Editors Note

Weare currently thriving in an era of entrepreneur. Many people in theworld have realized their dreams of starting and operating abusiness. It is evident that entrepreneurship has been thriving at avery high rate. Many entrepreneurs have launched new businesses inthe past two decades more than any other time before.

Theentrepreneurial growth in Gulf Cooperation Council (GCC) hasdelivered strong social and economic outcomes over the decades. Theeconomies have mostly depended on oil but the governments in theseareas have increased the employment in public sector to help raisethe standards of living.

Theeconomic interest of Oman in GCC is mainly geared at securing the oilshare in Gulf States in order to increase the capacity of supportingtheir own development program. Interlocutors argue that thedevelopment path pursued by Oman focuses more on steadiness than theglamorous model used in Oman. Such a model is regarded as neitherconsistent with the cultural values nor sustainable.


Omanis among the countries in GCC that have made significant efforts inpromotion of innovation and entrepreneurship. The country has apopulation of 3.9 million and per capita income of $21,380[ CITATION Ala15 l 1033 ].The economic growth in Oman has been remarkable majorly due toincreased earnings from oil and gas exports[ CITATION Tla13 l 1033 ].

Nevertheless,the development progress in Oman is under the threat of unemploymentfor young people[ CITATION Bil15 l 1033 ]. Also, the long-termeconomy of the country is under the risk of decreasing oil reservesand increased exploration costs, triggering volatility of the oilprices. Additionally, the long-term search and continuous explorationof oil has been questioned, particularly in terms of carbon emission.The country is currently ranked in top 20 countries that have thehighest level of carbon emission per capita[ CITATION Dar14 l 1033 ].

Therefore,there is great need to promote entrepreneurship in Oman and other GCCcountries to curb issues of unemployment and carbon emission.

Smalland Medium-sized Business are known to play a significant role inpromoting the economic growth of both the developed and developingcountries. The benefits of SMEs have been echoed even outside realmsof academia where funding bodies and analysts continue advocating topolicy makers to promote development of SMEs in an effort to addressthe economic and social deprivation. Development of SMEs is importantin creation of employment opportunities as they provide anenvironment where both the skilled and unskilled workforce can worktogether for the advancement of the society.

Whiledevelopment of SMEs remains a critical factor in many economies, themode of doing business from idea conception to having an operationalbusinesses, requires careful planning. This has been elaboratelyexplained in this book. The ideas presented in this book are crucialto both new startups and existing businesses.

Table of Contents

Editors Note 1

Preamble 2


Introduction to Entrepreneurship 7

Who is an entrepreneur? 7

Concept of Entrepreneur, Entrepreneurship and Enterprise 8

Entrepreneur 8

Entrepreneurship 10

Enterprise 11

Decision to be an Entrepreneur 11

Reasons to become an entrepreneur 12

Characteristics of an Entrepreneur 13

Theories of entrepreneurship 18

Economic Theories 18

Resource-Based Theories 18

Psychological Theories 18

Anthropological/ Sociological Theories 19

Opportunity-Based Theory 19

Socio-cultural Environment and Entrepreneuship 20

Women Entrepreneurs in GCC 21

Practical Steps to become an entrepreneur: Case Study 22

Business Startup 24

Steps in Business Startup 24

Myths on Entrepreneurship 26

Chapter One Questions 30

Choose either True or False 30

Multiple choice Questions 31

Chapter 2 34

Small and Medium Enterprises in Oman and GCC 34

SMEs in GCC 34

Introduction 34

Definition of SMEs in GCC 34

Current trends of SMEs in GCC 35

Importance of SMEs in GCC 36

Contribution of SMEs to the Economy 36

Reasons why the Support for SMEs in Gulf Region is Different 38

SMEs in Oman 39

Have SMEs contributed to the Omani Economy? 40

What are the roles of the government in saving Omani SMEs? 40

Challenges facing SMEs in Oman 42

Growth Opportunity for the SME in Oman 44

Chapter Two Questions 48

Choose either True of False 48

Multiple choice Questions 49

Chapter 3 52

Business Plan 52

Introduction 52

Types of Business Plans 52

Important components to tailor into the business plan 54

Business Plan Format 55

Common Business Plan Mistakes 66

Sample Business Plan for a New Startup 72

Multiple choice Questions 93

Chapter 4 96

Business Feasibility Study 96

Introduction 96

Benefits of conducting a feasibility analysis for the product/service 102

How to test a business idea 102

Components of Feasibility Analysis 103

Product/Service Feasibility Analysis 103

Industry/Market Feasibility 106

Organizational Feasibility Analysis 110

Financial Feasibility Analysis 111

Chapter Summary 113

Chapter Four Questions 115

Choose either True or False 115

Multiple choice Questions 116

Chapter 5 119

Understanding the Ecosystem and starting a business 119

Definition of a Business Ecosystem 119

Starting Up a Business 121

Legal process of starting up a business 121

Legal and Regulatory Framework in Oman 121

Establishing Business in Oman 121

Trade Name Registration 124

Legal Forms of incorporation 125

Limited Company 125

Limited Liability Partnership (LLP) 126

Community Interest Company (CIC) 127

Charitable Incorporated Organization (CIO) 127

Industrial and Provident Society (IPS) 128

Financial Mutual 129

Intellectual Property Rights 129

Bankruptcy Laws 130

Professional training and development program 131

Sources of business Financing 133

1.&nbspPersonal investment 134

2.&nbspLove money 134

3.&nbspVenture Capital 134

4.&nbspAngels 136

Government Funding 136

Bank Loans 137

Infrastructure 138

Industrial Parks 138

Technology Parks and Business Incubators 139

Chapter Five Questions 140

Choose either True/false 140

Multiple choice Questions 141

Answers 144

Chapter One Answers 144

Chapter Two Answers 144

Chapter Three Answers 145

Chapter Four Answers 146

Chapter Five Answers 146

References 148


Introduction toEntrepreneurshipWho is anentrepreneur?

Themeaning of the term entrepreneur is dependent on age and generation.In this case, when you consider Oman as an example, it is easier totell that in eighties and nineties, many youngsters dreamed of beingBangladesh Civil Service (BCS) cadres and corporate executives. Bytwenty first century, many young people were dreaming ofself-employment due to high increase in population more than theeconomy can sustain. Such are special characteristics of thegenerations in Oman. With this, the future leaders aspire to bedifferent from their precedents. They are keen to conquer the areasthat have been previously not explored. The generation of today ismore adventurous. They have always dreamt of becoming leaders withvision and create their own distinct position within the turbulenteconomic environment for them to be successful entrepreneurs. Inorder to realize their goals, there is great need to understand theactual meaning of an entrepreneur.

Anentrepreneur is a person who comes up with an idea and createsa new business amidst uncertainty and risk in order to achieveprofits and growth opportunities, as well as assembles the necessaryresources in order to capitalize on the identified opportunities[ CITATION Bar13 l 1033 ].

Whena person initiates a decision to start a business, several factorshave to be put into consideration. Decision making is key to allaspiring business owners. Great business decisions are critical toenable entrepreneurs reach their levels of success. After coming upwith a business idea, there is great need for the entrepreneur toconduct a feasibility study to determine whether the idea is viableor not. If viable, a business plan should be drafted to outline thekey business objectives, means of achieving the objectives andtimelines for the objectives.

Concept ofEntrepreneur, Entrepreneurship and EnterpriseEntrepreneur

Manypeople have always dreamt of becoming entrepreneurs for variousreasons such as financial independence and need for freedom.Nevertheless, the road to entrepreneurship if characterized byseveral obstacles and entrepreneurs are required to take some risksand they can either win or fail. The move with their dreams acts asa major push for their success. To them, failure or success shouldnot be a stop point instead, it should be a motivator to achievemore and more successes.

Anentrepreneur is derived from a French word ‘entreprendre’ whichmeans to undertake. This term was introduced in business in 1965 bySchumpeter, who was an Austrian economist. He launched theentrepreneurship field by associating it with Drucker’s innovativedefinition of entrepreneurship as a systematic professionaldiscipline. An entrepreneur will start an enterprise, search forchanges and responds to it. Economists consider an entrepreneur as afourth factor of production alongside capital, land and labor.According to sociologists, entrepreneurs are innovators who draft newideas for markets, techniques and products. An entrepreneur willalways perceive an opportunity, organize the required resources forexploitation of the opportunity and exploits the opportunity.

Anentrepreneur will always pay the price for the product in order toresell it at a certain price while making decision on how to obtainand use resources while at the same time admitting the risksinvolved.

Anentrepreneur can be considered as an economic agent who will uniteall factors of production to produce a product, incurs productioncosts, sells the product and gets the profit by shifting theresources from lower into higher productivity and yield.Entrepreneurs will always be innovative and can use the process ofshattering the status of the existing services and products in orderto set up new services or products. According to Drucker, anentrepreneur will always look for changes, respond to them andexploit any opportunity related therewith. Innovation is quoted as acritical tool for an entrepreneur where an entrepreneur will alwaysconvert source into a resource.

Onthe other hand, entrepreneurship can be considered as a process ofcoming up with something new and assuming the rewards and risks. Thefour aspects of being an entrepreneur include (a) creation process(b) devotion of effort and time (c) being an entrepreneur (d)assuming the necessary risks.

PersonalDevelopment for an Entrepreneur

Below are qualities that are critical for personal development of anentrepreneur

  • Spend time to get to know themselves: An entrepreneur will spend a lot of time trying to know themselves. This helps in identifying ones energy patterns and setting of the priorities right

  • Spend time for personal growth: Entrepreneurs know that to increase their personal worth, then they should first increase their net worth. This includes a lot of reading and studying to keep in pace with the trends in their industry, study what interests them and understand the people they deal with whether customers or employees.

  • Know the power of sharing: Entrepreneurs will share and speak their ideas they mentor people and share very essence of themselves. They know that they are single most critical component of their businesses.

Personal Financial Management for an Entrepreneur

Being a successful entrepreneur requires a lot of experience inmanaging personal finances. Some of the ways through which one canmanage the finances include

  • Diversification: they say that an entrepreneurial venture has higher chances of failing than succeeding. Therefore, by diversifying and investing in another side of business or alternate investments gives one the breathing room in event one business is not performing as expected.

  • Plan for ‘bad days’: Business does not always perform all year round. An informed entrepreneur will budget the personal finances to have something to draw during the leaner months so as to cover for essentials like utilities, insurance and rent.

  • Separate personal money from business money: It is a good idea for an entrepreneur to keep business finances separate from personal finances. This gives the business more credibility, increases sense of legitimacy and helps in reducing personal liability if something negative happens.

  • Ensure expenses are below income: Expenses will always rise to meet income. Therefore, ensure that expenses are always below the income by estimating your income.

  • Protect your most valuable asset: Some entrepreneurs may overlook the need for disability insurance. It is always good to ensure that your most valuable persons or assets are taken care off in event your income stops.


Entrepreneurshipentails innovation, decision making, implementation, independency,forecasting of the future and success. It can be viewed as adiscipline founded on knowledge base theory. It is as a result ofcomplex socio-economic, psychological, legal, technological and otherfactors. It is a dynamic and risky process that involves fusion ofcapital, human talent and technology. Entrepreneurship is applicableto both small and big businesses, and to non-economic and economicactivities[ CITATION Jay15 l 1033 ].

Differententrepreneurs may possess similar traits, though each one is uniquein a way.

Initself, entrepreneurship can be considered as a process that is freeof stray incidents. It is organized and purposeful search for changethat should be conducted after a systematic analysis of the businessopportunities. Entrepreneurship is a philosophy as it depends on howa person thinks and acts, meaning that it can exist in any governmentor business environment, science and technology, education andpoverty eradication amongst others.

Entrepreneurshipcan be defined as an action or a process taken by an entrepreneur toestablish an enterprise. The process is creative in nature. Theentrepreneur builds and creates something virtually from scratch. Itis a knack of sensation where others see contradiction, chaos andconfusion. It is the attitude of the mind to exploit opportunities,take calculated risks and consequently derive the benefits ofestablishing the venture. This may involve numerous activitiesinvolved in creation, conception and operation of an enterprise.

Itis a dynamic process that entails change, vision and creation andrequires an application of passion and energy towards implementationand creation of creative ideas and solutions. Critical ingredients ofentrepreneurship involves willingness to undertake calculated riskson basis of equity, time or career as well as the ability to form aneffective venture team.


Entrepreneurshipis a process of creation by an entrepreneur who starts an enterprise.In this case, the entrepreneur becomes the actor whileentrepreneurship is the act. Enterprise is therefore the outcome ofact and the actor.

Therefore,an enterprise can be defined as a business organization that providesgood and/or services, contributes to national income and creates jobsfor economic development[ CITATION Ric13 l 1033 ].

Decision to be anEntrepreneur

Beingan entrepreneur and successfully running a business are two totallydifferent things[ CITATION Bel14 l 1033 ]. Despite the fact that wecertainly are in need for more employers, business ownership is notjust for anyone. Making a decision to be an entrepreneur is among thehardest decisions that require courage, patience and confidence.

Inorder to avoid dilemma on what should be done, learn to make decisionas an entrepreneur. When starting a business, one needs to preparefor the start-up both financially and emotionally, and be committedto the constant needs up to maturity. A move to start a businessrequires one to make very critical decisions. Making the decisionsshould not be underestimated. Great business decisions are the mainthings that enable entrepreneurs reach their levels of success. Oncea person comes with a business idea, a business plan is critical.Some of the key questions that an entrepreneur needs to understandbefore undertaking any business include:

  1. Does the business idea have the features that can attract investors?

  2. How much capital are you willing to invest?

  3. Is the business’s track record clean enough to allow all forms of financial help?

Asan entrepreneur, the most important task is to create a huge customerbase and ensure a high retention power. Decision making will normallyengage you to take action. Decisions are critical in determining theeffectiveness of execution and success of the business thereof.

Reasons to become anentrepreneur

Many people believe that entrepreneurs are majorly driven by thedesire to have big money. Money is just one of the reasons why oneshould become an entrepreneur. Below are ten reasons why a personbecomes an entrepreneur.

  1. Opportunity: an entrepreneur can decide what he/she wants the work to be like, what to do and what the mecca is for him/her. In simple terms, entrepreneurship allows one explore various ventures and decide on what to work on.

  2. Autonomy: some entrepreneurs are motivated by the need to break the daily grind that normally results from a career that is not self-sustaining. Fear of failure is what motivates some entrepreneurs to keep going as there feel that going corporate way turns them into a robot.

  3. Freedom: some people become entrepreneurs for them to be able to call their own shots, have the ability to set their own life and be in charge of their destiny.

  4. Responsibility to the Society: for some people, the societal issues act as the major drivers for their work. Entrepreneurs should always analyze the state of the world and examine the stories that play out at macro or global level. While striving to make sense of the big-picture, they look for places of passion and personal strength so that to have an impact on the world.

  5. Impact: an entrepreneur will work knowing that each action taken has a direct impact to the business. An employee will have a limited impact but an entrepreneur can break or make the business from whatever he/she does.

  6. Family: some entrepreneurs are driven by the desire to have enough time with their families. In most cases, an entrepreneurship is flexible and can be practiced at most convenient time.

  7. Change: some people engage into entrepreneurship to make something more efficient or better than it is.

  8. Legacy: some people are motivated by the desire to leave a personal legacy.

  9. Accomplishment: a sense of accomplishment makes some entrepreneurs truly happy. This implies putting more efforts every day to accomplish the goals of building a successful venture

  10. Control: some people are motivated by the sense of security resulting from being in complete control of the work, or security or being in control of their own destiny.

Characteristics of anEntrepreneur

Beloware characteristics of an entrepreneur

  1. Creativity and Innovation

Creativityand innovation entails the impulse of mind that triggers concept ofestablishing a base plan. The idea should be innovative inactual sense. Nevertheless, there is possibility of generating a newidea of an old innovation which is still considered as creative andinnovative.

Aninnovative idea can turn someone into an entrepreneur

Oneshould not let their business innovation strategy come with endlessstring of ideas. Baretto (2013) notes that thoughts can be easilyturned into actions through:

  1. Ideas and Innovation: generation of ideas forms the first process in any innovation. That is no idea that is of lesser importance. Engage as many people as possible so as to gather ideas from different minds, both externally and internally, even from competitors.

  2. Incubation: the best ideas should be incubated by developing a concept paper in order to consult with stakeholders. Incubation can be effective in rolling out ideas.

  3. Implementation: After incubating the best ideas, it is appropriate to focus on specific issues or solution, or set of sensible parameters as well as implementing the idea fully.

  4. Sustain or Exit: this forms the final step in any innovation process where the entrepreneur choses either to sustain the project or exit. Innovation may not go on forever. It is advisable that one either develop a transition plan to exit or stabilize it to embed it to the daily operations.

  1. Self-motivation

Beloware things that an aspiring entrepreneur should do:

  1. Start the business in the area of expertise.

  2. If one does not have the expertise, then one can tie up with the target company and get as much experience as possible or such for strong networks with specific target industry that will help in liaising with people who have been in that business for quite some time.

  1. Family Support

Afocused family support is crucial and critical for any successfulentrepreneur.

  1. In any case, one has to convince the family on any impending move. It is imperative to know that the family can impede and hamper with the business.

  2. If one fails to convince the family, there is probability that in future, confidence in doing the business may be affected as the family will always consider it with emotions.

  3. Family support and blessings are critical in making the next steps and rising up the entrepreneurial ladder.

  1. Value Experience Value Experience

Alwaysshow positive attitude to the people working with you. Get a mentorfrom which you can find guidance. Also, don’t ignore advice fromthe people around you irrespective of their age, experience orknowledge. Cope up easily and very fast with age limit to enable onesynchronize and add your years of age to other people years ofexperience.

Rememberthat you cannot fully understand right or wrong experience orknowledge without success or failure.

  1. Financing

Studiesshow that financing is a problem for startups[ CITATION Ala15 l 1033 ].In order to overcome financing issues,one should do the following:

  1. Start depositing whatever amount that is available from the time you decide that you’ll be an entrepreneur

  2. Source for funds from other sources so that cumulatively, you may have enough money for the business

  3. You can source for funds upfront and try to get a small mount on credit so that slowly by slowly the amount can increase and you can use it to expand the business.

  4. Before taking any money from the bank, ensure that you only take the amount that you are capable of paying back

  1. Redundancy

Anentrepreneur should have back up plans. In this case:

  1. Calculate alternative scope in case there is failure to comply with the target

  2. Think upfront on how to re-stand in vent of failure and the capacity to cope up with the unwanted situation

  1. Marketing Challenge

Anybusiness calls for the ability to focus and market the product. Thisrequires critical understanding of the client and may require use of:

  1. Social networking: social networking is currently used by many people as mainstream medium for business promotion. A broader network acts as an opening for new opportunities. Social networking can be critical in creating product awareness.

  2. Learning from all: it’s necessary that one be prepared mentally to learn from every opportunity that comes by your way. Ensure that you learn from real life experiences as opportunities may not come more than once.

  3. Listening: have patient to listen and attend to others. A successful entrepreneur will always listen carefully and not talk un-necessarily. Any move to attentively listening to others is an avenue to win the attention of that person.

  4. Presentation Skills: presentation acts as critical component in any business. If one can overcome faltering and fumble, as well as present the message in a smart way, there are consequent gains. Be spontaneous, be frank, and be prepared. It’s critical to practice beforehand on the message you’d like to convey before any big meeting. A successful presenter will always synchronize the content and time precisely and will prepare the presentation using strong and convincing words. There is also need to maintain order and ensure lively voice.

  1. Technology and Network

  1. Technology: Smart and proper use of technology will always keep one ahead of the others. Ensure that the technological equipment used is modern. This includes mobile phones, laptop, web browsing and email operation.

  2. Networking Gift: this is a promo or AdSense sent to the target network to capture their attention as well as making you to outstand from the competitors.

  3. Use of Networking: try to increase the current network and maintain the already existing networks. Ensure that they are well conversant with your status. Take advantage of your networking linkage.

  1. Target Revenue

Instartups, the initial phase may be characterized by huge losses inrevenue and this may sometimes even collapse the initial capitalflow. Nevertheless, at the end, the entrepreneur must ensure minimumrevenue target which is the essence of survival of the business. Theminimum target of revenue set should be achievable. This ensures theexistence of the business and allow gradual taking of risks as wellas enable one to think big in the long run.

  1. Personal Branding

Personalbranding is critical to startups.This can be created by developinga unique logo, visiting card or designpad to reflect all sorts of scope of your business. You can usemobile phone as a resource hub to enable you run the business fromany place.

  1. Overcome Failure

Failureis inevitable but real heroes will never collapse. The shortest wayto handle failure is by reframing of the mind by trying to look atsituations from different dimensions.

  • It is critical to get feedback from trustworthy persons. Always seek perspectives from persons who might not have been supportive rather than seeking support that only feeds your ego.

  • Revise your strategies and be open to ideas that will propel you forward. Allow people to speak and note carefully their feedback.

  • Refocus by overcoming that feeling of failure and embracing the new path to your success.

  • It is good to be prepared always for failure and ensure you turn it into success. There is likelihood of facing natural calamities, betrayal from partners, mismatch with the supplies and capital shortage amongst others, never give up. Always reassess your strategies and plan to take action.

Howto overcome Failure

  1. Stop entertaining loser mindset. The more you worry about losing, the more likely you are to lose.

  2. Assess failure, face the facts: glossing over something that went wrong or even discussing the events that did not work will never help the people involved learn from the past mistakes.

  3. Define the roles clearly: Establishing clear accountability is critical self-policing ethics in the workplace.

  4. Welcome feedback from employees: Give your employees the voice to solve the problems and differences in the company. This ensures that they work hard in order to succeed.

  5. Encourage the team to deliver in their roles: Always demonstrate to the employees the importance of quality when dealing with the clients. For instance, eliminating grammar and spelling mistakes in all documentation is very critical.

  6. Emphasize the values of the team: print and post the company values everywhere in the premises. This acts as a constant reminder.

  7. Always lead by example: leading by example is not just a catchy phrase. Always note that employees will be watching and may be influenced by the way one treats the coworkers and customers.

  8. Celebrate the success with the team members: celebrating normally reminds employees that you believe in their work and ability to overcome any adversity.

Theories ofentrepreneurship

These arepropositions by people on entrepreneurship and entrepreneur. Theseinclude the:

Economic Theories

These theories date back to first half of 1700s from the works ofCantillon Richard who referred entrepreneurs as risk takers. Theseinclude the Austrian Market, Classic and Neoclassical schools ofthought that focus mostly on economic conditions and opportunitiescreated. The economic theories of entrepreneurship receive criticismsfor their failure to recognize open and dynamic nature of marketsystems. They ignore the uniqueness of entrepreneurial activity anddownplay the diverse contexts within which entrepreneurship occurs[ CITATION Bar13 l 1033 ].

Resource-Based Theories

These theories focus on leveraging of resources by individuals toattain the entrepreneurial efforts off the ground. The accessibilityto capital enhances the opportunity of getting new ventures off theground though entrepreneurs will in most cases start ventures withvery little capital. Some of other resources that entrepreneursshould leverage include social networks and human resources likeeducation. In some instances, intangible elements of leadership addedby an entrepreneur to the mix acts as irreplaceable resources[ CITATION Bar13 l 1033 ].

Psychological Theories

These are theories that focus on the emotional and mental elements ofan individual. These theories were first put forward by DavidMcCLelland who is a psychologist and professor at Harvard. Accordingto the theories, people having strong internal control locus believethat their actions can easily influence the external world. Accordingto research by Barreto (2013), most entrepreneurs have stronginternal control locus. Also, these theories confirm that resilience,creativity and optimism play a major role in driving theentrepreneurial behavior[ CITATION Bar13 l 1033 ].

Anthropological/ Sociological Theories

Sociological theories center their explanation of entrepreneurship onvarious social contexts that facilitate leveraging for entrepreneurs.These contexts include desire for meaningful life, social networks,social-political environment and ethnic identification.Anthropological theories approaches the entrepreneurship by using acontext of culture and evaluating how the cultural forces like socialattitudes influence the perception of people on entrepreneurship andentrepreneurial behaviors[ CITATION Bar12 l 1033 ].

Opportunity-Based Theory

This theory was introduced by Peter Drucker in 1985. He contends thatentrepreneurs succeed when they notice the opportunities created bytechnological, cultural and social changes and takes advantage ofthem. For instance, a business that caters for older people mayconsider a sudden influx of youngsters in their target area as athreat to their business but an entrepreneur will consider this as anopportunity to open a club[ CITATION Bar12 l 1033 ].

Case Example: Ibn Khaldum

Ibn Khaldun is a Muslim thinker born in Tunisia. His writings oneconomics, economic oriented policies and economic surplus remainrelevant in the world of today just as they were during his time. Heopposed the involvement of State in production and trade activitiesby arguing that bureaucrats cannot understand the world of commerceand do not possess the same motivation as businessmen.

In economics, Ibn systematically analyzed the importance oftechnology and functioning and specialization of the economy. He isconsidered as the first economist in Arab world. His economic theoryconstitutes the framework of his history. There is no one who hasever proposed a theory that explicitly explains and predicts rise andfall of nations, empires and civilization. He describes the bestState as the one with minimal bureaucracy, minimal taxation andminimum mercenary.

His explanation on economic surplus and specialization depictsspecialization as a key source of economic surplus. An environmentthat is conducive for specialization increases the commitment of anentrepreneur to production and trade. He says

&quotEach particular kind of craft needs persons to be in chargeof it and skilled in it. The more numerous the various subdivisionsof a craft are, the larger the number of the people who (have to)practice that craft. The particular group (practicing that craft) iscolored by it. As the days follow one upon the other, and oneprofessional coloring comes after the other, the crafts-coloring menbecome experienced in their various crafts and skilled in theknowledge of them. Long periods of time and the repetition of similar(experiences) add to establishing the crafts and to causing them tobe firmly rooted.&quot

For Ibn, when there is law, order and security of peace, then it ispossible to realize greater specialization when there is a largepopulation with minimal taxation and operating in free trade withoutrestriction or impediment. On the other hand, his colleague, AdamSmith, argues that specialization can be considered as a function ofmarket.

Socio-culturalEnvironment and Entrepreneuship

Inbroad terms, the socio-cultural environment comprises of the cultureand social system of the people. This mainly entails the ingangiableelements created by man that affect the behaviour, perception,relationship and way of life of people. A socio-cultural environmentconsist of all the conditions, elements and influences that shape thepersonality of a person and potentially affect their disposition,decision, attitude and behavior. These include values, beliefs,habits, lifestyles, and forms of behaviors developed from edcational,religious, social and cultural conditioning. Such elements arelearnerd, shared and transmitted from generation to generation[ CITATION Bla13 l 1033 ].

Therefore,in relation to entrepreneurship, socio-cultural environment can bedefined as consisting of elements of culture and social system of thepeople that negatively or positively influence and affectentrepreneural behavior, emmergence. Performance and development ingeneral. Such elements conditions the values, actions and thinking ofa person with respect to entrepreneurship and forms thesocio-cultural environment of entrepreneurship[ CITATION Eme16 l 1033 ].

Women Entrepreneursin GCC

Mostwomen in GCC are literate and have made considerable achievements ineducation front. Currently, the adult literacy in GCC stands at 84percent among women. They have a better talent pool than their malecounterparts[ CITATION Bil15 l 1033 ].

Nevertheless,the female labor participation in GCC is very low and lies at 26.9percent which is half of the world’s average. The lowerparticipation of women in workforce is mainly attributed tosocio-cultural restrictions and customs that exist in most GCCcountries. Most of the countries in GCC give women right to work butin proper environment only when a woman is not required to mix withmen.

Figure1: Women Capability in GCC (Source: World Bank, Al Masah CapitalResearch, 2015)

Othercountries like Saudi Arabia restrict the women from traveling,marrying, divorce or working without consent of the male guardian,mostly a father, brother, husband or even a son. Subsequently, out ofthe 10.2 million literate women, only 3.3 million are in employment.The rest 6.9 million are unemployed[ CITATION Enn15 l 1033 ].

Thisuntapped pool of literate women is a huge loss to the society andeconomy of GCC at large. This has compelled the governments toconsider this and concrete steps have been taken to handle suchissues. For instance, the Saudi government has reserved 75 percent ofthe jobs created to women while in Oman, women are being supported tostart their own businesses by being funded, educated onentrepreneurship and are becoming empowered economically.

PracticalSteps to become an entrepreneur: Case Study

Omani Serial Entrepreneur

Qais Al-Khonji (Picture by Maya Rahal,August 27, 2013)

Qais Al-Khonji is a serial entrepreneur in Oman. Being anentrepreneur in a country with only three million citizens as yourpotential clients may require critical analysis of the targetcustomer and the product requirement.

Qais Al-Khonji has admitted to having failed in his first startupsince he never conducted the market research and failed to follow alean methodology that involves careful analysis and resting of theapproach to use based on the market response.

Nevertheless, Al-Khonji embraced his failure and started anotherproject. He says: “I try and learn even though this meanslosing. I consider the benefits to be in learning and failure a steptowards success,”

Al-Khonji is not just an entrepreneur you encounter duringentrepreneurship events. He has had five startups in the last threeyears and embraced failure in most of them, with only one succeeding.Business is his life! He has always gotten up and started all overagain upon failure. Al-Khonji is a perfect example of what theentrepreneurs in Gulf are likely to face, especially from familybusiness.

Al-Khonji comes from a wealthy family that operates real estatebusiness in UK, Oman and Oman that goes by the name Mohamed and AhmedAl-Khonji.

The 32 year old Mohamed and Ahmed Al-Khonji have been working as abanker and adviser of four of his father’s companies. In 2010, hemade a decision to engage himself in entrepreneurship and he launchedhis first company by the name Qais United Agency. His company dealtwith selling and importation of water filtration systems from Chinato Oman. The business closed down in mid-2011, after 18 months due topoor returns.

In 2012, he started four ventures at a go. He was offering servicesin various sectors like health tourism, education, digital meters forelectricity and water, and electrical freezing technology. From thefour ventures, three failed.

Currently, he is working with the digital meter company and he hopesto build it up to long-term business. He notes that the business maytake time to pick up and start generating revenue. Al-Khonji alsoworks as a reseller for Thermax Company which is an Indian Company inOman. His plans are underway for launching solar products.

The decision to shift from family business to a totally newentrepreneurial venture is not a decision that happens overnight.Some of the few lessons to learn from Al-Khonji’s story include:

a. Be focused: never give up, whenever you fail in anystartup, embrace failure and move to the next step

b. Market research is crucial: Al-Khonji admitted that hefollowed his passion and skills but did not study the market needsclearly. Always assess the market needs clearly and an exciting ideamay not be necessarily enough if people are not hungry for it

c. Know you customer well: Al-Khonji admitted that the firststartup failed because he imported products that did not survive inthe market. This was majorly because of the monopoly and small natureof Omani market, and also the service company is a low hanging fruitin Oman. It is good to test the customers’ appetite for the productbefore launching it

d. Know yourself. Launching something that you want to buildand something that is demanded by the market are two differentthings. At times you may have so much passion in doing somethinguntil you forget what the market demands. Nevertheless, it’s muchbetter to have passion for that which you intend to build.

At his core, Al-Khonji is an inspiring entrepreneur. He has beenadvising people to be focused, patient and courageous. “Try morethan once before you give up, and be very focused on your work,&quothe says. &quotI like to try and learn even though this means losing,the benefit is in learning and failure is a step towards success.”

In venturing into entrepreneurship by leaving the comfort of hisfamily business and by refusing to be phased out by failure,Al-Khonji is a perfect example to follow for all those who areaspiring to make changes in the entrepreneurial field.

Business StartupSteps in BusinessStartup

Therehas been a misconception by many people about business. Some believethat starting a business is very simple and involves just making adecision to start a venture without necessarily having properknowledge. Others consider it as rocket science very hard task.Nevertheless, there are various types of businesses. For instance,some people may engage in service delivery while other may producegoods and sell them to make profits. Any person who uses his/herbrains to produce goods is an entrepreneur[ CITATION AlS13 l 1033 ].

Thesuccess in any business is dependent on various things such asbusiness rules, regulations, strategies and policies. Before engagingin any business, it is imperative that a person be acquainted withthese skills. This needs proper decision making and planning,guidance and resources. A clear and detailed business plan iscritical to an entrepreneur to gradually achieve the target. Assetsand capital may be important for any startup but may not be the mainfactors. Starting a business without proper guidance exposes one toinvestment risks[ CITATION Bla13 l 1033 ].

Anyperson aspiring to be an entrepreneur should know how the business isstarted. This implies the need for clear thoughts on trade license,LC opening, machinery, company registration and account openingamongst others. Entrepreneurs should have a clear idea of theproducts to be sold, marketing, modes if paying taxes and means oftransport amongst others. Below are the steps in starting abusiness[ CITATION Ric13 l 1033 ].

Figure2: Steps in Starting a Business Source: [ CITATION Bel14 l 1033 ]

Step1: Make a Decision

Anyperson aspiring starting a business should seriously think about theventure and be mentally prepared on how to do business. This requiresone to make a very firm and informative decision. Aimless decisioncan never lead to a specific goal.

Step2: Decision on the form of business

Aftermaking the decision to start a business, an aspiring businesspersonshould select the form of business to engage in. for instance, thebusiness can be manufacturing, trading and supplies, commissionbased, imports or exports. It is critical to ensure that the businessthat is started is market-demand oriented.

Step3: Decision on Joint Venture, Limited Company or Sole Proprietorship

Itis critical for a person to evaluate the capacity to carry out thebusiness alone as sole proprietorship or through partnership. If theperson is capable, then the business can be ran a sole proprietorshipthough at times this appear to be very tough to engage in allactivities and complicacy. Also, the person can look for an honest,integrated and successful individual and start the business as apartnership. There may be need to expand the company to eitherprivate or public limited through incorporation. The choice lies withthe individual aspiring to start the business.

Step4: Choice of a Business Name

Anytype of the business that a person decides to start will have to havea business name. A good name is an avenue to mileage of business. Inpartnership, all the parties involved should jointly choose the name. A person can incorporate the company with the names chosenpreviously before incorporation.

Step5: Business Location

Agood entrepreneur will emphasize on a proper location for thebusiness, hence need for proper selection of the site. A goodlocation will determine the targeted consumers, labor availabilityand machine and equipment setup. Statistics reveal that manyconsumers who are business oriented often flourish in areas ofdifferent popular markets.

Step6: License and Other Documentation

Atrade license is an indicator of the acceptability of the person torun the business. Any business without a trade license is illegal. Itis critical for the businessperson to collect all the requireddocuments before starting the business.

Step7: Business TIN and Bank Accounts

Thebusiness TIN and bank accounts are crucial for any business. Anentrepreneur can open a business account in preferred bank andcollect the TIN from the NBR.

Myths onEntrepreneurship

Manypeople have different beliefs on entrepreneurship. Somehow, theentrepreneurship idea has been grounded upon legend, movies,anecdotes and who-knows-what else. Some of the major ones areoutlined below.

  1. Entrepreneurs do not quit

Itis unfortunate that some people believe that entrepreneurs do notquit and portray quitting as bad. Fact to be told, quitting is theone that defines and entrepreneur. In most cases, entrepreneurs haveto quit their employment and wages to become entrepreneurs. This isthe first quitting point. Also, some entrepreneurs have to quit theirventures, especially if one realizes that the business is turning outto be crappy. Reputable entrepreneurs like Steve Jobs and Elon Muskquit at some point. These are the rock-stars of entrepreneurship.This shatters the idea that entrepreneur never quit. Successfulentrepreneurs need to quit at some point. Quitting from something notworthwhile is not wrong. True success is measured by how to quit,what to quit and when to quit.

  1. Entrepreneurs are aware of what exactly they want, and know how to go for it

The fact is many entrepreneurs have no idea on how to achieve theirgoals. Entrepreneurship can be considered as a process of trial,failure, another trial, success and trial again and again. In mostcases, entrepreneurs do not know what to do and they are compelled tofollow their guts.

  1. An entrepreneur is his/her own boss

No one can be his/her own boss. Everyone has to report to someone.Any person with complete control of the business will have thebusiness as the boss. If the business is consultancy, the clients arethe bosses and if the business is funded by investors, then theinvestors are the bosses. In most cases, the business may not evenallow one a work-life balance.

  1. Entrepreneurs should be connected

There is a famous saying that goes around “it doesn’t matterwhat you know it matters who you know.” An entrepreneur is advisedto shun such believes. If this was true, then the first generationimmigrants would not be considered as entrepreneurs as most of themwere. Some unconnected entrepreneurs like Andrew Groove from Inteland Jerry Yang from Yahoo are foreign-born entrepreneurs who startedbusiness from scratch without any assistance from anyone. Entrepreneurs who are quick to realize that connectedness is a mythwill in most cases rely on their own determination and grit ratherthan on some star-studded safety haven. This motivates them to startcompanies and to successfully run them.

  1. Entrepreneurs are normally rich

Some entrepreneurs are rich though they certainly did not start rich.In fact, even when the business is in full operation, entrepreneursare not normally the fat cats that many people think they are. Astudy by American Express showed an average salary of $60,000 in2013. This might seem high by some standards but it’s not enough tosupport the posh lifestyle. In contrast, fresh MBAs are being given$200,000 Salaries immediately after graduation[ CITATION Eme16 l 1033 ].

Therefore, it is imperative to note that entrepreneurship is not forthe rich and may not even lead to riches, either.

  1. Entrepreneurship needs huge funding

Many people believe that for you to start a business, you must behaving huge cash, and to get that cash, you have to deal and wheelwith venture capitalists, angel investors and the big people who ridearound in Rolls Royce’s. In really, most of the entrepreneurialfunding mostly comes from their back pocket. According to Bell(2014), most startups will cost approximately $25,000 to pick up butmany Venture Capitalists mostly invest in technology andbiotechnology.

It’s a myth that immodesty rich investor will bestow millions ofdollars in your business idea. Mainly, angel investors comprise ofordinary people who are able to make ordinary amount of money, out ofwhich 32% live on income of at most $40,000. At such level, one caneasily forget about Rolls Royce’s.

Can an entrepreneur be bankrolled? Most of the time they do not, butget bootstrap

Some entrepreneur can get lucky and be funded. Nevertheless, this isnot a prerequisite for trade.

  1. Entrepreneurship is fun!

This is both true and false dichotomy. Entrepreneurship is fun buttruth be told, entrepreneurship is hard and at times it can beunbearable. The challenges of entrepreneurship parallel thechallenges of ordinary life. There are both good and bad times butthe difference in entrepreneurship is that good times are a lotbetter and bad times are a lot ‘badder’. It is not fun all thetime.

  1. Entrepreneurs love huge risks

According to our jacked-up ideology on safety, entrepreneurs arerisk-takers. But maybe, the risk taken by an entrepreneur may benothing more than just a tilt towards unconventional, dissatisfactionand good idea with the status quo. The risks taken by an entrepreneurare not the type of devil-may-care and reckless upstart. Normally,they are decisions that are well calculated, dream-backed, anddata-driven and pursued through a teeth-grinding determination.

In conclusion anyone who aspires tobecome an entrepreneur should shun these myths. It is an exercise infolly to classify and list characteristics, strengths and traits ofsuccessful entrepreneurs. By their actual definition, entrepreneurscan be considered as disruptors and mold-breakers. To be successfulin entrepreneurship, it’s critical to first do away with all thebeliefs that you have ever heard or led about entrepreneurship.

Chapter One QuestionsChoose either True orFalse

  1. An entrepreneur is a person who comes up with an idea and creates a new business amidst uncertainty and risk in order to achieve profits and growth opportunities

  • True

  • False

  1. Entrepreneurs must in most cases make decisions in a highly uncertain environment with considerable emotional investment.

    • True

    • False

  1. Typically, an entrepreneur learns from failures more than the successes

    • True

    • False

  1. The motivation to manage one’s own business is usually driven out of personal profits.

    • True

    • False

  1. An entrepreneur with a loss-orientation should rarely talk about the failure of the business.

    • True

    • False

  1. We all need people to be employers. Therefore, we can say that business ownership is for anyone.

    • True

    • False

  1. The economic theories of entrepreneurship recognizes open and dynamic nature of market systems as well as taking into consideration the uniqueness of entrepreneurial activity and downplay the diverse contexts within which entrepreneurship occurs.

    • True

    • False

  1. According to opportunity based theory people having strong internal control locus believe that their actions can easily influence the external world.

    • True

    • False

  1. Women entrepreneur in GCC are more educated than men but have low access to employment when compared to their male counterparts

    • True

    • False

  1. Entrepreneurs are aware of what exactly they want, and know how to go for it, and they never quit

    • True

    • False

Multiple choiceQuestions

  1. When a person initiates a decision to start a business, several factors have to be put into consideration. Which one of the below factors is the most important?

  1. Decision Making

  2. Drafting a Business Plan

  3. Seeking Funds

  4. Employing people to assist in doing the business

  1. Which of the following is not an aspect of being an entrepreneur?

  1. Creation process

  2. Devotion of effort and time

  3. Protection of the most valuable assets

  4. Assuming the necessary risks.

  1. Which of the below is NOT amongst the questions that an entrepreneur needs to understand regarding finances before undertaking any business include:

    1. How attractive is the market for the new product/service

    2. Does the business idea have the features that can attract investors?

    3. How much capital are you willing to invest?

    4. Is the business’s track record clean enough to allow all forms of financial help?

  1. Which of the following is NOT among the reasons why people become entrepreneurs?

  1. Opportunity

  2. Become Risk Takers

  3. Desire for Change

  4. Autonomy

  1. According to psychological theories of entrepreneurship, the entrepreneurial behavior is driven by?

  1. Social networks and human resources

  2. Technological, cultural and social changes

  3. Resilience, creativity and optimism

  4. desire for meaningful life, social-political environment and ethnic identification

  1. Which of the following is not among the components of socio-cultural environment that affect entrepreneurship?

    1. Religion

    2. Beliefs

    3. Lifestyle

    4. Political stability

  1. Which is the order of steps in business set up?

  1. License and Other Documentation

  2. Business TIN and Bank Accounts

  3. Clearance of the Name

  4. Make a Decision

  5. Business Location

  6. Decision on Joint Venture, Limited Company or Sole Proprietorship

  7. Decision on the form of business

    1. i, ii, iv, iii, v, vii, vi

    2. iv, vii, vi, iii, v, i, ii

    3. v, vii, iv, vi, ii, i, v

    4. iv, vi, vii, iii, v, i, ii

  1. Which of the following is NOT among the myths of entrepreneurship?

    1. Entrepreneurs are aware of what exactly they want, and know how to go for it

    2. An entrepreneur is his/her own boss

    3. Entrepreneurs should not be connected

    4. Entrepreneurship needs huge funding

  1. Why is the participation of women in entrepreneurship in GCC very limited?

  1. Lack of education

  2. Socio-cultural restrictions and customs

  3. Inadequate funding

  4. Political instability

  1. A successful entrepreneur should be experienced in managing personal finances. Which of the following is not among the ways through which an entrepreneur can manage the finances

  1. Planning for bad days

  2. Separating business finances from business money

  3. Diversifying n alternate investments

  4. Employing someone to manage your finances

Answers in Appendix Section


Small and MediumEnterprises in Oman and GCCSMEs in GCCIntroduction

Small and Medium-sized Enterprises (SMEs), also known as Small andMedium-sized Businesses (SMBs) refer to the businesses with personnelfalling below certain limits[ CITATION Boo15 l 1033 ]. Thedefinition of an SME is country specific but are generally definedusing three words small, single and local.

  • Small – SMEs/SMBs are small in nature and this is based on the number of employees, capital and assets or overall turnover.

  • Single – Most SMEs have single owner, single service or single product.

  • Local – essentially, SMEs are local in nature and have a localized market. Sometimes they may be operating from place of residence, popularly referred to as Small Office Home Office (SOHO)

Some of the exceptions to the above definition include:

  • Though an SME have a small output, there is possibility of it getting a global market if it produces goods in excess.

  • SMEs are not limited to any type of industry. They can be in trading, manufacturing, distribution, export and import, Service Company, rental or small processing units amongst others.

  • SMEs are legally registered hence different from other companies in informal sector.

Definition of SMEs inGCC

Manyprivate and public SMEs in the world normally base their definitionson number of employees. Contrary, the SMEs in GCC do not have astandardized way of defining SME. The definition is based on thenumber of employees, annual turnover and the assets in the company.Below are some SMEs definitions in some of the GCC countries.

SMEsdefinition in Oman

TheMinistry of National Economy in Oman defines SMEs as:

  • Micro enterprises as having up to 5 employees

  • Small enterprises as having up to 20 employees

  • Medium enterprises as having up to 100 employees

  • According to the Ministry of Industry and Commerce, companies with at most 10 workers are small while those with up to 50 workers are medium sized.

Current trends ofSMEs in GCC

SMEsin GCC have been unable to access funding from banks. Some of thedrawbacks of the traditional funding methods include extensive andtimeconsuming documentation, high interest rates, very high fines oflate or early repayments and short repayment periods[ CITATION Bal12 l 1033 ].Such challenges have compelled many economically advanced countriesdevelop alternative funding methods in order to balance betweenprotection of borrowing regulations and motivating theeentrepreneural spirit. Some of the alternative forms of fundinginclude venture capital, private equity companies and equity fromangel investors[ CITATION AlM11 l 1033 ].

TheGCC has started expriencing innovative funding methods. For instance,an agency in Qatar mandated with development of SME sector in theregion has formulated the Equity Investment Initiative (EII) that isaimed at increasing the amount of capital ejected to the SME sector.This is achievable through participation of venture capitalists,private equity companies and angel investors[ CITATION Mis14 l 1033 ].Also, the agency is manadated with preparation of the domesticdirectory for angel equity investors solely dedictated to SMEs. Othersimilar initiatives have been also been adopted from which the GCCcan use by customizing and implementing them. These include InnovFinfrom European Union which allows non-institutionalized participationfrom India to necessitates the investment of SMEs in stock exchanges,as well as allow banks within the public sector issue promissorystocks to the SMEs in the region[ CITATION Rie12 l 1033 ].

The efforts by the GCC in encouraging the private equity within theSME sector may experience several challenges. For instance, investorsmight be more interested in companies within the digital sector ortech-based companies. This may affect SMEs that are not tech-basedwhich experience similar capital problems such as manufacturing. Inorder to mitigate this challenge, the governments within the GCCshould develop policies that assist SMEs that are unable to attractthe private equity investors.[ CITATION Ism09 l 1033 ] This can beachieved through employment of the ‘Funds-of-Funds where governmentinvests in venture capital rather than investing directly in SMEs.The capital should in return identify viable financing opportunities.

The presence of crowd funding is accessible to SMEs within GCC wherefunds are raised from single or multiple entities mostly throughinternet and the funds channeled towards a common investment[ CITATION Ric13 l 1033 ].Such a concept started with Aflamnah, which was the first UAE-basedcrowd funding that allow people from GCC raise money to finance ideasin untapped areas such as television, art and music[ CITATION Fer14 l 1033 ].Also, the SMEs from GCC region have adopted the peer-to-peer lendingthat enhance the access to capital at a low interest rate withminimal penalty risks. This can be beneficial in development ofbusiness during the early development phases. Proper managementstructures are critical in strengthening Islamic financing optionssince they enhance protection and addresses the concerns and rightsof lenders. This also plays a major role in increasing the confidenceof the banks in lending[ CITATION Yal14 l 1033 ].

Importance of SMEs inGCC

SMEshave been beneficial to GCC in the following ways

  • SMEs have contributed significantly to growth and development of efficiency, especially to job creation, innovativeness and increased international competitiveness. They can, therefore, be considered as the main drivers for economic growth and diversification.

  • SMEs act as the backbone for any sustainable and successful economy. They act as blood cells for the any successfully diversified large corporations and economies.

  • SMEs provide local jobs due to their local roots but can also exploit the globalization opportunities

  • Job creation and economic diversification for Gulf nationals is believed to have succeeded because SMEs have played a major role in the process.

Contribution of SMEsto the Economy

SMEshave been the medium for economic growth andmajor drivers of industrial development. Due to the sheer nature ofSMEs in terms of size, operations and numbers, their role inpromoting endogenous sources of development and strengthening of theinfrastructure has been recognized. SMEs have contributed to the GCCin the following ways.

  1. Economic Activity

    • SMEs contribute to over 40 percent of the merchandise export in GCC attributable to the increased number of new entrants

    • According to the census in GCC, SMEs contribute about 50 percent of the total employment

    • Service industry forms the bulk of industries in GCC’s SMEs

  1. Number of Firms

  • SMEs accounts for 99.9 percent of 27 million non-employer and employers in GCC

  • Most SMEs have less than 20 employees

  1. Employment

  • SMEs employ approximately 50 percent of the total employment in GCC

  • Employment in SMEs has been growing at a higher rate than in large firms and has been largely contributed by employment growth in construction and service sectors.

  1. Innovation

    • SMEs provide an important avenue for innovation, products, services and processes more than the large firms.

  1. Entrepreneurial Opportunities

  • SME provides opportunities for the citizens to grow and develop their entrepreneurial skills

  • The promotion of the domestic-centered growth in emerging and existing industries as well as strengthening of the economy resilience in a challenging and competitive environment by the SMEs is inarguable.

  • The growth in SMEs can be assessing by evaluating the contribution to agriculture, manufacturing and services.

Reasons why theSupport for SMEs in Gulf Region is Different

SMEsin Gulf Cooperation Council are totally different from SMEs in anyother part of the world. This is majorly because of their extensiveapplication of expatriate workers with very few nationals.

Thisis clearly shown in the labor statistics.

Figure2: Labor Force in GCC Source: [ CITATION Bil15 l 1033 ]

Thelabor force in private sector has been majorly made of expatriate.This ranges from 80 to 98 percent with Qatar and UAE having thehighest number of expatriates 96 and 98 percent respectively andBahrain and Oman having the lowest 82 and 80 percent respectively.

Thelow-skill microenterprises having their workforce made up of entirelyexpatriates. This is majorly in many laundries, barbershops and othersmall business in side streets and city alleys of the gulf region.Such an economic structure has been as a result of the formulation ofpolicies on open labor admission and the generous compensation withinthe public sector. As a result, for every 10 jobs created within theprivate sector, at least eight goes to the expatriates. Meanwhile,the nationals continue gravitating towards the public sector due toattractive wages and improved working conditions. The matter becomesmore complicated since at other times, even the rightful when therightful owner of the business is an expatriate and the nationalsserve as front person for legal purposes, popularly referred astasattur.

Asa result, most commercial banks in the GCC area have been reluctantto fund SMEs. This is clearly shown by the reduced number of SMEloans when compared to other countries. For instance, the SME loansin OECD countries totaled to 26% but 2% in GCC in 2015[ CITATION Ala15 l 1033 ].Banks in GCC face different challenges when compared with theircounterparts in other areas. These include poor collateral, weaknessin business planning among the applicants and non-existent orinformal accounts. This among many other challenges makes the banksunsure about the true ownership of the projects that are to beserviced using the requested loans.

Therefore,what is a good SME support strategy in GCC context?

First,rather than seeking for job creation for nationals, which is almostimpossible with current GCC labor market policies, the governmentshould promote entrepreneurship for the nationals. This implies thatthe main focus will be on the business potential of the person ratherthan on financing needs of the applicant.

  • The support package should incorporate mandatory training as well as in-place advisory services that will play a major role in removing the tasattur applicants.

  • Financing should be restricted to activities that are high valued like projects that relate to information on engineering, renewable energy and technology. While these may lead to fewer job opportunities than the low productivity alternatives, they have high likelihood of appealing to the skilled nationals.

  • Equity may be the preferred funding instruments than banks in GCC and governments should support them through financing and provision of incubation opportunities and trainings for aspiring entrepreneurs.

SMEs in Oman

SMEsconstitute more than 90 percent of the total companies in Oman[ CITATION AlS13 l 1033 ].The prospect of the main role played by SMEsector in Oman and its potential to increase the economic value wasfirst outlined in Royal Decree 19/2007 and promulgated in March 2007.This saw the establishment of DirectorateGeneral of the Development of Small and Medium Enterprises under theMinistry of Industry and Commerce. The Directorate outlined the roleof Ministry of Commerce in creating and enhancing the private sectorin order to positively develop the Omani economy by ensuring theenvironment to conduct business was favorable[CITATION Ism09 l 1033 ].The acknowledgement of the role of SMEsin development of Sultanate as well as establishment of aninstitution to support the sector was a very critical and importantmove. Further, the Public Authorityon Development of SMEs indicatedfurther the importance of SMEs and its ultimate success was togradually and effectively help the sector make major contribution tothe Omani economy. Failure to meet these SME objectives would haverendered the institution into another level of bureaucracy and burdenthe public finances.

Have SMEs contributedto the Omani Economy?

Theavailable statistics on SMEs in Oman indicate that the sector is yetto grow and realize the potential contribution it has to the economy.

  • The Oxford Business Group report (2016) indicates that the SME sector in Oman is equivalent to 16 percent of the total GDP and represents 90 percent of the economic activities.

  • Loopholes have been available in the current system in Oman where locals register as business owners while in the real sense, they are agents of expatriates and this contributes to the rent-seeking behavior by some Omani and results to economic and financial ramifications like pressure in labor markets for the Omani nationals and increased remittances. This result when destructive behaviors by large entities are removed or curtailed[ CITATION Ash14 l 1033 ].

What are the roles ofthe government in saving Omani SMEs?

  • The government should be in the front to mitigate the market failures as well as eliminate policy biases. All the market failures that result in low cost disadvantages for the SMEs should be eliminated.

  • Government should ameliorate the transactional efficiency that relates to product, input and financial markets relevant to SMEs by enhancing easy access to information. There is also need to develop mechanisms that manage the risks in SMEs.

  • The World Bank study have been emphasizing on importance of reconsidering public policy as well as that regulations that perpetuate discrimination against SMEs[ CITATION DAn16 l 1033 ]. The policies should also be critical in promoting entrepreneurship, improve the accessibility to venture capital as well as facilitate the startup and expansion of firms[ CITATION Sch13 l 1033 ]. Below tables present the ranking of Oman’s economy by World Bank on the ease of doing business and the time taken to get the company ready for startup.

Table1: Ease of Doing Business in Oman in 2016 (Source: World Bank Group)


DB 2016 Rank

DB 2015 Rank

Change in Rank

Starting a Business &nbsp&nbsp




Dealing with Construction Permits &nbsp&nbsp




Getting Electricity &nbsp&nbsp




Registering Property &nbsp&nbsp




Getting Credit &nbsp&nbsp




Protecting Minority Investors &nbsp&nbsp




Paying Taxes &nbsp&nbsp



No change

Trading Across Borders &nbsp&nbsp




Enforcing Contracts &nbsp&nbsp



No change

Resolving Insolvency &nbsp&nbsp




Table2: Time Taken to Register a Company in Oman and Related ChargesSource: (World Bank, 2015)



Time to Complete

Associated Costs


Deposit the legally required initial capital in a bank

1 day

no charge


Register at the Commercial Registry of the Ministry of Commerce and Industry (MOCI)

3 days

OMR 40 for business registration (for a duration of 5 years) + OMR 128 for Chamber of Commerce + OMR 15 for registration with Muscat Municipality


Notification of the Tax Department of the Finance Ministry

1 day

no charge


Register employees for social insurance

1 day

no charge


Make a company seal

2 days, simultaneous with previous procedure

OMR 50

  • The promotion of development of the secondary stock markets can lessen the burden on taxes for dividends and capital gains to allow use of more stock options in compensating the smaller firms.

  • Promotion of networks between the owners and investors of SMEs may be critical in bridging the information gap, hence promote cooperation.

Challenges facingSMEs in Oman

Thechallenges facing SMEs

According to A Senior Commercial Bank Officialin Oman, the Central Bank of Oman (CBO) can play a major role inenhancing the existing procedures as far as lending to SMEs isconcerned. The current procedures prompt the banks to classify thebusiness loans as non-paid in case the business fails to service thatloan within 90 days. This compels many banks to report and takenon-payment cases to courts in order to recover the amount lent sincemany of the loans involved backing by collaterals such as retirementwages, business itself or even land. Due to the increased challengesfacing SMEs, there is great need to extend the loan repayment to 180days. The failure to meet the regular repayments to banks is becauseeven the most successful SMEs experience challenges in their cashflows. For instance, the enterprises may be providing products and/orservices large companies or government entities which in most casestake time to honor their payments on time. Such challenges translateinto cash flow problems and by default affect the regular loanrepayments to the banks. To mitigate such challenges, the governmentshould establish the fast track systems while at the same timeencouraging large companies to follow their steps. The PublicAuthority for Development of SMEs should include the average periodof repayments to the SMEs in their annual reports. This would act asan incentive for big business in their expedition of payments toSMEs. The performance on progress made in shortening the timerequired for the repayments could thereafter be used as an indicatorin supporting SMEs. The tenders awarded to the SMEs should outlinethe repayment and expedition terms for SMEs as priority[ CITATION Enn15 l 1033 ].

TheSMEs in Oman have been facing problems when conducting professionalfeasibility studies as well as the inadequate collaterals required inorder retrieving line of credit.

Mostof the incentives such as free zones meant to assist the nationals instarting or growing their businesses is currently being channeled toexpatriates. Such a reality of hidden economy affects the foreigndirect investment policy by the government to promote an upwardentrepreneurship and mobility through starting a business venture orexpanding the existing one[ CITATION Ala15 l 1033 ].

Thesechallenges have left the Oman Development Bank (ODB) as the main SMElender. The business model used by ODB depends on low cost funding orgovernment equity and large interest rate subsidies on long termloans. The prevalence of the low interest rates by the ODB plays amajor role in crowding out the long-term lending from commercialbanks to SMEs. At basic level, the sector has been confrontingchallenges in marketing, technical, administrative, regulatory andorganizational limitations[ CITATION Yal14 l 1033 ].

Forthe SMEs to thrive in Oman and achieve the potential social andeconomic benefits, the owners should be fully engaged in startups aswell as in all the growth phases of the business.

Thechallenges experienced by SMEs in Oman can be classified in threecategories




Theinstitutional, financial, and infrastructure challenges affect boththe demand and supply side of the SME sector.

  • A study by World Bank portrayed institutional constraints include the incentive gaps for the young Omani nationals to work in large private companies or outside public sector, labor regulations, poor business skills and excess bureaucracy to obtain business and work permits[ CITATION Bil15 l 1033 ].

  • The financial challenges include those challenges experienced on both the supply and demand side that limit any lending to SMEs. For instance, limited competition amongst banks and high margins affect the supply side as results in very little incentives to fund SMEs. On demand side, banks have few viable projects.

  • In terms of infrastructure, there is very little or no transparency and management expertise in handling finances. This allows very little incentives that can be used by banks to lend to SMEs.

Growth Opportunityfor the SME in Oman

TheSME sector in Oman is relatively underdeveloped but provides asignificant potential. The outlays of the discretionary spending interms of capital expenditure for the infrastructural projects presenta significant opportunity for SME sector’s accessibility to supply.Also, the Foreign Direct Investment policy and investment policy inSultanate will make SMEs as part of overall industrial policy inorder to promote links as well as transfer knowledge from large tosmaller companies[ CITATION Tla13 l 1033 ].The policy makers have, as part of overall strategy, identified thelogistic and transport sector as a major area that willenhance future growth in Oman, especially due to the proximity of thecountry to Indian Ocean. Among the major industries that will see aturnaround of the Omani economy is healthcare, manufacturing,logistics and tourism[ CITATION Dar14 l 1033 ].

Dueto the variety and magnitude of the investments expected in Oman,there is a great need to formulate a strategy map that will help inidentifying the synergies between the projects within the Omani SMEsector. The roadmap and strategy should include both the pre- andpost-implementation opportunities for the SME sector[ CITATION Bil15 l 1033 ]. Below table shows the some of thecompanies created on SME industry in Oman.

Table3: Companies created on SME industry in OmanSource(www.iora.net/media/…/the_top_100_companies_in_sultanate_of_oman)


Company Name




Oman Cement Co


Oman Marble Company L.L.C


Muscat Gases Co S.A.O.G.


Poly Products


National Industrial Services Co LLC


Flexible Industrial Packages Co


Oman Textile Mills Co


Reem Batteries &amp Power Appliances Co S.A.O.G


National Rice Mills SAOG


National Factory For Security &amp Safety Equipment


National Gas Co S.A.O.G.


Voltamp Manufacturing Co. LLC


Middle West Oilfield Services


Al-Rawas Marble &amp Granite LLC


Jabal Oman LLC


Global Channels International LLC


Seven Seas Petroleum LLC


The National Detergent Co S.A.O.G


Hydraulic SystemsCenter


Oman Fisheries Co S.A.O.G


Muscat Golf Grund (ROJICKT LLC)


Seven Seas Co LLC


Oman International Centre For Exepation


Oman AirportsManagement Co S.A,O,G


Oman Aviation Services Co S.A.O.G


Hotels Management Company International S.A.O.G


Galfar Engineering &amp Contracting LLC


W J Towell LLC


The Wave Muscat Company S.A.O.C


Oman Refinery Co LLC



Etab Al Zadjali co-founder-Cake Gallery(Picture by National Business Centre(NBC), Najihat)

Etab Al Zadjali together with four other women started the CakeGallery in 2010. Currently, they have a team of 50 employees and sixoutlets in various areas in Oman. From the event that was held at oneof the outlet in Mawaleh in presence of entrepreneurs from Sultanatewas aimed at assisting and empowering entrepreneurs on the power ofunleashing new ideas.

Driven by passion, Etab has grown loving sweets, a factor that hascontributed to her translation into a fruitful business.

According to her, she has, just like any other business, experiencedgood and bad times for her to reach where she is currently.“Significant efforts were undertaken till this project was able tosee success. When I first started business, my aspiration was tocontribute with a precious project for Oman,” Etab said, adding:“Cake Gallery’s success is certainly attributed to the dedicationand commitment of its team. Besides, competitors are always there,yet I always hunt for distinction in what I do through what I offerto the customers to make them happily satisfied.”

Etab has been supported by the AL Balushi Investment LLC, especiallyin management.

Etab has always translated her passions to real business opportunity.Her passion for the kids’ projects saw her starting birthdaypreparations as well as offering halls for birthday parties.Additionally, Etab operates a ladies salon.

The Director General of NBC Malak Al Shaibani, has all alongemphasized that women should be in the forefront to make changes inthe society as they represent almost half of the society. Thistriggered the startup of Najihat programme that is normally organizedwith the support of National Bank of Oman. The relationship managerAsila Al Obaidani, in National Bank of Oman has emphasized the needto support SMEs. “Since the National Bank of Oman pays a greatattention to the SMEs in Oman, we are privileged to be supportingNBC’s Najihat initiative,” Asila commented.

NBO has been offering Tijarati Banking for the SMEs across Sultanate.In addition to the offering extensive network of branches, cashdeposit machines and Sadara Centers in the country, NBO has beenproviding SMEs with the best corporate banking portal for conductingtheir business transactions easily from the comfort of their offices.As such, SMEs in Oman can easily take advantage of the servicesoffered by the relationship managers in Tijarati Banking who haveSMEs’ funding as one of their banking product.

The NBO has collaborated with Najihat programme to bring foursessions in every three months where women meet in the location ofthe business owner who shares the fruitful experience and startupchallenges. The series of the programme have been inspiring Omaniwomen and prospective entrepreneurs to start up their own businessventures.

Such an event presents the people with innovative ideas and supportsthose who are passionate about entering into entrepreneurship pitch.Other similar events include National Business Center that is aninitiative of Public establishment for Industrial Estates and aims atoffering a platform to the promising Omani entrepreneurs to developand advance their ideas to growing and profitable ventures. Thecenter has also been instrumental in providing support, trainings,mentoring, guidance and access to industry experts and market[ CITATION AlS13 l 1033 ].

Chapter Two QuestionsChoose either True ofFalse

  1. Definition of SME varies from one country to another

  • True

  • False

  1. Bank loans are the best and easily accessible form of funding for SMEs

  • True

  • False

  1. Peer-to-peer lending has been adopted in GCC to facilitate the accessibility to capital which is beneficial in development of business during the early development phases.

    • True

    • False

  1. SMEs in Gulf Cooperation Council are very similar to SMEs in other parts of the world

  • True

    • False

  1. SMEs contribute to over 40 percent of the merchandise export in GCC attributable to the increased number of new entrants

    • True

    • False

  1. Labor force in Oman is mainly made up of expatriates.

    • True

    • False

  1. The statistics available on SMEs in Oman shows that the sector has realized its peak growth and has contributed greatly to the Omani economy.

    • True

    • False

  1. Logistics and transport are the main sectors that will play a major role in development of SME sector especially because of proximity to Indian Ocean

    • True

    • False

  1. There should be a well outlined roadmap and strategy towards identification of synergies between the projects within the Omani SME sector due to the variety and magnitude of the investments expected in Oman

  • True

    • False

  1. The prevalence of the low interest rates by the Oman Development Bank is ineffective when crowding out the long-term lending from commercial banks to SMEs

    • True

    • False

Multiple choiceQuestions

  1. The definition of SME varies from country to country. However, the definition should incorporate three key words. Which one of the key words below is NOT used in defining SME?

  1. Single

  2. Local

  3. Profitable

  4. Small

  1. Which one of the following is a definition of SME by Ministry of National Economy in Oman

  1. Micro enterprises as having up to 10 employees

  2. Small enterprises as having up to 15 employees

  3. Medium enterprises as having up to 100 employees

  4. Medium sized companies with up to 100 workers

  1. Which of the below types of funding is not an alternative funding method for SMEs in GCC region

  1. Venture capital

  2. Bank loans

  3. Private equity companies

  4. Equity from angel investors

  1. The effort to encourage private equity within the SME sector in GCC is likely to experience one of below challenges. Which one is it?

  1. Increased interests by potential investors in tech-based or digital ventures

  2. Reduced intervention from the government

  3. Lack of foreign direct investments

  4. Poor structural frameworks of the SME

  1. Which one of the following is not a contribution of SME to the Omani economy

  1. Economic Activity

  2. Reduction in exports

  3. Employment

  4. Innovation

  1. Why are many banks in GCC reluctant to give loans to SMEs

  1. Poor structural framework of SMEs

  2. Inadequate disposable funds to loan out to SMEs

  3. Fear of failure of SMEs

  4. Poor legal ownership of local businesses due to increased entry of expatriates

  1. A good SME support strategy in GCC should include all of the following EXCEPT one. Which is it?

  1. Should incorporate mandatory training and in-place advisory services

  2. Strict financing on high valued projects

  3. Introduction of equity funding rather than bank funding

  4. Chasing away the expatriates

  1. Which of the following is a main loophole in SMEs system in Oman

  1. Omani locals register as business owners but are agents of expatriates

  2. Lack of government support

  3. Inaccessibility to adequate funding

  4. Poor local markets

  1. Below list presents the different categories of challenges experienced by SMEs in Oman. Which one is NOT among the three categories

  1. Financial

  2. Social

  3. Infrastructural

  1. Which of the below shows how SMEs have contributed to the economy in GCC.

  1. Contributes to the growth in country’s GDP

  2. Increased employment opportunities for the locals

  3. A and B

  4. None of the above

Answers in Appendix Section


Business PlanIntroduction

Abusiness plan, by its definition, is a detailed plan that clarifieswhy the business is existing, the aims for the existence, clientgroups, products and services, financial projections and how itintends to develop and deliver those service and/or products. It actsas a roadmap for the organization and shows clearly the destinationit seeks and the path to follow in order to get there. This shouldalso be accompanied by a description of the resources required tocomplete the entrepreneurial journey.

Types of BusinessPlans

Thereare different types of business plans. This depends on whether thebusiness is new or existing. Choose the business plan that best suitsyou needs based on the stage that the business is and what you wantto achieve. Below are the different types on business plans.

  1. Startup plan: this covers all the topics that are relevant when undertaking a new venture like company formation, products, forecasts, management team, financial analysis and strategy.

  2. Internal plan: used internally in existing business not accessible to outside parties. This plan does not necessarily require detailed analysis of the company and breakdown of the management structure. It majorly covers where the company anticipates going and how to reach there.

  3. Operations Plan: used in a similar way as internal plan but comprises majorly of the benchmarks such as deadlines, responsibilities of the teams, dates and milestones.

  4. Strategic Plan: is internal in nature and focuses mostly on setting priorities and high-level opportunities for the company.

  5. Growth/Expansion Plan: this plan focuses on a specific area of the business of subset. For instance, loan application or new investments may require a detailed growth plan. While the growth plan may be used internally, there should be comprehensive forecasts of expenses and sales for the new product or venture.

  6. Feasibility Plan: this is majorly done when considering a new startup in order to evaluate the effectiveness of the idea and whether it is worth pursuing. The plan should have a summary, elements of success, mission statement, overview and analysis of the market, cost, pricing and any probable expenses.

Businessplan is indispensable while running a business. The plan should bewell thought out in order to draw a clear picture of the targetedachievement. A good business plan will bridge the gap from thecurrent position of the business to the future or anticipatedposition. Planning can be considered as one of the main step towardsadvancing any business activity. Planning can either be operation orstrategic, or long-term or short-term. The plan is normally dependenton size and type of the business as well as the underlying mission tostart-up the operation[ CITATION Fin13 l 1033 ].

Once a person identifies the purpose of the plan, it is easier to getstarted. It is critical to note that for startups and new ventures, amore comprehensive and traditional plan should be used. An internalplan may be used when trying to evaluate the effectiveness andefficiency of internal systems and operations. No matter the type ofthe plan that you chose, the fact remains that a business plan isvery important tool for your entrepreneurial process.

Learninghow to write a business plan is very crucial. Some of the reasonsthat an entrepreneur should be developing a business plan include:

  • It is an effective tool that helps one define and focus the business objectives in a detailed and comprehensive manner

  • A business plan can be used as a selling tool when dealing with prominent relationships such as investors, banks and lenders.

  • It can be used as a tool to solicit advice and opinions from people, inclusive of those in the same field of the business even if they freely give invaluable advice.

  • The plan can uncover crucial omissions and weaknesses during the planning process.

Important componentsto tailor into the business plan

  • Mission Statement: this concisely outlines your business goals and purpose

  • You: a person is the greatest ingredient for the business success. The entrepreneur should focus on the prior experiences that are applicable to the new business. They should be a record of resumes for each contact that comes into the business.

  • Business Profile: it is vital to define and describe the business intended and outline the services offered. Stay focused on the specialized market that you aspire to venture into.

  • Economic Assessment: outline clearly the economic environment where the intended business is supposed to be established. This is especially critical for the regulating agencies as well as the demographics in which the person will be dealing with. You can get data on traffic flow and demographic studies from the local planning departments.

  • Assessment of Cash Flow: it’s crucial to include a cash flow for one year to depict the capital requirements. Also, include the any weakness and any measures that you intend to take in case they occur.

Anyperson with the passion to be an entrepreneur and confidence that themove is innovative and rewarding and the capital is not enough, thebusiness plan must be prepared in such a way that the financiers willbe interested to fund the projects. It is imperative to study and gethelp using different avenues and individuals. It is critical to notethat money is one of the components of business requirement but notthe only point for one to succeed.

Inthe current world, it is easier for someone to access money fromdifferent sources with a sincere minimum effort. Proper documentationand professionalism of the business plan is very critical. Theflowchart below is a representation of how a person can easily assessthe present status as a guide on what to do to be a successfulentrepreneur.

Itis always advisabe for someone to first check his/her entrepreneuralcapabilities for 1 to 5 years and be prepared to critically thinkwithin a certain period. If one fails to reach an expected position,then one should make efforts so that the next position becomesbrighter.


Afteracquiring the certificate in your education, you are well prepared asa businessperson and you need 1-5 years and you should never loseyour patience, faith and determination. You may get a job which isunsustainable and hence compelled to start a job as an entrepreneur.There is a high chance for you to start offering jobs to people withthe same unsustainable salary or better. You will have an opportunityto integrate with people, change lives and become an icon in thesociety.

Business Plan Format

  1. Executive Summary

  1. This provides a snapshot of the business, the entrepreneur and the rationale for taking that business initiative.

  2. The summary should give the reader a basic understanding of the business at hand

  3. Provide information such as customers, product and future plans.

  4. Outline the specialty of the business

  5. Create the urge for the reader to read more

  6. Mention the incorporation/establishment date for the business

  7. Outline the nature of the product and/or services

  8. Describe the workforce requirement

  9. Give a simple summary of the financial breakdown, source of funding and its utilization.

  10. Limit the wordings to a single page

  1. Brief Business Description

  1. Business name

  2. Nature of Business

  3. Industry/sector

  4. Business objectives

  5. Employment introduction of entrepreneur(s) giving out their names, qualifications, experience and ownership percentage

  6. Investment

  7. Ownership type such as incorporated or sole proprietorship business

  8. Loan and equity

  9. Potential market

  1. Products and services description

Theentrepreneur describes the products or services with the mostimportant features being mentioned. Also, the comparative advantagesand disadvantages are mentioned in this section.

Highly detailed and technical descriptions of the product may not benecessary. You should use simple terms and do not use industrybuzzwords to enable your readers to understand the content. Describehow your products will differ from those of competitors. Depending onnature of your business, the section on products and services can bevery short or long. For instance, if the business is more productsfocused, you may require sometime to describe the product. Also, ifyour key strength lies in pricing of the product, you may not need todescribe to detail your product. Always determine what your keystrength is and where you will be competitive.

Some of the key questions to answer in this section include:

  1. Do your products and/or services already exist in the market?

  2. What timelines are there for you to bring the products and/or services to the market?

  3. What makes your products and/or services outstanding? What are the competitive advantages? What are the competitive advantages to overcome?

  4. What will you get the products and/or services? Will you manufacture? Will you assemble? Will you get from other suppliers/wholesalers? Is the supply steady after the business takes off?

  1. Marketing Plan

Agood marketing plan provides a clear concept of the market. Thisimplies the need to conduct market research and the marketing planshould be informative, specific and with reference.

  1. Conduct an analysis of the major competitors and rank them accordingly.

  2. Carry out a SWOT analysis and comparison of your product or service with the competitors

  3. Mention your targeted marketing area and if there is any more to international markets, this should be mentioned.

How to estimate the target market

To calculate the market share, it is important to first define thesize of the market that you intend to compete in. Your market mayinclude nation or the whole world but the one that matters for a newstartup in the sphere of the influence of your business. Anentrepreneur can assess the size of the target market by followingthe below criteria.

  • Geographic targeting: determine where the customers are. For instance, for a supplier, the market customers may be those who live within a two-hour drive from the place of business, for accountant, the target market can be within the city limits and for a consultant, the target market can extend within a five-state region.

  • Customer targeting: determine how many businesses or people fit in the customer profile of your business. For instance, a florist may focus on wedding planners in a single region or state while an office manufacturer can target all the retail establishments on office furnishings in a certain region.

  • Product-oriented targeting: the target market size can be determined by analyzing the types of similar products in the market. For example, a wine brewer can determine the market share as a percentage all the premium wines sold in the geographic target area.

The market share can be calculated using units sales and number ofpotential customers.

  • Unit sales: this is done by determining the number of the products sold yearly. For instance, an entrepreneur in charge of collecting the occupancy tax for the hotels can divide the amount paid by the hotel as tax by the sum of area-wide tax collected to determine the market share.

  • Potential customers: If you know and approximate number of customers in an area, then it is easier to determine the potential market size of your company. For instance, if you know out of 100 people you have approximately 10 customers, then in an area with a population of 5,000 persons will present you with 500 clients.

  • Total sales volume: this entails calculating how much people spend at similar businesses in your target area annually and divide the figure by the amount of the sales, then calculate 10 percent of the entire market share to be yours. Suppose the Green Stars Landscaping Company serves a market area of 20,000 houses, out of which 10 percent rely on landscape services. This implies that the potential market for landscape services comprises of 2,000 homes. If Green Stars has a ten percent market share, then the market size will comprise of 200 homes.

  1. Describe your target customers by mentioning your customer segment, their characteristics and the factors they are likely to consider before purchasing the product.

  2. Clearly mention the unit price of the products or services

  3. Forecast the expenses and revenue

Forecasting the revenue and expenses during business startup is moreof an art than science. Entrepreneurs argue that forecasting isnormally time consuming but investors will not be willing to investin a business that are unable to give realistic and thoughtfulforecasts. Proper financial forecasts are a recipe for development ofstaffing and operational plans that will ensure that the business isa success.

Some rules to follow while doing forecasting

  1. Start with expenses rather than revenues. During the startup stage, forecasting expenses is much easier than revenues. Therefore, start by estimating the fixed costs such as rent and utility bills, variable costs such as direct labor costs and costs of goods sold.

Rules of thumb while forecasting expenses

  1. Double the marketing and advertising estimates since they always go beyond the expectations

  2. Triple the estimates for insurance, legal and licensing fees since they prediction without experience is challenging and in most cases will exceed the expectations

  3. Monitor the customer service and direct sales as direct labor expense even though you may be doing this by yourself during startup because as the business grows, you may require forecasting this expense after the client base expands.

  1. Use both the aggressive case and the conservative case to forecast revenue. Most entrepreneurs will normally fluctuate between aggressive dream and conservative reality. This keeps them motivated and ready to inspire others. Instead of forecasting revenue based on conservative thinking only, embrace your dreams and establish some projections using aggressive assumptions. This is the only way to think big on how to become big. By establishing both the aggressive and conservative assumptions, an entrepreneur is able to relax on some aggressive cases but force himself through the conservative assumptions. For instance, a conservative assumption may be no sales staff or low price point while an aggressive assumption can be low price point for the base products and higher prices for premium products or two salespersons paid on commission.

  2. Assess the key ratios to ensure sound projections: it is very easy to forget about expenses after establishing aggressive revenue forecasts. Many entrepreneurs will work aggressively towards achieving the revenue and assume that expenses can be adjusted easily so as to accommodate reality in case the revenue fails to materialize. Its critical to note that the power of positive thinking can help the business in increasing the sales but it is not sufficient to pay the bills.

Reconciling the expense and revenue projections can be appropriatelydone through reality checks for the key ratios. Some of these ratiosinclude the gross margins, operating profit margin and totalheadcount per client.

  1. Gross Margins: this is one of the ratios where most aggressive assumptions are so unrealistic. The gross margin reflects the ratio of total direct costs to the total revenue in a certain period. Beware of the assumptions that increase the gross margin from 10 percent to 50 percent. If expenses in direct sales and customer service are high, then there is high likelihood that they’ll be higher at later stages.

  2. Operating Profit Margin: This determines that ratio of the total operating costs to total revenue in a given period of the year. Total operating costs include all the overhead and direct costs less financing costs. As the revenues increase, the overhead costs should represent a small proportion of the total costs, while the operating profit margins should be on the higher. Most entrepreneurs make a mistake of forecasting the breakeven point very early and make an assumption that they do not require much financing to reach there.

  3. Total Headcount per Client: this ratio is especially critical to the entrepreneurs who intend to grow the business on their own. The ratio entails dividing the number of employees by the number of clients and decides on how you want the business managed in five years after it grows. If one will not be able to manage the accounts all by himself/herself, there is great need to revisit the assumptions about payroll or revenue expenses. Establishment of an accurate set of forecasts for a new start normally takes time. Many entrepreneurs regret not spending more time in business planning since they’d have avoided incurring so many expenses on their way.

  1. Outline the marketing strategy that will be adopted by your business to achieve the sale target. Describe how you will determine the approach to use in potential markets. This include promotional strategy where you mention what to advertise where, price strategy outline the methods to be used in determining the price, the distribution strategy that describes how the product/services will be delivered to the client and market expansion strategy that is required to describe any plans for expansion into both the local and international market.

  2. Mention the annual marketing budget on how you intend to spend the money for marketing your products.

  3. Determine and explain the risks that are likely to affect the business and steps required to mitigate such risks.

  4. Assess the seasonal trends that help to come up with the highest and lowest peak seasons.

  1. Operations Plan

Theoperations plan should include

  1. Stages in production process where the entrepreneur describes the production process, steps involved in production, flow chart, how quality will be maintained and parameters that need to be checked

  2. The implementation of the project should be mentioned where the time allocated for the implementation of the project is outlined

  3. Production capacity should be mentioned

  4. The fixed asset, corresponding costs and their depreciation should be listed

  5. Outline the maintenance and repair costs for the fixed assets and mention their lifespan and how to maintain their functionality

  6. Outline the annual cost of raw materials where you mention the requirement for raw materials, cost, source, availability and suppliers amongst other information.

  7. Describe the workforce to be engaged in production where both the direct and indirect workers are supposed to be mention, their respective wages and impact of their availability to the production

  8. Describe the factory overhead costs like utilities, depreciation of the fixed assets, rent, repair and maintenance cost and other costs.

  9. Mention the production cost

  10. Describe the inventory management and this includes the storehouse, its size and plans for security maintenance

  1. Management and Organization plan

Organizational or management plan is a hierarchical arrangement ofresponsibilities, authority, rights and communication of anorganization[ CITATION Bal12 l 1033 ]. For any business

  1. Organization structure should be clearly shown outlining clearly those who will be in management, their qualifications and experience

  2. Organization of partners/associates should be described briefly

  3. Succession plan describing the next of keen in absence of the proprietor

  4. The cost and activities during the business startup should be described

  5. List all the office equipment required and the cost of the fixed assets in the office

  6. Outline the salaries of the employees

  7. Describe the administrative expenses such as stationaries, postage, office utilities, office rent and entertainment amongst others.

  8. Describe any monitoring and evaluation to be put into place. This include any plans to monitor the progress of implementation and the objectively verify the success indicators for the business.

  9. Describe the CSR projects that the company is required to undertake to fulfill the responsibility towards community

  10. Describe the plans for research and development on any areas or issues that need further analysis or study in terms of current and future success of the business.

  11. Describe any plans for training and development and the skills that you want to build both to the senior and subordinate team.

  1. The Financial Plan

This section is critical while seeking funding from angel investors,venture capitalists or even from family members. You should presentthe numbers in such a way that shows the business will grow quicklyand there is an exit strategy for the lenders at the horizon wherethey can make profits. The financial section enables the entrepreneurunderstands the business well and acts as a guide for running thebusiness. The rule of thumb is to be realistic and credible, and youshould represent the growth trajectory in an understandable anddetailed manner. Break figures into components, by target marketsegment or by sales channels and provide realistic estimates forrevenue and sales.

Below are the components of the financial section

  • Startup Capital: The startup costing sheet should be prepared well before starting the business to give a person a more realistic idea of how much it will cost. List all the items and their total amounts. Forecasting helps in giving a person an idea of how much the business startup will cost.

Below are the costs should be taken into consideration duringbusiness startup

  1. Market research on customers, competitors and products.

  2. Licenses and permits

  3. Registrations

  4. Rent

  5. Wages

  6. Trainings

  7. Insurance

  8. Printing and Stationary

  9. Business assets

  10. Others

Thereafter total all the startup costs to have a clear picture on theamount of money required for startup. Whether the business isexisting or is a new startup, an entrepreneur will be required toestimate the actual or approximate figures against each item. Whetheryou have already started or intending to start you`ll need to fill inactual or estimated

  • Sales forecast: this projects the sales over a period of three years, on monthly basis.

  • Expense budget: this estimates how much the business is going to incur in order to make the sales forecasted. It is critical to differentiate between fixed and variable costs. Low fixed costs imply less risk. Go with simple months.

  • Cash Flow Statements: this shows the physical dollars that move in and out of the business. This is partly based on the sales and balance sheet items. For existing business, use historical documents like financial statements while for new startups, project the cash flow statements. Ensure you chose a realistic ratio at which the invoices are paid. You can use some business planning software to assist in making the projections.

  • Income projections: this is a pro forma for profit and loss statement that details the forecast of the business in three years. Make use of the numbers in sales forecast, cash flow statements and expense projections.

  • Balance Sheet/Assets and Liabilities: set up a projected balance sheet that outlines the assets and liabilities that are unavailable in profits and loss statement. Some only affect the business during startups. It is recommended that a person start with assets then move on to liabilities/debts.

  • Breakeven Analysis: this is the point at which the expenses in a business will match the sales volume. A three year projection will be critical in carrying out this analysis. The business will only be viable at a point when the overall revenue will exceed the overall expenses, interest inclusive. This analysis is critical for potential investors as they tend to be attracted by fast-growing business ventures that pay back easily hence good exit strategy.

  1. Course of action

  1. An environmental issue where any plans to address environmental issues is addressed. This includes management of wastes, ecological balance and sustainable management of raw materials. Describe any plans to make use of green technology and energy efficient equipment in operations. Also, note any requirement from ministry of environment and the category of the business based on the location and effects to the environment.

  2. Ethical issues should be mentioned to depict actions that are to be taken to ensure that the ethical standards of the business are maintained in terms of fairness in market and monopoly amongst others.

  3. Mention any legal issues involved and how the business is required to comply with the existing policies, regulations and rules that are directly or indirectly related to the business.

  4. Mention any intellectual property issues where the copyright, licensing and trademark amongst others are going to be protected

  5. Mention the move towards maintaining good working environment that promotes peace and harmony in workplace.

  6. Mention any plans to establish and maintain partnerships with both the investors and stakeholders

  7. Describe all the security and safety issues and measures that the business plans to implement to ensure that all the employees are safe

  8. The plan should mention any plans for use of IT such as ecommerce, accounting software or data analysis software amongst others.

  1. Conclusion

The business plan should contain a small conclusion. A strongconclusion for a business plan can enhance the support required togrow the business. On the other hand, a weak and uninspiredconclusion can make the potential investors to drift away and notdare giving out their cash to support your business. A business planis hypothetical in nature therefore, it should leave the investorsfeeling as confident with the business idea as the owner(s) of thebusiness. A strong conclusion should reiterate the overall vision,make it clear what you require from the reader and give a call toaction that will inspire the readers to join you.

Steps towards a good business plan conclusion

  • Step 1: The conclusion should be written using an optimistic tone. You should sound like you strongly believe in your company and your idea. For instance, you can start by saying “This plan will be a great avenue for the ABC Company to meet its financial goals” rather than saying “if all goes well, ABC Company will gain benefit…”

  • Step 2: Summarize the opportunity by giving a detailed review of information like target demographics, start-up capital and projections. Give a summary and remind the reader of those details.

  • Step 3: Give a clear outline of where you intend to be in the next three years. Convey a message that the reader will definitely benefit from investing in the company. For instance, you can say “From the projections in this plan, ABC will grow its revenue by 50 percent over the first three years.

  • Step 4: Give an emphasis of what makes you outstanding among your competitors. Any investor would like to invest in a company with a competitive edge. For instance, you can say “ the combination of cutting-edge technology and years of experience of our team, ABC will claim the top most position in the market.

  • Step 5: Convey a message to the reader that you require them come on-board. The plan may be exciting to the reader but his perspective of contribution may differ from what you require. Give the exact figure of the investment that you want the reader to give.

  • Step 6: End with a call to action. Make it clear that you have done your job and since you have told the reader what he/she is expected to do, a final push can seal the deal. For instance, you can end by saying “take this excellent opportunity to get on the ground floor of the company with untapped and unlimited potential”.

Reasons why Investors are Reluctant to Finance Some Business Plans

Businessplan acts as the first impression that potential investors get aboutthe venture. An entrepreneur(s) can have great product, customers andteam, yet fail to get funded because of some simple mistakes thatmany people ignore while writing a business plan. Investors receivethousands of business plans requesting for funds. Apart fromreferrals from their trusted sources, the business plan is the onlydocument that can be used as basis to determine whether or not tofund the business.

Withthe increasing opportunities, many investors will simply focus onlooking for reasons to turn down the request. According to them,observant and keen entrepreneurs will focus on eliminating anymistake that counts against his/her funding.

Common Business PlanMistakesContent Mistakes

  1. Failure to relate to true pain: Pain will present itself in many flavors such as computer crashing, too long accounts receivable, or even complex process of preparing tax returns. An entrepreneur is in business to take away the pain and get paid. In this context, pain is synonymous with the market opportunities. The more the pain, the more it will spread, and the better the product will be in removing the pain, hence the greater the market potential. A good business plan will place solution in a firm context of solving the problem.

  2. Inflating Value: do not use phrases like unique, unparalleled or any other superb term. In most cases, investors will judge by themselves. An entrepreneur should present the facts and how you intend to stay ahead of the competitors. Ensure that you lay off all the hype.

  3. Do not be everything to everybody: most startups believe that the ‘more is better’. This makes them explain how the product will be applied to multiple markets. Many investors prefer a more focused strategy, with a single superior product that can solve troublesome problems within a single large market sold through a single and proven distribution strategy. This does not imply that additional applications, distribution channels, products and markets should be ignored, rather, they should be applied in enriching and supporting the highly focuses core strategies. Ensure that you hold the story together with a compelling and strong core thread which you should identify and let others become supporting characters.

  4. Strategy of no-go-to Market: any business plan that fails to explain marketing, sales and distribution strategy is doomed. The plan should clearly outline the people targeted, the reasons they should buy from you and how they will access the products. It is imperative to discuss how you have generated the customer interest, obtained the pre-orders and made the actual sales. Describe how you intend to leverage this experience in a cost-effective go-to-market stratagem.

  5. There is no Competition: There is no any single business that does not have competitors. The competitor may be an entity that offers identical solution or a substitute. For instance, fingers can be used as substitute for spoon. A first class mail can be considered as a substitute for an email. So, an entrepreneur who says that there is no competition portrays lack of understanding of the market and the business plan can be easily tossed off by investors. A competitor is any person who pursues the same customer dollar. The competition section of the business plan presents the entrepreneur with an opportunity to showcase the relative strengths against indirect, direct and substitute competitors. Besides, competition in business is healthy and is a clear indication to investors that there is existence of a real market.

  6. Lengthy Plan: By nature, investors are very busy with very tight schedules. This implies they have little time to go through a business plan, hence prefer entrepreneurs who can convey the critical elements of a complex idea using an economy of words. For instance, an ideal executive summary should be 1-3 pages and ideal business plan should be between 20-30 pages. Most investors will prefer the lower value of this range. It is critical to note that the main purpose of writing a business plan is to trigger and motivate the investor to invite you to a face-face meeting rather than describing every last detail. The details can be documented elsewhere such as in marketing plan, operating plan or white papers amongst others.

  7. Too technical: most entrepreneurs with scientific background will in most cases tend to back their plans with complex scientific jargon and technical details. It’s imperative to know that investors are interested in your jargons if demonstrate how to solve a big problem that people pay for, is far much better than other competing solutions, is implementable using a reasonable budget and can be protected through patenting. These can be easily answered without necessarily using complex and technical discussions since the details are reviewed by experts. The business plan should be simple.

  8. Lack of Risk Analysis: The aim of investors is to balance risks versus rewards. The first thing that an investor will want to know is the risks that are inherent in the business and any measures that are into place to mitigate such risks. Some of the risks facing entrepreneurial ventures can be related to market, technology, operations, management or legal. An entrepreneur may feel that the risk is negligible yet potential investors will take it serious unless the entrepreneur demonstrate that the risk has been taken into consideration and prudent steps have been taken to mitigate such risks.

  9. Poor Organization: the plan should have a nice and organized flow with each section building logically on previous sections without necessarily requiring the reader know the sequence. A good sequence should follow the business plan format presented in this section of executive summary, background, market opportunity, products and/or services, market traction, competitive analysis, marketing and distribution strategy, risk analysis, milestones, management structure and financials amongst others. As stated earlier in this chapter, there is no ideal structure that should be followed while writing a business plan. Experiment to find out the best that suits your business.

Mistakes of the Financial Model

  1. Forgetting Cash: Profits, gross margins and revenues are not cash. Only cash can be regarded as cash. For instance, when you sell a product at $120 and it costs you $80 but you have to pay the suppliers in 30 days and the buyer will pay in 60 days. In this case, the revenue for that month is $120, profits is $40 and cash flow is zero. When you pay the suppliers the following month, the cash flow for the transaction stands at negative $80. This indicates that slight changes times between receipt and disbursement of cash can easily bankrupt the business. When building the financial model, the assumptions made should be realistic to ensure that the capital raised is sufficient.

  2. Lack of Details: the financials should be constructed from bottom-up and validated from top-down. In bottom-up approach, the details such as the dates when one expects to make sales or hire specific employees are taken into consideration. The top-down approach entails examining the overall market potential and comparing it to the revenue projections in bottom-up validation. For instance, round numbers such as one million in year two and two million in year three for R&ampD is a clear sign that the business is lacking a bottom-up model.

  3. Financials that are Unrealistic: It is only very few businesses that are able to achieve over $100 million in sales during the first five years of operation. Therefore, projecting more than that is not credible and can get the business plan canned very fast. On the other hand, any business with less than $25 million revenue during the first five years may be too insignificant to interest some serious investors. In most cases, financial forecasts will act as litmus test to understand the thoughts of venture capitalists. An entrepreneur with realistic basis of projecting between $50 and $100 million within the first five years qualifies for venture financing.

  4. Lack of Enough Financial Projections: The basic financial projects comprise of income statements, cash flow statements and balance sheets as the three fundamental components. All these statements should confrm to the Generally Accepted Accounting Principles (GAAP). Most investors are interested with five year projections as it reflects the thoughful process that can be employed to create some long-term financial projections. Also, a good fianncial model should have the sensitivity analsysis that shows how the projected results can change if the assumptions are incorrect. This is critical to both the investor and entrepreneur as they single out on the assumptions that can have material effects to the future performance of the business so that they can focus on how they can validate those assumptions. Benchmark comparisons should be included compared to other similar companies to include things like gross margin as percentage of the revenue and various expense ratios among others.

  5. Conservative Assumptions: 99 percent of entrepreneurs do not believe that assumptions are conservative, though they truly are[ CITATION Bel14 l 1033 ]. An entrepreneur should develop assumptions that are realistic and which can be supported.

  6. Valuation Offers: Most business plans err when they state the worth of their company in terms of monetary value. Its critical to understand that the value for a business is determined by the size of the market, and unless one is in business of selling, buying or investing, it is hard to know exactly what the market bears. Naming a pricing can lead to either of the two things (a) the price can be too high, hence investors will toss the plan or (b) the price is too low making the investors take advantage of you. In either way, both are not admirable. The main aim of the business plan is to present your idea in a manner that compels investors to fund you. Prices can be negotiated later.

Stylistic Mistakes

  1. Spelling and Grammar: making silly mistakes such as spelling and grammatical errors is a reflection of how one intends to run the business. It is advisable to use spelling and grammar checkers as well using the third party to edit the plan.

  2. Being Repetitive: in most cases, a business plan will tend to cover same points time and again. An effective business plan should cover the main points only twice first in executive summary and second in the body of the plan while explaining in details.

  3. Appearance: most investors will have many plans to go through. An entrepreneur should get to the top by ensuring that the binding is professional, the cover of attractive, fonts are large enough to read easily and pages are laid out in an orderly manner. Nevertheless, avoid going too far to ensure that you do not give an impression of lacking substance but having the style.

Execution Mistakes

  1. Being Late: the ideal capital formation process takes a minimum of six months from the time of writing the plan to the time the money is posted in the bank. The entrepreneur (s) should be ready to invest enough time into the plan. One can consider the option of outsourcing development of the plan if too busy with product, customer base or company development.

  2. Failure to Seek outside Review: ensure that your plan is reviewed to some individuals who have a clear understanding of the market before submitting it. The plan may seem perfect to the development team since they have been having it for months. To get an objective and good review, you can use external parties who have a fresh perspective and can easily save you and the team from myopia.

  3. Over-tweaking: an entrepreneur can spend a lot of time tweaking the business plan to ensure perfection. Most of the time used in tweaking can be easily used in developing the product, customers and company. You will be required to, at some point, pull the trigger and present your plan to investors. A positive reaction will be welcomed. If the reaction is negative, get feedback from various investors, go back and ensure that the plan is refined.

Thoughthe investment climate is currently tough, when good ideas aresupported by good business plans and exemplary teams, entrepreneurswill always get funded. It is advisable to give yourself the greatestchance of funding by avoiding the simple mistakes outline here.

Sample Business Planfor a New Startup

BusinessPlan for XYZ Cosmetics


XYZCosmetics is a company that solves all the needs for cosmeticsthrough manufacturing and distribution of gluten-free products.

Glutenprotein is found in barley, rye and wheat and is very dangerous forpeople sensitive to Celiac disease. Celiac is a major cause forlong-term problems such as cancer, infertility and osteoporosis. Thegluten-intolerant persons can be able to improve their lives byeliminating any gluten traces from the food they eat. Today, morethan 10 percent of population in GCC is taking gluten and this hasincreased the rate of celiac diagnoses by 32 percent.

Thepast three years have seen an increase in demand for gluten-free foodby 33 percent. Nevertheless, gluten is a hidden threat that lurks iningredients used in many cosmetics. The gluten can easily get away incosmetics undetected since companies are not required to disclose theingredients on make-up labels.

XYZproducts offer the best products and we give our clients the freedomto enjoy the luxury of our cosmetics. Unlike most cosmeticmanufacturers, we mostly focus on the gluten-free claim and ourproducts are gluten-free certified.

Ourtarget customers are both the organic and natural grocerydistributors and stores that are easily reachable through salesprograms and trade shows. Most of our end users are ladies agedbetween 17 and 65 years of age who suffer from gluten allergies. XYZtargets to reach these clients through consumer events, web marketingand grocery stores to enable them shop easily.

Currently,our fully prototyped lip balm has been receiving positive reviewsfrom friends and families. The eye shadow and mineral foundationprototypes are underway and will be completed in few weeks’ time.

Webelieve that the XYZ products will serve the growing needs forgluten-free personal care and makeup products. XYZ anticipates tobreak-even in the first year of operations. XYZ will requireapproximately $50,000 startup capital.


XYZCosmetics is a component of young niche industry that providescosmetic products to people who are intolerant to wheat and glutencontaining products. This market niche is growing at a very high rateand is currently undeserved, hence providing serendipitousopportunity for XYZ.

2.1.Cosmetic Industry

XYZCosmetics participates in the current growing industry of gluten-freeproducts. Currently, the value of cosmetic industry in GCC is over$55 billion. Forbes.com estimates that the global cosmetic industrygenerates approximately $203 billion annually as sales. Though theindustry has been affected severely by recession, there has beenstrong growth in organic and high-tech sectors.

2.2.Gluten-free cosmetics

Thegluten-free industry is relatively young and volatile though thecosmetic industry is stable and mature. Since 2013, the publicawareness on gluten free products has increased significantly. Glutenprotein is found in barley, wheat and rye. The protein triggersadverse reaction within the body causing nausea, headaches anddebilitating fatigue. Women suffering from Celiac disease tend todevelop long-term problems upon exposure to gluten. This implies theneed to eliminate all traces of gluten to avoid instances of cancer,infertility and osteoporosis.

2.3.Gluten free cosmetics

Despitethe increased awareness of gluten-free foods, there has been notableignorance to gluten contained in cosmetics. Many people may spend alot of money to ensure that the food consumed in gluten free yet theyignore the gluten contained in cosmetics. Statistics show that thegluten containing cosmetics has grown by 43 percent in the past twoyears.

Cosmeticsare largely ignored within the profitable gluten-free cosmetics.Currently, only four companies in GCC offer gluten-free certificationfor their cosmetics. The gluten-free cosmetic industry is still verysmall when compared to gluten-free food. Gluten is not known to bedirectly absorbed through the skin. Nevertheless, this can be truefor products like lipstick that can be easily ingested. The issue hasbeen glossily covered by the medical practitioners who warn Celiacpersons the dangers related with ingestion of gluten.

Therefore,consumers can easily reduce the risk of allergic reactions byensuring that they read the ingredients on all cosmetics and keeptract of the products that have high likelihood of causing problems.Clinical officers recommend that the buyers should be ‘simple’when searching for new products. XYZ Cosmetics makes the productsusing simple formulas and allergen-free ingredients alongside fulldisclosure of the ingredients in the label package. For instance, ourlip gross contain three simple ingredients and our products nevercause allergic reactions to our clients since they have been testedand proved to be gluten-free.

3.XYZ Cosmetics

XYZCosmetics is involved in manufacturing and distribution of organicand allergen-free personal care and make-up products. Our productsare of high quality and are easily distributed online using specialtyand natural stores that carry gluten free products.

Theawareness on organic product benefits has increased dramatically overthe recent years. Furthermore, many people have been diagnosed withgluten allergies. The research in gluten-free products indicates thatmany individuals are dissatisfied and confused especially because ofthe current offerings by the cosmetic industry[ CITATION Slo15 l 1033 ].

Ourtarget marketing has been growing at a rapid rate and we haveidentified our primary markets as women aged between 17 and 65 yearsof age and who suffer from gluten-intolerance. This market niche hasa high purchasing power are will normally spend more on anygluten-free product than in any other product. XYZ can easily createbarriers to entry by ensuring proper proprietary formulas, superiordistribution network and strong branding.

3.1.Background to XYZ Cosmetics

TheXYZ Cosmetics is a new startup which is to be launched in December2016.

AsXYZ founders, we believe that our passions coupled with our skillsare relevant to the XYZ’s mission. William, the Chief ExecutiveOfficer, has over 7 years of experience working in Food Company andhas critical information regarding gluten-free products. Rachel isour Chief Operations Officer with extensive experience in chemistryand biology, and this will help in formulation and quality checks forour products. William and Rachel are willing to work together tolaunch XYZ Cosmetics.

Todate, we have built a website, completed this business plan,conducted beta testing and prototyped products in our target market.

3.2.Value Proposition

XYZproducts will offer the consumers peace of mind. Our addition ofvalue proposition will entail

    1. Peace of mind where our consumers will be assured that our products are safe

    2. Quality to ensure that our products are both luxurious and effective

    3. Consumer education by providing materials to consumers on ingredients

    4. Honesty where we will fully disclose our ingredients on the product labels

    5. Purity where we will source raw materials that are of high quality and organic so as to ensure pure products.

3.3.Barriers to market Entry

Thegluten free cosmetics industry is currently made of many companiesand hence barriers will be inevitable though they can be easilyhandled by determined and smart entrepreneurs. The XYZ is likely toencounter problems in retaining and developing strong wholesaleaccounts within the specialty and natural grocery. Also, the costsrelated with raw material sourcing from certified gluten-freesuppliers will be substantial. Equipment and manufacturing space maybe costly but can easily be lowered by partnering with a third partymanufacturer. Such an arrangement can risk contamination with glutencontaining ingredients.

Itmay take time for XYZ to obtain a consumer brand loyalty since thegluten-free consumers are very sensitive and have found the productsthat suits them well. XYZ face a challenge of breaking that loyaltyand convincing them to buy their new brand.

Acquisitionof certifications such as Gluten-FreeCertification Organization GFCO may be costly and requireperiod renewals. This can be a barrier against our competitors.

3.4.Key to Success

Fromthe research we have carried out and our past experience, we believethat any successful gluten-free industry must:

  1. Train consumers on gluten-free products and their advantages

  2. Offer a reasonable price point

  3. Provide products that are 100 percent gluten-free

  4. Keep the consumers engaged through consumer events and social media

  5. Create high quality and enjoyable products

  6. Innovate frequently to come up with new products

  7. Seek for distribution in natural grocery and gluten-free stores

WhileXYZ will ensure that the above success measures are realized,excellence shall be emphasized through three main areas

  1. Consumer education

  2. Grocery distribution

  3. 100 percent gluten-free products

4.Market Analysis


XYZhas identified females aged between 17 and 65 years as the primarymarket. This will especially target those who are allergic to food,particularly gluten. This customer niche has a very high purchasingpower and is accustomed to huge spending on allergen-free foods. Thethree main factors that will influence the purchase of cosmetics bywomen include

  1. Intense need by women to feel beautiful.

  2. Young women have very busy and active lives hence will always seek for products that will contribute to their long-term health

  3. Most middle-aged women will always desire to turn back and become young again. As such, many will tend to spend billions in this pursuit. This implies that the demand for anti-aging products will continue growing as Baby Boomers age.

Likemost women, our target customers will have make-up in order to feelyoung, healthy and beautiful. Nevertheless, there is still need forproducts that do not exacerbate their intolerance to gluten. Often,gluten will lurk in unlabeled cosmetics. XYZ offers peace of mind forthe certified allergen-free and gluten-free cosmetics.

4.2.Market Research

InJune 2014, we conducted a small survey to a group of universitystudents. The responses were fresh, natural, wholesome, honest,simple and clean. Some were fascinated by the design of the websiteand they confirmed that it was agreeable and comfortable.

Nevertheless,XYZ intends to engage in R&ampD to ensure continuous improvement ofthe products and ensure that there is continuous improvement. Weacknowledge R&ampD as a powerful tool that will propel us towardsbeing a market leader in allergen-free, gluten-free cosmetics.

4.3.Market Trends and Size

Thegluten-free market is expanding at a very high rate. Statistics showthat over 18 million people in GCC are gluten-intolerant, a factorthat has increased the susceptibility to Celiac diseases. It isargued than young people have a higher likelihood of contactingceliac disease than it was 30 years back. Therefore, the increaseawareness of celiac diseases and related gastrointestinal disordersimply an increase in demand for gluten-free products. The personalcare products have the sales reaching up to $6 billion translating toan annual sale rate of 9 percent. More than 96 percent of thegluten-free cosmetics have achieved brand loyalty. Therefore, onceXYZ wins the support of the cosmetic users, there will be chancesthat it will enjoy a long-lasing loyalty from the core customer base.

Theconsumer awareness on gluten-free products is rapidly increasing andit is anticipated that this will lead to a significant growth withinthe next three years or so. The market is made up of very many smallcompanies and XYZ has an opportunity of dominating the market with afocused message and superior cosmetics.

4.4.Estimated Market Share

XYZwill primarily gain its market share from mainstream products whichhave been crossing over to the gluten-free category. At the moment,many products are not clearly labeled, hence not easily identifiableas gluten-free. This compels consumers to directly contact thecompany that manufactured the product directly or engage in dangerousguesswork. XYZ will work so as to gain a market share throughutilization of unusual go-to-market strategy that targets thedistribution through drugstore and grocery channels instead of thenormal traditional beauty shops. Furthermore, many companiesproducing gluten-free products cannot guarantee the user thegluten-free certification. Therefore, having superior convenience,gluten-free certification and low price points, the XYZ will be ableto capture the market and gain a significant percentage of the marketshare.


Thecosmetic industry is full of small and medium sized players. Out ofthe 18 companies in GCC producing gluten-free products, only 3 thatare certified as gluten-free. The rest are majorly commanded by themainstream products that are gluten-free. Our key competitors will beArbonne, Gabriel Cosmetics and red apple lipstick. Airbonne has beenoffering wide range of gluten-free products though their gluten claimis not displayed prominently on the product labels or their website.The gabrial Cosmetics has been offering a number of gluten-freeproducts though at exergerrated price. The Red Apple Lipstic has beenoffering high-quality lipstick which have a clear gluten-free claimbut do not offer any other products apart from lipstick.

Fromthis competitive analysis, we are confident thet XYZ has the abilityto command the market share in gluten-free niche by ensuring that theproducts are of high quality and are offered at medium price points.


XYZis differentiated from its competitors based on

  1. Having a gluten-free certification

  2. Relatively lower prices than the competitors

  3. Full disclosure of the ingredients used

  4. Education for the consumers

5.Marketing Plan

5.1.Market Positioning

XYZsells its products through ensuring peace of mind to consumersthrough gluten-free claims. Our products are positioned on a platformof pure ingredients, honesty and high quality. The brand personalityin XYZ is relaxed, friendly and simple.

5.2.Pricing Strategy

TheXYZ products will command a medium to high price point which isrelatively better than the competitors’.


MSRP ($)



Lip Balm


Eye Shadow


Lip Balm : 0.15oz

Cost Per Unit


Gross PM

Whole Sale Price



Retail Price



Thisprice places XYZ products between high end and main stream lip careproducts.

Mineral Foundation : 0.3oz

Cost Per Unit


Gross Per Month

Whole Sale Price



Retail Price



Eye Shadow : 0.1oz

Cost Per Unit


Gross Per Month

Whole Sale Price



Retail Price



Dueto prototyping, the eye shadow is incomplete and the numbersrepresented above are tentative.

Thedollar revenue shown is calculated based on wholesale sales. It isanticipated that the direct and online consumer sales will contributeto about 8 percent of the total dollar volume for the sales. Thesales will be at the retail level and will be able to command a highaverage net profit margin of about 80 percent compared to thewholesale average that haas a net profit margin of 63 percent.

5.3.Sales and Distribution

SinceXYZ will be selling the products using the primary distributionchannels, we will have two different selling cycles. These includetrade shows and distribution.

  1. Trade shows

Inthe first year, we will attend the GCC Natural products Expo. Theexpo will provide an oportunity to create awareness and reach to thelargest number of the target customers of the organic and naturalproducts. During the event, XYZ will have the potential of reachingfor more than 25,000 industrial players. Due to the high cost relatedto the event and the relatively low age of our company, we will notattend another trade show in 2015.

  1. Distribution

Wewill be calling directly our gluten-free grovcery stores in order topromote our products. Other consumers will know about our productsfrom the shelves in the local stores.

Immediatelyafter the startup, our communication with our clients will beinternet marketing, trade shows, consumer events and distribution.The main difference will be the quantity of the activities. In thefirst five years, XYZ will ensure a steady increase in marketingbudget and will attend to a larger customer base through trade showsand consumer events in order to drive the growth of revenue.

5.4.Promotion Mix

Ourpromotion mix will comprise of

  1. Internet Marketing

XYZwill pursue internet marketing in an intergrated approach inorder todrive the customers to the website. This will be achieved throughsegmenting the clients in terms of age group.

  • Customers between 16 and 30 years are considered young and will be recahed through social media since they have high likelihood of using a mobile device or a smart phone. The younger population will be reached through market campaigns in order to create internet buzz. The market campaigns will be done through Google adWords, Facebook ads, free giveaway contests and excellent SEO.

  • The client base between 31 and 65 years are considered as middle-aged and will be the largest gorup of social media users. The group is remarkable in blogging and use of related outlets like Pinterest. The XYZ’s SEO and social media efforts will effectively target this group. Also, we will employ tactics that involve giveaways and reviews by some influential bloggers.

  1. Consumer Events

Thepeople suffering from celiac are many. XYZ targets to reach thisgroup by using the networks of events and support groups. We aim toreach the consumers at the grossrooots by actively participating inthose consumer events. This will be done by:

  • Giving support groups free samples and product catalogs

  • Distributing information during the celiac awareness tour and expos.


XYZwill be involved in manufacturing, marketing and distribution ofgluten-free cosmetic products. Our products will be of very highquality. Below is the operations model that we intend to use.

6.1.Operations Model

Inthe model below, shows the workflow of operations at XYZ. The tasksin purple are primary roles of Rachel while those in green areprimary responsibilities of William.

Figure3: XYZ Business Model (Source Researcher’s)

6.2.Facilities and Equipment

Dueto the improtance of the gluten-free claim to the valuation in XYZ,we feel that it is crucial to ensure that the products aremanufactured in-house using dedicated facility that is gluten-free.This is intended to eliminate any possibility of cross-contaminationand offer our customers greater peace of mind.

Theproduction and packaging of the products will be done in a dedicatedfacility by well trained employees working part-time. Based on aquick survey, we determined the cost of space as between $2.50 and$5.00 per square foot. All the products in XYZ will be manuallyproduced for the early sales and test marketing. Thereafter, ualitymachinery will be need which are relatively expensive. There are twomachines that will apply to our process:

  1. Powder compacting machine with a quoted cost of $71,500

  2. Lip balm filling machine with a quoted cost of $30,000

Duringthe startup, XYZ will purchase the machine for filling lip balm whichwill depreciated after four years. The machine is compact and may nottake up large space. Therefore, most of our space will be devoted tostoring the ingredients and finish products. Our budget for year oneestimates an investment of $5,000 for the raw materials and totalinventory at $4,000. The storage will take 15 square feet.

Industrialshelving will be used in storing the inventory. The raw materials andpackaging inventory will need 50 square feet. The facility will alsocontain 30 square feet for working and wil have both the hot nd coldsinks.

Eachof the machine required for the operation will need approximately 50square feet. Therefore, the total space requirement for shelving,machinery and work surfaces is 130 square feet. In the first threeyears, the manufacturing will be housed in Williams’s home. Weanticipate that the space requirement will increase with the increasein sales.

6.3.Development Status

Ourproducts for intiial startup have been selected using the three criteria shown below.

  1. Lip Balm

Lipbalm is a soft and nourishing compound of waxes, flavors and organicoils. The product is spread over the lips to alleviate chapping aswell as add the attractive shine.

TheXYZ lip balm is formulated in a pleasant fresh orange cream flavor.The main ingrediants are olive oil, orange extract and beeswax. Sucha simplicity provides a flovor and texture of very high quality. Weare in the process of developing additional fruit-inspired flavors inthree SKUs. Currently, we only have one SKU of 0.07oz. the tubes usedin packaging lip balm are thin and longer than the standard types,and this creates a unique upscale feel and look.

  1. Mineral Foundation

Thisis a soft loose powder with variety of minerals, oils and naturalpigments and is avialble in various types of skin tones. The powderis brushed over the skin to give a smooth appearance prior toapplication of additional make-up.

TheXYZ foundation will be formulated in six shades that match variousskin tones and will be packaged in 30 gram jars. The shelf life forour foundation is three years.

  1. Eye Shadow

Theeye shadow comprised of pigments, oils and minerals that are pressedfirmly on a small container to form a very soft compound. Theproduct is available in different colours and is blended on eyelidusing a small sponge or brush. The formulation of the eye shadow willbe in Soft Pink, Blue and Lavender shades. The shades will be sold insingles and in dozen cases. The shelf life for the eye shadow isthree years.

  1. New products and product improvement

TheXYZ products will be developed in reponse to the consumer request andtrends, as well as through the comments received through emails,social media and emails. This may trigger the expansion of programlines, addition of more products or enhanced R&ampD for productimprovement.

6.4.Intellectual Property

TheXYZ intellectual property will comprise of trade secrets thatsurround the product formulation and trademarks to protect our brand.The protection of the trade secrets will take place through divisionof labor and training of employees in the manufacturing department.Our logo trademarks and name will be registered through the attorneyduring the startup.

7.Company Structure and Management Team

7.1. Management Personel

GeorgeWilliam and Rachel Miles are the founding managers at XYZ.

Williamis experienced in gluten-free production as she has worked with agluten-free food company. He has extensive experience in businessmanagement and he holds a degree in entrepreneurship. On the otherhand, Rachel is skillful in clinical hemistry, specificallynanotechnology with a strong background in biology.

7.2.Composition and Ownership of the Management

Williamand Rachel are in joint venture and onwers of XYZ Cosmetics. Themonetary investment is as shown in the table below.

Table4: Ownership and Management

Amount Invested ($)

Amount Committed ($)

Total ($)

William Seiter




Rachel Broker




Inthe first and second year, the founders will be compensated a 12.5%share of the revenue. In the following years, the slaries will be$40,000 and increasing at intervals of $10,000 in subsequent years.

7.3.Board of Advisers

Currently,we are in the process of selecting a board of advisers. We anticipatethat the board will comprise of knowlegeable individuals who willoffer guidance and advice to XYZ Cosmetics. The board will include:

  • Professor John Harvey: Expert in business planning

  • Ann Myers: Owner of Myers Group that manufacture world class surface technologies

  • Mikee Ellison: Student with food allergies and celiac disease

  • Emily Bush: Successful CEO and entrepreneur

  • Steve Jones: MD of Gulf Snacks with more than 15 years experience in sales

  • Alex Topp: Accounting student

7.4.Plan for Expansion of Operations

BothWilliam and Rachel will operate the business as a part-time venturein the first six to twelve months. After the breakeven point of theventure, the two founders will be working full time.

Asthe company grows, the gaps in the experience of the founders will befilled by the board of directors who will come on board to offermentorship services. We are in the process of seeking advisers withexperience in R&ampD and production planning. This is because thetwo areas are very critical for the success of XYZ and the companywill benefit from the expertise of qualified people.

Despitethe fact that the founders have strong managerial skills, maxmizinggrowth will require diverse skills. After the first year ofoperations, XYZ will pursue a more qualified team who have experienceand knowledge of different products. We will also take advantage ofinterns especially during startup.

  1. Critical Risks. Assumpptions and Problems

Thisbusiness plan has been baased on assumptions which could be risky ifnot realized. For instance, we have assumed that there will be arapid growth in gluten-free cosmetics and that XYZ will be in aposition to sustain the demand.

Wehave assumed that the raw materials will be reaily available. Anychallenges in sourcing the raw materials and packaging of thefinished products may halt the operations in XYZ. Some of the avenuesthat XYZ should capitalize on to reduce the level of risk includediversification of the supplier relationships.

Itis also assumed that XYZ will be able to reach its target customerbase in order to realize the projected sales. Lack of the keydistribution channels may imply unsustaible sales. In light of this,we have considered Steve Jones as our advisor on sales.

Legalrisks are inherent when producing consumer products such as makeups.As such, XYZ has plans in place to carry out a general liabilityinsurance. It is also assumed that XYZ is in a position to meet allthe standards set by the gluten-free certifications. This will befulfilled by ensuring that the manufacturing process is simple andthe organic ingredients are sourced carefully.

Finally,XYZ anticipates to face challenges in cash flow. This means that thebusiness is at a risk of undercapitalization. We will ensure that theinvestments during startup are sufficient. A startup capital of$50,000 will be enough to alleviate cash flow challenges as thecompany advances towards maturity. On top of this, XYZ will haveacash flow immegency of $10,000.

  1. Financial Plan

Thepro forma financials for XYZ are as shown below. The startup capitalof $50,000 will be used in inventory buildup and cash flow as thesales grow to levels that are sustainable.

    1. Startup capital

XYZCosmetics will start the operations with a $16,950 cash balance, $550for inventory and $32,500 for equipment. Below is the breakdown forthe startup capital.

Table5: Startup Capital



Capital Investments


Computer Equipment


Manufacturing Equipment


Other Equipment


Operating Expenses


Legal Service


Licenses and Permits


Prepaid Insurance


Starting Inventory


Cash (Working Capital)


Line of Credit Annual Renewal Fee


Total Startup Cash Needed


    1. Funding Sources

Currently,we are seeking $28,000 funding. We intend to seek funding from banks,sponsors and any other organization.

    1. Financial Assumption

Someof the financial assumptions have been made in accounting costs,capital expenditures, computers, cost of goods sold, endinginventory, credit sales, legal costs, insurance, licenses, legalservices, online sales, marketing, research and development,purchases, salaries, rent, seasonality, sales and shipping.

    1. Income Statement


Year 1

Year 2

Year 3

Year 4

Year 5







Cost of Goods Sold






Gross Profits






Operating Expenses












Payroll Taxes






Office Supplies















Marketimg and Promotions






Legal and Accounting Services






Licences and Permits






Line of Credit
























Total Operating Expenses






Net Income






Net Profit Margin






    1. Balance Sheet

Table7: Balance Sheet



Year 1

Year 2

Year 3

Year 4

Year 5


Current Assets


Cash and cash equivalents







Accounts Receivable














Total Current Assets







Long term Investments

Property, Plant and Equipment







Accumulated Depreciation














Total Long Term Investments







Total Assets







Liabilities and Equities


Current Liabilities







Accounts payable







Line of Credit







Total Current Liabilities









Paid in Capital







Retained earnings







Total Equity







Total Liabilities and Equity







    1. Cash Flow Statement

Table8: Cash Flow Statement


Year 1($)

Year 2($)

Year 3($)

Year 4($)

Year 5($)

Operating Activities






Net Income






Decrease in Non-Cash Equivalents






Accounts Receivable












Increase in Cash Liability






Accounts Payable











Cash Generated by Operations






Investing Activities






Purchase of Long Term Investments

Cash Generated by Investing

Financing Activities






Line of Credit






Cash Generated by Financing

Net Increase in Cash






Cash and Cash Equivalents at the Beginning of Year






Cash and Cash Equivalents at the End of Year






Free Cash Flow






    1. Breakeven Analysis

Thebreakeven analysis below is based on the income statement for thefirst and second years of operation.

Figure4: Breakeven Analysis

Thecompany will break even in November 2016 though during the summer of2017, income will be negative for a short while after which it willpositively increase in Fall of 2017.

Chapter three Questions

Choose either Trueor False

  1. A business plan acts as a roadmap for the organization shows the destination of a business and defines the path to follow in order to get there.

  • True

  • False

  1. A business plan should be based on the needs of the business and the stage that the business

  • True

  • False

  1. Business plan is the same as feasibility plan

    • True

    • False

  1. Any business plan lacking highly detailed and technical descriptions of the product cannot be used to obtain funding

  • True

    • False

  1. While drafting a business plan, the market share can be calculated using units sales and number of potential customers

    • True

    • False

  1. Expense budget in a business plan estimates how much the business is going to incur in order to make the sales forecasted.

    • True

    • False

  1. Cash flow statements presents the details on forecasted profit and loss for the business

    • True

    • False

  1. Balance sheet represents a projected outline of the assets and liabilities that are unavailable in profits and loss statement.

    • True

    • False

  1. Breakeven Analysis shows the point at which the expenses in a business will match the sales volume.

  • True

    • False

  1. Lack of risk analysis in a business plan may attract investors to fund the venture

    • True

    • False

Multiple choiceQuestions

  1. The list below represents the different types of business plans. Which one of them done when considering a new startup in order to evaluate the effectiveness of the idea and whether it is worth pursuing?

  1. Startup plan

  2. Operations Plan

  3. Feasibility Plan

  4. Strategic Plan

  1. Which one of the following is amongst the reasons why an entrepreneur develops a business plan?

  1. To obtain funding from investors

  2. To define and focus the business objectives in a detailed and comprehensive manner

  3. To act as a selling tool when dealing with prominent relationships such as investors, banks and lenders.

  4. All of the above

  1. Below are most important components to be included in a business plan. Which one is NOT?

  1. Mission statement

  2. Product/Service production process

  3. Business profile

  4. Cash flow assessment

  1. Which one of the techniques below is used to estimate the target market?

  1. Unit sales

  2. Geographical targeting

  3. Total sales volume

  4. None of the above

  1. Market share can be calculated using various methods. Which among the below is applied when calculating the market share?

  1. Total sales volume

  2. Unit sales

  3. Potential customers

  4. All of the above

  1. Below is the list of rule-of-thumb while estimating expenses. Which one is NOT?

  1. Double the estimates for insurance, legal and licensing fees

  2. Triple the estimates for insurance, legal and licensing fees

  3. Double the marketing and advertising estimates

  4. Use customer service and direct sales as direct labor expense

  1. Below are key ratios used to ensure sound financial projections. Which is NOT?

  1. Gross Margins

  2. Return on Investment

  3. Operating Profit Margin

  4. Total Headcount per Client

  1. Which one of the following is not among the components of financial section of a business plan?

  1. Financial control personnel

  2. Breakeven Analysis

  3. Income projections:

  4. Expense budget

  1. Which one of the following is amongst the mistakes when developing a business plan

  1. Execution Mistakes

  2. Stylistic Mistakes

  3. Financial model mistakes

  4. All the above

  1. A good marketing plan provides a clear concept of the market. Below represents main components of a marketing plan. Which one is not?

  1. Competitor analysis

  2. Profits expected

  3. SWOT analysis

  4. Targeted marketing

Answers in Appendix Section


Business FeasibilityStudyIntroduction

Afeasibility study is the exploration of viability of an idea[ CITATION Gla13 l 1033 ].The study provides answer on whether or not to proceed with the ideaproposed. All the activities of a feasibility study are gearedtowards answering the question “should we proceed with the projectidea proposed?”

Feasibilitystudies are used in different ways but the primary objective is onproposed business ventures. An entrepreneur should conduct afeasibility study in order to determine how viable the business ideais before proceeding with business development[ CITATION Tit13 l 1033 ].Early determination of a workable business idea saves money, laterheartache and time. It helps flush out a business idea and determineif investment into the business idea is warranted. In simple terms, afeasibility study can be considered as an assessment that provides aplatform on which a ‘go’ or a ‘no-go’ decision is reached.While a feasibility study acts as a vetting process to give aprospective entrepreneur a realistic view of the business, a businessplan provides a road map of the business for three to five years. Afeasible venture refers to the business activity that will generateenough profits and cash flow for the business as well as withstandingthe risks encountered and remains viable so as to meet the objectivesof the founders[ CITATION Ghi13 l 1033 ].

Feasibility analysis entails the preliminary evaluation of an idea inorder to determine whether or not to pursue the idea. The analysistakes the guesswork out of business launch and allows theentrepreneur a more secure notion of the idea being more viable orsecure. Any business idea that is determined to be unworkable shouldbe rethought or dropped. When exposed to a rethought, a slightlydifferent version of the idea emerges which in any way should beexposed to a similar level of feasibility study as the original idea. The pattern of feasibility study is represented in the figure below.

Feasibility Study source:[ CITATION Bar13 l 1033 ]

Manyentrepreneurs never follow this pattern before their launching of aventure. Surveys conducted by Goel and Karri (2014), show that manyentrepreneurs will underestimate their competition in the marketplaceand overestimate their chances for success.

When the idea is deemed feasible, a lot of work should be done toflesh out the idea completely before writing the business plan andlaunching the venture. When the feasibility analysis is positive, anentrepreneur gets the green light on how to pursue the idea further.Every component of the feasibility analysis should be exploredcompletely in preparation for launching the venture[ CITATION Bar12 l 1033 ].

For instance, a business idea that was developed by Trakus Inc.gives a perfect example of the importance of feasibility study.Unlike Iridium, the Trakus Inc. has used feasibility analysisin a very effective manner so as to determine the viability of theidea before spending time and effort on it. This is illustratedbelow.

Feasibilityof Satellite Phones: Were they Feasible?

When Bertinger’s wife, an engineer in Motorola, failed to reach hercustomers through cellphone after she went for vacation in Caribbean,she came up with an idea. She thought that if a constellation of 66low-orbiting satellites were placed in space, the subscribers wouldbe in a position to make calls from any place on earth. This was nota very new idea. There were satellite phones already but during thistime, there were challenges with the satellite phones. The phonescould only be used at high altitudes and were very heavy with aquarter of a second delay in voice. She envisioned that use of lowaltitude satellites could have resulted to phones that were smallerin size with an imperceptible voice delay. She referred to this ideaas Iridium. This looked like a perfect idea. Nevertheless, it was notexposed to feasibility analysis and found not to be viable. These arethe reasons:

First, to build satellites and fix them in Orbit, the MotorolaCompany established a separate company, Iridium LLC, in 1991. Therelated costs were enormous. This exposed the company to very hugedebts. In November 1998, the company launched the service. This wascharacterized by the vice president, Al Gore, making the first callusing the technology. The charges were $3,000 for a phone while thecalls were charged between $3 and $8 per minute. From the initialstages, Iridium was aware that the phone would have been very big andthe services would have been too costly to compete with thetraditional phones. Its target market was, therefore, people whotravelled frequently in areas where the cellular services wereunavailable. These included construction workers in remote regions,international business travellers, military forces, offshore oil rigemployees and workers in deep sea ships. The executive chief by then,Edward Staiano, predicted that the company would be having over500,000 subscribers by the end of 1999. However, by July 1999,Iridium had only 20,000 subscribers and needed extra 52,000subscribers to meet the loan obligations. By August 1999, Iridiumdefaulted over $1.5 billion in loans after which it was filed forbankruptcy.

What WentWrong?

Manythings went wrong. First, due to the level of complexity of thetechnology, Iridium concept took 11 years to be developed fully andat the same time, the traditional cell phone service was spreading ata much high rate than Iridium’s anticipation. By the time Iridiumwas launched and made available to users, good share of thepreviously determined target market could have met its needs throughthe traditional cellphones that were lighter and cheaper, and wereworking effectively in many areas.

Second, since the technology was dependent on line of sight betweenthe orbiting satellite and the antenna of the phone, thefunctionality of the phone remained limited. This implied that itcould not have been used inside the buildings, in moving cars and inmany urban areas where the tall buildingseasily obstructed the line of sight between the satellite and thephone.

Abook by Sydney Finkelstein, a professor at Dartmouth College, on “WhySmart Executives Fail” shows thatin his study of failure of Iridium, a top consultant had told himthat “You can’texpect a CEOtraveling on business in Bangkok to leave a building, walk outside toa street corner, and pull out a $3,000 phone.”For instance, in remote areas, the battery needed customized solarpowered accessories, hence unappealing to most busy travellers.

It was very unfortunate that there was noeffective feasibility analysis that Iridium engaged in prior tospending billion dollars for the idea to spectacularly fail.Professor Finkelstein quotes the second CEO of Iridium, JohnRichardson “We’re a classic MBAcase study in how not tointroducea product. First we created a marvelous technological achievement.Then we asked how to makemoney on it”.

One is left to ask why the leaders of Iridiumcontinued pushing for the concept despite the challenges encounteredduring the early stages. Would it have been cheaper to plug out theventure sooner than it actually happened? Amongst some of theproblems Iridium experienced was the advancing technologies incellphone industry. As an entrepreneur, what is the best method thatone should adopt to remain ahead of technological developments? Whatcan you do to monitor the meaning of technological advancement to thesuccess of your business? Why did Iridium financial backers andfounders failed to conduct a more thorough feasibility studybeforehand? What can a startup entrepreneur learn from the experienceof Iridium on importance of feasibility study? (Source:Pip Coburn, New York: Penguin Group)

On the other hand, TrakusCompany, previously known asRetailing Insights,was founded in 1997. The main business idea was to come up withcomputerized shopping carts for the grocery stores referred to asvideo carts. The carts were to use wireless technology to givenotifications on whereabouts of each cart in the store as well asprovide other useful information that was to be displayed on a videoattached to the cart. For instance, a shopper in cereal aisle wouldhave the cart having the adverts for cereals and help the shopperknow the brands that are on sale. Also, the video carts were to havefeatures that provided recipes as well as location for the itemsneeded within the store.

Earlier on, there was another company that hastried to build a Videocart but failed because of poor execution. TheRetailing Insights Company was determined to do it right by equippingtheir carts with latest technologies. As such the company was fundedby Angel Investor who gave them $50,000 seed money. Seed money refersto the initial investment given to a firm. The angel investoremphasized that Retailing Insights must conduct a feasibility studyof the market before embarking on product development. This compelledRetailing Insights to develop a detailed description of Videocart.This included all the benefits of the product to both the retailersof grocery stores and manufacturers of the product. The descriptionwas presented to both the manufacturers and retailers who weresurprised by what they found out. It was unfortunate that neitherparty was interested in their product. The major concern for themanufacturers and retailers was the failure of the previous carts.They were both wary of trying another version of a product that hadalready failed. This meant that Retailing Insights had to establishits own test sites to convince the manufacturers and retailers thatthe product was reliable. This was to be done at their RetailingInsights’ expense. Manufacturers cited the change of advertisingmedium as the only way that would make them be willing to come onboard. According to them, a new advertising medium would haveprovided the scale to justify the cost of incurring related expensesas well as producing the ads. This stipulation compelled RetailingInsights to seek for the signup of all the grocery stores to makemanufacturers excited about their product.

After careful consideration of these obstacles,Retailing Insights abandoned the idea of Videocarts. However, afterbrainstorming sessions, the company thought that it still had corecompetences and decided to take another totally different direction.A core competence is a capability or resource that acts as the sourceof the competitive advantage of the firm over its rivals. Theyconceived a new idea in area of miniature electronics where they wereto build rugged transmitters that could be placed on clothing orhelmets of athletes. The transmitters were to be used alongside a setof antennas in the field to determine the location of athlete at anyone time during a contest. The devices were capable of generatingreal time data such as percentage of time spent by defensive linemanon the side of the opponent during a football match. This data was tobe fed to broadcasters in order to liven the information aired duringthe sports broadcast. In order to test the feasibility of the idea,the company changed its name from Retailing Insights to Trakus. TheTrakus Company demonstrated a detailed simulation of the device tothe potential clientele. The results of the product reception wereoverwhelmingly positive. The company developed the product and sincethen, they have been receiving venture capital financing for devicedevelopment which are normally tested in National Hockey Leagues andthoroughbred horse racing sports. The videos are available atwww.trakus.comto show how the device operates.

If they had gone with their initial idea ofvideo carts with a feasibility study, Trakus could have spentmillions of dollars only for the product to fail terribly in themarketplace. The feasibility study provided them with the informationof viability of the product in the market place. It gave them acandid assessment of the viability of their business idea before anyconsumption of resources such as money and time. To its credit,Trakus responded by moving on to a totally new and viable product andthis propelled the company to a more promising direction.

The founder of Silicon Graphics, Jim Clark,affirms the importance of conducting a feasibility study. Clark isblunt in his valuation of feasibility analysis, especially theimportance of going out and talking to the target customers on yourconceived idea. He believes that the reason why most companies failis because the people involve ignore the fact that some products canfail to sell in their target market. One should not be pragmatic onwhether people should pay for your developed product. Once youconceive an idea about a service or a product, it’s critical foryou to test the market. Engage with your target customers to knowexactly what they want. A product cannot do everything for everyone.Many engineers often make mistakes where they try to put everythinginto their conceived idea. It is imperative to go out and talk to asmany clients as you can and display a copy of the product in front ofthem to see and note their feedback.

Benefits ofconducting a feasibility analysis for the product/service

  1. Helps the entrepreneur get the product right: In this case, it will be easier to know what the customers want because you have asked them and you tested quality and usability of the product based on users’ experience.

  2. Emergence of an early adopter (beta) community: The individuals or firms that participate in feasibility analysis will in most cases become first customers. These will provide additional feedback as the service or product rolls out.

  3. Prevention of obvious flaws during the design of the service/product: Any attempt to ask the prospective customers to test the service or products plays a major role in uncovering the obvious design flaws.

  4. Efficient use of capital and time: Since the feasibility analysis enables the entrepreneur have a better idea of the customer needs, a lot of money and time will not be wasted in chasing ideas that will be rejected by the customers.

  5. Provides insight into addition service and/or product offerings: a feasibility analysis for a single product or service will in most cases lead the entrepreneur to recognition of additional products and/or services.

How to test abusiness idea

  • Think profitability

A new venture should start by the drive towards profitability.Entrepreneur should think about the fastest way of achievingprofitability even if it means slightly deviating from original goal.This is achieved by first deciding on resources available to spendand devoting about 65 percent of it towards driving profitability, 10percent on scale and remaining 25 percent on resources such as staff.

  • Make failure efficient

Failed business is when profitability is not achieved within threemonths after the start of full operation of the business. This can bereferred to as ‘efficient failure’. The timeframes for businessesto pick up varies, and as such an entrepreneur should evaluate theamount of profitability attained and level of dedication andinvestment to the company. If the business is not profitable at all,then there is opportunity to start another one.

  • Building a minimum viable product and running it via a group of critics

This entails making the actual product to test in the market andtaking it to the target customers. Choose about 50 people whoare appealed by the product and another 50 who are skeptical aboutthe same product. Note down their feedback and work on the productbased on the responses.

Components ofFeasibility Analysis

Feasibility analysis is composed of four main areas. These are theproduct/service feasibility, industry/market feasibility,organizational feasibility and financial feasibility[ CITATION Bri12 l 1033 ].

Product/ServiceFeasibility Analysis

This entails assessment of the overall appeal of a proposed serviceor product. Before embarking on development of the prospectiveservice or product, a company should ensure that whatever is beingdeveloped is what their target customers want, hence they’ll haveenough market. It is easy for an entrepreneur when launching a newventure to face challenges such as hiring employees, signing leases,raising money, buying office accessories and writing press releasesamongst others. This is understandable. Nevertheless, many firms willmeasure their success based on the capability to deliver superiorservice or product. According to Misra (2015), the most criticalthing that an entrepreneur should consider while completing thefeasibility analysis of the product/service is to go to the streetsand talk to the potential customers. The success or failure of a newproduct or service is done before proceeding to product development.

Product/Service Feasibility Analysis Tests

There are two primary tests carried out during product/servicefeasibility analysis usability testing and concept testing.

Concept Testing

Concept testing entails the preliminary description of the idea forthe service or product to the prospective clients to gauge theirpurchase intent, desirability and interest. For instance, RetailingInsights abandoned their Videocart idea after the concept test. Theconcept testing involves three main purposes[ CITATION Yal14 l 1033 ].First, the concept test validates the underlying premise of theservice of product idea. This is majorly done by presenting theconcept test to target customers in form of a small questionnaire.The test should include questions on features, price and prompts onhow the customers think that the concept can be improved. Second, theconcept test plays a major role in idea development where theentrepreneur presents the idea to prospective customers, notes thefeedback, tweaks the idea and presents it to some other customers toget additional feedback. This may be repeated severally to strengthenthe idea. Third, concept test helps in estimating the market sharethat might be commanded by the product or service. This is summarizedbelow

Validation the underlying premise for the product/service idea

Help in idea development

Help in estimation of sales

Done by giving small questionnaires to the client asking them to give their comments on how they think the idea can be improved

Depending on results of the concept test, an entrepreneur can tweak the idea and show the revised concept to the next group of customers. This can be repeated severally to strengthen the idea

Concept tests always seek for buying intention and this is majorly to help determine the number of people who will actually purchase the product or service.

An example of the buying intention questions in the surveyquestionnaire

If this product is developed, would you be able to buy?

  1. I’ll definitely buy

  2. I’ll probably buy

  3. I might or might not buy

  4. I’ll probably not buy

  5. I’ll definitely not buy

The entrepreneur uses the number of clients who will definitely buyor probably buy to gauge the customer interest. The number from thisexercise are somehow optimistic since not everyone who says thathe/she intends to purchase a product will actually buy. Nonetheless,to some extent, the numbers will give a perspective of the degree ofcustomer interest in the product or service. If the potentialcustomers are dispersed geographically, one can consider using someonline platforms for collection of survey data. A concept test shouldhave a concept statement that should have the following:

  • Description of the Service or Product Offered: In this section, the features of the product or service are given in a detailed manner, this may as well include the sketch and computer simulation

  • Intended Target Market: This lists the people or businesses who are expected to purchase the service or product

  • Benefits of the Service or Product: This section outlines the benefits of the service or product and details how the service or the product will add value to the customer

  • Product/Service Positioning Relative to Rival Products/Services: This describes how the service or product is positioned relative to the competitors

  • Selling and Distribution: This section specifies the selling of the products either through distributors or directly by the manufacturer.

Usability Testing

After the concept testing, a prototype or product model is normallydeveloped. This physically depicts the new product that is still intentative or rough mode. A prototype is crucial for products likeboard game to get a feedback that is more substantive than it can beattained from a mere concept statement. A prototype is also necessaryif one has to get feedback from the potential product licensees orattendees during trade shows. In some cases, a virtual prototype canbe used as it is cheaper than the physical one. However, it is injudgment call on an entrepreneur to determine whether to have aphysical or virtual prototype. The main benefit of a prototype isthat it helps in usability testing. The usability testing of theproduct/service feasibility analysis entails measurement of theuser’s perception of the product and ease of use[ CITATION Bel14 l 1033 ].Usability tests are also referred to as beta tests, field trials oruser tests based on the circumstances involved. Usability tests cantake various forms. Some people or firms working with limited budgetsmay develop prototypes and ask friends, family and colleagues to usethe product and give their feedback. Though fairly rudimentary, thisapproach appears more superior than failing to do any testing. Othermay use elaborate programs and facilities in usability testing. Mostof the usability testing is majorly done for products like newsoftware and website design[ CITATION Dar14 l 1033 ].


This analysis assesses the overall market appeal of the proposedproduct or service. This should take into consideration theattractiveness of the industry, the niche market identification andmarket timeliness[ CITATION Bar12 l 1033 ].

  1. Attractiveness of the Industry: Industries tend to vary considerably on basis on growth rate. Industries will growth more attractively when its new products and new entrants are received well by the clients. Attractiveness of the industry is the main determinant of the feasibility of a venture. As such, many venture capitalists like Don Valentine will first assess industry attractiveness of a new startup before funding a new venture.

Characteristics of attractive industry

  • Large and growing where growth emphasized than the size

  • Is important to the customer where they sell products or service that a customer ‘must have’ instead of ‘would like to have’, and this implies that the product has an inelastic demand

  • Fairly young instead of older or even mature. Young industry have early product lifecycle with less intense competition in prices

  • High operating margins as opposed to low, meaning that they are more profitable for competition and new entry

  • Are not crowded: a crowded market with many competitors will experience low operating margins and fierce competition in prices.

Though this is an ideal list, the level at which the growthpossibilities of a proposed business satisfies these criteria must beclearly considered. For instance, an entrepreneur can have the ideaof new service or product that fits the needs of certain clients butthe market may not be big enough to support a business. Theentrepreneurs may sometimes err by emphasizing so much on overallattractiveness and size of the industry they are entering, and thismakes the industry attractiveness become a careful balancing act[ CITATION Bri12 l 1033 ].

It is advisable that entrepreneurs to avoid explaining theattractiveness of their potential markets in terms of huge marketsand anticipate to get at least 1-2 percent of multibillion dollarmarkets for their business to be viable. Size alone cannot be used toevaluate the viability of the business. A startup cannot beguaranteed to get a certain percentage of the market unless there aresome real advantages over the competitors such as good access tocustomers and methods of imitation prevention amongst other things[ CITATION Tit13 l 1033 ].

For an entrepreneur to fully understand the dynamics of industry inorder to gauge their level of attractiveness, both primary andsecondary research is critical. A primary research is the originalresearch done by the entrepreneur by talking to key industryparticipants and potential customers. On the other hand, a secondaryresearch probes the already collected data. The secondary data can beacquired from government’s statistics, industry-relatedpublications, industry reports and competitors’ websites. Also, theentrepreneur should make use of authoritative sources of industryrelated data available in hardcopy or online. Hardcopy data is veryimportant while seeking for funding and you want to support someclaims.

It is impossible to conduct a market analysis of industries that arenon-existent. Confronting entrepreneurs who are having breakthroughservices or products is quite challenging. Most of the breakthroughproducts and services tend to establish new markets such as Yahoo,eBay and Google. On the other hand, new service and products byfeature the incremental improvement to the existing ones such as amore improved DVD player. In view of this, it is critical for a firmto conduct a primary research so as to determine whether there issufficient market for the proposed service or product[ CITATION Jay15 l 1033 ]t.

  1. Market Timeliness: This entails consideration of the timeliness of introducing a certain product or service. This depends on whether the product introduced is a breakthrough or new product.

If the product is an improvement of those that already exist,determine whether there is room for the new product. Some markets areeither dominated by competitors or saturated with competitors, suchas the internet search engines. Some markets like eateries are alwaysreceptive for new entrants. Another important consideration is thestudy of the marketplace economics to determine the dynamics ofindustry and gauge whether it is good to start a new business. Forinstance, a computer industry that is consolidating should look atthe acquisition of other similar industries such as acquisition ofCompaq by Hewlett-Packard in 2001, acquisition of eMachines byGateway in 2004 and acquisition of Alienware by Dell in 2006. Anyindustry that consolidates have handful of big companies acquiringthe major market and this forces the smaller firms out of business.Such a trend in computer industry implies that the time is not thebest to launch a new firm. For new businesses developing abreakthrough product or service, the idea of whether to capture thefirst-mover advantage is critical. A first-mover advantage will inmost cases lead to insurmountable gains as the product move into themarket[ CITATION Ala15 l 1033 ]. Nevertheless, the issue on whethergetting to the market first is advantageous remains a topic undercontention. Some proponents of first-mover advantage believe thatmost first-movers set the standards for industry and will enjoyadvantages of market power and brand recognition. On the other hand,the second-mover advantage describes advantages of the second entrantover the first entrant product or service. The proponents ofsecond-mover items argue that second mover products or services havethe advantage of studying the challenges facing the first-mover,hence resulting to more improved and better services or product.

  1. Identification of Niche (Vertical) Market: This is the final step in feasibility analysis of the market/industry.

A niche market represents a place within the larger market comprisingof a narrower group of clients with similar needs. Mostentrepreneurial firms that are successful do not begin by selling tobig markets. Rather, they start by identifying the markets that areunderserved or are emerging within a larger market. Another way ofidentifying the market is through analysis of the horizontaland vertical markets. A vertical market is analogous to nichemarket and it focuses on identifying similar businesses withspecialized or specific needs such as development of accountingsoftware specifically for small coffee outlets or eateries. On theother hand, a horizontal market should meet the specific needs ofseveral different industries. For startups, selling into a verticalor niche market is recommended mainly because it allows the firm toestablish in the industry without competition from majorparticipants[ CITATION Ash14 l 1033 ]. Also, a niche strategy givesa firm the opportunity to focus on serving a market that isspecialized in a better way rather than doing everything foreverybody within the broader market. The main challenge inidentification of attractive vertical or niche market is that themarket should be large enough to support the proposed business butshould be at the same time be small to prevent the head-to-headcompetition within the industry leaders. If it is impossible toclearly identify a niche market, then the envisioning of themarket/industry feasibility might be a challenge for a new businessventure.

OrganizationalFeasibility Analysis

The organizational feasibility analysis entails determination ofwhether the proposed business is having sufficient organizationalcompetence, management expertise and resources so as to successfullylaunch the business. The two major factors to consider whileconducting the organizational feasibility analysis include theresource sufficiency and management prowess[ CITATION War11 l 1033 ].

  1. Management prowess: A company is supposed to evaluate the ability or prowess of the management team. This requires a detailed introspection where the entrepreneur is supposed to complete a self-assessment. The two factors that are most important in ability assessment include the passion of the entrepreneur or the management team towards the business idea as well as the extent to which the management team or entrepreneur understands the market in which it is to operate. This area does not have practical substitutes for strengths[ CITATION Bla13 l 1033 ].

Though financing is important, the level of importance of passion forbusiness and customer knowledge supersedes it. If one has a greatbusiness and is aware of the customers, then there is what it takesto be a winner. However, if one has a lousy business idea, theavailability of finances may not be an avenue to win. When evaluatingthe prowess of the management team, several other factors need to beconsidered. Entrepreneurs with extensive social and professionalnetworks are able to reach to a large pool of people who are criticalin helping them plug knowledge or experience gaps. Additionally,potential new venture should clearly stipulate the team that isrequired which comprises the new-venture team. A new-venture teamrefers to a group of key players, advisers and founders whoeither manage or assist in management of new business during thestartup years. The new-venture team should identify individuals whoare capable and knowledgeable to lend credibility to organizationalviability of the new venture. These people join the board of advisersor board of directors[ CITATION Nec11 l 1033 ].

  1. Resource Sufficiency: This forms the second part of feasibility analysis of the organization. The resource sufficiency analysis entails evaluation of the venture to determine whether the resources are sufficient to successfully move forward and develop the new service or product. The focus in this context is on nonfinancial resources. Several areas should be assessed, including the office space available, labor pool quality and possibility of accessing the intellectual property protection on major aspects of the business. Some new ventures are able to minimize the initial expenses of the facility and gain access to resources by locating themselves within a business incubator. One of the main resource adequacies that a firm should consider is the proximity to other similar firms for the sake of business clusters. Clusters play a major role in increasing the productivity of the firms since the employees can easily network with one another. Also, the firms in a cluster can easily access scientific knowledge, technological expertise and specialized suppliers. In order to test for resource sufficiency, a firm should list at least 6 nonfinancial resources that are most critical and which will be required for them to move the business idea forward. If the critical resources are unavailable, proceeding with the business idea may be impractical[ CITATION War11 l 1033 ].

Financial FeasibilityAnalysis

Thisforms the final stage of a detailed feasibility analysis. Theanalysis entails quick assessment of the financials. Since thebusiness specifics will inevitably evolve, more rigor at this pointmay not be necessary. It is impractical to spend too much time toprepare detailed financial forecasts. An entrepreneur shouldconcentrate on getting the total start-up capital, financialattractiveness of the venture and how similar businesses performfinancially[ CITATION Lee11 l 1033 ].

If the proposed venture moves past the feasibility analysis stage,there will be need to complete the projected financial statementsthat demonstrated the projected financial viability of the firm inthe first 3 years.

  1. Total Startup Capital required: this refers to total amount of money required for the business to make its first sale. The entrepreneur should prepare an actual budget that lists all the expected operating expenses and capital purchases to generate the first revenues. At the beginning, only few businesses quality for either equity funds or bank financing. Rather, the financial feasibility analysis should clearly outline where the new venture will get the funds from. If friends and families will fund the venture, or if credit cards and home equity line of credit will be used, there should be a reasonable plan to pay back the money. In case the bank or equity investors are involved, the plan should be done in such a way that the startup money will be enough up to the point when the cash flow will be positive. Outlining how the startup costs for a new firm will be covered is very critical. Many ventures may look promising but they lack ways of raising the enough funds to get the business to fully operational level or even recover all the costs involved during startup[ CITATION Bar12 l 1033 ]. Murphy Law is common in startup venture-things will have to go wrong. It is almost impossible to get a startup that does not have setbacks before it is fully operational. In most cases, the startups suffer from unanticipated delays and expenses before getting to the market.

  2. Financial Performance of Other Similar Businesses: This forms the second component of the financial feasibility analysis. This process entails estimation of potential financial performance of the proposed startup by comparing it to other similar established businesses. This gives approximate numbers rather than exact. The exercise can be carried out using little ethical detective tasks. First, make use of various reports that are available, some for free while some are paid for. The reports offer detailed analysis of the trends as well as reports for various individual firms. Some websites allow the use to give the projected revenue after which they get a mock income statement that shows expense and profitability percentages for the business in the same category. Also, entrepreneurs can easily track sales data by reviewing and observing the public records. A basic way of achieving this is by frequent visit to the similar business and having a general overview of the number of clients coming in and out within a day. This analysis provides the entrepreneur with a general perspective of the financial performance of firms similar to the proposed venture[ CITATION Bri12 l 1033 ]. This is admittedly challenging for a startup. The information gotten during this stage of analysis can also be utilized in preparation of pro forma statements at later dates.

  3. Overall Financial Attractiveness of the Prospective Venture: The overall financial attractiveness of a venture is evaluated based on the projected rate of return of the venture. At the feasibility stage, projected rate of return entails the comparison of the proposed venture to other similar businesses. Pro forma statements can be prepared to include financial projections for 1 to 3 years to give a more precise estimation. This should be accompanied by the respective financial ratios. This may be done during the business planning development stage to save on time in feasibility stage. Several factors have to be considered when investigating whether the return projected is enough to justify launching of the business. These include

  • The amount of money invested

  • Time required in earning the return

  • Risks assumed when launching the venture

  • Existing alternative for invested money

  • Existing alternatives for the efforts and time of the entrepreneur

Conclusions should be made after evaluating of the above factors. Forinstance, opportunities that demand substantial capital and requirelong maturity periods may have a lot of risks involved unless theirrate of return is very high. For instance, it would be unrealisticfor entrepreneurs to invest $10 million in a startup that is capitalintensive and risky and only earns 5 percent rate of return. The 5percent can easily be earned through the money market fund withminimal or no risk. Adequacy of returns is also dependent on thealternatives of the people involved. For instance, an individualcontemplating of leaving a $140,000-per-year job to start a venturethat will need a higher rate of return than the person leaving a$40,000-per-year job.

Chapter Summary

  1. Feasibility analysis refers to the process of assessing a business idea to determine whether it is viable. It is the preliminary evaluation of an idea done to determine whether it is worth pursuing an idea.

  2. The most appropriate time to conduct a feasibility analysis is during the early stages of idea inception and follows the opportunity recognition that normally comes before developing a business plan.

  3. The product/service feasibility analysis entails the assessment of the overall service or product appeal. The two primary tests considered in this type of feasibility analysis include concept and usability testing.

  4. A concept statement refers to the preliminary description of the venture idea.

  5. The three main purposes of concept test include validation of underlying premises that are behind a service or product idea, facilitate idea development and enhances the assessment of potential market share that a service or product commands.

  6. The usability testing entails asking the users of a service or product to perform some tasks so as to measure the ease of use of the product as well as the satisfaction and perception of the users based on experience.

  7. The feasibility analysis of the market/industry entails assessing the overall market appeal for the service or product that is being proposed. There are three main factors that should be considered during the market/industry feasibility analysis. These include the industry attractiveness, niche market identification and market timeliness.

  8. Primary research entails the original research conducted by an entrepreneur. When assessing the attractiveness of the market, the primary research involves the entrepreneur talking to the key industry participants or potential clients. Secondary research helps in discovering meaning in or from the data that has already been collected.

  9. The organizational feasibility analysis is done to determine the sufficiency of the management expertise, resources and organizational competence of the proposed business. The main factors considered in organizational feasibility analysis include the resource sufficiency and management prowess

  10. The financial feasibility analysis refers to the preliminary analysis of the finances of a business to determine the financial soundness of the proposed business. The main factors considered in this analysis include the financial rate of return, capital requirements and overall attractiveness of the venture.

Chapter Four QuestionsChoose either True orFalse

  1. An entrepreneur should conduct a feasibility study in order to determine how viable a business idea is before proceeding with business development.

  • True

  • False

  1. A feasible venture refers to the business activity that will generate enough profits and cash flow for the business as well as withstanding the risks encountered and remains viable so as to meet the objectives of the founders

  • True

  • False

  1. Efficient business failure is when profitability is achieved within three months after the start of full operation of the business

    • True

    • False

  1. Product/service feasibility analysis entails the preliminary description of the idea for the service or product to the prospective clients to gauge their purchase intent, desirability and interest

  • True

    • False

  1. Market/industry feasibility analysis assesses the overall market appeal of the proposed product or service

    • True

    • False

  1. Young industries have early product lifecycle with less intense competition in prices.

    • True

    • False

  1. Crowded market with many competitors is less likely to experience low operating margins and fierce competition in prices.

    • True

    • False

  2. Two major factors to consider while conducting the organizational feasibility analysis include the resource sufficiency and management prowess.

    • True

    • False

  1. Usability testing entails asking the users of a service or product to perform some tasks so as to measure the ease of use of the product as well as the satisfaction and perception of the users based on experience..

  • True

    • False

  1. Primary research helps in discovering meaning in or from the data that has already been collected.

    • True

    • False

Multiple choiceQuestions

  1. The main purpose of feasibility study is to determine how viable the business idea is. Which one of the below listed items is not a component of feasibility study

  1. Operational feasibility

  2. Product/Service feasibility

  3. Financial feasibility

  4. Organizational feasibility

  1. Which one of the following is a benefit of feasibility study

  1. Provides insight into addition service and/or product offerings

  2. Efficient use of capital and time

  3. Helps the entrepreneur get the product right

  4. All the above

  1. A business idea can be tested using three main methods. Which one of the following is not used in testing a business idea?

  1. Building a minimum viable product and running it via a group of critics

  2. Selling the idea to other well equipped developers and monitor it.

  3. Make failure efficient

  4. Think profitability

  1. Which are the major tests of product/service feasibility study

  1. Usability testing

  2. Concept testing

  3. Prototype Testing

  4. A and B

  1. Concept testing entails the preliminary description of the idea for the service or product to the prospective clients to gauge their purchase intent, desirability and interest. There are three main purposes of concept testing as listed below. Which one is not?

  1. Idea development

  2. Sales estimation

  3. Estimation of target customer base

  4. Validation the underlying premise for the product/service idea

  1. The feasibility analysis of market/industry encompasses three main components. Which one of the listed items below is not one of these components

  1. Attractiveness of the industry

  2. Validation of the underlying premise for the product/service idea

  3. Niche market identification

  4. Market timeliness

  1. The financial feasibility should include three main components. Which one of the following is not a component of financial feasibility

  1. Overall Financial Attractiveness of the Prospective Venture

  2. Financial Performance of Other Similar Businesses

  3. Total Startup Capital required

  4. None

  1. How can you evaluate the overall attractiveness of a new business venture?

  1. Evaluating the projected rate of return of the venture

  2. Estimating the total profits and liabilities

  3. Estimation of initial capital

  4. Calculating the Return on Equity

  1. Several factors have to be considered when investigating whether the return projected is enough to justify launching of the business. Which one among the following should be considered?

  1. Existing alternatives for the efforts and time of the entrepreneur

  2. Risks assumed when launching the venture

  3. The amount of money invested

  4. All the above

  1. When is the most appropriate time to conduct a feasibility analysis?

  1. After idea inception but before developing a business plan

  2. Immediately after developing a business plan

  3. Before Idea inception

  4. None of the above

Answers in Appendix Section


Understanding theEcosystem and starting a businessDefinition of aBusiness Ecosystem

A business ecosystem refers to a strategic planning model comprisingof network of distributors, suppliers, customers and competitors whocollectively work together through cooperation and competition toadvance sale of services and products[ CITATION Bal12 l 1033 ].

Ecosystem is a term that conveys of the pieces of economy comingtogether such that their interactions and strengths form an economiccommunity that determine economic growth and prosperity. An economiccommunity is supported through a platform of interacting individualsand organizations that comprises the major business world organisms.The community will produce goods and services that are valuable toclients who are still the members of ecosystem. Overtime, theeconomic community coevolves its roles and capabilities and tends toalign towards the direction established by one or multiple companies.The ecosystem components that hold the leadership roles can changewith time but their functions are highly valued by the community asit plays a major role by enabling members move towards a sharedvision as well as align their investments and identify mutuallysupportive roles.

Traditionally, people in one company used to consider other companiesas rivals who had to battle each other for dominance and profit. Inthe current world, organizations operate in a complex relationshipwhere they have to cooperate and compete in unexpected and innovativeways they need each other for them to succeed. This forms the newworld of business ecosystem.

Figure5: Business Ecosystem Source: (Bell, 2014)

Moore (2014) defines a business ecosystem to include those entitiesthat are considered to be components of a corporation. These includethose that are inside the walls of an organization as well as directsuppliers and those in the distribution channels. Also, the ecosystemcontains the extend enterprise that comprises of standard bodies,direct customers, the complementary product suppliers amongst manyothers. Finally, the ecosystem comprise of those entities thatsignificantly affect the core business but are considered as peskyoutsiders or afterthoughts. These comprises of the regulatory bodies,investors, unions, associations and many others[ CITATION Gla13 l 1033 ].

Ecosystems have significant implications on how companies plan fortheir future. Unfortunately, many companies ignore the ecosystems attheir own risk. It is critical that businesses and organizations tolearn about the business ecosystems and how companies are able toplan for their future. This helps in risk management, improvingeffectiveness and acts as breakthrough to new innovations[ CITATION Fin13 l 1033 ].

Starting Up aBusiness

Starting a business is a process that entails several things. Aftercoming up with a realistic idea that can be turned into a service orproduct, there are other factors that should be considered[ CITATION Par12 l 1033 ].The modes of starting a business vary in different parts of theworld. Though the process is more or less the same, this chapterconcentrates on startup in GCC region, more specifically in Oman.

Legal process ofstarting up a businessLegal and Regulatory Framework in Oman

The corporate law in Oman stipulates that businesses may be run asprivate companies, limited liability operations of any other types ofconcern. In Oman, the legal system is based on both the IslamicSharia Law and Civil Code Principles. The civil matters originatefrom the Islamic Sharia and 1996 Basic Law. According to the BasicLaw, Islam is regarded as the state religion while Islamic law formsthe basis for legislation. The existing regulations and laws remainin force as long as they do not interfere with the provisions of thebasic law. According to the provisions of Basic Law, the areas thatare only governed by Sharia Law are only the inheritance and familylaw.

The Commercial Court handles the commercial disputes. Since Omandepends on civil law, judges can freely interpret the agreements intheir own opinion. This may extend to the amendment of the contractif there is feeling that amendment can accurately reflect theoriginal intentions of the parties.

Establishing Business in Oman

Individual investors and foreign companies can establish operationsin Oman through one of the following major forms.

  • Joint stock company

  • Commercial agency

  • Limited liability company (LLC)

  • Commercial Representative office

  • Branch

Limited LiabilityCompany (LLC)

Individuals and foreign companies are supposed to have an Omanipartner who owns at least 30 percent of the shares in order to beregistered as an LLC. This is equivalent to a minimum capital shareof OMR 150,000 or $390,000 in order to register a LLC that hasforeign partners. The GCC companies that are fully owned by the GCCnationals or the GCC nationals themselves can establish an LLC inOman without necessarily having a local partner. An LCC should have aminimum of two partners.

Pursuant to the Free Trade Agreement (FTA) that was concluded betweenOman and US, the companies from US may establish subsidiaries in Omanwithout any local partner on condition that all the ultimateshareholders are US nationals. The minimum capital share for LLC withGCC or local ownership, or those that qualify under the US FTA inOman is $52,000 (OMR 20,000).

Joint Stock Company

The joint stock companies whose shares are not offered for publicsubscription are said to be privately held (SAOC). The minimum sharecapital for an SAOC is $1.3million (OMR 500,000).

Alternatively, the joint stock companies whose shares are offeredpublicly comprise of the SAOG. The SAOG has a minimum share capitalof $5.2million (OMR 2million). Also, the 30 percent localshareholding must be observed when establishing joint stockcompanies. Stock ownership in SAOG is done through the MuscatSecurities Market (MSM) that is regulated by Capital MarketAuthority. The foreign investments in both the financial institutionsand banks are under the regulation of Central Bank of Oman.


Foreign companies may register branches in Oman to execute thecontract with quasi-government body or the government itself. Theregistration of a branch is limited to the duration of the existingcontract. Nevertheless, special dispensation can be given to allow acompany to register a branch without necessarily having an existingcontract with the government. This must be approved by the Council ofMinisters.

Commercial Agency

A foreign company that lacks commercial registration in Oman canconduct business using commercial agents. The agreements areregistered formally under the Commercial Agency Law with the Ministryof Commerce and Industry (MOCI).

CommercialRepresentative Office

Foreign firms may open a commercial representative office in Omandedicated for marketing and promotion of their services or products.Representative offices are not allowed to engage in any buying,selling or any other form of commercial activity. Nonetheless, theoffice can hire or sponsor employees.

Free Zones

There are three free zones. These include the Salalah, Sohar and AlMazunah, as well as Duqm which is a special economic zone. Sohar isfully exempted from customs duties on all the imported goods. Thebusinesses in this area can be 100 percent foreign owned while thetax exemptions are up to 25 years. The Sohar Industrial State withinSohar is a free zone reserved for food, steel and logistics sectors.

Salalah is in the southern side of Oman. The zone offers competitiveinfrastructure and labor costs so as to attract investors in materialand chemical processing, assembly and manufacturing. The incomeexemption are up to 30 years. There is allowance for full foreignownership without minimum capital stipulations for setting up thecompany.

Al Muzunah is in Dhofar region in south western parts of Oman. Theone is reserved for light industry, trading and assistant servicessectors. The income exemptions in this zone are up to 30 years.Customs exemptions are available and full foreign ownership isallowed. There is no limit for minimum capital requirement forsetting up the industry. The Yemeni nationals are allowed to work inthis zone without necessarily having work permits or visas.

The Duqm economic zone is at the Arabian Sea coastline and serves asa gateway to and a major hub for North and East Africa, Middle Eastand South Asia. Duqm has several areas such as tourism andeducational sections, logistics and industrial sections,petrochemicals and filter complex, town and airport. Some of theincentives offered to investors in this area include competitiverates for leasing lands and 30 years income exemption plus fullcustoms exemptions. There is allowance for 100 percent foreignownership.

Joint Ventures

The joint ventures are mainly formed to ensure that foreign countriescan benefit from conducting businesses in Oman without having aphysical presence in the country and are free of all the risks andcosts associated with establishment of legal entity within thecountry. A foreign country enters into joint partnership with a localcompany that has at least 30 percent Omani shareholding. The foreigncountry will there not be subjected to any registration or licensingrequirements.

Trade Name Registration

The name search for the trade name forms the first step inregistration of establishments and companies in Oman. The service isimportant for businessmen and investors inside and outside theSultanate. The trade name registration is mandatory for juristic andnatural businessmen and investors. The steps below are followed whenregistering a trade name:

  1. Application through the bureau of certified transactions clearance, directorate for trade names or law firm. The application should describe your intent of registering. This applies also to any businesses that want to open new branches.

  2. The office concerned searches the existence of identical names in their system. The applicant’s particulars and the trade name are entered into the system.

  3. The system will send a text or an email to the applicant regarding the application status. The application can be rejected, approved or may prompt for more information from the applicant.

  4. In case the application is approved, the applicant is given a certificate of the trade name.

  5. The application number is normally submitted when registering the establishment or the company.

Legal Forms ofincorporationLimited Company

Limited Company is one of the common legal forms used in running abusiness. A company is incorporated to form an entity that has aseparate legal personality, and this implies that an organization canengage in a business and form contracts on its own. Uponincorporation, a company is required to have two major constitutionaldocuments. These include:

  1. Articles of Association which represent a contract between the members and the company and they set a legal binding rules for the company and this is inclusive of ownership, control and decisions. The Company Act of 2006 allows significant flexibility to draw the articles so as to suit the specific needs of the company as long as it is within the law.

  2. Memorandum that records the fact that the initial subscribers agree and wish to form a company and consequently become its members. It is impossible to amend a memorandum.

A limited company is normally owned by its members who invest in thebusiness and enjoy limited liability. This implies that the company’smoney is separate from individual money. As a general rule, thecreditors of the company can only pursue the assets of the company tosettle a debt rather than the personal assets of the owners. Two mainmechanisms for company membership include company limited by sharesand company limited by guarantee members.

  • Company limited by shares has each of the members having some shares in the company, hence become shareholders. The limited liability by shareholding implies that the members stand to lose whatever had already been committed to be invested (unpaid amounts on shares) or has already been invested.

  • Company Limited by the Guarantee Members: A company limited by shares has a voting right attached to each share meaning that the members can vote on important decisions that affect the company. One share is normally equivalent to one vote though this is not the standards. Companies may choose their own class of share and voting rights. The company limited by guarantee has its one member equivalent to one vote (OMOV).

Finance for a company limited by guarantee member comes from theloans, members’ contribution or retained profits. A company limitedby share can raise funds from shareholders in exchange for increasedstake in business and any profits are distributed inform ofdividends. Limited companies have a higher capacity to finance thebusiness than most of unincorporated companies since they can use theassets held as security for obtaining loans and this gives themcharge over their assets.

The limited companies are subjected to stricter regulatoryrequirements than the unincorporated forms, hence, greatertransparency and accountability are vital for members to benefit fromthe company. Also, accountability is required both from the peopledealing with the company and also the shareholders. The company issupposed to comply with the taxation stipulations of the country suchas value added tax (VAT), income tax, withholding tax and manyothers.

A company that is limited by shares can either be a public limitedcompany (Plc.) or Private Limited Company (Ltd). The main differenceis that a Plc. is allowed to sell shares to the public. Nevertheless,a private limited company forms the most common legal incorporatedform of company. Private limited companies may upgrade to publiclimited companies to take advantage of raining funds. A publiclimited company are exposed to more strict regulation than theirprivate counterparts so as to ensure protection and transparency ofthe public investors who are in most cases not included in managementdecisions of the company.

A public Limited Company may become a listed company after it floatsits shares on a recognized stock exchange. This creates a widermarket for its shares. A listed company is subjected to even greaterregulations in form of listing rules as well as the requirements ofinformation disclosure to ensure maintenance of integrity and properfunctioning of the market.

Limited Liability Partnership (LLP)

An LLP is a corporate body that has separate legal personalitieswhich are similar to those of a company. The members of an LLP willenjoy limited liability limited by the amount of money that eachperson has invested in the business and any other guarantee given toraise the money. Each member enjoys an equal share of the profitunless otherwise specified.

Every member within an LLP is required to register, and both themembers and LLP is entitled to take self-assessment returns. Thenon-corporate members of an LLC are required to pay income tax andthe national insurance contributions on the profits. Additionally,the LLPs should file annual returns and file accounts. The LLP shouldat least two designated members who hold additional responsibilitiessuch as signing off, filing accounts and appointing auditors.

LLPs enjoy more freedom than limited companies especially inarrangement of the internal affairs and distribution of profits amongthe members.

Community Interest Company (CIC)

The CIC is a type of company that is limited either by guarantee orshares and created for social enterprises whose main aim is to useassets and profits for the benefit of the community. The CICs can beset up easily and enjoy all the certainty and flexibility of acompany form but have several features that ensure their service tothe community.

  • Any company applying as CIC is required to submit a community interest statement as evidence to the CIC regulator that the company will satisfy the interest of the community as specified in the law. The company should continue satisfying the test as long as it remains a CIC and this should be done alongside annual reports to the regulator.

  • The CIC should have an ‘asset lock’ that restricts any transfer of the profits and assets of the company so as they are used for the benefit of the community.

  • CIC should have the interest payable and dividends share in a manner that will encourage people within the community to invest in CIC. The profits and assets of CIC must be devoted solely for community benefits.

Charitable Incorporated Organization (CIO)

A CIO refers a new legal form available to charities. The charitiesincorporate under the company limited by guarantee. This implies adual registration with the Charity Commission and Companies Houseunder the charity law and company law. The status of CIO allows thebenefits of incorporation though the organization can only beregistered with Charity Commission while Charity law does theregulation. The small and medium charities are the main users of thenew form. The assets and profits of the charity organization areprimarily locked for charitable use only. The regulations and lawgoverning charities are devolved.

Industrial and Provident Society (IPS)

The IPS may be either a cooperative society(Co-op) of Community Benefit Society

  1. Cooperative Society: This is a membership organization that is normally run for mutual benefits of the members. This implies that a Co-op should serve the interests of the members majorly by trading providing them with facilities, goods and services or trading with them. Any surplus is normally channeled back to the organization though members can share the profits. A co-op may or may not be termed as a social enterprise as this is dependent on how the profits are distributed and the activities involved. A co-op is governed using rules that reflect the principles and values of a cooperative that are established by International Cooperative Alliance. According to the definition by alliance, a cooperative is an independent association of persons that voluntarily join hands to meet a common cultural, social and economic aspirations or needs through a democratically controlled and jointly owned enterprise. A Co-op is normally incorporated and this implies that it should have separate legal personality and must submit and register annual reports to financial services authority instead of the Companies` House. The liability of the members is limited in the unpaid amount on shares. The Co-ops rely on open membership principles, and this implies that they can offer shares for public trading. The members run and manage Co-ops mainly through a committee of officers which is similar the board of a company that manages the establishment on their behalf. The members in a Co-op are allowed to have a democratic control of One Member One Vote (OMOV) irrespective of the shareholding size under the cooperative principles and values.

  2. Community Benefit Society (BenCom): This operates in a similar manner as Co-op but its main businesses are objected at benefiting the community instead of the members. A Community Benefit Society is solely run to benefit people who are not necessarily supposed to be members and should be done at the interest of the entire community. The profits gotten are not distributed amongst the external shareholders or members. Rather, it is taken back to the community. The Community Benefit Society is entitled to apply for the asset lock so as to protect is assets for future use of the community. In most cases, a BenCom does not issue shares more than the nominal value. Issuing of more than the nominal share capital or when loans are made to BenCom by the members, interest paid and dividends are capped at reasonable rates that are crucial for the business to retain the capital needed. A BenCom can be registered as a charity on condition that it exclusively operates charitable objects for the benefit of the public, and this allows them raise capital from charitable trusts and public grants. When approved to be charity, a BenCom is referred to as exempt charity that reports only to Financial Services Authority (FSA) and not to the Charity Commission. The Charitable BenComs are required to have an asset lock[ CITATION Bar13 l 1033 ].

Financial Mutual

These are organizations that exist tospecifically provide financial services and are not required toregister with FSA. These include:

  1. Building Society Building: This is financial services institution whose main role is to provide the residential lending mortgage and other financial services like lending and investment, banking and insurance and money transmission services. The members fund the organization

  2. Credit Union: this is a cooperative financial institution owned and controlled by the members. Operations of a credit union are aimed at providing credits at rates which are reasonable as well as giving out financial services to the members.

  3. Friendly Society: this is a voluntary mutual organization that operates to give financial assistance to the members during retirement, unemployment or sickness, as well as providing life insurance.

IntellectualProperty Rights

The intellectual property right refers to the rights given to aperson on account of their creativity. The creator is accordedexclusive right over use of their creation for a specified period oftime. The intellectual rights are divided in to two major areas.These include:

  1. Copyright and related rights

These are the rights accorded to authors of both the artistic andliteracy works such as musical compositions, computer programs,sculpture, paintings and films among others. Even after the death ofthe creator, the works are normally protected by copyright for 50years. Also, copyright protects performers, phonogram producers andbroadcasting organizations. Copyright plays a major role is to rewardand encourage creativity[ CITATION Bal12 l 1033 ].

  1. Industrial Property

Industrial property entails two main areas

  1. The first industrial property right entails protection of the distinctive signs, particularly trademarks which distinguish goods or services of a particular undertaking from those of others as well as the geographical indications that identify goods that originate from a place when a certain characteristic of good it’s attributed to geographic origin. &nbspProtection of the distinctive signs helps in stimulating and ensuring fair competition as well as protects consumers by allowing them make informed choices on various goods and services. The protection can last indefinitely as long as the sign continues to be distinctive.

  2. The industrial property rights protect and stimulate innovation, design and technology creation, hence given incentives and means of financing research and development. A functioning intellectual property regime must facilitate technology transfer in form of joint ventures, licensing and foreign direct investment. The finite term for the protection is 20 years for patents.

It is critical to note that the intellectual property rights aresubject to exceptions and limitations that help in fine-tuning thebalance between legitimate interests of users and holders of thoserights.

Bankruptcy Laws

Bankruptcy laws allow for the elimination or reduction of certaindebts and provide timelines for repayment of the non-dischargeabledebts in a certain period of time. This also permits organizationsand individuals repay the secured debts debts where vehicles andreal estates are pledged as collateral, and is in most casesfavorable to the borrower.

In Oman, bankruptcy laws are mostly ordered by the court based on theinitiative of the court after the debtor company or creditors file anapplication. The courts in Omani appoint administrators to manage theassets of the debtor while the application of bankruptcy is stillpending. After a company is declared bankrupt in Oman, liquidationcan follow where the court appoints a liquidator to facilitatetransfer of the remaining assets of a company. Liquidation isnormally done through public auction or judicial sale[ CITATION AlS13 l 1033 ].

To distribute the assets of the company that has been declaredbankrupt, all expenses incurred by liquidator or administrator,including compensation, is paid from the assets of the company thathas been declared bankrupt before making any distribution to thecreditors. As a general rule, the debts associated with both thesecured and unsecured private debts should not be as high as debtsowed to the government irrespective of whether the government debtscame later and is unsecured. Unlike the bankruptcy laws in mostcountries, the Omani laws for liquidation and bankruptcy arestraightforward. The laws are aimed at protecting the creditors andensure efficient liquidation of insolvent company.

Professional trainingand development program

Professional training refers to training where a person is taughtskills that are relevant to working in a particular profession. Thisis done via an expert in the field. Nevertheless, attending thetrainings is not a guarantee that one will become a professional[ CITATION Moo13 l 1033 ].

Understanding the scope of running a business is critical. Theentrepreneurial training program is a powerful resource designed tohelp one develop a solid knowledge as well as learn what it takes toestablish a thriving business. The professional training anddevelopment program is important in the following ways:

  • Help the entrepreneur put the business idea to test

  • Enhances business plan development skills

  • Increases the capabilities of an entrepreneur in exploring real world possibilities

  • Increases the chances for success and reduces the costs related to trial and error.

  • One is able to get answers to experienced instructors and facilitators

The trainings and development programs are offered in financialmanagement, legal and risk management, recording keeping and taxes,business plan development, business startup models, marketing needsand planning, and basic accounting and finance among others.

Most entrepreneurs perceive employee training as optional, aviewpoint which is quiet costly in both long-term and short-termprogress of the business. They tend to consider training as more ofan expense, hence many companies do not have trainings anddevelopment that is focused on producing results for the company. Inmost cases, business owners will tend to give their people trainingsthat seem good without necessarily having the objectives of what toget in return. Lack of measurable results implies that the businesswill always perceive trainings as expenses rather than investment.When training is considered as an investment, there will alwaysconsideration on how to get the rate of return on investment, hencetriggering the needs analysis[ CITATION Hub11 l 1033 ].

The needs analysis, in the context of training and development, issimply an outcome analysis of what the business owner wants after thetraining. It is critical for the business owner to ask him/herselfwhat the business will gain from the training. This requires carefulconsideration where one focuses on processes rather than products.During the need analysis, one has to focus on strengths andweaknesses of the company and try to determine the existingdeficiencies which if corrected can potential lead to an upward gainin the business. A major area of concern in many companies istraining the supervisors to better manage the performance. Thepromotions to management positions target those people who aretechnically good rather than those who are capable of helping thesubordinates reach their peak performance. The determination ofprofessional training and development requires a need based approachand establishment of learning dynamism in the company[ CITATION Hoy12 l 1033 ].

In the current economy, if the business is not learning, then thereis high chance that the business will lag behind. A business willlearn when employees learn. The employees are critical tools used inproducing, refining, protecting, delivering and managing the productsand services. With the increase pace of the 21st century,continuous learning is very important for continued success of thebusiness. In order to create a learning culture in the business, thebusiness owner should clearly define his/her expectation from theemployees and outline the steps required to hone their skills andenable them stay at the top of their fields of work or professions.It is critical to support their efforts by supplying them withnecessary resources required to accomplish these goals. Also,communicate with the employees the specific targeted results andtraining needs you establish through the needs analysis.

The business owner should provide sound orientation and introductionto the culture of the company to any new employee hired. Thisincludes proper training on how to undertake their procedures. Asuccessful training and development program should also includecomponents which address the current and future leadershiprequirements. This should provide for a system that identifies thetraining needs and develops people in a way that ensures the businessremains profitable[ CITATION Har11 l 1033 ].

The financial considerations regarding trainings can be perplexingthrough in most cases, the actual budgetary impact is dependent onhow the business owner addresses the learning, leadership and needsanalysis. When training is targeted to specific needs, then there ismore likelihood for the business to succeed and attain value towhatever was spent on training. When the training budget fails tohave a specific outcome, then there is high likelihood that the moneywill be spent on courses that are irrelevant to the company.

Most companies have their training budgets as a function of thefinancial environment downturn or upswing. During upswing, mostcompanies spend money on irrelevant trainings while in downturns, thetrainings may be perceived as very important and sometimeseliminated. In many economic environments, the expenses in trainingsshould be determined by the business results targeted rather thanother factors that are budget-related. To help countering suchtendencies, it is advisable that you carefully assess the trainingand development needs of a business in order to identify the needs aswell as brainstorm on how to achieve the desired results in a moreefficient and effective manner[ CITATION Nec11 l 1033 ].

Employees form the principle business asset. When one invests in themstrategically and thoughtfully, the results can be overwhelming andthe business can reap rewards which pay off both now and years tocome.

Sources of businessFinancing

The most challenging part in business financing is getting money tokick-off. In most cases, an entrepreneur might have a clear and greatidea on how to have a successful business but inadequate finance canlimit the take-off. Raising money for startup requires very carefulplanning and entrepreneur should know:

  1. The amount of money required?

  2. How and when the money is needed?

  3. Is there security for the funds obtained?

  4. Is the entrepreneur ready to give up the business control of the startup in exchange for investment?

The financing needs should take into account the:

  1. Startup costs which refers to costs that are incurred before the business starts operating

  2. Starting investment that includes all the fixed assets required before a business can start operating

  3. Working capital which refers to the stocks required by the business such as allowance amounts after the beginning of sales and raw materials

  4. Growth and development capital for the extra investment in capacity

Beloware the sources of business financing

1.&nbspPersonal investment

This is the money invested when borrowing, either in terms ofcollateral on your assets or in cash. This is an indication ofcommitment to your project.

2.&nbspLove money

This refers to money loaned by parents, spouse, friends or family.Nevertheless, it is critical for an entrepreneur to note that thismay not be so much reliable as friends and family will rarely givemuch capital. Also, they will in most cases want to have equity inthe business and an entrepreneur is advised not to give them equity.A business relationship with friends and family should not be takenlightly.

3.&nbspVenture Capital

Thisis the money that is provided as seed in early business stages. Mostof the venture capital funders will invest in a company in exchangefor equity. The venture capital investment occurs after the seedfunding and is a form of private equity. Venture capital can also bedescribed as a way through which public and private sectors constructinstitutions that creates network for new industries or firms. Theinstitution helps in identifying and combining the business functionslike technical expertise, finance, business models and marketingexpertise. After the integration, the enterprise will succeed inbecoming nodes for design and construction of products within theirdomain. In most cases, the decisions by venture capitalists arebiased and exhibit some illusion of control and overconfidence,similar to entrepreneurial decisions.

This is the financing that originates from individuals or companiesin the business of investment in young and privately heldestablishments. They give capital to young business in exchange forequity. Normally, the venture capital firms will be unwilling toparticipate in initial stages of business financing unless theventure has a proven track record of its management. They will inmost cases prefer to invest in ventures that already have significantequity investments from the founders and which are alreadyprofitable. They prefer business that is highly competitive with astrong value proposition in terms of proven product demand, patentand protectable or very special idea[ CITATION Bel14 l 1033 ].

The venture capitalists will in most cases take a hands-on-approachof their investments, where they require to be presented in board ofdirectors and even in hiring of managers. They can provide beinstrumental in providing business advice and guidance. Nevertheless,they will always be after substantial returns for their investmentsand sometimes their objectives may cross with those of the founderssince most of them are focused on short term gains.

Most of venture capital firms focus on creation of an investmentportfolio with businesses that have high growth potential and whichwill in most cases result to high rate of return. Most of suchbusinesses are highly risky. The venture capitalists may targetannual returns of between 25 and 30 percent on the overall investmentportfolio. Since the businesses they are interested in are highlyrisky, they will prefer investments with at least 50 percent expectedreturns. Some business may give at least 50 percent returns whilesome will not. As such, they hope that the investments will have a 25to 30 percent returns[ CITATION Boo15 l 1033 ].

The venture capitalists believe in 2-6-2 rule of thumb which impliesthat two investments tend to yield more returns while six will yieldtheir original investment or moderate returns and two will fail. Itis good to note that funding may not necessarily be available for allentrepreneurs. Most venture capitalists target technology-drivenbusinesses as well as companies with high growth potential in areassuch as biotechnology, information technology and communications.

The venture capitalists will tend to take an equity position toenable them execute a highly risky but promising venture. This mayentail giving up equity or some ownership of your venture to anexternal party. The venture capitalists will always expect healthyreturns on investment, which is in most cases generated when thebusiness offers shares for sale to the public. Ensure you look forinvestors who will bring relevant knowledge and experience to yourbusiness[ CITATION Bal12 l 1033 ].


These are wealthy retired company executives or individuals who willdirectly invest in small firms owned by other people. These in inmost cases leaders in their field, who contribute their experience,network of contacts, management and technical expertise. Angels willfinance the business during the early development stages.

In return, the angel capitalists reserve the right to supervise themanagement practices of the company. In concrete terms, this involvessitting in the board of directors as well as taking part in anyprocess that relates to business transparency. They will in mostcases tend to keep a low profile and to meet them, one has to contactspecial websites or specialized associations[ CITATION Yal14 l 1033 ].

Government Funding

Bringinnovations that the government fund is not easy. The governmentfunding is critical in covering the expenses like equipment, researchand development, marketing, improvement of productivity and salaries. The government will in most cases offer grants and subsidies. Grantrefers to the money conditionally given to the business where onedoes not have to repay. Nevertheless, one is bound legally to makeuse of it under the terms and conditions of the grant, failure towhich one has to repay. Once a business is granted money from onesource of the government, it is possible to receive further fundingfrom the same source upon meeting the requirements of the program.

  1. Direct Grant: Getting grants is not easy, and will in most cases involve strong competition and complex criteria for award. Generally, most grants will require the business owner to match the funds that are being given and the amount may vary considerably based on the granter. For instance, a grant to carry out a research may require the person to just look for 30 percent of the total cost and the rest is given out.

  • Requirements for Government Grants

  • Detailed description of the project

  • Explanation of the project benefits

  • Detailed work plan with clear costs

  • Detailed presentation of background and experience of key managers

  • Filled application forms

  1. Soft loan: Soft loan is an example of grant where the conditions of repayment are lower than in normal financial circumstances. For instance, the government may charge little or no interest rate and repayment periods could also be longer.

  2. Equity finance: This refers to the capital that is injected into a business by the government after which it gets an equity in the enterprise. After the firm increases in value, the government can withdraw. Unlike the venture capitalists, equity finance have less stricter terms.

  3. Subsidized/free consultancy: This is a business support service offered for free or at subsidized rates by the government for the firms intending to startup and they lack certain skills to run the company.

Bank Loans

A loan refers to credit, usually in form of cash that a personborrows and repays over the agreed period of time. The banks canoffer loans to business. Nevertheless, for startups, banks are veryhesitant in giving out loans unless there is evidence of existingassets or good credit history.

Some of the advantages of bank loan is that they are repayable in awhole term rather than on demand like overdrafts. It is also easy totie a loan to lifetime of the asset or equipment you are borrowingthe money for, and finally, the bank does not demand a share of theprofits or company. Nevertheless, loans are not flexible where onehas to pay charges when repaid early or fines when repaid late. Whenloans are taken against assets as security, there are chances thatthe assets can be sold upon failure to comply with the payments.Also, payments for loans with variable rates can change and this maymake it hard to pay for the finances.


Infrastructure remains a critical component of economic development.Effective and efficient infrastructure is critical in promotingeconomic growth and competitiveness. The development ofinfrastructure promotes productivity, communication, production andtransportation. The quality and accessibility of infrastructure iscritical in shaping the investment decisions of domestic firms andwill in most cases play a major role in attracting investors[ CITATION Rie12 l 1033 ].

The Omani’s most visible investment in infrastructure has been inhighways and roads. Overall, the new infrastructural development inOman, coupled with the cheap labor and pro-business policies has madeit an attractive hub for Foreign Direct Investment (FDI).


An industrial park, also known as trading estate or industrialestate, is a section that is set aside, planned and zoned for thepurpose of industrial development. It can be considered as aheavyweight version of an office/business park[ CITATION Don13 l 1033 ].Most industrial parks are normally located outside main residentialareas and have good infrastructural access. Most industrial parks arelocated close to transport facilities such as railroads, ports,airports and highways. Some of the reasons for setting asideindustrial parks include:

  1. To enhance dedicated concentration of infrastructure in an area so as to reduce the business expenses related with infrastructure.

  2. To attract new businesses through provision an integrated infrastructure in a location

  3. To reduce the environmental impacts of industrial wastes

Some industrial parks may offer incentives to the members such asfinancing in tax increment and customs exemptions.

TechnologyParks and Business Incubators

Business incubator referred to as business accelerators. Their majorfocus is in high-tech sectors where they provide support for newbusinesses in different development stages. Also, there are localincubators for economic development whose main focus in in sectorssuch as revitalization and hosting, job creation and servicesharing[ CITATION Bøl12 l 1033 ]. For instance, an incubator mayallow use of his/her laboratory for development of a new product sothat the new business can start testing its product cheaply beforethe start of any production. The incubation phase may last up to 2years. After the product is ready for selling, the business willleave the premises of incubator and enter into an industrialproduction phase independently[ CITATION AlM11 l 1033 ].

Businesses receiving such kind of support will in most cases operatein state-of-art sectors like information technology, industrialtechnology, multimedia and biotechnology. The success rate of thebusiness supported through incubator is at least 5 years.

On the other hand, a technology park offer opportunity fordevelopment of large-scale projects and do not offer any businessassistance services that are a hallmark of business incubators.Nevertheless, many technology parks will house the incubationprograms.

Chapter Five QuestionsChoose eitherTrue/false

  1. A business ecosystem refers to a strategic planning model comprising of network of distributors, suppliers, customers and competitors who collectively work together through cooperation and competition to advance sale of services and products.

  • True

  • False

  1. Many companies have been very keen on their business ecosystems as they are well versed with risk management, improving effectiveness and acts as breakthrough to new innovations.

  • True

  • False

  1. In Oman, the legal system is based on both the Islamic Sharia Law and Civil Code Principles.

    • True

    • False

  1. Finance for a company limited by guarantee member comes from the loans, members’ contribution or retained profits.

  • True

    • False

  1. Limited companies have a lower capacity to finance the business than most of unincorporated companies since they cannot use the assets held as security for obtaining loans and this gives them charge over their assets

    • True

    • False

  1. LLPs enjoy less freedom than limited companies especially in arrangement of the internal affairs and distribution of profits among the members.

    • True

    • False

  1. The intellectual property right refers to the rights given to a person on account of their creativity and can either be copyright or industrial property right.

    • True

    • False

  2. Bankruptcy laws allow for the elimination or reduction of certain debts and provide timelines for repayment of the non-dischargeable debts in a certain period of time.

    • True

    • False

  1. Entrepreneurial training is a powerful resource designed to help one develop a solid knowledge as well as learn what it takes to establish a thriving business.

  • True

    • False

  1. Most of the venture capital funders will invest in a company in exchange for equity.

    • True

    • False

Multiple choiceQuestions

  1. Ecosystems have significant implications on how companies plan for their future. Which one of the below is not a function of business ecosystem?

  1. Help in risk management

  2. Improves company’s effectiveness

  3. Help in choosing the best management team

  4. Acts as breakthrough to new innovations

  1. Individual investors and foreign companies can establish operations in Oman various forms except in one of the following. Which one is it?

  1. Limited liability company (LLC)

  2. Commercial Representative office

  3. Branch

  4. None

  1. Which one of the following is not a legal form of company incorporation

  1. Limited Company

  2. Limited Liability Partnership (LLP)

  3. Community Interest Company (CIC)

  4. Free Zone

  1. Which of the following is not true about the intellectual property rights

  1. Intellectual property rights are independent of exceptions and limitations

  2. Copyright is the right accorded to authors of both the artistic and literacy works

  3. Industrial property right protects distinctive signs, particularly trademarks

  4. Industrial property rights protect and stimulate innovation

  1. Which one of the following is true about bankruptcy laws

  1. Bankruptcy laws permits organizations and individuals repay the secured debts

  2. Bankruptcy laws in Oman are ordered by the court before the debtor or creditors file an application.

  3. After a company is declared bankrupt in Oman, liquidation should be done away with

  4. The expenses incurred by liquidator or administrator during liquidation process is paid by the company doing the liquidation

  1. Which one of the following is not a role of professional training and development program

  1. Help the entrepreneur put the business idea to test

  2. Enhances business plan development skills

  3. Increases the market size of the company

  4. Increases the chances for success and reduces the costs related to trial and error.

  1. What is Love Money in business financing

  1. Money invested when borrowing, either in terms of collateral on your assets or in cash

  2. Money loaned by parents, spouse, friends or family

  3. Money that is provided as seed in early business stages

  4. Money gotten from wealthy retired company executives or individuals

  1. What is Venture Capital?

  1. Money invested when borrowing, either in terms of collateral on your assets or in cash

  2. Money loaned by parents, spouse, friends or family

  3. Money that is provided as seed in early business stages given in exchange for equity

  4. Money gotten from wealthy retired company executives or individuals

  1. Below are the different forms of government funding. Which one is not?

  1. Direct Grant

  2. Soft loan

  3. Bank loans

  4. Equity finance

  1. Below are some of the main reasons for setting up Industrial parks. Which one is not

  1. Enhance a dedicated concentration of infrastructure in an area

  2. Attract new businesses through provision an integrated infrastructure

  3. Reduce the environmental impacts of industrial wastes

  4. None of the above

AnswersChapter One Answers

  1. True

  2. True

  3. True

  4. False

  5. False

  6. False

  7. False

  8. False

  9. True

  10. False

  11. A. Decision Making

  12. C. Protection of the most valuable assets

  13. A. How attractive is the market for the new product/service

  14. B. Become Risk Takers

  15. C. Resilience, creativity and optimism

  16. D. Political stability

  17. B. iv, vii, vi, iii, v, i, ii

  18. C. Entrepreneurs should not be connected

  19. B. Political instability

  20. D. Employing someone to manage your finances

Chapter Two Answers

  1. True

  2. False

  3. True

  4. False

  5. True

  6. True

  7. False

  8. True

  9. True

  10. False

  11. C. Profitable

  12. C. Medium enterprises as having up to 100 employees

  13. B. Bank loans

  14. A. Increased interests by potential investors in tech-based or digital ventures

  15. B. Reduction in exports

  16. D. Poor legal ownership of local businesses due to increased entry of expatriates

  17. D. Chasing away the expatriates

  18. A. Omani locals register as business owners but are agents of expatriates

  19. C. Social

  20. C. (A and B)

Chapter Three Answers

  1. True

  2. True

  3. False

  4. False

  5. True

  6. True

  7. False

  8. True

  9. True

  10. False

  11. C. Feasibility Plan

  12. D. All of the above

  13. B. Product/Service production process

  14. B. Geographical targeting

  15. D. All of the above

  16. A. Double the estimates for insurance, legal and licensing fees

  17. B. Return on Investment

  18. A. Financial control personnel

  19. D. All the above

  20. B. Profits expected

Chapter Four Answers

  1. True

  2. True

  3. False

  4. False

  5. True

  6. True

  7. False

  8. True

  9. True

  10. False

  11. A. Operational feasibility

  12. D. All the above

  13. B. Selling the idea to other well equipped developers and monitor it.

  14. D. A and B

  15. C. Estimation of target customer base

  16. B. Validation of the underlying premise for the product/service idea

  17. D. None

  18. A. Evaluating the projected rate of return of the venture

  19. D. All the above

  20. A. After idea inception but before developing a business plan

Chapter Five Answers

  1. True

  2. False

  3. True

  4. True

  5. False

  6. False

  7. True

  8. True

  9. True

  10. True

  11. C. Help in choosing the best management team

  12. D. None of the Above

  13. D. Free Zone

  14. A. Intellectual property rights are independent of exceptions and limitations

  15. A. Bankruptcy laws permits organizations and individuals repay the secured debts

  16. C. Increases the market size of the company

  17. B. Money loaned by parents, spouse, friends or family

  18. C. Money that is provided as seed in early business stages given in exchange for equity

  19. C. Bank loans

  20. D. None of the above


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