SMALL BUSINESS - DA I EV&FT for bus.pptx

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1. APPLY ENTREPRENUERSHIP SKILLS TO ESTABLISH AN ENTREPRENUERIAL SMALL VENTURE IN ICT BUSINESS LECTURE 02

2. WHAT IS SMALL BUSINESS???

3. VARIOUS DEFINITIONS General Definition: A small business is a privately-owned company with a small number of employees, limited resources, and relatively low sales volumes. It typically serves local or niche markets and is managed by the owner or a small group of people.

4. ACCORDING TO SIZE OF EMPLOYEES AND REVENUE: . A small business is often defined by the number of employees (e.g., fewer than 50 employees) and annual revenue (e.g., less than $5 million). The specific criteria can vary by country or industry. For example: In the United States , a small business is defined by the Small Business Administration (SBA) as a business with fewer than 500 employees for most manufacturing and mining industries, and less than $7.5 million in average annual revenue for many service industries.

5. CONT…. In the European Union , small businesses are defined as enterprises with fewer than 50 employees and an annual turnover of less than €10 million

6. LEGAL DEFINITION (GOVERNMENT DEFINITION): Governments often define small businesses in terms of eligibility for tax incentives or financial aid: A small business is a business that qualifies for special treatment in areas such as taxes, subsidies , or regulations due to its size, revenue, or number of employees. This definition varies depending on national and local laws

7. ENTREPRENEURIAL DEFINITION: From an entrepreneurial standpoint, a small business refers to a business venture initiated and operated by a single person or a small team, with the goal of providing goods or services within a limited market scope, often with minimal start-up capital and flexibility in operations .

8. GLOBAL DEFINITION (WORLD BANK DEFINITION): The World Bank defines small businesses (in the context of developing countries) as firms that generally have fewer than 50 employees and an annual sales turnover of less than $3 million USD

9. CHARACTERISTICS/FEATURES OF SMALL BUSINESS Limited employees (often 1-50 people). Lower capital and investment. Focus on local or specialized markets. Owner-operated (often managed by the founder or a small team). Examples : Local shops, small restaurants, freelance services, small manufacturers, and neighborhood service providers (e.g., plumbers, electricians).

10. ROLE OF SMALL BUSINESS IN THE ECONOMY Small businesses play a vital role in the economy, contributing to its growth and development in various ways: Job Creation : Small businesses are significant employers, creating jobs for local communities and contributing to reducing unemployment. Innovation : Many small businesses drive innovation by introducing new products, services, and ideas, often faster than larger corporations. Economic Diversification : They promote a diversified economy by serving niche markets that larger businesses may not cater to, thus preventing reliance on a few large industries.

11. CONT…. Support to Large Corporations : Small businesses often serve as suppliers and service providers to larger companies, supporting the overall business ecosystem . Regional Development : Small businesses help develop local economies, especially in rural or underdeveloped areas, by providing products and services tailored to local needs .

12. CONT…. Tax Revenue : They contribute to government revenue through taxes, which supports public services like education, infrastructure, and healthcare.

13. PROBLEMS FACED BY SMALL BUSINESSES Despite their importance, small businesses face several challenges: Limited Access to Funding : Small businesses often struggle to secure financing from banks or investors, making it difficult to grow or even sustain operations. Competition : Competing with larger, more established companies with bigger budgets and better market presence can be tough for small businesses.

14. CON…. Limited Resources : Small businesses typically operate with limited financial, human, and technical resources, which can constrain their growth . Government Regulations : Navigating complex regulations and legal requirements, such as taxes, permits, and licenses, can be difficult for small businesses . Market Risks : Changes in customer preferences, economic downturns, or supply chain disruptions can greatly affect small businesses due to their vulnerability.

15. CONT…. Marketing and Visibility : Many small businesses struggle to reach potential customers, as they may lack the marketing budget or expertise to promote their products or services effectively.

16. SOLUTIONS TO FUNDING PROBLEMS IN SMALL BUSINESSES Securing funding is one of the biggest challenges for small businesses, but there are several ways to solve this issue: Microfinance and Small Business Loans : Banks and specialized financial institutions offer small business loans or microfinance options with flexible repayment terms, targeting businesses that may not qualify for large loans. Government Grants and Subsidies : Many governments offer grants, subsidies, or low-interest loans to encourage small businesses, especially those in specific industries like technology, agriculture, or green energy.

17. CONT…. Crowdfunding : Crowdfunding platforms allow businesses to raise small amounts of money from a large number of people, either as donations or in exchange for early access to products . Angel Investors and Venture Capital : Small businesses with high growth potential can seek funding from angel investors or venture capitalists who provide capital in exchange for equity (ownership) in the business.

18. CONT…. Bootstrapping : This involves using personal savings or the business’s own revenue to finance operations, rather than relying on external funding. This keeps the business free from debt but requires strong financial discipline.

19. CONT…. Partnerships : Businesses can form partnerships with larger companies or other small businesses to share costs, resources, and risks, reducing the need for high capital investment . Family and Friends : Many small businesses turn to family and friends for initial funding, as they may be more willing to invest or lend money than traditional lenders.

20. CAUSES OF BUSINESS FAILURE AT START-UP Many small businesses face challenges that can lead to failure, particularly in the early stages. Some common causes include: Poor Planning : A lack of a clear business plan, including financial projections, target markets, and business strategies, often leads to failure. Without a roadmap, it’s difficult to navigate the challenges that arise.

21. CONT…. Insufficient Capital : Starting a business requires a lot of upfront investment. Many businesses fail because they run out of money before they can become profitable, due to underestimating costs or not securing enough funding . Lack of Market Research : Businesses that don’t conduct proper market research often fail because they don’t fully understand their target audience, customer needs, or competitors, leading to poor product-market fit.

22. CONT…. Cash Flow Issues : Even profitable businesses can fail if they experience cash flow problems. This happens when money is tied up in unpaid invoices, or when expenses exceed revenue in the early stages . Ineffective Marketing : Many small businesses don’t reach their target audience effectively due to poor marketing strategies. Without customers, the business can’t generate enough revenue to sustain operations.

23. CONT…. Inadequate Management Skills : A lack of business management skills, such as budgeting, decision-making, and leadership, can hinder the success of a small business. Many founders are skilled in their industry but lack the skills needed to manage a business . Overdependence on a Few Customers : Relying too heavily on a small number of customers can be risky. If those customers stop doing business with you, it can significantly affect cash flow and the overall sustainability of the business.

24. CONT…. Failure to Adapt to Changes : The business environment changes rapidly, and failure to adapt to technological advancements, customer preferences, or market trends can cause a business to fall behind competitors.

25. CONCLUSION… Small businesses are crucial for economic development, creating jobs, promoting innovation, and supporting larger industries. However, they face challenges, particularly related to funding, competition, and management. Addressing these problems with effective strategies—such as securing alternative funding, conducting proper planning, and adapting to market changes—can improve the chances of success for small businesses, especially during their early stages.

26. METHODS OF FUND RAISING IN IMPLEMENTING BUSINESS VENTURES

27. 1. PERSONAL SAVINGS Using your own money or assets to start your business. Example: You have saved $5,000 over the years and decide to use it to buy initial supplies and equipment for your new cafe

28. 2. FAMILY AND FRIENDS Borrowing or receiving money from people close to you who trust you and believe in your business idea. Example: You ask a family member for a $2,000 loan to help with your start-up costs. In return, you agree to pay it back in installments over time or offer them a small stake in the business

29. 3. BANK LOANS Getting money from a bank that you will pay back over time with interest. Example: You apply for a $10,000 bank loan to buy equipment for your new bakery. You’ll repay this amount over five years, with monthly payments that include interest.

30. 4. ANGEL INVESTORS Wealthy individuals who invest their money into promising small businesses, often in exchange for a part of the company (equity). Example: A local entrepreneur invests $15,000 in your business to help you get started, and in return, they own 10% of the business

31. 5. VENTURE CAPITAL (VC) Investment funds or firms that invest in high-potential, fast-growing businesses, typically in exchange for ownership and a say in the business. Example: Your tech startup has a unique idea and growth potential, so a VC firm agrees to invest $100,000, but they take a 20% ownership and expect to help with major decisions

32. 6. CROWDFUNDING Raising small amounts of money from a large group of people, often through online platforms Example: You start a crowdfunding campaign for your eco-friendly clothing line, promising early supporters discounts or unique items. Within a month, you raise $8,000 from people who want to see your idea come to life

33. 7. SMALL BUSINESS GRANTS AND COMPETITIONS Non-repayable funds or prizes awarded to small businesses by governments, organizations, or competitions. Example: You apply for a local small business grant for sustainable businesses and win $5,000 to fund your compostable packaging project.

34. 8. TRADE CREDIT Negotiating with suppliers to allow you to delay payment for goods, giving you time to sell products before paying for materials. Example: A clothing supplier lets you take fabrics now and pay for them in 30 days, allowing you to start producing and selling items before spending on materials.

35. 9. BOOTSTRAPPING Relying only on the money the business earns to grow it, rather than outside funding. This involves reinvesting profits to cover costs and grow the business. Example: Your coffee shop uses daily sales to buy more ingredients, gradually growing without taking loans or investments

36. WHAT IS BUSINESS IDEA??? BUSINESS IDEA A   business idea  is a concept that can be used for financial gain which is usually centered on a product or service that can be offered for money. A  business idea  can succeed only when it has commercial value, i.e., when the market accepts it. Hence, A  business idea  is a starting point for any current or future entrepreneur.

37. SOURCES OF BUSINESS IDEA PAST WORK EXPERIENCE. If you have been previously employed, you have learned many things. The experience you gain from your workplace can help you start an entrepreneurial venture. Past work experience, especially in the business world, opens your mind to endless opportunities in the field. You can choose to start a venture using the skills and knowledge gained at the workplace.

38. CONT…. HOBBIES, TALENTS, AND INTERESTS. A hobby is something you enjoy doing during your leisure time. On the other hand, talent is a natural aptitude, while interest is something that catches your attention that you wish to learn. You can turn your hobby, talent, or interest into a profitable business, especially if you conduct research on the target market and market your services or products. If, for example, you enjoy playing with computers, cooking, music, traveling, sport or performing, to name but a few, you may be able to  develop it into a business .

39. CONT…. CUSTOMER SURVEYS For a business to succeed, it must meet a specific consumer need. Therefore, customers are the best source of ideas as they know the products and services, they need to make life easier. Before you start your entrepreneurial journey, you should ensure you understand the expressed or unexpressed consumer needs.

40. CONT…. EXPERT CONSULTATIONS. In expert consultations, the person seeking business ideas meets with experienced or successful entrepreneurs to seek advice. The aim is to learn as much as possible about entrepreneurship. Listening keenly to experts will give you tips on approaching the business world and the dos and don'ts. You can also get information on the most profitable ventures.

41. CONT….   FAMILY AND FRIENDS Listening and talking with family and friends can help you come up with entrepreneurial concepts. Each family member has a different perspective of life. They also have different needs, wants, and ambitions. Listening to your loved ones will give you insight into entrepreneurship. Once you get ideas, exercise caution when implementing them to avoid loss and frustration.

42. CONT…. CURRENT TRENDS Most people like being up to date with the latest trends in fashion, electronics, and other things. You can analyze consumer trends and take advantage of the prevailing trends to make a profit. Ideas based on trends require flexibility because trends change overnight, and you do not want to be left with dead stock or offer outdated services.

43. CONT…. MASS MEDIA The mass media, including television, newspapers, the internet, radio, and magazines, are a great source of information, including business ideas. Various mass media platforms offer great insight into consumer wants and needs. Besides mainstream media, you can also use social media to find out what people want or need.

44. CONT…. EXHIBITIONS. If you take time to study most exhibitions, you would be able to discover the nature of new products and re-branding ideas of existing products. Through talking with sales reps, manufacturers, and end-users, you will be able to find a gap to fill to start your own business.

45. STEPS OF BUSINESS ESTABLISHMENT TO START A SMALL BUSINESS

46. REQUIREMENTS FOR FORMATION OF SMALL BUSINESS: Taking an idea to market or making a dream become reality typically takes a series of carefully planned business decisions. While not every business follows the same path, most take some of these steps :

47. Step 1: PERFORM MARKET RESEARCH AROUND YOUR IDEA Market research can help you mitigate risk because it lets you know how much of a demand there is for your product or service and the level of existing competition. It also provides demographic information on your target customers, such as their income and where they live

48. Step 2: CREATE A BUSINESS PLAN A business plan explains your goals and how you hope to achieve them. If you need funding for start-up costs, many investors will want to see your plan so they can assess your potential profitability. Business plans can also help you attract partners and employees.

49. Step 3: FINANCE YOUR BUSINESS Start-up costs are one of the obstacles that sometimes prevent people from ultimately pursuing their dream. The good news, however, is that even if you don’t have much money at your disposal, there are several ways to fund your business including borrowed funds.

50. Step 4: CHOOSE YOUR BUSINESS STRUCTURE How you plan to structure your business – sole proprietor, corporation or something in between – will typically have legal and tax implications for the foreseeable future. That makes this decision a critical one. Some of the more popular business structures are:

51. CONT…. Sole proprietorship This is the most common structure for solo entrepreneurs or “solopreneurs .” Partnership If you are starting a business with one or more individuals, then a partnership structure might be right for you . Limited liability company An LLC blends the limited liability features of a corporation with the tax efficiencies and operational flexibility of a partnership.

52. Step 5: CHOOSE YOUR BUSINESS NAME After you’ve determined your structure, it’s time to decide how your business will be recognizable to the public. Your business name should: Reflect your brand and values Convey the services you provide or products you sell Work as a logo and resonate on social media and other marketing platforms

53. Step 6: BUSINESS REGISTRATION Registering your small business with the government may not always be necessary, but it might avail you to personal liability protection and legal and tax benefits.

54. Step 7: OBTAIN ANY NECESSARY LICENSES OR PERMITS Before you open for business, take a moment to make sure that you have all the correct licenses, permits and insurance policies to operate legally. The last thing you want at this stage is to be shut down by a government agency.

55. Step 8: BUSINESS EXECUTION After passing all the required necessary procedures you implement your business idea at your chosen potential area.

56. HOW BUSINESS SIZES ARE MEASURED Generally , business sizes are determined based on the company’s industry, its average annual revenue, and the number of its employees. In the US, businesses are typically classified in one of two broad categories: a small business or a large enterprise. Micro-businesses and sole proprietorships fall under the small business category, while mid-sized businesses are considered a larger enterprise.

57. CATEGORIES OF SMES IN TANZANIA

58. Category Employees Capital Investment in Machinery (Tshs.) Micro enterprise 1 – 4 Up to 5 mil. Small enterprise 5 – 49 Above 5 mil. to 200 mil. Medium enterprise 50 – 99 Above 200mil.to 800 mil. Large enterprise 100 + Above 800 mil.

59. CONT…. N.B. In the event of an enterprise falling under more than one category, then the level of investment will be the deciding factor . The Small Business Administration (SBA) has established a table of small business size standards to help business owners determine their business size. Size standards are usually stated in number of employees or average annual receipts. It indicates how large a business can grow to still be classified as a small business.

60. ENTREPRENEURIAL PRINCIPLES IN FACILITING BUSINESS GROWTH

61. VENTURE LIFE CYCLE

62. 1. IDEA/CONCEPT STAGE Generating and refining the business idea. Conducting market research to assess feasibility. Preparing a business plan

63. Generating and Refining the Business Idea This is the foundation of any venture. The process involves Brainstorming Ideas: Entrepreneurs begin by identifying problems, gaps, or unmet needs in the market. They may draw inspiration from personal experiences, industry trends, or technological advancements.

64. CONT…. Assessing Passion and Expertise: Entrepreneurs evaluate their interests and skills to align the idea with their strengths Initial Feasibility Check: Ideas are screened for practicality. Questions like "Can this be done?" and "Is there a market for this?" are explored .

65. Conducting Market Research to Assess Feasibility Market research is critical to validate the business idea and understand the target market. This stage involves : Identifying the Target Audience: Entrepreneurs define who their ideal customers are based on demographics (age, income, location) and psychographics (interests, behaviors)

66. CONT…. Analyzing Market Demand: Surveys, interviews, and online tools (like Google Trends) are used to assess whether there’s sufficient demand for the product or service . Studying Competitors: Entrepreneurs research existing players in the market to understand their strengths, weaknesses, and strategies

67. CONT…. Evaluating Market Trends: Identifying trends helps anticipate future opportunities or threats Assessing Costs and Pricing: Research includes understanding production costs, potential pricing strategies, and customer willingness to pay

68. IN SUMMARY…. This is the starting point where the business idea is born. Entrepreneurs brainstorm ideas, identify market opportunities, and decide what product or service to offer. They conduct research to see if the idea is practical and if people will buy it. A business plan is created, outlining how the venture will operate and make money

69. 2. STARTUP STAGE This is the launch phase , where the business begins its operations. The product or service is introduced to the market. Entrepreneurs focus on finding their first customers and securing funding to cover initial costs. Basic operations are set up, such as hiring staff, setting up a website, or renting a workspace.

70. 3. GROWTH STAGE At this stage, the business is expanding and scaling up . The customer base grows, and sales increase. Entrepreneurs focus on improving processes, hiring more staff, and reaching new markets. Revenue grows, and the business invests in marketing, technology, or new products.

71. 4. MATURITY STAGE The business is now well-established and stable . It has a steady stream of customers and consistent revenue. The focus shifts to maintaining quality, staying competitive, and finding ways to innovate. Growth slows, but the business may explore new opportunities, like entering international markets or acquiring other businesses.

72. 5. DECLINE OR RENEWAL STAGE This is the turning point , where the business faces challenges or decides to reinvent itself. Decline: Sales and customer interest drop due to competition, outdated products, or poor management. Renewal: The business innovates, pivots, or launches new strategies to regain growth. Example: If competitors offer better prices, the meal delivery service might lose customers. To renew itself, it could introduce faster delivery, a budget-friendly plan, or partner with fitness apps.

73. Opportunities for Venture Growth Market Expansion Entering new geographical regions or demographics. Product/Service Diversification Introducing new or improved offerings. Partnerships and Alliances Collaborating with other businesses for mutual benefit

74. OPP. CONT…. Technology Adoption Using advanced technology to improve efficiency or customer experience Increased Marketing Efforts Leveraging digital marketing, social media, and advertising Customer Retention Strategies Building loyalty programs and enhancing customer satisfaction

75. DISCUSS WITH YOUR COLLEGUES THE CHALLENGES FOR VENTURE GROWTH.

76. Challenges for Venture Growth Financial Constraints Difficulty in accessing funds for expansion. Competition Intense rivalry from established players or new entrants . Operational Inefficiencies Struggling to scale operations without compromising quality.

77. CONT…. Talent Acquisition and Retention Attracting and keeping skilled employees

78. END OF LECTURE THANKS FOR LISTENING