Entrepreneurship unit 3
3.2 Concept of Small Business Development
Defining small business varies across countries, based on their socio-economic conditions.
However, size (number of employees and startup capital) and economic factors (market
share, independence, and personal management) are common criteria.
Micro and small enterprises (MSEs) exist in many industries and are important for both rich
and poor countries—including Ethiopia, where they play a big economic role.
Small businesses are easier to start with less capital, give quick returns, and can adapt to
market changes. But they face challenges like lack of money, poor management, and
inexperience.
Starting a business begins with finding a good opportunity, which requires creativity,
innovation, and scanning the environment.
3.3 Forms of Business (Short Explanation)
There are three main legal forms of business:
1. Proprietorship – One owner, full control, keeps all profits, and has unlimited liability.
2. Partnership – Two or more people share ownership, resources, and have unlimited
liability.
3. Corporation – A separate legal entity owned by shareholders, with limited liability.
These forms differ in ownership, liability, startup cost, continuity, profit sharing, control, and
ability to raise capital.
Choosing the right form is important and should be done before writing a business plan or
requesting funding.
3.4 Definition and Importance of MSEs in Developing Countries
3.4.1 What are MSEs?
Small businesses are vital to the global economy, especially in developing countries, but also
in rich nations like the USA and Japan.
There’s a difference between small businesses and entrepreneurial ventures:
Small businesses focus on known products/services, slow growth, and improving sales
and marketing.
Entrepreneurial ventures aim for fast growth, using innovation and creativity at all
stages. They offer new products/services and face higher risks.
,Small businesses often begin as entrepreneurial ventures but follow different growth paths.
Why Define Size?
Definitions of small business vary by country and purpose (e.g., laws, taxes). A company may
be seen as small compared to large firms, but large compared to micro businesses.
Examples:
Small businesses: local restaurants, gas stations.
Large businesses: automobile manufacturers.
Medium businesses: fall between small and large firms.
Two Main Ways to Define Small Business:
1. Size Criteria
This looks at the scale of operation, and varies by country or industry. Common measures
include:
Number of employees
Sales turnover or revenue
Asset size
Capital investment
Production volume or value
The most common measure is number of employees. For example, the Small Business
Administration (SBA) suggests that:
Funding usually comes from one person or a small group (less than 15–20 owners).
Business is mostly local (except marketing).
It is small compared to top firms in the same industry.
It usually has fewer than 100 employees.
2. Economic/Control Criteria
Besides size, qualitative factors are used to define small business:
1. Market Share – The business has a small market impact and can't influence prices.
2. Independence – The owner controls the business and isn't part of a larger company.
3. Personalized Management – The owner handles most of the management and decisions.
4. Technology Use – Most small businesses are labor-intensive, not tech-heavy.
5. Geographical Area – Operations are usually local.
Summary
Small businesses are privately owned, locally operated, have few employees, and small sales
volume. They are crucial for economic development and job creation, especially in
developing countries.
, 3.4.2 Role and Importance of MSEs in Developing Countries
Micro and Small Enterprises (MSEs) play a major role in economic development, especially in
countries like Ethiopia, where capital is limited and unemployment is high. Their
contributions include the following:
🔹 1. Job Creation
MSEs are labor-intensive and create more jobs than large industries with the same
amount of investment.
This is vital in countries like Ethiopia with abundant labor and limited capital.
🔹 2. Low Capital Requirement
MSEs need less capital to start and run, making them ideal for developing countries.
🔹 3. Balanced Regional Development
MSEs can be started in rural areas and small towns, reducing overpopulation in cities.
They help reduce urban slums, regional inequality, and promote local industrial growth.
🔹 4. Fair Wealth Distribution
MSEs are often individually or family-owned, spreading income across many people.
This helps reduce wealth concentration and economic power in the hands of a few.
🔹 5. Strong Worker-Owner Relations
MSEs usually have harmonious relationships between workers and owners, due to small
size and personal involvement.
🔹 6. Wide Geographic Reach
MSEs are spread across the country, helping industrialize remote areas.
🔹 7. Improved Living Standards
MSEs increase local incomes, raising the purchasing power and living standards in rural
areas.
🔹 8. Local Resource Mobilization & Cultural Identity
They promote local investment, thrift, and are symbols of national pride and cultural
strength.
🔹 9. Innovation & Simple Technology
MSEs adopt new but simple technologies quickly, even without formal R&D departments.
They are flexible and innovative.
3.2 Concept of Small Business Development
Defining small business varies across countries, based on their socio-economic conditions.
However, size (number of employees and startup capital) and economic factors (market
share, independence, and personal management) are common criteria.
Micro and small enterprises (MSEs) exist in many industries and are important for both rich
and poor countries—including Ethiopia, where they play a big economic role.
Small businesses are easier to start with less capital, give quick returns, and can adapt to
market changes. But they face challenges like lack of money, poor management, and
inexperience.
Starting a business begins with finding a good opportunity, which requires creativity,
innovation, and scanning the environment.
3.3 Forms of Business (Short Explanation)
There are three main legal forms of business:
1. Proprietorship – One owner, full control, keeps all profits, and has unlimited liability.
2. Partnership – Two or more people share ownership, resources, and have unlimited
liability.
3. Corporation – A separate legal entity owned by shareholders, with limited liability.
These forms differ in ownership, liability, startup cost, continuity, profit sharing, control, and
ability to raise capital.
Choosing the right form is important and should be done before writing a business plan or
requesting funding.
3.4 Definition and Importance of MSEs in Developing Countries
3.4.1 What are MSEs?
Small businesses are vital to the global economy, especially in developing countries, but also
in rich nations like the USA and Japan.
There’s a difference between small businesses and entrepreneurial ventures:
Small businesses focus on known products/services, slow growth, and improving sales
and marketing.
Entrepreneurial ventures aim for fast growth, using innovation and creativity at all
stages. They offer new products/services and face higher risks.
,Small businesses often begin as entrepreneurial ventures but follow different growth paths.
Why Define Size?
Definitions of small business vary by country and purpose (e.g., laws, taxes). A company may
be seen as small compared to large firms, but large compared to micro businesses.
Examples:
Small businesses: local restaurants, gas stations.
Large businesses: automobile manufacturers.
Medium businesses: fall between small and large firms.
Two Main Ways to Define Small Business:
1. Size Criteria
This looks at the scale of operation, and varies by country or industry. Common measures
include:
Number of employees
Sales turnover or revenue
Asset size
Capital investment
Production volume or value
The most common measure is number of employees. For example, the Small Business
Administration (SBA) suggests that:
Funding usually comes from one person or a small group (less than 15–20 owners).
Business is mostly local (except marketing).
It is small compared to top firms in the same industry.
It usually has fewer than 100 employees.
2. Economic/Control Criteria
Besides size, qualitative factors are used to define small business:
1. Market Share – The business has a small market impact and can't influence prices.
2. Independence – The owner controls the business and isn't part of a larger company.
3. Personalized Management – The owner handles most of the management and decisions.
4. Technology Use – Most small businesses are labor-intensive, not tech-heavy.
5. Geographical Area – Operations are usually local.
Summary
Small businesses are privately owned, locally operated, have few employees, and small sales
volume. They are crucial for economic development and job creation, especially in
developing countries.
, 3.4.2 Role and Importance of MSEs in Developing Countries
Micro and Small Enterprises (MSEs) play a major role in economic development, especially in
countries like Ethiopia, where capital is limited and unemployment is high. Their
contributions include the following:
🔹 1. Job Creation
MSEs are labor-intensive and create more jobs than large industries with the same
amount of investment.
This is vital in countries like Ethiopia with abundant labor and limited capital.
🔹 2. Low Capital Requirement
MSEs need less capital to start and run, making them ideal for developing countries.
🔹 3. Balanced Regional Development
MSEs can be started in rural areas and small towns, reducing overpopulation in cities.
They help reduce urban slums, regional inequality, and promote local industrial growth.
🔹 4. Fair Wealth Distribution
MSEs are often individually or family-owned, spreading income across many people.
This helps reduce wealth concentration and economic power in the hands of a few.
🔹 5. Strong Worker-Owner Relations
MSEs usually have harmonious relationships between workers and owners, due to small
size and personal involvement.
🔹 6. Wide Geographic Reach
MSEs are spread across the country, helping industrialize remote areas.
🔹 7. Improved Living Standards
MSEs increase local incomes, raising the purchasing power and living standards in rural
areas.
🔹 8. Local Resource Mobilization & Cultural Identity
They promote local investment, thrift, and are symbols of national pride and cultural
strength.
🔹 9. Innovation & Simple Technology
MSEs adopt new but simple technologies quickly, even without formal R&D departments.
They are flexible and innovative.
