Starting and managing a small business involves considering key definitions, strategies, and legal structures. To start, an entrepreneur must identify a business idea and opportunity, then consider obstacles like customer habits, switching costs, and competitor responses. The business can be established by introducing a new product/service, franchising, or acquiring an existing business. The entrepreneur must decide whether to work alone or with partners, and develop a business plan. Strategies include low-cost leadership, differentiation, and market focus. Finally, legal structures on sole proprietorship, partnership, and corporation must be evaluated based on tax, liability, capital, and management considerations. Effective conflict management also requires understanding causes, and using problem-solving and integration techniques.

1. Starting Small Business
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2. 4.1 Overview of Small Business
Definition of small business
 There is no general consensus for the definition of
small business.
 How ever some qualitative factors are important in
describing small business.
 The small business has at least two of the following
features:
1. Management is independent, since the manager
usually owns the business
2. Capital is supplied and ownership is held by an
individual or few individuals.
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3. Definition of Small Busine...
3. The area of operation is primarily local
4. The business is small in comparison with the larger
competitors.
 In summary small business can be defined as follows:
 Small business is one that is independently owned
and operated, and is not dominant in its field of
operation
 A business owner establishes a business primarily to
further personal goals, including making a profit.
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4. 4.2 Starting small business
1. Identifying business idea and opportunity
Research findings reveal that idea for a new business idea
emerges from the following sources:
a) Experience: People got the idea for their business from
the experience they gained while working in the same
industry or profession.
b) I saw someone else trying it:
c) Unfilled niche in the consumer marketplace
d) hobby or a vocational interest
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5. 4.2 Starting small business..
2. Obstacles: Barriers to Entering a New Industry
a. Customer attitudes and habits. the entrepreneur often
must put himself or herself in the shoes of the prospective
customer to be able to offer a deal that will be accepted.
b. Switching costs. These can be incurred when going from
one supplier to the next. The costs include those of retraining
workers. Another switching cost is the one encountered in
modifying fixtures, tools, and so on when switching to the
new system. Finally, there are the costs of checking the new
supplier and phasing out the old.
c. Response of existing competitor. many companies will
respond aggressively, with vigorous efforts to maintain their
market shares.
d. High start-up costs: The existence of high start-up costs or
other obstacles that prevent new competitors from easily
entering an industry or area of business.
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6. 4.2 Starting small business..
3. The Method of establishing of new business:
four basic routes exist for a start-up. The new business can:
i. introduce a product that is not available to
customers, or
ii. it can add its product to those already being
marketed
iii. Franchising: A franchise business is a business in
which the owners, or "franchisors", sell the rights to
their business logo, name, and model to third party
retail outlets, owned by independent, third party
operators, called "franchisees".
iv. Buying Existing Businesses: For some entrepreneurs,
buying an existing business represents less of a risk than starting a new
business from scratch 6

7. 4.2 Starting small business..
4. The People: Who will be Involved
 One important issue the entrepreneur must deal with
is whether to start the firm alone or have a partner.
 Although many individuals insist on complete
independence as a condition of starting a business,
partnerships have important advantages that should
be acknowledged
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8. 4.2 Starting small business..
5. The New Business and the Business Plan
 The business plan helps the entrepreneur to fully
consider all of the topics that must be addressed in
order for the business to be successful.
 It is especially helpful to develop the plan and give it to
others for feedback.
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9. 4.3 Formulating Entrepreneurial Strategies
 STRATEGY. A strategy is a road map an entrepreneur
draws up of the actions necessary to fulfill a company’s
mission, goals, and objectives. In other words, the
mission, goals, and objectives spell out the ends, and the
strategy defines the means for reaching them.
 A strategy is the master plan that covers all of the major
parts of the organization and ties them together into a
unified whole.
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10. 4.3 Formulating Entrepreneurial Stra..
THREE STRATEGIC OPTIONS.
The number of strategies from which entrepreneurs can
choose is infinite, however, three basic strategies remain
and they are as follows:
1. cost leadership,
2. differentiation, and
3. focus
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11. 4.3 Formulating Entrepreneurial Stra..
1. Cost Leadership.
 A company pursuing a cost leadership strategy
strives to be the lowest-cost producer relative to its
competitors in the industry
 Many small companies attempt to compete by offering
low prices, but low costs are a prerequisite for success
 You can’t compete on price if you can’t compete on
cost.
 This strategy works well when buyers are sensitive to
price changes, when competing firms sell the same
commodity products, and when companies can benefit
from economies of scale.
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12. 4.3 Formulating Entrepreneurial Stra..
Dangers exist in following a cost leadership
strategy:
 Some companies attempt to compete on price even
though their cost structure is not the lowest in the
market.
 Other companies focus exclusively on lower
manufacturing costs, without considering the impact
of purchasing, distribution, or overhead costs.
 Another danger is misunderstanding the company’s
true cost drivers.
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13. 4.3 Formulating Entrepreneurial Stra..
2. Differentiation
 A company following a differentiation strategy
seeks to build customer loyalty by positioning its
goods or services in a unique or different fashion.
 In other words, a company strives to be better than its
competitors at something that its customers value.
 There are many ways to create a differentiation
strategy, but the key is to be special at something that
is important to customers and offers them unique
value such as quality, convenience, performance, or
style.
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14. 4.3 Formulating Entrepreneurial Stra..
The key to a successful differentiation strategy is to build it on a
distinctive competence—something the small company is
uniquely good at doing in comparison to its competitors.
Common bases for differentiation include
a) Superior customer service,
b) Special product features,
c) Complete product lines( a group of related products
produced by single company)
d) A custom-tailored product or service,
e) Absolute product reliability,
f) Supreme product quality, and
g) The ability to build long-term, mutually beneficial
relationships with customers.
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15. 4.3 Formulating Entrepreneurial Stra..
Risks of differentiation strategy
Pursuing a differentiation strategy includes certain risks.
I. One danger is trying to differentiate a product or service
on the basis of something that does not boost its
performance or lower its cost to the buyer
II. Another pitfall is trying to differentiate on the basis of
something that customers do not perceive as important.
III. Imitations and “knock-offs” from competitors also pose a
threat to a successful differentiation strategy.
IV. Another danger of this strategy is over-differentiating
and charging so much that a company prices its products
out of its target customers’ reach
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16. 4.3 Formulating Entrepreneurial Stra..
3. focus strategy
 A focus strategy recognizes that not all markets are
homogeneous. In fact, in any given market, there are
many different customer segments, each having different
needs, wants, and characteristics.
 The principal idea of this strategy is to select one (or
more) segment(s); identify customers’ special needs,
wants, and interests; and then approach them with a
good or service designed to excel in meeting these needs,
wants, and interests.
 Focus strategies build on differences among market
segments.
 To be worth targeting, a niche must be large enough to be
profitable, reachable through marketing, and capable of
sustaining a business over time
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17. 4.3 Formulating Entrepreneurial Stra..
Risks of focus strategy
a) struggle to capture a large enough share of a small
market to be profitable.
b) invasion by competitors.
c) Sometimes a company with a successful niche
strategy gets distracted by its success and tries to
branch out into other areas. As it drifts further away
from its core strategy, it loses its competitive edge
and runs the risk of confusing or alienating its
customers. Muddying its image with customers puts
a company in danger of losing its identity.
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18. 4.3 Roads to Business Ownership
4.3.1 Consideration for the choice of the form of
Business organization:
 Selecting a form of business ownership is a landmark
step in the creation of a venture.
 One of the main reasons small businesses fail is that
they do not seek legal and accounting help at the
beginning.
 The following are relevant issues the entrepreneur
should consider in the evaluation process:
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19. 4.3.1 Consideration for the choice of …
1. Tax consideration
2. Liability exposure
3. Start–up and future capital requirements
4. Management ability
5. Business goals
6. Cost of formation
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20. 4.3.2 Forms of Business Ownership
every business fits one of three categories of legal
ownership, sole proprietorships, partnership, and
corporations:
A. Sole Proprietorship:
 The sole proprietorship is the simplest and most
popular form of ownership.
 This form of business ownership is designed for a
business owned and managed by one individual.
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21. 4.3.2 Forms of Business Ownership..
Advantages of proprietorship:
1. Least cost of business ownership to establish
2. Minimum or no special legal restriction
3. Ownership of all profit
4. No special taxes since business income and
proprietors’ income are taxed as one.
5. Maximum incentive to succeed
6. Privacy
7. Flexibility of operation
8. Easy to discontinue
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22. 4.3.2 Forms of Business Ownership…
Disadvantages of proprietorship
1. Unlimited personal liability
2. Limited access to capital for expansion
3. Limited skills and abilities
4. Feelings of isolation /overwhelming time
commitment
5. Limited growth
6. Lack of continuity for the business that has a limited
life span.
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23. 4.3.2 Forms of Business Ownership…
B. Partnership
 A partnership is a legal form of business with two or
more owners.
 Partners legally share a business assets, liabilities, and
profits according to the terms of a partnership
agreement.
 The partnership agreement is a document that states
all of the terms of operating the partnership for the
protection of each partner involved.
 Banks often want to review the partnership agreement
before lending the business money.
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24. 4.3.2 Forms of Business Ownership…
Types of Partnership
 There are three types of partnership, on the basis of
liability of partners:
1. General partnership: This is a partnership in which
all owners share in operating the business and in
assuming liability for the business’ debts.
2. Limited partnership: This is a partnership with one
or more general partners and one or more limited
partners.
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25. 4.3.2 Forms of Business Ownership…
3. Limited Liability Partnership (LLP):
 LLP limited partner’s risk of losing their personal
assets to only their own acts and omissions of people
under their supervision.
 This newer type of partnership was created to limit the
disadvantage of unlimited liability.
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26. 4.3.2 Forms of Business Owner….
Advantages of Partnership
The following are the advantages of Partnership:
 Easy to establish
More financial resources
Shared management and pooled /complementary
skills and knowledge
Flexibility
Freedom from double taxation
Longer survival
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27. 4.3.2: Forms of Business Owner….
Disadvantages of Partnership
The following are the disadvantages of Partnership:
Unlimited liability
Division of profits
Disagreement among partners especially with regard
to authority and control
Difficult to terminate because partners are bound by
the law of agency
Restrictions on transfer of ownership
Lack of continuity
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28. 4.3.2 Forms of Business Owner….
C. corporation
 A corporation is a legal entity that is separate and distinct
from its owners.
 Corporations enjoy most of the rights and responsibilities
that an individual possesses; that is, a corporation has the
right to enter into contracts, loan and borrow money, sue
and be sued, hire employees, own assets and pay taxes
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29. 4.3.2: Forms of Business Owner….
Advantages of corporation
It has a legal entity;
Limited liability of shareholders
Ability to continue indefinitely
Transferable ownership
Separation of ownership from management
The death of a shareholder does not mean the end of
the company;
Accessibility to large capital which enhance growth.
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30. 4.3.2 Forms of Business Owner….
Disadvantages of corporation
1. When company becomes very large, there is no personal
relationship between the customers and the owners;
2. Chain of command becomes long which lead to
communication breakdown.
3. Cost and time involved in the incorporation process
4. Double taxation
5. Charter restrictions
6. Extensive legal requirement and restrictions
7. Potential loss of control by the owners
8. Difficulty of termination
9. Possible conflict with share stockholders and board of
directors
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31. 4.4: Conflict Management in small
business development
Overview and Definition
Conflict is the appearance of difference , difference of
opinions, of interests
 The concept of conflict , being an outcome of
behaviors, is an integral part of human life. Where
ever there is interaction, there is conflict.
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32. Causes of conflict
• Misunderstanding: when individuals do not hear what is
being said
• Personality clashes: when individuals do not value people
• Competition for resources: when employees believe that
they are better off competing for resources rather than
cooperating
• Authority issues: when employees lack confidence in their
leaders or perceive overuse of authority
• Lack of cooperation: when one person does not share
information with the whole group.
• Differences over methods or style: when agreement does
not exist on standard ways of completing a task
• Low performance: when individuals are not working to their
potential
• Value or goal differences: when individuals value different
outcomes or objectives.
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33. 33

34. Reducing Conflict
 Overview
 Lose-lose methods: parties to the conflict episode do
not get what they want
 Win-lose methods: one party a clear winner; other
party a clear loser
 Win-win methods: each party to the conflict episode
gets what he or she wants
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35. Reducing Conflict…
 Lose-lose methods
 Avoidance
 Withdraw, stay away
 Does not permanently reduce conflict
 Compromise
 Bargain, negotiate
 Each loses something valued
 Smoothing: find similarities
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36. Reducing Conflict…
Win-lose methods
 Dominance
 Overwhelm other party
 Overwhelms an avoidance orientation
 Authoritative command: decision by person in
authority
 Majority rule: voting
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37. Reducing Conflict…
Win-win methods
 Problem solving: find root causes
 Integration: meet interests and desires of all parties
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38. Conflict Management
 Conflict management is defined as “the opportunity to
improve situations and strengthen relationships”
 Managing conflict means you need to develop several
styles and decide which is valuable at any given point
of conflict
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39. Some Tips for Managing Workplace Conflict
 Build good relationships before conflict occurs
 Do not let small problems escalate; deal with them as
they arise
 Respect differences
 Listen to others’ perspectives on the conflict situation
 Acknowledge feelings before focusing on facts
 Focus on solving problems, not changing people
 If you can’t resolve the problem, turn to someone who
can help
 Remember to adapt your style to the situation and
persons involved
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40. End of Chapter Four
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