. Survival of business: Business ethics are needed for the survival of business. The
businessmen who do not follow it will have short-term success, but they will fail in the long run
when discovered by the customers.

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4. Protecting employees and shareholders: Business ethics are required to protect the interest
of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from
exploitation through unfair trade practices.

5. Develops good relations: Business ethics are important to develop good and friendly
relations between business and society.

6. Creates good image: Business ethics create a good image for the business and
businessmen. If the businessmen follow all ethical rules, then they will be fully
accepted and not criticised by the society. The society will always support those
businessmen who follow this necessary code of conduct.

7. Smooth functioning: If the business follows all the business ethics, then there will be
absence of disruption in the relationship among employees, shareholders, consumers, dealers
and suppliers. This will result in smooth functioning of the business. So, the business will grow,
expand and diversify easily and quickly. It will have more sales and more profits.

8. Consumer satisfaction: Today, the consumer is the king of the market. Any business simply
cannot survive without the consumers. Therefore, the main aim or objective of business is
consumer satisfaction. If the consumer is not satisfied, then there will be no sales and thus no
profits too. Consumer will be satisfied only if the business follows all the business ethics.

9. Importance of labour: Labour, i.e. employees or workers play a very crucial role in the
success of a business. Therefore, business must use business ethics while dealing with the
employees. The business must give them proper wages and salaries and provide them with
better working conditions. The employees must also be given proper welfare facilities.

10. Healthy competition: The business must use business ethics while dealing with the
competitors. They must have healthy competition with the competitors. They must not do cut-
throat competition. Similarly, they must give equal opportunities to small-scale business.

Ethical Principles for Entrepreneurs

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Ethical Principles are ethical values translated into active language establishing standards
or rules describing the kind of behavior on ethical person should and should not engage in
(Josephson Institute, 2010). The following principle represents the kind of behaviours
expected from every ethical entrepreneur (business executive) as presented by Josephson
Institute (2010).

1. Honesty

The virtues of honesty and truthfulness are the hallmark of ethical executives. Such
entrepreneurs do not deliberately mislead or deceive others by misrepresentations, over-
statements, partial truths, selective omissions, or any other means.

2. Integrity

In a nutshell, ethical entrepreneurs are principled, honourable and upright. They

courageously fight for their beliefs. They exhibit personal integrity and the courage of their
convictions by doing what they consider to be right even in the face of pressure to do otherwise.

3. Promise-keeping and trustworthiness

Ethical entrepreneurs make a very reasonable effort to fulfill the letter and spirit of their
promises and commitments. They are trustworthy. They call a spade by its name. They do not
interpret agreements in an unreasonably technical or legalistic manner as a means of
rationalizing non-compliance, or creating justifications for escaping their commitments.

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4. Loyalty
Ethical entrepreneurs are ever loyal to persons in their business organization and the
organization they are working for. They demonstrate friendship in adversity, and support
and devotion to duty. They do not divulge confidential information no matter what they
personally stand to gain by so doing. Such executives ensure they do not compromise their
right to independent professional judgment by guarding against undue influences and
conflict of interest. They cannot accept another employment without providing reasonable
notice to their former employer. They will ever refuse to seek cheap popularity with their new
organization through castigation of their former employers or engaging in any activities that
take undue advantage of their previous positions.

5. Fairness

Ethical entrepreneurs are fair, just, and treat individuals equally. They tolerate and accept
diversity, are willing to admit they are wrong and, where appropriate, are to change their
positions and beliefs. They do not exercise power arbitrarily, and neither use overreaching nor
indecent means to gain or maintain any advantage. They do nottake undue advantage of
another‟s mistakes or difficulties.

6. Concern for Others

Ethical entrepreneurs strive to achieve their business objectives in a manner that causes
the least harm and the greatest positive good. They treat others the way they would like to be
treated. They are caring compassionate, benevolent and kind.

7. Respect for Others

One of the traits of ethical entrepreneurs is respect for others. They show great respect for the
human dignity, autonomy, privacy, rights and interests of all stakeholders in their decisions.
They are imbued with the sense of courtesy. They treat all persons with equal respect and
dignity irrespective of gender, race, socio -economic status and race.

8. Law abiding

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Ethical entrepreneurs meticulously abide by laws, rules and regulations guiding their business
activities.

9. Commitment to Excellence

Ethical entrepreneurs are sticklers to excellence. In the performance of their duties they are
informed and prepared and always striving to increase their proficiency in all areas of
responsibility.

10. Leadership

Ethical entrepreneurs appreciate the responsibilities and opportunities of their position of

leadership. In keeping with this they strive to be positive role models by their own conduct and
by helping to create an environment in which principled reasoning and ethical decision making
are highly prized.

11. Reputation and morale

Ethical entrepreneurs appreciate the need to maintain their organizations‟ good reputation
while at the same time building the morale of their employees. They do these by engaging in no
conduct that might undermine respect and taking whatever actions are necessary to correct or
prevent inappropriate conduct of others.

12. Accountability

Ethical entrepreneurs are willing to be held accountable for the ethical quality of their decisions
and omissions to themselves, their colleagues, their companies, and their communities.

Importance of Ethics in Business

The importance of ethics in business cannot be overemphasized. They are as follows

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1. Provision of moral compass

During times of fundamental change, values that were previously taken for granted tend to be
strongly questioned. Many of such values are no longer adhered to. Leaders and staff at such
periods are left with no clear moral compass to guide them through complex dilemmas about
what is right or wrong in the business environment. It is at such moments of crises and
confusion that the beauty of business ethics manifests since the ethics provide them with the
moral compass to navigate the troubled times.

2. Ethics implicitly regulate area and details of behaviour that lie beyond
governmental control. This is necessary because much as governments use laws and regulations
to point business behaviour in what they perceive to be beneficial directions, not all areas and
details of business lie within such controls. For example, governments may establish minimum
wage but how much a worker is paid beyond the minimum wage is expected to be
addressed by business ethics.

3. To meet stakeholder‟s expectation

Stakeholders have the right to expect a business to be ethical. If business has no ethical
obligation, other institutions could make the same claim which would be
counterproductive to the corporation (Duska, 2007).

4. Definition of the rights and duties between a company and significant others.Business
ethics help to define the rights and duties between a company and its employees,
suppliers, customers and neighbours. They also help to define the company‟s fiduciary
responsibility to its shareholders (where applicable) as well as how companies should relate to
other companies or business ventures.

5. Enhancement of business performance

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Studies have shown that good CSR correlates positively with good business performance
in the long run. It must be noted that CSR is an aspect of business ethics hence this positive
correlation is seen as one between business ethics and performance.

6. Others

Other values accruing firm business ethics in general and CSR in particular include he
following identified by Akinjide – Balogun (2001). Building long – term shareholder
value, corporate financial stability and sustainability.

• Consumer and customer approval and loyalty;

• Promoting self-regulation and deterring government regulatory intervention; and

• Enhancing corporate reputation.

Application of Business Ethics and Social Responsibilities to the Operations and Success of
Ventures. In general, business ethics and social responsibility find their respective application
in day –to- day operations of ventures. With regard to business ethics, the need arises daily for
the entrepreneur to make specific judgments about what is right or wrong; what ought to be
done and what ought not to be done. These decisions call for action based on ethical
principles of the venture as well as those of the entrepreneur involved. Sometimes, the
scenario may not just be as simple as deciding on what is right or wrong. It could take such
complexity as in the case of deciding on situations where there may be conflict between the
interests of the employee, the commercial enterprise, and society as a whole. In this case,
serving the interest of one party may be detrimental to the other(s). For example, the
entrepreneur‟s decision may be good for the venture and probably the employees but against the
welfare of the larger society and vice versa. It is at such points as above that business ethics are
fallen back on to harmonize and reconcile conflicting interests.

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Furthermore, ethical issues can arise when business ventures have to generate and succeed in
an environment with conflicting legal or cultural standards. For example anentrepreneur
may be operating a business venture in a part of the country where child labour is an acceptable
practice as opposed to the situation in the entrepreneur‟s home state or region where such
practice is abhorred. The question in this case may be which of the two divergent cultures the
entrepreneur would subscribe to for the business to be successful. This again is a matter to be
resolved with predetermined business ethics. In the same token as above, social responsibility
may be applied by the entrepreneur to successfully operate his /her business venture. A number
of approaches are available for the entrepreneur who wishes to operate his/her venture to
apply CSR. These include philanthropy, incorporating the CSR strategy directly into the
business strategy of his/her organization, and creating shared value (CSV). The philanthropy
approach involves monetary donations and aid given to local organizations and
impoverished communities. However, this seems to breed dependence hence its
modification often times to community development helps in which the donor partners
with the host community to plan, implement, monitor and evaluate projects capable of
developing the community‟s human resources. Incorporating the CSR into the company‟s
business strategy may take the form of keeping a policy that makes the business venture source
certain cadres of its manpower from the host community. This creates a commensally
relationship between the business venture and the host community. The last but not the least
approach is the CSV. The shared value model is based on the idea that corporate success and
social welfare are interdependent. This approach appreciates the need to invest in developing
local manpower through scholarship schemes with a view to creating an informed citizenry
capable of enthroning good governance needed for the successful operation of their
ventures.

Social Responsibility among Business Organizations in Nigeria CSR among business

organizations in Nigeria can be assessed across all cadres of business in Nigeria ranging
from the small, micro, and medium to large business enterprises. However for the purpose of
this discourse, let us focus on the large-scale business enterprises. Within this are the
companies operating in the Nigerian oil sector, the banking sector, and the manufacturing

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sector. The most active sector in Nigeria is the oil industry. Over 70 per cent of Nigeria‟s
revenue comes from this sector. The sector has such big players as Shell, Chevron –Texaco,
Exxon Mobil, Total Elf, among others. The age long struggle by the Niger Delta people which
produced scores of militant groups agitating for social responsibility from the oil giants
operating in their areas speaks volume of their CSR failure. The above, however, does not
suggest that the oil companies are doing nothing regarding CSR. The truth however is that
a few things they are currently doing do not yet add up to what they could have done were
they operating in their parent countries. A few instances of CSR from the oil sector have
been documented. Tuodolo (2009) observed that Shell. ENI, EXXonMobil, Chevron
Texaco, Total FinaEIF and other oil transnational corporations (TNCs) are contributing to
economic growth and development through community development programmes in
health, education, transportation and agriculture amongst others in local communities. Among
the TNCs operating in the oil sector of Nigeria, Shell cannot easily be ignored hence we will try
to use their CSR in Nigeria to highlight the CSR practices in this sector in Nigeria. Shell has
the largest area of operation in Nigeria and accounts for about half of the total oil production in
Nigeria (Tuodolo, 2009). Perhaps the greatest evidence of Shell‟s CSR activities is in its
community development programmes in the local communities. Through the community
development programmes, Shell contributes to the development of education. It does so by
awarding primary, post –primary, and university scholarships to local people, building
classrooms, providing quipment and sometimes paying the allowance of post-primary school
teachers. The corporation also provides or sponsors training in such basic skills as
craftsmanship, joinery, mechanics and tailoring for some communities. Shell also plays active
role in such other areas as transportation, road construction, building of jetties, donation of
speed boats and cars, agriculture, micro credit schemes for farmers, and donation of farming
equipment to local communities. Others include training of farmers, electricity, and donation
of power plants, supply of diesel and sinking of water boreholes amongst others. Be these as
they may be however, there still remains a sore point in Shell‟s CSR practice in the Niger Delta.
This is her failure to play by the rules in areas of environmental protection. The case of the
Ogoni people that culminate in the death of the playwright Ken Saro Wiwa and others comes to
the fore. Till date, the people of the Niger Delta pays the cost of environmental degradation
in return to the above community development aid offered by Shell and other TNCs
involved in the oil sector.

117

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The case of the Nigerian banking sector appears to be different. There has always existed a
symbiotic relationship between Nigerian banks and the society over the years (Ademosu,
2008). Banks in Nigeria perceive and practice CSR as a corporate philanthropy aimed at
addressing socio-economic development challenges (Amaeshi, Ogbechi, Amao, & Adi 2006).
Even without having any social responsibility objectives enshrined in their corporate
philosophy, most banks have demonstrated understanding in their practices, behaviors and
operations (Nwankwo, 1990).

CONCEPTS OF BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Ethics, in the simplest term, involves learning what is right or wrong. When this word is applied
to the world of business it is called business ethics. Simply put, business ethics involves
knowing what is right or wrong in a business environment and doing what is right with regard
to effects of products or services and in relationships with stakeholders (Gebler, 2012).
Business ethics is the applied ethics discipline that addresses the moral features of commercial
activity. According to Wikipedia (2012a), business ethics otherwise referred to as corporate
ethics represent a form of applied ethics or professional ethics that examines ethical problems
that arise in a business environment. It applies to all aspects of business conduct. The range and
quality of business ethical issues reflect the interactions of profit – maximizing behaviour with
non-economic concerns. Business ethics and the resulting behaviour are in state of constant
evolution. It is a form of applied ethics that examines just rules and principles within a
commercial context, the various moral or ethical problems that can arise in a business setting
and any special duties or obligations that apply to persons who are engaged in commerce.
Generally speaking, business ethics is a normative discipline whereby particular ethical
standards are advocated and then applied (Tabije, 2012). On the other hand, social
responsibility is an aspect of business ethics concerned with the need for business to try and
serve their local community and help its employees lead better life. Social responsibility
requires that the entrepreneur looks beyond making profits alone but pays attention also to how
to relate with the host community of his venture and his employees in a way that promotes

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good will. This may take the form of sinking water borehole within the company‟s
premises and extending the taps outside the walls of the company so that members of the
community can source their drinking water there from. According to Uadiale and Fagbemi
(2011), corporate social responsibility (CSR) is a strategy for demonstrating good faith, social
legitimacy, and a commitment that goes beyond the financial bottom line. This definition
appears to be further amplified by Yusuf (2012) in his description of the concept of CSR.
According to him, CSR is a form of self-regulation, conscious attempts and self-efforts
undertaken by organizations for self preservation and enhancement of their operations. CSR,
according to him, is usually integrated into a business model for an organization to be able to
live in harmony with its operating environment. Yusuf further explained that CSR policy
functions as a built-in, self-regulating mechanism for a business entity to monitor and ensure
its adherence to laws, ethical standards, and norms and nuances of its environment. CSR when
proactively undertaken promotes the public interest by encouraging community growth and
development, and by voluntarily eliminating practices that harm the public sphere, regardless
of legality. It is the deliberate inclusion of public interest into corporate decision-making and
the honouring of a triple bottom line known as People, Planet and Profit (Yusuf, 2012).

In a nutshell, social responsibility otherwise referred to as corporate social

responsibility (CSR) is a mode of ethics that implores the entrepreneur to act in a way to benefit
society (Pairier, 2012). It is a subcategory of business ethics. Entrepreneurs who adhere to
the principles of social responsibility make business related decisions based on the principle
that the best decision is the one that will do the most for the community hosting their ventures
and the society at large even if that means sacrificing their own personal wants and/or needs.
The goal of CSR is to embrace responsibility for the company‟s actions and encourage a
positive impact through its activities on the environment, consumers, employees, communities,
stakeholders, and all other members of the public sphere who may also be considered as
stakeholders (Wikipedia, 2012b).

Features of Business Ethics

The following are the features of business ethics as identified by Akrani (2011):

1. Code of conduct: Business ethics is a code of conduct. It tells what to do and what not to
do for the welfare of the society.

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2. Based on moral and social values: Business ethics is based on moral and social
values. It contains moral and social principles (rules) for doing business. This includes self-
control, consumer protection and welfare, service to society and fair treatment to social
groups amongst others.

3. Gives protection to social groups: Business ethics give protection to different social
groups such as consumers, employees, small businessmen, government, shareholders,
creditors, etc.

4. Provides basic framework: Business ethics provide a basic framework for doing
business. It gives the socio- cultural, economic, legal and other limits of business.
Business must be conducted within these limits.

5. Voluntary: Business ethics must be voluntary. The businessmen must accept business
ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law.

6. Requires education and guidance: Businessmen must be given proper education and
guidance before introducing business ethics. The businessmen must be motivated to use
business ethics. They must be informed about the advantages of using business ethics. Trade
Associations and Chambers of Commerce must also play an active role in this matter.

7. Relative Term: Business ethics is a relative term. That is, it changes from one
business to another. It also changes from one country to another. What is considered as good
in one country may be taboo in another country.

The Need for Business Ethics

The points below discuss the need for ethics in business:

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1. Stop business malpractices: Some businessmen engage in business malpractices by
indulging in unfair trade practices like black-marketing, artificial high pricing,
adulteration, cheating in weights and measures, selling of duplicate and harmful products,
hoarding, etc. These business malpractices are harmful to the consumers. Business ethics help
to stop these business malpractices.

2. Improve customers' confidence: Business ethics are needed to improve the customers'
confidence about the quality, quantity, price, etc. of the products. The customers have more
trust and confidence in the businessmen who follow ethical rules.

3. Survival of business: Business ethics are needed for the survival of business. The
businessmen who do not follow it will have short-term success, but they will fail in the long run
when discovered by the customers.

4. Protecting employees and shareholders: Business ethics are required to protect the interest
of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from
exploitation through unfair trade practices.

5. Develops good relations: Business ethics are important to develop good and friendly
relations between business and society.

6. Creates good image: Business ethics create a good image for the business and
businessmen. If the businessmen follow all ethical rules, then they will be fully
accepted and not criticised by the society. The society will always support those
businessmen who follow this necessary code of conduct.

7. Smooth functioning: If the business follows all the business ethics, then there will be
absence of disruption in the relationship among employees, shareholders, consumers, dealers
and suppliers. This will result in smooth functioning of the business. So, the business will grow,
expand and diversify easily and quickly. It will have more sales and more profits.

8. Consumer satisfaction: Today, the consumer is the king of the market. Any business simply
cannot survive without the consumers. Therefore, the main aim or objective of business is

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consumer satisfaction. If the consumer is not satisfied, then there will be no sales and thus no
profits too. Consumer will be satisfied only if the business follows all the business ethics.

9. Importance of labour: Labour, i.e. employees or workers play a very crucial role in the
success of a business. Therefore, business must use business ethics while dealing with the
employees. The business must give them proper wages and salaries and provide them with
better working conditions. The employees must also be given proper welfare facilities.

10. Healthy competition: The business must use business ethics while dealing with the
competitors. They must have healthy competition with the competitors. They must not do cut-
throat competition. Similarly, they must give equal opportunities to small-scale business.

Ethical Principles for Entrepreneurs

Ethical Principles are ethical values translated into active language establishing standards
or rules describing the kind of behavior on ethical person should and should not engage in
(Josephson Institute, 2010). The following principle represents the kind of behaviours
expected from every ethical entrepreneur (business executive) as presented by Josephson
Institute (2010).

1. Honesty

The virtues of honesty and truthfulness are the hallmark of ethical executives. Such
entrepreneurs do not deliberately mislead or deceive others by misrepresentations, over-
statements, partial truths, selective omissions, or any other means.

2. Integrity

In a nutshell, ethical entrepreneurs are principled, honourable and upright. They

courageously fight for their beliefs. They exhibit personal integrity and the courage of their
convictions by doing what they consider to be right even in the face of pressure to do otherwise.

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3. Promise-keeping and trustworthiness

Ethical entrepreneurs make a very reasonable effort to fulfill the letter and spirit of their
promises and commitments. They are trustworthy. They call a spade by its name. They do not
interpret agreements in an unreasonably technical or legalistic manner as a means of
rationalizing non-compliance, or creating justifications for escaping their commitments.

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4. Loyalty
Ethical entrepreneurs are ever loyal to persons in their business organization and the
organization they are working for. They demonstrate friendship in adversity, and support
and devotion to duty. They do not divulge confidential information no matter what they
personally stand to gain by so doing. Such executives ensure they do not compromise their
right to independent professional judgment by guarding against undue influences and
conflict of interest. They cannot accept another employment without providing reasonable
notice to their former employer. They will ever refuse to seek cheap popularity with their new
organization through castigation of their former employers or engaging in any activities that
take undue advantage of their previous positions.

5. Fairness

Ethical entrepreneurs are fair, just, and treat individuals equally. They tolerate and accept
diversity, are willing to admit they are wrong and, where appropriate, are to change their
positions and beliefs. They do not exercise power arbitrarily, and neither use overreaching nor
indecent means to gain or maintain any advantage. They do nottake undue advantage of
another‟s mistakes or difficulties.

6. Concern for Others

Ethical entrepreneurs strive to achieve their business objectives in a manner that causes
the least harm and the greatest positive good. They treat others the way they would like to be
treated. They are caring compassionate, benevolent and kind.

7. Respect for Others

One of the traits of ethical entrepreneurs is respect for others. They show great respect for the
human dignity, autonomy, privacy, rights and interests of all stakeholders in their decisions.
They are imbued with the sense of courtesy. They treat all persons with equal respect and
dignity irrespective of gender, race, socio -economic status and race.

8. Law abiding

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Ethical entrepreneurs meticulously abide by laws, rules and regulations guiding their business
activities.

9. Commitment to Excellence

Ethical entrepreneurs are sticklers to excellence. In the performance of their duties they are
informed and prepared and always striving to increase their proficiency in all areas of
responsibility.

10. Leadership

Ethical entrepreneurs appreciate the responsibilities and opportunities of their position of

leadership. In keeping with this they strive to be positive role models by their own conduct and
by helping to create an environment in which principled reasoning and ethical decision making
are highly prized.

11. Reputation and morale

Ethical entrepreneurs appreciate the need to maintain their organizations‟ good reputation
while at the same time building the morale of their employees. They do these by engaging in no
conduct that might undermine respect and taking whatever actions are necessary to correct or
prevent inappropriate conduct of others.

12. Accountability

Ethical entrepreneurs are willing to be held accountable for the ethical quality of their decisions
and omissions to themselves, their colleagues, their companies, and their communities.

Importance of Ethics in Business

The importance of ethics in business cannot be overemphasized. They are as follows

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1. Provision of moral compass

During times of fundamental change, values that were previously taken for granted tend to be
strongly questioned. Many of such values are no longer adhered to. Leaders and staff at such
periods are left with no clear moral compass to guide them through complex dilemmas about
what is right or wrong in the business environment. It is at such moments of crises and
confusion that the beauty of business ethics manifests since the ethics provide them with the
moral compass to navigate the troubled times.

2. Ethics implicitly regulate area and details of behaviour that lie beyond
governmental control. This is necessary because much as governments use laws and regulations
to point business behaviour in what they perceive to be beneficial directions, not all areas and
details of business lie within such controls. For example, governments may establish minimum
wage but how much a worker is paid beyond the minimum wage is expected to be
addressed by business ethics.

3. To meet stakeholder‟s expectation

Stakeholders have the right to expect a business to be ethical. If business has no ethical
obligation, other institutions could make the same claim which would be
counterproductive to the corporation (Duska, 2007).

4. Definition of the rights and duties between a company and significant others.Business
ethics help to define the rights and duties between a company and its employees,
suppliers, customers and neighbours. They also help to define the company‟s fiduciary
responsibility to its shareholders (where applicable) as well as how companies should relate to
other companies or business ventures.

5. Enhancement of business performance

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Studies have shown that good CSR correlates positively with good business performance
in the long run. It must be noted that CSR is an aspect of business ethics hence this positive
correlation is seen as one between business ethics and performance.

6. Others

Other values accruing firm business ethics in general and CSR in particular include he
following identified by Akinjide – Balogun (2001). Building long – term shareholder
value, corporate financial stability and sustainability.

• Consumer and customer approval and loyalty;

• Promoting self-regulation and deterring government regulatory intervention; and

• Enhancing corporate reputation.

Application of Business Ethics and Social Responsibilities to the Operations and Success of
Ventures. In general, business ethics and social responsibility find their respective application
in day –to- day operations of ventures. With regard to business ethics, the need arises daily for
the entrepreneur to make specific judgments about what is right or wrong; what ought to be
done and what ought not to be done. These decisions call for action based on ethical
principles of the venture as well as those of the entrepreneur involved. Sometimes, the
scenario may not just be as simple as deciding on what is right or wrong. It could take such
complexity as in the case of deciding on situations where there may be conflict between the
interests of the employee, the commercial enterprise, and society as a whole. In this case,
serving the interest of one party may be detrimental to the other(s). For example, the
entrepreneur‟s decision may be good for the venture and probably the employees but against the
welfare of the larger society and vice versa. It is at such points as above that business ethics are
fallen back on to harmonize and reconcile conflicting interests.

127

(sir__mk)
Furthermore, ethical issues can arise when business ventures have to generate and succeed in
an environment with conflicting legal or cultural standards. For example anentrepreneur
may be operating a business venture in a part of the country where child labour is an acceptable
practice as opposed to the situation in the entrepreneur‟s home state or region where such
practice is abhorred. The question in this case may be which of the two divergent cultures the
entrepreneur would subscribe to for the business to be successful. This again is a matter to be
resolved with predetermined business ethics. In the same token as above, social responsibility
may be applied by the entrepreneur to successfully operate his /her business venture. A number
of approaches are available for the entrepreneur who wishes to operate his/her venture to
apply CSR. These include philanthropy, incorporating the CSR strategy directly into the
business strategy of his/her organization, and creating shared value (CSV). The philanthropy
approach involves monetary donations and aid given to local organizations and
impoverished communities. However, this seems to breed dependence hence its
modification often times to community development helps in which the donor partners
with the host community to plan, implement, monitor and evaluate projects capable of
developing the community‟s human resources. Incorporating the CSR into the company‟s
business strategy may take the form of keeping a policy that makes the business venture source
certain cadres of its manpower from the host community. This creates a commensally
relationship between the business venture and the host community. The last but not the least
approach is the CSV. The shared value model is based on the idea that corporate success and
social welfare are interdependent. This approach appreciates the need to invest in developing
local manpower through scholarship schemes with a view to creating an informed citizenry
capable of enthroning good governance needed for the successful operation of their
ventures.

Social Responsibility among Business Organizations in Nigeria CSR among business

organizations in Nigeria can be assessed across all cadres of business in Nigeria ranging
from the small, micro, and medium to large business enterprises. However for the purpose of
this discourse, let us focus on the large-scale business enterprises. Within this are the
companies operating in the Nigerian oil sector, the banking sector, and the manufacturing

128

(sir__mk)
sector. The most active sector in Nigeria is the oil industry. Over 70 per cent of Nigeria‟s
revenue comes from this sector. The sector has such big players as Shell, Chevron –Texaco,
Exxon Mobil, Total Elf, among others. The age long struggle by the Niger Delta people which
produced scores of militant groups agitating for social responsibility from the oil giants
operating in their areas speaks volume of their CSR failure. The above, however, does not
suggest that the oil companies are doing nothing regarding CSR. The truth however is that
a few things they are currently doing do not yet add up to what they could have done were
they operating in their parent countries. A few instances of CSR from the oil sector have
been documented. Tuodolo (2009) observed that Shell. ENI, EXXonMobil, Chevron
Texaco, Total FinaEIF and other oil transnational corporations (TNCs) are contributing to
economic growth and development through community development programmes in
health, education, transportation and agriculture amongst others in local communities. Among
the TNCs operating in the oil sector of Nigeria, Shell cannot easily be ignored hence we will try
to use their CSR in Nigeria to highlight the CSR practices in this sector in Nigeria. Shell has
the largest area of operation in Nigeria and accounts for about half of the total oil production in
Nigeria (Tuodolo, 2009). Perhaps the greatest evidence of Shell‟s CSR activities is in its
community development programmes in the local communities. Through the community
development programmes, Shell contributes to the development of education. It does so by
awarding primary, post –primary, and university scholarships to local people, building
classrooms, providing quipment and sometimes paying the allowance of post-primary school
teachers. The corporation also provides or sponsors training in such basic skills as
craftsmanship, joinery, mechanics and tailoring for some communities. Shell also plays active
role in such other areas as transportation, road construction, building of jetties, donation of
speed boats and cars, agriculture, micro credit schemes for farmers, and donation of farming
equipment to local communities. Others include training of farmers, electricity, and donation
of power plants, supply of diesel and sinking of water boreholes amongst others. Be these as
they may be however, there still remains a sore point in Shell‟s CSR practice in the Niger Delta.
This is her failure to play by the rules in areas of environmental protection. The case of the
Ogoni people that culminate in the death of the playwright Ken Saro Wiwa and others comes to
the fore. Till date, the people of the Niger Delta pays the cost of environmental degradation
in return to the above community development aid offered by Shell and other TNCs
involved in the oil sector.

129

(sir__mk)
The case of the Nigerian banking sector appears to be different. There has always existed a
symbiotic relationship between Nigerian banks and the society over the years (Ademosu,
2008). Banks in Nigeria perceive and practice CSR as a corporate philanthropy aimed at
addressing socio-economic development challenges (Amaeshi, Ogbechi, Amao, & Adi 2006).
Even without having any social responsibility objectives enshrined in their corporate
philosophy, most banks have demonstrated understanding in their practices, behaviors and
operations (Nwankwo, 1990).

MANAGING TRANSITION: FROM START UP TO GROWTH

In business, change is the way things will be different, and transition is how you move people
through the stages to make change work. Efforts at leading change, however, can be serious, if
not outright disastrous, unless the entrepreneurs manage transition. Yet managing transition
well is often the most neglected part of a change initiative (Stevens, 2008). Entrepreneurs
manage business transitions from one state to another in one or two basic ways, either the
business transforms itself i.e. do things differently, or it can replicate its existing routines,
processes and actions. The steps involved are identifying the needs, setting up the transition
team, laying out the plan, getting inputs from stakeholders, finalising the plan, clearing the
path and marking the progress of the transition by milestones. The managers should
recognise that challenges might arise in the process of transition and the same should be
resolved to ensure success.

TRANSITION IN BUSINESS AND PHASES OF BUSINESS GROWTH

The Phases of Business Growth

Most people agree that organizations have a life cycle; that, like people, businesses pass
through some identifiable stages. Some authors have identified four stages, some five, some six
while some seven. In spite of disagreement in number, the important thing is that all authors
agree that movement from one stage to the next must be managed. Failure to do this might lead
inevitably to the demise of the business.

Michael Masterson (Ready Fire Aim Book), proposed four (4) stages of business growth:
start-up/infancy, fast growth/childhood, adolescent and maturity. While Larry E. Greiner
originally proposed the Greiner Curve in 1972 with five phases of growth. Later, he added a
sixth phase (Harvard Business Review, 1998). The six growth phases are: growth through
creativity, growth through direction, growth through delegation, growth through coordination
and monitoring, growth through collaboration and growth through extra-organizational
solutions. A combination of the works of these two authors gives a better understanding in the
phases of business growth.

Phase one: Start up/infancy (growth through creativity)

An overview for this phase is that the entrepreneurs who founded the firm are busy creating
products and opening up markets. There aren't many staff, so informal communication works
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fine, and rewards for long hours are probably through profit share or stock options. However, is
more staff join, production expands and capital is injected, there's a need for more formal
communication. This phase ends with a Leadership Crisis, where professional management is
needed. The founders may change their style and take on this role, but often someone new will
be brought in.

Major functions of a Start-up Entrepreneur:

1. Mentoring and Being Mentored- Attend seminars, read books, and take advice from
successful people in the industry or a related-industry
2. Teaching everything he knows to his employees that will make the business to grow
3. Setting business targets - for him and his employees who should be focused on
increasing his customer base and improving the quality of customer service.

To transit from start up to growth, the entrepreneur must:

i. be flexible- for instance, flexible to try different marketing strategy;

ii. ask for advice from smart people;
iii. make sales his top priority; and
iv. discover their optimum selling strategy- this might be a combination of media, pricing
and quality.

Basic challenges of Start-up phase: Completing a sound business plan; pitching the
business plan with confidence to people who can help; finding the first customers; having a
team that work together well; delays in processing intellectual property protection claims;
managing cash flow effectively; finding the funding required for your business start-up costs;
insufficient cash; creating a business not a job; gaining marketplace acceptance and support –
from your family, friends and customers.

Phase two: Fast growth/childhood (growth through direction)

An overview for this phase is that growth continues in an environment of more formal
communications, budgets and focus on separate activities like marketing and production.
Incentive schemes replace stock as a financial reward. However, there comes a point when the
products and processes become so numerous that there are not enough hours in the day for one
person to manage them all, and he or she can't possibly know as much about all these products
or services as those lower down the hierarchy. This phase ends with an Autonomy Crisis: new
structures based on delegation are called for. The fast growth/childhood phase of business is
characterized by an increase in employee size and income. The main task should be on
aggressive proliferation of new products or goods and services. The manager/entrepreneur is to
focus on how to double the business revenue.
How to manage fast growth/childhood and double business revenue:

1. Create new adaptations of products/services that customers already know and love
2. Work hard
3. Work with smart people
4. Find a productive way to engage your employees so that you become a group that
reproduces great products/services
5. Increase the speed in the delivery of goods and services

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Formula for Creative Brainstorming:

1. Have a team of 3-8 persons

2. Have a limited amount of time (1-3 hours)
3. Have an agenda/goals and objectives
4. Let everyone contribute
5. Have strict rules- such as time limit for each contribution, no specific criticism, be positive
6. Encourage a culture of creativity in solving problems

Basic challenges for fast growth/childhood phase: Having the discipline to maintain a
narrow strategic focus; transitioning from owner to leader; confronting future growth;
managing cash flow effectively; founder conflicts on roles and tasks; sticking to product
schedules; building and growing a customer base; having the right business leadership skills;
and getting overwhelmed by growth.

Phase three: Adolescent (growth through delegation)

Phase 3 of business growth is the Adolescent phase. This is characterized by more employees
and revenue. The focus of the Entrepreneur is fostering growth through delegation.

Functions of the Entrepreneur:

1. Create an organizational chart or a corporate structure for the organization

2. Spend more time with the marketing manager and less time with others like 80% to 20%
3. Explain business objectives to the corporate managers, draft a report format and meet with
each one every week

Basic challenges for Adolescent phase are: Evolving from being a manager of employees to a
manager of managers; insufficient cash; keeping communications open; managing customers‟
expectations; delay in milestones delivery and running out of funds.

Phase four: Maturity (growth through coordination and monitoring)

An overview for this phase is that growth continues with the previously isolated business units
re-organized into product groups or service practices. Investment finance is allocated centrally
and managed according to Return on Investment (ROI) and not just profits. Incentives
are shared through company-wide profit share schemes aligned to corporate goals. Eventually,
though, work becomes submerged under increasing amounts of bureaucracy, and growth may
become stifled. This phase ends on a Red-Tape Crisis: A new culture and structure must be
introduced .This is the maturity phase. It is characterized by large number of
employees. The opportunities of Phase 4 business include selling your business privately, and
taking your business public.

Roles of an Entrepreneur:

1. Employee- contribute positively

2. Manager- develop procedures to get work done, supervision etc.
3. Business builder- articulate values, philosophy and vision, supervision
4. Wealth builder- determines what the company is worth and what to do to increase its worth.

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Basic challenges for Maturity phase: choosing right kind of investors; managing
customers‟ expectations and bureaucracy- team conflict.

Phase 5: Growth through collaboration

The formal controls of phases 2-4 are replaced by professional good sense as staff group and re-
group flexibly in teams to deliver projects in a matrix structure supported by sophisticated
information systems and team-based financial rewards. This phase ends with a crisis of
Internal Growth. Further growth can only come by developing partnerships with
complementary organizations.

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Phase 6: Growth through extra-organizational solutions

Greiner's recently added sixth phase suggests that growth may continue through merger,
outsourcing, networks and other solutions involving other companies. Growth rates will vary
between and even within phases. The duration of each phase depends almost totally on the rate
of growth of the market in which the organization operates. The longer a phase lasts, though,
the harder it will be to implement a transition.

Managing Transition from Start up to Growth: The STARS Model

All businesses go through natural stages of development and evolution. Businesses are
dynamic entities with somewhat predictable courses of action derived from their natural
product/industry growth cycle and their specific current business situations. A business must
adjust and adapt to survive – no matter the economy. They need to understand and be
responsive to changes in the marketplace. This requires strong leadership, a strategic plan and
good information about the marketplace among others. This means that business owners must
make necessary changes from time to time and know how to anage transition effectively. The
number one reason why most businesses (small and large) are failing today is that they do not
recognize the need for a transition nor did they manage the transition effectively. Some
business leaders, who know that there is a need to manage transition, do not know where to get
started and how to make the changes that will ultimately lead to sustainable business success.
Where to start is to acknowledge that all business ventures must have a start–up.

The STARS Model

The STARS model (drawn from Watkins 2003 and 2009)

The STARS model (Watkins 2003, 2009) in the Figure provides a perspective on business
evolution and development that identifies the most common business transition:

• Startup
• Turnaround
• Accelerating growth
• Realignment
• Sustaining success.
The ability to navigate successfully in each situation is crucial to the success of individual
businesses. These basic concepts were developed by Michael Watkins, Professor at Harvard
Business School, and have been applied to business analysis and development, group
management, leadership transitions, and career planning.

Start-up stage: When starting a business, your focus should be on generating cash, gathering
skilled labour for your business, product and marketing development, securing adequate
inventory, and acquiring production technology. The challenges are in designing new
production systems and business structures, selecting business strategies, recruiting, and
building teams, all with limited resources. These are some of the most important aspects to be
effectively managed during the start- up phase:

• Have good vision, get your vision right, get your strategies right and get your action plans
right.
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• Assemble a talented business team.
• Gather sufficient capital and operating cash.
• Work to remove problems in your production system.

Turnaround stage: A turnaround is critical when there is a need to save a failing business. It is
similar to radical surgery to save the life of the business. The focus should be on business
restructuring and obtaining external advice as needed. It is a period when employees may be
demoralized and facing layoffs, when decisions have to be made under time and financial
pressures. A turnaround may still fail, due to poor handling of required changes of the new
management in the form of wrong decisions, inappropriate timing, no sense of urgency/
slackness, or complacency.

Thus, what you need is to re-evaluate your business plan and make the necessary changes to the
strategies, markets, products, or technologies that are not working. More importantly, you need
to:

• Learn and understand what went wrong in the business and communicate it to your
employees
• Remove any non-core business activities
• Make faster and bolder moves
• Clean house at the top
• Secure early wins
• Create supporting alliances

Managing and accelerating growth: There are times when entrepreneurs have to deal with the
challenges and opportunities of increasing demand. Opportunities arise from a
demonstrated potential for growth, which help to motivate stakeholders through earnings,
revenues or bonuses. Your focus should be on managing the pressures of scaling up
production by ensuring the resources required, improving the existing systems, and creating
new business structures. A good example is Ball Horticultural Company (www.ballhort.com), a
major producer and distributor of ornamental plants and seeds, has been in business for over
100 years. After WWII, the company started a major phase of expansion and accelerating
growth based on mergers and acquisitions strategies, diversification, and the development of
new products and new markets. Currently Ball operates in publishing, biomedical research,
marketing, and plant production in over 20 countries.

Modify your business model for quicker response to market needs as follows:

• Organize to learn what is working

• Improve production systems
• Design new business structures as a way to ensure financing for expansion
• Implement new technologies
• Integrate new employees
• Establish priorities and focus on a few vital goals
• Build team leadership.

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Sustaining growth/success: Some businesses reach their desired level of growth/success but
struggle to sustain it. Sales are adequate, and the business is performing well, with a strong and
experienced team or teams and production lines. The positive impact is that employees and staff
are motivated to continue their history of success. The focus should be on business- model
innovation – developing a persistent competitive advantage through continuous
improvement of the business model. An emphasis on innovative new products and plant
quality has also helped companies to sustain their successes.

In order to sustain growth/ success, you also need to:

• Focus on your most productive areas for innovation

• Provide sustained benefits for all stakeholders
• Expand business-model innovation
• Pursue higher potential business-model improvements
• The entrepreneur should put in place: marketing plan and marketing strategies; a
financial planning; a production plan; and a business plan.

Transition Managers and the Transition Management Process: Transition managers are in a
unique position to facilitate the Transition Management Process, working simultaneously with
new business development project teams, divisional interfaces and senior management. The
steps to guide this process include:

• Setting/managing expectations among the interfaces including senior management

and the project team;
• Encouraging open discussions about the challenges of transition;
• Establishing the strategic context for managing innovations;
• Identifying transition stages and issues;
• Building the transition management plan; and
• Facilitating business transition process.

Pitfalls in Managing Transitions from Start up to Growth: Success in business is never

automatic. Starting a business is always risky, and the chance of success is slim. According to
the U.S. Small Business Administration, over 50% of small businesses fail in the first year and
95% fail within the first five years. The short answer is, regardless of the industry, failure is the
result of either the lack of management skills or lack of proper capitalization or both. The
common causes of failure in business transitions include:

• Choosing a business that isn't very profitable

• Inadequate cash reserves
• Failure to clearly define and understand your market, your customers, and your
customers' buying habits
• Failure to price your product or service correctly
• Failure to adequately anticipate cash flow
• Failure to anticipate or react to competition, technology, or other changes in the
marketplace
• Overgeneralization
• Over reliance on a few key customers
• Putting up with inadequate management
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• Lack of experience of managers
• Poor cash flow management
• Absence of performance monitoring
• Over borrowing and poor debtor management
• Lack of financial skills and planning
• Failure to innovate
• Poor inventory management
• Poor communications throughout the organization
• Competition
• Poor location and low sales
• Over investments in fixed assets
• Personal use of business funds and
• Unexpected growth (Mason, 2012).

What to Expect Beyond Business Growth: Beyond the growth and success of a business comes
in the danger of bureaucracy. If the root cause of bureaucracy is not quickly detected and
eliminated, the business will likely experience a decay which will lead to its fall or shut down .
More than this, the entrepreneur can anticipate problems and bureaucracy before they
occur, so that he can meet them with pre-prepared solutions which will lead to the renewal of an
organisation .

DECISION MAKING IN BUSINESS TRANSITION

A decision is a choice made from at least two alternatives while decision- making involves the
selection of one alternative from two or more possible alternatives, based upon some
criteria. Decisions can either be programmed or non-programmed. However, to make an
effective decision, a manager should create a constructive environment, generate good
alternatives, explore these alternatives, choose the best alternative, check the decision,
communicate the decision, and take necessary actions.

Definition of Decision Making: Decision-making is the process of identifying and selecting a

course of action to solve a specific problem. Decision-making involves the selection of one
alternative from two or more possible alternatives, based upon some criteria. Decision-
making is the art and science of giving thought to, and making a choice or judgment about an
idea or a problem.

Which machine do we buy? When should we computerize? How do we cope with declining
productivity? How do we adjust to a new government regulation? All of us have to make
decisions every day. Some decisions are relatively straightforward and simple: Is this report
ready to send to my boss now? Others are quite complex: which of these candidates should I
select for the job?

Simple decisions usually need a simple decision-making process. But difficult decisions
typically involve issues like these:

• Uncertainty - Many facts may not be known.

• Complexity - You have to consider many interrelated factors.
• High-risk consequences - The impact of the decision may be significant.
• Alternatives - Each has its own set of uncertainties and consequences.
• Interpersonal issues - It can be difficult to predict how other people will react.
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With these difficulties in mind, the best way to make a complex decision is to use an effective
process. Clear processes usually lead to consistent, high-quality results, and they can improve
the quality of almost everything we do. A decision is a choice made from at least two
alternatives. The selection is based upon some criteria, such as:
i. winning a greater market-share
ii. reducing the cost of operations
iii. saving time
iv. improving customer service on the counter
v. enlarging the image or prestige of the organization.

Throughout the career of a manager, therefore, he must make several decisions, on a daily
basis. The more it is done, the more expertise the manager acquires. Four possible situations
usually alert the manager that there is a problem that require a decision to be made.
? A deviation from experience.
? A deviation from existing plans.
? External sources, e.g. customers, clients, etc.
? The performance, or lack of it, from competitors.
The Characteristics of Decision-Making
• Decision-making permeates all management.
• It is essential to the operation of the management process in any form of
organizational setting.
• It involves judgment.
• It includes risk and uncertainty, since it deals with future values.

The basic process of rational decision-making involves diagnosing and defining the
problem, gathering and analysing the facts relevant to the problem, developing and
evaluating alternative solutions to the problem, seeking the most satisfactory alternative, and
converting this alternative into action.

Conditions under which Managers make Decisions

In general, managers make decisions under three possible conditions, namely: certainty, risk
and uncertainty. Each of these conditions is briefly discussed below.

i. Decision-making under conditions of certainty: Under conditions of certainty, a

manager will have had enough information to know exactly what the outcome of his decisions
will be. With enough information at his disposal, it simply becomes convenient for him to
act as if a condition of certainty exists. The results or outcomes of such decisions are known
with certainty.

ii. Conditions of risk: Conditions of certainty are the exception rather than the rule in
today's complex, rapidly-changing business organisations. Under this, managers can know the
probability of each of the various possible outcomes associated with a decision, even
though they cannot be completely certain which particular outcome will actually occur.

iii. Conditions of uncertainty: When the exact probabilities attached to the alternatives
available to a decision-maker are unknown, a condition of uncertainty is said to exist. Most
managerial decisions involve varying degrees of uncertainty. There are usually too many
variables, or too many unknowns that can affect a decision, for managers to be able to precisely
predict its outcome. When such cases arise, managers must use their experience, judgment and
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intuition to assign approximate probabilities to each of the alternatives available. By so doing,
they will be able to narrow the range of choices and simplify the decision.

The importance of decision-making in industrial organizations is indicated by the frequent

assertion that decisiveness is one of the necessary requirements of the successful executive. By
this is meant the ability to act definitely and to direct the efforts of others accurately and
without hesitancy. The quality of this decision-making resulting from the laid-down process is a
measure of the executive's leadership ability.

BUSINESS CONTROL

Managers control their organizations by continually monitoring the use and performance of
resources especially money and people. The business control process involves several
activities: establishing performance standards; reporting or monitoring performance;
comparing performance against standards; identifying unsatisfactory performance; and
pursuing appropriate action to correct significant deviations in performance.

What is business control? This is the process of measuring and correcting the activities of
subordinates to ensure that plans are completed and goals are achieved. Control is
implemented by comparing actual results to planned results and correcting any significant
differences. Managers control their organization by continually monitoring the use and
performance of resources especially money and people. It is the final part of the management
process, after planning, organizing and directing, is the controlling function in which
employee performance is monitored.

Controlling can be defined as the task of ensuring that the firm‟s objectives are being
achieved. It entails establishing standards, comparing performance against these standards and
correcting deviations. Standards are set during the planning process. Standards form part of the
objectives of the company. Standards are therefore set as at the time the objectives are set. The
control process can therefore be said to start with the formulation of objectives.

Different types of control include the following:

1. Financial control
2. Inventory control
3. Quality control
4. Credit control

Controlling Techniques
A variety of tools and techniques have been used over the years to help managers in
controlling their operations. Three of such tool which shall be discussed here are:
1. Budgeting
2. Break-even analysis
3. Financial analysis

Establish Business Controls to Focus on Goals

Controls place accountability within the business. Some employees may feel that controls are
restrictions. However, the success of the company and the employees‟ pay depends on the
business success. The controls are not meant to be a trap, but rather a quick check to allow
everyone to do the job right.
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A control system is objective and can provide a systematic and routine measure of
performance on an on-going basis on the products and services of the business. Many small
businesses lack proper control systems because they are focused on production or service
issues. Having a control system allows you to monitor, measure and adjust where necessary
your organization‟s performance, whether it be sales, production capabilities, or
general efficiencies. In other words, the purpose of business control is to identify
unfavourable business performance so that appropriate actions can be undertaken. The business
control process involves several activities:

• establishing performance standards;

• reporting or monitoring performance;
• comparing performance against standards;
• identifying unsatisfactory performance; and
• pursuing appropriate action to correct significant deviations in performance.

Control of business activities

Control of business activity takes place at two levels - control from within the organisation and
external control.

Internal control
Internal control involves the creation of management systems to control business activity. For
example, there will be control systems:
• for managing the consistency and quality of products coming off a production line
• for the management of waste and pollution
• for monitoring employee absence rates
• to ensure that the best candidates are recruited to a company, etc.

External control involves the use of external auditors and independent assessors among others.

PERSONAL DISCIPLINE IN BUSINESS TRANSITION

Self-discipline will ensure that your thoughts are translated to actions during the most
difficult times in business. It involves deciding what you want, writing it down, setting a
deadline, organising the lists of things to do to achieve your goal by sequence and priority,
taking steps daily in the direction of the goal
Meaning of Personal Discipline
Self-discipline means doing what needs to be done, when it needs to be done, whether you like
it or not. It is for this reason self-discipline is required for starting and growing a
business, it will get you through all the difficult obstacles that will get in your way.

(Patience + Motivation + Determination = Self Discipline)

Successful entrepreneurs are usually hard-driving and highly focused on some specific goals. It
is indiscipline for entrepreneurs to talk for hours about all their ideas, and how they intend to
change the world, but without any specific goals or milestones. Many entrepreneurs are very
hesitant to set specific goals, due to lack of self-confidence or whatever. The result is that they
don‟t ever get anywhere, because they never really knew where they wanted to go. All
entrepreneurs need to exercise self-control to ensure success. How to Capitalize on the
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Positives and Minimize the Negatives to Entrepreneurial Spirit A little self-discipline added to
the wonderful creativity and passion of the entrepreneurial spirit will help the entrepreneur to
achieve business success.

Here are some suggestions for the self-disciplined entrepreneur:

 Keep staff on track with the vision and mission of your business.
 Find an accountability partner.
 The more successful the entrepreneur is in his business, the more opportunity is
created for him to be able to do other things.
 The entrepreneur needs to have adequate funding, a stable competent team, strong
systems and processes, and excitement behind his vision.

Entrepreneurs and Tips for Self-Discipline

i. Decide exactly what you want. If you want to increase your income, decide on a specific
amount of money, rather than just “make more money.”

ii. Write it down. A goal that is not written down is like cigarette smoke; it drifts away and
disappears. It is vague and insubstantial. It has no force, effect, or power.

iii. Set a deadline with specific milestones. Pick a reasonable time period and write down
the date when you want to achieve it.

iv. Make a list of things you need to do to achieve your goal. The biggest goal can be
accomplished if you break it down into enough small steps. Schedule your day the night
before.

v. Organize your list by both sequence and priority. A list organized by sequence requires
that you decide what you need to do in what order.

vi. Take action on your plan immediately. Don‟t delay. Move quickly. Procrastination is
the thief of time, and it shortens your life. Finish the most difficult tasks early in the day.

vii. Do something every day that moves you in the direction of your major goal. This is the
key step that will guarantee your success.
viii. Avoid distractions. Turn off any distractions like cell phones, email, internet, or
social media. Use of internet, computer, your iPhone, iPad, and laptops are beneficial but don‟t
waste your time browsing irrelevant materials on- line.

Benefits of Entrepreneurial Self Discipline

• Self-discipline will ensure that the entrepreneur‟s thoughts are translated to actions
during the most difficult of times. Self-discipline must be cultivated.
• Self-discipline will help the entrepreneur accommodate additional responsibilities.
• Discipline will make the entrepreneur dependable, both for himself and others.
• It will aid in building character by keeping the entrepreneur in the fight as difficult as it
may be to ensure that his goals are fulfilled.
• It will help the entrepreneur have a strong desire and passion
• Discipline helps the entrepreneur learn to manage stress and allow him think critically
and clearly about the task at hand in any environment.
• It keeps the entrepreneur in focus and does not let external factors distract him from his
original goals.
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• It leads to judicious use of the limited resources and helps the entrepreneur have the will
power not to be distracted by momentary desires.

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