SCHOOL OF INFORMATION SCIENCE

Section 03
Number

Course Code MGMT1012

Course Title Entrepreneurship

Semester/Year 2/2023

Instructor Yalew A.

Entrepreneurship Group Assignment - 2

No Group Members ID

1. Betelhem Tadele UGR/0716/15

2. Feben Adane UGR/6006/15

3. Hawlet Muhidin UGR/9803/15

4. Sebhatlab Mekbib NSR/5824/10

5. Tsion Mesganaw UGR/1503/15

6. Yohannes Hailemaraim UGR/0500/15

Submission Date: 23/ 08/ 2023

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 ACKNOWLEDGMENT
We would like to express our sincere gratitude and appreciation to everyone who
contributed to the successful completion of our group assignment. This project would
not have been possible without the collective effort and dedication of each team
member. First and foremost, we would like to thank our instructor for providing us
with the opportunity to work on this assignment. Second, we would also like to extend
our heartfelt thanks to our group members for their dedication, hard work, and
commitment. Each member brought unique perspectives, skills, and expertise that
greatly enriched our discussions and analysis. The collaborative effort put forth by
everyone ensured that we were able to meet all the requirements of the assignment
effectively. Thank you once again to everyone involved in making this project a
success.

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 TABLE OF CONTENT

ABSTRACT------------------------------------------------------------------------------------- 4
INTRODUCTION ------------------------------------------------------------------------------5
CHAPTER 4: PRODUCT/SERVICE DEVELOPMENT----------------------------------6
4.1 The Concept of Product/Service Technology--------------------------------------------6
4.2 Product/Service Development Process ---------------------------------------------------6
4.3 Legal and Regulatory Frameworks for Entrepreneurs ---------------------------------8
4.4 Intellectual Property/Product/Service Protection----------------------------------------8
4.4.1 What is Intellectual Property? -------------------------------------------------8
4.4.2 Patents -----------------------------------------------------------------------------8
4.4.3 Trademarks -----------------------------------------------------------------------9
4.4.4 Copyrights ------------------------------------------------------------------------9
4.4.5 Trade Secret ----------------------------------------------------------------------9
4.4.6 Counterfeit Product ------------------------------------------------------------10
CHAPTER 6: BUSINESS FINANCING ---------------------------------------------------10
6.1 Financial Requirements -------------------------------------------------------------------10
6.2 Sources of Financing ----------------------------------------------------------------------11
6.2.1 Internal Sources (Equity capital) ---------------------------------------------11
6.2.2 External Sources (Debt capital) ---------------------------------------------12
6.3 Lease Financing ---------------------------------------------------------------------------13
6.3.1 Types of Lease ------------------------------------------------------------------13
6.4 Traditional Financing in Ethiopian (Equib/Idir, Etc.) --------------------------------14
6.5 Crowd Funding ----------------------------------------------------------------------------15
6.5.1 How is Crowd Funding Different? -------------------------------------------15
6.5.2 The Benefits of Crowd funding ----------------------------------------------15
6.5.3 Types of Crowd Funding ------------------------------------------------------16
6.6 Micro Finances ----------------------------------------------------------------------------16
6.6.1 What is Micro Finance? -------------------------------------------------------16
6.6.2 Importance of MFIs ------------------------------------------------------------16
6.6.3 Micro-Finances in Ethiopia ---------------------------------------------------17
[Link] Types of Activities Carried Out by Ethiopian MFIs -----------17
SUMMARY -----------------------------------------------------------------------------------18
REFERENCE ----------------------------------------------------------------------------------19

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 ABSTRACT
Developing strong products and services is a vital capability for entrepreneurial
ventures. Product development involves idea creating, prototyping, testing, and
iterating to create offerings that effectively solve customer problems. Understanding
target users and their needs through market research helps entrepreneurs design
quality products. A commitment to constant improvement and innovation is key to
developing competitive offerings over [Link] financing is critical for funding
product development activities and overall business operations. Entrepreneurs
leverage diverse financing options, including business loans, angel and venture capital
investors, crowd funding platforms, grants, and personal assets. The type and amount
of financing must align with the stage of growth and projected needs of the business.
Product-market fit, demonstration of traction, and presentation of growth potential
help entrepreneurs secure financing from external sources. Financial management and
prudent use of capital enable entrepreneurs to continue fueling product and service
[Link] combining strategic funding with impact-full ventures, start ups can
attract customers and sustain growth.

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 INTRODUCTION
Business financing and product or services development are two of the most
important aspects of starting and running a successful business.
Business financing refers to the process of obtaining the money needed to start or
grow a business. There are a variety of different financing options available to
businesses, including loans, grants, and equity investments. The best financing option
for a particular business will depend on a number of factors, such as the size of the
business, the stage of development, and the creditworthiness of the business owner.

Product or services development refers to the process of creating new products or

services that can be sold to customers. This process involves a number of steps, such
as market research, product design, prototyping, testing, and marketing. The goal of
product or services development is to create products or services that meet the needs
of customers and that can be profitable for the business.
Business financing or product and services development are closely linked. In order to
develop new products or services, businesses often need to obtain financing to cover
the costs of research, development, and marketing. Additionally, the success of a new
product or service can depend on the availability of financing to support its launch
and growth.

In this paper, business financing and product or service development will be covered
in brief.

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 CHAPTER 4: PRODUCT/SERVICE DEVELOPMENT
4.1 The Concept of Product/Service Technology
Entrepreneurs face many challenges in identifying new product/service or market
opportunities. They need to be able to adapt to change and continually develop new
products and services that meet the needs of their customers.
Product design is an important factor in creating products that are both satisfying and
competitive. It is important to consider the needs of customers, the cost of production,
and the potential for innovation when designing new products.
A successful start-up needs to have a distinctive and compelling proposition that sets
it apart from the competition. This can be achieved by offering a unique product or
service, providing superior customer service, or having a strong brand.

4.2 Product/Service Development Process

According to Palgrave (2019), one of the essential characteristics of a successful
business is its ability to continuously and rapidly develop new or improved versions
of existing products that deliver more value to customers than they expect.
The product/service development process is a series of steps that companies take to
bring new products and services to market. The process typically involves the
following stages:
1. Idea generation
The first step is to generate ideas for new products or services. This can be done by
brainstorming, conducting market research, or looking at competitors' products.
2. Idea screening
Once a few promising ideas have been generated, they need to be screened to see if
they are feasible and have the potential to be successful. This involves evaluating the
market size, the competition, and the financial viability of the idea.
3. Concept development and testing
The next step is to develop a concept for the new product or service and test it with
potential customers. This helps to ensure that the product or service meets the needs
of the target market and is something that people are willing to buy.

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 4. Marketing strategy development
Once the concept has been tested and refined, a marketing strategy needs to be
developed. This includes determining the target market, the price point, the
distribution channels, and the promotional strategy.
5. Business analysis
The business analysis stage involves evaluating the financial feasibility of the new
product or service. This includes estimating the costs of development, production, and
marketing, as well as the potential sales and profits.
6. Product development
If the business analysis is positive, the product or service can then be developed. This
involves designing, engineering, and manufacturing the product or service.
7. Market testing
Before the product or service is launched on a national or international scale, it is
often a good idea to test it in a limited market first. This helps to identify any potential
problems and to get feedback from customers.
8. Commercialization
It is the process of launching the new product or service on a wider scale. This
involves setting up distribution channels, advertising the product or service, and
making it available to customers.
The timing of market entry is critical for a new product. There are three main
strategies that companies can use:
i. First mover advantage: This is when a company enters the market first and
gains a competitive advantage by being the first to offer the product or
service.
ii. Late entry: This is when a company enters the market after other competitors
have already established themselves. This strategy can be successful if the
company can offer a better product or service at a lower price.
iii. Parallel entry: This is when a company enters the market at the same time as
other competitors. This strategy can be successful if the company can
differentiate itself from its competitors.

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4.3 Legal and Regulatory Frameworks for Entrepreneurs
When setting up an organization, entrepreneurs need to consider the advantages and
disadvantages of each option regarding liability, taxes, continuity, transferability of
interest, costs, and attractiveness for raising capital. They also need to understand the
regulatory environment and the key legal issues that govern their business. By
understanding these issues, entrepreneurs can make informed decisions about how to
set up and run their businesses.

4.4 Intellectual Property/Product/Service Protection

4.4.1 What is Intellectual Property?
Intellectual property (IP) is a valuable asset for entrepreneurs. It includes patents,
trademarks, copyrights, and trade secrets. IP can be used to protect a business's ideas,
inventions, artistic works, and other commercially viable products.
IP is a legal concept that defines ideas, inventions, and other works created by the
mind. It is protected by laws such as patents, copyrights, and trademarks. These laws
give the owner of IP exclusive rights to use it. Entrepreneurs should understand IP
even before they hire an attorney.
.
4.4.2 Patents
A patent is a legal document that grants an inventor the exclusive right to make, use,
and sell their invention for a set period of time. Patents can be used to protect new
inventions, as well as improvements to existing inventions.
There are two main types of patents: utility patents and design patents.
i. Utility patents protect new and useful inventions. They can be used to
protect inventions of any type, including machines, processes, and
compositions of matter.
ii. Design patents protect the ornamental design of an object. They can be
used to protect the appearance of a product, such as its shape, color, or
pattern.
To be eligible for a patent, an invention must meet the following criteria:
 It must be new.
 It must be useful.
 It must not be obvious to someone skilled in the art.

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Once an invention is patented, the inventor has the exclusive right to make, use, and
sell their invention for years. This gives the inventor a significant competitive
advantage over other businesses that want to make, use, or sell the same invention.
Patents can be granted for a wide range of inventions, including:
 Processes: Methods of production, research, testing, analysis, technologies
with new applications.
 Machines: Products, instruments, physical objects.
 Manufactures: Combinations of physical matter not naturally found.
 Composition of matter: Chemical compounds, medicines, etc.
It is important to note that not everything can be patented. For example, patents
cannot be granted for ideas, concepts, or natural phenomena.

4.4.3 Trademarks
A trademark is a word, symbol, design, or combination thereof, that is used to identify
and distinguish the goods or services of one party from those of others. Trademarks
can be registered with the government to protect them from unauthorized use.
These are distinctive names, marks, symbols or motto identified with a company’s
product or service and registered by government offices. Unlike the patent, a
trademark can last indefinitely, as long as the mark continues to perform its indicated
function.

4.4.4 Copyrights
A copyright is a legal right that protects original works of authorship, such as books,
music, movies, and software. Copyrights give the author the exclusive right to
reproduce, distribute, perform, display, and create derivative works of their work.
Copyrights are valid for the life of the author plus few decades.

4.4.5 Trade Secret

Trade secret is a formula, pattern, device, or compilation of information that is not
generally known to the public and that gives its owner a competitive advantage in the
marketplace. Trade secrets can be anything that gives a company a competitive edge,
such as a recipe, a customer list, or a manufacturing process.

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4.4.6 Counterfeit Product
Counterfeit product is a product that is made, distributed, or sold without the
permission of the intellectual property owner. Counterfeit products are often of
inferior quality and can be dangerous to consumers.

CHAPTER 6: BUSINESS FINANCING

6.1 Financial Requirements
All businesses need money to finance their operations. When considering how to raise
funds, it is important to match the use of the funds with the appropriate funding
method.
1. Permanent capital
Permanent capital is the long-term funding that a business needs to support its core
operations. It typically comes from equity investment, such as shares in a limited
company, or personal loans from the business owners. Permanent capital is used to
finance the start-up costs of a business, as well as major expansions and developments.
It may also be required for significant innovations, such as a new product
development.
2. Working capital
Working capital is short-term funding that businesses need to cover their day-to-day
expenses. This includes things like paying suppliers, staff wages, and rent. Most small
businesses need working capital to bridge the gap between when they receive
payments from customers and when they have to pay their own bills.
3. Asset finance
Asset finance is medium- to long-term funding that businesses can use to purchase
assets such as plant, machinery, equipment, vehicles, and buildings.
The purchase of tangible assets is usually financed on a longer-term basis, from 3 to
10 years, or more depending on the useful life of the asset. Plant, machinery,
equipment, fixtures, and fittings, company vehicles and buildings may all be financed
by medium or long-term loans from a variety of lending bodies.

6.2 Sources of Financing

Businesses need financial resources to grow and operate. The amount of financing
that a business needs will vary depending on its size, industry, and growth goals.

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There are two main sources of financing for businesses: Equity and Debt financing.
6.2.1 Internal Sources (Equity capital)
Equity capital is when investors provide money to a business in exchange for
ownership shares. This type of financing is typically used for start-up businesses or
businesses that are seeking to expand rapidly.
There are a few different sources of equity capital for businesses:
1. Personal savings: The most common source of equity capital for businesses is the
personal savings of the owners or founders. This is the money that the owners
have saved up over time, and it is used to finance the start-up or expansion of the
business.
2. Friends and family: Friends and family may be willing to invest in a business if
they believe in the entrepreneur and the business idea. However, it is important to
be aware that friends and family may not be able to afford to lose their
investment, and they may expect a greater level of involvement in the business
than other investors.
3. Partners: An entrepreneur can choose to take on a partner to expand the capital
formation of the proposed business. This can be a good option if the partner has
complementary skills or experience that can benefit the business.
4. Public stock sale: In some cases, businesses may choose to go public by selling
shares of stock to the general public. This can be a good way to raise large
amounts of capital, but it also comes with a number of risks and regulations.
5. Angel investors: Angel investors are wealthy individuals who invest in start-up
businesses. They typically invest smaller amounts of money than venture capital
firms, but they are often more willing to take risks on new businesses.
6. Venture capital firms: Venture capital firms are private investment firms that
invest in start-up and early-stage businesses. They typically invest larger amounts
of money than angel investors, and they are looking for businesses with high
growth potential.

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6.2.2 External Sources (Debt capital)
Debt capital is when a business borrows money from a lender, such as a bank, and
agrees to repay the loan with interest over a specified period of time. This type of
financing is typically used for businesses that need to purchase assets or cover short-
term expenses.
Sources of Debt financing
1. Commercial banks: Commercial banks are the most common source of debt
capital for small businesses. They offer a variety of loan products, including short-
term loans, medium-term loans, and long-term loans.
To secure a bank loan, an entrepreneur typically will have to answer a number of
questions, including:
 What do you plan to do with the money?
 When do you need it?
 How much do you need?
 For how long do you need it?
 How will you repay the loan?
Bank lending decisions: When applying for a loan, it is important for small business
owners to be aware of the criteria that bankers use to evaluate [Link]
five C’s are capital, capacity, collateral, character, and conditions:
I. Capital: The business must have a stable capital base.
II. Capacity: The business must be able to meet its financial obligations and repay
the loan.
[Link]: The business must pledge assets as security for the loan.
IV. Character: The business owner must be trustworthy and have a good
reputation.
V. Conditions: The overall economic conditions must be favorable.
2. Trade credit: Trade credit is a form of short-term financing that is extended by
suppliers to businesses.
3. Equipment suppliers: Many equipment suppliers offer financing options to
businesses that purchase their equipment.
4. Account receivable financing: Account receivable financing is a type of short-
term financing that involves using accounts receivable as collateral for a loan.

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5. Credit unions: Credit unions are non-profit financial institutions that offer a
variety of loan products to their members.
6. Bonds: Bonds are a type of long-term debt security that can be issued by businesses
or governments. Bonds typically offer a fixed interest rate, and they are repaid in
installments over a specified period of time.

6.3 Lease Financing

Lease financing is a type of medium- and long-term financing where the owner of an
asset (the lessor) gives another person (the lessee) the right to use the asset for a
periodic payment (the lease rental). At the end of the lease contract, the asset is
returned to the lessor, or the lessee may have the option to purchase the asset or renew
the lease agreement.

6.3.1 Types of Lease

Lease financing can be classified into two categories:
1. Finance Lease
Finance lease is a type of lease where the lessor transfers substantially all the risks
and rewards of ownership of an asset to the lessee. This means that the lessee is
responsible for the maintenance, insurance, and depreciation of the asset, just as if
they owned it outright.
Here are the key features of a finance lease:
 The lessee has the right to use the asset for a specified period of time.
 The lessor transfers substantially all the risks and rewards of ownership to the
lessee.
 The lease rental is sufficient to recover the lessor's total investment.
 The lease is can’t be canceled in the primary period.
 The lessee is responsible for the maintenance, insurance, and depreciation of the
asset.
2. Operating Lease
Operating lease is a type of lease where the lessee does not take on the risks and
rewards of ownership of an asset. The lessor retains ownership of the asset and is
responsible for its maintenance, insurance, and depreciation.
Here are the key features of an operating lease:
 The lessee has the right to use the asset for a specified period of time.

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  The lessor retains ownership of the asset.
 The lease rental is lower than for a finance lease.
 The lease term is typically shorter than for a finance lease.
 The lessee is not responsible for the maintenance, insurance, or depreciation
of the asset.

6.4 Traditional Financing in Ethiopian (Equib/Idir, Etc.)

Ethiopia has one of the undeveloped formal financial sectors in the world. However, it
has a rich tradition of indigenous, community-based groups that provide a source of
credit and insurance outside the formal sector. These groups, such as iqub and idir, are
deeply rooted in Ethiopian society and play an important role in economic growth.

Iqub is a traditional means of saving in Ethiopia. People voluntarily join a group and
make a mandatory contribution, which is then distributed on a rotating basis. It offers
a number of advantages over the formal financial system. First, it is accessible to the
population that doesn’t use and has no access to bank, who do not have access to
traditional banks. Second, the real interest rates on iqub are significantly negative,
which means that participants are actually making money by participating. Third, the
social and communal aspects of iqub give participants a confidence that they may not
have in the formal financial system.

Idir is a traditional form of insurance that provides burial services for members. Idir
contributions are generally small, but they can be a life saver in the event of a death in
the family destruction of a member's house or death of livestock. Idir is the only
means, other than personal savings, to pay for these expenses.

6.5 Crowd Funding

Crowd funding is a way to raise money from a large group of people, typically online.
It can be used to fund anything from a new business venture to a creative project.
Crowd funding platforms make it easy for people to share their ideas and connect with
potential backers. Backers can then contribute small amounts of money to help make
the project a reality.
6.5.1 How is Crowd Funding Different?

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Here are some of the key differences between crowd funding and traditional business
finance:
 Audience: Crowd funding platforms allow entrepreneurs to reach a wider
audience of potential investors than traditional business finance methods.
 Cost: Crowd funding platforms typically charge lower fees than traditional
business finance methods.
 Time commitment: Crowd funding platforms can be a more efficient way to raise
capital than traditional business finance methods.
 Type of investment: Crowd funding investors can contribute money in exchange
for equity, rewards, or both.

6.5.2 The Benefits of Crowd funding

Crowd funding offers a number of benefits over traditional methods of raising capital,
including:
 Reach: Crowd funding platforms allow you to reach a wider audience of potential
investors than traditional methods, such as angel investors or venture capitalists.
 Presentation: Creating a crowd funding campaign forces you to clearly articulate
your business plan and value proposition to a wide audience.
 PR & Marketing: Crowd funding campaigns can generate a lot of positive press
and media attention for your business.
 Validation of Concept: Crowd funding is a great way to test the market for your
product or service before you launch it.
 Efficiency: Crowd funding platforms can help you to streamline your fund raising
process. You can create a single campaign page that potential investors can visit
to learn more about your business and to make a contribution. .

6.5.3 Types of Crowd Funding

The type of crowd funding that is right for you will depend on the type of project or
business you are funding, your goals, and your risk tolerance.
Types of Crowd funding
There are three main types of crowd funding:
1. Donation-based crowd funding is when individuals contribute money to a project
or business without expecting anything in return.

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2. Rewards-based crowd funding is when individuals contribute money to a project
or business in exchange for a reward, such as a product, service, or experience.
3. Equity crowd funding is when individuals contribute money to a project or
business in exchange for equity shares.

6.6 Micro Finances

6.6.1 What is Micro Finance?
Micro finance is a financial service that provides loans, savings, insurance, and
money transfers to entrepreneurs, small businesses, and individuals who lack access
to traditional banking services. This includes people who live in developing countries
and who may not have the collateral required to qualify for a loan from a bank.

Micro finance was pioneered by Dr. Mohammad Yunus, who began lending small
sums of money to women in Bangladesh who wanted to start their own businesses. He
found that these loans, which were often too small for traditional banks to consider,
could make a big difference in the lives of poor people.

6.6.2 Importance of MFIs

There are many benefits to micro finance, such as:
 Start businesses: it can provide the capital that people need to start their own
businesses. This can help them improve their income and create jobs.
 Build assets: it can help people build assets by providing them with the capital
they need to buy land, a home, or other investments.
 Reduce poverty: it can help reduce poverty by helping people improve their
income and build assets.

6.7.3 Micro-Finances in Ethiopia

Micro-finance in Ethiopia has its roots in traditional informal methods used to
accumulate savings and access credit by people who lacked access to formal financial
institutions. It is one of the success stories in Africa, with over 38 MFIs (as of 2018).
The formal establishment of micro-finance institutions in Ethiopia is relatively recent,
dating back to around 2000. The first MFIs were established in 1997, following the

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issuance of Proclamation No. 40/1996 in July 1996. The micro-finance industry in
Ethiopia is growing in terms of number and size. MFIs in Ethiopia have been able to
serve the productive poor with savings, credit, money transfer, micro-insurance, and
other related services. The known micro finance institutions in different regions of
Ethiopia with more than 90% market share are
1. Amhara Credit and Savings Ins. (ACSI) S.C.
2. Dedebit Credit and Savings Ins. (DECSI) S.C.
3. Oromiya Credit and Savings Ins. S.C (OCSCO).
4. Omo Credit and Savings Ins. S.C.
5. Addis Credit and Savings Institution S.C.(ADCSI)

[Link] Types of Activities Carried Out by Ethiopian MFIs

According to Article 3(2) of the aforementioned proclamation, MFIs are allowed to
carry out the following activities:
 Accepting both voluntary and compulsory savings as well as demand and time
deposits.
 Drawing and accepting drafts payable within Ethiopia Micro-insurance business
as prescribed by NBE,
 Purchasing such income generating financial instruments as treasury bill and
other income generating activities,
 Acquiring, maintaining and transferring any movable and immovable property
including premises for carrying out its business,
 Supporting income generating projects of urban and rural micro and small scale
operators,

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 SUMMARY
Product/service development is a complex process that requires careful planning and
execution. It involves generating ideas, refining concepts, conducting market research,
prototyping, testing, and ultimately commercializing the offering. Continuous
development is crucial to meet customer demands and stay ahead of the competition.
By investing in product/service development, businesses can enhance their offerings
and increase their chances of success in the market.
In addition to the new product development process, it is also important for
entrepreneurs to understand intellectual property (IP). IP is a collection of rights that
protect original works of authorship, such as inventions, creative works, and
trademarks. IP can be a valuable asset for businesses, as it can help them to protect
their products and services from unauthorized use.

Starting a business is a big undertaking, and it is important to be prepared for the

financial challenges that lie ahead. Entrepreneurs need to carefully consider their
financing options and choose the sources that are best suited for their needs.
There are a variety of sources of finance available to entrepreneurs, including both
internal and external sources. Internal sources of finance include personal savings,
money from friends and family, and money from partners. External sources of finance
include commercial banks, bonds, credit unions, equipment suppliers, trade credit,
and venture capital companies.
In addition to these traditional sources of finance, there are also some newer options
available to entrepreneurs, such as crowd funding and micro-finance. Crowd funding
is a method of raising capital through the collective effort of friends, family,
customers, and individual investors. Micro-finance is a term used to describe financial
services, such as loans, savings, insurance and fund transfers to entrepreneurs, small
businesses and individuals who lack access to traditional banking services.

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 REFERENCE
Bantie Workie (PhD), Mulugeta Chane (MBA), Mustefa Mohammed (MBA)
Teshale Birhanu (PhD). Entrepreneurship. September 2019 Addis Ababa, Ethiopia

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