Small businesses are formed through several key steps. An entrepreneur first identifies a business opportunity and assesses its market feasibility. They then decide whether to start a new business, buy an existing one, or purchase a franchise. Administrative functions like developing marketing strategies, advertising, product promotion, distribution, purchasing, and operations management are also important. Overall, starting a small business requires identifying an opportunity, assessing its viability, and properly managing key business functions.

1. HOW SMALL BUSINESS IS
FORMED?
Entrepreneurship – Lesson 10

2. Topics to be
Discussed…………..
 Introduction
 Steps in starting a Small Business
 Small Business Administrative Functions

3. Introduction
 It is often an integration of the functional plans
such as marketing, finance, manufacturing and
human resources.
 It is prepared to attract people and money in
the proposed new venture.

4. Steps in Starting a Small
Business
 1. Search for and identify the business opportunities
 2. Study the market feasibility of the products /
opportunities.
 3. Decide whether to start a new business, buy an
existing one, or buy a franchise.
 Decision to start a new business
 Decision to buy an existing business
 Decision to buy a franchise
 Franchise
 Franchisor
 Franchisee
 Reasons for buying a franchise
 Reasons for not buying a franchise

5. Steps in Starting a Small
Business
 1. Search for and identify the business
opportunities
 The list of possible products/services/ ideas is
almost unlimited.
 The best place to start searching is to find your
appropriate market niche.
 Niche Marketing
 is the process of finding a small- but profitable –
demand for something, and then producing a
custom-made product for that market.

6. Steps in Starting a Small
Business
 2. Study the market feasibility of the
products / opportunities.
 Estimating the size of the market.
 Estimating the competition.
 Estimating your share of the market.

7. Steps in Starting a Small
Business
 3. Decide whether to start a new business,
buy an existing one, or buy a franchise.
 Decision to start a new business
 Decision to buy an existing business
 Decision to buy a franchise
 Franchise
 Franchisor
 Franchisee
 Reasons for buying a franchise
 Reasons for not buying a franchise

8. Steps in Starting a Small
Business
 3. Decide whether to start a new business,
buy an existing one, or buy a franchise.
 Decision to start a new business
 Reasons for starting a new business
 Owner’s freedom to:
 Define the nature of the business.
 Have a free hand in selecting and developing
business and personnel.
 Take advantage of the latest technology, materials and
tools.
 Select a competitive environment.

9. Steps in Starting a Small
Business
 3. Decide whether to start a new business,
buy an existing one, or buy a franchise.
 Decision to buy an existing business
 Reasons for buying an existing business
 Personnel are already working.
 The facilities are already available.
 A product is already being produced for an existing
market.
 The location may be desirable.
 Relationships have been established with banks and
trade creditors.
 Revenue and profits are being generated, and
goodwill exists.

10. Steps in Starting a Small
Business
 3. Decide whether to start a new business, buy
an existing one, or buy a franchise.
 Decision to buy a franchise
 Franchise – a business licensed to sell a company’s
product exclusively in a particular area or to operate a
business that carries that company’s name.
 Examples: McDonalds, KFC, Pizza Hut, Starbucks
 Franchisor – The franchisor refers to the companies that
own trademarks (brand name) and products, which gives
the right to the franchisee to use the trademarks and sell
products and services in a different location. The
franchisor gets an agreed-upon fee.
 Franchisee - A business owner who gets the right to sell
goods or services of a company, in exchange for some

11. Steps in Starting a Small
Business
 3. Decide whether to start a new business,
buy an existing one, or buy a franchise.
 Reasons for buying a franchise
 The franchiser and franchisee desires the
success of the other.
 The franchiser brings proven and successful
methods of operation and obtains guidance from
experienced people by obtaining a franchise.
 The market niche has been identified, and sales
activities are in place.

12. Steps in Starting a Small
Business
 3. Decide whether to start a new business,
buy an existing one, or buy a franchise.
 Reasons for not buying a franchise
 The best business being franchise is costly.
 Expenses include investments and fees, as well
as royalty payments.
 New franchisees face far greater financial risk.
 The best franchise is not a guarantee of success.
 The franchisee may not have enough
independence.

13. Small Business Administrative
Functions
 1. Developing Marketing Strategies
 2. Advertising the Product
 3. Promoting the Product
 4. Distributing and Selling the Products
 5. Purchasing and Inventory
 6. Developing an Operating Systems
 7. Facilitating the Business Operations

14. 1. Developing Marketing Strategies
- How to Market the Products?
 Setting Objectives
 Choosing Target Market
 Developing an Effective Marketing Mix

15. 1. Developing Marketing Strategies
- How to Market the Products?
 Setting Objectives
 Marketing objectives should be tied in with your
competitive edge and flow from your mission
statement.
 A competitive edge / competitive advantage is a
particular characteristic that makes a firm more
attractive to customers than its rivals.
 Your competitive edge is something that
customers want and only you can supply which
gives you an advantage over your competitors.
 Some factors that might provide such an
advantage are quality, reliability, integrity, and

16. 1. Developing Marketing Strategies
- How to Market the Products?
 Choosing Target Market
 A target market is the part of the total market
toward which promotional efforts are
concentrated. Use market segmentation.
 Market segmentation is the division of the
market for a product into
 groups of customers with identifiable needs
and characteristics.

17. 1. Developing Marketing Strategies
- How to Market the Products?
 Developing an Effective Marketing Mix
 A marketing mix is the proper blending of the
basic elements of product, price, promotion
and place into an integrated marketing
program.

18. 1. Developing Marketing Strategies
- How to Market the Products?
 Suggested Marketing Strategies for Small
Business
 Moving quickly to satisfy customers’ needs.
 Using pricing to differentiate the product.
 Paying attention to packaging.
 Building customer’s loyalty.
 Offering samples and demonstrations.
 Aligning at specialized market segments.
 Localizing business.
 Providing personal touch.
 Providing technical repair services.

19. 2. Advertising the Product
 Advertising is a form of commercial mass
communication designed to promote the sale of a
product or service, or a message on behalf of an
institution or organization.
 Thus, it informs customers of the availability,
desirability and uses of a product.
 Forms of Advertising
 The most popular advertising media used by small
businesses are display ads in television, newspapers,
radio, store signs, direct mail, circulars, handbills,
yellow pages ads, outdoor signs and internet.

20. 3. Promoting the Product
 Merchandising
 It is for promoting the sale of a product at the
point of purchase.
 It is the way the product is presented to
customers, including window displays, store
banners, product label and packaging and
product demonstration.
 Sales promotion
 It includes marketing activities (other than
advertising and personal selling) that stimulate
consumer purchasing and dealer effectiveness.

21. 3. Promoting the Product
 Consumer Promotions use coupons,
discounts, contests, trading stamps, samples,
rebates, etc.
 Trade Promotions includes free goods,
buying allowances, merchandise allowances,
cooperative advertising and free items given
as premiums.

22. 3. Promoting the Product
 Sales Force Promotions consists of benefits,
such as contests, bonuses, extra
commissions, and sales rallies.
 Publicity is information about a business that
is published or broadcasted without charge.

23. 4. Distributing and Selling the
Products
 a) Distribution involves the effective physical
movement of a product from the production
line to the final consumer.
 It includes protective packaging, materials
handling, inventory control, storing, transportation
(internally and externally), order processing, and
various aspects of customer service. Intermodal
Shipping is the use of combination of truck, rail, or
ship to transport goods.


24. 4. Distributing and Selling the
Products
 b) Selling the Product
 Selling is the activity or process of exchanging a
product for money. In business, "nothing happens
until someone sells something.
 Steps in Sales Process
 Prospecting for Customer
 Presenting the Product
 Handling Objections
 Closing the Sale

25. 4. Distributing and Selling the
Products
 Sales Strategy Techniques
 Direct selling
 Indirect selling
 Direct Selling
 Occurs when you sell products directly to
consumers. Methods include catalogues, home
parties, door-to-door selling, telephone sales and
retail craft shows.

26. 4. Distributing and Selling the
Products
 Indirect selling occurs when you sell to an
intermediary, as opposed to an end user.
 Methods of indirect sales include selling your
product to a retail store as well as using a
wholesaler/distributor or broker/agent.
 Indirect sales can include club chains, hotels
and institutions as well as any kind of retail
shop.
 Intermediaries are units or institutions in the
channel of distribution that either take title to or
negotiate the sale of the product.

27. 4. Distributing and Selling the
Products
 The usual intermediaries are: brokers / agents,
wholesalers, retailers
 A broker/agent doesn’t take title of the products.
Instead he or she provides a sales force to sell
your goods for you.
 A wholesaler/distributor buys products from
producers and normally sells the goods to retail
stores.
 They usually represent complementary products
and takes title of the goods.
 In most cases, the producer is responsible for
advertising and for getting listed with retail chains.
 However, a distributor may share some
responsibility for promotions, especially for

28. 5. Purchasing and Inventory
 Purchasing is the process of buying the right
item, at the right price, quality, and quantity,
from the right supplier at the right terms and
right time.
 Objectives of Purchasing
 (In next slide)

29. 5. Purchasing and Inventory
 Objectives of Purchasing
 Maintain the quality and value of the firm’s
products.
 Minimize cash tied-up in inventory (the
merchandise/stock that a company has on hand).
 Types of inventory: finished items on display for
sale to customers;
 batches of goods, such as materials and parts
awaiting processing or delivery; repair parts
awaiting use; supplies for use in offices, stores,
shops and for use in processing other goods;
miscellaneous items
 Maintain the flow of inputs to maintain the flow of
outputs.
 Strengthen the firm’s competitive position.

30. 6. Developing an Operating
Systems
 Operating Systems consist of the inputs,
processes, and outputs of a business.
 Inputs are materials, people, money, machines
and other productive factors.
 Processes convert these inputs into products
that customer wants.
 Outputs are the products produced and the
satisfaction of employees and the public.

31. 6. Developing an Operating
Systems - Examples

32. 7. Facilitating the Business
Operations
 Choosing the right location
Location
a) Locating Retail stores
Downtown Business Districts
Freestanding Stores
Shopping Centers
b) Locating Manufacturing Plants

33. 7. Facilitating the Business
Operations
 Choosing the right location:
 Location is most important for certain types of
business than others. Location refers to the place
of business.
 A business has to consider the following factors
while choosing the location:
 Access to a capable, well-trained, stable work force.
 Availability of adequate and affordable supplies and
services
 Availability, type, use, and cost of transportation.
 Taxes and government regulations.
 Availability and cost of electricity, gas, water, sewage,

34. 7. Facilitating the Business
Operations
 a) Locating Retail stores:
 Downtown Business Districts
 Downtown business-oriented activities, such as
government, financial businesses, and head offices of
large firms are usually located in the downtown area.
 Freestanding Stores
 Freestanding stores found in various locations are
usually best for customers who have brand or
company loyalty.
 Shopping Centers
 Shopping centers vary in size and are designed to
draw traffic according to the planned nature of the
stores to be included in them.

35. 7. Facilitating the Business
Operations
 b) Locating Manufacturing Plants:
 The location of manufacturing plant is usually
selected with the aim of serving customers
properly at the lowest practical cost.
 Generally, manufacturing industries are set up
in industrial estates and suburban areas.

36. Reviewed …………..
 Introduction
 Steps in starting a Small Business
 Small Business Administrative Functions