5 DEVELOPMENT OF ENTREPRENEURIAL ATTITUDE AND KNOWLEDGE: A HORIZONTAL SKILL

5.1 – Communication abilities, marketing skills, social networks

Nowadays knowing how to communicate is one of the most important skills. It is necessary to be able to speak appropriately with a great variety of people, but also to listen to our interlocutors effectively. In fact, communication allows us to interact with other people and transfer information. Without it we would not otherwise be able to share knowledge or experience. Communication can take place through various forms: “verbal” (using the voice); “written” (through books, newspapers, e-mails, websites, social media, …); “visual” (using logos, maps, graphs, infographic, …); “para-verbal” (through body language, gesture, tone and volume of voice) (De Vito, 2017).

5.1.1 – What is communication?

What is communication then? Wikipedia (2018) defines communication as:

What allows us to interact with other people; without it, we would be unable to share knowledge or experiences with anything outside of ourselves. Common forms of communication include speaking, writing, gestures, touch and broadcasting”.

We can summarise it in these key points:

  • It is the normal process of contact between two or more people
  • It is bidirectional (dialogue), not unidirectional (monologue)
  • It can be an intentional process or not
  • It can implicate conventional signs or not
  • It can take on linguistic forms or not
  • It involves non-verbal (gestures, look, …) and para-verbal language (tone of voice, rhythm, pauses, …).

A study conducted by prof. A. Mehrabian (“Non-verbal communication”, 1981) has shown that what is perceived in a vocal message can be divided as shown in Fig 5.1

Fig. 5.1 – Mehrabian’s scheme about non-verbal communication (Source: authors’ reworking)

So, when we communicate with one or more interlocutors, what is our gesture? Do we respect physical spaces? Do we use an appropriate tone of voice according to the various situations? Are we assertive or too accommodating? There are numerous aspects to consider. Therefore, communicating is not a simple act. On the contrary, it becomes even more complex from the moment when there are two key elements not to be overlooked: listening and feedback.

The communication process is in fact a very complex process (Foulger, 2004): it involves, as we have seen, various aspects that can influence and condition the message we would like to convey.

Fig. 5.2 – The process of communication (Source: authors’ elaboration)

Communication is sharing, interaction and feedback. Therefore, it is not just a one-way passage of news and information, or even a simple disclosure. If we wanted to simplify the process, we could say that communication is a process not linear but circular (Fig. 5.2):

  • Message: content of the communication
  • Source of the message: issuer
  • Message encoding: it is the activity of the issuer to transform ideas, concepts and mental images into a message that can be communicated through a shared code
  • Transmission channel: can be understood both as the technical means external to the subject with which the message arrives (telephone, fax, mail etc.) and as the sensory medium involved in communication (hearing and sight, etc.)
  • Decoding: it is the reverse path taken by the receiver that transforms the message from code into ideas, concepts and mental images
  • Feedback: it is the interchange that takes place between the receiver and the broadcaster when the return information allows the issuer to perceive if the message has been received, understood etc.

Finally, we could add:

  • Noise: communication disorders arising from the context.

5.1.2 – Effective communication

“Effective communication” is the communication that produces intended or desired result. It is a two-way process: sending the right message and send it to the right person. It is important to know the psychology of the people you are interacting with for communication to be effective.

For communication to be effective it is necessary to know the circumstances of the counter entity. Effective communication includes all the aspects of visual, auditory and kinaesthetic language to appeal the listener. To make effective the communication, just follow the 7C rule (Cutlip and Center, 1952), summarised in the following scheme (Fig. 5.3).

Fig. 5.3 – The 7C of effective communication (Source: authors’ elaboration)

The first “C” means “Completeness”. The information conveyed in the message should be complete for the communication to be effective. The sender must take into consideration the receiver’s mindset and convey the message accordingly. Complete communication enhances the reputation of the sender and always gives additional information wherever required, it leaves no question in the minds of the receiver. This helps in better decision making as it serves all the desired and crucial information, persuading the audience.

 

The second “C” means “Conciseness”. Conciseness means communicating what you want to convey with the smallest number of words. It is necessary for effective communication. Concise message is more appealing and comprehensive to the audience: messages are non-repetitive in nature.

 

The third “C” means “Consideration”. Effective communication must take audience into consideration by knowing the viewpoints, background, mind-set, educational level, etc. Consideration implies stepping into the others’ shoes, ensuring that the self-respect of the audience is maintained and their emotions are not harmed. Consider the needs and requirements of the audience to achieve an effective communication!

 

The fourth “C” means “Clarity”. Clarity implies emphasising on a specific goal or objective at a time, rather than trying to move away from track. This skill helps to understand the message easily. Complete clarity of thoughts and ideas enhances the meaning of message, coming with the use of exact, appropriate and concrete words.

 

The fifth “C” means “Concreteness”. Concrete communication implies being specific and clear rather being fuzzy and general. It shows good level of confidence and helps to strengthen the reputation of the organisation. Concrete information cannot be misinterpreted.

 

The sixth “C” means “Courtesy”. Courtesy means being polite, kind, judicious, enthusiastic and convincing. It reflects the nature and character of the message sender and it is the same as give respect and expect the same. Courtesy is not at all bias in nature.

 

The last “C” means “Correctness”. Correctness in the communication implies that the correct information is conveyed through message and it boosts up the confidence level of the sender. Correct information has greater impact on the audience, free from grammatical errors and use of appropriate and correct language. It requires the precision and accurateness of facts and figures used in the message.

 

Today, communication does not focus more exclusively on the individual and on what s/he says, but on the context in which it is inserted. The human being is considered within a system of relationships, communities, social groups, which generate behaviour and reactions.

5.1.3 – Marketing

Defining what Marketing is in a few words is quite difficult as there are many definitions. One of the most effective is a word game (McCharty, 1960):

Marketing is putting the right product/service in the right place at the right price at the right time for the right people by the right way”.

Marketing is the communication between a company and the consumers’ audience that aims to increase the value of the company or its merchandise or to raise the profile of the company and its products in the public mind.

The purpose of marketing is to induce behavioural change in the receptive audience. Doing marketing means listening, interacting, transmitting value and communicating with consumers/users (i.e. those who buy and use products or services), studying their needs and preferences to be able to satisfy them in the best way, inducing a change in their behaviour. It is the consumers/users, therefore, with their needs and desires to be pivotal around which the marketing revolves (Fig. 5.4).

Fig. 5.4 – The 8 steps to improve marketing skills (Source: authors’ elaboration)

Now let’s move on to the concept of Digital Marketing, starting from the definition – which is not as obvious as it would seem – of digital marketing.

According to Wikipedia: “Digital Marketing is an umbrella term for the marketing of products or services using digital technologies, mainly on the Internet, but also including mobile phones, display advertising, and any other digital medium”.

In a nutshell: Digital Marketing is that particular set of marketing techniques that use new media to promote a product or service, a brand or an organisation.

Talking about the importance of digital marketing in recent years is almost superfluous. Indeed, having a commercially effective online presence is absolutely essential today and it is for any business. It is even true for professionals; thus the concept of personal branding was defined.

5.1.4 – Social Media

Social media represent a change in the way people learn, read and share information and contents. In social media there is a fusion of sociology and technology that transforms the monologue (one to many) into a dialogue (many to many) and the people from users into publishers of contents. The digital marketing through social media (Social Media Marketing) has the goal of stimulating/generating conversations with users, putting closer sender and receiver of a topic/message.

Social Media are important for digital marketing, changing the relationship between the producer/supplier of goods and services and the consumer/user. This is because now more and more people use the Internet for every type of need and especially the Social Network, a growing trend especially thanks to the use of mobile devices (smartphones and tablets) in different moments of everyday life.

 

Why use social media? Because:

  1. Information is multi-channel: an advanced communication must employ different channels, giving each one a peculiar role within a homogeneous and coherent plan
  2. it is an integrated strategy: it means that the presence in a social platform will have to be coordinated with that in the others (in times, type of service offered, etc.) linking them with offline marketing activities (events, advertising, … )
  3. it allows to listen to people’s needs and relate with them: the Social Media Manager is a communication officer who knows how to write well and how to relate with users at different levels
  4. it allows to build a custom-tailored information: understanding your starting situation, defining long-term objectives, understanding a definition of targets, positioning, contents, etc.
  5. it allows to measure results: constantly monitoring the progress of the campaign based on quantitative and qualitative parameters.

Which Social Media is best suited to our needs? As in television and paper advertising, even in web marketing, it is fundamental to know how to choose the right channels. You need to know your audience and what’s on Facebook, LinkedIn, Twitter, etc. As you know, every social platform is different in many ways: first of all, what we want to communicate and for which recipients’ category. Let’s try to explain in a funny way the differences between the 6 most used social platforms, through the example of a user who wants to communicate to the world his way of eating:

Fig. 5.5 – Different way of conveying messages on different social media platforms

If he were on Twitter he would write a sentence like “I need to eat”: in fact, Twitter is a social networking and microblogging service created in 2006 that provides, through the platform of the same name, a personal page updatable via text messages with a maximum length of 280 characters (previously it was up to 140 chrs).

 

If he were on Facebook he would write “I have just eaten”, making his friends aware of his action just taken: Facebook, the most popular among social networking services, was created in 2004 with the aim of relating the students and former university students, sharing common interests with “posts”, organized according to the workplace, school, university, etc..

 

If it were on FourSquare instead he would write “This is where I eat”: Foursquare is a social network founded in 2008 and based on geolocation available via the web and mobile applications, where users can perform a “check-in” (registration of the own GPS position).

 

If he were on Quora he would then write: “Why am I eating?”: Quora is a social network founded in 2009 where users can post questions and answers on any subject. The platform groups the questions and answers by topic and allows users to vote or add comments.

 

If it were on YouTube it would instead write “Look at me when I am eating!”: YouTube is a web platform, founded in 2005, which allows the sharing and viewing on the network of video (video sharing). Users can also vote and comment on videos.

 

Finally, if he were on LinkedIn he would write “I’m good at eating”: LinkedIn is a social service launched in 2003 mainly used for the development of professional contacts and relationships. On LinkedIn, the user can upload their curriculum vitae and describe their experiences and skills.

 

To be successful in social media it does not mean having a large number of “likes” or “followers” but transforming interaction into measurable results. It means having the ability to maximise the exchange with its users, listening to them and observing the market from a privileged position. Once you have learned to move in this “social space” and master its tools, you will be ready to invest time, money and hopes in a high-profile social media marketing activity, which will allow you to take measurable actions in line with your pre-set goals.

5.2 – Teamwork and problem solving

5.2.1 – Teamwork

Let’s start from the literal meaning of “Teamwork” which is, in fact, the crucial point. It is a group of people working in synergy to reach together one or more common objectives. Working together is the best way to build something, to realise a project, to present a proposal to a consumer/user. But it is not always easy to get along and in harmony with the different facets of the individual characters.

The word TEAM can be considered as an acronym “Together Everyone Achieve More”. In TEAM the individuals do not retain their individuality but unite themselves and their skills in favour of the “goals” to be achieved; it is a group of individuals working together to solve a problem, meet an objective, or tackle an issue.

 

Working in a team generates several advantages:

  • The whole is more than the sum of parts: the advantage is that of working with a group of people with different experiences and skills who work together to achieve one or more common objectives
  • Individuals contribute with different talents, knowledge, experience, contacts, etc.: opening up to the possibility of learning from each other; but also enhancing the skills of each individual, which improves learning from other colleagues
  • Working as a team imply better results can be achieved: this is always valid! An effective team is based on grouping and matching of individuals with some skill sets, with the intention of reaching a specific goal and working on the different problems in order to find the best feasible solutions.

Although individual thinking can, in some cases, be effective in solving certain problems, working in groups can generate innovative ideas and solutions. Teamwork, on the other hand, can bring positive aspects:

  • increasing overall efficiency
  • improving the performance of all members
  • developing and distributes skills
  • building confidence in success
  • reducing stress and increases motivation
  • allowing the leader to focus on the big picture
  • bringing innovation and satisfaction
  • finding the right role for each member
  • improving the quality of final result

Therefore, when an individual is included in an effective and active team, they generally acquire intangible benefits such as feelings of self-esteem, happiness, satisfaction, and even a sense of realisation and intellectual learning.

What is the best way to build an effective team? We have collected a list of 5 tips to identify the right people to join in a team:

  1. Do not create a group with homogeneous figures: the strength of a group is the different skills of each component that, together, can make an essential contribution to achieve a common goal
  2. Build consensus on team’s purpose: it is important that each team member has a clear understanding of which goals to achieve. Only in this way will s/he be able to give such an effective contribution that the group can reach them
  3. Identify available resources: it is very important that everyone knows the different responsibilities each “team member” is required to take
  4. Establish shared rules of behaviour: all must be constantly aligned with the progress of work to take corrective measures in case of problems and needs
  5. Establish periodic monitoring reports: it is periodically useful to check whether the team work is in line with the objectives that were initially identified

Obviously, these are just some of the many “rules” that should be followed to create a successful team, however these ones are very useful to make teamwork efficient. Individuals who are part of the team can achieve better results than the sum of individual contributions, generating synergies that allow even better performances.

A teamwork can be considered in two ways: a “short-term team” and a “long-term team”.

For example, there are teams that work for a short period of time to achieve a specific goal. Once the goal is achieved, the team dissolves and moves to a new goal. Other types of teams are more complex because they operate for a longer period of time and because they set more specific objectives to design a larger strategy, defining a precise sequence of deadlines to be respected. We should remember that a goal, even if very specific and apparently simple, can greatly stress the team. The achievement of a set of goals is possible only if consensus is built and individualism is avoided within the work team, as Michael Jordan reminds us (NBA, 2017):

 

“Talent wins games, but teamwork and intelligence win championships.”

 

The stage concerning the team building involves 6 key aspects to consider (Northouse, 2016):

  • understanding the team purpose (end result)
  • determining how the team will be organised
  • delegating responsibilities and accountability
  • discussion of milestones or short-term goals
  • outlining team rules including future meeting dates
  • discussion of available resources

To ensure that it works properly and that they are able to pursue the objectives set, the Team Members should always maintain positive behaviour that is indeed necessary to keep the group’s morale high, to recognise the different skills and experiences and to lead them to a single goal. Relationships within a team, focused on trust and respect, are crucial to achieve the final result. In general, we can summarise a positive behaviour in:

  • the ability to always offer and accept constructive criticism
  • keeping the communication open and independent
  • establishing clear rules of behaviour
  • adapting attitudes to support and trust the other members of the group

Despite positive attitudes, some factors of conflict can always emerge (Fig.5.6). Conflicts and, in general, negative behaviours can emerge above all in the phase of the so-called storming, that is the debate around the resolution of a given problem.

This happens because very often there are ideas, ways of working, values and opinions also very different from each other: but we must say that conflict can often be very useful for the identification of a problem and the search for possible solutions, but should not reach too high levels. In fact, if negative behaviours take the upper hand and conflicts are not adequately managed, they can eventually lead to confrontation and influence the entire functioning of the team. During conflicts, team members can become increasingly frustrated and lose motivation of the activity or project.

Fig. 5.6 – The 9 most despised teamwork personalities (Source: www.workfront.com)

To build a successful team we realised that: ambitious goals cannot be achieved on their own.

Diversified skills and competences can be put in place; the process of elaboration of shared solutions is simplified. This can only be possible knowing how to bring together, effectively and efficiently, the work of many individual professionals, better if distinguished from different professionalism, in a single synergistic assembly, a team immersed in an environment that can also favour “inspiration” and “creativity”, elements that have become indispensable to win the challenges.

The only way to build a successful team is to put together a good team, composed of elements each with a defined role and useful for the purpose. A team needs its leader, a person who can preserve it over time and inspire it to work better together. It is therefore essential:

  • getting each team member constantly involved
  • taking advantage of contributions given by all members
  • stemming most dominating personalities
  • allowing all members to express their ideas freely and clearly

In any case, conflicts are a component (also essential) of team work. It is not possible to imagine a relationship, a team, a group without a conflict.

In particular, conflict situations may arise depending on:

  • individuals attacking personalities or ideas
  • constant criticism of others’ viewpoints
  • showing anger
  • showing contempt
  • unwillingness to share workload
  • poor participation
  • gossip

Conflict Management in a project is therefore an important task for every leader who must be able to lower the level of emotionality and bring attention to the rational aspects.

On the other hand, teamwork often involves people with different experience, competence, culture, values, personal power and level of delegation. This can determine very different expectations, attitudes and perceptions among the project team members. Conflict by itself should not be considered a negative factor. Indeed, in some cases it can bring out issues that are not sufficiently evaluated. Instead, it becomes problematic when it becomes a confrontation between the parties to make one opinion prevail over the other. Therefore, it is not the conflict itself that constitutes a problem, but the wrong way of managing it or the fact of not managing it at all.

Conflict Resolution implies more than just a role of arbitration and the leader must limit the emergence of conflict situations by:

  • always informing the team about the direction of work or project
  • explaining the general objectives, motivations and constraints or communicating any changes in a clear and timely manner
  • clarifying the expectations of the team members as a whole
  • assigning tasks to be carried out without ambiguity or overlapping skills

5.2.2 – Problem solving

In order to introduce problem solving, the following diagram (Fig. 5.7) illustrates the entire problem-solving process working in a team (Koppenjan and Klijn, 2004). First of all, we must identify and define the problem to be solved and then analyse in detail its nature. We must then propose more general solutions to the problem and generate all the alternative hypotheses. From here we proceed to the adoption of the best solution and its verification. Finally, we must evaluate the results of the solution adopted and, if it does not meet the expectations, return to generate a valid alternative.

Fig. 5.7 – Rational Problem-Solving Approach (Source: authors’ elaboration)

The value of the structured approach to solving a problem clearly depends on the type of problem we face: the more complex and unstructured the problem, the more teamwork is useful to find solutions to it.

Identification, definition and analysis of the problem are key steps: but, unfortunately, even when a team has identified and analysed a problem, it can be misinterpreted. The ability to identify and analyse a problem depends on three fundamental aspects:

  • the nature of the problem
  • the team
  • the work context

Problems vary in terms of complexity: the most common problems are those that are more easily identified; while new or more complex problems are those that are more difficult to interpret. Often, because complex problems are difficult to analyse and interpret, the team can try to select only a part of the problem, simplifying it (even if this may not be the method that completely solves the situation).

The search for an effective solution to a problem always depends on the development of alternative quality solutions. This also depends very much on the knowledge and ability of the team as well as on the climate or context in which it operates. Techniques such as brainstorming are often used to generate alternatives: an important factor is the participation of all members and the ability to manage ideas that are very divergent one from the other. In fact, too often compliance leads the team to adopt non-innovative and often ineffective solutions. After generating the alternatives, the team must consider how to determine the best adoptable solution, considering the positive and negative effects of each alternative.

 

A good solution is often determined by:

  • a correct balance between the ideas proposed by all team members
  • limited resource consumption (including time)
  • a process that depends on a situation of harmony and sharing within the team

One important thing: once the solution has been adopted, one must not stress the merits of each one. This could generate new conflicts.

Once the team has acquired information, analysed the problem and generated possible alternative solutions, the next step is to examine these possible solutions from different perspectives. Precisely for this reason, the Solutions Matrix can be a useful tool to help you do this: for every possible solution it is useful to identify:

  • the cost (high, low) not only in terms of resources but also in terms of time
  • the ease of implementation, considering all the operational aspects that are to be considered in order to implement the solution
  • any support from other team members or external members
Tab. 5.1 – Solutions Matrix (Source: authors’ elaboration)
POSSIBLE SOLUTIONS COST (HIGH/LOW) EASE OF IMPLEMENTATION SUPPORT FROM OTHER TEAMS

 (EXTERNAL SUPPORT)

The adoption phase of the chosen solution is a delicate step that must be carried out considering that the consensus on the solution to be approved is built on the majority of opinions expressed by all the team members and that each member must eventually accept the solution chosen on the basis of consent even if their opinion is different.

After the team has selected a decision, it is always best to organise a new meeting to review the decision. Even when a team decides by consensus, it is convenient to have a second meeting to prevent the decision from being influenced, inappropriately, by a single thought group.

Adopting and evaluating the chosen solution nullifies the differences between the current and desired status but, if a problem occurs again, it is necessary to go back to generating new ideas and new adoptable solutions, and even to reformulate the initial problem.

5.3 – Entrepreneurship

5.3.1 – Developing the entrepreneurial skills

Who is an entrepreneur? An entrepreneur is someone who starts a business venture by providing goods or services to individuals or businesses for payment. A “good entrepreneur” should have some personal qualities which include:

  • curiosity and creativity
  • motivation and self-confidence
  • willingness to take risks
  • eagerness to learn
  • ability to co-operate
  • ability to identify opportunities
  • ability to innovate
  • determination to overcome obstacles
  • ability to learn from mistakes.

These qualities help the entrepreneur think, analyse, solve problems and take action. Many of these qualities can also be acquired through the learning process.

 Managing the business – People who start their own business have control over what they do in their working life. One needs management skills to make the business successful as well as to convince the community that it can help them or, at least, can do them no harm.

A good manager is a planner, a person who has vision, sets goals for achieving that vision and ensures that the necessary resources – financial and human – are obtained and allocated in time.

 

Communicating – Good communication in business is important, because clients and business partners need to understand precisely what you are trying to buy or sell. Entrepreneurs should show interest in their customers and listen carefully to find out as much as possible about their needs. Listening is an important part of communicating.

Entrepreneurs need to inform clients and business partners about the products and/or services they sell and how these can meet their needs. Being honest and frank about their product or service can help build clients’ trust and confidence. This means that they should not give clients an incorrect impression of their product. Being frank in general may also help to buy materials or services at a reasonable price from business partners.

 

Making the best use of the time – Managing time is an essential part of good business planning, because time is a resource that has a monetary value. Poor time management usually leads to last minute rushes to meet deadlines, causing stress and lower performance quality. This may result in a product or service of poor quality and/or it not being delivered in time. A disappointed customer may seek a more reliable business provider. Time should be allocated to tasks depending on:

  • when the product or service is to be delivered
  • how long the preparation of the product or service is likely to take
  • the need to co-ordinate people working on the product or service preparation
  • how important the product or service and the client are to the business as a whole, etc.

Often, we must undertake several tasks at the same time in order to complete our job. We do this by estimating the amount of time necessary for each task and organising our work accordingly.

Similarly, a person working on a task may be asked to help with another task when the work situation requires it. The time taken for the various stages of production should be recorded, so that clients can be given estimates of delivery time and the timeframe of future projects may be planned.

 

Practising business ethics – Businesses need to function according to established law and rules set out by the community as well as the prevailing ethical standards.

But most importantly, young entrepreneurs may wish to set their own high ethical standards.

In addition, many groups of businesses have established ethical standards for specific businesses. Although they are not legally required, these values help to provide levels of service that distinguish the best businesses and build confidence among clients. Issues to consider include, but are not limited to:

  • conflict of interest
  • corruption and bribery
  • environmental responsibility
  • non-discrimination against others, for instance women, people with HIV/AIDS and people with disabilities
  • after-sales service
  • truthful advertising
  • fair treatment of staff
  • refusal to deal with illegal partners, etc.

5.3.2 – Getting started with the business idea

Assessing demand – The first step in starting a business is to identify a need in the community and estimating the size of that need is called “assessing demand”. Effort should not be put into any other part of business planning before demand has been assessed.

Some methods and criteria they will use to assess demand for a product or service could include:

  • listening to people’s complaints about a need in the community
  • sending informal surveys in the marketplace
  • sending mail surveys / questionnaires
  • assessing a need that is highlighted in the local newspaper or radio
  • generating local focus groups, etc.

Sizing up the market – The people in the community who need our product or service and are willing to pay for it are the market.

The market must be aware of the availability of the product or service and be able to obtain it. Helping the community to know about a product and how to obtain it is a marketing strategy.

It makes sense for a business to have an effective marketing strategy that should take into account:

  • the business location
  • advertising
  • packaging
  • the need for good relationships with other businesses
  • reputation in the community (aka “word-of-mouth”)
  • competitors’ prices

The entrepreneur should be willing to adapt products or services to customer preferences, taking into consideration local safety and security regulations.

A new product/service may have an initial period of high demand. However, a saturation point may be reached, and demand may stay stable or even decrease. A sustainable market is one in which demand keeps increasing or stays stable with a steady rate of replacement.

 

Estimating cost and setting a price – A product or service may be exchanged for money or for another product or service.

Most businesses intend to make a profit on products/services sold. Profit is the difference between the cost and the selling price. A part of the profit can be reinvested or used for expansion of the business. A reasonable margin of profit enables the business to continue and even expand.

Fixing the selling price of a product/service must take into consideration:

  • costs of production (including the entrepreneur’s own salary)
  • overheads (aka “indirect costs”)
  • profit

The costs of production and overheads can be calculated by taking into account each component that goes into production and overheads. Labour and depreciation of equipment may also need to be taken into consideration. In calculating the cost of labour, the entrepreneur should set a wage that adequately compensates the workers’ knowledge and contribution, taking into account the experience and qualifications of the worker, prevailing basic wage rates, holiday pay, sick leave, government tariffs and social security contributions.

Paying a lower price for materials and/or production could enable the entrepreneur to reduce the selling price.

The entrepreneur should also be careful in setting the level of profit made on the sale of a product/service, taking into account the relationship between demand for the product  and the available supply (amount of product available to be sold). If demand is great for the available supply, the price (and thus the profit) may be increased. If there is a large supply, but few people want to buy, then prices may drop. An excessively high price due to a big margin of profit will dissuade customers. When sales increase, profit margins may be reduced. This can enable the entrepreneur to lower the selling price, therefore allowing the business to ‘capture’ the market and even expand it.

 

Managing the workplace – A workplace is where goods and services are produced or sold, such as a factory, office or shop. Workplaces must be kept clean and safe for workers and clients. The entrepreneur should pay particular attention to:

  • space
  • lighting and ventilation
  • material handling and storage
  • electric appliances
  • control of hazardous substances
  • etc.

5.3.3 – Assessing resources

The resources usually needed to launch a new business may be broadly classified in three groups: financial, human and material.

 

Financial resources – When the nature of the new business has been decided, it will be necessary to estimate the cost of starting operations. These may include the cost of:

  • premises
  • utilities
  • equipment
  • initial stock
  • insurance
  • etc.

 

One of the key point for starting the business is to obtaining funds. The funds for launching the business may be obtained from one or a combination of sources:

  • personal savings
  • family funds
  • community co-operative organizations
  • community financial syndicates
  • micro-finance organizations
  • post office
  • savings and loan associations
  • banks
  • etc.

A new entrepreneur should investigate as many sources of funding as possible. Lending institutions may require evidence regarding the prospective business, such as a business plan (see par. 5.3.4), a guarantee and a contribution by the entrepreneur, before they actually disburse funds.

When funds have been obtained for the purpose of launching a business, the entrepreneur needs to be meticulous about keeping records of income on the one hand and expenditures on the other hand.

 

Human resources – Entrepreneurs may launch the business by themselves and consider obtaining assistance as the business expands and the workload increases.

Mobilising people to help with the business will involve compensating those people with a fair wage that corresponds to their suitability (i.e. qualifications) for the job and the number of hours, days, weeks or months they will work.

Before hiring workers, the business needs to identify clearly the nature of the work that is to be done and the professional qualifications and skills of the person who should be hired to do this work.

Staff may need to receive training when they start their work and then again periodically during their working life with the business. Relevant training may contribute to motivating staff – which increase its retention – and making it more productive.

A business may choose not to hire an employee to do some of its work. It may instead assign the work to a person or agency outside the business and pay for that assignment only.

An advantage of outsourcing is that the business can choose to terminate the services of the contracted person or agency if their performance is not satisfactory or their charges are excessive.

A disadvantage of outsourcing is that the contracted person or agency would feel no significant loyalty or commitment to the business and would not be a part of the business working force.

 

Material resources – Starting and running a business requires materials. The materials a business needs will depend on the nature of its activity (the product/service it provides), and how many people it employs, how many clients it has and the amount of goods or services it provides.

Entrepreneurs must determine very carefully what items or types of materials they need to best run the business, and in what quantities.

Some items will need to be obtained only once every year or few years, while others will need to be constantly renewed.

5.3.4 – The Business Plan

The Business plan is a necessary document for summarising the entrepreneur’s business aspirations, securing legal authorisation and mobilising the resources to launch the business.

Thus, the Business plan is used when you wish to create a new business but also all the times you need to check the reliability and sustainability of a change in your business.

It is also a useful tool for managing and controlling the business, both for new companies and for existing ones.

Fig. 5.8 – The scope of the Business plan

What is the business plan used for? – When you wish to create a new business, the Business Plan is useful for:

  • Organising the launch of a new business, i.e., clearly express the business idea and its mission, highlighting the need for money and human resources
  • Showing the expected results, i.e., clearly describe the services and products offered
  • Producing reliable economic forecast, i.e., clearly describe the costs and earnings plan
  • Presenting the business, i.e., clearly explain to potential stakeholders the business idea and how it will be realised

 

Who needs a business plan? – A business plan can be useful for:

  • the entrepreneur to fully understand the feasibility and convenience of the business idea
  • Lenders and external investors to decide whether to support the implementation of the business
  • the business itself to have a tool for managing and controlling every phase of the business

 

How to create a business plan – The first step to create a business plan is to describe the mission of the business, the role it plays in the reference market, identifying the elements of success (that is, the distinctive features and any innovative element).

Fig. 5.9 – Description of the business

The second step is to describe the timescale of the business implementation:

Fig. 5.10 – Description of the business implementation timescale

The third step is related to the services/products offered.  You need to provide:

  • detailed information about the product/service, focusing on the differences from existing products/services
  • technical characteristics of the product/service offered and its working
  • type of needs that the product/service satisfies: consumer benefits and differences from the competitors
Fig. 5.11 – Description of the product/service

The fourth step is to analyse the market where the business operates, its operating rules and the relationship between the product/service, the target of the reference customers, the possible suppliers and the competitors.

Fig. 5.12 – Description of market analysis

The fifth step is to describe the main tools used to achieve the objective, such as:

  • material and immaterial technical resources (technological skills, know-how, patents and licenses, logistics, financial availability)
  • roles and responsibilities of every actor of the business
Fig. 5.13 – Description of organisation and needs

The sixth step is to highlight the most suitable actions to make the business known on the market:

Fig. 5.14 – Description of advertising and promotion

The seventh step is to present credible economic-financial projections that reflect the results that the business aims to achieve, through:

  • Estimated investment, that is the costs incurred to acquire tangible and intangible assets that will produce value over several years
  • Financial requirements, that is the financial needs for the feasibility of the business and the funding opportunities
  • Budget and income statement. The budget aims to provide useful information to better understand the future profitability of the business. The data to be taken into consideration are:
    • Direct revenues and direct costs, related to the sale and production of products/services offered
    • General costs that the business faces
  • Cash flow, that is the difference between money in and out
  • Taxes

 

The eighth step is to assess profitability and breakeven. The profitability of the business is the first element that needs to be verified before starting: am I earning money or losing it?

The breakeven establishes the minimum quantity that must be produced to achieve “zero profitability” (revenues = costs). It is also the tool for determining the price to be set to obtain the expected level of profit.

 

Links and references

  • Cutlip, Scott M.; Center, Allen H. (1952) “Effective public relations: pathways to public favor”. University of Michigan: Prentice-Hall
  • De Vito, Joseph A. (2017) The Interpersonal Communication Book”. Boston, MA: Pearson Education
  • Foulger, Davis (2004) “An Ecological Model of the Communication Process”. Retrieved from http://davis.foulger.info/papers/ecologicalModelOfCommunication.htm
  • Koppenjan, J.; Klijn E-H (2004) Managing Uncertainties in Networks. A network approach to problem solving and decision making. London and New York: Routledge
  • McCarthy, E. Jerome (1960) “Basic Marketing: A Managerial Approach”. Indiana University: Irwin
  • Mehrabian, Albert (1981) “Silent Messages: Implicit Communication of Emotions and Attitudes”. Belmont, CA: Wadsworth
  • NBA (2017) “NBA Encyclopedia: Playoff Edition. 2017”. Retrieved from http://www.nba.com/history/players/jordan_bio.html
  • Northouse, P. G. (2016) “Leadership: Theory and Practice, 7th Ed”. Thousand Oaks, CA: Sage Publications
  • Wikipedia definition (2018) “Communication. Retrieved from: https://en.wikipedia.org/wiki/Communication
  • Drucker, Peter F. (1985) “Innovation and entrepreneurship: practice and principles”. New York: Harper & Row.
  • Cooper, Robert G. (1995) “Benchmarking the Firm’s Critical Success Factors in New Product Development”. Journal of Product Innovation Management, 12(5), 374-91

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