WEALTH

CREATION
LIVING THE LIFE OF YOUR DREAMS

SIR FRANCIS TAKWI, PhD

SIR FRANCIS TAKWI,

PhD
 MAKING MONEY,
CREATING
WEALTH:

YOUR GUIDE TO
FINANCIAL
FREEDOM
MANAGE YOUR MONEY WITH ALL
DELIGENCE , FROM THERE COMES THE
ISSUES OF LIFE

VICTORY EDITION

SIR FRANCIS TAKWI, PhD

“It’s my business to spark your enthusiasm and enrich your life.

@MCDAVID CONSULTING GROUP

BONN GERMANY

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PREFACE
Information is among the most worthless commodities on earth. We are flooded with
information from books, m agazines, news and seminars, not to mention TV. We have far too
much information –and not enough guidance about using it to make a significant difference in
our lives. That is my goal with this book. I want to give you the best of what I have learned from
working with over 100 entrepreneurs, and investing in the stock market and in my own
businesses for many years. And the one thing I’ve learned above all else: Action is the only
thing that counts. Even clumsy or mis- guided or inefficient action will bring results. Maybe not
wonderful results, and maybe not the right kind of results, but action always creates an
outcome. By taking action, you can avoid or get out of debt. By taking appropriate action, you
can manage money and use it to create wealth. And the truth is, even if you make lots of
mistakes, you can still accumulate a fortune. Wealthy people make far more mistakes with their
investments than most of us –they just recognize them sooner, adjust quicker, and are always
taking action to move forward. As long as you take action, you will get results. Read and
educate yourself about any investment you are considering, and once you invest, monitor your
investments closely. It takes work to get rich slowly! And no one will take as much interest in
your financial future as you will. Actually, that’s your first lesson in getting rich –never trust
anyone who promises to make you rich! It doesn’t work that way! Only you can make you rich.
With a good education, solid information, a bit of wisdom, patience, insight and a willingness to
take action, I believe almost anyone can accumulate substantial wealth. But you don’t get there
by following a guru, or by being lazy. You get rich by earning it.
So, let’s get started!

CONTENTS AT A GLANCE

CHAPTER ONE
CREATING WEALTH……………………………………………………………………………………………1

CHAPTER TWO
ENTREPRENEURSHIP………………………………………………………………………………………..34

CHAPTER THREE
NEW BUSINESS CREATION…………………………………………………………………………………52

CHAPTER FOUR
SMALL BUSINESS DEVELOPMENT……….…………………………………...…………………………..63

CHAPTER FIVE
RETIREMENT…………………………………...………………………………………………………………99

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TABLE OF CONTENTS

CHAPTER ONE
CREATING WEALTH
Learning Objectives; Introduction; War Exists; Strategic Warrior; Wealth; The Principle Of Prosperity;
Financial Independence; Financial Education; Investment; Investment Avenues; Comparing Monthly
Spending And Income; The Family Finance Plan; Family- Finance Management: Records To Aid The
Process; The Six Paths To Wealth; The Skinny On Business Scams; Chapter Recap

CHAPTER TWO
ENTREPRENEURSHIP
Learning Objectives; Entrepreneurs: The Driving Force Behind Small Business; Concept Of
Entrepreneur; the concept of entrepreneurship; Intrapreneurship; Entrepreneurial Motives; Factors
Influencing Entrepreneurship ; Theories Of Entrepreneurship; Why You Need To Have A Business Of
Your Own; Hard Work Will Not Make You Rich; Working Hard At Making Money Will Never Create
Wealth ; The Power Of Passive Income; nature of entrepreneurship; Charms Of Being An
Entrepreneur; Role Of Entrepreneurship In Economic Development; Business-Buyout Alternative;
Buying An Existing Business ; Franchising; Chapter Summary

CHAPTER THREE
NEW BUSINESS CREATION
Learning Objectives; Taking Over An Existing Business; The Mindset Of An Entrepreneur; A Creative
Mind; Recognizing Opportunities And Generating Ideas; Business Ideas; Types Of New Businesses;
Enterprise Creation; The Magic Of Startups ; The Four Steps Of Business Implementation; Action Plan
; Your Growing Firm; Chapter Recap

CHAPTER FOUR
SMALL BUSINESS DEVELOPMENT
Learning Objectives; Introduction; Organizational Performance; Entrepreneurship And Strategy;
Business Models And Strategy; Entry Wedges; Exploiting Partial Momentum; Customer Sponsorship;
Parent Company Sponsorship; Government Sponsorship; Resource-Based Strategies; Isolating
Mechanisms And First-Mover Avantages; Growth Strategies; Quality As A Strategy; Information Rules
Strategies; Network Strategy; Building Relationships By Communicating Supportively; Gaining Power
And Influence; Building Effective Teams And Teamwork; Leading Positive Change; Continuous
Improvement Process; Internationalizing The Small Firm; An Exit Strategy; Chapter Recap

CHAPTER FIVE
RETIREMENT
Learning Objectives; Introduction; Definitions ; Young Employees And Retirement; Types Of
Retirement; Impact Of Retirement; Financial ; Health (Physical And Mental) ; Self-Esteem; Roles;
Social Impact; Phases Of Retirement ; Pre-Retirement Phase; Honeymoon Phase; Disenchantment
Phase; Reorientation Phase; Routine/Stability Phase; Termination/Fermentation Phase; Retirement
Planning; Financial Planning; Health Planning; Accommodation; Leisure And Use Of Time ; Chapter
Recap

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CHAPTER ONE
CREATING WEALTH

LEARNING OBJECTIVES
After reading this chapter, you will understand
 The importance of education in wealth creation
 The rich value education
 How to build your own creative engine
 To develop a drive to succeed

INTRODUCTION
The mind, as the slogan goes, is a terrible thing to waste. The best possible investment you can make
in your future is an education. Even if you default on your student loan, nobody can repossess your
diploma. It is such a basic concept, but the promise of education often falls on deaf ears. Getting an
education requires the ability to defer gratification for a bigger payoff later, an ability The Rich have
had reason to develop. The value of an education is really not a secret; it is similar to the "miracle" of
compounding financial returns given with every pitch for retirement savings. The Rich secret is how
they have come to fully embrace the idea of a good education and execute it. As just one example,
after World War II, Wealthy veterans took advantage of the GI Bill's educational benefits at a rate twice
that of the general population.'
My mother sat me down as a child and explained to me, as her mother had done to him, "how the
world works" "If you like to play around, you need to earn your free time. It takes a good education and
good grades. Then you can get a good job and make good money. Having earned your way, you can
play around for a much longer time with far more expensive toys. Now, Francis, if you get that out of
order, the system does not work. You can play for a little while, but then you end up with a few
inexpensive toys that eventually break. Then you're left working even harder for the rest of your life
with no toys and no fun."
It may sound simplistic but it's true. I understood this very well even as a teen because my mother took
the time to show me the family checkbook, and show me what living cost in real-life terms. Clearly you
needed a lot of money to pay bills, and an average job often could not provide enough. In the real
world, the "toys" in my mother's story translated to cars, houses, clothes, stereos, dining out and
vacations. If you do not earn these "toys," or if you seek them out too early, the fun quickly comes to an
unpleasant end.
Gaining knowledge for knowledge's sake is a core prosperity value. But it's also true that wealth flows
naturally from knowledge. In the U.S., the progression of income moves in lockstep with education.
The values given in the following chart are median incomes since traditional charts of average incomes
tend to overstate the truth, with very high incomes skewing the results. The medians are the middle
values of all incomes put in sequential order, offering a view of what the "tniddle of the road" family
actually earns.
My mother's advice notwithstanding, Entrepreneurs pursue education and wealth for much more than
the purchase of "toys."

WAR EXISTS
We live in a culture that promotes democratic values of being fair to one and all , the
importance of fitting into a group and knowing how to cooperate with other people. We are taught
early on in life that those who are outwardly combative and aggressive pay a social price: unpopularity
and isolation. These values of harmony and cooperation are perpetuated in subtle and not so subtle
ways through books on how to be successful in life through the pleasant , peaceful exteriors that those
who have gotten ahead in the world present to the public through notions of correctness that saturate
the public space. The problem for us is that we are trained and prepared for peace, and we are not
at all prepared for what confronts us in the real world--war.
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The life of man upon earth is a warfare. JOB 7: 1
Quidesiderat pacem, praeparet bellum ( let him who w ant s peace prepare for war )

This war exists on several level s. Most obviously , we have our rivals on the other
side. the world has become increasingly competitive and nasty . In politics, business, even
the arts, we face opponents who will do almost anything to gain an edge. More troubling
and complex , however , are the battles we face with those who are supposedly on our
side. There are those who outwardly play the team game, who act very friendly and
agreeable, but who sabotage us behind the scenes, use the group to promote their own
agenda. others, more difficult to spot , play subtle games of passive aggression , offering
help that never comes, instilling guilt as a secret weapon . On the surface everything seems
peaceful enough , but just below it , it is every man and woman for him-or herself , This
dynamic infecting even families and relationships. The culture may deny this reality and
promote a gentler picture, but we know it and feel it , in our battle scars. it is not that we
and our colleagues are ignoble creatures who fail to live up to ideals of peace and
selflessness, but that we cannot help the way we are. We have aggressive impulses that
are impossible to ignore or repress. in the past , individuals could expect a group--the state, an
extended family , a company –to take care of them, but This is no longer the case, and in
This uncaring world we have to thin k first and foremost of ourselves and our interest s.
What we need are not impossible and in human ideals of peace and cooperation to live up
to, and the con fusion that brings us, but rather practical knowledge on how to deal with
conflict and the daily battles we face. And this knowledge is not about how to be more forceful
in getting what we want or defending ourselves but rather how to be more ration al and
strategic when it comes to conflict , channeling our aggressive impulses instead of denying or
repressing them. If there is an ideal to aim for , it should be that of the strategic warrior ,
the man or woman who man ages difficult situations and people through deft and intelligent
maneuver.
Many psychologist s and sociologist s have argued that it is through conflict that
problems are often solved and real differences reconciled. Our successes and failures in life
can be traced to how well or how badly we deal with the inevitable conflicts that con front
us in society . the common ways that people deal with them--trying to avoid all conflict ,
getting emotion al and lashing out , turning sly and manipulative--are all counterproductive in
the long run , because they are not under conscious and ration al control and often make the
situation worse. Strategic warriors operate much differently . they thin k ahead toward their
long-term goals, decide which fight s to avoid and which are inevitable, know how to control
and channel their emotions. When forced to fight , they do so with indirection and subtle
maneuver , making their manipulations hard to trace. In this way they can maintain the
peaceful exterior so cherished in these political times.
This ideal of fighting rationally comes to us from organized warfare, where the art of
strategy was invented and refined. in the beginning, war was not at all strategic. Battles
between tribes were fought in a brutal manner , a kind of ritual of violence in which
individuals could display their heroism. but as tribes expanded and evolved into states, it
became all too apparent that war had too many hidden costs, that waging it blindly often
led to exhaustion and self-destruction , even for the victor . Somehow wars had to be fought
more rationally .

STRATEGY
The word "strategy " comes from the ancient Greek word Strategos, meaning literally "
the leader of the army . " Strategy in This sense was the art of general ship, of commanding
the entire war effort , deciding what formations to deploy , what terrain to fight on , what
maneuvers to use to gain an edge. And as This knowledge progressed, military leaders
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discovered that the more they thought and planned ahead, the more possibilities they had
for success. Novel strategies could allow them to defeat much larger armies, as Alexander
the Great did in his victories over the Persians. in facing savvy opponents who were al so using
strategy , there developed an upward pressure: to gain an advantage, a general had to be
even more strategic, more indirect and clever , than the other side.
Over time the art s of general ship became steadily more sophisticated, as more strategies
were invented. Although the word "strategy " it self is Greek in origin , the concept appears in
all cultures, in all periods. Solid principles on how to deal with the inevitable accident s of
war , how to craft the ultimate plan , how to best organize the army --all of this can be found in
war manuals from ancient China to modern Europe. the counterattack, the flanking or
enveloping maneuver , and the art s of deception are common to the armies of Genghis
Khan , Napoleon , and the Zulu king Shaka. As a whole, these principles and strategies
indicate a kind of universal military wisdom, a set of adaptable patterns that can increase the
chances for victory . "Well, then, my boy , develop your Strategy So that prizes in games
won't elude your grasp. Strategy makes a better woodcutter than strength. Strategy keeps a
pilot 's ship on course When crosswinds blow it over the wine- blue sea. And Strategy w ins r
aces for charioteer s. One type of driver trust s his horses and car And swerves mindlessly
this w ay and that , All over the course, without reining his horses. But a man who know s
how to win with lesser horses Keeps his eye on the post and cut s the turn close, And from
the star t keeps tension on the reins With a fir m hand as he watches the leader . " .
It is an eminently human arena, full of the best and the worst of our nature. War also
reflects trends in society . the evolution toward more unconventional , dirtier strategies--guerrilla
warfare, terrorism--mirrors a similar revolution in society , where almost anything goes.
the strategies that succeed in war , whether convention al or unconventional , are based on
timeless psych ology , and great military failures have much to teach us about human
stupidity and the limit s of force in any arena. the strategic ideal in war--being supremely
ration al and emotion ally balanced, striving to win with minimum bloodshed and loss of
resources--has in finite application and relevance to our daily battles.
Inculcated with the values of our times, many will argue that organized war is inherently
barbaric--a relic of man 's violent past and something to be overcome for good. to promote
the arts of warfare in a social setting, they will say , is to stand in the way of progress and
to encourage conflict and dissension . isn't there enough of that in the world? This
argument is very seductive, but not at all reasonable. there will always be those in
society and in the world at large who are more aggressive than we are, who find ways to
get what they want , by hook or by crook. We must be vigilant and must know how to
defend ourselves against such types. Civilized values are not furthered if we are forced to
surrender to those who are crafty and strong. in fact , being pacifists in the face of such
wolves is the source of endless tragedy . The self is the friend of a man who masters
himself through the self , but for a man without self - master y, the self is like an enemy at
war .

STRATEGIC WARRIOR
Look at things as they are, not as your emotions color them. in strategy you must see
your emotional responses to event s as a kind of disease that must be remedied. Fear will
make you overestimate the enemy and act too defensively . Anger and impatience will draw you
into rash actions that will cut off your options. Overconfidence, particularly as a result of
success, will make you go too far . Love and affection will blind you to the treacherous
maneuvers of those apparently on your side. even the subtlest gradations of these
emotions can color the way you look at event s. the only remedy is to be aware that the pull of
emotion is inevitable, to notice it when it is happening, and to compensate for it . When you
have success, be extra wary . When you are angry , take no action . When you are fearful , know
3
you are going to exaggerate the dangers you face. War demands the utmost in realism, seeing
things as they are. the more you can limit or compensate for your emotion al responses, the
closer you will come to This ideal .
The brilliance of warfare is that no amount of eloquence or talk can ex plain away a
failure on the battlefield. A general has led his troops to defeat , lives have been wasted,
and that is how history will judge him. you must strive to apply This ruthless standard in
your daily life, judging people by the result s of their actions, the deeds that can be seen
and measured, the maneuvers they have used to gain power . What people say about
themselves does not matter; people will say anything. Look at what they have done; deeds
do not lie. You must al so apply This logic to yourself . in looking back at a defeat , you
must identify the things you could have done differently . it is your own bad strategies, not
the un fair opponent , that are to blame for your failures. you are responsible for the good
and bad in your life. As a corollary to this, look at everything other people do as a strategic
maneuver , an attempt to gain victory . People who accuse you of being un fair , for
example, who try to make you feel guilty , who talk about justice and morality , are trying
to gain an advantage on the chessboard.
In the search for success in life, people tend to rely on things that seem simple and
easy or that have worked before. This could mean accumulating wealth , resources, a large
number of allies, or the latest technology and the advantage it brings. This is being
materialistic and mechanical . but true strategy is psychological –a matter of intelligence, not
material force. Everything in life can be taken away from you and generally will be at some
point . your wealth vanishes, the latest gadgetry suddenly becomes passe, your allies desert
you but if your mind is armed with the art of war, there is no power that can take that away .
in the middle of a crisis, your mind will find its way to the right solution . Having superior
strategies at your fingertips will give your maneuvers irresistible force.
As Sun -t z un says, "Being unconquerable lies with yourself . " in war , strategy is the art of
commanding the entire military operation tactics, on the other hand, is the skill of forming the
army for battle itself and dealing with the immediate needs of the battlefield.
Most of us in life are tacticians, not strategist s. We become so en meshed in the conflicts we
face that we can think only of how to get what we want in the battle we are currently
facing. to think strategically is difficult and unnatural . you may imagine you are being
strategic, but in all likelihood you are merely being tactical . To have the power that only
strategy can bring, you must be able to elevate yourself above the battlefield, to focus on
your long-term objectives, to craft an entire campaign , to get out of the reactive mode
that so many battles in life lock you into. Keeping your overall goals in mind, it becomes much
easier to decide when to fight and when to walk away . that makes the tactical decisions of
daily life much simpler and more ration al . tactical people are heavy and stuck in the
ground; strategist s are light on their feet and can see far and wide. You are always one
step ahead, making your moves more indirect . your goal is to blend philosophy and war ,
wisdom and battle, into an unbeatable blend.
Every day you face battles--that is the reality for all creatures in their struggle to survive.
but the greatest battle of all is with yourself --your weaknesses, your emotions, your lack of
resolution in seeing things through to the end. You must declare unceasing war on yourself.
As a warrior in life, you welcome combat and conflict as ways to prove yourself , to better
your skill s, to gain courage, confidence, and experience. instead of repressing your doubt s
and fears, you must face them down , do battle with them. you want more challenges,
and you invite more war . you are forging the warrior's spirit , and only constant practice will
lead you there.

WEALTH
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One of the reasons many of us have problems related to wealth is that we are all hung up about the
money. We have erroneously equated having wealth with having money. One of the most important
distinctions you can make is that money is merely a “symbol” of value. There are many types of
“value” available to you other than money that can be exchanged for what you want in your life.
Further, as you will learn, the last thing you need to worry about is how you are going to get money to
create the life you want.
Your only job is to know the kind of life you want to live the most, find those things in your life that
bring you the most joy, and then to keep your attention on those things. That is really all you
have to do. This whole book can be summed up in that one statement. Know what you want and ask
for it. Then receive it. It is really so simple…and we as human beings are excellent at complicating it.
You are going to learn to “untangle” some limiting thought processes by discovering your true power…
and it is awesome, by the way. You will learn a whole new meaning of the word “possibility.” At some
point, you will have this awesome “click”…or maybe a series of “clicks”…when you really, really get this
stuff…when you suddenly realize that anything you desire in your life can be yours. Anything at all.
Life becomes an entirely new experience.
Then you will really know what wealth is. What you will learn is that “wealth” can be thought of in a
couple of ways. Monetary wealth will be a “by-product” of living the Life of your dreams, not the
cause of it.
Read that again, because most people believe completely the opposite. Most people chase wealth so
that they can “afford” the life of their dreams. What they do not see, and what you will learn, is that,
through living the life of your dreams, you will literally attract exactly the resources you need to
LIVE that dream. That could mean a lot of money, or it could mean that some other means of delivery
facilitates your “perfect life.” It is your openness to various forms of delivery other than money that
accelerates the process. It is a “letting go” of how things will happen, and I devote several sections of
this book to Letting Go because it really is such a crucial piece of all this.
Why do we really want “wealth”?
When it comes down to it, we are looking for a way to facilitate our doing what we most want to do. If
we want to live in a big house on the lake, or own a luxury car, or even just a big screen TV, we have
this idea that to get all those things we have to first get money. So we are looking for money to bring us
those things, which has us looking in totally the wrong direction (regardless of your current logic), and
we are slowing down the process of “having” immensely. You must understand that wealth is not
money.
Wealth is living the life you desire in abundance and joy (and that can include having a LOT of
money)!
Wealth is not about holding on to a lot of money. Keep in mind (according to your current belief
system) that if you do not give that money to someone in a business transaction, you will not get the
thing you want. You are wanting money and wanting to give away money at the same time!
“But I am only giving away the money to get what I want!” you say. Then why not stop spending all
your Energy on “getting money” and, instead, put it on “what you want.” You will save a lot of time that
way, I promise. I know it can be hard. If you currently equate money with wealth, I hope you will soon
find your ideas begin to shift around as to what wealth really means to you.
In fact, I will just warn you now: You will probably experience a LOT of shifts…and some of them
can be very powerful and/or confronting. Simply decide to embrace these shifts as part of the
growing process. If something absolutely does not resonate with you, then you have no obligation to
integrate it into your system of beliefs. I am not trying to change your belief systems or compromise
values of any kind. This material should not challenge any kind of religious faith at all. In fact, I have
heard from many people that these principles have strengthened their faith.
This should be an exciting and joyous experience for you, albeit sometimes challenging!
You are about to learn how to create whatever level of wealth you can imagine – how to “create
your reality” on every level - regardless of your past experience with wealth or alleged “evidence” that
there is something wrong with your life as it relates to money. You are about to be set truly free, but
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first, I want to ask a question to those of you who are having a hard time accepting all the things I am
telling you…

WHAT IS THE COST?

The only reason you do not have everything you want in your life right now is because you are
resisting it to some degree. So you are thinking, “How can that be?” After all, let us say you really
want a new house. You want it badly! How can you be resisting it?
By wanting it so badly!
First, the word “want” and, more importantly, the feeling associated with the word, suggests an
experience of “lack.” You want It because you do not have It. The reality is that you do have it. It is
right in front of you. You just need to “tune into” it. I know that probably sounds very bizarre right now,
perhaps a little outside the comfort zone of your beliefs. I understand that. In fact, it is precisely why
this book was written. I want to demystify all this so that even the most skeptical among you can finally
get your intellectual arms around these concepts and begin to incorporate them into your life for your
own benefit. Yes, you will probably have to open your mind just a little. Just do it. It is completely worth
it.

WHAT DO YOU REALLY WANT?

It is not money. It really is not.This book is about designing your Life. You cannot do that if you do not
know what you want to design. So, a logical first step is to figure that out. For some people, this is
easy. They can immediately tell you hundreds of things they want in their lives, and this is great! But
what if you are so accustomed to having things you do not want in your life that it is all you know! You
have never even allowed yourself to think of what you do want because you are so busy “not wanting”
all the other things in your life. This is exactly why you do have those things you do not want. They are
getting all your “magnetic” attention!
Remember, the Principle of Prosperity: Energy Attracts Like Energy. It does not attract “good” Energy
or “bad” Energy. It attracts LIKE Energy. If all of your focus is on what you do not want, then more of
that is what you literally vibrate! Those vibrations are real magnets to more vibrations just like it! It is no
wonder that your life seems to be an unending cycle of negative events! Why would it be anything
else? You are not really asking for anything else!
But, you say, “Oh, yes, I am! I have been asking for something different for years! I have been asking
for more money as long as I can remember, and I still do not have any!” That is such a common
statement, and there is so much about it that needs to be picked apart so that you can see exactly how
making such a statement repels the very thing you want to attract.
First, we need to clarify that when we talk about you “asking” for something, we are talking about
asking in a very specific way.
The key to getting what you want is knowing how to ask.
Remember, this is all about being the best “magnet” you can be. Your vibrational frequency determines
what you will attract and it is all tied into the emotion you are feeling.
Emotion is the key. It is a unique Energy, and it is one you can actually feel on a physical level. In
essence, you can actually feel the magnet working. If, when you “ask” for something, your request is
wrapped in worry, then you are going to attract circumstances that perpetuate or even grow that feeling
of worry. For example, if you are asking for money from a place of “Oh, PLEASE! I need more money.
I do not have enough to pay my bills! If I do not get more money my life will be ruined!” then think of
what you are vibrating emotionally!
Believe me, I know it is not easy to simply eliminate the worry about money when all external evidence
suggests that in “reality,” there is a problem that needs to be solved. I did not say it was going to be
easy. I did say, however, that is it is simple. And it is. You “simply” have to ask for what you want in a
way that you can feel positive emotion around it, rather than negative.
And it is not money you want.

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“Oh, yes, it is!” I hear you saying. Everyone says that at first, and generally for a long time. It is not that
I do not understand that you honestly believe you need money, but I also know that money is not the
thing you want to chase. Your real desire is on the other side of the money. Remember that money,
in and of itself, has no value unless we are all in agreement that it does. It is just paper and metal that
symbolizes value that can be exchanged. If you are not using it to exchange value for something, it
simply does not have any value! It is just the “potential” for exchange. So your true desire is what
you are going to acquire in exchange for that money!
That could be paid bills, a new home or car, or just a nice meal out.
We have been taught that money is some kind of “ultimate prize.” Yet, surely, you have experienced
times in your life when you received something that you wanted and it did not require money. You have
been given gifts. You have won things or you have seen others win things. You have, in some other
way, come into a situation that has real value to you, but did not require that you exchange any money
at all.

Living the Life

What makes you Rich ? Most people would answer, “Money, of course!” And they would be wrong.
Having money does not make you Rich , because you can always lose money. Owning real estate
does not make you truly Rich , because (as we have seen dramatically in the last few years) real
estate can always lose value. So what makes you Rich ? Knowledge.
It is not real estate, gold, stocks, hard work, or money that makes you Rich ; it is what you know about
real estate, gold, stocks, hard work, and money that makes you Rich . Ultimately, it is your financial
intelligence that makes you Rich . I realized that it was not the tangible asset that was valuable. It was
information relative to the asset that ultimately made a person Rich or poor.
It is not real estate, gold, stocks, hard work, or money that makes you Rich ; it is what you know about
real estate, gold, stocks, hard work, and money that makes you Rich . Ultimately, it is your financial
intelligence that makes you Rich . Financial intelligence has little or nothing to do with academic
intelligence. You can be a genius when it comes to academic intelligence, but a moron when it comes
to financial intelligence.
1) Knowing How to Make More Money
The more money you make, the higher your financial intelligence. Someone who earns a $1 million a
year has a higher financial IQ than one who earns $30,000 a year.
2) Knowing How to Protect Your Money
The world is out to take your money, and it’s not just the Bernie Madoffs. One of the biggest financial
predators is your government, who takes your money legally. Take two people who both make $1
million a year. If one pays 20 percent in taxes while the other pays 35 percent, the first person has a
higher financial IQ.
3) Knowing How to Budget Your Money
Many people fail to keep much money out of what they earn, simply because they budget like a poor
person rather than like a Rich person. Budgeting your money also takes financial intelligence.
Take two people: Person A earns $120,000 a year, and Person B earns only $60,000 a year. Who has
more financial intelligence, Person A? Not so fast. Let’s say Person A also spends $120,000 every
year, putting him at Square 1 at year’s end. But Person B, who earns only $60,000, budgets carefully
and is able to live well on just $50,000, and invests the remaining $10,000. Who ends up with more?
If you have poor money-management skills, then all the money in the world cannot save you. If you
budget your money wisely, and learn about the B and I quadrants, then you are on the path to great
personal fortune and, most importantly, freedom. Being able to live well and still invest no matter how
much or how little you make requires a high level of financial intelligence. Having a surplus is
something you have to actively budget for.
4) Knowing How to Leverage Your Money
After you budget a surplus, the next financial challenge is to leverage that surplus. Return on
investment is yet one more measurement of financial intelligence. Most people save their financial
7
surplus, if they have any, by sticking it in a bank or putting it into a mutual fund portfolio, hoping this will
leverage their money. But there are much better ways to leverage your money than savings and
mutual funds. Those don’t require much financial intelligence: You can train a monkey to save money
and invest in mutual funds—which is exactly why the returns on those investment vehicles are
historically pretty pitiful.
A Magnificent Life
The purpose of your network marketing business is not simply to make you money, but to give you the
skills and financial intelligence so that you will use that additional money to build genuine wealth. But
even that is not the end goal. The end goal of building that wealth is so that you can live a magnificent
life. From my observations of people in many different situations, I would say there are three ways to
live. These three ways are driven by three different emotions, and also correspond closely to three
different financial and emotional states:
Living in Fear
I know what it’s like to be broke. I’ve described how, in 1985, in many ways the worst year of my life,
Kim and I were in such dire straits financially that we were literally homeless and living in our old
broken-down Toyota. The feeling of fear during those days was paralyzing, so intense that it numbed
our entire bodies. I knew this feeling: It was the same sense I had as a young child, growing up in a
family that was broke most of the time. That dark cloud of “not enough money” hung over our family for
most of my childhood. Not having enough money to live on is a horrible experience, and it hurts in
many more ways than financial. It can undermine your self-confidence and sense of self-worth, and
sabotage every aspect of your life.
Living in Anger and Frustration
The second way of living is living with the emotion of anger or frustration from having to get up and go
to work, especially when you would rather be doing something else. A person who lives with this
feeling may be someone who has a good job and high pay but cannot afford to stop working. That is
where the frustration comes from. They know if they stop, the world they live in would come crashing
down. People like this may say, “I cannot afford to quit. If I quit, the banks would come and take
everything away.” These people often say, “I can’t wait until my next vacation,” or “Only ten more years
to retirement.”
Living in Joy, Peace, and Contentment
The third way of living is to live with the peace of mind of knowing that, regardless of whether you work
or not, there is plenty of money coming in. The feeling of not having to work, knowing that no matter
what we do we’ll have more than enough money coming in for as long as we live, is an amazingly
freeing, exhilarating feeling, allowing us to do what we genuinely love. We spend our time together,
and whether we’re playing golf, traveling around the world, or putting in long hours in our boardroom, to
us, it’s all play and it’s all the stuff of dreams. It’s our life, exactly as we’ve always wanted it to be, and
we treasure every single moment of it.
Ants, Grasshoppers, and Human Beings
Earlier I mentioned the fable of the ant and the grasshopper. We all grew up with this idea that there
are two ways to live: You can live like the good, modest, industrious, and frugal ant and sock away
crumbs for the future, or, like the irresponsible and spendthrift grasshopper, dance and fiddle away the
days without a thought of the future.In some ways, this image has done us more harm than good.
Sure, it’s good to be responsible and frugal, and to prepare for the future. But look at the ant’s lifestyle!
Do you really want to be a cog in a gigantic ant colony, pushing little crumbs of dirt around, day after
day, for the rest of your life? Let’s face: We’re not ants, and we’re not grasshoppers, either; we’re
human beings. Is it unreasonable to expect that we should be able to live the full lives which we
humans are capable of living? If you grasp the basics of wealth; if you manage your money, your time,
and your attention with intelligence; if you create big dreams and have the audacity to follow them;
then you can live a life that meets with a success unexpected in common hours.

WHO WANTS TO “BE” A MILLIONAIRE?

8
I know a lot of you are thinking: “Me!”…but I will almost bet that you are really thinking: “I want to have
a million dollars.” These are not the same thing, though it certainly seems that they are at first. Doesn’t
the word “millionaire” imply that you have a million dollars? Yes, that is exactly what it does. It IMPLIES
you have a million dollars. I am sure there are people who call themselves millionaires who often have
more than a million dollars – in the bank or whatever – and sometimes have LESS. The distinction is
this: Who they are – who they are being – is a millionaire. They will most likely always be a millionaire,
if they truly have developed Wealth Consciousness and are thus naturally attracting wealth through the
Principle of Prosperity. It is unlikely that they will permanently lose their money, whereas a person who
“clawed their way” to a million dollars, sacrificing everything, enduring long hours and no life to get
there, has a much greater risk of losing everything or a great deal of it, because of what they associate
with being a “millionaire.” Not a lot of really positive things. Still, they made their millions in spite of
themselves – but how long will they hold it?
A true millionaire does not have to worry about losing everything. “Millionaire” has become a state of
mind for them, not a number in a bank account. The feeling of being a millionaire or someone who will
always have plenty of money is a very unique feeling. When I first started “trying it on,” as I am going to
suggest you do, it was a very powerful feeling. The experience was not in terms of power over
anything, but I felt a very significant surge through my being.
For seconds at a time, I would cross over into a true millionaire mindset and every worry in my life,
small and large, that had ANYTHING to do with money or the lack thereof, completely vanished. The
feeling is indescribable. “Wealth” suddenly permeated all aspects of my being, and I immediately felt so
light. I also noticed that I immediately and significantly slowed down – just overall. It is as if my heart
slowed, my thoughts slowed, my movement slowed. I simply was not in a hurry for anything.
I was able to savor the moment, because I had no concern with what I “needed to do,” which had been
almost always something related to acquiring money, or needing money to do something. It is amazing
how money has an impact on so much in our lives in ways we never even think of regularly.
When you can completely let go of any attachment to the need for money – when you can BE that you
truly have unlimited resources and that money is simply not any kind of issue in your life – you
suddenly realize just how much in your life money touches! It is a lot…and that is why so many people
have such challenges around it…but, Oh! when you can free yourself from it in that way!
In addition to the “slowing” of my overall pace, I also had a very marked psychological and
physiological shift. I thought differently about so much. In the particular instance I am relating to you
now, I was preparing dinner. I remember thinking, “We eat what we want, and have fun preparing it.
This meal costs a lot of money and it does not matter at all because we can easily afford anything we
want at any time.” (Of course, I had that thought in a nanosecond, which sustained for several
seconds.) It was just such an intensely freeing experience. It was so powerful! I realized the concept of
being Wealthy on a whole new level, and I could literally feel how magnetic I had become!
It far transcended affirmations like, “I have all the money I need for anything I want.” It was completely
experiential and felt tremendously real, although as I mentioned, at first, I could only sustain the
feeling for a few seconds. However, I believe those few seconds were a TURBO-BOOST in the
delivery of that reality.
If your desire is to experience great wealth, but your predominant thoughts are on this “wealth” you do
not have – even if you are trying to imagine yourself wealthy - you still have the whole, “I do not yet
have this” conversation running. Even though you are not necessarily conscious of it, the, “I do not
have it” vibration is a powerful attractive Energy – attracting more of the same for you. However, if you
can – even temporarily – forget that you do not have the wealth you want, then your “wealthy” state
sort of becomes the “de facto” state for you. I know this is a tricky one. I wrestle with the language
here, as I am trying to describe something that is completely intangible and is much more linked to
feeling than is possible to describe with words. It is about how strongly you can “play” with having your
desire…and maybe the technique of forgetting might help you to experience that sense of “play” on a
different level.

9
I can just tell you that I had been working a long time with “Being” wealthy by doing the Rich things like
shopping for homes and cars. However, it was an entirely different feeling to approach these things
with the true feeling that I had plenty of money (or means) to get whatever I wanted. Knowing how I
was going to afford what I wanted was not the issue at all, on any level, not because I was thinking
“The Universe will provide,” but because I had taken it one step further and was actually feeling that,
"The Universe has already provided.”
Many people believe that “being a millionaire” means being someone who will never have to worry
about money again. We get this idea that a million dollars is some kind of “magic number” with which
all of our problems will be solved. Again, I would bet several “millionaires” would give you a thousand
reasons that is not necessarily the case.
So, if you want to be a millionaire or, more accurately, someone who does not have to give money a
second thought, be sure you play with the FEELINGS associated with BEING that. Do not think and try
to feel “a million dollars.” Think and feel how it will be to have no concern with money whatsoever and
hold that feeling as long as possible, as often as possible. That “million dollar” level of wealth could
come with a lot less or a lot more than a million dollars. Let the Universe decide the best and quickest
way to provide.
Top 10 Steps to Becoming a Millionaire
There is perhaps no more important decision than to take charge of your own financial future. We live
in a world of opportunity, and yet most Americans are buried in credit card and other debt. We are
surrounded by people who are getting Rich , but most of us are running in place. If you can read this,
you are literate, have a computer, you are part of the "wired generation". You can become as
financially independent as you wish to be. Here are the Top 10 keys to your financial success:
1. Decide to be financially successful. This is different than wishing, hoping, wanting or even
desiring to be Rich . Make a commitment that this is going to happen! Financial independence is not an
accident or matter of luck, and it usually requires some inconvenience. Have you decided to achieve
this goal?
2. Understand how money works. Most of us never studied finance or investing in school. Most of us
were never even taught to balance a checkbook! To master anything, you have to understand it. Read.
Study what successful people do. Take classes.
3. Master your relationship with money. Some of us spend for excitement, to show off, to prove we
can. Some of us are addicted to spending, and some of us are just careless about it. Whatever your
relationship with money, understand it and develop a relationship of respect, appreciation and
gratitude. Use it wisely!
4. Set specific goals. They should be challenging, but not unbelievable, just out of reach but not out
of sight. Challenge yourself to be out of debt by a specific date. Make a commitment to saving an exact
amount each month.
5. Develop a budget. A budget is a set of dreams and aspirations. It's how you really, really want to
use money to benefit your family and run your life. Budget to buy the things you really want, and to
eliminate the "impulses", the toys that waste too much of our income. A budget is a map to your
destination. Have one and use it!
6. Reduce spending. Yes, this comes after making a budget, because when you begin getting control
of your money (rather than the other way around) you have powerful new reasons to reduce expenses.
Most self-made millionaires live far below their means! You should too.
7. Begin investing. Most of us spend or speculate. Both are roads to disaster! Invest in things you
understand. Invest cautiously, wisely, and regularly. The objective is not to "make a killing", but to get
Rich over time. Know and obey the distinction between gambling, and putting your money to work for
you.
8. Increase assets. Most people try to increase their income, and that's a mistake. Making more
money means paying more taxes. It takes time and hard work. And, when wealth arrives in the form of
cash, it's easier to spend. Millionaires buy stocks and buildings, they invest in assets that will make
them Rich – and that are hard to spend on a whim!
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9. Reduce taxes. Most Americans pay more in taxes than for food, clothing and shelter combined! It is
your largest expense! The poor and middle class don't realize how much they pay because it's
deducted from their pay check. The Rich know there are legal and appropriate ways to shelter income,
to invest in socially-responsible ways, and that the tax code encourages this. Learn the tax laws and
use them for your benefit! (Yes, it's the most boring reading you'll ever do, and worth it!)
10. Use your wealth wisely. Someone once said, "The reason most of us aren't Rich is that we'd
spend it all on ourselves." Give. Share. Help others. When you use money to make a difference, to
have a positive impact, you get the chance to do more. Being greedy and selfish will not draw money
to you. Investing in your community, will!

THE SIX PATHS TO WEALTH

Hopefully, by now you understand that money is simply an agreement about value, and that providing
value is the only real road to riches. But the practical question remains, what paths can you follow to
accumulate significant wealth?
The key to providing value over the long-run, and the point at which many people get confused, is that
there are only six basic strategies for accumulating wealth. There may be various combinations and a
few exceptions (you might win the lottery!), but there are only 6 primary ways to create or attract
wealth.
1: WELFARE 2: EMPLOYMENT 3: SELF-EMPLOYMENT
Living At The Cost And Working For Others Professionals Who Work
Expense Of Others Having A Regular Job For Themselves

4: STARTING A BUSINESS 5: BEING A LEADER 6: INVESTING

Entrepreneurs And Politicians, Community Creating Wealth Through
Creating Wealth Through And Religious Leaders And Putting Money Into Use .
New Venture Creation Administrators Passive Income

The first method is through Welfare. Not working and expecting almost everything from others. The
poorest people on earth and without dignity are people found in this section. They either live at the
detriment of others (total or partial liability) or live on assets left by others (without adding value). They
usually fight for inheritance, become beggars, pest and a burden to the society. But you can also for
example get married to a rich man and attain greatness and wealth or inherit family wealth and need
not work again you whole life.
The second method is through employment. This means getting a job with a good company,
hopefully doing work you enjoy, and earning promotions and pay raises over time, until you are
rewarded with various bonuses and a substantial paycheck. People in the group sell the minutes,
hours and days of their life to peanuts called a wage or salary. They work very hard to make others rich
and live from paycheck to paycheck and can barely live the life of their dreams. With the current
economic situation where people easily lose their jobs and no job guarantee, people into this section
can easily fall into poverty. Don’t work for money let your money work for you.
The third path to financial independence is Self-Employment. This is the choice of many
professionals and home-based businesses. Most people under this category are mostly professionals
who work for themselves like medical doctors, lawyers, contractors, consultants, etc. They may just
need a signboard, table and chair to start working. Most turn their hobbies into a profession and
depend heavily on the availability of clients. From an income perspective, there are two main
advantages. As the self-employed owner of a small business (often called a “micro-business”) you can
11
set your hourly rate, and you have some freedom to work when and if you choose. You have the
possibility her to do and practice what you love.
The fourth path to financial independence is business ownership. People in this group start and
mind their own business. There are often called entrepreneurs. The organise resources; bear risk to
create wealth. This is a much rarer and riskier, but potentially more rewarding path to wealth.
Businesses are systems that deliver value by organizing and combining the efforts of many people.
Creating a business requires leadership, organizational and management skills, and capital. It means
taking risks, and reaping the rewards if things work out.
Business ownership is clearly not for everyone, but it is one of the most reliable paths to wealth.
The fifth path to financial freedom and wealth is by being a political, religious or a community
leader. Most people have acclaim to greatness and financial wealth by holding political offices. They
have control over large amount of resources and are open to the privileges that come with holding
such high offices. Most politicians have a high and more than average standard of living and access to
resources.
The sixth and most important path to wealth is investing, or using your money in ways that create
value and wealth over time. Investing open the doors to passive income and lasting wealth. It is a sin a
leave your money idle in the bank, it is better to invest it for it to generate income and wealth. The
richest people in this world are found in this category. The classic American investments have been
land and buildings, stocks and bonds, and precious metals or other commodities. The key to creating
wealth through investing is that you are permitting other people to use your money (your accumulated
and easily transferable value) to create businesses of their own. In return for the use of your money,
you share in the wealth created by their business. In the case of investing in an office building, for
instance, you use your money to create a physical location where other people can conduct business.
In exchange for your investment in the property, they pay you “rent”, which is really a part of the
proceeds from the business they transact inside the building.
If you buy stock in a company, or loan it money in the form of bonds, the relationship is even more
specific. The managers of the business take your money (and pool it with money from many other
investors) and add their organizational and leadership abilities to create a business. If there are profits,
you are entitled to share in the proceeds.
Non-investors often think investing is an easy way to make money, but that it requires lots of cash to
get started. In my opinion, the reverse is true. You can begin investing for less than $1000, but it does
take skill, knowledge and discipline to understand great investments. Too many beginning “investors”
are really gamblers, and like gamblers, they eventually lose everything.
Serious investing is not gambling or a matter of luck. Skilled investors educate themselves about the
property, stocks, or other ventures they are considering for investment. They read, compare one
investment with another, and seek expert advice. Often, the best way for new investors to start out is
through mutual funds, which is a form of investing where the risk (and later, the profits) are shared
among many investors, and the investments are managed by a professional.

THE WEALTHY VALUE EDUCATION. WHAT CAN I DO?

1. Build your child's self-esteem
2. Build the ability to defer gratification
3. Choose the best education possible
4. Develop and demonstrate informed and literate habits
5. Create the education expectation
6. Keep your skills up to date

FINANCIAL INDEPENDENCE
Don’t underestimate the power and impact of your financial decisions. Few choices that you make
in life will affect your success—or your failure—as much as the decisions you make about your
finances. If you fail to manage your financial life wisely, many other areas of life—including your
12
marriage, your other relationships, and your overall happiness—will suffer. There is no other area of
your life, other than your marriage and your relationship with God, which is more vital to your overall
success and happiness.
Many studies of marriage and divorce have revealed that financial difficulties are one of the major
problems facing married couples and are the number-one cause of marriage breakdown. Financial
problems are also a major cause of distress for those who are single. And tragically, a tremendous
number of people now graduate from high school and college with virtually no meaningful education in
how to handle their money and achieve the essential goal of a balanced financial lifestyle so they are
able to be financially independence by the time they retire around age sixty-five. Very few have
received even a minimum of financial education regarding setting a budget, balancing a checkbook,
acquiring a home, evaluating a mortgage offer, comparing credit card offers, comparing investments
alternatives, evaluating their will and insurance needs, and planning for their retirement.
For many people, the ideal economic goal is to achieve financial freedom or independence—
usually defined as an amount of guaranteed income generated from your investments sufficient to
meet your family’s income needs for the foreseeable future. You will not automatically become a better
or happier person if you achieve financial success. However, you will certainly have many more options
to fulfill your goals for yourself and your family, as well as the opportunity to assist others, including
helping the Community to reach out to those in need and share with them.
One of the greatest benefits of achieving financial independence is that you will then have the
opportunity to assist those around you in a meaningful way because you will now have the extra assets
beyond your family’s needs. While financial success will not lead to happiness, it can provide a certain
level of peace of mind from financial pressure that will enable you to focus on those other important
areas that deal with the quality of your family’s life.
Tragically, many people never stop to consider or pray about the type and quality of life they wish to
pursue. Instead of making thoughtful decisions, they simply drift through life waiting for God to “open or
close a door” to let them know how to make the most critical decisions of their life. This is a tragedy
because the major decisions we make will determine the course and the quality of the rest of our life.
We need to learn how to discern the wisdom of God concerning our major decision in the light of God’s
promises of wisdom to anyone who sincerely asks the Lord for guidance.

THE BENEFITS OF FINANCIAL INDEPENDENCE

Financial freedom and financial independence—what do those mean and how would these affect the
rest of your life? What would you do if you had the financial resources to support a guaranteed income
for you and your family that no longer required you to go to work every day? What would you do with
your life if you were free to make choices without concern for the need to work to generate the monthly
income that you have previously needed to support your family’s lifestyle? Imagine what you would do
if you were truly free! Would you take a one year sabbatical with your spouse to travel and assist in
worldwide missions? Would you finally take that trip to Europe or Asia to explore the wonders of our
diverse world? What would you do if you were finally free to follow your heart’s desire? Who would you
help if you had the resources to make a difference?
There are three major decisions that each of us must make that will determine the course of our life.
The three major decisions are: Whom will you live your life for? Whom will you live you life with? And,
what will you live your life in?

FINANCIAL IGNORANCE
The average adult has invested between twelve and sixteen years of his life by the time he finishes his
formal education and begins a career. The average student will complete more than fifteen thousand
hours of study on every subject from English to history. However, the vast majority will graduate without
experiencing a single hour of practical financial instruction regarding the essential economic “facts of
life” that are needed to achieve financial success. It is a tragedy that hundreds of millions of Americans
graduate high school without receiving practical information on those vital areas of personal finance
13
involving banking, mortgages, credit cards, home ownership, insurance, and wills.

FINANCIAL EDUCATION
Money means different things to different people. Successful money management can bring
independence, new opportunities and a clear path to your goals. TAKING CHARGE OF YOUR
FINANCES was created to arm you with the tips and tools for building lifelong money management
skills. Managing money is a skill. Like most skills, it requires practice. Without this skill, it’s likely you
will experience financial stress – running out of money regularly, feeling deprived or juggling to pay
bills. Even those who make lots of money can experience problems without a healthy respect for their
finances. There are people who HAVE and people who DO NOT HAVE, and it has little to do with the
amount they earn. Some have difficulty getting by with a good salary, while others who earn less seem
to have it “together”. Herein lies the difference between those who have learned good money
management skills and those who have not.
This guide is intended for consumers of any age. It covers everything from tracking your
spending, to creating (and sticking to) a budget, to saving and investing for retirement. An essential
step towards achieving your financial goals is to be able to track all your spending. This is because
anything that can be measured can be improved. How can you make improvements today? We all
have plans for our future – to reach our dreams and goals, to fulfil our responsibilities. This Book is for
you. Inside, you will find tips that people from all walks of life have found handy. These tips can help
you meet your needs today and also plan ahead for the future. Worried about tightening your belt and
forgoing the things you enjoy? It need not be so if you do it right. It’s all about knowing how to spend
and save so that you can have enough left for the important things in life. No matter what your goals
are, you’ll need a plan to achieve them.

TAKING CHARGE OF YOUR FINANCES

We start at the very beginning and take a good, hard, honest — and yes, perhaps lightly painful — look
at where you are now financially. (Sometimes pain leads to something good: Look at surgery, for
example, or birth.) This chapter here ask that you be truthful with yourself and your habits when it
comes to handling your own money. Only by seeing what you are actually, really, and truly doing with
your cash now will you be able to make the most efficient and worthwhile improvements necessary to
turn around your finances. Before you know it you’ll be tracking where your hard-earned dollars go,
easily maintaining a household budget, trimming away unnecessary spending, finding ways to make
extra money, and even tackling that ugly but important beast: your credit report.

DEALING WITH DEBT

“In the midst of life we are in debt, et cetera,” sang one of the great bands of the 1980s (The Smiths, in
case you have to ask), and truer words were never spoken. There’s little you can do to totally avoid
debt in your life, and in some ways that’s not a terrible thing. You may be surprised to learn that some
debts are a lot better than other debts. What you want to do is reduce your “bad” debts before worrying
too much about your “good” ones. The first step is to find out how much you owe and to whom. The
next is to gain a little knowledge about what exactly credit is and how the different types really work.
Remember: Knowledge is power. For those in need of a little bit more aggressive help credit-wise, we
tackle the issues of debt consolidation(in which you bundle your debts into fewer payments),
negotiating with creditors (yes, it is possible and in many cases very advisable), and seeking
professional help from knowledgeable credit counselors who can size up your particular situation. In
the end, it may be that even after all that, you are still saddled with too much debt to keep your head
above water. In that case, we give you the low down on whether, when, and how to declare bankruptcy
and thereby give yourself afresh start while protecting as much of your assets as possible. There is
such a thing as a second chance, but if you need it, you need to do it the right way.

SAVING AND INVESTING

14
Debt is only one side of the coin. We’ll call it tails. Heads, then, is all about keeping some of the money
you have worked so hard to earn. It’s amazing how diligently people will work — only to unthinkingly
fritter it away and have nothing to show for it at the end of the month. If you’re like most people, you
have to change your thinking about saving money, and this book lays the groundwork for how to
become a saver. There are lots of ways to save money, and some are easier and work out better for
you than others. The classic and historically most successful method is to invest your money in stocks,
bonds, and mutual funds, and now there are cutting-edge ways of doing that online. We also cover the
smartest ways to save up for giving the next generation that most important arrow in the financial
quiver: a college education.
To enjoy your Golden Years to their full extent, you absolutely have to prepare for them, and the
sooner the better.

INVESTMENT
Investment is the employment of funds on assets with the aim of earning income or capital appreciation
Investment has two attributes namely time and risk. Present consumption is sacrificed to get a return in
the future. The sacrifice that has to be borne is certain but the return in the future may be uncertain.
This attribute of investment indicates the risk factor. The risk is undertaken with a view to reap some
return from the investment. For a layman, investment means some monetary commitment. A person’s
commitment to buy a flat or a house for his personal use may be an investment from his point of view.
This cannot be considered as an actual investment as it involves sacrifice but does not yield any
financial return. To the economist, investment is the net addition made to the nation’s capital stock that
consists of goods and services that are used in the production process. A net addition to the capital
stock means an increase in the buildings, equipments or inventories. These capital stocks are used to
produce other goods and services. Financial investment is the allocation of money of assets that are
expected to yield some gain over a period of time. It is an exchange of financial claims such as stocks
and bonds for money. They are expected to yield returns and experience capital growth over the years.
The financial and economic meanings are related to each other because the savings of the individual
flow into the capital market as financial investments, to be used in economic investment. Even though
they are related to each other, we are concerned only about the financial investment made on
securities. Thus, investment may be defined as “a commitment of funds made in the expectation of
some positive rate of return”. Expectation of return is an essential element of investment. Since the
return is expected to be realized in future, there is a possibility that the return actually realized is lower
than the return expected to be realized. This possibility of variation in the actual return is known as
investment risk. Thus, every investment involves return and risk.

TYPES OF INVESTMENTS AVAILABLE

Two general types of investments are available for family surpluses are (1) ownership and (2)
creditor. In ownership, the purchaser receives title or legal right to property that is registered' in his
name, and he carries the responsibilities imposed by law for this privilege. In creditor investments, a
loan is secured by a legal credit instrument. Even though the investor buys a bond, the legal
transaction is a loan of a given sum to an enterprise, with the promise of repayment of the principal at a
given date, and payment of interest for the use of the sum until the date of payment.
The usual forms of ownership investment for families are: real estate (residential property, land,
business houses, apartment houses, factory buildings); stocks or shares in corporate enterprises;
livestock; private businesses; 'and life insurance policies. The usual creditor investments are: bonds
(government or corporate); real estate mortgages; notes receivable; and certain kinds of contracts.

INVESTMENT AVENUES
There are a large number of investment avenues for savers in Africa. Some of them are marketable
and liquid while others are non marketable. Some of them are highly risky while some others are

15
almost riskless. The investor has to choose proper avenues from among them depending on his
preferences, needs and ability to assume risk.
The investment avenues can be broadly categorized under the following heads:
1. Corporate securities and shares
2. Deposits and savings in banks and non-banking companies
3. Businesses 4. Housing and Real Estate
5. Life insurance polices
6. Education
7. Government and semi-government securities.

HOW TO WORK LESS AND EARN MORE

If you want to get rich, don’t ask for a raise. Instead of asking for a raise, begin to ask how you can
serve more people. In fact, if you are serious about becoming rich, you don’t really want a raise. If you
get a raise, you are working for the wrong kind of money. Most people are not aware that there is good
income and bad income, and most people do not become rich because they work hard for bad income.
When you ask for a raise, you ask for an increase in bad income. If you want to be rich, you need to
work hard for the right kind of income.
The four different types of income, which are:
1. Welfare income
Welfare income is earned by depending on someone else’s income or from the state. There are
millions of people who depend on their spouse , children or even the state as their main source of
income.
2. Ordinary income
Ordinary earned income is you working for money. This income comes in the form of a paycheck.
When you ask for a raise, bonus, overtime, commissions, or tips, you’re asking for more of this type of
income.
3. Portfolio income
Portfolio income is generally income from paper assets such as stocks, bonds, and mutual funds. A
vast majority of all retirement accounts are based on future portfolio income.
4. Passive income
Passive income is generally income from real estate. It can also be royalty income from patents or for
use of my intellectual property such as songs, books, or other objects of wentellectual value.

COMPARING MONTHLY SPENDING AND INCOME

Creating a monthly budget for your household is not a complicated process, but it can be time
consuming. Simply stated, you need to do this:
_ Compare your current total monthly spending to your current total monthly income.
_ Reduce your spending as necessary so that it’s less than your income.
_ Allocate your dollars appropriately so that you are able to pay all your living expenses and debts.

TACKLING A BUDGET DEFICIT

If the “Your Bottom Line” number on your worksheet is negative, you’ve got a budget deficit. You may
be making up the difference between your total monthly income and your total monthly spending by
using credit cards, getting credit card advances, borrowing money, writing hot checks, paying bills late,
or not paying bills at all. Stop doing those things! They’re only driving you deeper into debt.
CUTTING EXPENSES
Deal with your budget shortfall instead by reducing your spending. Review your budget, looking for
expenses you can trim or eliminate. Focus first on your discretionary spending because those are
nonessential items. You’ll find most of your discretionary spending items in the “Variable Spending”
category on your worksheet; however, some of your fixed and periodic spending items may also be
discretionary. For example, cable TV is not an essential expense. Likewise, you may be able to find a
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cheaper Internet provider (or go to the library when you need the Internet) and cancel some of your
memberships.

MAKING BUDGETING A FAMILY AFFAIR

Developing a budget and making it work is something that you and your spouse or partner should do
together. After all, you’re both spending your family’s money. It’s a good idea to involve your kids in the
process, too. Sit down as a family and talk about why your family needs to live on a budget and what
budgeting involves. Show your kids the income and expense worksheets you fill out as you work your
way through the budgeting process. Share your current income and spending figures with them, let
them know how much less your family needs to spend each month, and ask your kids for budget-
cutting ideas, including things they are willing to give up. Also discuss any budget cuts you plan to
make that will directly affect them.
At the end of each month, sit down as a family and compare your budgeted spending to your actual
spending. Celebrate if your family’s spending is in line with its budget by doing something inexpensive
together — maybe ice-cream cones for all or a picnic in the park. When your comparison shows that
your family spent more than was budgeted, talk about why you went over budget and what all of you
can do to ensure that it doesn’t happen again. When your children feel like an important part of your
family’s financial team and understand that you value their input, they will be more apt to pull with you,
not against you. They’ll also be less apt to resent changes that may affect them.
If your deficit is small and most of it is due to waste and fluff, you may be able to move your budget into
the black just by eliminating nonessentials. But maybe not. Instead, you may have to go through
several rounds of budget cutting and do some serious belt-tightening before your household’s total
monthly spending is less than its total monthly income. Use your worksheet to calculate the impact of
each round of cuts on your budget’s bottom line.

CHOICE OF A METHOD OF HANDLING MONEY

The choice of a method of handling money that will give all members of a family a feeling of
satisfaction is a matter of major importance in the life of any family. The thought needed in making this
choice and the decisions involved in it, constitute the fifth guide in income management.
Five major methods of handling family income may be used:
the family finance plan, or budget; the allowance or apportionment plan; the fifty-fifty system; the equal-
salary method; and the hand out method. These are described on the following pages.

THE FAMILY FINANCE PLAN

The family finance plan, called the budget, is the method of using income as a planned and shared
family project. Direction of such system naturally lies in the hands of {he father and mother. During the
early stages of the family cycle, the husband arid wife share jointly in planning the distribution of
income into the expenditure pattern which represents their desired living. Then as the children become
old enough to understand financial matters and have wants and desires of their own, they share in the
planning along with the adult.
The family finance plan is part of the way of life of the family using it, and is based upon an
understanding by both husband and wife of the importance of shared experiences in human
development. Briefly stated, the method is one of analysis of needs and resources to meet demands,
of making decisions on what is important, and of working out a plan for the use of money in
accordance with the analysis. The detailed facts and information come from a study of current
expenditures.
In the modern home with its colleague type of relationship, with husband, wife, and children operating
in partnership, this method of handling money is a logical development. If such a finance plan is being
made for the first time, it is desirable to keep records for a short period, and then use the information to
forecast for another short period. In this way information and experience are gradually built up. The
length of time chosen for gathering information should suit the individual; it may be from month to
17
month or for several months. The plan can then be made for the full cycle of the next year on the basis
of facts collected. The current use of the income will always have to be adjusted to include the long-
time demands, if needs of different stages in the family life cycle are to be met.
After a working knowledge of finance management has been developed through actual experience in
finding the facts of expenditure and in making decisions and planning, one may well investigate the
way other families in a like economic group spend their money. The family has now reached the stage
in finance planning in which an investigation of family-expenditure studies can be helpful and
interesting in answering the questions: "Do we spend too much for certain items or groups of items:
Are we spending too little, or is the amount about right?"

THE ALLOWANCE OR APPORTIONMENT METHOD

In this method a certain portion of the money is allocated for all or a part of family living expenses. The
husband generally gives the wife a stipulated amount which is to cover specified expense items in
family living. The remainder of the income is used to cover other living costs, such as payments on a
house, investments, insurance, taxes, or any other items for which the husband wishes to carry the
responsibility. This system is likely to be used by the business or professional group with irregular
income The apportionment method is sometimes used as a method of establishing a family living
salary from an irregular income stream. When such an equalizing process is carried forth in conned ion
with rather careful planning, it becomes a form of family finance planning described previously.

THE EQUAL-SALARY METHOD

This method is one in which all family expenses are paid from the-total income an~ the part of the
income which is left is then divided equally between husband and wife as a salary for the contribution
of each to the enterprise. The system assumes not only that -the income is large enough to have a
surplus but also that: each division of the surplus represents an appreciable sum. The plan makes no
provisions for managing the portion allocated to family living. Thus, that part of the income can be
operated as a handout or as a highly planned system of spending. Each person assumes an equal
share of expenditures. This method is often used in a family where the wife has earned before
marriage or has had an independent income and feels the need of the independence that a salary
would provide her.

THE FIFTY-FIFTY SYSTEM

The fifty-fifty system is a method in which total income and expenditure are divided into two equal
parts. The system operates by the husband assuming half of the expenditures and paying them from
his half of the income; the wife, assumes responsibility for the other’, half and 'pays 'for expenditures
from the half of the income. The system assumes a known and regular income and known
expenditures; otherwise an equal division could not be made. This system is often used when the wife
has had an independent income before marriage and wishes to maintain a degree of independence, or
when the wife earns, or when there are no children.

THE HANDOUT METHOD

The handout or dole system is explained by its name. One person, usually die husband, although
sometimes the wife, maintains complete control and hands out small or large sums of money as needs
arise or as wants are insistent enough to interest him in making the dole. The system is a carry-over
from patriarchal family life when the father was controller of his domain and dealt out money, justice,
and judgments in all areas of family life. The handout methods likely to be used in a family that has
little knowledge of its exact income, or one that still operates under the patriarchal system. It
represents the crudest form of family finance, with no justification in light of our knowledge of
psychology, human development, and human relationships.

ACTUATING PLANS
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A family can go through all of the steps in planning for the use of its money, making decisions as to
what it needs and how the money shall be used, with few tangible results. Until decisions and plans are
implemented with action, the process may be an end in itself rather than a means to the end of
attaining desired goals. The sixth guideline, actuating the plan, is largely a matter of getting members
of the group to work together in order to make things happen and achieve objectives of putting the plan
to work. This takes a degree of enthusiasm and -energy on the part of the leaders-father and mother-to
motivate family members in wanting to go along with plans. Unquestionably this requires some
success both with communication and working with people.
Here the quality of interpersonal relationship between family members, particularly between wife
and husband, and parents and children, will spell either Success or frustration and possible failure. If
the husband and wife agree and genuinely believe in what they are doing, respect the urgent wants of
their growing children, and communicate their feelings with the children so that they too want to go
along with family planning, success in using money will be more assured. This does not mean that
individual wants will be less urgent; it does mean a basic understanding of everybody's needs. Nor
does it mean that pressures from peer groups will not be felt within the family, for they will. Actuating
plans is largely a matter of human relations and getting members of the family to act together.

REDUCING DEBT BEFORE SAVING

If you contribute to a savings and/or a retirement plan, stop doing that for now. Use that money to
cover your living expenses and pay down your high interest debts. Why? The money in your savings
and retirement accounts earns only a small amount of interest each month — most likely far less than
the interest rates on your debts. When you have debt, every month you pay more in interest than you
can earn in interest on your savings, and you fall further behind. When your financial situation
improves, start contributing to savings and retirement again. But for now, you must put every penny
you have toward your essential living expenses and toward paying down your high-interest debts.

FINDING WAYS TO SPEND LESS

In this section, we offer a treasure trove of ideas for spending less, organized by category of everyday
expense: housing, utilities, food, transportation, health care, and so on. Some of the ideas are small
and simple but yield big benefits over time, especially when done in combination with other money
saving suggestions. Don’t reject any cost-cutting ideas right off the bat, even if implementing them
means major changes in your lifestyle and a lot of sacrifice. Be open to anything and everything; try to
focus less on what you’re giving up and more on where spending less will help get you in the end. After
you give up a few “essentials,” you may discover that you don’t even miss them. You may find that not
having them actually improves your quality of life. For example, using public transportation to get to
and from work gives you time to read, think, and maybe even relax. And cutting out some activities that
have filled your kids’ after-school hours and weekends may open up new opportunities for you and
your kids to interact.
Looking for good deals; Spending less on your housing; Lowering your utility bills; Eating for less;
Paying less for transportation; Having fun for less; Looking good for less; Dressing for less; Reducing
your phone costs; Saving on prescription drugs

JUST HOW MUCH DO YOUR VICES COST?

You may find a silver lining in your cash crunch if you’re a regular smoker or drinker. Not having the
money you need to pay your creditors and cover your basic living expenses may convince you that it’s
time to become a nonsmoker, or to give up that glass or two (or three) of wine you sip at the end of
each day, or that six pack of beer you throw back each evening. Let’s assume, for example, that you
and your spouse or partner enjoy a $15 bottle of wine with dinner each night. In a week’s time, your
nightly bottle of wine costs you $105. That’s$420 a month and more than $5,000 a year! Now that’s a
lot of money to spend on the fruit of the vine. Just think what you could do with that money instead.

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Now let’s look at how much you may be spending to smoke. Let’s assume that you smoke half a pack
of cigarettes every day and that you pay $5for each pack. More than $900 of your money is going up in
smoke each year, which doesn’t even take into account how much extra you’re paying for life
insurance because of your unhealthy habit. If you give up the habit, you can reduce the cost of your
premium by as much as 30 percent. You’ll probably pay less for health insurance as well.
_ Find a reliable mechanic who won’t charge you an arm and a leg every time you bring your vehicle to
the repair shop. Ask people you know, especially people who drive cars similar to yours, for the names
of good mechanics. A shade tree mechanic — someone who maintains and repairs cars in his
backyard — may provide affordable, high-quality service. Avoid having your car repaired by a dealer or
at a chain car repair shop.
_ Ask your teenagers to pay for their own gasoline and auto insurance or to help contribute to the cost.

INCHING DOWN YOUR INSURANCE COSTS

Maintaining your insurance coverage is essential even when you need to cutback. Without it, a serious
illness, a car accident, or flood or wind damage to your home could be financially devastating and push
you into bankruptcy. Shop around for the best deal on your insurance. For example, you may be able
to get less-expensive coverage by switching to another provider, by raising your deductibles (the
amount of money you have to pay out of pocket before your insurance company starts to pay) on your
current policies, or by getting rid of any insurance bells and whistles you don’t need.
Also make sure you’re getting all the insurance discounts you’re entitled to. For example, you may be
entitled to a discount if you don’t commute to work in your car, if you take a class to refresh your driving
skills and knowledge, if you purchase your home and auto insurance from the same company, if you’re
over 65, if you install certain safety features in your home, and so on.

BRINGING IN MORE BUCKS

If slashing your spending doesn’t free up all the money you need to meet your financial obligations and
accelerate the rate at which you pay off your debts, look for ways to increase your household’s monthly
income. Maybe to improve your financial outlook, you need to work extra hours at your current job (if
you’re paid by the hour), take a second job, or work as a freelancer. This section discusses the in and
outs of each of these income boosters.
If your spouse or partner is a stay-at-home parent and is considering getting a paying job, take into
account the costs of working outside the home, such as childcare and transportation, so you can be
sure that the change makes financial sense. If making more money will be an uphill battle because
demand for your skills is declining or because the industry you work in is depressed, consider getting
trained for a new career by attending your local community college or a reputable trade school. Before
you leap into anything, however, find out where the experts expect future job opportunities to be.

EARNING MORE AT YOUR CURRENT JOB

Your current employer may be an immediate source of additional income. If you’re paid by the hour, let
your boss know that you want to work additional hours. If demand for your employer’s product or
service is growing or if your employer is opening a new office or store, you may be able to add another
shift to your schedule, work longer each day, or work on weekends, especially if you have a good
reputation as an employee. Asking for a raise is another option, assuming that you can justify your
request. For example, a raise may be in order if you haven’t received one in along time, if you have
assumed new responsibilities without additional compensation, or if you recently completed an
important project. Other possible reasons to ask for a raise include a stellar performance review and
the fact that coworkers in your same position may be paid more than you. Another way to earn more
money at your current place of employment is to apply for a promotion. Let your boss know that you
want to be considered for a higher-paying job in your same department. If you’re qualified to work in
other departments, schedule a time to meet with the managers of those departments to let them know
that you’re interested in working for them.
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SELECTIVELY EXTRAVAGANT AND PRUDENTLY FRUGAL
Accumulating wealth and keeping it, though, are two different stories. Not every rich guy has rags-to-
Riches stories. That is why the "spending" part of the story is so important. To accumulate wealth, you
have to learn how to save and how to spend wisely. So how do the wealthy spend? The spending
habits of the wealthy can be described as a balance of selective extravagance and prudent frugality.
Being frugal with your money does not mean being a miser. It's fair to define "miserly" as going far out
of your way to save very little money. For example, if you are at a fast-food restaurant and order a
small drink, knowing that refills are free, that's frugal. It's easy to save money, and it takes very little
effort to get a refill. On the other hand, bathing only weekly to save water, soap and laundry expenses
for towels are miserly. You are subjecting yourself and others to needless unpleasantness for a very
minor reward. The wealthy have productively stewarded their finances to create an unparalleled
amount of capital.

CHECKING THE BANK STATEMENT

A bank statement is a sheet prepared by the bank each month for each depositor. It may be
obtained at the bank on request or it will be mailed out each month. The checking of this statement
with one's check stubs is a simple process but an important one. By so doing, one can verify the
accuracy of his stub records, or detect errors, and can thus be sure of his bank balance. By guarding
against overdrawing his account, he saves the bank additional work and himself from embarrassment.
A typical bank statement is shown in the accompanying illustration. Note the three major divisions,
the three dollar-columns at the left listing all checks that have been cleared on a given date (not those
written on a given date). The next column contains a space for recording deposits as made, the dates
of which should correspond with the dates in the bank book or on duplicate slips. The right hand
column is used by the bank for recording changes in the balance. All canceled checks which have
been cleared during the month are also returned with the statement.

SAFE-KEEPING OF VALUABLE PAPERS

"We just can't find John’s will!" "I have no idea where Bob kept his valuable papers. ~e always said, 'I
don't tell anyone where I keep my important papers.''' These are familiar statements to lawyers and
friends who are trying to help a woman with her business affairs at the time of her husband's death. No
matter how carefully records are kept, if one does not have knowledge of where the valuable papers
are stored, where keys are kept for the vault or the bank box, much time is wasted, costs can mount,
and anxieties result. Important protection for home valuables and papers should be provided against
fire, theft, and loss. At $4.00-$7.00 a year, the bank safety-deposit box is the best security available
today and might well be the foundation of a family safe-keeping plan.
Usually such a box is not large enough to hold everything that might be considered of importance,
and each family must decide what is most important and valuable to keep in this safest of places. A
guide to determine what is of most value is whether a document is negotiable or irreplaceable. For
example, insurance policies are replaceable, are bulky, and might well be kept at home; negotiable
securities and valuable jewelry would be kept in the safety box. It is debatable whether the original
copy of a will should be kept in the safety box. It should probably be kept in the safe of the lawyer who
draws it, and a family copy kept at home.

LOCUS OF CONTROL
Ethnic background plays a significant role in the way groups regard their futures. It is an issue of
control. The wealthy think people can significantly change the outcomes of their lives through their own
actions. Experience has shown Wealthy people that dependence on others can be dangerous because
the politics of the day may change. If you are independent, at least you succeed or fail based upon
your own performance. In the context of corporate America of the 1980s and 1990s, this quest for
independence has been exceptionally valuable. Corporate downsizing, restructuring and mergers have
21
displaced many competent but misguided employees who had placed their futures in the hands of
large, faceless corporate bureaucracies. Those who maintained their independence have come out
ahead.
It's a Wealthy axiom that "everything is so right that something must be wrong." Even if things are
good, there is always room for improvement and a reason to be on guard. If a business is doing well, it
could still be more profitable. Competitors could overtake the company, and there might be a
recession. Do you see the bagel or the hole in its middle? Things never seem to be right. This kind of
thinking drives Wealthy people to push for new and better ideas in order to secure their place in the
world.

THE SKINNY ON BUSINESS SCAMS

Beware of business “opportunity” scams that you may find out about on the Internet, in your local
newspaper, through the mail, and so on. Typically, the promoters of these scams promise you’ll earn
big bucks after you pay them for equipment, software, supplies, training materials, and/or business
leads. Typically, the value of what they sell you is negligible and far less than the fee you pay.

MYTH BUSTERS
Busting these common myths will minimize your chances of being scammed.
• All companies, businesses and organizations are legitimate because they are licensed and monitored
by the government: This is not always true. While there are rules about setting
up and running a business or a company in Africa, scammers can easily pretend to have approval
when they don’t. Even businesses that are licensed could still try to scam you by
acting dishonestly.
• All Internet websites are legitimate: This is not always true. Websites are quite easy and cheap to
set up. The scammers can easily copy a genuine website and trick you into believing it is legitimate.
• There are short cuts to wealth that only a few people know: This is not always true. Ask yourself
the question: if someone knew a secret to instant wealth, why would they be telling their secret to
others?
• Scams involve large amounts of money: This is not always true. Sometimes scammers target a
large number of people and try to get a small amount of money from each person.
• Scams are always about money: This is not always true. Some scams are aimed at stealing
personal information from you.

GOLDEN RULES
Remember these golden rules to help you beat the scammers.
• Always get independent advice if an offer involves money, personal information, time or commitment.
• There are no guaranteed get-rich-quick schemes—sometimes the only people who make money are
the scammers.
• Do not agree to offers or deals right away. If you think you have spotted a great opportunity, insist on
time to get independent advice before making a decision.
• Do not hand over money or personal information, or sign anything until you have done your
homework and checked the credentials of the company that you are dealing with.
• Do not rely on glowing testimonials: find solid evidence of a company’s success.
• Log directly on to a website that you are interested in rather than clicking on links provided in an
email.
• Never send money, or give credit card or online account details to anyone you do not know and trust.
• If you spot a scam or have been scammed, get help.
Scammers are imaginative and manipulative. They know how to push your buttons to produce the
response they want. Every year, Africans lose millions of dollars to the activities of scammers who
bombard us with online, mail, door-to-door and telephone scams. We are pleased to bring you the first
African edition of The Little Black Book of Scams. We hope this book will increase your awareness of
22
the vast array of scams that target Africans and share with you some easy steps you can take to
protect yourself.

SCAMMERS DO NOT DISCRIMINATE

Scammers target people of all backgrounds, ages and income levels. Fake lotteries, Internet frauds,
get-rich-quick schemes and miracle health cures are some of the favoured means of separating the
unwary from their money. New varieties of these scams appear all the time. The Competition Bureau
has seen the devastating effects scams can have on people and their families. One of the best ways to
combat this kind of fraud is to take measures to prevent yourself from being caught in the first place.
PROTECT YOURSELF
If you want to stay on top of scams, inform yourself on how to recognize the various types of scams
and protect your personal information by visiting law enforcement organizations’ websites.

LOTTERIES, SWEEPSTAKES AND CONTESTS

Many Africans are lured by the excitement of a surprise win and find themselves sending huge
amounts of money to claim fake prizes. You cannot win money or a prize in a lottery unless you have
entered it yourself, or someone else has entered it on your behalf. You cannot be chosen as a random
winner if you don’t have an entry. Many lottery scams try to trick you into providing your banking and
personal details to claim your prize. You should not have to pay any fee or tax to claim a legitimate
prize. Don’t be fooled by claims that the offer is legal or has government approval—many scammers
will tell you this. Instead of receiving a grand prize or fortune, you will lose every cent that you send to
a scammer.
And if you have provided other personal details, your identity could be misused too. A fake prize scam
will tell you that you have won a prize or a contest. You may receive a phone call, an email, a text
message or see a pop-up screen on your computer. There are often costs involved with claiming your
prize, and even if you do receive a prize, it may not be what was promised to you. The scammers
make their money by making you pay fees or taxes, call their premium rate phone numbers or send
premium text messages to claim your prize. These premium rate calls can be very expensive, and the
scammers will try to keep you on the line for a long time or ask you to call a different premium rate
number. Legitimate lotteries do not require you to pay a fee or tax to collect winnings. Never send
money to anybody you don’t know and trust. Don’t provide personal banking details to anyone that you
do not know and trust. Did I enter this contest? You cannot win money or a prize in a contest unless
you have entered it yourself, or someone else has entered it on your behalf. Examine all of the terms
and conditions of any offer very carefully—claims of free or very cheap offers often have hidden costs.
Calls to premium rate phone numbers or premium text messages can be very expensive.

PYRAMID SCHEMES
Pyramid schemes promise a large financial return for a relatively small cost. Pyramid schemes
are illegal and very risky—and can cost you a lot of money. In a typical pyramid scheme, unsuspecting
investors are encouraged to pay large membership fees to participate in moneymaking ventures. The
only way for you to ever recover any money is to convince other people to join and to part with their
money as well. People are often persuaded to join by family members or friends. But there is no
guarantee that you will recoup your initial investment.
Although pyramid schemes are often cleverly disguised, they make money by recruiting people rather
than by selling a legitimate product or providing a service. Pyramid schemes inevitably collapse and
you will lose your money. In Africa, it is a crime to promote a pyramid scheme or even to participate in
one. Ponzi schemes are fraudulent investment operations that work in a similar way to pyramid
schemes. The Ponzi scheme usually entices new and well-to-do investors by offering higher returns
than other investments in the form of short-term returns that are either abnormally high or unusually
consistent. The schemer usually interacts with all the investors directly, often persuading most of the
existing participants to reinvest their money, thereby minimizing the need to bring in new participants
23
as a pyramid scheme will do. Be cautious, but do not be discouraged from carefully researching
business opportunities based on commissions. There are many legitimate multi-level marketing
opportunities where you can legally earn an income from selling genuine products or services.
Pyramid and Ponzi schemes may be sent to you from family members and people you trust—they
might not know that they could be illegal or that they are involved in a scam. Never commit to anything
at high-pressure meetings or seminars. Don’t make any decisions without doing your homework—
research the offer being made and seek independent advice before making a decision. If I am not
selling a genuine product or service, is participation in this activity legal? Do some research on all
business opportunities that interest you.

MONEY TRANSFER REQUESTS

Money transfer scams are on the rise. Be very careful when someone offers you money to help
transfer their funds. Once you send money to someone, it can be very difficult, if not impossible, to get
it back. The Nigerian scam (also called the 419 fraud) has been on the rise since the early-to-mid
1990s in Africa. Although many of these sorts of scams originated in Nigeria, similar scams have been
started all over the world (particularly in other parts of West Africa and in Asia). These scams are
increasingly referred to as “advance fee fraud”. In the classic Nigerian scam, you receive an email or
letter from a scammer asking your help to transfer a large amount of money overseas. You are then
offered a share of the money if you agree to give them your bank account details to help with the
transfer. They will then ask you to pay all kinds of taxes and fees before you can receive your “reward”.
You will never be sent any of the money, and will lose the fees you paid. Then there is the scam email
that claims to be from a lawyer or bank representative advising that a long-lost relative of yours has
died and left you a huge inheritance. Scammers can tell such genuine sounding stories that you could
be tricked into providing personal documents and bank account details so that you can confirm their
identity and claim your inheritance. The “inheritance” is likely to be non-existent and, as well as losing
any money you might have paid to the scammer in fees and taxes, you could also risk having your
identity stolen. If you or your business is selling products or services online or through newspaper
classifieds, you may be targeted by an Overpayment scam. In response to your advertisement, you
might receive a generous offer from a potential buyer and accept it. You receive payment by cheque or
money order, but the amount you receive is more than the agreed price. The buyer may tell you that
the overpayment was simply a mistake or they may invent an excuse, such as extra money to cover
delivery charges. If you are asked to refund the excess amount by money transfer, be suspicious. The
scammer is hoping that you will transfer the refund before you discover that their cheque or money
order was counterfeit. You will lose the transferred money as well as the item if you have already sent
it.

INTERNET SCAMS
A lot of Internet scams take place without the victim even noticing. You can greatly reduce the
chances of being scammed on the Internet if you follow some simple precautions. Scammers can use
the Internet to promote fraud through unsolicited or junk emails, known as spam. Even if they only get
a handful of replies from the millions of emails they send out, it is still worth their while. Be wary of
replying, even just to “unsubscribe”, because that will give a scammer confirmation that they have
reached a real email address. Any email you receive that comes from a sender you do not know, is not
specifically addressed to you, and promises you some benefit is likely to be spam.
Malicious software—also referred to as malware, spyware, key loggers, trojan horses, or trojans—
poses online security threats. Scammers try to install this software on your computer so that they can
gain access to files stored on your computer and other personal details and passwords. Scammers use
a wide range of tricks to get their software onto your computer. They may trick you into clicking on a
link or pop-up message in a spam email, or by getting you to visit a fake website set up solely to infect
people’s computers.

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Phishingscams are all about tricking you into handing over your personal and banking details to
scammers. The emails you receive might look and sound legitimate but in reality genuine organizations
like a bank or a government authority will never expect you to send your personal information by an
email or online.
If you choose to shop online or participate in online auctions, make sure you know about refund
policies and dispute-handling processes, and be careful that you are not overcharged. Also, you may
want to use an escrow service, such as PayPal. This service will hold your payment and only release it
to the seller once you have confirmed that you received what you paid for. There is usually a small fee
for this service. A legitimate bank or financial institution will never ask you to click on a link in an email
or send your account details through an email or website. Never buy from bidders with poor ratings on
auction sites, and do your best to ensure that you are only making purchases from genuine shopping
sites. Never provide your personal, credit card or account information unless you are certain the site is
genuine. Don’t reply to spam emails, even to unsubscribe, and do not click on any links or call any
telephone number listed in a spam email. Make sure you have current protective software or get
advice from a computer specialist. By opening this suspect email, will I risk the security of my
computer? Are the contact details provided in the email correct? Telephone your bank or financial
institution to ask whether the email you received is genuine.
If an email or pop-up offers you a product or service that genuinely interests you and it seems
reasonable, be sure that you understand all the terms and conditions and costs involved before making
a purchase or providing your details. Scammers can easily copy the logo or even the entire website of
a genuine organization. So don’t just assume an email you receive is legitimate. If the email is asking
you to visit a website to “update”, “validate” or “confirm” your account information, be sceptical. Delete
phishing emails. They can carry viruses that can infect your computer. Do not open any attachments or
follow any links in phishing emails. Online auctions and Internet shopping can be a lot of fun and can
also help you find good deals. Unfortunately, they also attract scammers. Scammers will often try to
get you to deal outside of online auction sites. They may
claim the winner of an auction that you were bidding on has pulled out and offer the item to you. Once
you have paid, you will never hear from them again and the auction site will not be able to help you.

MOBILE PHONE SCAMS

Mobile phone scams can be difficult to recognize. Be wary of somebody who talks as if they know you
or of redialling a missed call from an unknown number—there may be hidden.
Ringtone scams might attract you with an offer of a free or low-cost ringtone. What you may not
realize is that by accepting the offer, you may actually be subscribing to a service that will keep
sending you ringtones—and charging you a premium rate for them. There are many legitimate
companies selling ringtones, but there are also scammers who will try to hide the true cost of taking up
the offer. Scammers either don’t tell you that your request for the first ringtone is actually a subscription
to a ringtone service, or it may be obscured in fine print related to the offer. They also make it difficult
for you to stop the service. You have to actively “opt out” of the service to stop the ringtones and the
associated charges. Missed call scams start by scammers calling your phone and hanging up so
quickly that you can’t answer the call in time. Your phone registers a missed call and you probably
won’t recognize the number. You may be tempted to call the number to find out who called you. If it is a
scam, you will be paying premium rates for the call without knowing.
Text message scams work in a similar way, but through a Short Message Service (SMS).
Scammers send you a text message from a number you may not recognize, but it sounds like it “Hi, it’s
John. I’m back! When are you free to catch up?” If you reply out of curiosity, you might be charged at
premium rate for SMS messages (sometimes as much as $4 for each message sent and/or received).
An SMS contest or SMS triviascam usually arrives as a text message or in an advertisement and
encourages you to take part in a trivia contest for a great prize. All you need to do is answer a certain
number of questions correctly. The scammers make money by charging extremely high rates for the
messages you send and any further messages they send to you. With trivia scams, the first set of
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questions will be very easy. This is meant to encourage you to keep playing. However, the last one or
two questions that you need to answer to claim your “prize” could be very difficult or impossible to
answer correctly.
HEALTH AND MEDICAL SCAMS
Medical scams prey on human suffering. They offer solutions where none exist or promise to simplify
complex health treatments. Miracle cure scams offer a range of products and services that can appear
to be legitimate alternative medicines, usually promising quick and effective remedies for serious
medical conditions. The treatments claim to be effective against a very wide range of ailments and are
often promoted using testimonials from people who have used the product or service and have been
“cured”.
Weight loss scams promise dramatic weight loss with little or no effort. This type of scam may involve
an unusual or restrictive diet, revolutionary exercise or “fat-busting” devices, or breakthrough products
such as pills, patches or creams. The products are promoted with the use of false claims such as “lose
10 kilos in 10 days” or “lose weight while you sleep”, and often require large advance payments or that
you enter into a long-term contract to participate in the program.
Fake online pharmacies use the Internet and spam emails to offer drugs and medicine at very cheap
prices and/or without the need for a prescription from a doctor. If you use such a service and you
actually do receive the products in response to your order, there is no guarantee that they are the real
thing. There are legitimate online pharmacies. These businesses will have their full contact details
listed on their website and will also require a valid prescription before they end out any medicine that
requires one. There are no magic pills, miracle cures or safe options for serious medical conditions or
rapid weight loss. Never commit to anything under pressure. Don’t trust an unsubstantiated claim about
medicines, supplements or other treatments. Consult your healthcare professional. If this really is a
miracle cure, wouldn’t my healthcare professional have told me about it? Check for published medical
and research papers to verify the accuracy of the claims made by the promoters.

EMERGENCY SCAMS
Emergency scams target grandparents and play upon their emotions to rob them of their money. In the
typical scenario of an emergencyscam, a grandparent receives a phone call from a scammer claiming
to be one of his or her grandchildren. Callers go on to say that they are in some kind of trouble and
need money immediately. They claim to have been in a car accident, are having trouble returning from
a foreign country or they need bail money. You may get a call from two people, one pretending to be
your grandchild and the other pretending to be either a police officer or a lawyer. Your “grandchild”
asks you questions during the call, getting you to volunteer personal information. Callers say that they
don’t want other family members to find out what has happened. You will be asked to wire some
money through a money transfer company. Often, victims don’t verify the story until after the money
has been sent. In some cases, scammers pretend to be your old neighbour or a friend of the family,
but for the most part, the emergency scam is directed at grandparents. Scammers are counting on the
fact that you will want to act quickly to help your loved ones in an emergency. Never send money to
anyone you don’t know and trust. Verify the person’s identity before you take any steps to help. Don’t
give out any personal information to the caller. Does the caller’s story make sense? Ask the person
questions that only your loved one would be able to answer. Call the child’s parents or friends to verify
the story.
DATING AND ROMANCE SCAMS
Despite the many legitimate dating websites operating in Africa, there are many dating and romance
scams as well. Dating and romance scams try to lower your defences by appealing to your romantic
and compassionate side. Some dating and romance scams work by setting up a dating website where
you pay for each email or message you send and receive. The scammer will try to hook you in by
continuing to send you vague-sounding emails filled with talk of love or desire. The scammer might
also send emails filled with details of their home country or town that do not refer to you much at all.
These are attempts to keep you writing back and paying money for use of the scammer’s dating
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website. Even on a legitimate dating site, you might be approached by a scammer—perhaps someone
who claims to have a very sick family member or who is in the depths of despair (often these
scammers claim to be from Russia or Eastern Europe). After they have sent you a few messages, and
maybe even a glamorous photo, you will be asked (directly or more subtly) to send them money to help
their situation. Some scammers even arrange to meet with you, in the hope that you give them
presents or money—and then they disappear. In other cases, scammers will try to build a friendship
with you, perhaps even sending you flowers or other small gifts. After building a relationship, the
scammer will tell you about a large amount of money they need to transfer out of their country, or that
they want to share with you. They will then ask for your banking details or money for an administrative
fee or tax that they claim needs to be paid to free up the money. Check website addresses carefully.
Scammers often set up fake websites with very similar addresses to legitimate dating websites. Never
send money, or give credit card or online account details to anyone you do not know and trust. Don’t
give out any personal information in an email or when you are chatting online. Would someone I have
never met really declare their love for me after only a few letters or emails?
Make sure you only use legitimate and reputable dating websites.

CHARITY SCAMS
Charity scams take advantage of people’s generosity and kindness by asking for donations to a fake
charity or by impersonating a real charity. Charity scams involve scammers collecting money by
pretending to be a real charity. The scammers can approach you in many different ways—on the
street, at your home, over the phone, or on the Internet. Emails and collection boxes may even be
marked with the logos of genuine charities. Often, the scammer will exploit a recent natural disaster or
famine that has been in the news. Other scammers play on your emotions by pretending to be from
charities that help children who are ill. Scammers can try to pressure you to give a donation and refuse
to provide details about the charity, such as their address or their contact details. In other cases, they
may simply provide false information. Not only do these scams cost people money; they also divert
much needed donations away from legitimate charities and causes. If the charity is genuine and you
want to make a donation, get the charity’s contact details from the phone book or a trusted website. If
you do not want to donate any money, or you are happy with how much you may have donated to
charities already, simply ignore the email or letter, hang up the phone, or say no to the person at your
door. You do not have to give any money at all. If you have any doubts at all about the person asking
for money, do not give them any cash, credit card or bank account details. Never give out your
personal, credit card or online account details over the phone unless you made the call and the phone
number came from a trusted source. If in doubt, approach an aid organization directly to make a
donation or offer support.

JOB AND EMPLOYMENT SCAMS

Job and employment scams target people looking for a job. They often promise a lot of income—
sometimes they even guarantee it—for little or no effort. Work-from-homescams are often promoted
through spam emails or advertisements online or in newspaper ads. Most of these advertisements are
not real job offers. Many of them are fronts for illegal money laundering activity or pyramid schemes.
You might get an email offering a job where you use your bank account to receive and pass on
payments for a foreign company. Or you might be offered a job as a “secret shopper” hired to test the
services of a chequecashing or a money transfer company. Some “job offers” promise that you will
receive a percentage commission for each payment you pass on. Sometimes, scammers are just after
your bank account details so they can access your account. They might also send you a counterfeit
cheque along with instructions for you to cash the cheque and transfer a portion of the sum over a
money transfer service. A guaranteed employment or incomescam claims to guarantee you either a job
or a certain level of income. The scammers usually contact you by spam email and the offers often
involve the payment of an up-front fee for a “business plan”, certain start-up materials or software.

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There is a range of scams promoted as business opportunities. You may be required to make an
upfront payment (for something that does not work or is not what you expected) or to recruit other
people to the scheme. There are no shortcuts to wealth—the only people that make money are the
scammers. Never send your bank account or credit card details to anybody you do not know and trust.
If you cash the cheque and it turns out to be counterfeit, you could be held accountable for the entire
monetary loss by your bank. Don’t make any decisions without carefully researching the offer. Seek
independent advice before making a decision.

SMALL BUSINESS SCAMS

Scams that target small businesses can come in a variety of forms—from bills for advertising or
directory listings that were never ordered to dubious office supply offers. Small business operators and
individuals with their own Internet sites continue to be confused and caught by unsolicited letters
warning them that their Internet domain name is due to expire and must be renewed, or offering them
a new domain name similar to their current one. If you have registered a domain name, be sure to
carefully check any domain name renewal notices or invoices that you receive. While the notice could
be genuine, it could also be from another company trying to sign you up, or it could be from a
scammer.
A directory listing or unauthorized advertising scam tries to bill a business for a listing or advertisement
in a magazine, journal or business directory, or for an online directory listing. The scam might come as
a proposal for a subscription disguised as an update of an existing listing in a business directory. You
might also be led to believe that you are responding to an offer for a free listing when in fact it is an
order for a listing requiring later payment. An office supply scam involves you receiving and being
charged for goods that you did not order. These scams often involve goods or services that you
regularly order—for example, paper, printing supplies, maintenance supplies or advertising. You might
receive a phone call from someone falsely claiming to be your “regular supplier”, telling you that the
offer is a “special” or “available for a limited time”, or pretending to only confirm your address or
existing order. If you agree to buy any of the supplies offered to you, they will often be overpriced and
of bad quality. Never give out or update any information about your business unless you know what the
information will be used for. Don’t agree to a business proposal over the phone—always ask for an
offer in writing. Limit the number of people in your business that have access to funds and have the
authority to approve purchases. If a caller claims that I have ordered or authorized something and I do
not think it sounds right, shouldn’t I ask for proof?

SERVICE SCAMS
Many Africans are being targeted by individuals claiming to offer reduced rates or deals for
various services. These scams typically involve individuals that make offers for telecommunications,
Internet, finance, medical and energy services. This category of scams may also include offers such as
extended warranties, insurance, and door-to-door sales. The two most reported service scams
targeting Africans are the antivirus software scam and credit card interest rate reductionscams. The
scammers involved in the antivirus software scam promise to repair your computer over the Internet.
This can involve the installation of software or permission to have remote access to your computer.
Payment for the software or repair is typically made by credit card. Downloading software from an
unknown source or allowing someone to remotely access your computer is risky. Scammers could use
malicious software to capture your personal information such as user names and passwords, bank
account information, identity information, etc.
Everyone likes to get a deal and scammers know this. The people behind credit card interest
rate reduction scams often impersonate financial institutions and claim to negotiate with credit card
companies to lower your interest rates. They guarantee they can save you thousands of dollars in
interest. The caller will tell you that the lower interest rates are for a limited time only and that you need
to act now. Only your service provider can offer you a better rate or price for their services. Be wary of

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unsolicited calls from people offering a great deal “for a limited time only”. Don’t give out your credit
card number over the phone unless you made the call and the number came from a trusted source.

HANDY HINTS TO PROTECT YOURSELF

PROTECT YOUR IDENTITY
• Only give out your personal details and information where it is absolutely necessary and when you
trust the person you are speaking to or dealing with.
• Destroy personal information: don’t just throw it out. You should cut up or shred old bills, statements
or cards—for example, credit cards and ATM cards.
• Treat your personal details like you would treat money: don’t leave them lying around for others to
take.
MONEY MATTERS
• Never send money to anyone that you don’t know and trust. Do not send any money or pay any fee
to claim a prize or lottery winnings. “Jobs” asking you to simply use your own bank account to transfer
money for somebody could be a front for money-laundering activity. Money laundering is a serious
criminal offence. Avoid transferring or wiring any refunds or overpayments back to anyone you do not
know.
THE FACE-TO-FACE APPROACH
• If someone comes to your door, ask to see some identification. You do not have to let them in, and
they must leave if you ask them to. Before you decide to pay any money, if you are interested in what
a door-to-door salesperson has to offer, take the time to find out about their business and their offer.
TELEPHONE BUSINESS
• If you receive a phone call from someone you do not know, always ask for the name of the person
you are speaking to and who they represent. Verify this information by calling the company yourself.
Do not give out your personal, credit card or online account details over the phone unless you made
the call and the phone number came from a trusted source. It is best not to respond to text messages
or missed calls that come from numbers you do not recognize.
EMAIL OFFERS
• Never reply to a spam email, even to unsubscribe—often, this just serves to “verify” your address to
scammers. The best course of action is to delete any suspicious emails without opening them. Turn off
the “viewing pane” as just viewing the email may send a verification notice to the sender that yours is a
valid email address. Legitimate banks and financial institutions will never ask you for your account
details in an email or ask you to click on a link in an email to access your account. Never call a
telephone number or trust other contact details that you see in a spam email.

INTERNET BUSINESS
Install software that protects your computer from viruses and unwanted programs and make sure
it is kept current. If you are unsure, seek the help of a computer professional. If you want to access a
website, use a bookmarked link to the website or type the address of the website into the browser
yourself. Never follow a link in an email. Check website addresses carefully. Scammers often set up
fake websites with addresses very similar to legitimate websites. Beware of websites offering “free”
downloads (such as music, adult content, games and movies). Downloading these products may install
harmful programs onto your computer without you knowing. Avoid clicking on pop-up ads—this could
lead to harmful programs being installed on your computer. Never enter your personal, credit card or
online account information on a website that you are not sure is genuine. Never send your personal,
credit card or online banking details through an email. Avoid using public computers (at libraries or
Internet cafes) to do your Internet banking or online shopping. When using public computers, clear the
history and cache of the computer when you finish your session. Be careful when using software on
your computer that auto-completes online forms. This can give Internet scammers easy access to your
personal and credit card details. Choose passwords that would be difficult for anyone else to guess—
for example, passwords that include letters and numbers. You should also regularly change
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passwords. When buying anything online, print out copies of all transactions and only pay via a secure
site. If using an Internet auction site, note the ID numbers involved and read all the security advice on
the site first.

SCAMS AND YOU:

WHAT TO DO IF YOU GET SCAMMED!
African authorities may not always be able to take action against scams, even if it seems like a
scammer might have broken the law.
REDUCING THE DAMAGE
Although it may be hard to recover any money that you have lost to a scam, there are steps you can
take to reduce the damage and avoid becoming a target for a follow-up scam. The more quickly you
act, the greater your chance of reducing your losses. Report a scam. By reporting the scam to
authorities, they may be able to warn other people about the scam and minimize the chances of the
scam spreading further. You should also warn your friends and family of any scams that you come
across.
IF YOU HAVE BEEN TRICKED INTO SIGNING A CONTRACT OR BUYING A PRODUCT OR
SERVICE
Contact your provincial or territorial consumer affairs office and consider getting independent advice to
examine your options: there may be a cooling-off period or you may be able to negotiate a refund.
IF YOU THINK SOMEONE HAS GAINED ACCESS TO YOUR ONLINE ACCOUNT, TELEPHONE
BANKING ACCOUNT OR CREDIT CARD DETAILS
Call your financial institution immediately so they can suspend your account and limit the amount of
money you lose. Credit card companies may also be able to perform a “charge back” (reverse the
transaction) if they believe that your credit card was billed fraudulently. Do not use contact details that
appear in emails or on websites that you are suspicious of—they will probably be fake and lead you to
a scammer. You can find legitimate contact details in the phone book, an account statement or on the
back of your ATM card. Stop taking any pills or substances that you are not sure about. See a doctor
or other qualified medical professional as soon as you can. Be sure to tell them about the treatment
that the scammer sold (take along any substances, including their packaging). Also tell them if you
have stopped any treatment that you were taking before the scam. If you sent your credit card details,
follow the instructions in the section opposite. If you sent money through an electronic funds transfer
(over the Internet), contact your financial institution immediately. If they have not already processed the
transfer, they may be able to cancel it. If you sent a cheque, contact your financial institution
immediately. If the scammer hasn’t already cashed your cheque, they may be able to cancel it. If you
sent money through a wire service (such as Western Union or Money Gram), contact the wire service
immediately. If you are very quick, they may be able to stop the transfer. You may be protected by laws
that provide you with a “cooling-off” period, during which you can cancel an agreement or contract that
you signed. Contact your provincial or territorial consumer affairs office for advice about door-to-door
sales laws. If you were using your computer when you got scammed, it is possible that a virus or other
malicious software is still on your computer. Run a full system check using reliable security software. If
you do not have security software (such as virus scanners and a firewall) installed on your computer, a
computer professional can help you choose what you need. Scammers may have also gained access
to your online passwords. Change these using a secure computer.

CHAPTER RECAP
When I talk about wealth I refer to it in the bigger scheme of things. I include peace of mind,
happiness, fulfillment and success. As I stated in the introduction, the story of living the life of your
dreams is a history of outstanding individual and collective accomplishments and wealth accumulation.
The seven "secrets" are very straightforward. Get a good education. Support your community. Be a
professional or entrepreneur. Speak up. Be creative. Save your money and selectively enjoy it. And
above all, be driven to be your own person. Perhaps you cannot manage all of the secrets, but if you
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succeed at four or five out of seven, you are well on your way. Moreover, these success stories do not
tell the whole story; they are only the tip of the iceberg.
Good money management begins with setting goals. Goals give you direction, a purpose for the way
you spend your money and the way you live. Goals motivate and encourage you. Goals are dreams or
wishes that could come true. If your goals are specific enough, you will be motivated to balance your
spending and savings to reach your goals. Goals guide you. Remember, goals are an important key to
successful money management. Goals can help you make your dreams come true within a specific
period of time. They help you use your money to do the things that are important to you. After goals
are listed and prioritized, a workable budget should be devised.
A good plan acts as a guide for you. It doesn’t need to be down to the penny. It needs to be easy to
understand and it should require a minimum amount of time and effort. It is a reflection of your needs
and wants, your values and your goals. It does not determine who you are but reflects that special
unique person that is you. A good plan is based on current income and expenses. It allows for future
possibilities and probabilities. It must be flexible, allowing you to adjust it as things around you change.
A plan or budget is not a magic genie to grant your every wish. It is your servant. It will promote good
spending and saving habits and improve your financial health. It is your most valuable financial
resource. This plan for spending and saving first requires an estimate of income and expenditures.
After you have figured out how much your income will be for the planning period, it is time to estimate
your expenses.

Intellectual poverty always and directly translates to material

poverty

CHAPTER TWO
ENTREPRENEURSHIP

LEARNING OBJECTIVES
After reading this chapter, you will understand
• Who an entrepreneur is
• What entrepreneurship is
• The value and purpose of a business model.
• The evolution of entrepreneurship theory.
• The different dimensions of entrepreneurship
• How to manage the entrepreneurial organizations

ENTREPRENEURS: THE DRIVING FORCE BEHIND SMALL BUSINESS

There have been almost as many definitions of entrepreneurship as there have been writers on the
subject. Translated from the French, entrepreneur literally means “one who undertakes.” An
entrepreneur is a doer. The term ‘entrepreneur’ is derived from the French verb ‘enterprendre’. The
meaning of this verb is to undertake. The term ‘entrepreneur’ was applied to the leaders of military
expeditions in the early 16th century. Later on it was used to cover the contractors undertaking the civil
contracts of construction of bridges, dams, roads, etc. In the beginning of the 18th century the term
was used to refer to the economic activities. In France the farmers doing the farming activity on
commercial basis were also considered as entrepreneur. Thus we find that the meaning of the term
‘entrepreneur’ has changed over a period of time from the leader of military expeditions to individuals
doing business by bearing the risk.
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 Entrepreneur is seen differently by different sections of society. Economists see him as a creator of
industrialisation. Economists also view an entrepreneur is a man who is activated primarily by profit
motive. The various ways an entrepreneur organises are discussed below:
David C. McClelland wrote that “an entrepreneur is an individual who takes moderate risks and brings
innovation. McClelland also suggests that an entrepreneur is not characterised by routine tasks which
are managed by usual managers and situations of high risks such as gambling or betting. The
entrepreneur exhibits a desire to take personal responsibilities for decisions preference for moderate
risks and interest in concrete knowledge of business and the possible outcomes.”
Richard Cantillon defines the term entrepreneur as “the agent who buys means of production at
certain prices in order to combine them into a product that he is going to sell at prices that are
uncertain at the movement at which he commits himself to his costs”. Cantillon explains his concept of
entrepreneur by an example of a farmer. A farmer takes risk of paying the daily wages to the labourers
and fix amount to the landlord and for selling his produce at an unknown future price. For that matter in
any business the risk is inherent due to price fluctuations in the markets.
J.B. Say defines an entrepreneur as “economic agent who unites all means of production... the labour
of the one, the capital or the land of the other and who finds in the value of products which results from
their employment, reconstitution of the entire capital that he utilizes and the value of the wages, the
interest and the rent which he pays as well as profits belonging to himself.”
Sir Francis defines an entrepreneur as someone who innovate , creates , make use of opportunities to
create wealth

THE CONCEPT OF ENTREPRENEUR

As said above entrepreneur is used in various ways and various views. These views are broadly
classified into three groups, namely risk bearer, organizer and innovator.
Entrepreneur as risk bearer:
Richard Cantilon defined entrepreneur as an agent who buys factors as production at certain prices in
order to combine them into a product with a view to selling it at uncertain prices in future. He illustrated
a former who pays contractual incomes, which are certain to land owners and laborers, and sells at
prices that are ‘uncertain’. He includes merchants also who make certain payments in expectation of
uncertain receipts. Hence both of them are risk-bearing agents of production. P.H. Knight described
entrepreneur to be a specialized group of persons who bear
uncertainty. Uncertainty is defined as risk, which cannot be insured against and is in-calculable. He
made distinction between certainty and risk. A risk can be reduced through the insurance principle,
where the distribution of outcome in a group of instance is known, whereas uncertainty cannot be
calculated.
Entrepreneur as an organizer:
According to J Baptist Say “an entrepreneur is one who combines the land of one, the labor of another
and capital of yet another, and thus produces a product. By selling the product in the market, he pays
interest on capital, rent on land and wages to laborers and what remains is his/her profit”. Say made
distinction between the role of capitalist as a financer and the entrepreneur as an organizer. This
concept of entrepreneur is associated with the functions of co-ordination, organisation and supervision.
Entrepreneur as an innovator:
Joseph A SchumPeter in 1934 assigned a crucial role of ‘innovation’ to the entrepreneur. He
considered economic development as a dynamic change brought by entrepreneur by instituting new
combinations of factors of production, i.e. innovations. The introduction of new combination according
to him, may occur in any of the following forms.
(a) Introduction of new product in the market.
(b) Use of new method of production, which is not yet tested.
(c) Opening of new market.
(d) Discovery of new source of raw materials.
(e) Bringing out of new form of organisation.
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Decision-making
Entrepreneurship involves decision-making. Entrepreneurs have to take decisions on selection of
product, site, raw material, labour, technology etc. They have to decide the quantum and sources of
capital, marketing strategies and so on. Success of entrepreneurs depends on the ability to make
decision promptly and accurately, and this requires a creative and analytical mind.
A Dynamic process
Entrepreneurship is a dynamic process. In the course of time, enterprises grow, unsuccessful
enterprise die and new enterprises are established. The nature of enterprise, methods of business,
nature of technology change over a period of time. Today’s complex and uncertain environment
compels the entrepreneurs to remain dynamic in order to survive in the market.
Accepting challenges
Entrepreneurship gives importance to accepting challenges by the entrepreneurs. In any business,
there are tremendous challenges, and the entrepreneurs cannot avoid them. The task of seeking
opportunities and exploiting them itself is challenging. In today’s era of globalization and hyper change
entrepreneurs have to face more challenges.
Management
The entrepreneurs should manage the resources in an effective and viable manner. The management
function has become more impact in modern times. It is the effective management, which helps
entrepreneur to achieve the goals, maintain and improve the market share, fulfill the needs of
customers and earn sufficient profit.
SchumPeter also made distinction between inventor and innovator. An inventor is one who discovers
new methods and new materials. An innovator utilizes inventions and discovers in order to make new
combinations.
Hence the concept of entrepreneur is associated with three elements risk-bearing, organizing and
innovating. Hence an entrepreneur can be defined as a person who tries to create something new,
organizes production and undertakes risks and handles economic uncertainty involved in enterprise.

DEFINITION OF ENTREPRENEURSHIP:
Let us now study select definitions of entrepreneurship:
1. Higgins B : Entrepreneurship is the function of seeking investment and production opportunity,
organizing an enterprise to undertake a new production, process, raising capital, hiring labour,
arranging the supply of raw materials, finding site, introducing new techniques and commodities,
discovering new sources of raw materials, and selecting top managers of day-to-day operations of the
enterprise.
2. Joseph Schumpeter : Entrepreneurship essentially consists in doing things that are not generally
done in the ordinary course of business routine.
3. Peter Drucker: Entrepreneurship occurs when resources are redirected to progressive opportunities
not used to ensure administrative efficiency. Entrepreneurship is not natural; it is not creative. It is
work. Entrepreneurship requires entrepreneurial management.
4. John Kao : Entrepreneurship is an attempt to create value through recognition of business
opportunity, the management of risk taking appropriate to the opportunity and through the
communicative and managerial skills to mobilize human, financial and material resources.
Putting these perspectives together, entrepreneurship can be viewed as
 recognizing change,
 pursuing opportunity,
 taking on risk and responsibility,
 innovating,
 making better (higher value) use of resources,
 creating new value that is meaningful to customers,
 doing it all over again and again.

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And entrepreneurship is an attitude and drive to pursue opportunity and create something new and of
value.

INTRAPRENEURSHIP
“Developing a spirit of entrepreneurship within the existing organisation is called intrapreneurship”.
Intrapreneurship is necessitated due to pressure of competition of business, socio-cultural necessities.
Marketing competition calls for extra market share, business leadership, price supporting quality-
reliability and brand image. For achieving these creativity and innovation are key factors and to
develop these factors intrapreneurship plays a vital role. Corporate entrepreneurship or better known
as “intrapreneurship” encourages innovation within existing companies through motivated employees,
who are supported with company resources. More precisely these managers create a team that initiate
certain activities and evolve a new operating division or a formal subsidiary.
According to Gifford Pinchot who gave us the term “intrapreneurs”. “These courageous souls form
underground teams and networks that routinely boot leg company resources or ‘steal’ company time to
work on their own missions”. The contradiction prevails that in intrapreneurship, entrepreneurship does
not exist because salaried employees who innovate take little or no personal risk. Consequently, they
seldom reap rewards beyond bonuses and promotions. They are protected in their jobs and have
access to corporate resources. Nevertheless they champion new ideas and alter the course of their
companies through tenacious innovation.
Corporate entrepreneurs do not have a personal share in their creations. There is no profit and no loss.
They are not being entrepreneurs. But since the employers stop being employers and allow them to do
their own innovations and creations the employees start being “entrepreneurs” and often work
independently with some degree of autonomy.

ENTREPRENEURS AND MANAGERS

Any enterprise needs entrepreneurs to start the enterprise and run it. It also needs managers for the
managerial role required for running day to day operations of the enterprise. Generally the Chief
Executive and his team at top level play the role of entrepreneurs whereas the group of officers in the
organisation in middle level as well as lower level plays the role of managers. A professional manager
takes care of the general functions of running an organisation such as strategic planning, operation
planning, organising the resources, staffing, coordination, motivation and controlling work in the
organisation. The professional manager is driven by a plan to achieve the pre-determined targets to
build the organisation and eevelop it. A manager uses managerial tools to achieve the targets like the
volume of production, the profit or growth of an organisation. He contributes on day to day operations
in achieving the quality of goods produced, makes efficient use of the resources and enhancement of
the standards. A manager is appointed by the organisation and paid as per the employment contract.
An entrepreneur is not a paid manager. He is great motivator to start his new business and also
manage it successfully. He is the investor and takes risks in the enterprise. He is an innovator and a
manager and works for his satisfaction and he is happy to get positive results. An entrepreneur
appoints a manager for carrying out some of his functions, whereas the reserve is not true. An
entrepreneur may also perform duties of a manager in getting done his creative activities and satisfying
need of achievement. An entrepreneur takes a venture for his personal satisfaction, whereas a
professional manager has functions like setting targets, following rules, procedures, attainment of set
targets. Any failure of an enterprise may be a huge loss in the career of an entrepreneur. In case of
professional managers the failures may mean little.

ENTREPRENEURIAL MOTIVES
A study by Murthy, Sekhar and Rao on entrepreneurial motivation classified the factors behind
entrepreneurial growth into three categories as follows:
1. Entrepreneurial ambitions
(a) To make money
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 (b) To continue family business
(c) To secure self-employment/independent living
(d) To fulfill desire of self/wife/parents
(e) To gain social prestige
(f) Other ambitions- making of a decent living, self-employment of children, desire to do
something creative, provide employment to others.
2. Compelling reasons
(a) Unemployment
(b) Dissatisfaction with the job so far held or occupation pursued
(c) Make use of idle funds
(d) Make use of technical/professional skills.
(e) Others – maintenance of large families, revival of sick unit started by father, etc.
3. Facilitating factors
(a) Success stories of entrepreneurs
(b) Previous association (experience in the same or other line of activity)
(c) Previous employment in the same or other line of activity
(d) Property inherited/self acquired/wife's
(e) Advice or influence (encouragement) of family members/relatives/ friends.
Now, it is crystal clear from the foregoing analysis that the majority of entrepreneurs are motivated to
enter industry mainly because of four factors:
 First, they possessed technical knowledge or manufacturing experience in the same or related
line.
 Second, there was heavy demand for the particular product.
 Third, the Governmental and institutional assistance available facilitated individuals to enter
industry.
 Fourth, they have enterprising attitude, what McClelland designates' an achievement motive', to
do something independent in life.

THEORIES OF ENTREPRENEURSHIP
The various theories of entrepreneurship may be discussed as follows:
1. Psychological Theories of Entrepreneurship
Entrepreneurship is a psychological process. According to psychological concept, psychological
factors are the primary source of entrepreneurship development. When there is sufficient number of
persons having psychological characteristics in the society, then there are bright chances of
development of entrepreneurship. Entrepreneur behaviour is government by psychological factors,
such as, mental outlook, predisposition, emotions etc. The activities of the entrepreneur are the result
of his mental background. The personality of the entrepreneur affects his behaviour, decisions, plans,
thinking and activities. The personality of the entrepreneur plays a dominating role in the development
of his activities. Psychological part of personality of an entrepreneur motivates, controls and directs his
perception, thinking, outlook, style, nature, learning, attitude, ethics, belief, opinion, expectation, action,
disposition and internal needs etc.
Leading authors like Schumpeter, McClelland, Hagen and John Kunel have expressed their views
about psychological factors affecting entrepreneurship. They have developed their theories in which
they have explained the different psychological aspects of entrepreneur’s personality. According to the
advocates of these theories, entrepreneurship is most likely to emerge when a society has sufficient
supply of individuals possessing particular psychological characteristics. The main psychological
theories are as follows :
(a) Joseph A. Schumpeter’s Theory : According to Schumpeter’s entrepreneur psychological theory,
the entrepreneurs are primarily motivated by an atavistic will to power, will of a private kingdom, or will
to conquer. Schumpeter believed that entrepreneurs are primarily motivated by an atavistic will to
power, will to found a private kingdom or will to conquer. According to Mclalland need for high
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achievement drives individuals towards entrepreneurial activities. High achievement need can be
developed through child rearing and schooling practices. People with high achievement need are not
motivated by monitory rewards only such people regard profit as a yardstick (measure) of success. On
the contrary people with low achievement need are motivated by monitory rewards.
According to Schumpeter, the following characteristics appear in the behaviour of an entrepreneur :
(i) An institutional capacity to see things in a way which afterwards proves to be true.
(ii) Energy of will and mind to overcome static habits, desires and emotions.
(iii) The capacity to withstand social opposition.
According to Schumpeter, an entrepreneur is an innovator who desires to earn profit through
innovation. An entrepreneur is neither a technical man nor a capitalist, but simply an innovator. He
introduces something new in an economy. He is motivated by his psychological powers. An
entrepreneurship is formed for establishing his industrial empire. He has a burning desire for creative
activities. Schumpeter makes a distinction between innovator and an inventor. An inventor discovers
new methods and new material. On the contrary, an innovator is one who utilises or applies inventions
and discoveries to produce newer and better quality of goods that give greater satisfaction to
consumers and higher profits to entrepreneurs. In this way, an entrepreneur is an innovator.
(b) David C. McClelland’s Theory : Psychological Theory: According to McClelland the
characteristics of entrepreneur has two features – first doing things in a new and better way and
second decision making under uncertainty. McClelland emphasises achievement orientation as most
important factor for entrepreneurs. Individuals with high achievement orientation are not influenced by
considerations of money or any other external incentives. Profit and incentives are merely yardsticks of
measurement of success of entrepreneurs with high achievement orientation. The achievement
orientation can be taught and increased by deliberate efforts. The struggle to achieve more and more
is taught to children by their parents. The individuals with high achievement orientation take calculated
risks and can make decisions where there are incomplete information or have tolerances for ambiguity.
Psychologists call this behaviour as Type-A behaviour. In this theory, psychological factors are the
primary source of entrepreneurship development. Entrepreneurship is most likely to emerge when a
society has sufficient supply of individuals possessing particular psychological characteristics, such as
high need for achievement, will to conquer etc.
(c) Everett E. Hagen’s Theory : Hagen has developed the Theory of withdrawal of Status. Hagen
considers Withdrawal of status respect as the trigger mechanisms for changes in personality formation.
Status withdrawal is the perception on the part of some social groups. According to Hagen, the
creativity of disadvantaged minority group is the main source of entrepreneurship. The origin of his
concept of his psychological theory of entrepreneurship is based on ‘Samurai Community’ of Japan.
Traditionally, this community of Japan had occupied a very high position in the society. Later on, the
high position and prestige was lost. In order to regain his lost position and prestige, this community
became highly active, creative and powerful. This community gave birth to a number of entrepreneurs.
In this way, according to Hagen’s concept, status withdrawal or fall of status of a social group is the
primary cause of personality formation and entrepreneurship development. In case of withdrawal or
reduction in status and prestige that man or the group will indulge in creative activities which will
develop entrepreneurial. The society will give birth to status dissonance entrepreneurs.
(d) John H. Kunbel’s Theory : John H. Kunbel has presented a behavioural theory in connection to
the development of entrepreneurship. Kunbel’s behavioural theory is concerned with the overtly
expressed activities of individuals and their relations to the previously and presently surroundings
social structures and physical conditions. Behavioural patterns are determined by reinforcing and
aversive stimuli present in the context. Hence entrepreneurial behaviour is a function of the
surrounding and social structures, both past and present and can be readily influenced by the
manipulative economic and social incentives.
According to Kunbel the supply and development of entrepreneur depends on the existence and
comprehensiveness of the above four structure. Entrepreneurship depends on the specific combination

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of circumstances whose creation is difficult but destruction is easy. In short, according to Kunbel,
entrepreneurship is the result of social, political and economic structure of a country.

2. Trait Theory of Entrepreneurship

This theory holds that entrepreneurship developed because the individuals called entrepreneur
possessed certain specific traits or characteristics or competencies which made them capable of
generating new ideas and creating a new venture. The major traits responsible for the emergence of
entrepreneurship are said to be: creative and innovative skills, propensity to take risks, ability of
building on organisation and managing it effectively, perseverance, and foreseeability. Different studies
have emphasised different traits. However, it may he noted that there are opponents of the trait
approach. They ask a logical question as to whether those among us who do not chose to be
entrepreneur, have similar traits.

3. Economic Theory
According to this theory, entrepreneurship and economic growth will take in those situations when
particular economic conditions and opportunities are most favourable for them. G.E. Pataneck and J.R.
Harris are the main advocates of this theory. According to them, economic incentives are the main
drive for. entrepreneurial activities. Entrepreneurs emerge due to incentives and economic gain. When
an entrepreneur realises that he can make gain by purchasing or producing goods at a particular time
and selling them at higher prices at a later stage, he will tend to act. In essence, he is a seeker of
profitable opportunities as and when they arise. In some cases, it is not so evident, but his inner drives
have always been associated with economic gains. Therefore, these incentives and gains are regarded
as the sufficient condition for the emergence of business and industrial entrepreneurship. When an
entrepreneur recognises that the market for a product or service is out equilibrium, he may purchase or
produce them at the prevailing price and sell to those who are prepared to buy at the highest price.
3. Sociological Theory
According to sociologists, the emergence of entrepreneurship is under specific social culture.
According to sociological concept, social sanctions, cultural values, traditions, group dynamics and role
expectations are responsible for the emerge of entrepreneurship. For example, according to Thomas
Cochran’s Theory, “Cultural values role expectations, ambitious and social sanctions occupy important
place in the entrepreneurship development.” In Africa , Marwaries and Parsees are considered to be
the dominant social classes as source of entrepreneurship. According to Everett Hagen the driving
force in an entrepreneur is the withdrawal of status or respect i.e., social change. When a person feels
that his status or respect has been withdrawn, he feels hurt and reacts to regain his lost status or
respect by creatively solving the problems of his social group. This feeling of deprivation and will to
regain drives him to entrepreneurial activities.
4. Integrated Theory
Integrated theory of development of entrepreneurship is based on several economic, social, cultural,
political and psychological factors. The main contributors of integrated theories are:
According to Sir Francis, entrepreneurial disposition plays an important role in the development of
entrepreneurship. The fundamental of entrepreneurship is entrepreneurial disposition. If
entrepreneurial disposition is withdrawn from the entrepreneur then his whole existence will come to an
end. It is the entrepreneurial disposition which motivates an extrepreneur to take risk, to move forward
and establish new enterprises. According to Sir Francis, the following factors are included in
entrepreneurial disposition : (a) Dynamic Incentive, (b) Long-term Devotion, (c) Individual, Social and
Physical Resources, (d) Social and Political System.
5. Innovative Theory
Innovate theory of entrepreneur-ship was advocated by Joseph Schumpeter. According to him
entrepreneurship is essentially a creative activity. It consists in doing such things which are not
generally done in the ordinary course of business. An entrepreneur is one who innovates, i.e., carries
out new combinations. He takes the economy to new height of development. They foresee the
37
potentially profitable opportunity and try to exploit it. Innovations involve problem solving and
entrepreneur is a problem solver. Innovation may occur in the following forms :
(i) Introduction of a new product with which consumers are not familiar or introduction of a new quality
of an existing product.
(ii) Introduction of a new method of production.
(iii) Opening of a new market.
(iv) Discovery of a new source of raw-materials.

BORN AND MADE

Launching and running your own business, even a lifestyle business, is not easy. It requires, amongst
other things, hard work, tenacity and a willingness to live with uncertainty in varying degrees. The
personal character traits required to launch a business successfully are not sufficient to see it grow to
any size. But what are these characteristics? Notwithstanding this, we also know that the role of the
entrepreneur needs to change as the business develops and all too often they are not able to make the
transition. Were it not for those who have a vested interest in identifying our super-heroes at an early
stage in their business development, it is unlikely that economists, sociologists and psychologists
would have paid this area so much attention. Because of this it remains an area of heated academic
debate and constant development, not least over the question as to whether entrepreneurs are born
rather than made.
Figure 3.1 shows the influences on individuals to start up and grow their businesses. The model
proposes that entrepreneurs, and indeed owner-

Figure 3.1 Influences on owner-managers and entrepreneurs managers, are in fact both born and
made. Whilst they do have certain personal character traits that they may be born with, they are also
shaped by their history and experience of life. This comprises their antecedent influences – the social
environment that they find themselves in for example, their family, ethnic group, work, education and
so on – and the culture of the society they are brought up in. Some cultures encourage entrepreneurial
activity, others discourage it. What is more, the situations entrepreneurs find themselves in can
influence the decision. For example, if they are thrown out of work they may have little option but to try
to start up their own business.
All these factors influence the decision whether to start up a business and whether to grow it. If all
the factors are favourable the volume of start-ups should increase as, too, should the number of
businesses that grow. Indeed both antecedent influences and the dominant culture of the society will
almost certainly influence the personal character traits of individuals as they develop over time and
visa versa – over time entrepreneurial characters will start to shape society and influence those they
come in contact with. These three factors are interrelated. However, of most interest to many people
38
are the character traits and antecedents of our super-heroes – entrepreneurs. And that has a lot to do
with trying to ‘pick winners’. Entrepreneurs share certain character traits with owner-managers but they
also have certain additional, almost magical, qualities that the average owner-manager does not
possess.

HARD WORK WILL NOT MAKE YOU RICH

There is this strange idea in our culture that says, “If you work really hard, you’ll be okay.” What a
pile of baloney! And what’s so tragic about it is that most people have been brainwashed to believe it,
and they do believe it, even though we’re all surrounded by tons of evidence to the contrary. What
evidence? Just look around you. Do you know anyone who has worked really hard his entire life, only
to end up living a life that hovers just above—or just below—the indignity and heartbreak called
“subsistence level”? Of course you do. We all do. The world is full of people who work hard and are
most definitely not okay. And perhaps the worst part about it is that many of these unfortunates come
to the conclusion that it was their fault, their personal failing. They did all the right things, right? But it
still didn’t work. Maybe they just didn’t try hard enough, or didn’t get the lucky breaks. Maybe they were
just not cut out for success. Nonsense. The problem is that the hard-work myth is just that: a myth.
Now, don’t get me wrong. I’m not saying that building wealth and financial freedom doesn’t take hard
work; it does, and lots of it. I hope you’re not naïve enough to believe the idiots who will tell you they
can show a way to wealth that’s easy, that’s quick, or that’s painless. Because if you are, I know a
bridge you can buy real cheap—and an entire system of subprime mortgages and credit-default swaps
that might be just right for you. No, it takes hard work, all right. The question is, hard work doing what?
I can already hear you thinking, “Doing what?! Making money, of course!” But not so fast, because
here’s the cold, hard truth lurking behind that sad error of our culture’s thinking:

WORKING HARD AT MAKING MONEY WILL NEVER CREATE WEALTH.

People who work for income work harder and harder, only to be taxed more and more. Forget
working hard at making money: All you’ll do is spend it, and then have to work hard all over again. You
might be asking, “Okay, so what do I do?” You take control. Take control of what? After all, most things
in life you cannot control, no matter how hard you try. You can’t control the market. You can’t control
employees. You can’t control the economy. What can you control? You can control the source of your
income.

THE PROBLEM
Building a business is the way most of the very rich became rich. Bill Gates built Microsoft; Michael
Dell created Dell Computers in his dormitory room. For one thing, most people don’t have the cash it
takes to start their own business. Today it costs an average of $5 million to start your own business.
And for another thing, building your own business from scratch remains the riskiest of all ways to
become rich. The failure rate for new businesses is about 90 percent in the first five years—and if your
new venture fails, guess who just lost $5 million? In my early years of starting businesses, I failed
twice, and while it never pushed me into bankruptcy (and I never got any government bailouts!), it did
cost me millions of dollars. Typically when you start your own business, you have to make sure your
rent, utilities, and the rest of your overhead are paid, your employees are paid, and your suppliers are
paid, or you’re out of business. So guess who doesn’t get paid? You.
In the course of starting a new business—and I’m talking here about a successful business—you
can easily go five to ten years without taking a paycheck. Most people do not have the mental,
emotional, physical, or financial stamina to handle these conditions. It can be brutal, and usually is.

THE POWER OF PASSIVE INCOME

Have you ever used one of those spring-loaded water faucets that some public restrooms install
to save water? When you turn the water on, you have to hold the faucet there, because when you let
go, it bounces back to the off position. Most people’s income source works just like that faucet: You get
39
a little money flowing, and then when you let go, it bounces back to off. You can never build freedom
that way. What you want is a money faucet that you can let go of once you’ve turned it on, because it
stays on by itself. It’s not just about having income today, tomorrow, and next week; it’s about securing
your income in perpetuity. This is passive income, also known as residual income: income that
continues coming in, over and over, long after you finished expending the effort and capital it took to
create the source of the income. If you own a restaurant, you earn income only when you prepare and
sell a meal. If your business fixes air conditioners, you earn income only when you provide that service.
Even high-salaried doctors and lawyers earn money only when they see patients or clients. If no
patients or clients require their knowledge and services in a particular week, the income faucet springs
shut again and there’s no money coming in that week. What most people need is an avenue to create
passive income. This is an astonishing and abundant world we live in, and there is way more than
enough energy, material, ingenuity, creativity, and ambition to allow every human being on the planet
to be wealthy.

A CREATIVE MIND
Yes, it’s about the business, but at the same time, it’s not really about the business—that’s only the
external form. Putting a horse farmer behind the wheel of a Mercedes doesn’t make him a racing car
driver. He needs the skills, the training, and, most important, the mindset of a racing car driver. The
same is true of your financial life. You need to adopt the mindset of an entrepreneur. That mindset
comes down to this: An entrepreneur is self-determining. You make things happen, which means you
don’t get to blame anyone or anything outside yourself. Not that you’re going to have to do it all
yourself from the ground up, like I did with my businesses. No, one of the beauties of the business of
the 21st century is that all the groundwork of the business is already done for you—and you get to
have experienced leaders committed to your success to guide you. But make no mistake: If it’s going
to happen for you, you are going to be the one who makes it happen. And for that to happen, you need
to have the mindset of an entrepreneur. If you don’t, then no matter how good the business is or how
great your teachers are, the business is going to have a tough time getting results. First and foremost,
it’s about you. Are you prepared to take the wheel? Do you have what it takes?

RECOGNIZING OPPORTUNITIES AND GENERATING IDEAS

Once an opportunity is recognized, a window opens, and the market to fill the opportunity grows.
At some point, the market matures and becomes saturated with competitors, and the window of
opportunity closes. An idea is a thought, an impression, or a notion. An opportunity is an idea that has
the qualities of being attractive, durable, and timely and is anchored in a product or service that creates
value for its buyers or end users. Not all ideas are opportunities. Observing trends, solving a problem,
and finding gaps in the marketplace are the three general approaches entrepreneurs use to identify an
opportunity. Economic forces, social forces, technological advances, and political action and regulatory
changes are the four environmental trends that are most instrumental in creating opportunities. Prior
experience, cognitive factors, social networks, and creativity are the personal characteristics
researchers have identified that tend to make some people better at recognizing business
opportunities than others. For an individual, the five steps in the creative process are preparation,
incubation, insight, evaluation, and elaboration. Brainstorming is a technique used to quickly generate
a large number of ideas and solutions to problems. One reason to conduct a brainstorming session is
to generate ideas that might represent product, service, or business opportunities. A focus group is a
gathering of 5 to 10 people who have been selected on the basis of their common characteristics
relative to the issue being discussed. One reason to conduct a focus group is to generate ideas that
might represent product or business opportunities. An idea bank is a physical or digital repository for
storing ideas. The three main steps that can be taken to protect ideas from being lost or stolen are
putting the idea into tangible form by such means as entering it in a logbook or saving it in a computer
file, securing the idea, and avoiding making an inadvertent or voluntary disclosure of an idea in a
manner that forfeits the right to claim exclusive rights to it if it falls into someone else’s hands.
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BUSINESS IDEAS
Entrepreneurs often talk about that Eureka’ moment, Newton and the apple era. What they are
actually referring to is that instance when everything finally clicks and they come up with that special
idea. Getting to this point, however, is the difficult part. So the question remains: is there any
formula for generating entrepreneurial ideas?
There are certain steps you can take to get the creative juices flowing. The first place any individual
should start is thinking about your passions, as well as the products and services you would like to see
in market. More importantly, if you align these thoughts to your own skills set, you are more likely to
succeed. As the great philosopher Seneca said once, the best ideas are common property. You don’t
have to come up with a crazy new invention or a new life-changing product or service to be an
entrepreneur. Sometime it is the matter of improving the design and the concept. The secret here is to
do things bigger, better, faster and more efficiently than others. This could be combining two ideas or
solving the problems faced by previous products and services you believe have room for improvement.
It could be as simple as streamlining something in a better way than the present available product.
Without an idea, you won’t have a business. But having an idea doesn’t mean you’re on to be a winner
either. You have to realize the idea. That requires hard work, determination, and pushing yourself both
physically and mentally.

1. Start thinking! Get your brain to work

Whether you’re too busy with your daily routines to take the time to think and reflect on what you want,
or feel that your brain is too pressured and lacking the ability to run wild with your imagination, do not
worry. The first step towards creative thinking is understating how the mind works and how to stimulate
your brain. The brain has two main parts; the right and the left hemispheres, each of these has
different functions and works differently. The right hemisphere is creative and artistic. It’s the part that
appreciates art, it uses shapes, colors and images to analyze and process information, and it’s also the
part that controls creativity and the imagination. The left is the logical part. It’s the part that performs
mathematical calculations, looks for causes and effects, uses words to describe and define. It’s also
the part that controls speech, grammar and word order. For you to be successful in business, you have
to have a balance on both sides. You have to be imaginative and creative to come up with
business ideas and to come up with creative solutions for business problems. You also have to be
logical to analyze and define business opportunities, calculate business risks and weigh your options to
deal with the daily business issues.
The brain is like a muscle; you have to give exercise regularly to the brain. Common barriers to
creative thinking are habits, attitudes, daily routines, lack of confidence or the constant need for
guidance from others. A good way to break or overcome those barriers is to be open-minded, be
receptive to new things, take new challenges, or by simply giving your brain the freedom to think
creatively. So take the time to think and get your brain stimulated.
Change is one of the best way to stimulate your brain and discover new ideas. A change of scenery
can help you clear your mind off your daily issues and give you some clarity to start thinking creatively,
you can go to a garden, beach or anywhere you like and take the time to exercise your brain. By
meeting new people and listening to them talking about their issues or frustrations, you can gain a
better insight into their needs and aspirations, which is the basis of any successful business. A change
of place will also definitely help you discover new ideas which you had not seen or heard of earlier.
2. Buy a notebook
Now that you know how to stimulate your brain and get started with the creative thinking process, you
need to keep count on your ideas and make sure that you can document them to study and examine
them further. Every business you can think is started with a small idea somewhere. From a
small observation or a frustrating situation. The difference is that people who had those ideas took
time to think about those ideas and improved on them to create successful businesses. You never

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know when the inspiration comes, so keep a notebook close to you at all times to write these ideas
down whenever they come.
3. Follow your passion
Once you start your business, you will spend most of your day for several years doing that business.
So make sure you choose a business that you feel passionate and excited about. If you don’t like the
business which you are in, then chances are, you might not succeed in that business. Probably not
because you don’t have what it takes, but mostly because you might lose interest too easily in the face
of the challenges that will come your way. Starting and building a successful business is not a small
task, it will be a lot of hard and smart work. You could face many problems, you will have to deal with
situations you never encountered before, so it better be something you love doing. You will find that
when things go tough, it is your passion that keep get you going and make you overcome the hurdles.
If you don’t love what you’re doing, you will take the first exit when problems arise. Additionally, if you
do something you love personally and understand its motivations, you will be in a better position to
understand your customers’ needs and deliver them. Understanding customer needs and their
motivations to buy is a key element of understanding for your business and ensuring its success.
Having said that, when you decide to take an old hobby into a new business, you have to work out the
calculations and make sure that there is enough demand for this product or service, and that people
are willing to pay for it. Otherwise, you could end up doing something people are interested in.
4. Keep your eyes open
New business opportunities get born from new situations every day. Keep an eye on what is
happening around you. Make it a habit to read the newspaper and identify new opportunities. You may
read that people are complaining of poor health services in your area, or the lack of schools in your
neighborhood. Talk to your neighbours and the people you know, of what is frustrating them? What
would they want to change in your neighbourhood? Is your neighbour complaining that she needs to
drive long distances to get to the nearest dry cleaner? Or is your other neighbour complaining
about the lack of groceries in close proximities to where she lives. Are working people not happy that
there are no restaurants close to their office? If you keep your eyes open to new developments and
changes around you, you might capitalize on the emerging opportunities that could arise. You don’t
need to come up with an original and unique business idea to be successful. Often, it’s the ideas that
have been tested time and time again that prove to be successful, so look into your area, and see what
is missing. It could be your business.
5. Capitalize on your strengths
Most people are good at something. Look at your experiences and career. What is it that you can do
well? Have you been familiar to some specific business may be because your family , relative or
colleague or yourself who worked there for few years and knows the ins and outs of the business. This
could be the best situation to start. Most people are afraid to start their own business because they
focus on the weaknesses and think that they would fail because of the things they cannot do well. No
one is perfect, not every successful business owner is a superman. Instead of focusing on the things
you cannot do well, focus on the things you are good at. What can you do better than others? How
others are doing it? And how can you do it differently? Sometimes, you need a new idea to start a
business, maybe a small change to an established idea could be the answer. You can come up with a
new system to automate the processes or to computerize the records. Bottom line, is look at things you
know the best, and focus your thinking on them. They don’t necessarily need to be from your work life.
6. Explore new things
As mentioned earlier, change is one of the biggest stimulators to the brain. Even if you don’t want to
open your own coffee shop, next time you’re in one, look at how things are done and think of new
ways to improve it. Often this thinking might lead you to new ways to improve on your business ideas
in your chosen field. Strange enough, your next business idea might be something that never
crossed your mind. The more you experience, the wider your options are, leaving you in a
better position to generate new ideas and come up with new thinking.
7. Check your bank account
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Starting and running your business requires money. You need to think of business that suits your
budget, which is workable. If you have a small amount of money, then look into business ideas that are
not cash hungry, may be start small and then grow with the business. Having said that, there are
financers from whom you can get finance for your business, like banks, venture capitalists, family,
friends and small business associations. Work out in advance the level of finance you are able to
raise, and focus on business which will not exceed those limits.
8. Know what you want in life
Apart from your business goals, think about the reasons you want to start the business in the first
place. What is it that you are looking for? What are your goals in life? Are you starting a business to be
able to spend more time with your family? To make more money? To be respected among your peers?
Whichever your goals, make sure that your business idea complements these goals and help you
achieve them. If your goal is to find more time to spend with your family and do other things, then
starting a business that requires you to work 16 hours a day or travel constantly might not be the best
option. Money is not the real reason why most people start their business. While financial freedom is a
big perk of having a successful business. Any business can make money. How you run your business
will be determined by things other than money alone.
9. Choose a business that suits your personality
Are you a morning person or a night creature? Each person has his/her own peak energy hours of the
day. You will find very few successful bakers or media news owners that don’t like to wake up in the
morning. If you are not a morning person, avoid businesses that will need you to work in the early
hours of the morning. If you are a night person, then maybe running a restaurant that remains open till
late hours is more suitable for you. Are you an indoor or outdoor person? Do you like working in an
office for long hours or can’t stand the office and feel that you need to be on the move all the time? If
you like the office’s quiet environment, then pick a business that can be done from an office. If you like
to be on the move, pick a business that requires you to go to different places and meet new people.
Are you a brainy or a handy person? People do things differently, some people like to do things that
involve thinking and working on their brains. Other people like to do things that involve craftsmanship
and handy work. Are you a shy or an outgoing person? If you are a shy person, then becoming a
public speaker might not be the best option for you. If you are an outgoing person and like to meet new
people all the time, having an internet based business might deprive you of that joy. When you get the
idea, think of your personal traits and attributes and pick a business idea that suits your personality.
10. Read about people who started their own business
A large part of becoming successful involves looking at other successful people and learning how
they achieved success. Reading autobiographies about prominent and successful business
figures and learning how they started their journey will give you great insight on how they did things
and what exactly they did to become successful. You might find that most of them started from nothing.
Many of them failed in several businesses and had to listen to people who told them they will never be
successful. But they stood up and tried again and again until they succeeded. It is not whether you fail
that makes you the man you are, it is how you stand up after the fall. Study their characteristics, what
do successful businessmen have in common? How did they achieve their vision? What challenges did
they have to overcome? Look for similarities between their stories and your situation right now. You will
find that it is a great source of inspiration and motivation. If others did it, then you can do it too. Ideas
are a core part of the innovation process. Each innovation begins with an idea. New ideas are the
wheel of progress. Ideas are the raw material for product development. All the current products and
services were once an idea in someone’s mind. Steven Covey (2004) calls an idea the “first act of
creation whereas the second act of creation is the deed of putting an idea into a physical form.”
Jack Foster (1996) discusses a variety of ideas like
 Idea to solve problems,
 Ideas to help people,
 Ideas to save and fix and create things,
 Ideas to make things better and cheaper, and
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  Ideas to enlighten, excite, enthuse, enrich, and encourage”

CHARMS OF BEING AN ENTREPRENEUR

The most exciting part of Entrepreneurship is that you are your own master. When you are an
employee, you work for others according to their plans, whims and finances. In an Entrepreneurship, it
is you who set the goal, plan the action and reap the satisfaction and rewards of having achieved the
goal.
Why should you become an Entrepreneur?
♦ You will be your own boss and boss to other people and make decisions that are crucial to the
business success or failure.
♦ You will make money for yourself rather than for someone else.
♦ You may participate in every aspect of running a business and learn and gain experience in a variety
of disciplines.
♦ You will have the chance to work directly with your customers.
♦ You will have the personal satisfaction of creating and running a successful business.
♦ You will be able to work in a field of area that you really enjoy.
♦ You will have the chance to build retirement value.

OBSTACLES IN ENTREPRENEURIAL GROWTH

Several obstacles restrict the entrepreneurial growth in a society. These factors may be divided into
two groups, viz. economic obstacles and non-economic obstacles. These obstacles affect
entrepreneurial development in the less developed countries.
Obstacles in Entrepreneurial Growth:
A) Economic factors : Shortage of capital, lack of infrastructural facilities, non-availability of raw
materials, labour shortage, defective tax structure, lack of technology, indifferent attitude of bankers
etc. retard entrepreneurship.
B) Non-economic factors :
Following non-economic factors obstruct the growth of entrepreneurship.
i) Social factors : Customs, traditions, lack of social mobility, rationality of society, social system etc.
ii) Personal factors : Lack of creativity, low achievement motive, indifferent attitude, lack of
entrepreneurial qualities, suspect personality etc.
iii) Other factors : Increasing competition, ineffective administration, lack of political will, complex laws,
inadequate facilities of higher education, adverse attitude of the government etc.
FUNCTIONS OF AN ENTREPRENEUR
An Entrepreneur has to perform a number of functions right from the generation of idea up to the
establishment of an enterprise. He also has to perform functions for successful running of his
enterprise. Entrepreneur has to perceive business opportunities and mobilize resources like man,
money, machines, materials and methods. The following are the main functions of an Entrepreneur.
1. Idea generation: The first and the most important function of an Entrepreneur is idea generation.
Idea generation implies product selection and project identification. Idea generation is possible through
vision, insight, keen observation, education, experience and exposure. This needs scanning of
business environment and market survey.
2. Determination of business objectives: Entrepreneur has to state and lay down the business
objectives. Objectives should be spelt out in clear terms. The Entrepreneur must be clear about the
nature and type of business, i.e. whether manufacturing concern or service oriented unit or a trading
business so that he can very well carry on the venture in accordance with the objectives determined by
him.
3. Rising of funds: All the activities of the business depend upon the finance and hence fund raising is
an important function of an Entrepreneur. An Entrepreneur can raise the fund from internal source as
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well as external source. He should be aware of different sources of funds. He should also have
complete knowledge of government sponsored schemes in which he can get government assistance in
the form of seed capital, fixed and working capital for his business.
4. Procurement of machines and materials: Another important function of an Entrepreneur is to
procure raw materials and machines. Entrepreneur has to identify cheap and regular sources of raw
materials which will help him to reduce the cost of production and face competition boldly. While
procuring machineries he should specify the technical details and the capacity. He should consider the
warranty, after sales service facilities etc before procuring machineries.
5. Market research: Market research is the systematic collection of data regarding the product which
the Entrepreneur wants to manufacture. Entrepreneur has to undertake market research persistently to
know the details of the intending product, i.e. the demand for the product, size of the
market/customers, the supply of the product, competition, the price of the product etc.
6. Determining form of enterprise: Entrepreneur has to determine form of enterprise depending upon
the nature of the product, volume of investment etc. The forms of ownership are sole proprietorship,
partnership, Joint Stock Company, co-operative society etc. Determination of ownership right is
essential on the part of the entrepreneur to acquire legal title to assets.
7. Recruitment of manpower: To carry out this function an Entrepreneur has to perform the following
activities.
(a) Estimating man power requirement for short term and long term.
(b) Laying down the selection procedure.
(c) Designing scheme of compensation.
(d) building and motivating the entrepreneurial team
(e) Designing mechanism for training and development.
8. Implementation of the project: Entrepreneur has to develop schedule and action plan for the
implementation of the project. The project must be implemented in a time bound manner. All the
activities from the conception stage to the commissioning stage are to be accomplished by him in
accordance with the implementation schedule to avoid cost and time overrun. He has to organize
various resources and coordinate various activities. This implementation of the project is an important
function of the Entrepreneur.
All the above functions of the Entrepreneur can precisely be put into three categories of innovation, risk
bearing, and organizing and managing functions.
ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT
Economic development essentially means a process of upward change whereby the real per
capita income of a country increases for a long period of time. The economic history of the presently
developed countries, for example, USA and Japan tends to support the facts that the economy is an
effect for which the entrepreneurship is the cause. The crucial role played by the entrepreneurs in the
western countries has made the people of underdeveloped countries conscious of the significance of
entrepreneurship in economic development. After the Independence, Africa has realized that, for
achieving the goal of economic development, it is necessary to increase the entrepreneurship both
qualitatively and quantitatively in the country. Parson and Smelter described entrepreneurship as one
of the two necessary conditions for economic development, the other being increased output of capital.
Y.A. Say high describes entrepreneurship as a necessary dynamic force for economic development.

BUSINESS-BUYOUT ALTERNATIVE
Suppose you are a prospective small business owner. You possess the necessary personal qualities,
managerial ability, and capital to run a business, but you haven’t decided on the approach you should
take to get into business. If you aren’t inheriting a family business, then you have three choices for
getting started:
• You may buy out an existing establishment.
• You may acquire a franchised business.
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• You may start a new firm yourself.

TAKING OVER AN EXISTING BUSINESS

The advantages of buying an existing business include the fact that it is an already functioning
operation, customers are used to doing business with it, and you will break even sooner than if you
started from the ground up. The disadvantages include the difficulty of changing the business’s image
or the way it does business, outdated inventory and equipment, too high a purchase price, poor
location, and liabilities for previous contracts. Newspaper advertising is one source for finding a
business for sale, and word of mouth through friends and family may be another. Bankers, lawyers,
accountants, real estate brokers, business brokers, and Business Administration representatives can
be other good sources. Profitability, profit trends, comparison of operating ratios to industry standards,
and total asset worth are all measures of the financial health of a business. There are as many reasons
for selling a business as there are businesses to sell. As a prospective buyer, you must cut through
what is being said to determine the reality of a situation. You must develop an ability to analyze a
market and estimate potential profits and worth. Tangible assets are those that can be seen and
examined. Real estate, inventory, and equipment are important tangible assets. Intangible assets,
though unseen, are no less valuable. Goodwill; leases and contracts; and patents, copyrights, and
trademarks are examples. The offering price to pay for a business is calculated by adding the adjusted
value of tangible assets to the value of intangible assets (including goodwill, if appropriate). Once the
price of a business is agreed upon, the terms of sale need to be negotiated—including setting up
installment provisions and thinning of the assets. Before the closing date, the buyer puts an agreed-
upon amount of money into an escrow account. The two primary differences between family
businesses and other businesses are the complex interrelationships among family members and their
interaction in the business, and the intricate succession planning needed.

BUSINESS ETHICS
We live in an age of innovation, the growth of free markets, and a world economy. New technologies,
roles for government, and players on the global scene offer challenging opportunities, demands, and
constraints. More peoples and nations are working together to spread freedom and democratic
principles; to nurture free markets; to protect individual property rights; and to encourage respect for
human rights, the rule of law, and the environment. With increasing urgency, market and social forces
are rewriting the roles and responsibilities of business as well. Though the profit motive of business is
understood and accepted, people do not accept it as an excuse for ignoring the basic norms, values,
and standards of being a good citizen. Modern businesses are expected to be responsible stewards of
community resources working toward the growth and success of both their companies and their
communities.
Government has an important role in the spread of freedom and democratic capitalism. It provides
for the essential market-oriented legal framework and reliable dispute resolution processes that allow
businesses to compete fairly on the quality, prices, and delivery of their goods and services alone. It
enforces laws, regulations, and judgments to safeguard the social order its citizens value. It cannot,
however, act alone. Businesses and civil society must also be involved in solutions to community
problems. They can help in the fight against the corruption that saps national resources. They must
reform the unethical business practices that breed cynicism and distrust in communities. Businesses
are at the strategic center of a civil society, and they have a stake in their communities. They depend
on free markets and good public governance for their growth and success, but they are also authors of
their own destiny. Through responsible business conduct, they contribute to the essential social capital
of trust and fairness that makes good governance and free markets possible.
Markets become free and remain free if their players are responsible and respect the basic values
of honesty, reliability, fairness, and self-discipline. The alternatives to responsible business conduct are
inefficient markets and costly government regulation. Free flows of capital, talent, knowledge, and
creativity are possible where communities are known for transparency, respect for property, a market-
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oriented legal framework, and reliable dispute resolution mechanisms. The alternatives are a lack of
capital, high transaction costs, limited markets, underdevelopment, and poverty. In short, owners and
managers must temper the competitive aspects of capitalism with concerned citizenship. They must
take individual responsibility for the decisions and activities of their enterprises and their impact on the
culture of their enterprise and its stakeholders. A business needs committed, productive employees,
agents, and suppliers to create goods and services. It needs loyal, satisfied customers and consumers
to make a profit. It needs people who believe in it and in its prospects enough to invest. It needs to
take the long view and to respect the physical environment and the prospects of future generations.
Over the past few decades, governments, international institutions, transnational organizations,
organized labor, and civil society have been engaged in an ongoing dialogue into the role of business
as responsible stewards. Standards, procedures, and expectations for business are emerging
worldwide. Enterprises and markets that are unaware of them, or fail to plan their futures with them in
mind, will be unable to participate in the global dialogue and will risk being left behind as the global
market economy expands. Businesses around the world are designing and implementing business
ethics programs to address the legal, ethical, social responsibility, and environmental issues they face.
By addressing these issues in a systematic way, enterprises can improve their own business
performance, expand opportunities for growth, and contribute to the development of social capital in
their markets. They can realize specific business benefits, such as:
•Enhanced reputations and good will
•Reduced risks and costs
•Protection from their own employees and agents
•Stronger competitive positions
•Expanded access to capital, credit, and foreign investment
•Increased profits
•Sustained long-term growth
•International respect for enterprises and emerging markets
Enterprises that excel in these areas create a climate of excellence for their employees, shareholders,
and communities, and contribute to the economic wellbeing of their countries. No single volume can tell
individual businesses what decisions and activities will foster and meet the reasonable expectations of
their stakeholders. Each enterprise faces unique political, economic, social, and technological
pressures. Moreover, each has a unique organizational culture that influences all that its members
think, say, and do. However, a guide can demonstrate a process through which owners and managers
can identify enterprise stakeholders; can foster reasonable stakeholder expectations; and can inspire,
encourage, and support responsible business conduct.

CHAPTER RECAP
Entrepreneur is a person who perceives an idea of establishing a ‘new business enterprise and then
bring together manpower, land, equipment, material and arranges necessary capital needed for
business. He is a person with vision, original idea, decision making ability and courage to undertake
risky projects. Entrepreneurship is “a creative and innovative response to the environment”.
Entrepreneurship is a process of doing something new, and innovative. We can find entrepreneurship
in all such occupations as : service, trading, industry, academics, agriculture, or professions.
Entrepreneurs are around us in our offices, our factories, our educational institutions. Entrepreneurs
are known for doing new things or doing things in a new way. Entrepreneurs have “the ability to see
and evaluate business opportunities, to gather the necessary resources to take advantage of them and
to initiate appropriate action to ensure success”. They are found in all professions like banking,
education, medicine, engineering, architecture, information technology, supply chain management and
even in outsourcing business. The wheel of economic growth is propelled by entrepreneurs of the
country. He can change the face of the country and the economy by contributing through his resources
and efforts as an innovator. He also channelises the natural, economic and technical resources of the
country towards the right direction, the direction of growth, development, and high productivity.
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 Mind your business, stop minding other peoples businesses
Have the Entrepreneurial Spirit

CHAPTER THREE
NEW BUSINESS CREATION

LEARNING OBJECTIVES
At the end of this unit, you should be able to:
 discuss business planning and cost calculation
 enumerate and explain the various sources of ideas available to entrepreneur starting up a
new business;
 highlight and describe the obstacles and or barriers to entering a new industry;
 state and describe the method of how the new business will be established;
 explain the people who will be involved in starting up the business;
 relate the new business with the business plan to determine its success.

WHY YOU NEED TO HAVE A BUSINESS OF YOUR OWN

Life is tough. The question is, what are you going to do about it? Moaning and groaning won’t
secure your future. Neither will blaming Wall Street, the big bankers, corporate America, or the
government. If you want a solid future, you need to create it. You can take charge of your future only
when you take control of your income source. You need your own business. So you’ve been working
hard for years, climbing the ladder. Maybe you’re still near the bottom of the ladder, or maybe you even
got near the top. Where you are on the ladder doesn’t really matter. What matters is the question that
you may have forgotten to stop and ask before putting in all that time and effort climbing: Where is this
ladder planted? Breaking away from those typical job structures and creating your own stream of
income puts you in the best position to weather an economic storm, simply because you are no longer
dependent on a boss or on the economy to determine your annual income. Now you determine it. And
it’s not just about making a living; it’s also about the quality of how we’re living. People are waking up
to the fact that they want more control over their lives. They want to be more connected to their
families, be in charge of their own time, work from their homes, determine their own destinies.
I often hear people say, “It takes money to make money.” That’s B.S.—and I don’t mean a
Bachelor of Science degree! The journey from homelessness to being millionaires in a few years, and
then on to genuine financial freedom in another five years, did not take money. We had no money
when we started—in fact, we were in debt—and nobody gave us anything along the way, either. It also
does not take a good formal education. A college education is important for traditional professions, but
not for people looking to build wealth. If it doesn’t take money to make money and it doesn’t take a
formal education to learn how to become financially free, then what does it take? It takes a dream, a lot
of determination, a willingness to learn quickly, and an understanding of which sector you’re operating
in.
THE MAGIC OF STARTUPS

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 Is Your Business the Right Choice for Your Customers? Once you have decided that it is
feasible for you to be an entrepreneur, begin assessing whether your business concept is feasible.
Many entrepreneurs have plunged into a business without thoroughly evaluating the profitability of their
product or service. After expending vast amounts of time and money, they discovered their business
idea was flawed. Failure rates for early stage businesses often exceed 50 percent, so take the time to
test the validity of your concept against the following characteristics of a feasible business:
Like all entrepreneurs, you will need to do a great deal of research before opening your business.
Writing a business plan, a document that clearly describes your vision of all the details of business
operation, is recommended. The plan allows you to apply your research to your decision-making.
Although a business plan is time consuming, it is important to business success. Completing the plan
forces you to examine all decisions of management, marketing, personnel and finance in an objective
and organized way. Another important benefit of the planning process is that you will project the
amount of financing needed for start-up and the early stages of your business. The plan will, therefore,
become a useful tool in securing capital before start-up. Then the plan becomes your owner’s manual
guiding your daily operation and activities. Among other things, the business plan describes the
products and services you will sell, the customers to whom you will sell them, the production,
management and marketing activities needed to produce your offerings, and the projected profit or loss
that will result from your efforts.
The firm should provide an atmosphere conducive to the development of new ideas and support
their progression through the development process. The process used by many firms to develop new
products includes the following steps: (1) idea generation, (2) product screening, (3) concept testing,
(4) business analysis and test marketing, and (5) market introduction. Ideas can be generated through
normal channels within the firm or through external sources such as competitors and customers. Ideas
with good potential are screened, tested, and analyzed until management feels that they are ready for
market introduction. The important concepts of brands, brand names, brand marks, and trademarks
were defined and discussed. Finally, the characteristics of effective branding were presented.
The product-service mix is an important component of a firm’s marketing program. The other
strategies (price, promotion, and distribution) are used to provide further assistance in positioning the
brand in conjunction with the product-service mix. All of the strategies are based on the customers’
wants and needs and the trade-offs that are necessary to offer a competitive product. When managing
a product or service, it is necessary to consider all of the product levels: the core product, the
facilitating products, the supporting products, and the augmented product. The product life cycle can
be used to develop marketing strategies that are appropriate for the product or service throughout its
useful life. Products evolve from introduction through growth into maturity and eventually decline.

ENTERPRISE CREATION
Many people have business ideas but few start up their own business. The blocks to doing so
include the need for regular income to support a family, the lack of capital and self-doubt. What is
needed is a trigger. This can be a push factor such as unemployment or a pull factor such as a desire
to make money. Generally businesses set up for positive motives or pull factors are most likely to grow,
have worked or other environmental factors, such as general economic conditions. Often seeds of
entrepreneurship can be seen at an early age. To start a business, not only do you need an idea, you
also need certain personal attributes, customers, an ability to deal with competitors, a launch strategy
and finally resources. Business ideas can come from many sources. They can come from an
individual's skills and experiences, from spotting gaps in the market or from innovation. You need to
brainstorm ideas in an uncritical way, remembering to write them down, before exploring them in more
detail. To run your own firm you must be willing to work hard for long hours. You must be committed
and dedicated. Like Bill Gates you must be opportunistic, able to bounce back in adversity, motivated
to excel and tolerant of risk. An idea is of no use unless it is linked to market demand. There must be a
need for the product or service in the market place that is capable of being exploited. You need to
know who your customers will be and why they will buy from you rather than competitors. Careful
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research needs to be undertaken into the sector or industry that you are launching the business. You
are most likely to succeed where there is little direct competition. However, even if there are few
competitors, if they are large firms you might still face an uphill struggle. Porter's Five Forces is a
useful way of making judgements about the degree of competition in a market. It looks at the power of
buyers and suppliers, the threat of new entrants and substitutes and the competitive rivalry within the
industry.

REGISTERING YOUR BUSINESS

When starting your business there are four main steps you'll need to follow in order to get your
business registered with the appropriate parties:
Deciding On Your Business Format
In the Cameroon there are several options available with regard to how your business will be classified
by the government. Which option you decide upon will impact everything from the taxes your business
will owe to the level of personal financial risk you face in starting the business. The complexities and
tax implications behind the differing business structures cannot be adequately described in detail here
so you should talk to your local small business administration office or consult with a lawyer before
making a final decision. In the Cameroon there are several options available with regard to how your
business will be classified by the government. Which option you decide upon will impact everything
from the taxes your business will owe to the level of personal financial risk you face in starting the
business. The complexities and tax implications behind the differing business structures cannot be
adequately described in detail here so you should talk to your local small business administration office
or consult with a lawyer before making a final decision.
 Sole Proprietorship - A Sole Proprietorship is one of the easiest business structures to set up.
In this structure, a single owner and the business are considered one and the same in the eyes
of the law. Aside from minimal paperwork necessary to set up this business structure, one of
the biggest benefits of Sole Proprietorship is that the business’ profits and losses are reported
directly onto the owner's personal tax forms. The biggest downside however is that your
personal finances, including your home or other assets, may be at risk if the business can't pay
its debts or is named in a legal matter.
 Partnership - Similar to a Sole Proprietorship except with two or more people. In a Partnership
each partner shares in the risks and rewards of the business based on their percentage
ownership interest. A Partnership is also easy and inexpensive to setup and the partners report
their respective share of the business’ profits and losses on their personal taxes. However, just
like a Sole Proprietorship, partners can also be held personally liable for any debts, losses, or
court judgments.
 Limited Liability Company (LLC) – A Limited Liability Company, also known as an LLC, is a
hybrid business structure that gives business owners the relative ease and flexibility of a
Partnership with the personal liability protection of a corporation. In an LLC, the business’ profits
and losses flow through to the members (owners are called members in an LLC) and can be
divided according to each member's percentage of ownership in the company. While LLCs are
slightly more complex to setup then Partnerships, the fact that LLCs protect the members
personally from business debts and lawsuits is an important consideration. Setting up your
business as an LLC is now an option in every state although each state does have slightly
different requirements as to whether you need to draft and file Articles of Organization and/or an
Operating Agreement. Since laws are different in each state, you should be sure to understand
exactly what is required in your state before proceeding to set up an LLC.

REGISTERING YOUR BUSINESS NAME

Any sole proprietorship, partnership, corporation, or other form of association conducting business
under a fictitious business name must register this name with the State. A fictitious name is any
assumed name, style or designation other than the proper name of the entity using such name. These
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types of entities include any association, general partnership, syndicate, joint venture or similar
combination of groups or persons. The surname of a person, standing alone or coupled with words that
describe the business, is not a fictitious business name and need not be registered. For example,
“Jones Radio Repair” would not be a fictitious name because it includes the last name of the owner.
However, “Bill’s Radio Repair” is considered to be a fictitious business name because the owner’s last
name is not listed. The inclusion of words that suggest additional owners, such as Company, &
Company, & Sons, & Associates, makes the name an assumed or fictitious name. For partnerships,
the last name of all partners must be listed or the fictitious name rule applies. If all the partners’
names are not included, then the name must be registered with the State. After registering a fictitious
name, you will be required to place an advertisement in a newspaper of general circulation in the
country in which your business will be located and one in a legal publication or newspaper in that same
county. You can identify the legal publication by contacting the county courthouse or county bar
association in the county where the principal office is located. The Corporation Bureau can also assist
you. The penalty for failing to file a fictitious name registration is that the unregistered entity may not
use the courts to enforce a contract entered into using the fictitious name. The failure to register the
fictitious name does not void the contract, but merely prevents such enforcement until registration. The
court has the option of imposing a penalty in these instances where the entity seeks to enforce the
contract and subsequently registers the fictitious name in an untimely manner.
Depending on your state and business structure, the name you register your company under may be
as simple as your own personal name, the names of the partners, or a fictitious ‘trade’ name such as
Joe's Baloney. Each state has a separate set of rules and may require that a name be registered with
your state's Secretary of State and/or Department of Licensing. While it may sound complicated, don't
be deterred. Every state has an online site that explains their specific steps and in most cases you
should be able to complete the entire process online. Though you certainly don't need to trademark
your business name, it is worthwhile to look into the process and decide if you have the time and
money to invest into trademarking the name you will use in any marketing, advertising, and packaging.
Trademarking your business name will protect a competitor from using a similar business name that
may cause confusion among your customers. Even if you don't plan to hire employees, depending on
the business structure you choose, you may need to register your business with the IRS and obtain
your Employer Identification Number (commonly referred to as an EIN). Depending on your local
regulations, you may be required to register your business with your state and local tax authorities.
During this step you will be given information about how to apply for a reseller certificate if it is required
in your state. This certifies that you are a recognized business in your state and enables you to avoid
paying sales tax on many of the ingredients you'll be buying for your business as long as the
ingredients are going into products that will be sold to the public. As with other registration paperwork,
most if not all of the state and local-level registration forms are available online in conjunction with
extensive information about other requirements specific to your area.

Liability Insurance
While not required by the state or federal government, it's a good idea to get liability insurance for
your company that protects against loss of sales or property in the event of a catastrophe and protects
the business financially from lawsuits. Given how litigious our society has become, liability insurance
provides you and your business with an added layer of protection from any lawsuits that may arise.
This is especially important in the case of businesses that are structured as Sole Proprietorships or
Partnerships where lawsuits could impact both your business and personal finances.

Other Health Code Considerations

Before you sign a lease or rental agreement with a kitchen, make sure it meets your local health
standards. In most cases, such as a shared commercial kitchen or existing restaurant or bakery, the
spaces should already have their health inspection certification. If you are at all concerned, contact
your local health department and see if they can come by to make sure the kitchen meets all the
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necessary standards. The last thing you want is to sign a lease only to realize that the kitchen doesn't
have the required three-basin sink or other large piece of equipment the health department says you
need before you can start selling your products. Even if the kitchen is already approved by the health
department, you will likely need to register your business with the health department and have a
separate inspection done for your specific business. While it's always nerve-wracking when the health
inspector comes by, they are simply making sure that you are following all the rules and, for instance,
not storing an open container of powdered bleach directly above your flour. In most cases you will not
be able to begin selling to the public until your health inspection is complete.
The idea that you have to find time in your busy schedule to take a safe food handling course
probably made your groan. Turns out that most courses are only a few hours long and if you simply
pay attention during the class and read the material they provide to you, the final test should be no
problem. The benefit of this course is that it helps you and everyone who may work with you
understand the risk of food-borne illness and how bacteria is spread through unsafe handling. If you
pay attention to the class and put what you learn into action in your kitchen, you greatly reduce the risk
of serving contaminated food. On the off chance that the thought of making your customers ill isn't
enough to motivate you, then be aware that the health inspector may come by at any time to spot-
check your business so always make sure your workspace is kept clean and conforms with all health
codes.
STARTING A BUSINESS IN CAMEROON
Starting a business in Cameroon takes approximately 1.31.4 days as compared to about 1.41.6
days for the Sub-Saharan Africa region. This piece outlines the general technical procedures for
starting a business in Cameroon, according to the Doingbusiness.org database by the World Bank. It
includes details and requirements to be in good standing with all relevant agencies beyond the
company registrar like social security agencies.

Technical Procedures
The steps involved in starting a business in Cameroon are:
Time to Associated
No. Procedure
Complete Costs
A notary public drafts certificate requesting a commercial bank to open a bank
account for the new company

In practice, banks require that a notary public issues a certificate that the company
1 is in the process of creation (attestation d'ouverture de compte de société en 1 day no charge
création) before the entrepreneur can open a temporary bank account called
"account of company in the process of creation". The registry provides the name-
checking service free of charge to notary publics or lawyers/attorneys who have
access to the court’s information retrieval and relational database.
Deposit the initial capital in a bank and obtain a receipt

2 Under Article 1.311.3 of the Uniform Act (the company law of the Organization for 1 day no charge
the Harmonization of Business Law in Africa), founders are required to deposit the
startup capital in a bank or with a notary.
Have an attorney/notary or shareholders draft the memorandum and article of 2% of the share
association; sign company bylaws before the notary capital up to XAF
1.3,000,000 and
Article 10 of the Uniform Act of the Organisation pour l'Harmonisation du Droit des 1.1.5% for the
Affaires en Afrique (OHADA) states that “the articles of association shall be capital from XAF
1.3 2 days
established by a notarial deed or by any other instrument that ensures legal validity 1.3,000,001 to
in Cameroon where the registered office will be located. Such instrument, together 10,000,000 +
with a certification of the writing and signatures of all parties, should be deposited XAF 1000 per
as originals in a notary’s office. They may be amended only by the same stamp (10
procedure.” stamps)
1.4 Notary or entrepreneur files registration documents to the one-stop-shop 1.8 days XAF 1.41,1.500

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 Time to Associated
No. Procedure
Complete Costs

Notary submits all company documents and forms at the front desk of the Centre
de Formalités d'Entreprises. The staff will register the company with the Registre du
Commerce et du Crédit Mobilier, with the Tax Administration and with the CNPS.
The following documents are required to file an application with the court:
• Articles of association (copy).
• Location plan of business premises to get exoneration of the Patente.
• Criminal record of the directors of the company or sworn declaration
for Registration
• Certificate of nonconviction (normally for nationals or resident aliens who are
shareholders).
• Photocopy of marriage certificates (if any).
• Declaration of regularity and conformity, drawn by the notary public and signed by
the incorporators, or a notarial statement of subscription and payment in lieu
thereof.
Each page of the memorandum and articles of association must also carry the
current fiscal year’s fiscal stamp (XAF 1,000 a page).
Publish the incorporation of the company in the legal journal (Cameroun Tribune)

The publication fee for announcing the company incorporation in the legal journal is
1.5 1.3 days XAF 1.51.7000
XAF 1.51.7,000. On May 21.7, 2011, the Government of Cameroon and the
SOPECAM signed a agreement that reduced the publication fees of the Cameroon
Tribune.

CREATING YOUR LOGO

Just like your company name, your company logo will be on everything the customer sees. Whether
it's on your banner at a farmers’ market, on a sticker placed on your packaging, or on the business
card that you hand out to people, your logo helps build an impression about who your company is and
what it stands for. Spend some time thinking about what you want your company to represent so that
the logo will suit it. Is your company fun and whimsical? Is it sophisticated and luxurious? Understand
your company and your customers so that you can understand the type of logo you're looking for.
As far as designing the logo, you can certainly hire a graphic artist to make the logo for you, but if
you're trying to save money take a look at your family and friends first. Perhaps someone you know
works in graphic design and wouldn't mind taking on a little side project or maybe you have a neighbor
who has an artistic flare.

CREATING A WINNING BUSINESS PLAN

Well friends you’re starting a business, and you will get as many different pieces of advice as
you have friends. One piece of wisdom, however, transcends all others: Write a business plan.Just as
you wouldn’t start off on a cross-country drive without a road map, you should not embark on our
new business without a business plan to guide you. A business plan won’t automatically make
you a success, but it will help you avoid some common causes of business failure, such as
undercapitalization or lack of an adequate market. As you research and prepare your business plan,
you’ll find weak spots in your business idea that you’ll be able to repair. You’ll also discover
areas with potential you may not have thought about before—and ways to profit from them. Only by
putting together a business plan can you decide whether your great idea is really worth your time and
investment.
What is a business plan, and how do you put one together? Simply stated, a business plan conveys
your business goals and the strategies you’ll use to meet them, potential problems that may
confront your business and ways to solve them, the organizational structure of your business (including
titles and responsibilities), and the amount of capital required to finance your venture and keep it going
until it breaks even.

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Sound impressive? It can be, if put together properly. A good business plan follows generally accepted
guidelines for both form and content. There are three primary parts of a business plan.
1. The first is the business concept, where you discuss the industry, your business structure, your
product or service, and how you plan to make your business a success.
2. The second is the marketplace section, in which you describe and analyze potential customers: who
and where they are, what makes them buy and so on. Here, you also describe the competition and
how you will position yourself to beat it.
3. Finally, the financial section contains your income and cash flow statements, balance sheet
and other financial ratios, such as break-even analyses. This part may require help from your
accountant and a good spreadsheet software program.
Breaking these three major sections down further, a business plan consists of seven major
components:
1. Executive summary
2. Business description
3. Market strategies
4. Competitive analysis
5. Design and development plan
6. Operations and management plan
7. Financial factors
In addition to these sections, a business plan should also have a cover, title page and table of
contents.
EXECUTIVE SUMMARY
Anyone looking at your business plan will first want to know what kind of business you are starting.
So the business concept section should start with an executive summary, which outlines and
describes the product or service you will sell. The executive summary is the first thing the reader
sees. Therefore, it must make an immediate impact by clearly stating the nature of the business and, if
you are seeking capital, the type of financing you want. The executive summary describes the
business, its legal form of operation (sole proprietorship, partnership, corporation or limited liability
company), the amount and purpose of the loan requested, the repayment schedule, the
borrower’s equity share, and the debt-to-equity ratio after the loan, security or collateral is offered.
Also listed are the market value, estimated value or price quotes for any equipment you plan to
purchase with the loan proceeds. Your executive summary should be short and businesslike—
generally between half a page and one page, depending on how complicated the use of funds is.

SAMPLE EXECUTIVE SUMMARY

The business will provide ecology-minded consumers with an environmentally safe disposable diaper
that will feature all the elements that are popular among users of disposable diapers but will include the
added benefit of biodegradability. The product, which is patent pending, will target current users of
disposable diapers who are deeply concerned about the environment as well as those consumers
using cloth diapers and diaper services. The product will be distributed to wholesalers who will, in turn,
sell to major supermarkets, specialty stores, department stores and major toy stores.
The company was incorporated in 1989 in the state of California under the name of Softie Baby
Care. The company’s CEO, president and vice president have more than 30 years of combined
experience in the diaper industry. With projected net sales of $871 million in its third year, the business
will generate pretax net profits of 8 percent. Given this return, investment in the company is very
attractive. Softie Baby Care Inc. will require a total amount of $26 million over three stages to start the
business.
1. The first stage will require $8 million for product and market development.
2. The second stage of financing will demand $12 million for implementation.
3. The third stage will require $6 million for working capital until break-even is reached.

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First-stage capital will be used to purchase needed equipment and materials to develop the product
and market it initially. To obtain its capital requirements, the company is willing to relinquish 25 percent
equity to first-stage investors. The company has applied for a patent on the primary technology that the
business is built around, which allows the plastic within a disposable diaper to break down upon
extended exposure to sunlight. Lease agreements are also in place for a 20,000-square-foot facility in
a light industrial area of Los Angeles, as well as for major equipment needed to begin production.
Currently, the company has funding of $3 million from the three principals, with purchase orders
for 500,000 units already in hand.

BUSINESS DESCRIPTION
This section expands on the executive summary, describing your business in much greater detail. It
usually starts with a description of your industry. Is the business retail, wholesale, food service,
manufacturing or service-oriented? How big is the industry? Why has it become so popular? What
kind of trends are responsible for the industry’s growth? Prove, with statistics and anecdotal
information, how much opportunity there is in the industry. Explain the target market for your
product or service, how the product will be distributed, and the business’ support systems—that is,
its advertising, promotions and customer service strategies. Next, describe your product or service.
Discuss the product’s applications and end users. Emphasize any unique features or variations that set
your product or service apart from others in your industry. If you’re using your business plan for
financing purposes, explain why the money you seek will make your business more profitable. Will you
use the money to expand, to create a new product or to buy new equipment?

A LIVING DOCUMENT
You’ve put a lot of time and effort into your business plan. What happens when it’s finished? A good
business plan should not gather dust in a drawer. Think of it as a living document, and refer to it often.
A wellwritten plan will help you define activities and responsibilities within your business as well as
identify and achieve your goals. To ensure your business plan continues to serve you well, make it a
habit to update yours annually. Set aside a block of time near the beginning of the calendar
year, fiscal year or whenever is convenient for you. Meet with your accountant or financial advisor, if
necessary, to go over and update financial figures. Is your business heading in the right direction . . .
or has it wandered off course?
THE FOUR STEPS OF BUSINESS IMPLEMENTATION
This manual has been prepared to encourage start-ups to create their own businesses as well as small
business owners to improve their business thereby curbing the problem of unemployment and facilitate
better conditions for new job seekers as well as self-employment.
The manual has four major parts.
Part 1 provides business start-ups with the skill to generate possible business ideas and select the
one that is viable. In order to do that, business start-ups will be guided through logical steps as
provided in the toolkit. In the process of searching for 'one viable business idea', one should think
creatively and properly scan the internal and external environments that may positively or negatively
affect the establishment of a new business enterprise. Stiff market competition, market saturation,
limited technical and managerial skills, limited access to financial services, raw materials,
tools/equipment/technology and work premises are some of the critical issues that need the attention
of business start-ups.
Part 2 shows the necessary fields of intervention for the information seeking stage: Market and supply
analysis, infrastructures and business management, financing and legislation.
Part 3 links the business start-up phase with issues of business planning, financing, administrative
procedures, supply, production and sales.
Part 4 is about follow up and improvement of your business with specific emphasis on product
development and diversification, marketing and international trade promotion, maintenance, stock and
data management.
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ACTION PLAN
To start your business, you need to have an action plan that shows a list of activities to be undertaken
and when to do them. The following simplified action plan format is presented for your reference.
Follow the graphic presentation and put all the necessary steps into the action plan including the
timetable, responsibilities and institutions or persons to be contacted.
Example of Action Plan

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 YOUR GROWING FIRM
When a business grows in size by increasing its number of employees and its volume of sales, the
way it is managed must also change. As it evolves from a bare-bones start-up to an expanded, mature
firm, it may pass through roughly five stages. Naturally, not all Small businesses are the same size at
start-up, nor do they all seek to achieve the same level of growth in maturity. Even so, these five
stages provide a way to understand the changing needs of your business.
In the first, or existence stage, the owner runs the business alone. Although not every business
begins with one individual running (and being) the entire business, it is not uncommon. In fact,
technology is making the solo type of business much more common than ever before. Online networks
have allowed the creation of electronic cottage industries out of people’s homes. Thus, although some
people intentionally keep their businesses at the solo size, it also represents the first stage of growth.
In fact there is even a new word to describe these business owners, solopreneurs.
A business reaching the second stage, survival, has demonstrated that it has a viable idea; at this
point, the key problem shifts from mere existence to generation of cash flow. Now the entrepreneur is
no longer responsible for just her own efforts. She may need to hire employees if the business is to
move forward. When the business grows to the point where employees operate within several
departments, the entrepreneur must either become a professional manager or hire managerial
expertise.
In this third stage, success, the owner accepts a degree of disengagement as a level of
supervision is added—employees to lead departments or divisions. Care must be taken that these
supervisors understand the culture of the business they are joining and will work toward building it. At
this point, the entrepreneur is performing less of the daily production personally and may not be in
direct contact with part of the company’s efforts. He must turn loose more of the “doing” and assume
more of the “managing.” Giving up control in this way can be difficult, but delegation of authority and
responsibility is something an entrepreneur must do to enable the business to grow. Well-written job
descriptions can prove helpful in not only hiring the right people in this stage but also insuring that
tasks are completed as needed.
In the fourth stage, takeoff, the business has grown to include multiple departments managed
by numerous supervisors. As in the preceding stages, the owner remains the “head honcho,” but now
her responsibilities are more conceptual than technical in nature. In other words, rather than focusing
on daily operations—making and selling the product or service—she will more intensely focus on
managing the bigger picture—through long-range planning and overseeing supervisors, for instance.
The business now needs someone to establish policies, handbooks, job descriptions, training, and
budgets, and the owner will assume those executive duties. In this stage the entrepreneur must go
through the difficult metamorphosis of becoming a professional manager, hire someone else to run the
business and step out of the way, or sell the firm. The key problems in this stage are how to grow
rapidly and how to finance that growth.
In the fifth stage, resource maturity, the company has arrived. The greatest concerns at this point
are to consolidate and control the finances generated by rapid growth and to professionalize the
organization. By this stage, the owner and the business are separate entities, both financially and
operationally. The child the entrepreneur bore has grown up, moved out, and taken on a full life of its
own. At this stage, it may be time for the organization to take a long, hard look at itself. Strategies and

57
processes that have worked well in the past may need to be evaluated to see if they still remain
effective.

CHAPTER RECAP
When starting a business from scratch, the Small business owner is free to establish a distinct
competitive advantage. There are no negative images or prior mistakes to overcome, as may occur
when purchasing an existing business. The creation of a new business builds pride of ownership.
However, the risk of failure is higher for a start-up because there are more uncertainties regarding the
size and existence of a market for the business. E-businesses have completely changed the Small
business landscape. Other types of new businesses include home-based businesses and part-time
businesses. Some Small businesses start with the intention of becoming hyper-growth companies.
These companies are generally led by teams of people with prior experience in starting that type of
business (usually high-tech manufacturing). They are well financed and constantly looking for
opportunities to expand into new markets. When a new product idea is introduced to the market, the
window of opportunity is open the widest (assuming it is a product that people want and will buy),
because little competition exists. As a product progresses through the product life cycle, the window of
opportunity closes, as more competition enters the market and demand declines. Most people get
ideas for new businesses from their prior employment. Turning a hobby or outside interest into a
business is also a common tactic. Ideas may come from other people’s suggestions or spring from
information gained while taking a class. Sometimes business ideas even occur by chance. The
entrepreneur needs to begin by questioning the feasibility of her idea. Then, to bridge the gap between
dream and reality, careful planning is needed. Customer service is the basis for establishing a long-
term relationship with customers. Start-ups also have legal requirements. Entrepreneurs must file the
business name with the state of origin and obtain local business licenses and any industry-specific
permits required.
CHAPTER FOUR
SMALL BUSINESS DEVELOPMENT

LEARNING OBJECTIVES
After reading this chapter, you should be able to:
 Describe the importance organizational performance management
 Define strategic management and business models
 Describe major and minor entrepreneurial growth strategies
 Develop resource-based strategies for a small business
 Describe how quality can be a strategy
 Appreciate the entrepreneurs’ role in small businesses development

INTRODUCTION
A business idea is not a business. The design, development, and implementation of a business
require that the entrepreneur make certain strategic decisions about the venture’s configuration. These
decisions form the initial vision and objectives for the business. Although it is possible to alter the
decisions in the future, it is very difficult to change the fundamental economics and structure of the
firm. In this chapter, we will develop the embryonic venture idea into a fully workable business model
with a sustainable strategy. Our view is that there is an interaction between the resources, capabilities,
experience, and vision of the entrepreneurs (internal factors) and the remote and operating
environment of the industry (external factors) in the formation of new venture strategy. The
entrepreneur must know how to integrate these elements into a cohesive and coherent business plan.
We will also examine some of the strategic choices available to new ventures. We will begin by looking
at how strategy, resources, and entrepreneurship intersect. We will then present the concept of the
business model followed by a discussion of the strategy choices available to entrepreneurs. Next, we
will introduce the industry life cycle and see how the different stages influence new venture strategy.
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We will also look at the effects of fragmented environments. Then we will introduce two approaches
that help entrepreneurs to craft their strategy.

ORGANIZATIONAL PERFORMANCE
The other part of our definition of management is the attainment of organizational goals in an efficient
and effective manner. Management is so important because organizations are so important. In an
industrialized society where complex technologies dominate, organizations bring together knowledge,
people, and raw materials to perform tasks no individual could do alone. Without organizations, how
could technology be provided that enables us to share information around the world in an instant;
electricity be produced from huge dams and nuclear power plants; and thousands of videogames,
compact discs, and DVDs be made available for our entertainment? Organizations pervade our
society, and managers are responsible for seeing that resources are used wisely to attain
organizational goals.
Our formal definition of an organization is a social entity that is goal directed and deliberately
structured. Social entity means being made up of two or more people. Goal directed means designed
to achieve some outcome, such as make a profit (Wal-Mart), win pay increases for members (AFL-
CIO), meet spiritual needs (United Methodist Church), or provide social satisfaction (college sorority).
Deliberately structured means that tasks are divided and responsibility for their performance is
assigned to organization members. This definition applies to all organizations, including both profit and
nonprofit. Small, offbeat, and nonprofit organizations are more numerous than large, visible
corporations—and just as important to society. Based on our definition of management, the manager’s
responsibility is to coordinate resources in an effective and efficient manner to accomplish the
organization’s goals.
Organizational effectiveness is the degree to which the organization achieves a stated goal, or
succeeds in accomplishing what it tries to do. Organizational effectiveness means providing a product
or service that customers value. Organizational efficiency refers to the amount of resources used to
achieve an organizational goal. It is based on how much raw materials, money, and people are
necessary for producing a given volume of output. Efficiency can be calculated as the amount of
resources used to produce a product or service. Efficiency and effectiveness can both be high in the
same organization. Managers at retailer Target, for instance, continually look for ways to increase
efficiency while also meeting the company’s quality and customer satisfaction goals. All managers
have to pay attention to costs, but severe cost cutting to improve efficiency can sometimes hurt
organizational effectiveness. The ultimate responsibility of managers is to achieve high performance,
which is the attainment of organizational goals by using resources in an efficient and effective manner.

ENTREPRENEURSHIP AND STRATEGY

Successful firms tend to innovate, compete on quality rather than price, dominate their market
niche, compete in areas of strength and have good financial controls. Barriers to growth vary according
to the economic conditions of the time and many company-specific factors. However, consistent
general barriers are market conditions and cost or availability of finance. Securing competitive
advantage involves understanding who customers are, what benefits they are looking for and why they
buy from us rather than competitors. What are our core competencies? How do we add value to
customers? Which strategies have worked in the past? Future strategy should build upon these
strengths. An understanding of the generic marketing strategies and the value chain can inform these
judgements.
How are entrepreneurship and business strategy related? Some of the concepts presented here
are borrowed and adapted from the strategic management literature. In this literature, strategy is
defined as “the patterns of decisions that shape the venture’s internal resource configuration and
deployment and guide alignment with the environment.” This definition has two major implications. The
first is that “patterns of decisions” means both strategy formulation and strategy implementation.
Formulation includes planning and analysis. Implementation is the execution and evaluation of the
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activities that make up the strategy. The second implication is that the entrepreneur has to consider
both internal factors such as the firm’s resources and capabilities, and external factors such as the
market environment. One of the core assumptions of strategic management is that strategy exists on
different levels within the firm. In descending order, these are the enterprise, corporate, business,
functional, and subfunctional levels. Part of the environment for each level is the level above it; lower
and higher levels must be aligned, with the higher levels leading the way. One result of this hierarchy is
a cascading effect. Strategy formulation starts at the top of the hierarchy and flows down to each level.
As it does, strategy formulation is increasingly replaced by implementation.

COMPETITIVE ADVANTAGE
A strong military heritage underlies the study of strategic management. Terms such as objectives,
mission, strengths, and weaknesses first were formulated to address problems on the battlefield.
According to Webster’s New World Dictionary, strategy is “the science of planning and directing large-
scale military operations, of maneuvering forces into the most advantageous position prior to actual
engagement with the enemy.” The word strategy comes from the Greek strategos, which refers to a
military general and combines stratos (the army) and ago (to lead). The history of strategic planning
began in the military. A key aim of both business and military strategy is “to gain competitive
advantage.”
Firms gain a competitive advantage by being better than their competitors at doing valuable
things for their customers. Competitive advantage has been defined in many different ways. For
instance, Porter (1985) asserts that competitive advantage refers to as the comparative
positional superiority in the marketplace that leads a firm to outperform its rivals. While Rothaermel
(2013) defines competitive advantage as the way that a firm formulates and implements a strategy that
leads to superior performance relative to other competitors in the same industry. Thompson, (2001)
opined that competitive advantage is the ability of an organization to add more value for its customers
than its rivals, and thus attain a position of relative advantage. From the foregoing, it makes sense to
say that competitive advantage is a developed strategy adopted by a firm to provide additional
superior value that will most satisfy consumer needs which will, in turn, give the firm an edge over
other competitors.

BUSINESS MODELS AND STRATEGY

A business model goes beyond the business idea and adds significant detail. A business model is not
a strategy, but it is the basis of strategy. It is the story of the business.3 This model tells the story by
answering the following questions.
• Who are the customers?
• What do the customers value?
• How does our business make money?
• What is the underlying economic logic of the venture?

VISION AND MISSION STATEMENTS

Many organizations today develop a vision statement that answers the question “What do we want to
become?” Developing a vision statement is often considered the first step in strategic planning,
preceding even development of a mission statement. Many vision statements are a single sentence.
For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to
take care of your vision.”
Mission statements are “enduring statements of purpose that distinguish one business from other
similar firms. A mission statement identifies the scope of a firm’s operations in product and market
terms.”
It addresses the basic question that faces all strategists: “What is our business?” A clear mission
statement describes the values and priorities of an organization. Developing a mission statement
compels strategists to think about the nature and scope of present operations and to assess the
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potential attractiveness of future markets and activities. A mission statement broadly charts the future
direction of an organization. A mission statement is a constant reminder to its employees of why the
organization exists and what the founders envisioned when they put their fame and fortune at risk to
breathe life into their dreams.

EXTERNAL OPPORTUNITIES AND THREATS

External opportunities and external threats refer to economic, social, cultural, demographic,
environmental, political, legal, governmental, technological, and competitive trends and events that
could significantly benefit or harm an organization in the future. Opportunities and threats are largely
beyond the control of a single organization—thus the word external.
The types of changes mentioned above are creating a different type of consumer and consequently
a need for different types of products, services, and strategies. Many companies in many industries
face the severe external threat of online sales capturing increasing market share in their industry.
Other opportunities and threats may include the passage of a law, the introduction of a new product by
a competitor, a national catastrophe, or the declining value of the dollar. A competitor’s strength could
be a threat. Unrest in the Middle East, rising energy costs, or the war against terrorism could represent
an opportunity or a threat. A basic tenet of strategic management is that firms need to formulate
strategies to take advantage of external opportunities and to avoid or reduce the impact of external
threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are
essential for success. This process of conducting research and gathering and assimilating external
information is sometimes called environmental scanning or industry analysis. Lobbying is one activity
that some organizations utilize to influence external opportunities and threats.

INTERNAL STRENGTHS AND WEAKNESSES

Internal strengths and internal weaknesses are an organization’s controllable activities that are
performed especially well or poorly. They arise in the management, marketing, finance/accounting,
production/operations, research and development, and management information systems activities of a
business. Identifying and evaluating organizational strengths and weaknesses in the functional areas
of a business is an essential strategic management activity. Organizations strive to pursue strategies
that capitalize on internal strengths and eliminate internal weaknesses. Strengths and weaknesses are
determined relative to competitors. Relative deficiency or superiority is important information. Also,
strengths and weaknesses can be determined by elements of being rather than performance

LONG-TERM OBJECTIVES
Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic
mission. Long-term means more than one year. Objectives are essential for organizational success
because they state direction; aid in evaluation; create synergy; reveal priorities; focus coordination;
and provide a basis for effective planning, organizing, motivating, and controlling activities. Objectives
should be challenging, measurable, consistent, reasonable, and clear. In a multidimensional firm,
objectives should be established for the overall company and for each division.

STRATEGIES
Strategies are the means by which long-term objectives will be achieved. Business strategies may
include geographic expansion, diversification, acquisition, product development, market penetration,
retrenchment, divestiture, liquidation, and joint ventures. Strategies are potential actions that require
top management decisions and large amounts of the firm’s resources. In addition, strategies affect an
organization’s long-term prosperity, typically for at least five years, and thus are future-oriented.
Strategies have multifunctional or multidivisional consequences and require consideration of both the
external and internal factors facing the firm.
POLICIES

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Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules,
and procedures established to support efforts to achieve stated objectives. Policies are guides to
decision making and address repetitive or recurring situations. Policies are most often stated in terms
of management, marketing, finance/accounting, production/operations, research and development,
and computer information systems activities. Policies can be established at the corporate level and
apply to an entire organization at the divisional level and apply to a single division, or at the functional
level and apply to particular operational activities or departments. Policies, like annual objectives, are
especially important in strategy implementation because they outline an organization’s expectations of
its employees and managers. Policies allow consistency and coordination within and between
organizational departments.

THE STRATEGIC-MANAGEMENT MODEL

These are three important questions to answer in developing a strategic plan:
 Where are we now?
 Where do we want to go?
 How are we going to get there?
Identifying an organization’s existing vision, mission, objectives, and strategies is the logical starting
point for strategic management because a firm’s present situation and condition may preclude certain
strategies and may even dictate a particular course of action. Every organization has a vision, mission,
objectives, and strategy, even if these elements are not consciously designed, written, or
communicated. The answer to where an organization is going can be determined largely by where the
organization has been!
The strategic-management process is dynamic and continuous. A change in any one of the major
components in the model can necessitate a change in any or all of the other components. For
instance, a shift in the economy could represent a major opportunity and require a change in long-term
objectives and strategies; a failure to accomplish annual objectives could require a change in policy; or
a major competitor’s change in strategy could require a change in the firm’s mission. Therefore,
strategy formulation, implementation, and evaluation activities should be performed on a continual
basis, not just at the end of the year or semi-annually. The strategic-management process never really
ends.

DEVELOP A BUSINESS STRATEGY

This first step in your strategic plan, Develop a Business Strategy, is where you’ll spend the majority
of your time and effort for this Planning Task. You will consider all four functional areas, and you’ll
consider many variables within each of those areas. We’ll remind you of where you are in the process
from time to time. Good business strategies always take advantage of current business strengths and
market opportunities. At the same time, a solid business strategy will address current weaknesses and
perceived threats.

RESOURCE-BASED STRATEGIES
How can our resource-based theory help us to create entrepreneurial strategy? We have already
discussed the fundamentals of competitive strategy in terms of our resource based theory. Briefly,
resource-based theory says that for firms to have a sustainable competitive advantage, they must
possess resources and capabilities that are rare, valuable, hard to copy, and non-substitutable (with
resources that are neither rare nor valuable). One way of thinking about this issue is from the
payments perspective. Each resource employed by the firm in the design, manufacture, and delivery
of every product must earn a return or a payment. These payments are the rents on the resources.
The total payments earned by the firm’s resources are equal to its total revenue. The enemies of value
and scarcity are imitation and substitution. Therefore, the critical strategy is the coupling of
entrepreneurship and isolating mechanisms (see below).

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Rent-Seeking Strategies
Strategy in the resource-based framework is rent seeking. There are five types of rents, and the
strategies available to obtain them are different. Firms can attempt to capture more than one type of
rent simultaneously. The five types of rents are as follows:
• Ricardian rent: These are rents derived from acquiring, owning, and controlling a scarce and
valuable resource. They are most often derived from ownership of land or natural resources or from a
preferred location. These types of rent can be collected as long as ownership and control exist,
possibly in perpetuity.
• Monopoly rent: These are rents collected from government protection, collusive agreements, or
structural entry barriers. Examples of government protection include patents and copyrights, restrictive
licenses, and government-granted franchises. Many collusive practices such as price fixing and
conspiracies in restraint of trade are illegal in the United States, but enforcement varies by time and
place.
• Entrepreneurial rent: These are rents accrued from risk-taking behavior or insights into complex and
uncertain environments. This type of rent is also known as “Schumpeterian rent,” and is the type most
closely associated with new venture creation. Schumpeterian rents are not as long-lasting as Ricardian
and monopoly rents because of the eventual diffusion of knowledge and competing firms’ entry into the
market.
• Quasi-rent: These are rents earned by using firm-specific assets in a manner that other firms cannot
copy. These rents are often based on idiosyncratic capital and dedicated assets. They are derived
from a distinctive competence in how to use the resource as opposed to mere control of that resource.
These rents can be collected by discovering or estimating the value of combinations of resources. The
combinations are more difficult to price than stand-alone resources and therefore add value. The most
important implication here is that it is possible to capture value in a tradable, scarce but not unique
resource due to complementarities, asymmetrical information, or simply high levels of bargaining skill.

• Relational rents: These are rents earned by cooperative-type strategies and interorganizational
relationships. They are somewhat similar to quasi-rents but they require that the venture work with
another company. These rents may be a result of
(1) relationship- specific assets, such as site specificity (co-location);
(2) knowledge-sharing routines, such as technology-transfer agreements;
(3) complementary resources that are not available or are priced in factor markets; or
(4) effective governance, which minimizes transaction costs among organizations.
Resource-based strategies are geared toward rent-seeking behavior. The most prevalent of the five
rent-seeking behaviors is the entrepreneurial strategy. Here a firm enters with a new resource
configuration or implementation strategy and makes above-average profits until, through technological
diffusion and increased knowledge, competitors are able to enter and compete away those profits. This
describes the cycle of “destructive capitalism” that constantly redeploys capital to its most economic
use.
Ventures with the four attributes required for sustainable competitive advantage are positioned to use
strategy to collect one or more of the five types of rents. The more types of rent the firm can
accumulate, the better its overall long-term performance will be. Any of the five types of rent described
above require that the firm be able to protect its advantage. These protective devices are called
isolating mechanisms. The absence of isolating mechanisms means that others (workers, investors,
customers, competitors, governments) can work out strategies to claim the rents for themselves.

ISOLATING MECHANISMS AND FIRST-MOVER AVANTAGES

An entrepreneur who is fortunate enough to create a new venture must expect that competitors will
attempt to retaliate, and protect his or her own positions. Therefore, it is important that the
entrepreneur find ways to increase these benefits and cash flows for either future investment or

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personal incentives. The methods the entrepreneur uses to prevent the rents generated from the new
venture leaking out are known as isolating mechanisms.
Types of Isolating Mechanisms
Isolating mechanisms can take a number of forms. Most obvious are property rights, which consist of
patents, trademarks, and copyrights. Any secrets, proprietary information, or proprietary technology
also help isolate the firm from competitive attack. These mechanisms, though, will not last indefinitely;
therefore, the entrepreneur must be prepared to move quickly and establish a strong position. Some
firms establish their position, and work to protect it right from the beginning of the new venture. This is
known as first-mover advantage (FMA). First-mover advantage can also be a powerful isolating
mechanism when combined with a government rule change that encourages privatization or industry
deregulation.

DEVELOP A BUSINESS STRATEGY

This first step in your strategic plan, Develop a Business Strategy, is where you’ll spend the majority of
your time and effort for this Planning Task. You will consider all four functional areas, and you’ll
consider many variables within each of those areas. We’ll remind you of where you are in the process
from time to time. In the sections that follow, you will have the opportunity to identify and research
alternative strategies for each functional area of the business—marketing, operations, human
resources and finances. Begin by returning to your SWOT Analysis to review the internal strengths of
your present business and any perceived industry opportunities, as well as the internal weaknesses
and external business threats you and your planning team identified. Good business strategies always
take advantage of current business strengths and market opportunities. At the same time, a solid
business strategy will address current weaknesses and perceived threats. With your SWOT Analysis in
hand, you are ready to begin developing specific marketing, operations, human resources and finance
strategies for the business.

Marketing Strategy
The marketing component of your business strategy will determine, in large part, the success of your
business. As marketing consultant Barbara Findlay Schenck said: “Without customers, a business is
out of business.” Your marketing strategy is about defining your customer or target market and tailoring
your product, pricing, distribution and promotion strategies to satisfy that target market. Marketing
experts warn that businesses that are product oriented—those that try to sell what they can produce
without first looking at customers’ needs—risk developing a product that won’t sell. Instead, most
successful businesses are customer oriented—they design marketing strategies around the needs of
their customers. At the end of this step, you should be able to confidently answer the following
questions:
• Markets: Who are our target customers and what do they value?
• Product: What product will we offer and how is it unique?
• Competition: Who are our competitors and how will we position ourselves?
• Distribution and packaging: How and when will we move our product to market?
• Prices: How will we price our product?
• Promotion: How and what will we communicate with buyers or customers?
To complete the Marketing segment of the Develop a Business Strategy step, you will address the
issues shown at right.
As you begin your research, track any expenses associated with the marketing strategies that you
develop.

Markets: Who are our target customers and what do they value?
Most marketing plans begin with a description of the business’ target market, or its potential customers.
Your first task in building a customer strategy is to identify your target market. Target markets are most
commonly characterized as either individual households or businesses. Direct marketing to individual
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households or customers can be performed on a small scale. This form of marketing tends to be more
profitable than business-to-business marketing because of value-added opportunities and the lack of
middlemen. Most direct market products are consumer goods or services.
Business-to-business marketing typically involves sales of a raw commodity or product that will be
used as an input. Traditional commodity producers almost always practice business-to-business
marketing where customers include grain companies, processors, packers and millers. Today’s
specialty or differentiated commodity producers, however, are learning to build in more profit by
responding directly to market demand for unique products, such as tofu grade soybeans, high oil corn,
grass-fed livestock, organic feed, and heirloom vegetables. Don’t overlook today’s business-to-
business opportunities to contract and market specialty commodities. That said, if you plan to market a
raw commodity directly to an elevator, packer or overseas broker, your marketing strategy will be very
different (and presumably less intensive) than that of someone who is looking at direct marketing a
differentiated product to a well-defined market of individual customers.
In order to fully define your target market and corresponding customer strategy, you will need to
identify your target market segment (who your customers are and what they value) and sales potential
(how much they are willing to buy). This research is critical for building your business. Marketing author
Michael O’Donnell notes that one of the most common planning mistakes is failure to fully “understand
the market makeup and what segment the company will concentrate on.”
Sales potential.
If you plan to produce and market a traditional bulk commodity, you won’t have much trouble
calculating sales potential. The market for undifferentiated commodities is fluid and can typically
absorb all that you produce (albeit at a lower price sometimes). Estimating sales potential becomes
more challenging and important when tapping into a specialty commodity market (such as lentils) that
may have limited demand, or when your target market is highly sought after and made up of individual
households.
As a specialty commodity producer, your customer (usually another business) will make known how
much they are willing to buy short term (one to two years) either through a written contract or verbal
agreement. Projecting long-term sales potential may prove more difficult as these markets are usually
immature and untested. Similarly, your task of projecting sales potential can be tricky when marketing
to individual households. You will need to conduct careful research and be honest with yourself about
the market’s growth potential.
Product: What product will we offer and how is it unique?
Although customer research is the single most important component in building a marketing strategy, it
is often the product itself that inspires and excites many business owners. Here’s your chance to
develop a thorough product description. Recall that a “product” is any commodity, final consumer good,
or service.
As you think about the products your business will offer, try to describe them in terms of the value they
will bring to your customers. What is it that customers are actually buying?
Another way to look at your product is in terms of its uniqueness. What makes your product truly
unique? Why would customers prefer your product to another farmer’s? Are there differences in the
production process that make it more wholesome and fresh?
Can you appeal to the environmentally conscious? Try to look down the road a bit as you profile your
product. Will there be new opportunities to add value through processing, packaging, and customer
service? How might your product line or services change over time?
Product and Uniqueness to describe each of the products that you plan to offer, why they are unique,
and how they may change in the future.
Competition: Who are our competitors and how will we position ourselves?
Nearly every business or product has competition of some kind. Find out who your competitors are and
what they offer to customers. A trip to the local grocery store, farmers’ market, or even a bit of time on
the Internet to research how many growers offer organic asparagus or specialty grains may be all that
is needed. Is anyone else serving your target market? If so, find out everything you can about their
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business or their buyers. You might even consider contacting them. Try to find out how they market
and price, and, if possible, get a feeling for their cost structure. You need to determine what share of
the market you can realistically capture.

Distribution and Packaging: How and when will we move our product to market?
Now that you have a customer and product in mind, your next task is to identify how to move or
distribute products from your farm to the customer’s dinner table, store shelves, elevator or barn.
Distribution strategies typically describe scope (market reach), movement, packaging and
scheduling/handling.
Scope.
The first component in your distribution strategy is scope—how widely you plan to distribute your
product. Will you pursue an intensive, selective or exclusive distribution strategy?
Intensive product distribution typically involves widespread placement of your product at low prices.
Your aim is to saturate the entire market for your goods. This strategy can be expensive and very
competitive. Large-scale manufacturers or businesses that market nationwide often employ this
method.
Selective product distribution involves selecting a small number of intermediaries, usually retailers, to
handle your product. For example, if you plan to produce an upscale product, such as gourmet cheese,
you may want to be selective about the stores that stock your product (choosing only those retailers
who offer other gourmet, high-quality products).
The most common distribution strategies or channels for moving your product to the final customer are
direct marketing and intermediary marketing. Examples of each distribution alternative are listed below.
Traditionally, farmers have been positioned at the bottom of the distribution channel—offering a bulk
commodity that required further processing or packaging before it could be sold to customers.
Distribution intermediaries, such as brokers and cooperatives, were seen as the only option for moving
products from their farm to the final customer. However, a growing number of farmers today are doing
their own processing, packaging and delivery. This adds value to their raw product and helps them to
retain a greater share of the profit.
Service providers also distribute directly to customers. In this case, it might be from an office, via fax,
or on site at the customer’s home or business. While direct sales can be a profitable strategy for the
individual grower, they generally make up only a small portion of total sales and can be costly in terms
of time. You often take on wholesaler responsibilities such as grading and packing when direct
marketing. The majority of consumer goods reach grocery stores or restaurants through some type of
intermediary. Intermediaries are businesses that help buy, sell, assemble, store, display and promote
your products; they can help you move your product through the distribution channel. Intermediaries
include retailers, wholesalers, distributors, brokers and cooperatives. The advantages and
disadvantages of distributing through well-known intermediaries are briefly described below.

PACKAGING
Product or service packaging can be both functional and promotional—serving to preserve your
product for shipment and, in the case of final consumer goods, to advertise and differentiate your
product. As a producer of bulk commodities, your packaging strategy may seem fairly straightforward
since little or no packaging may be involved. However, if you are planning to produce specialty
commodities, such as organic grains, be aware that strict industry “packaging” standards may exist.
Packaging final consumer goods for the retail market, on the other hand, can be a daunting yet exciting
task. Examples of product packaging include individual product cartons, boxes and containers; bulk
shipping containers; delivery vehicles; and even retail display cases for mass product packaging.
Service packaging examples include business cards, invoices, landscaping, building design, signage,
brochures and vehicles. As a producer of consumer products, you may want to begin your research at
the supermarket or grocery store. Make note of how similar products are packaged and labeled. There
are many rules and regulations governing food packaging and labeling. In general, any product
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packaged for the retail market must include a description of the common product name, net weight,
nutrition facts, ingredients and your business address. All products must meet federal regulations.
Finally, as a service provider, think about what your customers will see, hear and smell when visiting
your farm or communicating with you and your staff. As you think about what type of packaging is best
suited to your product, don’t overlook customer needs, such as convenience, and intermediary
requirements. Restaurant owners and cooperative grocery managers will likely have minimal
packaging requirements that affect how you clean, bundle and grade your product.

DELIVERY SCHEDULING AND HANDLING

Your distribution strategy should also take into account how often you will need to make deliveries,
either to satisfy customer demand or to fill intermediary requirements. What type of delivery schedule
will be necessary? If you offer a perishable product, delivery schedules will be critical.
As you develop a delivery schedule, be aware of peak production periods (if your business is seasonal)
as well as industry handling requirements. Organic producers are required, in most cases, to verify that
organic grains were handled (cleaned, stored and transported) in accordance with organic standards.

PRICING: HOW WILL WE PRICE OUR PRODUCT?

Farmers are all too familiar with the challenges of pricing bulk commodities for profit. As price takers,
low market prices are often the number one reason traditional commodity producers find themselves
sitting down to develop a business plan. Today’s producers, whether they are adding value or
marketing a specialty commodity, have a greater ability to influence price in these highly defined
markets. Depending on your goals, vision, target market, and product strategy, you may want to
consider one or more pricing strategies for undifferentiated (traditional) commodities and differentiated
(value-added, specialty) products.
In general, pricing strategies are based on two factors: prevailing market prices and your costs. In the
long run, your price has to cover your full costs— including production, marketing and promotion—as
well as a return for your time and investment. You will have the opportunity to crunch these numbers
later when you evaluate the strategy you are currently developing.
For now, begin developing a pricing strategy around prevailing market prices for similar products if they
exist. Learn about what customers are willing to pay and what prices your competitors charge. Begin
your research by listing competitor prices for similar products—note any seasonal pricing changes,
premiums and discounts offered by intermediaries (brokers, grain companies, processors, retail
groceries, etc.). Once you are familiar with prevailing market prices and your costs of production, you
are ready to begin developing a pricing strategy. There are a variety of strategies to consider
depending on your ability to set prices. One common product pricing approach, skim pricing, is to
establish a relatively high market entry price to recover costs before lowering the price to expand the
customer base. This practice, however, can attract more competition if your prices remain too high for
too long. The alternative is penetration pricing. Similar to promotional pricing, you initially set a product
price below your intended long-term price to secure market acceptance of your product. The
advantage of penetration pricing is that it will not attract competition.

PROMOTION: HOW AND WHAT WILL WE COMMUNICATE TO OUR BUYERS OR CUSTOMERS?

Promotion is a must if you are going to gain product recognition among customers. Promotional
strategies often are built around a “message.” The message that you deliver about your product or
business is just as important as the product itself. Equally important is how and when you deliver that
message through the use of advertising tools and media.
BRANDING.
Before beginning detailed promotions research, think about an overall strategy approach. Will you
concentrate promotions on your business image, the product, or both (total approach)?
Businesses use brand or image advertising to build awareness and interest in their products. A brand
is represented by a name, term, sign, symbol, design or some combination. A brand or logo is used to
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identify the products of your business and to distinguish them from other competitors. Although the
establishment of a brand can be expensive, particularly for small businesses, many of today’s
alternative farm businesses are concentrating their promotional efforts on image advertising—
promoting the concept of “healthy” or “locally produced” or “eco-friendly” products. Product advertising
aims to create immediate sales through some type of special product offer, such as seasonal
discounts, frequent buyer clubs, and in-store samples. Product promotion aims to increase sales
directly and immediately for an advertised product. Here are several lowcost product promotion
alternatives.
• Coupons and rebates
• Tasting and cooking demonstrations
• Frequent buyer clubs
• Publicity
• Samples
• Recipes
While most small businesses opt for product advertising because it offers more immediate returns,
marketing consultant Barbara Findlay Schenck recommends combining both image and product
promotion strategies. She calls this promotional strategy total approach advertising. Total approach
advertising offers direct farm marketers a chance to build a long-term image of their business and its
values while encouraging timely product purchases.

INVENTORY AND MAINTAIN PRODUCT QUALITY?

Storage and inventory management are integral and important parts any business strategy, affecting
product quality, marketing opportunities, and the business’ legal standing. While this may seem to be
more of an operations issue, many marketing strategies may depend on whether or how long you can
store your product.
What role will inventory and storage management play in your business?
Like traditional grain producers who use storage as a way to mitigate seasonal price declines,
Riverbend Farm owner Greg Reynolds devoted a substantial portion of his operations research toward
the development of a low-cost storage system for organic vegetables. He sought to preserve his
produce and prolong his marketing season. You might shape your storage strategy around marketing
or to satisfy regulatory considerations.
Develop a Strategic Marketing Plan.
Think about how all of your individual product marketing ideas (product, distribution, pricing and
promotion) can fit together into one or more general marketing strategies for the whole farm.

OPERATIONS STRATEGY
With a clear idea of who will buy your product and why, the next planning question you must answer is:
How will we produce it? A detailed operations strategy—one that is clear to all involved in the operation
—is necessary for sound management and is sometimes an institutional necessity. Organic producers,
for example, are required to submit a detailed farm management plan when seeking certification each
year. According to certification guidelines, the plan must describe all resource management strategies
directed at improving soil fertility; controlling weeds, pests and disease; managing manure; and limiting
erosion.
In this section you will have the chance to develop a production management and operations strategy
by answering questions about:
• Production Management: What production/management alternatives will we consider? How will we
produce?
• Regulation and Policy: What institutional requirements exist?
• Resource Needs: What are our future physical resource needs?
• Gaps: How will we fill physical resource gaps?
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• Size and capacity: How much can we produce?
• Storage and Inventory Management: How will we store inventory and maintain product quality?
Production and Management: How will we produce?
All operations strategies begin with a detailed description of the business’ production (management)
system and a production schedule. As a current producer, you may have very clear ideas about how
you would like to produce, what management system to use and resource requirements. If so, this
portion of the planning process may be a welcome break from the research that was necessary to
learn about your customers and competition in the previous section. If you are a beginning farmer,
however, you may find that this component of the planning process is just as research-intensive. Take
your time, and, most importantly, talk with other experienced farmers when fleshing out the details of
your production system and production schedule.

REGULATIONS AND POLICY: WHAT INSTITUTIONAL REQUIREMENTS EXIST?

Like it or not, if you are going to operate a retail business, process on your farm, or greatly expand
livestock production, you will run into local zoning, permitting, licensing and regulatory issues.
Regulations can have a major impact on your production and operations plans as well as on start-up
costs. Dave and Florence David, for example, had to obtain seven permits to build a plant and process
their own milk.
The type of permits or licenses required for your business will depend on where you are in the
business life-cycle (whether you are just starting up or growing your business), where you live, what
type of product you offer, and the overall size of your operation. Therefore, before going too far with
your operations research, it’s a good idea to check with your state’s Small Business Association as
well as your local or county regulators to learn about environmental, construction, finance, bonding and
product safety regulations. Moreover, if you plan to produce, process or market organic crops, you will
need to conduct thorough research about national and international certification requirements.

Land and buildings.

Land and buildings can be purchased, rented or leased. Each of these acquisition options has financial
advantages and disadvantages, which will be discussed further later, when you address finance
strategies. For now, though, you should realize that land acquisition options should be weighed
carefully. Land purchase decisions can make or break your business. If purchasing land is a part of
your operations strategy, you’ll evaluate the feasibility of that strategy carefully in the finance sections.
You’ll need to discuss cash flow, tax and equity implications with an accountant.

Machinery and equipment.

If additional machinery and equipment will be needed—either to replace old equipment or to meet new
resource requirements—you have several acquisition options, such as purchasing, renting, leasing,
custom hiring, or exchanging labor for access to equipment. If you plan to purchase additional
equipment, you should also consider the advantages of buying new versus used equipment. Think
about these issues as well as your ability or willingness to perform equipment repairs and to finance
large capital purchases.

Size and Capacity: How much can we produce?

Your goals for growing or contracting the business as well as upper and lower limits on size will affect
your choice of business organization and your operations schedule. Farm size refers to the amount of
land in production (number of acres), the number of animals you raise, and the value of gross income
from the business. Someone who is planning to convert from a traditional cattle finishing operation to
management intensive grazing, for instance, may be limited in size during the transition period while
pastures are developed and management techniques fine-tuned. As you develop output/production
estimates, particularly for alternative enterprises with little recorded performance history, you may want
to estimate “best” and “worst” case production scenarios, or high and low output projections.
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Develop a Strategic Operations Plan
You’re ready to develop a whole farm operations plan!
Detail crop rotations, pasture layout and rotation, milking schedules, etc. Think about how these might
change throughout your start-up or transition period. Next, list new resource needs and your strategy
for acquiring them. Then record all operating expenses associated with each enterprise or the whole
farm (if appropriate). Finally, you’re ready to pull your enterprise-specific operations strategies together
into one, whole-farm production and operations strategy. As you draft a wholefarm operations
summary, be sure to include supporting research and note the strengths, weaknesses, opportunities
and threats (SWOT) associated with each strategy alternative. You will use this information in the next
section to evaluate the feasibility of each strategy alternative and to settle on a final course of action for
the business. It’s also a good idea to have each planning team member summarize a whole farm
operations strategy and work through a SWOT analysis on their own. Then you can compare notes
and brainstorm about internal and external threats, and make sure everyone agrees on which overall
operations plan you will pursue.

HUMAN RESOURCES STRATEGY

Labor and management are important to the success of any business— particularly family farm
businesses. Working together, managing each other, making key decisions collectively all can be
challenging when you not only work together but live together. These challenges grow when a major
change in business strategy is involved—when the roles of managers, family members, and
employees can shift from production management to marketing management for instance. In this
section, you and your planning team will begin to build a human resources strategy to address your
changing management and work force needs.
This strategy should embrace your family goals while meeting new business needs.
You will begin your strategic planning by answering questions about:
• Labor needs: What are our future workforce needs?
• Skills: What skills will be required to fill workforce needs?
• Gaps: How will we fill workforce gaps?
• Compensation: How will we pay family and members of our workforce?
• Management and communication: Who will manage the business and how?
You’ll work through this Human Resources section of Developing a Business Strategy by working
through the following aspects of Human Resources in the order shown below.
You will begin your research by determining projected labor needs for each enterprise (product). Next,
you will compare your projected labor needs against current labor resources to identify any gaps, as
you did in the operations section for physical resources. You and your planning team will then need to
consider how to fill those gaps and to identify one or more strategies for doing so. Finally, you will
develop a strategy for managing labor and the business.
This is perhaps one of the most critical components of your business strategy. Without an effective
management plan or business manager, even the best of business plans can fall apart. Take your time
developing a human resources management strategy—it will be one of your keys to success.

Labor Needs: What are our future workforce needs?

Begin building your human resources strategy with some critical thinking about the type of work and
accompanying workloads that will be necessary to reach your future vision and to carry out the
marketing-, operations- and finance-related work within the business.
Tasks.
What new marketing-, operations- and finance-related tasks will be required to produce and market a
new product or to implement and manage a new production system? Be realistic about your labor
needs and consider the not-so-obvious elements of business ownership and management, such as
time required to communicate with staff, make equipment repairs, and handle administrative needs.
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For example, if you are considering organic production, be sure to plan ample time for record keeping.
The paperwork necessary to track inputs, harvest and storage in an organic system can be tedious and
time consuming.
Workload.
Once you and your planning team have brainstormed a list of new tasks, try to estimate how much time
each task will require and note any seasonal bottlenecks. This will help you to visualize the peaks and
valleys of work demands, which in turn will help determine how to fill workforce needs or reduce
workloads. Be sure to include work involved in producing and marketing products, maintaining
equipment and facilities, and in managing the business when calculating your labor needs. You could
also begin this research by tracking your own current hours (if you are already in business) to get a
sense of just how much time is involved in seemingly routine tasks. You may be surprised by the
results. Then use these actual recorded hours as a basis for developing realistic projections for your
future labor and staff needs.
Skills: What skills will be required to fill workforce needs?
Before you begin to develop a strategy for filling workforce needs, you should get a good feel for the
type of skills required for each new task or position. This information, combined with workload
estimates, should help you better decide how to fill your human resources needs.
Begin your research by learning more about any new work that you and others will be required to do.
Ohio State University economist Chris Zoller recommends developing “well thought-out job
descriptions” that are compatible with the business’ mission and goals for each new position that will
be created.
Job descriptions—even for those positions that will be filled internally with family labor—can help
make your human resources strategy a positive one by clearly identifying desired skills, expectations,
responsibilities and compensation.

Compensation: How will we pay family and members of our workforce?

Wages and other benefits that you offer family, employees, hired labor, interns and contracted labor
will vary with industry rates and standards as well as the type of work involved and, of course, your
values. You and your planning team will need to consider all of these factors when developing a labor
compensation package as part of your overall human resources strategy. A good place to begin
developing your benefits strategy is by looking at industry standards. Find out what salary and other
benefits are typical for your business and adjust them according to your own values and goals.

MANAGEMENT AND COMMUNICATION:

Who will manage the business and how?
Good management and communication are pivotal and often intangible qualities of a successful
business. No matter how well a business strategy has been researched and evaluated, it will not help
accomplish your goals unless there is an effective manager behind it— one who knows how to
communicate. Therefore, spend a little time fleshing out a management and communication plan for
the business.
Management.
Farm business managers, like most independent small business owners, are responsible for a range of
tasks that include planning, organization, decision-making and control of resources. They are
responsible for the long-term development and success of the business—implementing the business
plan, monitoring performance, and facilitating change.
Based on your skills assessment in Planning Task Two, think about your ability and desire to manage
the farm business—to plan, organize, make decisions and communicate with your workforce. Taking
on management responsibilities yourself is only one of several strategic options. You might consider
other strategic alternatives such as:
• Hiring out management.
• Partnering with someone else to share management duties.
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• Transferring the management duties to someone else within the business.
However, they planned to share specific marketing, operations, and finance-related management
duties with their children and current business partner, Paul Kajer. This management strategy required
constant communication and a clear understanding of the business’ objectives by all members of the
David’s management team. Dave and Florence explained that they feel well prepared to manage as a
team. They have been planning and visioning together with their children on a regular basis for more
than ten years.
Communication.
Regardless of whether you plan to manage as a team, with a partner, or on your own, effective
communication will be important. As Ohio State University specialist Bernard Erven notes, “Although
communication does not guarantee success of a farm business, its absence usually assures problems.
A communication problem may soon become a crisis or it may linger on for years.” Making It Work , a
one-hour video on family communication and conflict resolution for business planning is an excellent
communication resource. Think hard about your willingness to perform the duties of an effective
communicator. Your management strategy should include a short- and long-term back-up plan to
arrange for management in the case of an emergency due to illness or shift in goals on the part of
management team members. A written management plan can be particularly useful, and may become
a final part of your business plan if you decide to manage as a team. Management teams and boards
often use written management plans to clearly specify management responsibilities, check-in meeting
dates, and a description of grievance procedures.

Develop a Strategic Human Resources Plan

Carefully review your research, and describe workforce needs and plans for filling them. Note the
strengths, weaknesses, opportunities and threats (SWOT) associated with each strategy. This also is a
good time to list human resources expense estimates for each enterprise. You will use this information
when you evaluate the feasibility of each strategy alternative.

FINANCIAL STRATEGY
Financially successful businesses are usually built around strategies that incorporate risk
management, tax-efficient organization, and careful use of financing.
In this section you will build a financial strategy by looking at:
• Risk: What does our future business environment look like and how will we manage for risk?
• Organization: How will we legally organize and structure the business?
• Financing: How will we finance capital requirements?
When you evaluate your strategic plan, you will have the opportunity to evaluate enterprise and whole
farm strategies from a financial perspective by looking at projected profitability, liquidity and solvency.
For now, however, concentrate on the development of risk management, organization and finance
strategies.
As you do so, recall your financial values and goals. What is important to you?
Paying down debt? Putting money away for the future? Being able to save for “down times”? Reducing
overall financial risk? Generating most or all of your income from the farm business? Use your values
and goals along with your SWOT assessment to guide the development of one or more whole farm
financial strategies.
Risk management: How will we manage risk?
In today’s farm economy, risk management has become an important topic, particularly for those
producers who have traditionally relied on government intervention to mitigate price and production-
related uncertainties. Regardless of whether you produce corn, soybeans, grass-based milk, organic
vegetables or specialty fruit trees, risk management will be an important component of your business
plan. Without it, uncontrolled risk and uncertainty reduce the reliability of financial projections and make
investment analysis difficult. Unmanaged risk and uncertainty also carry with them a high degree of
stress for farm managers and their families. In this section, you and your planning team will first
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research the potential business risks that stem from new marketing, operations and human resources
strategies. Then you will be ready to develop a whole farm risk management strategy (or combination
of strategies) to minimize and protect against future uncertainty.
As described in Planning Task Two, farm businesses, particularly family farm businesses, often are
exposed to many forms of risk: personal risk, production risk, market risk, institutional risk and financial
risk.
What type of risk will your business be exposed to in the future as you look at new products, farm
management systems, and labor strategies? How will you manage this new risk? Common risk
management strategies are to: minimize production- and market-related risk; transfer risk outside of
the business; and build internal capacity to bear risk financially.
Production- and market-related risk management alternatives include enterprise diversification, cultural
production practices (irrigation, short season crop varieties), hedging with futures and options, and
storage.
Risk transfer outside the business can be done by purchasing insurance (crop, property, health, home,
liability), signing production or sales contracts, and participating in government programs.
Building internal capacity to bear financial risk can be accomplished by adjusting household
consumption, diversifying income sources within and outside the business and investments (farm and
nonfarm), increasing liquidity (holding cash, establishing credit reserves), leasing short- and long-term
assets, and spreading out asset sales and purchases.
You may already be familiar with many of these risk management alternatives. Each alternative has its
own advantages, disadvantages and resource requirements.. The appropriate alternatives and overall
risk management strategy for your business will depend, in large part, on your willingness to adjust
production practices, spend time on the phone or in front of the computer, and to take on more
management responsibilities.
To develop a risk management strategy for your business and identify future sources of risk. Begin
where you identified current sources of risk. Ask yourself how these will change in the future as you
pursue new marketing, operations and human resources strategies. Then identify a plan for coping
with and managing this future risk. Your lender and financial planner are excellent resources for
analyzing risk potential.

ORGANIZATIONAL STRUCTURE: HOW WILL WE LEGALLY ORGANIZE AND STRUCTURE OUR

BUSINESS?
The legal organization that you choose for your business will have risk, finance, tax and estate
planning ramifications. Legal organization is typically one of the first decisions made when structuring a
new business.
As a current business owner you might consider re-evaluating your organization strategy here to
determine if one of the alternatives provide legal or financial benefits. As a new or potential business
owner who is at the beginning of the business life-cycle, however, you have a range of organizational
strategy alternatives to consider. Traditionally, most farm businesses have legally organized as sole
proprietorships or partnerships.
Profitability: Will this new strategy significantly increase net income from the farm?
Before you can begin to address this question on a whole-farm basis, you may need to do some
preliminary evaluation. If your new strategy includes the addition of a new product enterprise, you
should begin by analyzing each enterprise separately, using the net return and break-even
calculations.
Enterprise Evaluation for Profitability: Net returns and breakevens.
Most financial planning and evaluation begins at the enterprise level. Whether you are considering the
addition of one or more products (enterprises) to your business, an evaluation at this level can help
you settle on profitable pricing strategies, crop and livestock mixes, and risk management tactics.
Moreover, if you intend to seek outside debt financing for a traditional or specialty operation, farm
lenders will request an enterprise budget to evaluate the relative credit worthiness of the enterprise. An
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enterprise budget is simply a look at the net returns contributed to the business by each enterprise. It
often includes an estimate of the enterprise’s break-even sales price and volume.
Net return. The net return to an enterprise represents returns to (unpaid) operator labor, management
and equity capital. It is a measure of profitability, which over the long run should be large enough to
justify using unpaid labor and equity capital. Net returns are easily calculated, particularly if you have
already estimated sales revenue, output and expenses (marketing, operations, human resources and
finance) in previous Worksheets. Your net return to the enterprise is calculated by subtracting total
expenses from gross returns.
Break-evens. A break-even analysis is probably one of the most useful calculations that you will
perform when considering alternative business strategies. Break-even numbers can be used to
instantly identify those enterprises that don’t cover variable and fixed costs of production. If you intend
to sign a market contract or lock in a future price for your product, crunch some numbers to determine
what level of production is necessary at that price to break even. Make sure you can cover your
variable and fixed costs of production. On the flip side, if your output or production volume is fixed, try
calculating a break-even value to determine what product price is necessary to break even on
production and marketing-related costs. If neither your price nor output is fixed, these calculations can
be used to develop production and price floors for each enterprise—something that will be useful for
future monitoring and decision-making.
Calculating a break-even volume. Break-even volumes will tell you the minimum production volume
necessary to cover your costs of production. You might consider this a lower size limit for your
business. The break-even volume is calculated by dividing total annual fixed costs for the enterprise by
the difference between your estimated market value and variable costs for each enterprise.
Calculating a break-even value. If your production volume is fixed—either because of production
capacity or sales contracts—calculate a break-even value for your product; in other words, determine
what market price is needed to cover your variable and fixed costs. Break-even values are calculated
by dividing your total costs for the product or enterprise by the total quantity you expect to produce or
sell. Again, your total costs are the sum of your direct and overhead expenses for the enterprise.
Develop a Strategic Financial Plan
You’ve done a lot of research and brainstorming in this section about risk management, business
organization, and capital financing strategies. If you are considering more than one whole-farm
financial strategy at this point, describe both in the space provided. You may not be able to narrow
down your alternatives until after completing a whole-farm evaluation.

GROWTH STRATEGIES
So far, we have seen how new ventures enter using their wedges, and how they seek to collect rents
based on their capabilities and resources. We can also use our resource-based model to account for
the rate and direction of a venture’s growth strategies. Firms grow in the direction of underutilized
resources and toward their areas of expertise. The rate of growth is a step function, not a smooth path,
because resources are usually employable only in bulky, discrete increments. Basically, a firm’s growth
is limited to its resources. Resources determine the industry the firm will enter and the levels of profit it
can attain. For example, labor shortages, insufficient access to capital, and technological barriers all
limit growth. In the long run, however, the most important limit of all may be the scarcity of
management capacity. This implies that “management is both the accelerator and brake for the growth
process.” This rubber-band process, called the Penrose effect after the theorist who first proposed it,
suggests that fast growth in one period will be followed by slow growth in the next period (that is, there
is a negative correlation between period growth rates).

QUALITY AS A STRATEGY
Considerable thought, energy, and money have been devoted to making quality a source of
sustainable competitive advantage. Hundreds of articles and books have been written on the subject.
A prestigious national contest, the Malcolm Baldridge National Quality Award
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(http://www.quality.nist.gov/), is held each year. Many states now have programs to help companies
develop and improve their products’ quality. Although the concept of total quality management (TQM)
is not new, there are still many programs that emphasize customer satisfaction. To some, TQM is the
number-one priority for the firm, and it has entered the language and curriculum of top-rated business
schools. Companies that promote TQM programs are themselves a fast-growing industry. Consultants
sell “off-the-shelf ” TQM programs based on some simple ideas that can be understood by using the
analogy with playing golf:
• Continuous improvement. This is the process of setting higher standards for performance with each
iteration of the quality cycle. In golf terms, yesterday someone shot a score of 112, so today he or she
will try to shoot 111.
• Benchmarking. This means identifying and imitating the best in the world at specific tasks and
functions. If one believes that Tiger Woods has the best swing, he or she tries to swing like Tiger.
• Quality circle. This is a loop of activities that includes planning, doing, checking, and acting. Keep
one’s head down, keep one’s eye on the ball, and don’t press. Now, where did it go?
• Outsourcing. This means procuring top quality from outside the organization if the firm cannot
produce it from within. If she can’t hit this shot, can somebody else hit it for her?
The resource-based approach calls into question the efficacy of these quality programs for long-term
competitive advantage. If any firm can buy the principles of TQM off the street (so to speak), then it is
not rare. Benchmarking, which is neither more nor less than copying, is by definition able to be copied.
Outsourcing products from the best quality vendors is both substitutable by producing in-house, or
sourcing from other best-quality vendors. Can TQM be an effective strategy for sustainable competitive
advantage? Research indicates that TQM programs are not magic formulas. At best, they were
termed a “partial success.” The following were among researchers’’ general conclusions regarding
TQM:
• Copying other firms may mean expending time and money on the wrong things.
• Adopting a TQM program, under certain conditions, can actually make things worse because the
program is so disruptive.
• Failing to link the TQM program with bottom-line results may ensue.
• Benchmarking is not effective unless the company already has a comprehensive quality program.
• Lower-performing firms should adopt TQM programs gradually; middle performers are better able to
begin full-scale adoption; and high performers benefit the most from TQM.

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INFORMATION RULES STRATEGIES
With the advent and popularity of e-commerce, many pundits claimed that the old ways of doing
business had ended and the laws of economics should be rewritten. But two economists from the
University of California at Berkeley did not see it that way. Carl Shapiro and Hal Varian believed that
the same principles of economics that applied to the real world of business also apply to the virtual
world of business. To establish their point, they wrote a book called Information Rules: A Strategic
Guide to the Network Economy. This discussion draws heavily on their ideas. We can see what their
emphasis and focus are by going to their Web site: http://www.inforules.com/. The site demonstrates
that these authors practice what they preach when it comes to offering a digital information product.
The electronic entrepreneur deals with information. Information is anything that can be put into
a digital format, for example, photographs, text, catalogs, data, movies, stock quotes, and online MBA
classes. Information is intellectual property and can be protected using copyrights, trademarks, or
business-method patents. Finally, information must be experienced for people to determine its quality
and benefits. People usually require a peek or preview before they purchase. Information can be very
expensive to generate, but it is almost costless to reproduce. Therefore, selling information provides
great margins—unless it is reproduced and re-sold by others. Information also has different uses for
different people. Different versions of information can be offered to different customer segments. By
segmenting the market, an entrepreneur can extract maximum value—the most profit from his or her
property. E-businesses have many value drivers or ways of creating value through their operations and
strategies. All of these facts about information are embodied in the strategies of e-entrepreneurs.
There are a number of key strategic options that e-entrepreneurs need to consider as they form their
businesses and marshal resources and capabilities for their firms.

LOCK-IN.
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This strategy keeps the customer loyal to the venture. It is essentially the same concept we discussed
earlier under the heading of switching costs. A lock-in strategy raises switching costs for the customer.
The entrepreneur who can design a lock-in strategy and engender brand loyalty has the ability to
maintain a relatively high price for the product. Further, this strategy reduces the cost of keeping
current customers.

COOPERATION AND COMPATIBILITY STRATEGY

Many times entrepreneurs try to steer their firms’ strategy in an adversarial “win-lose” fashion. But in
the digital economy, this strategy is frequently wrong. The entrepreneurial team needs to determine
which other firms may be part of its network, actual or potential. Then the team needs to cooperate
with these firms to build the size and strength of the network. Often this means making products and
technology compatible with each other. The goal is to have the network’s standards become the
industry standard. Doing so will create a “winner-take all” situation, and if the network becomes the
industry standard, that network wins. A related way of thinking about how e-businesses create value is
to look again at the drivers within this type of business. Four drivers emerge: efficiency, novelty,
complementarities and (the now-familiar) lock-in.
Some of the value that is created by an e-business results from the use of efficiencies— reducing
the costs of searching, transacting, monitoring, and decision making. These are real costs to the
consumer and the consumer will pay to have them reduced or eliminated. In theory, as each consumer
might have a different set of costs, a new version of the product or e-business Web site can be created
for each consumer. Novelty is created by bundling the features and benefits of the e-businesses’
products and services. Each product or service can have an element of difference or novelty, but even
if the product or service lacks such novelty, the bundle can be novel or unique in some way. Because
every customer (in theory) will want a different bundle, this type of customization is a value driver. The
value driver, complementarity, is a function of the bundles, but may go further. It may refer to the
complementarities of partners or technologies, and include the network effects of complementarity of
customers and vendors. Last, Amit and Zott include the concept of lock-in, which is similar to previous
descriptions including brand loyalty, loyalty programs, and dominant technology.

BUILDING RELATIONSHIPS BY COMMUNICATING SUPPORTIVELY

The most important barriers to effective communication in organizations are interpersonal. Much
technological progress has been made in the last two decades in improving the accuracy of message
delivery in organizations, but communication problems still persist among people, regardless of their
relationships or roles. A major reason for these problems is that a great deal of communication does
not support a positive interpersonal relationship. Instead, it frequently engenders distrust, hostility,
defensiveness, and feelings of incompetence and low self-esteem. Ask any manager about the major
problems being faced in their organizations, and communication problems will most assuredly appear
near the top of the list.
Dysfunctional communication is seldom associated with situations in which compliments are given,
congratulations are made, a bonus is awarded, or other positive interactions occur. Most people have
little trouble communicating effectively in positive or complimentary situations. The most difficult, and
potentially harmful, communication patterns are most likely to emerge when you are giving feedback
on poor performance, saying “no” to a proposal or request, resolving a difference of opinion between
two subordinates, correcting problem behaviors, receiving criticism from others, providing feedback
that could hurt another person’s feelings, or encountering other negative interactions. Handling these
situations in a way that fosters interpersonal growth and engenders stronger positive relationships is
one mark of an effective manager. Rather than harming a relationship, using supportive
communication builds and strengthens the relationship even when delivering negative news. Effective
managers adhere to the principles of supportive communication. Thus, they ensure greater clarity and
understanding of messages while making other persons feel accepted, valued, and supported. Of
course, it is possible to become overly concerned with technique in trying to incorporate these
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principles and thereby to defeat the goal of being supportive. One can become artificial, inauthentic, or
incongruent by focusing on technique alone, rather than on honest, caring communication. But if the
principles are practiced and consciously implemented in everyday interactions, they can be important
tools for improving your communication competence.

GAINING POWER AND INFLUENCE

The two skills—gaining power and translating power into influence— are highlighted. We began by
discussing sources of power, such as personal attributes and position characteristics. Both of these
must be developed if one is to maximize one’s potential as a power holder. A strong person in a weak
position and a weak person in a strong position are both at a disadvantage. Ideally, one should
become a strong person in a strong position. A manager must establish a power base in order to get
work accomplished and obtain commitments to important objectives. But power without influence is not
sufficient. Consequently, we discussed how to translate power into influence by selecting an
appropriate influence strategy and implementing it in such a way that resistance is minimized.
Persuasion tends to build trust and encourage internalized commitment, while coercion and
intimidation erode trust, produce only superficial compliance, and encourage servility. The unbridled
use of power tends to increase resistance among subordinates, which in turn erodes the manager’s
power base. It also transforms the nature of the manager’s stewardship over subordinates. The more a
manager dominates subordinates, the more dependent they become on management’s initiatives. As a
result, managers tend to overvalue their contribution to their workers’ job-performance activities
(“Without me, they would be lost”). This inflated sense of self-importance encourages abuse of power
that weakens the manager’s influence and may even lead others to demand the manager’s
resignation. Thus, the abuse of power is both organizationally and personally destructive.
Power need not be abused, however. Managers, by definition, are located somewhere above the
midpoint in the range of organizational levels (from the CEO at the top to hourly employees at the
bottom). Managers who shun initiative and refuse to take responsibility for their actions see themselves
as the “janitors” for the management pyramid above them. Their job, as they see it, is to clean up
messes and carry out orders. Their attitude and demeanor reflect that of their bosses. In contrast,
managers characterized by high initiative, personal responsibility, and influence see themselves as
presidents of the organizational pyramid below them. They work within acknowledged constraints, but
they figure out ways to do things right. They take full responsibility for their subordinates’ performance,
as well as for their commitment to their work and their membership in the organization.
Translating power into influence should not only be directed downward (i.e., toward organizational
subordinates) but also upward (i.e., toward organizational superiors). Incompetent attempts to
influence upward can quickly derail a manager’s career, while competent upward influence can
markedly enhance it. By helping to set the agenda of senior managers (issue selling) and by working
for senior management’s success (benefiting the boss), a manager’s influence can increase
significantly. When applying these two principles, however, managers should be motivated not by a
thirst for mere self-aggrandizement, but by an honest desire to benefit their companies and strengthen
their bosses’ position.

EMPOWERING AND DELEGATING

Empowerment means helping to develop in others a sense of self-efficacy, self-determinism, personal
control, meaning, and trust. The current business environment is not particularly compatible with the
principles of managerial empowerment. Because of the turbulent, complex, competitive circumstances
that many organizations face, managers frequently experience a tendency to be less, rather than
more, empowering. When managers feel threatened, they become rigid and seek more control over
other people, not less. However, without empowered employees, organizations cannot succeed in the
long run. Learning how to be a competent empowering manager is therefore a critical skill for
individuals who probably will face a predilection not to practice empowerment.

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BUILDING EFFECTIVE TEAMS AND TEAMWORK
All of us are members of multiple teams—at work, at home, and in the community. Teams are
becoming increasingly prevalent in the workplace and in the classroom because they have been
shown to be powerful tools to improve the performance of individuals and organizations. Consequently,
it is important to become proficient in leading and participating in teams. It is obvious that merely
putting people together and giving them an assigned task does not make them into a team. Students
often complain about an excessive amount of teamwork in business schools, but most of it is less real
teamwork than a repetitive experience of aggregating people together and assigning them a task.

LEADING POSITIVE CHANGE

Most approaches to change focus on overcoming challenges, addressing obstacles, and solving
problems. An alternative approach to change is in which the goal is to create abundance and
extraordinarily positive change. It provides techniques and hints designed to help you achieve the best
of the human condition or the highest potential of teams and organizations.
Leading positive change—that is, aiming for abundance-focused or positive targets rather than deficit-
based or problem-centered targets—unlocks something called the heliotropic effect. To explain the
heliotropic effect, let us pose this question: What happens over time when you put a plant in a window?
The answer, of course, is that the plant begins to lean toward the light. That is, a natural inclination
exists in every living system toward positive energy—toward light—and away from negative energy or
from the dark. The reason is that light is life-giving and energy creating and all living systems are
inclined toward that which gives life. When you are able to foster positive change in organizations, you
unleash the heliotropic effect and achieve outcomes that would be impossible otherwise. Fostering
virtuousness, positive energy, strengths, aspirational targets, and inspiring language, for example, are
among the ways to unlock the heliotropic effect.
This effect has been demonstrated in a variety of ways within organizations and individuals—
physiologically, psychologically, emotionally, visually, and socially. Five sets of skills and activities were
explained:
(1) establishing a climate of positivity,
(2) creating readiness for change,
(3) articulating a vision of abundance,
(4) generating commitment to the vision, and
(5) institutionalizing the positive change. Specific behavioral guidelines for implementing this approach
to change are provided next.

CONTINUOUS IMPROVEMENT PROCESS:

The Continuous Improvement Process (CIP) is a means by which an organization creates and sustains
a culture of continuous improvement. The organization deliberately seeks to create a positive and
dynamic working environment, foster teamwork, apply quantitative methods and analytical techniques,
and tap the creativity and ingenuity of all its people. Collective effort is focused to better understand
and meet internal and external customer needs and to continuously increase customer satisfaction.
Employing CIP in an organization can substantially improve the quality of its services or products,
increase productivity, and reduce costs across a broad spectrum of systems, products, and services.
A few of Lae major companies that now use and proclaim their commitment to CIP-related
management technologies are Phillips, Ford, Xerox, IBM, Hewlett-Packard, Toyota, Honda, Boeing,
Chrysler, and Texas Instruments. In the public sector, DoD has instituted a continuous improvement
initiative called Total Quality Management. These and other organizations that are committed to a
continuous improvement philosophy report substantial improvements in quality, productivity,
throughput, and employee morale, with significant reductions in cost, errors, lead times, waste, and
customer complaints. The consensus among CIP-oriented companies is that these technologies are
the key to their long-term competitiveness and survival.

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Central to CIP are mechanisms that define, assess, and improve all the significant processes within the
organization and identify, reduce, and eliminate where possible all forms of waste. CIP addresses all
forms of work and applies equally to management and administration and to knowledge worker and
touch labor processes. CIP includes a number of principles, practices, techniques, and tools that have
proven effective in fostering change for continuous improvement. The elements have been applied with
considerable success and in a variety of combinations by many different organizations in the United
States and overseas.
An extensive program of education and training for all organizations seeking a culture of continuous
improvement will be essential. However, the courses, "how-to" textbooks, and facilitators needed to
meet the immediate need are still in short supply. This introduction to the principles and practices of
CIP is intended to help fill the need for educational materials and to provide a common frame of
reference for the ongoing dialogue about continuous improvement in the private and public sectors.
Ultimately, each organization must weave the elements of CIP together into a seamless improvement
process that best meets its specific needs.

INTERNATIONALIZING THE SMALL FIRM

The vast majority of Small Business activity in the international market will be conducted via importing
and exporting. Still, for the experienced, visionary, and adventurous businessperson, other options
exist that represent an even greater commitment to global trade. Small Businesses can license their
products or services, form joint ventures or strategic alliances, or even set up their own operations to
conduct business in other countries.
Exporting
The primary mechanism for Small Businesses to engage in international business is exporting, or
sending the products they make to another country
Importing
Many Small Business owners recognize not only that markets for their products exist inother countries,
but also that their domestic markets can be served by bringing in products from other countries via
importing.
International Licensing
As an exporter, you can stop exporting anytime you wish. However, other forms of international
business represent a larger commitment on your part. The next level of commitment above exporting in
international business is licensing. As a licenser you are contractually obligated to another business for
a period of time.
Licensing offers a way to enter foreign markets by assigning the rights to your patents, trademarks,
copyrights, processes, or products to another company in exchange for a fee or royalty. The two
biggest advantages of licensing are speed of entry and cost. You can enter a foreign market quickly
without investing virtually any capital. Licensing is similar to franchising domestically. Licensing
agreements are generally written to endure for a specified period of time. A disadvantage of this
approach is that your licensee may become your competitor after the agreement expires if the licensee
continues to use your licensed process without paying you for it.
International Joint Ventures And Strategic Alliances
A foreign joint venture is a partnership between your business and a business in another country. As
with any partnership, choosing the right partner is critical to the success of the venture. Joint ventures
can provide several advantages, including economies of scale, the ability to produce products less
expensively, and help through the maze of local culture, business practices, and legal requirements.
Partnerships of any type can be difficult. Joint ventures and alliances are often costly failures. Despite
the difficulties, joint ventures and strategic alliances are and will be needed to be competitive globally.
Finding a local partner is the only way to enter some countries.
Strategic alliances are somewhat similar to joint ventures; however, in the past usually they were
used to outsource less important pieces of the supply chain. The focus was on service-level
agreements that stated what each partner would provide and how the performance would be
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measured. The majority of the effort went into the service agreement. Today, strategic alliances may
provide an essential piece of the competitive advantage of your company and as such need careful
planning—and attention.

AN EXIT STRATEGY
Most firms are born to live forever. There are three sorts of exit:
● Cessation of trade – where the business just winds up without creditors being owed any
money. Most exits are of this form.
● Failure – which involves liquidation of insolvent companies and personal bankruptcy.
● Harvest – which involves selling the business on as a going concern.
To everything there is a season. There comes a time that every business must end. Unfortunately
for many entrepreneurs, the arrival of this time means that the business could not sustain itself or them
any longer and must cease to exist for that unhappy reason. But for many others, the business
appears capable of continuing indefinitely. Then the question becomes, how long will you last? How
will you and the business part ways? Just as you needed a plan to start this deal, so you need a plan
to finish it. An exit strategy must be well planned. Not only can the process take a long time, but also
there can be negative ramifications for your business if you do not plan the exit as carefully as you
planned the start-up. Here are some tips to consider as you plan how you will end your business.
• Recognize when it is time to exit. Maybe the zest for the business is eluding you on a daily basis,
maybe your mentor is suggesting it is time to quit, or maybe market conditions are changing. Pay
attention to the small signs that may indicate it is time to exit.
• Watch out for your employees. You may be leaving; however, your employees are probably planning
on staying. Selling the business and changing management will cause uncertainty in their work lives
that can cause additional employee stress.
• Make sure you have the right people in place as you leave. The management team you leave behind
will be the people who take the business to the next level in the future. As much as possible, ensure
that the people leading the charge will have the skills and resources needed to succeed.
Consider these exit options:
• Sell to a financial buyer—someone like you who wants to buy and run a business.
• Sell to a strategic buyer—a company that wants to expand into your industry or a company in a
similar business. Perhaps a competitor wants to buy more market share.
• Sell to a key employee or group of key employees. This kind of deal is similar to selling to an
individual buyer, but employee-buyers tend to be more intimately familiar with what they are
purchasing. They will drive the price down, however, because they feel they deserve a lower price due
to their years of service.
• Sell to all employees via an employee stock ownership plan (ESOP). This strategy is a great option
for the seller if the business has a key group of motivated employees. You are much more likely to
receive market price or even a premium because the ESOP will be based on a formal business
valuation by a professional.
• Take the company public. This step takes a tremendous commitment, both physically and financially,
to comply with all elements of the Securities Exchange Commission (SEC) requirements. This option
will often lead to loss of control over the company as management is faced with quarterly earnings
numbers that must meet estimates in order to maintain the stock price of the company.
• Create a family succession. This tactic is a popular, highly desired option. But the question must
always be asked, “Are my family members up to it, and which family member do I choose?” Managing
expectations as well as developing transitional training opportunities like internships can be key to the
success of this approach. Twenty-five percent of a group of Microenterprise owners surveyed stated
they would look outside their family rather than at family succession.
• Undertake a planned liquidation. This approach would involve running the business until the day
you’re done, then you sell the assets. It takes a lot of planning and patience, and can be an emotional
roller coaster. Next comes valuation, in which the company’s worth is in the eye of the beholder. There
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are as many ways to value a business as there are businesses, but the three most common are the
market approach (what others have paid for comparable businesses), the asset-based approach
(essentially the cost to re-create the operating assets of the business), and the income approach.

CHAPTER RECAP
This chapter introduced the topic of management and defined the types of roles and activities
managers perform. Managers are responsible for attaining organizational goals in an efficient and
effective manner through the four management functions of planning, organizing, leading, and
controlling. Managers are the executive function of the organization. Rather than performing specific
tasks, they are responsible for creating systems and conditions that enable others to achieve high
performance. Managers’ activities are associated with ten roles: the informational roles of monitor,
disseminator, and spokesperson; the interpersonal roles of figurehead, leader, and liaison; and the
decisional roles of entrepreneur, disturbance handler, resource allocator, and negotiator. Rapid and
dramatic change in recent years has caused significant shifts in the workplace and the manager’s job.
Rather than managing by command and control, managers of today and tomorrow use an empowering
leadership style that focuses on vision, values, and communication. Team-building skills are crucial.
Instead of just directing tasks, managers focus on building relationships, which may include customers,
partners, and suppliers.

CHAPTER FIVE
RETIREMENT

LEARNING OBJECTIVES
After studying this chapter, you should be able to
 define retirement and the types of retirement
 enumerate and explain the ways to plan for retirement
 describe the phases of retirement and the obstacles and or challenges faced during retirement;
 state and describe the impact of retirement
 explain why youths should start planning on their retirement

INTRODUCTION
According to Atchley (1982:122), the process of retirement begins when the person takes note of
the fact that he/she will have to retire one day. There are many retirement systems aimed at
addressing or avoiding some of the challenges that the retiree face, especially financial challenges.
These include: the social security provision for the elderly; the government employees’ pension
fund; private companies’ pensions; and individual retirement annuity policies. All these are aimed at
ensuring financial security in retirement. This chapter will discuss the impact of retirement, bearing in
mind the fact that it is not only financial. The different types of retirement will be discussed, as well as
the phases and the role of the Occupational Social Worker in preparation for retirement.

DEFINITIONS
To continue with this subject and to ensure a common understanding, it is necessary for the
relevant terms to be defined. The terms to be used in this text are defined below.
Retirement, according to Microsoft Thesaurus (2003), refers to withdrawal, departure, giving up
work, leaving or retreating. These are the words that are associated with retirement. This means
that a person who is retiring is withdrawing from work or retreating. The word retreat refers to
making lose ground or withdrawing. In the context of war, an army that is retreating is leaving
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the battle field and looking for a safer place to hide. In the context of this study Lurborsky and
LeBlanc (2003:254) describe retirement as both an individually earned right to a period of
leisure after a career of employment, and an age grade social obligation (to younger workers
entering the work force; to the demands of a production-efficiency minded economy). This also
implies that those retiring are living up to their “social grade obligation.” There is an obligation to move
over and provide an opportunity for younger workers to showcase their skills. There is also an
obligation for the older workers to accept that there is a need for efficiency in production
whose demands, the older employees might not be able to meet. With age, a person’s ability
to perform certain tasks decreases and therefore the person may not be as productive as
he/she used to be.
Lurborsky and LeBlanc (2003:254) state that retirement may be defined in terms of the different
cultures as retirement means different things to different people with different cultures. The
definition of Lurborsky and LeBlanc (2003:254) describes retirement in the United States or
industrialised societies as follows:
Retirement is the age-fixed and socially mandated final phase in a career of employment in
which a person is excluded from full time career jobs, is entitled to financial support without the
igma of dependency, and is personally responsible for managing his or her own life. At this stage in
life, a person who has retired retains the identity of a full adult even though he/she is not working.
Although he/she is no longer playing the roles or participating in full adult activities, that person cannot
be labelled as lazy or as an unproductive person. This is supposed to be time for rest for the
particular person with benefits provided either by the state, the former employer and personal
savings. It is time for leisure after a long period of work and activity. This definition, in the researcher’s
opinion, is suitable only for old age retirement but is not relevant to other types of retirement
such as retirement due to ill-health and early retirement.
According to Atchley (1982:121), retirement is “the withdrawal of an individual from employment along
with entitlement to income based on having been employed over a period of years.” It seems that
this definition does not refer to age or any reason for retirement and therefore accommodates all
types of retirement. Dan (2004:20) defines retirement as “a normative stage of life course in
which one is no longer engaged, at least not full time in the labour market for continuous periods of
time.” People leave the formal job or work they have been doing but they do
not always stop all activity or earning an income. They sometimes perform part-time and
volunteer work, whereas others engage in leisure activities. Marcellini et al.([sa]:377) states that
some retirees view retirement as a way of being free from daily routine and as an opportunity for
them to engage in activities of their own interest. This is more the retirees who choose their
retirement time as leisure time in which they do not work.
In South Africa, the Public Service Act 103 of 1994 has stipulated a retirement age which covers all
public servants and also seems to be the age used by other organisations, including financial
services organisations. In terms of Section 16 of the Act 103 of 1994, an officer may retire on
the date when he/she turns 65 years. A person may also be allowed to retire at the age of 55 but it
should be approved first and it should be beneficial to the state.

RETIREMENT IS THE BEGINNING OF LIFE, NOT THE END

Soon retirement day will have come and gone. For your many years of service to the organization, you
will have received congratulations from co-workers, a gold watch, and perhaps even a book on how to
retire happily. If you are one of the fortunate ones, a generous company pension, government social
security, and investments will give you the opportunity to pursue many interesting activities. According
to financial experts, you will have it made. Indeed, you should live happily ever after.
Not so fast! These questions beg your consideration: What will you do with your time if you have never
learned how to enjoy your leisure?

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What should you say to your spouse — and perhaps your parents— if you are retiring before they can?
How are you going to experience a sense of accomplishment and satisfaction without a job? How will
you relate to your friends who are still working while you are living the life of an aristocrat?
Truth be known, after the novelty of the retirement lifestyle wears off in a month or two, you may feel
that you don’t have any reason to get up in the morning. Once you get up, you may feel you have
nowhere in particular to go. There will be no regular coffee breaks with colleagues, no clients to call on,
and no challenges to give your life shape and purpose. Eventually, you may end up asking yourself,
“Okay, genius. What do I do now?”
In the Western world there is a big misconception about what contributes to a happy and fulfilling
retirement. Many people have an idealized concept of how great and wonderful life after work is going
to turn out. This vision can include no deadlines, no rush hour traffic, no mean bosses, exotic travel,
hanging around cappuccino bars, and sleeping in late every day. Let’s not forget the freedom to do
what you want, whenever you want to do it.
Retirement can be both exciting and demanding, bringing new challenges, new experiences, and new
uncertainties. Regardless of how it turns out, retirement normally turns out far different from what
people first envision. For some, it is a big disappointment. For others, it is merely a big annoyance. And
still for others — much to their delight — retirement becomes an opportunity to live life like never
before.
Regardless of how talented you are and how successful you are in the workplace, there is some
danger that you will not be as happy and satisfied as you hope to be in retirement. This may be the
case even if you end up having friends to spend time with, living the lifestyle you want to live, residing
where you want to live, and having many interesting things to do. What may be missing is a sense of
purpose and some meaning to your life. Put another way, you will want to keep growing as an
individual instead of remaining stagnant.
Financial institutions program us to believe that we are set for a happy retirement as long as we follow
their financial advice. Recently I received a pamphlet from a community college advertising a three-
session retirement planning course called A Prime Approach to Retirement Planning. The course,
created by a financial organization, covered a lot of topics — all of them financial. There was not one
mention of anything related to how retirees should spend their time after they leave the workforce.
Although stockbrokers, bank officials, and other “retirement planners” overwhelm us with
advertisements, solicitations, and advice on how to plan financially for retirement, they ignore other
factors that contribute to a successful retirement. Similarly, for every twenty books written on
retirement, there may be only one that has any worthwhile treatment of the important personal issues.
The result is that many people spend forty years building an impressive retirement nest egg, but no
time at all thinking about how they are going to enjoy retirement. Indeed, the biggest mistake you can
make with your retirement planning is to concentrate only on the financial aspects.
On the surface, a happy retirement doesn’t seem that difficult to achieve. And it isn’t for individuals who
understand there’s far more to achieving fulfillment in retirement than having wealth and good health.
Indeed, there is no shortage of scholarly evidence that financial status constitutes only a small piece of
the puzzle as to whether people will succeed and be happy in retirement. Apparently, most “retirement
planners” either are not aware of this evidence or focus only on the financial so that they can sell more
financially related products.
This is where How to Retire Happy, Wild, and Free comes into the picture. For the most part, this book
offers retirement wisdom that you won’t receive from your financial advisor. Contrary to popular
wisdom, many elements — not just having a million or two in the bank— contribute to happiness and
satisfaction for today’s retirees. Indeed, physical well-being, mental well-being, and solid social support
play bigger roles than financial status for most retirees.
Retirement is the perfect time to become the person you would like to be and do the things you have
always wanted to do. No doubt doing everything you have always wanted to do sounds great. It won’t
happen by itself, however. This is true even if you have excellent health and a big pile of money in the
bank when you retire.
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Planning is important. You must take steps to ensure that when the bell rings to announce your
retirement, you’re ready for what’s in front of you. The time available for marital, personal, social,
creative, and family activities expands considerably when the hours previously taken up with full-time
employment cease.
How you manage time is just as important as when you are in the workforce.
This I can assure you: You won’t find genuine joy and satisfaction by spending all your time sleeping,
relaxing, loafing, and watching TV, hoping to live up to the ideal of a true idler. Many retired people with
nothing to do wind up depressed and hating retirement. In this regard, Florida physician Richard
Neubauer concluded that many people experience a rapid decline in physical and mental health soon
after retirement — often due to idleness and feelings of uselessness.
To retire happy, wild, and free, you must stay active. It’s also important that you have goals and
dreams. Retirement can be a time for life’s best moments, provided that you take the time to plan what
you are going to do with the rest of your life. Just as important, you must be motivated enough to follow
your dreams, and change course if adversity intrudes to put a dent in your plans. The most fortunate of
retirees are those who through good planning, experimentation, and risk-taking succeed in making
retirement the best time of their lives.
In short, it’s up to you to design a lifestyle that is as relaxing and invigorating as you want it to be. No
one else is going to do it for you. Recreating yourself as a retired person will be challenging, but
through patience and positive thinking, you can do it. The rewards will be more than worth it.
As a matter of course retirement is the last opportunity for individuals to reinvent themselves, let go of
the past, and find peace and happiness within. Many people discover — much to their surprise — that
retirement life following four or five decades of full-time work is full of new and exciting opportunities.
For these individuals, their work was a barrier to the lives they wanted; now they’re free to live life to
the fullest.
Despite the bad press that retirement sometimes gets, there has never been a better time to be retired
in Western nations. One in every eight people is age sixty-five or older. More people than ever are
retiring much earlier than age sixty-five. Today’s retirees have far better health, a higher level of
education, more income, and many more options for maintaining an active and productive lifestyle than
the retirees who came before them.
Above all, this book celebrates retirement because it’s the beginning of a new life. Retirement is an
opportune time to get to know yourself better — psychologically, materially, and spiritually. Moreover,
retirement allows you to do what you don’t like as little as possible and what you like as much as
possible. Whatever it is — a part-time career, family relationships, spiritual fulfillment, passionate
pursuits, or the opportunity to hang around Starbucks writing a book — you must find those things that
matter most to you. The way I see it, you will have attained true freedom in this world when you can get
up in the morning when you want to get up; go to sleep when you want to go to sleep; and in the
interval, work and play at the things you want to work and play at — all at your own pace. The great
news is that retirement allows you the opportunity to attain this freedom.

YOUNG EMPLOYEES AND RETIREMENT

Fidelity (2005:8) discovered that younger employees are more confident about retirement than their
older counterparts. Fidelity (2005:8) further stated that 71% of 21-34 year old employees
compared to 54% of 35-54 year old employees began to save by the time they turned 30. This
implies that younger employees are beginning to save earlier than older employees used to. Poor
saving habits are attributed to underestimating the cost of comfortable living at retirement,
underestimating health care costs and not seeking advice and guidance. Loretto et al.(2001:389)
believe that people are not well informed about the basic aspects of retirement and for young
employees, retirement is distantly orientated. Some young employees (39%) are relying on social
security, Medicare and other government benefits to cover their needs when they retire. Loretto et al.
(2001:390) reveal that 53% of young people did not even know

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the correct pension figure and had overestimated the amount received. They recognised that there
are financial deficiencies in the state pension because their estimates were related to their
views on how much the couples would need to survive. This study was conducted among
university Business Studies undergraduates who were on the verge of starting their career. Knowledge
on the part of young employees is important in influencing policy as they are the future beneficiaries of
pension policies. This article also acknowledged the lack of such important information regarding
the attitudes, perceptions and knowledge of the younger generations for whom retirement is distant.
With regard to the students’ knowledge of the pension age, the study discovered that 79% of
the respondents knew that in Great Britain, men retired at 65 years and women retired at 60 years at
the time of the study. Only 33% of the students were aware of new legislation under discussion
in which the pension age would be equalised at 65. As it was, pension was not the
responsibility of the government alone, and 48% agreed that this should
remain the status quo, but 33% thought that it should be the government’s responsibility. In the
researcher’s opinion, making retirement the responsibility of government can create dependence and
may lead to people neglecting to plan for retirement. It would also be too costly for the government.
Loretto et al. (2001:393) asked the respondents about when they wanted to retire and 57% said
they had not thought about it, 25% said that as soon as it was materially possible and the rest had
various ideas of when they would retire, ranging from 50 to 65. Only 24% of the respondents had
given thought as to how they would prepare and yet 66% felt it was important to start
preparing as soon as possible. Most of them (43%) said they would prefer to rely on their own
preparations rather than the government or employer’s schemes. They were even willing to
save between 5% and 10% of their salaries and supported the idea that pension schemes should
be compulsory. Only 6% said they would leave the planning until they were 40. The challenge facing
younger employees as outlined by Fidelity (2005:7) is that they have more expenses, do not
adhere to a budget and feel that retirement is still very distant. As many of the cited authors agree,
it is better to start preparing early for retirement because if postponed, it can result in a very meagre
retirement standard of living.

TYPES OF RETIREMENT
Different authors use different terms to describe the types of retirement. Some terms like the
Government Employees’Pension Fund (GEPF), 2004 reflect the age at which the person retires
(e.g. early, late and normal) as well as the reason for retirement (medical). Some authors describe
the types of retirement in accordance with the activities in which the retiree is engaged and the
manner of the transition (Dan, 2004:20). Smith (2006:C134) talks about voluntary and involuntary
retirement. The voluntary retirees are the ones who retire of their own free will at any given time. The
involuntary retirees are those who retire due to circumstances beyond their control. These
include the ill health/disability retirees and those who retire because of the retirement age.
The next section will outline the types of retirement

1. OLD AGE RETIREMENT

As mentioned above, there is a stipulated age of retirement (retirement age) and, according to Section
16 of the Public Service Act 103 of 1994, this is the age of 65 years. Retirement at this age is
expected, socially mandated and no stigma is attached to not working at this time. The GEPF, 2004
stipulates that the employee will receive his/her benefits in accordance with his or her
contribution to the fund as well as the number of years the person has served the organisation. It is
also the time at which retirement annuities mature. This mandatory retirement age differs from that
stipulated in Mbeki’s 2008 State of the Nation Address where the Social Security age is the age
of 60 for both men and women. Retirement at this stage is mandatory and this, according to
Lurborsky and LeBlanc (2003:254), is the final stage in an employee’s career. Most of the
literature focuses on this type of retirement and how to prepare for it. It is assumed that an

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employee will work until he/she reaches this age and anything that may occur before this age is
unforeseen.

2. EARLY RETIREMENT
Early retirement occurs under certain circumstances and it affects the retiree’s benefits (GEPF, 2004).
This can be a voluntary form of retirement or it could be circumstances beyond the retiree’s control.
Atchley (1982:124) says that this is common amongst unsatisfied workers. They do so as soon
as it is financially feasible for them. In this form of retirement, the employee chooses to retire before
the age of 60 years taking into consideration a number of factors that fall into one of the three
categories. These are the personal, work-related and organisational factors. Among the personal
factors, there are the issues of health, finances, caring responsibilities, gender, marital status and
even age. In relation to health, the person may feel too tired to work but may not necessarily qualify
for ill-health retirement. Some employees are just waiting to have enough money to maintain their
standard of living and they will then go on retirement. For some, it is the health of a loved one
that requires them to assume the caring responsibilities and therefore leave paid work. Work-related
factors include not enjoying the work, no challenges in the work or technological changes that are
advanced for the employee. In terms of the organisational factors, they include policies that
discriminate against older people, the organisational climate and the labour market demand.

3. RETIREMENT DUE TO ILL-HEALTH

This is the retirement because of the poor health of the retiree or injury on duty (GEPF, 2004). A
person who is not in good health may fail to perform certain tasks and therefore this will impact on the
organisation’s productivity. This form of retirement has become more common in recent years due to
the spread and impact of HIV/AIDS. Although this is not the only illness that may lead to such
retirement, HIV/AIDS has increased the demand for ill-health retirement. This type of retirement is
escalated by road accidents that leave the employees injured and unable to work. The
researcher is of the opinion that this type of retirement has adverse financial effects on the
organisation. It is retirement that can be prevented or at least reduced in the work force through
awareness programmes on various lifestyle diseases (including diabetes and hypertension) and
the practice of occupational health and safety.

4. LATE RETIREMENT
This is a rare form of retirement in which a person may choose to retire when he/she is older than 65
with the employer’s approval. It is usually due to a shortage of skills in a particular field of
employment. For example, in an attempt to retain skills, the municipalities requested employees
who had reached their retirement age to remain at work. This form of retirement is possible in
government for specific professions. These include doctors, engineers who have been recalled to
assist, and judges.

5. COMPLETE RETIREMENT FROM WORK

This is the type of retirement wherein the retiree is no longer working, either on a full-time or part-time
basis. In this case, the retiree does no other formal work but focuses on leisure. This person uses the
time to rest and enjoy the freedom of not having to work. He/she may still perform tasks in the home
but there is no formal work involved. In the researcher’s opinion, all forms of retirement are
supposed to be like this but are turned into something else because other needs must be met.

6. CHANGE OF JOB
This is when the person continues to work but for a different employer. It particularly refers to
involvement in volunteer work within the community. Dan (2004:20) refers to this as changing from a
career job to a bridge job. In the researcher’s opinion, a change in jobs is not necessarily
retirement. Retirement should include more leisure time and less work stress. Because of the
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reduction in the family budget, some retirees are forced to continue working, full- or part-time
in lower paying jobs and sometimes detrimental conditions. Some continue to work because
they derive their self-esteem from the work they do and feel less of a person if not working. The
researcher believes that this form of retirement cannot be regarded as retirement but rather as a
resignation.
7. SEMI-RETIREMENT WITH PART-TIME WORK
In this type of retirement, the retiree does formal work for the former employer or a different employer
on a part-time basis and with less remuneration. This could also be unpaid or voluntary work for
the community. There is more leisure time than during the time of formal employment, but there is
also some form of work being done.

IMPACT OF RETIREMENT
Different people react differently to retirement. The impact of retirement on people differs. This is
influenced by the type of retirement and the reasons for such retirement, refer to the impact of
retirement as being the problems that retirees face after retirement, bearing in mind that some
of these problems are not a direct result of retirement, some are problems due to aging. It is
also important to remember that retirement is not only due to old age but there are circumstances that
lead younger employees to retire. This section of the report will discuss the impact of retirement
in relation to finances, health, self-esteem, roles and social impact.

1. FINANCIAL
With retirement, an employee no longer earns at the same level as he/she used to as an
employee. There are formulae used to calculate the money the employee is to receive on a monthly
basis. Some of these formulae are cited in the GEPF (2004) document. According to Atchley
(1982:122), employees expect to lose up to 50% of their income due to retirement. It is possible for an
employee who was earning $5 000 a month to earn $2,500 or less upon retirement depending
on the number of years of service. The more the number of years of pensionable service the retiree
has, the more the pension payout will be. In the researcher’s opinion, it is assumed that
employees who retire have fewer responsibilities, no dependent children, no debts and no mortgage
payments. This assumption, in the researcher’s opinion, is the reason for such differences in income
between employment and retirement.
This difference in income poses a problem for a number of retirees who have no other retirement
benefits such as retirement annuities or personal savings. This is one of the reasons why the
government encourages employees to take out such investment packages through tax rebates.
Without such packages, retirees would have to struggle with a monthly payment below their
usual income. Although there is a lump sum payout at retirement, many still struggle financially. There
are those who still have to take care of their mortgages and those with various other debts. The
sudden drop in the household income can be a crisis for families and lead to disenchantment.
Some of the financial problems that retirees experience are due to an underestimation of the
cost of the lifestyle they lead and may continue to lead after retirement. Retirees tend to take
these lifestyles issues for granted as they are currently able to survive with their monthly salary.

2. HEALTH (PHYSICAL AND MENTAL)

Most young people do not prepare for disability and take things for granted. According to Mein,
Martikainen, Hemingway, Stansfeld and Marmot (2003:48), employees remaining at work beyond the
age of 60 years, have not reported any negative effects on their physical well-being. Employees in the
igher levels of employment, retiring, even experienced an improvement in their mental health and
functioning. This may be a result of the relief from the demands of the job, and at the same time
receiving good benefits for retirement. Employees had health concerns when approaching
retirement. In the researcher’s opinion, physical and mental health problems may not be a direct result
of retirement but they could be due to the aging process of the employee. As people grow
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older, they tend to experience more health problems including physical illness, dementia,
Alzheimer’s and other disorders. Retirees also face a challenge in terms of health care costs. Those
who retire due to ill health already have health problems before retirement, but these may increase
with time. Some even become well enough to return to work, to find employment somewhere else or to
start their own businesses.

3. SELF-ESTEEM
Ross and Drentea (1998:318) indicate that there are two possible ways of viewing retirement.
Some view it as liberating, whereas others view it as alienating. While still working, some retirees
used to be in positions of power and prestige which earned them certain positions in society. Now that
they are retired, they no longer hold those positions and therefore the self-esteem is affected.
This leads to detachment from their previous social benefits as well as association with colleagues.
Work can be a form of self-expression and identity and people have a sense of personal control
and a feeling that they deserve their pay for their efforts. Some view retirement as liberating in that as
paid workers, there is very little personal time and control. The person is forced to be at work at
stipulated times and there is no time to rest. Retirement therefore offers an opportunity for leisure
activities. there is support for the idea that retirement is alienating in the sense that there is a loss of
personal control and the activities of the Retired are isolated, routine, unfulfilling and not interesting,
and this has negative psychological consequences. The researcher is of the view that although
this is true to a certain extent, it depends on communities. Some retirees, although they do not
participate in the workforce, still participate in their communities and families in meaningful ways.

4. ROLES
Rosenkoetter and Garris (2001b:705) state that retirement does not just affect the retiree but also
affects his/her family. It apparently has a significant impact on the marital relationship, as there
must be a change in roles within the family. The division of tasks may cause problems for the
couple. The roles in society also change. Previously in some communities and in the researcher’s
experience, the elderly were respected as the source of knowledge and
wisdom, but that is no longer the case for some. They are supposed to be respected and
upheld as they have overcome many battles that the young have yet to face. As people grow
older, they cannot care for themselves and need the care of their children or others. This is a reversal
of roles, the nurturer now needs nurturing, but some older persons are neglected and abused.
Some do not even enjoy their pension money as it is taken from them. The family is also affected by
the sudden reduction in the household income a change in roles in this area as well. It might be the
employee who was earning the most or who was the most responsible in the household who is
retiring. This will have a negative effect on the family. The responsibility for caring for older and retired
people often falls on the shoulders of older workers. This leads to unscheduled time off,
absenteeism, family responsibility leave and tardiness in the workplace.

5. SOCIAL IMPACT
As already outlined, retirement affects all spheres of a person’s life and many of adjustments must be
made. Retirement also affects the retiree socially in that he/she must change his/her routine, and
must consider how he/she use time, where the retiree is going to live and how the retiree is
going to have contact with the outside world. Retirement involves a search for a new identity, a
new meaning and the value of one’s own life. This emphasizes the need for major adjustments
in life. Such adjustments include those to do with where one will live, as well as continuing with
community involvement. This section will discuss the social impact of retirement in relation to
accommodation and community involvement
 Accommodation
As mentioned above, retirement affects the person’s income. A person may lose up to 50% of
his/her income. This in turn affects the ability to pay the mortgage and therefore affects where the
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person can afford to live. Some retirees may have to downsize their homes and move into
smaller homes fit for the two of them. Downsizing is also practical considering the energy required to
clean and maintain the house. Apart from downsizing, there are other options that retirees may have to
consider such as retirement villages and retirement homes. Some may even opt to live with their
children. Retirees living in their own houses may not be very safe considering the crime rate in this
country. Criminals observe and may take advantage of the fact that old people may be less able to
defend themselves. Criminal incidents may motivate older people and their families in their
decision to move the elderly into retirement villages, retirement homes or move in with their
children for security purposes. Not only financial and security reasons may encourage older people to
move out of their homes. Other reasons include their own health and that of their spouses.
When one of them is very sick, it may be necessary to be close to nursing care, the family or other
facilities for support. This then dictates where the retirees may choose to live.
 Community involvement and Interaction with others
It is obvious that if a person is retired, he/she is no longer going to work on a full- time basis and this is
a change from spending the most part of one’s day at work. Employees tend to have more friends
at work and become used to colleagues. Apart from family, their social lives begin from there.
In some organisations, colleagues become almost like family. What happens when the retiree can no
longer see these people on a daily basis as it used to be?
According to Buys (2001:55), friends provide acceptance, companionship and emotional support.
These friendships in older people can be affected by their physical locations (unable to access each
other) and types of accommodation. The further apart older people live, regardless of the type of
accommodation, the more difficult it is to receive support from their friends. The institutionalised
types of accommodation also hinder social interaction with friends This author believes that
retirement villages offer better opportunities for retiree to interact with other villagers and outside
friends. The reasons for older people not having much interaction with family and friends can
be attributed to being unable to travel as they did before, especially if they are very old.

PHASES OF RETIREMENT
Retirement (2007) lists seven phases of retirement, whereas Ackerman and McKain recognise
three phases and two are discussed in greater detail. In the researcher’s assessment and
opinion, the seven phases can easily fit into the three phases identified by the other authors. The
phases, according to Retirement (2007) are: “remote, near, honeymoon, disenchantment,
reorientation, stability and fermentation.” Ackerman and McKain lists the phases as pre-
retirement, honeymoon and post-retirement. The first two of the seven phases are part of the pre-
retirement phase; the honeymoon stage is on its own, whereas the last three are part of the
post-retirement adjustment phase. The six phases are discussed below.

1. PRE-RETIREMENT PHASE
Pre-retirement is the phase where the employee has not retired. It is possible that the person is not
even considering retiring anytime soon. The preretirement phase will be discussed in terms of the
remote and near stages of the phase as discussed by to Retirement (2007) and Butters (2002).
Remote stage
In the researcher’s experience, insurance brokers target newly employed people for retirement
annuity policies, especially those who are still very young. There may be other reasons for this
targeting, but some brokers also indicate that it is better for an employee to start planning for
retirement in the first year of employment. Brokers are of the opinion that early planning for
retirement increases the benefits as the person will have a greater number of years of contribution and
saving. This opinion supports the idea that there is a need for one to start planning for retirement
from the very first day of employment and it might also be the reason why in South Africa there are
tax rebates for employees with a retirement annuities. At this retirement stage, there is often
anticipation of retirement but with little planning for it. In the researcher’s opinion, employees should be
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encouraged to take out retirement annuity policies as well as disability cover during
induction/orientation so that they can start to plan for the future.
Near Retirement stage
Near retirement, should start at least ten years before the scheduled retirement date. This is
especially applicable to employees who are taking old age retirement at the age of 65 as
recommended. The issues to discuss when preparing for retirement are more than just financial, but
include working after retirement, health, leisure activity and where the employee is going to live
after retirement. Such preparation continues updating the employee even regarding his/her
employee benefits. Employees who are retiring due to ill-health may be concerned about their
health and their health care benefits. There are many adjustment issues they must face.

2. HONEYMOON PHASE
In the honeymoon phase, the employee is still excited about retirement and the reality of retirement
has not yet registered. At this stage, Retirement (2007) indicates that the retiree starts to test the
fantasies they had about retirement. The person is excited about the free time in their possession, to
do even what they could not do in the past, due to lack of time. Butters (2002), refers to this as a
euphoric time, in which retirees can enjoy travelling, long vacations and leisure activities.

3. DISENCHANTMENT PHASE
After the honeymoon phase, the person enters a state of boredom, depression and feelings of
disappointment. At this phase, the employee is beginning to realise that he/she is really retired
and that is the reality of life. Not all retirees go through the same phases or experience the same
things. This is the phase where dissatisfaction with retirement sets in and, this occurs between 13
to 18 months after retirement. This can also be caused by a crisis in the retiree’s life, a sudden drop in
the income or the loss of a loved one.

4. REORIENTATION PHASE
The retiree must address issues and life events that have lead to feelings of dissatisfaction and
continue to adjust to retirement. The life events are not always caused by retirement, but affect
how retirement is experienced. Some are a result of old age, some are due to changing times and
some (financial) are a result of retirement. In this phase, the retiree adjusts and comes to terms with
the situation and continues with life in retirement and starts to cope with
such.

5. ROUTINE/STABILITY PHASE
This is a phase where the retiree begins to come to terms with retirement life and is engaged in
certain activities such as hobbies, volunteer work and leisure activities. Retirement (2007) refers
to the phase as stability, whereas Butters (2002) terms it the routine phase. This is one and the
same phase and Butters (2002i) indicates that during this phase, life can become enjoyable and
stable. Retirees should know their rights and should understand their role in society as older people in
the society. In the researcher’s opinion, a retired person should enjoy life to the fullest (especially
those who have retired due to old age) because very few are living to see those days due to of the
many illnesses affecting people. This phase can be particularly difficult to achieve, especially for
those who involuntarily retired due to ill-health and disability. That particular person has not only to
adjust to his/her health status but to the impact of retirement as well.

6. TERMINATION/FERMENTATION PHASE
This is the phase at which the retiree loses independence to illness, disability or even death. This
person is no longer able to play the role of a retiree. It may also happen that the person has an
opportunity to return to work if he/she has recovered from an illness or disability. Although these
phases are relevant, it is important to note that life is not always predictable and therefore will
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not always follow one particular pattern. In the researcher’s opinion, this model seems to be mostly
focused on old age retirement viewed in a negative light. It is possible that there are people
who look forward to retirement and who experience it as enjoyable. It is true that most people have
difficulty adjusting to retirement due to the drop in the household income. It is also the
researcher’s opinion that someone may experience disenchantment even before the honeymoon
phase or he/she may not experience the honeymoon phase at all. This may depend on the
reason for retirement, the attitude towards retirement and whether the retirement was voluntary
or involuntary. Some may not be excited about retirement initially but may enjoy it as time
goes by.

RETIREMENT PLANNING
In the researcher’s opinion, retirement planning should be comprehensive. All aspects of a retiree’s life
should be considered in planning for retirement. This means that retirement planning should not only
be about finances but should include health issues as well as social issues. The average employee
now expects retirement to be followed by many years of leisure. Retirement can last anything up to
30 years and more. This highlights the necessity for planning for a health, effective and well-
adjusted life after retirement. Planning for retirement is the strongest predictor of retirement
satisfaction. The researcher agrees with this view because, if one is well prepared, not just
financially, he/she will be better equipped to deal with crises. Four aspects to consider in retirement
planning and preparation are discussed below.

FINANCIAL PLANNING
According to Alford, Farnen and Schachet (2004:7), a person planning and investing for
retirement must ask him/herself how much he/she will need to maintain the current standard of
living even if retired. This articles states that less gross income may be needed due to factors
such as less income tax, saving for retirement is no longer a goal, and the fact that age and work
related expenses decrease. This however, does not mean that employees should neglect saving
because the cost of living will still be relatively high.
Loretto et al.(2001:390) suggest that a person planning for retirement should at least save between
5% and 10% of their monthly income. There are many different retirement packages apart from the
employer’s pension which are also tax efficient and can be used to supplement the employer’s
pension upon retirement. According to Ngatsane (2008), during planning for retirement,
employees must consider their current situation, not only in terms of finances but comprehensively.
Aspects to consider include are listed below.
Current Income and needs - what the employee earns will inform him/her of how much he/she
should be saving and it also alerts him/her to his/her spending patterns. It also reveals of what the
person will be earning in future unless there is a promotion and other adjustments excluding
annual increases.
Age - the age of the employee determines the number of years left before mandatory
retirement and therefore the number of paycheques left from which to save. The younger a person is
the more time is left to save, but it is still urgent to start investing.
Number of dependents and their ages - this is important because these people are part of the
expenditure in the household. Their ages enable the employee to assess where the dependents
will be when he/she retires. Questions the retiree needs to consider are the following:
Will they still have dependents or will their children be independent and through with school or even
working? If they are dependents, what plans are in place for them until they finish school? How will
they affect the retirement income?
Health status - this aspect considers the employee and all the dependents’ health status. The
planners must consider their current health care costs and how these may increase with time. How
much will be needed to take care of the family’s health? Will their dependents be dependent on the
retirees for health? These are questions to be answered in preparing for retirement.
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Property ownership - according to Ngatsane (2008), property ownership is also a good
investment for the future and even for retirement. The owned property may be fully paid or still
being paid off. When is it going to be fully paid? How will this property assist as an
investment? Is this going to be sold in future or is it going to remain the retiree’s home?
Investments in place - in this aspect, one must ask if there are other investments in place which will
be helpful as retirement income. Knowing this will enable the employee to assess how much
is still needed to supplement these investments.
Debts - while planning, the employee must know how much he/she owes in debts and when
these will be paid. It is very sad to start retirement with debts because these can reduce the
retirement income even more. Other issues to consider include future wishes related to the standard of
living and health. The employee must plan knowing how much will be needed for health,
accommodation and leisure.

HEALTH PLANNING
Blakeley and Ribeiro (2008b:746) describe the importance of knowing about health care and
health maintenance, which includes taking preventive measures by taking care of one’s health way
before retirement. This is done by adopting healthy lifestyles through good dietary practices,
exercise, stress management, regular health checkups and keeping oneself safe. It is also
important to learn about what to expect as the normal ageing process. It is essential to know about
health insurance (medical aid) that provides services to retirees and the costs involved. For
example, the South African public service introduced GEMS (medical aid) and it also caters for
retired public servants.

ACCOMMODATION
Blakeley and Ribeiro (2008b:746) mention that employees should plan for accommodation or
housing because it has implications for health. The housing should be affordable and safe, secure
and in a safe community. There are several options available, taking into account health,
finances, security and one’s social support network. Aspects to consider are as follows.
Own home - it should be affordable or fully paid, in a safe community and accessible even in terms of
disability. The home should be just the right size for cleaning and maintenance or if one can afford it,
one can employ support staff. It is safer to choose this option with support from family who will assist
where necessary, even though one must not rely entirely on them.
Retirement Village - these are communities where the aged can live independently with some
support and services but living as in their own home. These are secure facilities in which the residents
still enjoy their independence but get support from staff if needed. The range of services
provided varies from village to village. If this is the option one would like to choose, one must
gather information about the different villages, the services offered; how they operate and the
financial implications.
Old Age Home (Retirement Home) - these are institutions which, according to Blakeley and
Ribeiro (2008b:746), are sometimes coupled with retirement villages. They cater for the more
dependent elderly to the frailest. For most residents all services are provided including nursing
care. Not many of the elderly like this option, especially among the Africans whose traditions placed
the responsibility of care for the aged on the family. While planning, a person should identify
what he/she likes or dislikes about old age homes and consider different or alternative options. With
changes in society, a person must be prepared for all options, even old age homes, because the family
may be unwilling or unable to care for him/her. It is therefore very important to consider retirement
accommodation while planning.

LEISURE AND USE OF TIME

Having lost many things that come with work such as friends, colleagues, social networks and
occupational identity, Blakeley and Ribeiro (2008b:746) suggest that one should plan to replace
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formal, structured activities and social networks. They should be replaced with meaningful activities.
Employees must therefore plan for maintaining existing social networks, and developing new
friendships and interests. Activities to be planned for include travelling, sports, and volunteer work
and educational courses. These activities help ease the transition into post-retirement life and
can make retirement rewarding, worthwhile and productive.

DIVORCE: HIGH NOON IN SPLITSVILLE

Nearly everyone has heard the statistic again and again: Approximately half of all marriages end in
divorce. With that large of a target audience, no wonder states have divorce statutes that you need to
be aware of for your estate planning.
Your spouse automatically has a claim on part of your estate after you die. If you live in a common law
state, your spouse is entitled to claim a percentage of your assets. If you live in a community property
state, your spouse generally owns half of your property. You may not want to change your will right
away after you divorce. For example, you may not have initiated the divorce and you subconsciously
think that changing your will is equivalent to acknowledging that your marriage has ended. Therefore,
estate-planning procrastination is a natural reaction for the recently divorced. The good news: In many
states, if your marriage has ended but you resist changing your will to reflect this fact, your estate is
protected from claims by your ex-spouse. As a result, typically your ex-spouse isn’t allowed to claim a
share of your estate if you die after you are officially divorced but before you change your will. But be
careful! Even with the protection provided by such statutes, you still need to change your will as soon
as possible after a divorce, to clarify your intentions of who your beneficiaries are. If your ex-spouse
isn’t one of them, make sure your will reflects that intent.

PROTECTING YOUR LOVED ONES FROM YOUR UNLOVED ONES

Perhaps your family bears an uncanny resemblance to an episode of The Waltons (still showing in
reruns on cable!) or maybe a family scene from a Norman Rockwell painting. Everyone gets along
most of the time and every holiday dinner creates new lifelong memories.
On the other hand, maybe your family is more like an episode of a particularly nasty soap opera: lots of
bickering and arguing, one family member not speaking to another for years — you know the story.
Quite possibly, your family consists of loved ones and “unloved ones.” Suppose, then, that you decide
that your unloved ones will receive little or nothing from your estate. If you have made that decision
and are willing to live with it (so to speak, because they may not find out your decision until you’ve
died), you need to be concerned with more than just figuring out how to leave those individuals out of
your will. You also need to be concerned with protecting other family members — your loved ones —
so that they justly get what you want them to receive without interference from the others whom you
decide to leave nothing.
You may think that the most logical way to not leave anything to unloved ones is to simply leave them
out of your will (basically, not to mention them at all), but that may be the worst thing you can do. Why?
Because doing so leaves the door wide open for the unloved ones to contest your will by saying they
were excluded by accident. (“You know, he was always so distracted, he obviously forgot to mention
us. After all, we’re blood relatives — why wouldn’t we be in his will?”)
Therefore, you need to explicitly state your intentions for your unloved one in your will, no matter how
painful it may be to form those words and commit them to paper. Your attorney can help you with the
language to include, as well as help you to keep those words as factual and unemotional as possible.
A simple way to handle the wording problem is to mention the unloved ones in your will, but to leave
them only a small or token sum. That way, they can’t claim that you overlooked or forgot them, and you
don’t have to explain in your will why they are otherwise excluded. Still, after you die, those unloved
ones may try to overturn your wishes to receive what they feel they rightly deserve from your estate.

CHAPTER RECAP

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Retirement can be viewed as an opportunity to use time in accordance with the wishes and needs of
the retiree, without the control of the employer. It is an opportunity to relax and enjoy life without the
demands of work. Not all retirees find it difficult to adjust, but there are other factors such as loss of a
loved one that complicate and disrupt the process of adjustment. Some of the problems faced in
retirement include health, but this is usually due to old age, disability and previous illness, not
retirement. It is however, essential for employees to plan for retirement, to do so as early as possible
and to consider all aspects of life on which retirement has an impact. .

SIR FRANCIS TAKWI

“It’s my business to spark your enthusiasm and enrich your life.

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