SMALL BUSINESS DEVELOPMENT

 SMALL BUSINESS DEVELOPMENT

1. Definition

The small business nomenclature (SMEs) is used to mean micro, small and medium

enterprises. It is sometimes referred to as micro, small and medium enterprises MSMEs). The

SMEs cover non-farm economic activities mainly manufacturing, extractive, commerce and

services.

There is no universally accepted definition of SME. Different countries use various measures

of size depending on their level of development. The commonly used yardsticks are total

number of employees, total investment and sales turnover.

In the context of Tanzania, micro enterprises are those engaging up to 4 people, in most cases

family members or employing capital amounting up to Tshs.5.0 million. The majority of

micro enterprises fall under the informal sector. Small enterprises are mostly formalized

undertakings engaging between 5 and 49 employees or with capital investment from Tshs.5

million to Tshs.200 million. Medium enterprises employ between 50 and 99 people or use

capital investment from Tshs.200 million to Tshs.800 million. This is illustrated in the table

below:

2. CATEGORIES OF SMEs IN TANZANIA

Category Capital investment (Tshs.) Number of employees

Micro Up to - 5 million 1- 4

Small Above 5 -200 million 5- 49

Medium Above 200- 800 million 50- 99

Large enterprise Above 800 mil. 100 +

N.B. In the event of an enterprise falling under more than one category, then the level of

investment will be the deciding factor.

2. 1. Importance of Small and Medium Enterprises

(a) Employment creation: It is estimated that about a third of the GDP originates from the

SME sector. According to the Informal Sector Survey of 1991, micro enterprises operating in

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the informal sector alone consisted of more than 1.7 million businesses engaging bout 3

million persons that was, about 20% of the Tanzanian labour force.

Though data on the SME sector are rather sketchy and unreliable, it is reflected already in

the above data that SME sector plays a crucial role in the economy. Since SMEs tend to be

labour-intensive, they create employment at relatively low levels of investment per job

created.

At present, unemployment is a significant problem that Tanzania has to deal with. Estimates

show that there are about 700,000 new entrants into the labour force every year. About

500,000 of these are school leavers with few marketable skills. The public sector employs

only about 40,000 of the new entrants into the labour market, leaving about 660,000 to join

the unemployed or the underemployed reserve. Most of these persons end up in the SME

sector, and especially in the informal sector. Given that situation and the fact that Tanzania is

characterised by low rate of capital formation, SMEs are the best option to address this

problem.

(b) Utilisation of local resources: SMEs tend to be more effective in the utilisation of local

resources using simple and affordable technology. SMEs play a fundamental role in utilising

and adding value to local resources. In addition, development of SMEs facilitates distribution

of economic activities within the economy and thus fosters equitable income distribution.

Furthermore, SMEs technologies are easier to acquire, transfer and adopt. Also, SMEs are

better positioned to satisfy limited demands brought about by small and localised markets due

to their lower overheads and fixed costs. Moreover, SME owners tend to show greater

resilience in the face of recessions by holding on to their businesses, as they are prepared to

temporarily accept lower compensation.

(c) Distribution to big businesses: Through business linkages, partnerships and

subcontracting relationships, SMEs have great potential to complement large industries

requirements. A strong and productive industrial structure can only be achieved where SMEs

and large enterprises not only coexist but also function in a symbiotic relationship. However,

the linkages between SMEs and large enterprises are very weak in Tanzania. SME

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development Policy, therefore, creates the potential for enhancing linkages within the

economy.

In addition, SMEs serve as a training ground for entrepreneurship and managerial

development and enable motivated individuals to find new avenues for investment and

expanding their operations.

(d) Developing new ideas: Small businesses invent new and better products. Many products

of today came out because a business owner saw a need and searched for a way to meet it.

(e) Performing services: Small businesses often do better than big business in providing

services that require personal contact with customers. When shopping for services such as

dry cleaning, hair styling, portrait photography, travel plans, and auto repairs, customers are

often more interested in personal service than price. Therefore, they are more likely to go to

a small business first.

3. SMALL BUSINESS CULTURE

There is an important cultural difference between small and large firms which researchers,

scholars and decision makers must be conscious of. Small businesses have different ways of

reasoning and operating than larger ones. Faults in small business policies and regulations

sometimes arise from the assumption that small and large businesses are the same except for

their sizes. The failure of many traditional financial institutions to work with small firms is

also attributable to the use of the bureaucratic/corporate values in relation to entities that do

not subscribe to them. Typical “cultural” differences between government/corporate

bureaucracies and the way small firms operate and behave can be summarized as follows:

Key differences between government (corporate) and small business culture

Government/corporate culture Small business culture

Order Untidy

Formality Information

Accountability Trusting

Information Personally observing

Clear demarcation Overlapping

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Planning Intuitive (spontaneous)

Corporate strategy Tactically strategic

Control measures Personally led

Formal standards Personally observed

Transparency Ambiguous

Functional expertise Holistic

Systems Reliant of ‘feel’

Positional authority Owner managed

Formal performance appraisal Customer/network exposed

It must be noted that the SME sector is fairly mixed and individual firms are at different

stages of development. Hence even their cultural stage and their closeness to the corporate

culture will vary from business to business.

ACTIVITY 1

List up to 10 businesses in your community that would be considered small businesses

according to the characteristics listed above. For each business identify the types of goods

sold or services offered by each business.

4. TYPES OF SMALL BUSINESS

(a) Extractive enterprises

These are enterprises that grow products or take raw materials from where they are

found in nature. Some of the kinds of businesses in this field are agriculture, forestry,

mining, and commercial fishing. Some small business examples of extractive

enterprises are:

1. Horticultural farms in rural areas

2. Growers of flowers used for special occasions and decorations,

3. Sand and gravel companies that provide products for highway and building

construction

4. Coal mining for home or industrial fuel

5. Cutters and sellers of firewood to homeowners who have wood- burning stoves

and fireplaces

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(b) Manufacturing

Manufacturing businesses take raw materials and change them into a form that

consumers can use. A picture frame manufacturer takes wood and glass and makes a

finished product. A baker changes flour, sugar, and spices into bread and cakes.

Manufacturing, more than any other field, lends itself to big business. This is because

it takes large sums of money and a lot of workers to start many of the businesses. To

make cars, for example, you need equipment and materials worth millions of shillings

and hundreds of trained workers.

However, there are still opportunities for small business owners in manufacturing

such as in printing shops, bakeries, soft drink, bottling plants, machine shops, and

meat-packing plants. Local; crafts people and artisans who make jewelry and

furniture are also manufacturers

(c) Wholesaling

Wholesalers buy goods from extractive or manufacturing businesses and sell them to

other businesses. They usually buy in large quantities and then sell in small

quantities. For example a manufacturer of sugar might sell 3,000 bags to one

wholesaler. The wholesaler, in turn may sell 60 bags to each of 50 retailers. Finally,

the retailers will sell the sugar in kilos to customers. Many wholesaling firms are

small businesses and have only a few employees. Some wholesalers are usually the

source of supply for many items sold in the retail stores, such as hardware, stationery,

groceries, fruits, and vegetables. Some provide equipment and supplies for barber

and beauty shops. Others handle laboratory or office equipment for professionals

such as doctors and dentists

(d) Retailing

Retailers buy products from wholesalers, manufacturers, or extractive enterprises and

sell them to customers. Most people think of retail business as being a store where

they can go to buy goods. The most common form of retailing is over-the –counter.

This involves having a store where customers come to shop and buy what they want

from the retailer’s stock. There are many examples of small retail businesses which

include clothing stores, shoe stores, building materials stores, car parts dealers,

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furniture shops and appliance and TV stores. Other examples are restaurants, antique

shops, record shops, and jewelry stores.

(e) Services

Of all the fields, business priority services are generally the easiest to start. They can

usually be started with very little money. Many can be operated from the home or

from a small officer or shop. Examples are typewriting, accounting services, bicycle

repair, and small appliance repair services.

Small enterprises offer hundreds, of different kinds of services to consumers, other

businesses and government agencies. Services can be grouped in the following

categories:

(a) personal services

(ii) business services

(iii) repair services

(iv) entertainment and recreation services, and

(v) hotel and lodging services

‘ (i) Personal Services

Businesses offering personal services perform work directly for a person.

These include beauty and barber shops, laundry and dry cleaning

establishments, photography studios and travel agencies. Other examples are

day-care centres, baby –sitting services, music teachers and car driving

instructors.

(ii) Business services

Tasks performed by one business firm for another are called business services.

These include advertising agencies, building maintenance services, store and

building security firms, temporary employee services, and equipment rental

businesses. Sign shops, accounting firms, and delivery services are also

included in this group.

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(iii) Repair services

The repair services group includes enterprises that perform work on goods

owned by the customer. Examples are businesses that repair cars, bicycles,

motorcycles, home appliances, and lawn mowers. Furniture repair shops,

plumbers, electricians, and floor covering installers also fall in this category.

(iv) Entertainment and Recreation Services

Enterprises in the entertainment and recreation services category serve

customers in search of fun and fitness. Examples include swimming pools,

motion picture theatres, music and dancing.

(vi) Hotel and Lodging Services

Lodging for persons on business or pleasure trips is provided by hotel and

lodging enterprises. Examples are hotels, restaurants and other recreational

camps.

These services categories are provided to give you an idea of the wide range of

tasks performed by services business owners. There are many more.

ACTIVITY 2

Identify examples of extractive, manufacturing, wholesaling, retailing and service

businesses located in you community. Indicate the products or services each produces

or sells

5. WHO IS A BUSINESS OWNER?

The term business owner refers to any person who owns and operates any business. If

you start a business, or buy one that someone else started, you are a business owner.

Most countries depend on thousands of business owners for supplying the products

and services needed. Business people sometimes refer to products as goods. You

purchase goods or products every day when you eat lunch, visit the grocery store,

shop for clothing or buy a soft drink.

Services are tasks we pay others to do for us. You are using services when you call a

plumber, go to a hair stylist, or have your car repaired. An establishment that supplies

us with goods and services in exchange for payment is a business.

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1. Business ownership is the act of creating a new business. To create is to cause

something to come into being. This exactly what the business owner does by

organizing, managing, and assuming responsibility for the new business.

Organization is the process of gathering the money, people, and machinery needed to

get the business started. Managing involves seeing that the day-to-day tasks are

performed in the proper way. Assuming responsibility means that one makes

sacrifices for the enterprise. This may include working twelve hours a day and having

little time to spend with family and friends. However, once the business is successful,

the business owner will profit from these efforts.

6. SKILLS THAT SUCCESSFUL BUSINESS OWNERS SHOULD POSSESS

In order to be a successful business owner one should be knowledgeable and have

skills in the following areas.

a. Technical

Technical skills include:

(i) The manual skills or knowledge required to do a job

(ii) The product knowledge often found in the service industries and retail outlets.

b. Record keeping

This is a skill which often arises from an orderly mind. The term is intended to

cover all aspects of business records, i.e. delivery notes, invoices, banking etc.

c. Marketing and selling

 This skill can be expressed in several ways; it may be seen as:

 (i) customer population research

 (ii) product or service suitability

(iii) Pricing policies

(iv)A personal oral skill

The end result, no matter which combination of approach is chosen, is to influence the

potential customer to place an order.

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d. Material

It is necessary to be a generalist rather than a single- minded specialist.

Two important aspects of this skill are the ability to:

(i) recognize when external professional assistance is required;

(ii) plan ahead

7. PERSONAL QUALITIES THAT BUSINESS OWNERS SHOULD

DEVELOP

In order to be a successful business owner you should develop the following qualities

(a) Be able to work long hours

Establishing a fixed work pattern is often difficult, and particularly so for

tradesmen. Long hours are only part of the difficulty, unsocial hours are often

necessary. The work available may be spasmodic, varying between periods of

intense activity and having nothing to do.

(b) Stick with a task

You must stick with a task either to provide necessary customer satisfaction or to

solve unforeseen problems. Self – employed persons can seldom afford to “walk

away and forget it” as an employed person might.

(c) Organize oneself

Particularly important in running a business. Some priorities are self evident but

other activities have to be organized, as for instance, entering items in Books of

Accounts.

(d) Calculate risks

This really involves looking at a problem or proposition from more than one point

of view and determining the probability of risk and the consequences which may

occur.

(e) Make decisions

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A very difficult ability for many people to acquire. Qualities of decision making

range from the hasty on-the-spot type, to making a decision that has been well

considered.

(f) Be punctual

Customers expect varying levels of service but few will easily accept lack of

punctuality, and particularly where their other arrangements are disturbed or need

revising.

(g) Fulfill promises made

Satisfied customers will return and will relate experiences to their friends.

Fulfilling promises is one of the corner-stones in customer relations.

(h) Be determined

In this context, it is the determination to succeed which is referred to, and might

be described as resilience in the face of adversity. The will to succeed needs to be

sustained at all times.

(i) Remain optimistic

A self-employed person is subjected to a number of pressures from a variety of

external sources. Customers, family and legislation each pose problems which

have to be dealt with. All those have to be absorbed without becoming

despondent. Optimism is a vital quality for the self-employed.

(j) Commitment

It binds all the previous qualities together to form a single – minded purpose.

Success is not possible without it

ACTIVITY 3

Now that you have learned about some of the characteristics of successful business

owners, fill in the Personal characteristics Assessment given below. The ideal

business personality would probably answer “Mostly or Yes” to all the questions

except numbers 4, 10 and 15. Even if you do not match this, it doesn’t mean you are

unsuited to starting your own business. All you need is to develop those

characteristics you are lacking. Complete the following activity to determine the

characteristics that you may need to develop.

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Personal Characteristics Assessment

Instructions. This assessment will help you compare your personal characteristics to

the characteristics that business owners tend to exhibit. Put X under the response you

feel best describes you.

Rarely

or NO

Mostly

or YES

1. Do you like taking chances?

2. Do you like school?

3. Do you like making your own decisions on the job?

4. Do you get bored easily?

5. Do you sleep as little as possible?

6. Do you feel unexpected energy when you tackle things

that you like?

7. Do you finish what you start?

8. Do you take risks for the thrill of it?

9. Do you plan your tasks before getting started?

10. Do you find it easy to get others to do something for you?

11. Do you worry about what others think of you?

12. Do you enjoy doing something just to prove you can do

it?

13. Do you find yourself constantly thinking up new ideas?

14. Do you like to take care of details

15. Do you believe there should be security in a job?

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8. FORMS OF BUSINESS ORGANISATIONS (OWNERSHIP)

INTRODUCTION

After completing you training, you may decide that you will not be employed but will

start your business and become self-employed. We learned that one of the factors to

be considered before starting a business is the form of business ownership. In selfemployment you could start a business on your own or you might agree with others to

start the business. This topic is intended to assist you to know about:

(a) The types of business organizations that exist and how each is formed

(b) The advantages and disadvantages of each form of business.

8.1 SOLE TRADER/SOLE PROPRIETORSHIP

(a) Definition

This is a business formed, owned and controlled by one person. As such the

business owner cannot be legally separated from the business.

(b) Formation

A business owner needs to fulfill the following legal requirements.

(i) Have a name for the business. Register the business in your name or in a different

name.

(ii) Obtain a business license. Before obtaining a license the business owner must have

the building checked by health inspectors who give a certificate to enable the business

owner obtain a license from the District Commissioner’s office after paying a set

license fee.

(c) Advantages and Disadvantages of a Sole Trader

(i) A sole trade makes his or her

own decisions concerning the

business (free to make

decisions).

(i) A sole trader may not be able to

make all decisions and will

require expert advice.

(ii) It takes a short time to make

decisions.

(iii) A sole trader keeps/enjoys all

(ii) A sole trader can lose all his

personal property if the business

cannot pay its debts (the

proprietor has unlimited

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the profits. liability).

(iii) One person may not be able to

raise enough money to expand

the business.

(iv) It is simple to start a sole trader

business.

(v) The life of enterprise is limited

e.g. The business may end if the

owner dies

(vi) A sole trader can give personal

attention to his or her

customers

(vii) It has few legal restrictions

(viii) It is easy to discontinue

business operation

(ix) It has tax advantages.

(vi) The owner’s possible lack of

ability and experience might hinder

progress/growth of the business.

(vii) It is difficult to attract and keep

quality employees.

ACTIVITY 1

1. (a) Imagine you are starting your own business and write down the name you

would give to the business. Give reasons why you chose that name.

(b) Make a list of all the businesses that operate in your local town or shopping

centre.

(c) From the list you make in (b) above, group the businesses into sole traders,

partnerships, companies and co-operative societies

2. Find out the licenses each business in your above list needs to obtain in order

to operate the business, and the fee charged.

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8.2 PARTNERSHIP

(a) A partnership is a business formed and owned by two or more people who come

together for the purpose of running the business and sharing the profits.

(b) Forming a partnership

When people get together to form a partnership they should write a partnership

Agreement. Partnership agreement specifies how the business is to be operated

and how the profits and losses are to be divided. Partnership agreement should

contain the following:

1. The amount of money contributed by each partner

2. The responsibility of each partner

3. How profits or losses should be shared by the partners

4. How long the partnership is going to last

5. How the property of the business would be shared if the business came to an

end.

6. How much salary should be paid to the active partners

It is important that the partners get some qualified person or an advocate to help them

write a Partnership Agreement. Such an agreement is usually used in court in cases of

disputes arising.

TYPES OF PARTNERSHIP

There are two types of partnership:-

I. General partnership

In general partnership all partners may be active in the management, and all partners

are individually, jointly and severally responsible for the business and all its debts.

II. Limited partnership

A limited partnership has one or more general partners who manage the business and

limited partners who contribute capital but are not involved in the management of the

business as in the case of general partnership.

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(c) Advantages and Disadvantages of a Partnership

Advantages Disadvantages

(i) It is easier to raise more money

to start and run a partnership

than a sole trade

(i) Partners may have to sell their

personal property to pay

business debts if the business

fails

(ii) Work is shared among the

partners (it combines individual

talents, judgments and skills)

(ii) It may take a long time to make

decisions as partners may

disagree on how the business

should be run.

(iii) Losses and debts are shared

equally among partners.

(iv) It is easy to discontinue the

business

(v) There is a definite legal status of

the firm under law.

(vi) It has certain tax advantages.

(iii) Profits are shared among

partners

(iv) Some partners have an

unlimited and mutual liability

(v) The life of the firm may be

limited with enforced

termination.

(vi) There is division of authority

(vii) There is danger of disagreement

among the partners.

ACTIVITY 2

1. Make a list of all small businesses in your local area and indicate how many

of these are run by partners.

2. Assume you are in partnership with two of your friends. Choose the type of

business you would like to run, a suitable name for this business and write

down a partnership agreement.

3. From the list made in (1) above, indicate those businesses that are not

partnerships or run by sole traders. What would you call such businesses?

8.3 CO-OPERATIVE SOCIETY

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(a) Definition

A co-operative society is an organization formed by people who come together for

the purpose of benefiting individual members. A co-operative society is

controlled by members who have equal say in the running of the society.

(b) Forming a Co-operative Society

People who want to form a Co-operative Society have to do the following:

(i) Define the purpose of the Society. This is done by writing down all things

that the society will do

(ii) Write down the names of those who are interested in joining the Society

(iii) Decide on how much each person will pay as membership contribution

(iv) Collect membership contributions from those people who join the society.

These will be the first members of the Society.

(v) A meeting is arranged for members of the Society to elect their leaders. These

leaders make up what is called a Management Committee. The committee

is made up of the Chairman, the Secretary, the Treasurer and Committee

members. The committee is chosen for a certain period of time after

which new elections are held. This gives each and every member of the

Society a chance to participate in the running of the Society.

(c) Types of Co-operative Societies

(i) Marketing or Produce Co-operative Societies

These societies are formed by members in order to sell their farm

produce, for example, milk, coffee, pyrethrum, etc.

(ii) Savings and Credit Co-operative Societies

Members set a certain amount of money aside either weekly or

monthly. This money is saved with the Society and after some time it

can be borrowed by members and repaid within a given period with a

low rate of interest.

(iii) Housing Co-operative Societies

These are Co-operative Societies which are formed for the purpose of

building houses for sale to members.

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ACTIVITY 3

Find out the names of the Co-operative Societies operating in your

town or district. Classify them into the above categories.

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8.4 LIMITED COMPANY/CORPORATION

(a) Introduction

A part from the three forms of business organizations discussed above, business

owners may decide to form a limited company as another form of business

organization. A limited company or corporation is a form of business organization

in which the business is legally a separate body from the persons (shareholders)

who own it. A limited company/corporation may own assets, make contracts, and

conduct business transactions in its own capacity as a legal entity separate from its

share holders. A limited company is formed by two or more people who have

privately come together in owning a business by contributing money that would

help in running the business. The amount of money contributed by each person is

called his or her share capital.

TYPES OF LIMITED COMPANIES

The corporation may be a ‘public’ or a ‘private’ company.

A public company is one which offers its shares to the public and does not

restrict the transfer of shares.

A private company is restricted in that it cannot offer its shares to the public,

And there are restrictions on the transfer of shares.

FORMATION

1. Register a business name

2. Draw a memorandum of association (to be filled the registrar of companies)

memorandum of association consists:-

 The name of the company

 The domicile of the company (office and address)

 The authorized share capital

 The objects /objectives

3. Draw the articles of association (also to be filled with the register of companies)

The articles of association contain the regulations of the company’s operations.

4. Assurance of the certificate of incorporation by the registrar of companies, which

shows that the company is legally registered.

5. Arrange meeting (held) to appoint directors, auditors, bankers and approve the

company seal and registered office.

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(b) Advantages and Disadvantages of Forming a Company

Advantages Disadvantages

(i) The firm has perpetual life e.g. a

company will be able to run

even after the original owners

have died or left.

(i) A company requires a lot of

money to start as compared to a

sole trader business.

(ii) It is easy to raise additional

capital/ expand capital

(ii) A company requires extensive

record-keeping.

(iii) There are Government regulations

to consider.

(iv) Capital stock tax is involved.

(iii) The owners’ personal property

will not be affected in case of

the business’s failure to pay its

debts/stock holders have limited

liability.

These are the four basic forms of business and which form to adopt is a matter of

judgment and consideration of some facts shown in the matrix below:

Sole proprietor Partnership Limited

company

Cooperative

Registration Must Must Must Must

Starting Low cost Low cost High cost High cost

Simplicity Simple Simple Complicated Complicated

Owners One At lest two At lest two At lest five

Responsibilities personal personal Not personal Not personal

Decisions Owner Jointly Shareholders Annual General

Meeting

Taxation Owner Partners Company Co-operative

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Adopted from the ILO- SYB Manual

9. SMALL BUSINESS GROWTH AND DEVELOPMENT

The term small business “growth” means increase in size or an improvement in

quality as a result of a process of development, in which changes leads to increase in

size accompanied by changes in the characteristics in the growing object.

9.1 Types of Business Growth

(i) Horizontal Growth:

This is a positive change in number of establishments. Horizontal growth occurs when

the number of establishments or firms that fall under the same managerial control

increases. These establishments can be related or unrelated to existing activities.

When a firm grows horizontally to an industry unrelated to its current ones, it is called

diversifying.

Horizontal growth is however not always diversification. A firm that set up additional

establishments offering the same products to the same category of customers as it is

currently offering will have grown horizontally without diversifying. Similary,

diversification does not have to be horizontal growth. It can occur within a single

establishment by simply increasing the variation in product types offered and

customer groups saved.

(ii) Vertical Growth:

This is a positive change in employment, investment, sales, profit, capacity, etc.

9.2 Importance of Vertical Growth

 Growth process yields new value in increased input

 Increased quality in variety of goods services or systems.

 Growing firms are likely to innovate

 As the firm grows, business generate new jobs over a decade

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 Growing business tend to create and maintain linkages among the various

sectors of the economy

 As firms grow, they become more formalized and therefore, bound by tax and

labour laws. This broadens the economy’s viable tax base

 Growth provide stability and enhance survival potential

Business growth can be:

a. Qualitative growth: This occurs through changes in or managerial control of the

firm. For example, a firm that changes from being owner- operated to owner-directed

can be considered to have grown

b. Quantitative growth: This has to do with changes that are quantifiable. For

example, in terms of workforce size, sales revenue, profitability, investments,

products mix etc. This can occur horizontally or vertically.

9.3 Growth may be solicited or unsolicited:

 Solicited growth: occurs when the owner- manager of the business intends to

achieve it and takes deliberate measures to do so.

 Unsolicited growth: occurs when the owner –manager does not plan for it but

responds to an opportunity to grow the business somewhat passively.

9.4 Indicators of Firm Growth

Various indicators can be used to denote the degree to which firm growth has

occurred. These can be grouped under four categories:

i) Outcome indicators:

This is concerning profit. Profit is the common target of all private firms and has to be

achieved in order for any other objectives to be sustainably realized. The amount of

profit that firms make is a function of revenue generated as well as level of efficiency

in the firm.

ii) Output indicators:

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The main outputs of a business are the products that it produces and or sells.

Production level can be a reasonable indicator of size because it is likely to reflect

both the capacity of the organization and its potential for profit.

iii) Capacity Indicators:

This includes value of assets, capital invested, production capacity and workforce

size.

vi) Qualitative indicators:

Qualitative indicators of firm size may include structure, management practices,

degree of formalization, etc. The structure of a firm can take many forms:

a. In a one man business, there is no structure as such. The owner

performs all the roles and the business can be described as owner –

operated.

b. At another level, the business the business has a few employees and the

owner has delegated some or most of the operational duties to

employees. He closely oversees the business activities and makes all

day-to –day decisions. Such a business is considered to be ownermanaged

c. At yet another level, the business is owner- directed. This means, the

owner is responsible for the strategic direction of the business but has

delegated day-to-day decision making to employed managers

However, this classification is not exhaustive of the different forms in which firms

may be organized at different levels of development. For example: some owners of

micro and small enterprises delegate all operational and day-to-day decision making.

This is necessitated by the fact that the owners are fully engaged elsewhere and

facilitated by the routine nature of the business.

9.5 Other Growth Strategies

a) Developing new products

b) Acquiring other businesses

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c) Entering new markets

9.6 Why do some people decide not to grow their firms vertically?

(i) Many micro enterprise operators diversify into other projects, rather than develop one

vertically. This is done so as

 To diversify risks

 Ensure a constant flow of income

 Avoid the complexities of a bigger operation

(ii) Many operators of micro enterprises live on the edge of survival and cannot afford to

lose income. Hence a small assured income is valued more than the probability for

growth. Growth may come with specialization, but which also in the event of failure

will leave the owner with no means of survival

(iii) In some cases the owner decides that the business has reached a point at which it

should no longer grow because he/she does not feel capable or prepared to handle the

complexity of a bigger operation. For example: one successful woman entrepreneur

noted that she wanted to start a boutique rather than grow her successful tailoring

business further because she had enough trouble with six tailors she was managing.

She simply didn’t want to handle more such tailors.

(iv) Other business people deliberately shrink or limit the growth of their operations in

order to avoid being visible to tax and other regulatory officials. This happens

especially when the cost of compliance is perceived to exceed the benefits of growth.

9.7. THE BUSINESS LIFE CYCLE

Inception – Identification of business idea

The process of starting business is triggered, initiated and persuaded by the

entrepreneur who perceives the opportunity and converts it into marketable ideas to

take advantage of the opportunity. One of the problems confronting many people is

how to identify workable business ideas. Some people have decided not to engage in

any business since it has been very difficult for them to identify business ideas

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Stage 1- Start-up

Start-up Activities

(i) The potential entrepreneur validates and refines his/her business ideas

(ii) Set the scale of operations (identify minimum level of operations to start

with)

(iii) Identify the resources (searching for capital, developing effective

entrepreneurial team)

(iv) Negotiating to get into business, developing and applying the plan

(v) Develop initial systems to set a business in operation

(vi) Coping with all statutory requirements: registration, licensing.

(vii) Establish clear ties and networks with important stakeholders

(viii) Birth and survival of the firm.

Barriers and pitfalls to the start-up process

 Inadequate market knowledge

 Inadequate understanding of the technical requirements

 Poor financial understanding / management

 Lack of venture uniqueness

 Ignorance of legal issues

 Unclear business definition

 Poor timing

Time

1Start-up

2.Survival

3.Growth

4. Maturity

5. Decline

Innovation

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 Product design problems

 Inadequate awareness of the competitive pressure

 Ineffective marketing and sales efforts

 Human resource problems

Entrepreneurial needs at the stat-up stage

 Understand how to manage the business

 Understand the advisors available and what they can do

 Be able to build networks

Stage 2- Survival and Strengthening

Survival Although it is difficult to measure survival rates especially in developing

countries, the available data indicate that small business mortality is very high during

the first and second year of its operations. It is believed that three out of five businesses

fail within first five years. This can partly be caused by the the failure to anticipate

problems in the start-up stage and lack of working capital.

Survival and Strengthening Activities

 Making business competitive and profitable

 Learning

 Improving various systems (e.g. financial, management...)

 Establishing more networks with key stakeholders

 Technology and process upgrading

 Accessing additional fixed and working capital

 Fixed capital refers to assets that a company owns and uses in the

operation of the business over a relatively long period of time. They are

also referred as fixed assets. They include plant assets such as: vehicles,

buildings, machinery, computers, furniture etc. these are not consumed

in the production process. The cost of a fixed asset is depreciated over its

useful life rather than deducted as an expense in the year of purchase.

 Working capital is how much in liquid assets that a company has on

hand. Working capital is needed to pay for planned and unexpected

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expenses, meet short term obligations of the business, and to build the

business.

Entrepreneurial needs at the Survival and Strengthening stage

 Developing managerial competence of entrepreneurs

 Developing entrepreneurs capability in problem solving,

communicating, leading and negotiating

 Etc

Stage 3- Growth Stage

A large majority of firms do not grow beyond ten employees

Challenge and Barriers to Growth

 The challenges of transition from an entrepreneurial style to a managerial approach

 Lack of growth motivation

 Lack of growth strategy

 Most SMEs are survivalists

 Limited ability of the owner managers

 Limited opportunities

 Limited resources e.g. lack of professional people

 Lack of entrepreneurial behaviour, i.e. not innovative, not hard working, etc

 Low quality of products

 Concentration on internal markets

Entrepreneurial needs at the growth stage

 Feasible growth idea

 Developing existing resources

 Good knowledge of market limitation and opportunities

 Commitment and motivation to achieve growth

 Strategic planning

 Environmental scanning i.e. improve efforts on assessing what is happening on the

environment

 New and better management systems i.e. no more mere informal nature of command

 Increase production capabilities

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 Human and social capital development

Stage 4- Business Stabilization Stage

This stage involves:

 Increased competition

 Consumers’ lack of interest to the company’s products or services

 Saturation of the market with similar goods

 Stabilization of sales

Entrepreneurial needs at the Business Stabilization stage

 During this stage innovation is critical (important) for future success

 The business that fail to innovate will die

 For some businesses succession issue becomes critical at this stage

Conclusion

All of venture life cycle stages are important strategic points and each requires a different set

of strategies.

HOME BASED BUSINESSES

THE REBIRTH OF COTTAGE INDUSTRIES

Examples?

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Before the development of the railroads and communication systems in the United States, the

country’s economy depended on people working at home. The number of these businesses,

referred to as cottage industries, decreased during the past century as industrial parks and

office complexes became more common. However, the trend has now come full circle, and

home-based businesses are once again becoming very common.

REASONS FOR GROWTH

The increase in popularity of home businesses is due to many factors, including the

increasing use of the Internet, recessions and corporate downsizing, greater concern for

family issues, and the improving image of home-based businesses.

Increasing Use of the Internet

The internet has changed the lives of people and revolutionized the way many enterprises

conduct business. Home-based business, often operated by the entrepreneur without

additional employees, can now market products globally. For example, Joan Abbe operates

Chocolate Expression out of her home in Lake St. Louis, Missouri. Using her Web Site, she

markets specialty chocolate gifts to businesses. Her products have been sold in many

countries around the world.

Auction sites, such as eBay, have also provided many opportunities for home based

entrepreneurs. According to Meg Whitman, president and CEO of eBay. “The success of ecommerce is the success of millions of invisible pioneers in garages and spare bedrooms from

New York to St Louis, from LA to Sioux City she estimates that more than 430,000

Americans are making a substantial part of their income by selling on the eBay site.

Recessions and Corporate Downsizing

Whenever the economy goes through a recession, many people who are laid off decide to

start a business. During the late 1980s and early 1990s when a recession occurred, the

number of self – employed people increased. And from 2002 to 20003 when the economy

again recovered slowly, the National Association of the Self-Employed saw its membership

increase by 25 per cent. Half of the organizations members now operate home based

businesses.

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During recessions and downsizing businesses are started not only by those who lose their jobs

but also by some of the employees who survive the first round of layoffs. The morale of the

remaining employees is often poor because they have seen friends lose their jobs. In

addition, their workload often increases as the company tries to do more work with fewer

people. Finally, some employees are afraid that they will lose their jobs if there is another

round of layoffs. For example, Austin Monroe, Jr, worked as an electrical engineer at

Rockwell international. However, when layoffs occurred, he started his own home based

business. He explains his career move by saying. I wanted to get out before I got dumped.

For many reasons then, recessions and corporate downsizing have caused people to start

home based businesses.

Greater concern for Family Issues

Many people have been establishing home-based business because of the desire for greater

balance between work and family life. Surveys indicate that the new generation of workers is

not willing to work long hours at a company at the expense of family time. A home business

may provide more time with family members.

Other people work at home so children, especially when they are young, is a deciding factor

for many home based entrepreneurs. More home based entrepreneurs have children ages 18

and younger than self-employed people who have offices outside the home.

Improving Image of Home -Based Business

The attitudes of society are changing as working at home becomes more common place. In

years past, home-based businesses were stigmatized as second class business. Potential

customers were concerned about the professionalism and they were not good enough to have

a real business. Home based entrepreneurs would try not to mention that they did not have an

office in a commercial location . Ten years ago, if you were working out of your home, it

was like you had some sort of disease, says Don Vieck, former vice president of Domino’s

Pizza who now works from his home advising companies on executive efficiency. Now

entrepreneurs have found that their clients’ skepticism concerning professionalism and

quality has changed to envy of their freedom.

ADVANTAGES NA DISADVANTAGES OF HOME-BASED BUSINESSES

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Operating a home based business has many advantages and disadvantages. Let’s consider

some of those benefits and obstacles.

ADVANTAGES

No commuting for many Americans, commuting to work is time consuming, stressful, and

expensive. It is common for people to spend an hour or two every workday just to get to and

from work. The wasted time spent sitting in a car or on public transportation could be better

spent on work or family activities. Comminuting has also been shown to lead to health

problems. The stress and pollution are thought to contribute to a higher rate of heart disease.

Finally, the price of gasoline has fluctuated in recent years, and many people find the

increasing costs to be a huge drain on the family budget. Home based entrepreneurs do not

have to endure any of these problems . Their work is always a few steps away.

Lower Wardrobe Costs

For many corporate employees, the purchase and maintenance of clothing are a burden.

Shopping for work attire is costly, time consuming, and often seen as a chore. Many people

feel required to wear clothing they do not especially like, only because it is considered

“appropriate dress” for their office. In addition, if the clothing must be dry cleaned, they

endure another costly weekly expense.

While some home-based entrepreneurs may need good clothing to meet clients, they may not

need as many outfits and they may have more choice in what to wear. Home based

entrepreneurs who do not frequently meet clients (for example, software developers and eBay

sellers) may be happily sitting at home in blue jeans while they are working.

Flexible Hours

Many home based entrepreneurs love the flexibility of working at any hour of the day. For

some, work can be completed at 4..a.m as easily as 10 p.m If the entrepreneur is trying to

raise a family, working while the children are asleep is a wonderful advantage.

DISADVANTAGES

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Although home-based has many advantages, not everyone is suited for this type of life, and

the family’s cooperation is an important factor. Some of these personal and family

considerations are discussed next.

Loss of structure” Losing the structure of a daily routine is a big deal for most people. Says

syndicated columnist Joyce Brothers. This is a bi reason why going into business for yourself

is tougher than most people think. In a home business that has specific operating hours.

There is little structure, no boss, no one to notice if you start working late or watch television

in the middle of the day. For this reason, a home based worker must be self disciplined.

Many people who are successful at home are those who are outgoing self-starters who enjoy

going out to market their business. Kathleen Van De Zande, a home-based business owner,

states, staying dedicated to the growth of your business is a tough thing to do alone. There is

no one else there who needs the business to succeed.

Isolation. One of the biggest problems encountered by the home based entrepreneur is

isolation. Particularly in the early stages of the business before a good customer base is

established, the entrepreneur’s ability to combat isolation may mean the difference between

success and failure. There are not chats at the water cooler or hallway conversations.

Rollene Saal left her job as editor in chief of Bantam Books to start a literary agency from

home. Although she has a successful business she misses the support of the officer and found

the first two years difficult. She summarizes her feelings by saying, “You miss you chums.

“If a person needs constant interaction, a home-based business is not a good idea.

Long hours with no separation between work and home. Although home based

businesses may seem to be a way to make money in your spare time, this is rarely the case.

According to an article in Kiplinger’s Personal finance Magazine, the most successful home

entrepreneurs have not only a good idea and a passion for their business but also a tendency

toward work holism

The lack of separation between work and home makes it easier to become a workaholic. One

entrepreneur stated. You don’t go home from work. You’re always at work you go to bed

with work. Kathy Lynch, a spokesperson for Boston College, says that when home based

workers are in the home, they are surrounded by work. Its hard to turn it off. Omar Wasow,

founder of New York Online, found his rapidly growing home based business taking over his

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apartment. He states “An expanding home based business can be really corrosive and

frustrating if you’re not careful.’

Family interruptions. Although balancing work and family life is often a major factor in

deciding to start a home based business, the entrepreneur often has unrealistic expectations.

Those who expect your children to play quickly all day without interrupting their mother or

father find that the home business arrangement does not work as easily as they had

anticipated. Plans must be made to try to accommodate children and business

FAMILY BUSINESSES

INTRODUCTION

It is estimated that family businesses constitute about two-thirds of all businesses and employ

around 75% of all workers globally. In Tanzania, over 80% of all enterprises are family

owned. This suggests that family businesses constitute a very large part of the economy, and

contribute immensely to job and wealth creation. At the same time, these businesses face

unique challenges arising from family involvement and succession and these must be

managed well for the businesses to continue making a positive contribution to economic

vitality and growth. This chapter is devoted to the dynamics of family businesses. It presents

the meaning, advantages and challenges, distinctive features and succession issues in family

firms. The discussion also covers the main theoretical frameworks developed to help in

understanding family firms.

DEFINITION OF FAMILY BUSINESSES

The dimensions used to define a family business are family ownership and control, family

influence in decision making and the intent to transfer the firm to the next generation. A

family firm is one that is owned, managed and controlled by a defined family (Samuelson,

2002). The family members must have legal control, the majority (over 50%) of the financial

stake in the business and be actively involved in top management for the business to qualify

as a family firm. Family members who constitute a family business may be from the nuclear

family (parents, children, spouses, siblings) or extended family (uncles, aunts, in-laws etc).

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Advantages and Disadvantages of Family Businesses

The interaction between the family, family members and the business itself may provide the

business with either advantages or disadvantages. The main advantages typically enjoyed by

family enterprises are:

(i) Focus on Long Run

Family firms can take a longer view than non-family firms. Managers usually

have in mind the future generations and so tend to take a longer – term view of the

business in decision making. They are therefore more likely to pursue long-term

interests even at the expense of immediate benefits.

(ii) Less Bureaucratic and Impersonal

Since the family both owns and manages the firm, decision making is

straightforward. This is because the interests of the owners and the managers do

not have to be considered separately. Centralised decision making means that

these firms have greater flexibility and hence they can rapidly respond to changes

and take advantage of opportunities. The simple structure found in these firms

increases their efficiently and reduces agency costs. Clan-based and socialcontrol systems found in family firms are sometimes more effective than the

bureaucratic and administrative systems found in non-family firms.

(iii)A More Humane working environment

Family firms demonstrate higher levels of concern and care for workers than nonfamily ones. They involve flexible work practices and often show greater trust in

employees. This makes employees more committed to their jobs and motivated to

work hard.

(iv)Greater Independence of Action

Family businesses involve less (or no) pressure from the stock market as well as

less (or no) turnover risks.

(v) Leadership Stability

Family businesses have the stable managerial leadership of the family members

(i.e low managerial turnover). The focus on building the company for future

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generations engenders commitment and loyalty on the part of the managers which

are valuable for implementation of long-term plans.

(vi)Family culture Creates Strong Ties and Allows shared Vision in the Business

The family ties in family firms enable a shared vision of a desired future and the

creation of a common bond, leading to greater commitment to the performance of

the firm.

(vii) Information Sharing

The family business owners transfer tacit knowledge across generations and have

the ability to communicate using family language. This makes it difficult for

competitors to access strategic information about their business

(viii) Financial Benefits

Family firms have the potential for greater success due to the possibility of raising

capital from family members at low (or no) interest rates. Family members may

also not demand quick repayment of the money lent or invested in the business

(patient capital). Family members working for the business may accept lower

than the going market rate for compensation and other benefits. Monitoring and

control costs may also be lower because of the lack of separation of ownership

and management.

On the other hand, family businesses face a number of disadvantages in the form

of performance limiting characteristics emanating from family involvement in the

business. These are:

(i) Less Access to Capital Market

Family firms cannot sell stock on the capital market. This limits their

ability to raise funds and expand their operations.

(ii) Confusing Organisation

Family businesses often have a messy structure which does not show a

clear division of tasks. In most cases, authority and responsibilities are not

clearly defined, leading to confusion in terms of the role of family

members.

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(iii)Succession Problems

Many family businesses fail to survive beyond the first generation due to

their inability to resolve succession issues.

(iv)Financial strain

Family businesses sometimes experience financial strain because of family

members milking the business.

(v) Nepotism

Family businesses sometimes employ and promote family members

without the required competence and merit. They tolerate inept family

members and they have inequitable reward systems. There is sometimes a

mismatch between one’s contribution and compensation which sometimes

discourages the most productive family members and creates difficulties in

attracting professional management.

(vi)Family Conflicts may Affect Business

Family disputes in most cases overflow into the business due to the lack of

a clear separation between the business and the family. Conflicts of

interest among family members within the business may also cause a lot of

problems.

(vii) Pursuance of Non-economic Goals

Most family firms strive to maximize the family utility function to the

detriment of company profits. Pursuance of non-profit objectives, such as

an emphasis on family welfare rather than business performance,

contributes to the poor performance of these businesses.

(viii) Autocratic Leadership

Many family businesses are led by autocratic or paternalistic managers

which is not consistent with good management practices. This style of

leadership is characterized by resistance to change, secrecy and the

presence of dependent personalities in the firm. As a result, family

businesses entail ad hoc planning and control, informal plans, a very basic

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budgeting process, ineffective delegation, bypassing decision-making

hierarchy and the lack of a clear organizational policy

(ix)Altruism

Managers face the challenge of simultaneously satisfying both altruistic

(other regarding) preferences and egotistic (self-regarding) preferences.

As human beings, family business managers can be unusually generous to

their family members and this is an agency threat to the business.

NEED FOR A GOOD DESCRIPTION OF YOUR BUSINESS IDEA

Differentiate business idea from business opportunity

Going into business requires that potential entrepreneurs put some effort in developing their

business ideas. Many business owners fail because they attempt to do too many things with

their businesses. They have not taken the time to clarify what services or products they want

to offer. Consequently, they tend to get involved in too many activities and spread

themselves too thin.

Before entrepreneurs start, they have to identify clearly:

 What services they will offer,

 To which category of customers,

 Which territory they will cover and

 How they will compete with other firms providing similar services.

Some entrepreneurs specialize in one area while others offer a range of services. When

defining your own business idea and the services you will offer, you should consider the

following factors

 Your own trade and your experience,

 The area where you would prefer to work, and

 Your competition

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For example, a plumber living in a big city may decide to do construction work and install the

plumbing in new buildings in one area only. On the other hand, another plumber may decide

to do remodeling and replacement of plumbing in older houses in the entire city.

A carpenter in the city may focus only on the framing on new buildings as a subcontractor,

while a carpenter in a village will be more diversified by doing framing and renovation of

houses.

You may also find that some years after being in business for yourself, you may want to

review the services you have been offering. New business opportunities may show up. For

example. After many years of experience as a subcontractor, doing house framing and home

remodeling, a business owner may decide to become a general contractor and concentrate his

efforts in the renovation of heritage buildings.

Consider this example: Robert started a small construction business shortly after World War

II. Because of Robert’s skill and talent for design, he directed all his activity toward building

restaurants. There was enough call for this type of building to keep him and his crew always

busy. However, sales began to fall off.

By moving his shop to smaller quarters with less overhead and by laying off half his crew, he

was able to maintain his business to his satisfaction the rest of his life. After his death, his

son examined the situation and decided he wasn’t really in the business of building

restaurants. He was in the business of custom refinishing.

Today his business is prospering. He is building cabinets for private homes. His company

also does other finishing work which requires the craftsmanship his crew is capable of.

You have a variety of options open to you for defining your business idea. This requires you

to answer the following questions:

 What services or products will you offer?

 What territory will you cover?

 What needs will your business fill?

 What is unique about your business?

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 How will you compete with other business?

Having a good description of your business idea has three main advantages:

1. If forces you to be clear about what your business will be like. Before you start

operating your business, you must know and limit, if necessary, the services you will

offer, so that you know which jobs to accept and which ones to refuse. You must also

know how much you will compete with others offering similar service.

2. It provides a framework for determining the size of your potential clientele, the

organization of the business, and the amount of money you will need to operate the

business.

3. It helps others to decide whether your idea is worth backing and how they can assist

you.

CONSTRUCTION BUSINESS IDEA CHECKLIST

Use the following checklist to clarify the main components of your future business. The

checklist should not be considered to be restrictive. If your business idea does not fit these

categories, feel free to add your own.

Example: Defining your business in the construction trades

1. Know how to compete in the construction industry. There are different ways of

remaining ones would be appropriate for your future business

A. Bid at the lowest price for which you can do the job and still make a profit.

This applies to contractors who use competitive bidding to get their work.

B. Offer a service for which there is high demand. This requires constant

monitoring of the economy. When new housing starts are decreasing, it is time to

look at the demand for home renovations. If renovations are increasing, it may

require shifting the services to be offered from new construction to home

renovations.

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C. Locate in an area that needs the services. Make yourself visible in areas where

your services are needed. For example, if you are in the home renovation

business, you should consider locating in a part of the city where old buildings can

be found. If your business is in a small town, make sure there are enough people

wanting the services you offer.

D. Offer special services that other businesses do not offer. For example, it is not

easy to find an electrician or a plumber who will do house calls in the evening.

However, some families have both spouses working all day, with no flexibility to

be at home during the day for repairs. To find out about those special services,

listen to customers complaining about their needs not being met.

E. Build a reputation for doing good work on time. It is very disruptive and very

costly when general contractors’ and subcontractors cannot deliver on their

contracts. If you build a reputation of meeting the requirements of the time

schedule while doing good work, homeowners, builders, and developers will seek

your services in preference to others.

F. Establish a business image that people will remember. Constantly maintain

the quality of the work you perform and the customer relations. The word-ofmonth publicity about business image, whether it is good or poor, will soon

spread. Make sure this image is a positive one.

G. Have many contacts. Having friends and relatives in the construction industry is

is a big help. If you refer customers to other sub-contractors, they may do the

same for you. It is also important to belong to construction associations to learn

as soon as possible about changing rules or trends in the industry.

H. Establish good credit. Paying your suppliers on time will give you a good

reputation and may lead to special discounts, in particular if you pay cash on

purchases. This is one way of keeping the cost of supplies low.

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2. Know who are the main participants in the construction industry. The construction

industry is characterized by its ease of entry and allows operation at a wide range of

scales including relatively small volume levels. For this reason, you may eventually

consider entering the industry as an employer instead of remaining an employee

during your career life. The capital requirements for starting a construction firm are

not great and overhead can be kept to a bare minimum. However, it is a high risk

industry and the failure rate is known to be high. Before you commit yourself to the

decision of making it on your own, you should be aware of the main participants in

the construction process.

The construction contractor must deal with a large number and a variety of

participants. These actors and their roles are briefly described.

A. Contractors. They are those who enter into an agreement to perform certain

building operations. The general contractor provides overall supervision of the

job, including obtaining and coordinating the subcontractors and is responsible for

satisfactory completion of the job as specified by the contract. The contractor

receives payment from the owner/developer as specified by the contract and is

responsible for payment to subcontractors and suppliers

The speciality contractor specializes in one specific construction operation

such as plumbing, painting, electrician, etc. He may work directly for an

owner or serve in a sub contractual role for a general contractor. He is then

dependent on the general contractor for payment.

B. Owner. The owner is the individual who contracts for the job and makes the

payment. He determines the price range, accepts bids on contract offers, fixes the

payment schedule, establishes the desired work schedule and completion date and

provide plans and specifications, often through an architect or engineer. The

owner also determines acceptability of the completed job, subject to legal

settlement in the event a dispute arises.

C. Architect or engineer. The engineer develop the plans for the project and

specifies materials and installation methods to be used. He often provides a

preliminary cost estimate and approves progress estimates before payment is made

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to contractors. He also provides supervision and passes judgment on acceptability

of the final job.

D. Materials Suppliers. Materials suppliers provide job materials and by deferring

payment for a short period of time, serve as an important source of temporary

credit. (A poor payment record to a supplier may result in a contractor being

placed on a collect – on-delivery basis. This hampers the contractor by

necessitating greater amounts of working capital).

E. Labour Force. The labour force performs according to the direction of the

builder/contractor. As a key cost and quality factor, the relationship between the

contractor and his labour force is a critical job component. The labour force can

be composed of union or non-union individuals. The advantages and

disadvantages of each option must be seriously considered.

F. Financial Institutions. These institutions serve as an important source of shortterm financing for contractor and owner alike. They generally require strong

evidence of the contractor’s to perform as a prerequisite for a loan. Like bonding

companies, they may be a source of sound business advice of the contractor.

3. Identify needs. It stands to reason that you would not want to enter a market segment

or provide a good or service where competition was so high as to be bringing prices

(and potential profits) down. You may search to identify needs that are being missed

or have few competitors. This may signal an opportunity for you IF you have the

skills to enter that field. For example: in North America, the plumber who fixes

domestic plumbing problems tends to be rare, thus, their prices and profits are high.

4. Define your market niche

Example: Construction Trades

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BUSINESS DESCRIPTION CHECKLIST

My business will be a full-time occupation __________________

Part-time occupation__________________

I will be a retailer ________________________

 Wholesaler _____________________

 Manufacturer ____________________

 Sub-contractor____________________

 General contractor_________________

 Service to _______________________

My customers will be :

_________ Small business owners

_________ Apartment dwellers

_________ Apartment/building owners/managers

_________ Home dwellers/owners/staff

_________ Street merchants

_________ Office employees

_________ Truck drivers

_________ Professionals – types: ______________________________

_________ Builders

_________ Developers

_________ Men-average age ______________________

_________ Women-average age ____________________

_________ Other – description(s)

I will offer the following:

Products: __________________________________________

 __________________________________________

 __________________________________________

Services: __________________________________________

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 __________________________________________

 __________________________________________

I will cover the following territory:

Local (within 2-3 blocks) ____________________________

District (within 3-5 km) _____________________________

Or specify: ________________________________________

Whole city ________________________________________

Many cities/villages _________________________________

Or specify: ________________________________________

My clients will prefer my services because:

_________ I produce high quality work

_________ My prices are lower

_________ My personality/sales skills

_________ I offer fast service

_________ My business is located close to my clientele

_________ My services/products are unique

_________ I am polite and courteous with my customers

_________ I guarantee my work/products

_________ I guarantee m work products

_________ I complete jobs on time, on schedule

_________ I am clean, not messy

_________ I produce good work for the money

My Product/Service

_________ I sell quality product at reasonable prices

_________ I use high quality products/ingredients

_________ I do unique design

_________ I do small jobs

_________ I do big jobs.

_______________ other, specify __________________________________________

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_____________________________________________________________________

_____________________________________________________________________

_________ My product is unique because:

_________ Patented/patent applied for

_________ Features ____________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_________ Licenses to me exclusively

_________ It is easy to use

_________ It will be found in a convenient location

_________ It will save time and effort

_________ Other ______________________________________________________

_____________________________________________________________________

_____________________________________________________________________

The life expectancy of my _____________________ product/service is____________

_____________________________________________________________________

There are __________________ potential customers in my territory

They spend _________________ on average per year

I estimate my share of the potential market for next year to be __________________

Customers per year representing:

$ _______________________ in sales in year 1

$ _______________________ in sales in year 2

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