Entrepreneurship Study Guide
The Concept of Entrepreneurship
- Definition: The process of creating an enterprise. It involves a "tendency of mind" to calculate risks with confidence to achieve specific business or industrial goals.
- The Process: Undertaken by individuals to innovate, plan, and make decisions under uncertain conditions to increase production in sectors like agriculture, business, and industry.
- Key Requirements: A "composite skill" mixing tangible factors (capital, labor, land) and intangible factors (imagination, scientific/technological mobilization, and legal/financial navigation).
What is an Entrepreneur?
- Role: A person who starts, owns, organizes, and manages a business while taking on financial risks for profit.
- Economic Impact: They shift resources from areas of lower productivity to areas of higher yield.
- Perspective: They see potential and opportunities where others see only problems.
10 Characteristics of a Successful Entrepreneur
- Desire for Responsibility: A deep sense of personal responsibility for the outcome of their ventures and a preference for controlling their own resources.
- Preference for Moderate Risk: They are calculated risk-takers, not "wild" risk-takers.
- Self-reliance: The ability to perform multiple roles and persist even when others ridicule their ideas.
- Confidence in Ability: High levels of optimism and a strong belief in their chosen career path.
- Determination: Often called "grit," this is the ability to focus intently on long-term goals despite challenging circumstances.
- Desire for Immediate Feedback: They enjoy the challenge of the business and constantly seek feedback to set higher performance standards.
- High Level of Energy: They possess more energy than the average person to handle long hours and grueling work.
- Future Orientation: A focus on searching for future opportunities rather than dwelling on the past.
- Skill at Organizing: The ability to piece together a company "from scratch" by putting the right people in the right jobs.
- Value of Achievement Over Money: Achievement is the primary motivator; money is simply a way of "keeping score."
Benefits vs. Drawbacks
Benefits:
- Gaining control over one's life.
- Making a difference in the world and contributing to society.
- Self-fulfillment and the ability to do what they enjoy.
- The potential for unlimited profits.
Drawbacks:
- Uncertainty of income and risk of losing investments.
- Long hours, hard work, and high stress levels.
- Lower quality of life until the business is established.
- Complete and total decision-making responsibility.
7.1.3 Design Thinking
Definition and Global Adoption:
- Design thinking is a human-centered approach to problem-solving.
- It is utilized by leading global brands (Apple, Google, Samsung) and taught at prestigious universities (Stanford, Harvard, Imperial College London).
- In Pakistan, it is implemented at institutions such as IBA Karachi, NUST, NED, COMSATS, and Pak-Austria Fachhochschule.
The Process:
Design thinking is an iterative and non-linear process. Stages can be carried out in parallel, repeated, or circled back to at any point. It follows five key phases:
- Empathize: Understand users' needs and challenges through observation and interviews.
- Define: Establish the problem based on gathered insights.
- Ideate: Brainstorm a wide range of creative solutions.
- Prototype: Turn promising ideas into simple versions for testing.
- Test: Use real user feedback to refine the design and ensure it is innovative and user-centered.
7.1.4 Developing a Business Plan
Core Purpose:
- Serves as a road map for building a successful business.
- Provides written proof that the entrepreneur has researched the opportunity and has a sound business model.
- Acts as a guide for launching the venture and a tool for acquiring necessary financing.
Key Benefits of a Business Plan:
- Provides a systematic and realistic evaluation of market success.
- Identifies principal risks facing the venture.
- Offers a "game plan" for management during start-up.
- Allows for a comparison of actual results against targeted performance.
- Acts as a vital tool for attracting capital and investors.
Business Planning Software & Tools:
Entrepreneurs can use various software to create unique plans that reflect their team’s strengths and enthusiasm:
- LivePlan (Business Plan Pro): Provides 500+ templates, step-by-step instructions, and video courses. It simplifies the process by having users answer specific data questions.
- PlanMaker: A spreadsheet program available on multiple operating systems (Windows, MacOS, Linux, Android, iOS).
- PlanWrite: Includes tools to create and present plans to investors using a built-in customization wizard.
- Canva: A versatile app for creating graphics, videos, and social media content to support the plan.
- WordPress: A leading website creation tool and content management system (CMS) used as a starting point for building and telling the story of a new venture.
Entrepreneurship Study Guide
Entrepreneurial Skills
To succeed as an entrepreneur, one needs to develop skills across four primary categories:
- Conducting Myself: Personal management, including self-confidence, responsibility, and life management.
- Thinking: Cognitive abilities such as problem-solving, decision-making, creativity, and observing surroundings to identify opportunities.
- Interacting with People: Collaborative skills, including working with others and practicing inclusivity regardless of gender, status, or disability.
- Safety, Survival, and Technical Skills:
- Emergency skills like first aid and drug abuse prevention.
- Practical abilities like cooking, repairing items (mobiles/batteries), or making crafts.
Developing Small Business Ideas
Business ideas should be rooted in community needs. Entrepreneurs identify a difficulty within their community and determine a product or service that can solve it.
Key Questions for Idea Generation:
- What needs exist in my community?
- What can be done to address these needs?
- Which of my skills can I use to help?
- Can this idea be developed into a business with colleagues?
Note: Business ideas can align with Sustainable Development Goals (SDGs) such as No Poverty, Quality Education, and Climate Action.
Understanding the Market
The market is the total number of potential customers in a community.
- Demand: Created when people need a product/service and are willing to pay for it.
- Customers: People who need the product and have the intent to buy.
- Competitors: Other business people providing similar products or services.
Market Survey Considerations:To estimate market size, entrepreneurs should research:
- Target Audience: Age, gender, and income status.
- Preferences: Why customers like or dislike a product (size, color, etc.).
- Sustainability: Will customers buy regularly or seasonally?
- Pricing and Quantity: Willingness to pay and how much they need.
Setting My Price
Profit is the difference between the cost price and the selling price. It should be calculated as a percentage of the cost price and remain reasonable.
The Pricing Formula:
$$\text{Cost of Production} + \text{Overheads} + \text{Profit} = \text{Selling Price}$$
1. Cost of Production and Overheads
- Labor: Setting a wage based on worker knowledge, experience, and government tax requirements.
- Depreciation: Accounting for equipment losing value over time.
- Overheads: General business expenses required to operate.
2. Determining Profit Levels
Profit margins are influenced by the relationship between Supply and Demand:
- High Demand + Low Supply: Prices (and profits) can be increased.
- High Supply + Low Demand: Prices may need to drop to attract buyers.
- Strategy: As sales increase, an entrepreneur may lower profit margins to reduce the selling price, helping to secure or expand their market share.
Devising a Business Plan: Study Guide
This guide outlines the essential steps and frameworks required to develop a comprehensive business plan based on the provided material.
1. Executive Summary
The executive summary is the most critical portion of the plan, acting as a condensed overview for the reader.
- Timing: Developed only at the end, after the full plan is complete ("the cherry on top").
- Purpose: Summarizes the entire plan and covers major goals, products, costs, timelines, audience, and promotion strategies.
- Format: Should be concise, to the point, and ideally no longer than one page.
2. You and Your Startup
This section introduces the team and the foundational vision behind the business to build trust with potential partners.
- Content: Explains the company hierarchy, the team, and both short-term and long-term goals.
- Goal Alignment: Short-term goals show immediate intent; long-term goals allow partners to envision shared future endeavors.
- SMART Goals Framework:
- S - Specific: Be precise and clear in setting up a goal.
- M - Measureable: Goals should be quantifiable and capable of being assessed.
- A - Achievable: Set attainable small goals to provide motivation.
- R - Realistic: Goals should be convincing and grounded, not "in the clouds."
- T - Time-Bound: Set a timeframe to achieve results and review for improvement.
3. Analyze the Market
Success requires understanding current trends and demands to ensure supply meets market needs.
- Continuous Evaluation: Entrepreneurs must monitor changing trends rather than following a fixed strategy blindly.
- SWOT Analysis: A technique used to evaluate the product within the market context.
- Strengths: Advantages of the business.
- Weaknesses: Disadvantages or skills the business may lack.
- Opportunities: Market trends and possibilities.
- Threats: Risk factors in the market.
4. Enlist Products / Services
This is the major portion of the business plan where the entrepreneur demonstrates their deep knowledge of what they are offering.
- Detail: Provide a breakdown or "decomposition" of the product/service for deeper reader understanding.
- Impact: The more relevant and detailed the information, the stronger the business proposal.
5. Identify Your Target Market
Define the specific client or company you wish to have a long-term association with.
- Parameters: Use educational background, age brackets, and geographical areas as primary parameters to sketch the clientele.
- Strategy: Visualizing the target audience makes it easier to devise marketing and promotional strategies.
6. Precise Promotional Strategy
Promotional efforts should be tailored specifically to the target market identified.
- Scope: Must be clear about pre-sale strategy and post-sale contacts and services.
- Channels: Social media platforms are recommended for targeting new clientele with promotions and offers.
- Key Metrics: Focus on the cost of new products, discounts offered, and upgradation costs.
7. Budget
Every business activity requires an assessment of time, money, and effort.
- Measurement: Every parameter spent must be measured and assessed in real terms.
- Variation: Budgetary details vary based on goals and potential clientele.
- Documentation: Includes balance sheets, cash-flow statements, and income reports highlighting profit.