ENTREPRENEURSHIP

Definition:
- This is a process of identifying a business opportunity and getting the required resources to
start and manage a business with an aim of making profit.
- An entrepreneur is a person who invests his/her skills, time and capital with an aim of making
profit.

Roles / benefits of entrepreneurship in economic development.

- Provides employment to many people who work as traders/ involved in trading activities
hence improving their std of living
- Provides revenue to the government inform of taxes which is used to finance the national
budget.
- Provides a variety of goods and services to local people for their choice to satisfy many
needs.
- A source of foreign exchange when goods are exported.
- Helps to improve local infrastructure to facilitate trade.
- Provides market to raw materials produced in a country, hence encouraging output
- Helps to increase productivity in the country by exploiting local natural resources
- Helps to promote entrepreneurial culture by training local people in trade / by acting as a role
model
- Encourages savings and investments in a country as extra money is put in trade/ leading to
wealth
- Provides people with income which improve living standards.
- Leads to quality goods and services due to healthy competition

Characteristics of a good entrepreneur

- A Risk Taker as he invests in business to get profits or loses.
- A hardworker – committed to his work by working for long hours
- He is innovative and creative – as he comes up with good ideas that can work
- A good decision maker- makes decisions that can work or bring success at the current time
- Has good business ethics – hence does not exploit customers
- A good time manager- hence completes his activities within the required time
- Has the required skills and knowledge – hence being able to manage the business
- A good communicator – to his workers and customers
- A good organizer – hence bring all factors of production together to produce good and services
- Has self discipline – hence does not require supervision while on duty.
- Goal oriented – hence sets goals and works hard to achieve them
- A good planner – hence being able to do work in organized manner
- Have the ability to solve problems whenever they occur.
- Should be flexible hence being able to adapt very fast to changes.

Business resources that an entrepreneur requires

a) Capital / money
b) Raw materials
c) Skills and knowledge
d) Technology and machinery
 e) Labour

Reasons why people start businesses

a) They want to be self employed
b) They want to make profits
c) They want to save of invest their money
d) To get regular income
e) Due to cultural background / family background of businessmen
f) Want to supply goods and services to customers
g) To become their own business managers

Stages involved in entrepreneurship

a) Coming up with a business idea
b) Examining / screening the idea
c) Evaluating a business idea
d) Implementing the idea

BUSINESS IDEA
Definition:
These are thought which when implemented will lead to a successful business that will generate
profits.

Sources of business ideas

a) Observation - This involves listening to people problems and solving them.
b) Hobbies – due to personal interests e.g football
c) Copying other people ideas to start own firm
d) Buying a business idea from the original inventor
e) Training skills and experiences
f) Print and electronic media e.g newspapers, magazines, T.V. Radio programs.
g) Public shows, trade fairs and exhibitions.
h) Surveys and research on needs of the people
i) Available natural resources
j) Government departments and ministries
k) Organized events / festivals e.g sports drama

A business opportunity
Definition: This is an attractive project or idea that the owner accepts to invest in and generate
profits or be successful.

Characteristics of a good opportunity

a) Has a large market or many customers
b) Generates high profits
c) Has readily available raw materials
d) Owner has management skill to run
e) Its very safe
f) It has fair competition
 g) It is in line with government policy

EVALUATING A BUSINESS OPPORTUNITY OR IDEA

It is a process of finding out whether a business can be started or not.

Factors to consider when evaluating a business idea or opportunity

a) Profits to be raised
The business should be able to raise reasonable profits to cover all expenses

b) Existing beliefs of the customers

The new product should be accepted by the peoples beliefs practices and attitudes

c) Technology available
The technology to use in producing the product should be available and affordable and be able to
produce desired quality and quantity of goods

d) Availability of market
Should be large to ensure goods produced are sold

e) Government policy / legal requirements

Should be favourable or easy to be met to operate smoothly without interruption

f) Level of competition
Should be fair or healthy for a firm to cope with

g) Capital available
Should be adequate to start and maintain the business

h) Risks involved
Should be minimal to avoid loses

i) Management skills
The owners should have skills to manage the business or can hire labour to do it on his behalf

j) Pay – back period

The period to recover his capital should not be too long

k) Supply of inputs / Raw materials

Should be continous to ensure continous production.

Factors influencing entrepreneurship culture or factor that will promote entrepreneurial

development in a country.
 Positive cultures, and beliefs that encourage people to engage in business
 Availability of training institutions that will equip people with skills to manage businesses
 Favorable government policies that support or enhance the starting and running of trading
activities
 Availability of adequate capital to start and expand the business
 Availability of adequate technology to produce the required quantity and quality
 Availability of good infrastructure to access market raw materials and other inputs
 Availability of markets for sale of finished products
 Existence or availability of capital to start and run the business.
 Presence of role models in the country, who are successful and willing to support inspire
and encourage new investors.
Fair competition that firms can easily cope up with and survive at the market
Security should be available to safeguard investors property and life
Factors that will lead to the success of a business.
 Availability of capital – for use to start and expand a business
 Availability of markets – where traders can sell their products and get revenue
 Favourable government policies – that traders can easily follow or cope up with or that can
support a business e.g. easy to get a licence, low taxes.
 Availability of fair competition – that a firm can easily cope up with and survive and grow.
 Good business planning – which can easily accommodate future changes
 Good management of a business – hence leading to good policies that can generate profit.
 Availability of security – hence investor property is safe from loss or damage
 Existence of modern technology – hence a firm will produce quality and desired quantity of
goods
 Good infrastructure – that will facilitate the activities of a firm i.e. selling goods to the
market
 Good pricing policy – hence products are sold at prices that will generate profits
 Competition – should be fair to ensure survival of a firm
 Risk involved – should be minimal to avoid loses

BUSINESS PLANNING
This is a document that shows in details the type of a business to be set up. The goals and step to
be undertaken to achieve the goals. It is a description of an entrepreneurs proposed or existing
business.

Components of a business plan.

a) Executive summary
Gives a brief history of a business concept goods and services produced and financial needs.

b) Business description
Gives the details of the owner types of business location and products to be sold

c) Marketing plan
Describes how a business will sell its products

d) The organizational plan

Show how the business will be managed, role and duties of managers and personnel

e) The operational plan

Shows how the products will be produced and cost of raw materials and other inputs

f) Financial plan
Shows the financial sources and details of a business

Benefits of a business plan

a) It helps the businessman get funds/ finance from lenders as it shows the ability of a
business to pay.
b) It helps in evaluating the performance of a business by comparing their activities
undertaken and objectives / goals and take corrective measures.
c) It motivates the businessman / workers to work hard as it sets targets that they aim at
achieving
d) It helps to allocate resources fairly to all departments/ section hence leading to equal or
balanced growth and avoiding wastage
e) It tests a business idea on paper hence assisting in correcting any mistakes that might
arise in future and starting aviable business
f) It aids the management in making decisions by comparing goals with what has been
achieved and by providing information
g) It helps a firm to lay strategies for selling its products hence being able to counter
competitors / capture some market
h) It helps a firm to carry out its acitivities in a planned systematic way as shown on the
plan.
i) It helps a firm to adapt and accommodate any future problems that may arise by taking
care of them in the plan.
4 ENTREPRENEURSHIP
Definition:
This is the ability of man to organize other factors of production for production of goods and
services to take place
The reward for an enterprenuer is profit or loss.

Roles / Functions of entrepreneurship in production

- Provides capital to start the business
- Hires other factors of production
- Rewards / pays other factors or production
- Organizes other factors of production
- Bears risk of loss or profit
- Decides what and when, where to produce.

FACTOR REWARD
Land Rent /rates /royalties
Labour Salary / wages
Capital Interest
Enterprise Profit / Loss

LEVELS OF PRODUCTION
There are three levels namely:
 a) Primary / extractive level
b) Secondary level
c) Tertiary level

a) PRIMARY / EXTRACTIVE LEVEL

This is the exploitation or obtaining of raw materials from their natural sites in their natural state.
Occupations in this level include: mining, fishing, lumbering, farming, quarrying, hunting.

Reasons why the primary level is very popular in Kenya

a) Availability of mineral resources for mining
b) Availability of favourable climate that favours farming
c) Availability of simple technology required in this level
d) Existence of small markets
e) Lack of adequate capital to support other sector
f) Simple skills exists which can support this level

Disadvantages of primary level

a) The volume of output is small
b) Exhaustion of the mineral resources leads to stoppage of activity
c) Low quality goods produced at this level
d) Simple skills / techniques are used in production
e) There is stiff competition on the world market from other countries that produce same
goods.
f) The price of this goods keep on changing on the world market
g) Does not create more jobs

b) SECONDARY LEVEL OF PRODUCTION

This involves processing of raw materials into finished goods and construction of buildings and
other structures.
Activities involved here include: processing, manufacturing, tailoring, carpentry, building,
construction.
Occupations include: engineering, carpentry, surveying, architecture, geology, design

c) TERTIARY LEVEL OF PRODUCTION

This is the provision of services to other levels of production.
Services can be direct or indirect.
- Direct services:
Refers to services a person provides when in contact with the consumer, they include:
 Teaching / teacher
 Legal services / lawyer
 Medical services / doctor
 Accounting / accountants
 Entertainment / musicians
 Preaching / pastor

- Commercial service: (aids to trade)

This are services that assist production process to take place. They include:
- Banking
- Insurance
- Transport
- Communication
- Warehousing
- Advertising

Direct and Indirect production

Direct Production (subsistence production)

This is the production of goods and services for ones own use and not for sale.

Characteristics features of direct production

a) Goods produced are not for sale
b) The volume of output produced is small
c) Low quality goods are produced
d) Simple skills and techniques are used in production
e) Family labour is mainly used in production
f) There is no specialization and division of labour
g) A variety of goods and services are produced i.e. for self sufficiency
h) The owners are usually under employed.

Advantages of direct production

a) It requires less capital to start and maintain
b) In encourages self sufficiency or self reliance as the owner produces most of the goods
and services he requires
c) The owner is not bored as he does a variety of work
d) It leads to self employment of the owner and family members
e) The owner has pride in production as he uses most of his skill to produce goods
(craftsmanship)
f) Owner utilizes a variety of low skills

Disadvantages of direct production / subsistence i.e. production

a) The volume of goods produced is small or very low.
b) Leads to under utilization of the individuals or owners skills and talents
c) The owner does not get income
d) Low quality goods are produced
e) There is no research done to improve production
f) The owners are usually under employment
g) It encourages selfishness or individualism as goods are not exchanged or sold

INDIRECT PRODUCTION (commercial production)

Definition: This is the production of goods and services for sale.
Characteristic features of indirect production
a) Goods and services produced are for sale
b) A large volume of goods is produced
c) There is specialization and division of labour
d) A lot of capital is required to start and maintain production
e) A lot of research is done to improve production
f) Modern skills and technology are used in production
g) High quality goods and services are produced

DIVISIION OF LABOUR
This refers to the division of the production process into stages, duties and tasks and each task or
duty or stage is assigned/ gives to one worker or a group of workers.

SPECIALIZATION
This is where labour or a worker concentrates on one type of work.
This is where a firm concentrates in producing on good or service.

Advantages of direct production/specialization/ division of labour

a) High quality goods and services are produced
b) A large volume of goods and services is produced
c) Goods are produced faster due to use of machines
d) It reduces the cost of production due to use of machines
e) The workers might come up with new ways of doing work
f) Encourages use of modern skills and technology in production which leads to efficiency
g) Encourages research invention and innovation to improve production

Disadvantages of indirect production / Specialization and division of labour.

- It requires high capital to start and maintain
- It leads to boredom of a worker due to performance of the same work
- Workers acquire only one skill hence can not enter or do other jobs.
- Labour looses craftsmanship as it behaves like a machine
- Does not create more jobs due to use of machines
- Labour looses pride and motivation as machines do most of the work
- It leads to the stopping of the entire production process when one stage is affected
or stops.

Types of goods
a) Producer goods – goods used to produce other goods and services. Also called capital
goods e.g. company car, machines, buildings.
b) Consumer goods – goods bought for final use by the consumer, e.g. bread, clothes, sugar,
toothpaste personal car, personal aircraft.
c) Intermediate goods – goods that are used in production to become part of the final
product e.g raw materials.