Chapter 2@2016 4MEng
Chapter 2@2016 4MEng
1. Entrepreneurial Spirit: A strong desire and drive to create and 6. Legal Structure: Choose a legal structure for your business based
on factors like liability, taxation, and ownership structure, register
manage a business. the business, and comply with relevant laws and regulations.
2. Identifying Opportunity: Recognizing a market need or gap that can 7. Adaptability: Flexibility to adjust strategies and operations in
response to changing market conditions and circumstances.
be addressed with a product or service.
8. Financial Management: Basic understanding of finances and
3. Risk Tolerance: Willingness to take calculated risks and embrace
ability to manage budgets, cash flow, and profitability.
uncertainty associated with business ownership.
9. Networking: Building relationships with stakeholders, including
4. Resourcefulness: Ability to leverage resources effectively, including
customers, suppliers, investors, and mentors.
financial, human, and intellectual capital.
10. Execution: Capacity to turn ideas into action and effectively
5. Problem-Solving Skills: Capability to overcome challenges and find
execute business plans.
solutions to complex issues.
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Rules of Brainstorming
No criticism. Why to evaluate business idea?
Free wheeling is encouraged.
♠ To decide what is important
Quality of idea is desired.
Combination and improvements of ideas are encouraged. ♠ Identify strength and weakness of the idea
Evaluating a Business Idea ♠ Make best use of limited resources
Business idea should be evaluated in terms of: ♠ Minimize risk and maximize returns and so on.
Present market:-The size of the currently available market.
Market growth:-Rapid growth and high return on invested capital.
Costs:-It will include; Costs of raw material inputs, Labor costs, Selling
costs, Service, warranty, and customer complaints
Business risks:- It considered the following factors: Market stability in
economic cycles, Technological risks , Import competition Size and
power of competitors, Legislation and controls and Time required
generating profit
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Specific Example
To fill this gap, she started Daisy Rock Guitars, a company that
makes guitars just for women.
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How to form and develop Technology based Innovation in Technology based Business
ventures? Innovations are the ability of doing new things.
Entrepreneurship studies have identified three critical factors Types of Innovation
linked to successful creation of technology ventures:
Technology,
Talent and
Capital.
However, these by themselves will not be sufficient for the
successful development of technology based ventures; sound
national policies and strategies are always at the heart of such
development programs.
Government policies is very important to form and develop
technology base venture by training people, by supporting
financially, by establishing science and technology institute.
Product innovation/ Service innovation : doing a new or Incremental Innovation is the one leading to a relatively small
improved products/ services, or occurs when new ways of deviation from current practices. It is introduced to improve old
delivering products/ services are developed products or procedures, without intervening to the existing structure
e.g. The use of Automatic Telling Machines (ATMs) in banks to replace human and strategy of the enterprise.
tellers.
Radical Innovation brings about fundamental changes in the
Process innovation: occurs when new processes are developed activities of an enterprise and expresses a significant deviation from
specifically for making a new or improved product. current practices. It gives momentum to new business activities,
Administrative Innovation is the introduction of a new strategies and structures and introduces totally new products
administrative system or a new administrative process; it does not
introduce a new product or service but influences indirectly their
introduction or the production process thereof.
Technological Innovation refers to the creation, improvement
and expansion of the procedures sustained by the products. Or
Technological innovation may refer to the adoption of a new
idea relating to a new product or service, or the introduction of
new elements in production processes or service provision of an
enterprise.
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Cont.. Cont..
The process of innovations can also be classified as Market-pull and
Technology-push innovation:
Market-pull innovations: advancement of technology oriented
primarily toward a specific market need
Occur when customers are technologically sophisticated
Occur more frequently with older technologies
Tend to be incremental innovations
Technology-push innovations: advancement of technology
oriented primarily toward increased technical performance
Require that the firm’s scientists, engineers, and inventors have
direct experience with users
Occur more frequently with new and emerging technologies
Tend to be the major source of breakthrough innovations
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1. Breakeven point is the level of operation at which a business neither Break even analysis:-The calculation is as follows:
earns a profit nor incurs a loss.
The fundamental accounting equation
Profit = Revenues - Costs
Revenue = SP*units sold, Example
Total Costs = FC + VC*units manufactured A small street side cafe offers fresh traditional coffee to the general
public. Total variable costs per coffee (including coffee beans, water,
where, SP = selling price, FC = fixed cost, VC = unit variable costs.
firewood, sugar) amount to ETB 1.60 per cup. The cafe has fixed costs
We are assuming that units manufactured equal units sold per week of ETB 360.00, being the rental of the place. The selling price
The breakeven point is the point where profit is zero, so Profit /Loss is ETB 4.00.
= 0 = Revenue - Cost Break- Even in unit = [fixed costs / (Sales - variable cost)]
= SP*units sold - FC - VC*units sold = [360/ (4-1.6)] = 150 units
= (SP - VC)*units sold - FC
units sold(Q) = FC/(SP - VC)
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The cost of the project is $1500 and Determine whether project is acceptable since, NPV at 15% is positive but not large, we select a slightly
if the cost of capital is 18% using the IRR method. higher rate, say, 18%.
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Cont.….. Cont.
Next, the “Unrecovered Amount” represents the negative balance in the year
preceding the year in which the cumulative net cash flow of the company
exceeds zero.
And this amount is divided by the “Cash Flow in Recovery Year”, which is the
amount of cash produced by the company in the year that the initial investment
cost has been recovered and is now turning a profit. 43
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Cont.…….
45
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