TECHNICAL UNIVERSITY OF KENYA –

DEPARTMENT OF BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP

ENTREPRENEURSHIP LECTURE NOTES –SEPTEMBER/DECEMBER 2022

LESSON 1: INTRODUCTION TO ENTREPRENEURSHIP

Definition of terms

Entrepreneurship Education: The Discipline

Entrepreneurship education is a collection of formalized instructions that informs, trains, educates and
inspires masses to use their trade areas or experience to participate in socioeconomic development
through initiation of projects, business creation, or small business development”.

As a discipline, entrepreneurship is a multidisciplinary study area that seeks to provide learners with
knowledge, skills and motivation to encourage entrepreneurial success in a variety of settings. The aim is
to help learners develop an enterprise culture.
Exposure to entrepreneurship skills enables learners to:
a) Develop an entrepreneurial mindset. An entrepreneurial mindset refers to a specific state of mind,
which orients human conduct towards entrepreneurial activities and outcomes. Individuals with
entrepreneurial mindsets are often drawn to opportunities, innovation and new value creation.
Students can become highly motivated and engaged by creating value to other people based on
the knowledge they acquire.
b) Entrepreneurial education equips the youth with vital knowledge required to build character,
attitude and vision. These are basic tools required to develop an innovative mind and hence
entrepreneurship culture.
c) Be job creators rather than seekers.
d) Develop community problem solving skills.
e) Plan their careers.
f) Acquire an understanding of how economics works so that they can use their trade areas to
contribute to the growth of their economies.
g) Acquire skills and facilitate self-employment.
h) Create a generation of creative and innovative youth who would support the growth of the
Kenyan economy as entrepreneurs or intrapreneurs.

Entrepreneurship (The Practice):

General definition: Entrepreneurship is the process of bringing together creative and innovative ideas
and actions, mobilizing appropriate resources to take advantage of opportunities, leading to creation of
wealth through enterprises. A narrower definition of entrepreneurship describes entrepreneurship as the
process of designing, launching and running a new business. There are four main elements of
entrepreneurship- innovation, organization, risk and vision.

Entrepreneurship is a process under taken by an entrepreneur to create incremental value and

wealth by discovering investment opportunities, organizing enterprises, undertaking risks and
economic uncertainty and there by contributing to economic growth.

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EVOLUTION OF ENTREPRENEURSHIP

The hunter: If entrepreneurship is about creativity, then the survival of early man depended on it as he
had to find means to survive. Hunting did just that and man created equipment that assisted him to hunt
for wild animals.
Agricultural and pastoralism revolution: With time, people learned to domesticate plants and animals.
One group of people cultivated food and exchanged it with people who provided valuable goods. Barter
trade was born. Barter refers to the practice of trading goods and services in exchange for other products
and services, minus the involvement of money

The history of bartering dates all the way back to 6000 BC. And is said to have been introduced by
Mesopotamia tribes. Later, Babylonians also developed an improved bartering system.

Trade – Nearly 20,000 years ago, entrepreneurship started with trade. Goods were exchanged between
humans for an overall benefit of a specific tribe. People and communities began to trade with one another
during the Neolithic phase (new Stone Age) which began between 9000 and 6000 BC.

New areas of specialization which began to emerge then included Clothes, Pottery, Carpentry, Wool-
making and Masonry.

Expansion of trade routes – Cities started to appear from 2000 BCE. Long-distance trade routes first
appeared in the 3rd millennium BC, by the Sumerians in Mesopotamia when they traded with the
Harappan civilization of the Indus Valley (Now in modern day Pakistan). Harappan civilization forms an
important landmark in the prehistory of the Indian subcontinent. This could explain why Asia as a
continent is skilled in entrepreneurship.

As populations increased, people developed an idea that they can earn profits by trading between cities
and cultures. Popular trade at that time was of salt, fruits, rice and paper making by China.

Invention of money – The key development in the history of entrepreneurship was the shift from barter
system to currency. Money, which took various forms including cowry shells, acted as a medium of
exchange and provided a way to store value.

Standardized and certified coinage may not have existed until the 7th century BCE. According to many
historians, it was during this time that the kingdom of Lydia (in present-day Turkey) issued the first
regulated coins. The coin techniques was then quickly copied and further refined by the Greek, Persian,
Macedonian, and later the Roman empires.

In 800 AD, Charlemagne issued the silver penny, which was the standard coin in Western Europe from
794 to 1200 A.D.

By the mid-13th century, the shilling and pound became widely used to describe larger amounts of
pennies. Bronze and Copper cowrie imitations were manufactured by China at the end of the Stone Age
and could be considered some of the earliest forms of metal coins. This moved to paper currency. The

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first known paper banknotes appeared in China. In all, China experienced over 500 years of early paper
money, spanning from the ninth through the fifteenth century.

Today, electronic money has become popular. Economic transactions now take place electronically,
without the exchange of any physical currency.

Beginning of the marketplace – Larger marketplaces became more popular to cater for growing
populations and produce. Banking regulation became more advanced for small businesses and
entrepreneurs could purchase goods from abroad.

Innovation, Mercantilism and Explorers was on the rise at that time. Luca Pacioli formulated standardized
principles to keep track of a company’s accounts.

Industrial revolution – Industrial Revolution, is the term used to describe the process of change from an
agrarian and handicraft economy to one dominated by industry and machine manufacturing. These
technological changes introduced novel ways of working and living and fundamentally transformed
society to date.

The industrial revolution originated in Great Britain and spread across the world. It is said to have in two
distinct phases: the first industrial revolution, between 1750 and 1850, and the second industrial
revolution, between 1850 and 1914.

During this time, there was a significant shift from small scale to large scale production gave rise to some
of the world’s great entrepreneurs such as J. Morgan and John D. Rockefeller. The discovery of superior
equipment in form of machines and methods of production boosted national production and surplus was
sold abroad leading to international trade.

Modern Entrepreneurship – Today, entrepreneurship has become a key driver of growth and
development for all economies of the world. At the same time, modern entrepreneurial practice is more
than just TRADING. It is a combination of superior business practices founded on research and product
improvement driven by innovation. Various forms of entrepreneurship have emerged, among them:

1. Corporate entrepreneurship (Intrapreneurship)

Corporate entrepreneurship has similar meaning with intrapreneurship and refers to both formal and
informal business activities aimed at creating new businesses in established companies through product
and process innovations and market developments. Though entrepreneurship as a practice is driven by
innovation, over time corporate bureaucracies has been seen as stifling innovation.

To remedy this, a focus on Corporate Entrepreneurship within companies emerged, with Covin and
Miles (1999) defining it as “the presence of innovation with the objective of rejuvenating or redefining
organizations, markets, or industries in order to create or sustain competitive superiority.”

An increase in corporate entrepreneurship has been precipitated by:

 Rapid environmental changes e.g., socio-cultural changes;
 Increased competition in global and domestic fronts;

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  Increased productivity that results in pressure to innovate.

Elements of corporate entrepreneurship

 New business venturing – by creating of new products/services of value by: redefining the
company’s current offerings; developing new markets; designing new autonomous business units
 Rebirth or organizations through self-renewal: introduction of system-wide changes to increase
innovation.
 Innovativeness: includes new product development; product improvement/modification; new
service delivery procedures or production methods
 Pro-activeness: competitive aggressiveness and initiatives geared towards market leadership
oriented profitable inclinations.
 Self-renewal: implies transformation of an organization through generating new ideas that helps
to redefine the business concept or introduce new systems that improve product/service delivery
through value addition.

Distinction between Entrepreneurship and Intra-preneurship

 Entrepreneurship entails opportunity recognition and enterprise initiation/intra entails using
entrepreneurial skills in an established business
 Entrepreneurship thrives on guerilla tactics/Intrapreneurship thrives on learnt behavior supported
by creative thinking.
 Entrepreneurship is external and faces challenges posed by the external environment such as
ridicule/Intrapreneurship battles internal business rivalry
 Risks exposure to entrepreneurship are higher comparatively in terms of resource
mobilization/Intrapreneurship utilizes arranged resources
 Entrepreneurship focuses on a new venture/Intrapreneurship on an existing one

Characteristics of an Entrepreneurial Environment

 Willingness of management to fund R&D, encourage and support new ideas instead of
discouraging them.
 Encourage experimentation or trial and error by creating an environment where mistakes and
failures are part of the learning curve.
 No opportunity parameters, barriers to new product creation inhibiting creativity in product
development.
 Multidiscipline teamwork approach – interdepartmental coordination and cooperation
 Volunteer programs and reinforcement principle: Individuals willing to spend extra hours to
innovate and create should be given opportunity and supported.
 Appropriate reward system: the organization should recognize and reward the energy, risk and
effort expended by those who add required value.
 Establishment of an entrepreneurial culture.

Food for thought: From the definition of corporate entrepreneurship, highlight the characteristics of
an Intrapreneurs.

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2. Social Entrepreneurship
In the 2000s, entrepreneurship was extended from its origins in for-profit businesses to include social
entrepreneurship, in which business goals are sought alongside social, environmental or humanitarian
goals and even the concept of the political entrepreneur.

Social entrepreneurship is the use of start up companies to develop, fund and implement solutions to
social, cultural, or environmental issues. Social entrepreneurship attempts to further broad social, cultural,
and environmental goals often associated with the voluntary sector in areas such as poverty alleviation,
health care and community development in order to bring about social change. For example, an
organization that aims to provide housing and employment to the homeless may operate a restaurant, both
to raise money and to provide employment for the homeless people.
Other examples include:
 Community-based organizations: These aim to advance income-earning activities that are owned
and controlled by local communities and it can focus on local development. Their ultimate goal is
to create self-help jobs for the local people.

 Non-profit organizations: The proper structure of a non-profit organization may vary based on
legal rights, but overall, non-profits do not make money for shareholders and stakeholders, but for
a particular reason.

The definition of Social Entrepreneurship could be derived from the advice of New York columnist Eakin
(2003).” How to save the world? Treat it like a business.

Social entrepreneurs bring social change by:

 Adopting a mission to create and sustain social value (not just private value)
 Exhibiting heightened accountability to the constituents served and for outcomes created.
 Grow and develop societies by engaging in a process of continuous innovation, adaptation, and
learning.

Examples of some of the most successful Social Entrepreneurs:

1. Professor Muhammad Yunus: Yunus was born in Bangladeshi, and is a banker, economist, and civil
society leader who founded the Grameen (Village) Bank and pioneered the concepts of microcredit and
microfinance.

Yunus’ envisioned a world without poverty. In 1976, he saw village basket weavers living in abject
poverty despite their skill. Considered poor credit risks, the artisans were forced to borrow money at high
interest rates to purchase bamboo and made no profit after repaying moneylenders. From his own pocket,
Yunus made a loan to a group of women who repaid the funds and, for the first time, made a small profit.
He realized that by means of small loans and financial services, he could help the poor free themselves
from poverty.

In 1983, he established the Grameen Bank, founded on his conviction that credit is a fundamental human
right. Through the last quarter of a century, the bank has stood as the flagship of a 100-country network of
similar institutions, enabling millions to escape poverty through individual economic empowerment.

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2. Blake Mycoskie: Blake is founder of “Shoes for Better Tomorrows” (TOMS). Designed as a for-profit
business, TOMS donates new shoes to disadvantaged children under the "One for One" business model.
One on One means that the company would donate a new pair of shoes for every pair of shoes sold. The
idea was born when he visited Argentina and witnessed the abject poverty locals endured. TOMS, was
started in 2006 and by 2013, the company had donated more than 10,000,000 pairs of shoes to people in
need.

3. Bill Drayton: Bill is a philanthropist and social entrepreneur who founded and runs ASHOKA, a global
organization that selects individuals tackling society’s most pressing problems with innovative,
entrepreneurial solutions. Considered one of America’s leading pioneers in the field of citizen-led service
for humanity on a global scale, Bill Drayton is the behind-the-scenes lever of social entrepreneurship,
having coined the term himself in 1972.

Since 1981, Ashoka provides leading social entrepreneurs with living stipends, professional support, and
access to a global network of peers in more than 60 countries. His famous quote: "Social entrepreneurs
are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the
fishing industry" is an illustration of his passion to bring about change in society through social systems.
Driving Drayton is the desire to help ordinary citizens and individuals realize their potentials as change
makers.

4. Shiza Shahid: Shiza was born in Pakistan and is a co-founder and global ambassador of the Malala
Fund. Shiza Shahid, manages business operations for Malala Yousafzai, the teenager who became the
youngest winner of the Nobel Peace Prize in 2014. She initially reached out to Malala in 2009 and
worked to organize a camp for her and other Pakistani girls. In 2012, Shiza flew to Malala's bedside after
she was targeted and shot by the Taliban for promoting education for girls. Inspired by Malala's desire to
continue campaigning for gender equality and education, Shahid decided to help Malala strategize her
campaign. Shahid created the Malala Fund, which helps empower women and girls by advocating and
spreading access to education.

5. Mark Koska: Mark Koska re-designed medical tools, introducing a non-reusable, inexpensive syringe
to be used in under-funded clinics. This innovation safeguards against the transmission of blood-borne
diseases. He then founded the Safe Point Trust in 2006, which delivered 4 billion safe injections in 40
countries. Due to his work, the World Health Organization (WHO) announced a global policy on safe
injections in February of 201.

Social Entrepreneurship is based on the premise that many of the most promising solutions to global
problems don’t necessarily depend on action by large institutions, government aid, or foundation grants.
They come from individuals at the grassroots level willing to bring entrepreneurial thinking to bear on
some of our toughest social problems. Social entrepreneurs are "pragmatic visionaries" that share many
characteristics of successful business entrepreneurs but seek social impact, not business profit.
Widespread use of ethical practices such as impact investing, conscious consumerism, and corporate
social responsibility programs facilitated the success.

3. Corporate Social Entrepreneurship

Corporate Social Entrepreneurship (CSE) is a process aimed at enabling business to develop more
advanced and powerful forms of Corporate Social Responsibility (CSR).

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CSE emerges from and builds on three other conceptual frameworks: entrepreneurship, corporate
entrepreneurship, and social entrepreneurship. The fundamental purpose of CSE is to accelerate
companies’ organizational transformation into more powerful generators of societal betterment.

A corporate social entrepreneur is an employee of a corporation who operates in a socially

entrepreneurial manner, i.e., identifying opportunities for and/or championing socially responsible
activity, in addition to his formal job role in working toward achieving the firm's business targets.
The following elements are central to that process:
 creating an enabling environment,
 fostering corporate social intrapreneurs,
 amplifying corporate purpose and values,
 generating double value,
 building strategic alliances.

The difference between SE firms and CSE organizations is that social enterprises are proactive in their
approach to social change, while CSE use CSR as a reactive measure. Doing good is a permanent fixture
of a social enterprise’s business model. On the contrary, a CSE programs are merely how corporations
create positive social impact through their existing practices.

Food for thought

1. Discuss differences between Business Entrepreneurs and Social
Entrepreneurs.
2. Identify a social problem in your community and describe how you
would solve it from an entrepreneurial perspective.
3. If you were to take up entrepreneurship as a career option, which of
the four entrepreneurial practices would you prefer and why?

LESSON 2: ROLE OF ENTREPRENEURSHIP IN ECONOMIC GROWTH AND

DEVELOPMENT
What is economic development?
Economic development refers to policy interventions used by governments to improve the economic
well-being of the people and quality of life by creating jobs and supporting incomes and the tax base.
Whereas Economic growth concerns the increase in the level of output and is quantitative - an increase in
specific measures such as real national income, gross domestic product or per capita income, Economic
development is related to increase in output coupled with improvement in social and political welfare of
people within a country. It is measured in terms of improvements or adoption of new technologies,
transition from agriculture dependent to industry-based economies. It typically refers to improvements in
a variety of indicators such as literacy rates, life expectancy, and poverty rates.

Since economic development can be achieved by creating employment opportunities to those who are
unemployed or by creating better employment opportunities to those who are already employed, better
employment opportunities generate more incomes and when income is good, people can improve their
living conditions. They can access better health services, improve their education standings, housing,
drinking water and their social status as a whole. Such improvements is what is referred to as Social
Development
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Broadly speaking, economic development has focus on three areas:
 Policies that the government undertakes to help achieve objectives such as high employment,
expanded and sustained tax base, price stability, and sustained growth;
 Government programs aimed at provision of infrastructure and services such as highways, parks,
affordable housing, crime prevention, and quality education;
 Policies and programs directed towards job creation and retention through specific efforts in
business finance, small business start-up and development, business retention and expansion,
technology transfer, workforce training and real estate development. This area focuses on
economic development professionals.

How does Entrepreneurship contribute to economic development?

 Investment – leading to production of goods and services, which better people’s lives. Increased
goods and services also stimulate growth (GDP)

 Development of managerial capabilities: The biggest significance of entrepreneurship lies in

the fact that it helps in identifying and developing managerial capabilities of entrepreneurs.
Besides, these managerial capabilities are used by entrepreneurs in creating new technologies and
products in place of older technologies and products resulting in higher performance and
revenues.
 Import/export promotion, leading to balance of trade/payment and promotion of international
trade (consumers get exposed to quality goods and services if their economies are
underdeveloped).
 Contributes to Gross National P– Entrepreneurship contributes to the national exchequer and to
the national economy as a whole. The GNP of the country is calculated based upon the total
number of products and services available in a respective country. The more products and
services available the higher the GNP. It indicates the economic prosperity of the country.
 Creation of employment: Entrepreneurs create companies that offer employment to citizens. This
has a multiplier effect. (Incomes derived help employed people make savings that could be used
to create other businesses or purchase goods and services/improve living standards/reduce
poverty.
 Capital formation- Money goes where there is an idea. Japan is an industrialized country that has
managed to accumulate capital.
 Rural urban balance- Entrepreneurship can be used to control the influx of job seekers to urban
centers.
 Innovations - it is through entrepreneurship that important innovations enter the market leading
to new products or production process which eventually increases efficiency through bringing
competition in the market. Competition stabilizes prices. Innovations also contribute to retention
and expansion of businesses.
 Government revenue; Entrepreneurship generates revenue for governments and supports/expands
the tax base. The government is able to use these revenues to develop infrastructure, employment
retention for the civil service, quality education and health care etc.
 Improving standards of living: By creating productive organisations, entrepreneurship helps in
making a wide variety of goods and services available to the society which results into higher
standards of living for the people. Possession of luxury cars, computers, mobile phones, rapid

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 growth of shopping malls, etc. are pointers to the rising living standards of people, and all this is
due to the efforts of entrepreneurs.
 Entrepreneurs increase competition & boost productivity. .
 Entrepreneurs add national income.

 Enhances link between micro, small, medium and large companies especially in sub-construction
 Provides economic balance. Entrepreneurship facilitates community development when factories
and businesses are established in different areas not only in big towns.
 Entrepreneurship serves as a conservation agent e.g. businesses established that either uses the
waste products (waste paper recycling) or the business activities calls for conservation measures
e.g. saw miller- ensures continued supply of trees
 Promotion of national productivity. Entrepreneurs contribute to the Gross domestic product by
selling their services and products thus reducing expenditures for imports.
 Promotion of the use of local resources which otherwise could be idle. Examples here may
include scrap metal, which is widely used for making jikos, frying pans etc.

Entrepreneurship helps bridge the unemployment gap through formal and informal business
ventures that employ millions of Kenyans. ... Entrepreneurial ventures further contribute to the GDP, an
indication of their importance in raising revenue and financing government projects, as well as
contributing to economic growth.

ENTREPRENEURSHIP AS A PROCESS
The entrepreneurial process

 Deciding to become an entrepreneur

 Recognizing opportunity/Developing successful business ideas
 Feasibility analysis (criteria: availability of capital, competitive advantage, market scope, return
on investment/attractiveness, government policy, timeliness, durable etc.)
 Business planning/writing a business plan
 Industry/competitor analysis
 Mobilizing resources
 Managing and growing a business

You must note that entrepreneurship is not about profitability at first but it’s about providing solutions.
Reading Assignment: How does entrepreneurship contribute to social development?
Factors Contributing to Entrepreneurship Development

 Technology: Technological developments provide opportunities for start-ups and even if a

business is not a tech start-up, it will utilize technological tools such as social media, apps and
websites to scale up its operations.
 Entrepreneurial Education: Entrepreneurship is a concept that can be learned. Those who cannot
learn in tertiary institutions can access information via internet such as free online courses and
you tube videos. This is one of the main reasons that many entrepreneurs are starting out young.

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  Ethical Entrepreneurship: There are people who are no longer profit driven- rather they want to
build their corporate empire that is socially aware as a way of giving back to society. They are
called ethical entrepreneurs.
 Personality Factors: as people become aware of their role in community and personal progress,
they become more open to entrepreneurship as a career. Besides, personal qualities such as
immense imaginations, maturity, optimism, foresightedness, influence an entrepreneurial spirit
and drive.
 Environmental factors: These factors relate to the conditions in which an entrepreneur has to
work. Environmental factors such as political climate, legal system, economic and social
conditions, market situations, etc. contribute significantly towards the growth of entrepreneurship.
For example, political stability in a country is absolutely essential for smooth economic activityy
while frequent political protests, strikes, etc. hinder economic activity and entrepreneurship.
 Government policy, facilities and incentives: Fair trade practices, rational monetary and fiscal
policies, etc. are a driver of the growth of entrepreneurship.
 Higher income levels of people, desire for new products and sophisticated technology, need for
faster means of transport and communication, etc. are the factors that stimulate entrepreneurship.
 Family Circumstances and training: Every person has different family circumstances. It is often
believed that people who come from supportive and cooperative families becomes successful
entrepreneurs.
 Social and cultural factors: Social capital and related networks, social organizations, traditions,
level of education, personal behavior, situational circumstances, and another ethical level of the
society are elements which affect the development of entrepreneurship in a given society

Myths of Entrepreneurship
 Entrepreneurship is a ticket to riches and life’s success
Reality: Most of those who rush to become entrepreneurs fail. In fact, 90% of entrepreneurs fail in less
than 24 months after starting out.
 It takes a lot of Money to Start a Successful Business
Reality: Actually, one does not need a lot of money to start business.
 One is his own boss in Entrepreneurship
Reality: Even when in own business one has to submit to the requirements of the clients, the taxman,
government agencies, organizational teams.
 One will Have More Freedom and Work-Life Balance
Reality: Entrepreneurs are (usually busy solving complex issues to do with their companies. In fact, most
entrepreneurs get so immersed into their line of business until they forget that they have a life to live.
 The More Customers I Get, the Better
Reality: It is the quality of the clients that matters. Entrepreneurs do not focus on the numbers but on
those offering real value
 Entrepreneurs Are Born Not Made
Anybody can become an entrepreneur so long as they are willing to learn the ropes.
 Entrepreneurs Are College Dropouts
Reality: Just because Steve Jobs (APPLE) and Richard Branson (Virgin-Atlantic) are successful college
dropouts does not guarantee that, others will also succeed if they quit school for business. Formal
education is very important in business. Dropping out of school is not a sign of foolishness.

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LESSON 3: THEORIES OF ENTREPRENEURSHIP
Theories of entrepreneurship are prepositions that help to understand, explain, predict and influence
entrepreneurship. The following are some of the theories which underpin entrepreneurial thinking. Richard
Cantillon (1755)
1. Economic Theory (Cantillonian theory 1755) – This theory explores economic factors that
enhance entrepreneurial behavior in individuals.

According to the theory:

Entrepreneurship and economic development are interdependent and Entrepreneurship greatly
contributes to economic development
Economic development takes place when a country' real national income increases over a period of time
wherein entrepreneurship is key.
Entrepreneurial functions are directed towards the materialistic objective of profit maximization although
its foundations may be social, psychological, ethical or patriotic
Economic incentives are the main motivators for entrepreneurial activities. The person’s inner drive is
always associated with economic gains and hence the incentives and gains are regarded as sufficient
conditions for the emergence of industrial entrepreneurship
Entrepreneurship and economic growth take place when the economic conditions are favorable
Economic scholars argue that entrepreneurship flourishes in countries where particular economic and
noneconomic conditions are most favorable. In these countries, people are motivated to maximize various
rewards such as profits. Therefore, entrepreneurship emerges, and economic growth and development
results. On the other hand, if economic and noneconomic conditions are not favorable, entrepreneurship
dries up and the country's economy stagnates
Entrepreneurship development in a particular country largely depends upon economic policy, programs
and economic environment of that country.
Lack of vigorous entrepreneurial initiatives is due to unfavorable economic conditions, various kinds of
market imperfection and inefficient policymaking.

Economic factors include-

Financial Resources –Finance is the lifeline of businesses- accessibility and cost affects the growth of
entrepreneurship, - good banking and availability of credit facilities improve entrepreneurial activity.
Infrastructural facilities –Entrepreneurship development requires certain infrastructure like power,
communication, transportation, technical information. Availability of infrastructure,
efficiency and cost affect the development of entrepreneurship, so are access to market information and
availability of technology.
Availability of material and know how - Entrepreneurship is encouraged if there is adequate supply of
materials and know-how. Technical knowhow is essential for innovation.

2. Biological Theory of Entrepreneurship According to Eagly (1995)

Several of the academic theories of gender differences offer explanations based on deeply seated cultural
or even biological differences between men and women. Literature emphasizes gender differences,
construing them as core aspects of what it means to be a man or a woman in the entrepreneurial process.

Such differences include:

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  Risk taking: Risk has long been a central concept in the entrepreneurship literature suggested by
Adam Smith and J.S. Mill (Schumpeter, 1999). Entrepreneurial activities are frequently assumed
to involve risk-taking, especially relative to managerial activities within established corporations.
Psychologists have documented moderate and consistent levels of differences between men and
women in risk-taking behaviors. Men were found to significantly more likely than women to
engage in risky activities.

 Energy levels
 Aggression and competitiveness
 Emotional intelligence

3 Sociological theories of Entrepreneurship.

Entrepreneurship has a psychological contract involving a give and take transactionary relationship in
form of teamwork involving two or more individuals who jointly establish a business in which they have
a financial interest.

They are two sociological theories:

 The Social psychological approach (one of the proponents is Max Weber, a German sociologist
who theorized that religious beliefs are a key determinant of entrepreneurial development.)
Social theories identify external factors that act as potential stimulants to entrepreneurial activity.
According to the social psychological approach, an environment presents factors that can
influence the propensity of an individual to behave entrepreneurially. Such factors include
family, social background, education, religion, work and general life experiences. These factors
will facilitate or hinder the potential of an individual to start a new venture and develop it.
 The Social Network Theory – proposes that stronger social ties with resource providers facilitate
the acquisition of resources and enhance the probability of opportunity exploitation. Ronald Burt
(1992) developed this theory by arguing that the real value in networks lies in their ability to
become the conduits of knowledge, information, and value between those networks
 Generally, sociological theories argue that the success of an entrepreneur is affected by their
social culture. They are more likely to achieve growth in particular social settings. Among the
social aspects that affect an entrepreneur, include the social values, customs, taboos, religious
beliefs and other cultural activities. Entrepreneurs have to conform to the social expectations
when carrying out their business.

4. Entrepreneurship Innovation theory (Schumpeterian theory)

 The inventor of this theory, Joseph Schumpeter, argued that an entrepreneur grows by being
creative and having a foresight. One of the creative things that an entrepreneur does is introduce
a new product. A new product often comes to solve a certain problem in the society or make it
more convenient.
 Another innovative aspect is that in a bid to achieve growth and have more profits, an
entrepreneur introduces a new production method. Notably, enhanced production methods lead to
a reduction in the cost of production and an increase in the goods manufactured.
 Innovation also comes in when an entrepreneur opens a new market. This is often done after the
identification of a growth opportunity or a void in the economy.
 The discovery of new sources of raw materials and establishment of organization are also aspects
of entrepreneurs being innovators. These activities of an entrepreneur lead to the creation of jobs
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 and accessibility of commodities, thus improving the economy. According to Schumpeter,
innovation brings disequilibrium in the economy: “Creative Destruction”.

5. Status Withdrawal Theory (Propounded by Everett E Hagen 1963), this theory argues that
entrepreneurial aggressiveness can be created when people of a certain class lose the prestige they
initially had or when they belong to a minority group.
 Hagen used examples like the Samurai community of Japan, which had traditionally enjoyed a
high status, but it was lowered when they were defeated by other groups with superior weapons.
To regain their status, the Samurai pursued entrepreneurial development and contributed to the
fastest growing Asian economy.
 Entrepreneurship, if done correctly, can help a person live a satisfactory and content life.
Therefore, individuals will attempt by all means to become as prestigious as they were in the past.
If they come from a minority group, they must better their lives by working hard at being
entrepreneurs.

6. Theory of achievement motivation (David McClelland).

 Not all people are interested in being entrepreneurs. Nevertheless, David McClelland argued that
people who aim to become entrepreneurs must have a need for achievement, a need for affiliation
and a need for power. These act as the basis upon which an entrepreneurial personality is
established.
 Achievement motivation has a lot of significance in entrepreneurship because it is the one that
leads to economic and social development. Entrepreneurs always want to achieve success in their
endeavors. The need for power comes from the urge to gain dominance in a certain field and thus
cause influence among other people.

7. Opportunity based theory.

 Peter Drucker put forward an opportunity-based theory. Drucker contends that entrepreneurs
excel at seeing and taking advantage of possibilities created by social, technological and cultural
changes.
 With the aim of being successful, entrepreneurs grab any opportunity they come across. Notably,
as these changes occur, consumers change their preferences. Entrepreneurs take these changes as
opportunities of succeeding in their businesses.

8. Causation and effectuation theory

 Sarasvathy proposed the theory of effectuation in the early 2000s after studying a sample of
expert entrepreneurs with diverse backgrounds. Effectuation theory explains the process that
entrepreneurs use to create new ventures. The focus is on using a set of evolving means to
achieve new and different goals. Effectual thinkers believe that “If I can control the future, I do
not need to predict it.”
 A causation theory argues that entrepreneurs focus on a predefined goal and then aim to find the
means to reach this goal whereas an effectuation approach implies that entrepreneurs focus on
the means at hand, which they aim to materialize into one or more goals that were not necessarily
predefined.

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Effectuation Principles
 Bird in Hand Principle – means start with your means. Don’t wait for the perfect opportunity.
Start taking action, based on what you have readily available: who you are, what you know, and
who you know.
 Affordable Loss Principle – Evaluate opportunities based on whether the downside is acceptable,
rather than on the attractiveness of the predicted upside.
 Lemonade Principle – Embrace surprises that arise from uncertain situations, remaining flexible
rather than tethered to existing goals.
 Crazy-Quilt Principle – Form partnerships with people and organizations willing to make a real
commitment to jointly creating the future—product, firm, market—with you.
 Pilot in the Plane Principle. Control the controllable because not everything can be shaped or
controlled, but effectuation encourages an entrepreneur as the pilot of his venture, to focus on
those aspects of the environment which are, at least to a certain degree, within his control.

9. Bricolage theory
This theory attempts to explain how entrepreneurship emerges in economically depressed, or resource-
poor areas. The concept of making something out of nothing is the key driver of the theory. “Nothing”
refers to under-utilized resources that can be recombined into productive resources.

Other theories:
 Liquidity theory (The founding of new firms is determined by the ability of people to access
financial capital);
 Human capital theory (Knowledge and experience enhance ability to recognize existence of
opportunities and even entrepreneurial success);
 Anthropological theory (culture influences the creation of new ventures)

Application of the theories to Kenya’s entrepreneurship

Kenya’s economy is not in a state of static equilibrium, it keeps on changing, hence a dynamic
orientation. The Schumpeterian analysis is the closest to the reality regarding the work of capitalistic
market systems and creation of profit. Schumpeter also gives great importance to individual innovations.
Although many economists accept the idea that entrepreneurs are innovators, it becomes difficult to apply
this theory of entrepreneurship to less developed countries (LDCs). This is because LDC entrepreneurs
are conventional or traditional traders and hence not innovative. They rarely produce brand new products;
rather, they imitate the products and production processes that have been invented elsewhere in the world
(typically in developed countries). This process, which occurs in developed countries as well, is called
"creative imitation" (Drucker, 1985). In policy making, Kenya applies the economic theory of
entrepreneurship through aggressive development of infrastructural facilities and financial support.

LESSON 4: ENTREPRENEURSHIP AND SELF-EMPLOYMENT

Self-employed people are those who start businesses as a form of employment. Most of them are
circumstantial business people. Business may not have been their career choice. Regardless of the
orientation, self-employment is important because:
 It encourages a spirit of self-reliance for individual survival.
 It gives individuals opportunities to own enterprises ranging from a small family unit to even a
medium sized enterprise employing up to 250 people.

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  It gives individuals the flexibility to start enterprises in all categories of industries in the country
including extractive, manufacturing, wholesaling, retailing, and services.
 It gives people the joy of being employers and leaders rather than being employees and followers.

Compared to formal employment, those who choose self-employment derive from it the following merits:
 Personal satisfaction – to some people, the chief reward of working for yourself is personal
satisfaction. Personal satisfaction means doing what you want with your life.
 Independence – this is freedom from the control of others. One is able to use his/her knowledge,
skills and abilities as he/she sees fit. Compared to those who work for other, self-employed
persons have more freedom of action. They are in charge and can make decisions without first
getting the approval of someone else.
 Profit – being self-employed means one will be able to control his income.
 Job security – many enterprise are created by persons who are seeking job security not available
elsewhere. Self-employed persons cannot be laid off, fired or forced to retire at a certain age.
 Status – status is a term used to describe a person’s social rank or position. Self-employed people
easily receive recognition through customer contact and public exposure.

Other advantages include:

 They lead others follow;
 Their potential income is limited;
 They can take initiative;
 They control the work environment.

Disadvantages
 Long irregular working hours;
 Broad responsibilities;
 Must take risks;
 Income not stable/guaranteed
 No fringe benefits
 Uncertain future
 Hard to delegate work
 Too much paper work.

Entry requirements into self-employment:

 Skills: one requires four sets of abilities to be effective. These are, but not limited to: an
entrepreneurial flair, business skills’ technical skills, and specific entrepreneurial competencies
such as ability to set achievable goals, risk taking, change management etc
 Capital – capital is the money required to start a business and includes: pre-operational expenses
(money incurred before formal business operations); working capital (money required for day-to-
day running of the business); long term capital (money one needs to acquire machinery and
equipment/ tools applied in the production process). In addition, one must identify the suppliers
of these items.
 Premises – the building from which one needs to operate and the location are vital in business.
Certain conditions must be fulfilled while choosing a business location (Nearness to suppliers,

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 raw materials and labor; population; infrastructure; government policy; type of place – e.g. down
town or upper market etc).
 Market – you cannot run a business without buyers. Research or a feasibility study must be
conducted to establish the existence of a stable market.

Why become an entrepreneur

 Be one’s own boss

 Pursue own ideas
 Realize financial rewards
 Support society meet goals
 Self-actualization
 Build wealth
 Culture
 Building on an idea

THE ENTREPRENEUR

Definition: Paul Burns and Jim Dewhurst (1989) define an entrepreneur as “an individual who
establishes and manages a business for the principal purpose of profit and growth. He is characterized by
innovative behavior and will employ strategic management practices in the business.

A general business dictionary defines an entrepreneur as: “a person who organizes and manages any
enterprise, especially a business, usually with considerable initiative and risk”.

Entrepreneurs are described as agents of change. In business, a change agent is an individual who
promotes and supports a new way of doing something within the company, whether it's the use of a new
process, the adoption of a new management structure or the transformation of an old business model to a
new one.

Through offering unique goods and services, entrepreneurs break away from tradition and reduce
dependence on obsolete systems and technologies. This can result in an improved quality of life,
improved morale, and greater economic freedom.

Most socio-economic and even political changes are initiated by individuals with entrepreneurial
mindsets. In his book Innovative Entrepreneurs, Peter Drucker defines entrepreneurs as innovators.
Innovation is the specific tool and means by which they exploit changes as an opportunity for different
businesses or services.

According to Kelly (1998), Changes come at different wavelengths:

(i) Changes in the way the game is played – this produces winners and losers e.g., Ericsson, Nokia
etc.;
(ii) Changes in the rules of the game that produce new industries or force old industries to
restructure. They generate new sectors in the economy and new kinds of games e.g., IT boom
or new laws regulating the meaning of a business enterprise or classifications.

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 (iii) Changes in how the rules of the game are changed – changes change themselves.

There is a new societal paradigm shift developing in the socio-economic world environment. Around
three hundred years ago, civilization was based on agriculture and land was the basis for all economies
(wave one). Then came the industrial revolution (wave two). However, traits that characterized the
industrial revolution are being erased. In this wave (wave 3), our establishments are being questioned, our
economies shaken, our values scattered and our power systems weakened. Old ways of thinking, dogmas,
ideologies are being questioned however valuable.

The industrial society is giving way to a new economy – this is the entrepreneurial society. In this new
society,

(i) IT and other technologies play a vital role;

(ii) Knowledge is central (entrepreneurs do not obey the traditional economic laws of scarcity);

(iii) Business has a new content;

(iv) Relationships and networks are more important;

(v) New types of capital have emerged

 Visual capital: It publishes news, research, and data using visual methods like infographics,
data visualization, and charts. Visual Capitalists create and curate visual content focused on
latest trends in business and investing. Visual Capitalist was founded in 2011 by Jeff
Desjardins in Vancouver, British Columbia, Canada.

 Relationship capital: Relationship Capital is the sum of an organization's connectivity to the

marketplace, both directly and indirectly. This includes all kinds of relationships with
customers, partners, suppliers, community, government, media, institutions, groups and
people who have an interest in the success of your organization.

The process by which you identify, evaluate, and employ your relationship capital is referred
to as Relationship Capital Management (RCM). Relationship capital is not synonymous with
social capital. The term social capital refers to a positive product of human interaction. The
positive outcome may be tangible or intangible and may include useful information,
innovative ideas, and future opportunities.

 Human capital. Human capital is said to include qualities like an employee's experience and
skills. Since all labor is not considered equal, employers can improve human capital by
investing in the training, education, and benefits of their employees. The key difference
between human capital and social capital is that human capital refers to skills, knowledge,
experience, etc. possessed by different individuals whereas social capital refers to the
resources we gain from being a social network.

Structural capital: Structural capital is the supportive non-physical infrastructure that enables
human capital to function.

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 It is one of the three primary components of intellectual capital, and consists of the supportive
infrastructure, processes, and databases of a firm that enable human capital to function.
Structural capital is owned by an organization and remains with an organization even when
people leave. It includes: capabilities, routines, methods, procedures and methodologies
embedded in organisation

There are three subcomponents that comprise structural capital:

 Organizational capital includes the organization philosophy and systems for
leveraging the organization’s capability.
 Process capital includes the techniques, procedures, and programs that implement
and enhance the delivery of goods and services.
 Innovation capital includes intellectual property and certain other intangible assets.
Intellectual property includes protected commercial rights such as patents, copyrights
and trademarks. Intangible assets are all of the other talents and theory by which an
organization is run.

Financial & real capital); Financial capital or investment capital is the money a business
entity uses to obtain plant, machinery, tools, and other equipment for producing goods or
providing services. Capital goods, real capital, or capital assets are already-produced,
durable goods or any non-financial asset that is used in production of goods or
services…..refers to physical tools that aid in the production of goods or services. Also called
capital resources, these are goods produced and used to make other goods and services.
Examples of capital resources are an office building, office copying machine, and farmland.

(vi) There are new kinds of organizations and work; globalization (created as a result of free and fast
flow of information, ideas and capital; developments in fast means of transport; ) Etc

These changes are brought about by the creative and innovative abilities of entrepreneurs. Joseph
Schumpeter refers to these processes as “creative destruction”.

In a world packed with challenges – climate change, income inequality, distrust of politicians, not to
mention the knock-on effects of Covid-19 – relatively few solutions will come from “business as
usual”. Entrepreneurs are the change agents who through innovation, provide solutions through new
product development, technological advances and product improvement.

Why are we interested in studying Entrepreneurs?

 Entrepreneurs contribute immensely to entrepreneurial development, which is key to economic
development and growth. The objectives of industrial development, regional growth and
employment generation all depend upon robust entrepreneurial development.
 By examining predominant qualities of true entrepreneurs, it is possible to develop the next
generation of entrepreneurs through emulation (of successful entrepreneurs), and nurture. There
are many people who have spent energy, effort and money trying out business only to waste
resources due to lack of insight. Understanding what “makes an entrepreneur entrepreneurial is a
“couching experience.”
 It helps aspiring entrepreneurs to assess their abilities and actions through self-assessment tests
(SWATs) and acknowledge whether or not they are suited to an entrepreneurial career. For those
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 who are fitted for an entrepreneurial career knowing how to verbalize, list, and define the
fundamental essential temperament or nature of an entrepreneur can help then define and chart
out their dreams.
 According to Business Coaching Articles, learning about the symptoms and traits of the
entrepreneur can give added hope, fuel, and impetus as it resonates with what potential
entrepreneurs already know about themselves and their personal aspirations.
 Having an inventory of entrepreneurial qualities to refer to could offer a way to better clarify our
sense of purpose. It can help us reach objectives en route to greater attainment of higher goals and
bigger benchmarks.
 And grasping in a practical and tangible way the disposition of the successful entrepreneur can
give us a wonderfully inspiring boost of confidence, foresight, and determination when we realize
that we, too, share that winning attitude.
 It helps us appreciate entrepreneurs and the role they play in society. Studies show that
entrepreneurs contribute to economic development in the following ways:

 They organize different factors of production like land, labor and capital and in this
process, provide goods and services to the people.
 They create wealth and give employment to large sections of society.
 The preserve natural and other resources which they use as sources of raw materials. By
so doing, they minimize depletion and environmental degradation.
 They facilitate economic development by participating in increased income per capita
through wages. They also play a pivotal role in regional development by setting up
industries in backward or underdeveloped areas.
 They contribute to infrastructure development.
 They are the main source of government revenue through corporate taxation.

Types of Entrepreneurs
Entrepreneurs may be classified into the following categories:
A According to their economic conduct
- Self-employed: individuals who perform all the work and keep all the profits. These includes
everything from family run stores, agents, repair persons, accountants to physicians and
lawyers.
- Opportunistic entrepreneurs: those who start a business and expand as fast as possible in
order to be able to hire other employees. Most of the time, those additional employees have
needed expertise that the owner does not have.
- Pattern multipliers: those who look for ideas someone else has already created and then
create their own businesses based on following another’s model. Franchise operations or
chain stores are a form of this approach.
- Inventors: those with particular inventive abilities who design a better product and then create
companies to develop, produce, and sell the item. High-technology companies of this type are a
new trend.
- Economy of scale exploiters: those who benefit from a large volume of sales by offering discount
prices and operating with very low overheads.
- Acquirers: those who take over a business started by another and use their own ideas to make it
successful. This often happens when there is a financial problem in the current operation. Fresh
management ideas may save the business.
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- Buy-and-sell-artists: Those who buy a company for the purpose of improving it before selling it.
- Speculators: those who purchase a commodity and resell it for a profit. Real estate, arts, antiques,
and crops are typical speculator items.
- Internal entrepreneurs: those who create new ideas and make them into a successful project
within an existing business. Although they have neither profit, nor the personal financial risks of
their own, they need to use the same methods of operation as an entrepreneur.

B) According to type of trade, entrepreneurs have also been described as:

 Business Entrepreneurs: those who conceive an idea for a new product or service and then create
a business to turn the ideas into reality. They almost tap both the production and marketing
resources to develop a new business opportunity. Such entrepreneurs are found in ready-made
garments, printing houses, spare parts, advertising agencies or confectionary.
 Trading entrepreneurs: these are not concerned with manufacturing work, but only undertake
trading activities. They identify potential markets, stimulate demand for their product lines and
sell.
 Industrial entrepreneurs: these are product-oriented people who start an industrial unit for
making some new product. They are manufacturers who identify potential needs of customers and
tailor products or services to meet the market needs. Industrial entrepreneurs are found in the
electronics industry, textile units, food products, detergents etc.
 Imitative entrepreneurs: these imitate the products or methods developed by innovative
entrepreneurs. At the most they may make slight modifications.
 Agricultural entrepreneurs: these undertake agricultural activities such as raising and marketing
crops, fertilizers and other farm inputs. The government motivates and encourages them to
undertake agricultural activities through mechanization, irrigation and other application of
technologies for dry land agricultural products. Most of them are found in horticulture, dairy,
forestry, etc.

C) According to the source of motivation:

 Pure entrepreneurs: those motivated by psychological and economic rewards. They undertake
entrepreneurial activities for personal satisfaction in work, status or ego.
 Induced entrepreneurs: those who are induced to take up entrepreneurial tasks due to the various
policy measures, incentives, concessions and tax benefits offered by the government to start a
venture. A person with a sound project is provided with package of assistances for his project.
 Spontaneous entrepreneurs: these are entrepreneurs who are naturally talented. They are persons
with initiative, boldness and confidence in their ability that motivates them to undertake
entrepreneurial activity. They have a strong conviction and confidence in their inborn abilities.
 Innovators: are entrepreneurs who introduce new product or service or initiate new systems in
the economy. They are very positive in their thinking, aggressive in nature and present their
products with zeal, devotion and optimism. Example: Henry Ford – developed assembly line
technique of mass production popularly known as “Fordism”: His introduction of low-cost
strategy resulted in many technical and business innovations, including a Franchise system.
In the current economies, entrepreneurs are described based on the industries within which they are based
and their characteristics e.g., Agropreneurs (Agro-processing); Technopreneurs (Technology developers);
Engineerpreneurs; Dealerpreneur, Jack-of-all preneur

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Other descriptions:
Nascent (considering); Novice (no prior experience); Habitual (prior business ownership experience);
Serial (closed/sold business and inherited established another).

Characteristics of successful entrepreneurs

Being an entrepreneur requires much more than generating good ideas. Research portrays an entrepreneur
as a rare breed; a person with a unique cocktail of traits, skills and characteristics that allow him to beat
all odds and go after his dreams. According to Harvard Business School Academics, what makes some
people successful and others unsuccessful whether in economic, social or corporate entrepreneurship is a
combination of skills, luck and good timing.

a) Characteristics common to all entrepreneurs include:

Risk-taking propensity

Risk-taking propensity refers to a tendency to take or avoid risks. Entrepreneurship has always been
associated with risk-taking. Research findings also provide evidence that individuals with a greater risk
acceptance had stronger levels of entrepreneurial intention. (Hmieleski and Corbett 2006). In a Turkish
student sample, Gürol and Atsan (2006) found that students with entrepreneurial inclinations had higher
scores in risk-taking propensity compared to students with no such inclination.

Competitiveness

Decades ago, Schumpeter stressed the role of competitiveness as major motivation in engaging in
entrepreneurial activity. Competitiveness is associated with the need for achievement, which has a
positive relationship with venture performance (Rauch and Frese 2000). In a highly competitive business
world, entrepreneurs tend to thrive on competitive spirit with standards of excellence to win and excel not
only others, but also themselves.

Passion: The number one characteristic shared by successful entrepreneurs is a passion for their ventures.
They genuinely love what they do which enables them to put in extra hours to make their businesses to
grow. They get a genuine sense of pleasure from their work that goes beyond just cash. The passion
typically stems from the belief that the enterprise will positively influence people’s lives.

Execution intelligence: The ability to fashion a solid idea into a viable business is a key characteristic of
successful entrepreneurs. The ability to effectively execute a business idea means developing a business
model, putting together a new venture team, raising money, establishing partnerships, managing finances,
leading and motivating employees etc.

Creativity and innovativeness: Creativity is the intellectual power to create something original - rather
than imitate something which already exists - through imaginative skills. Such creations may be new or
developed by synthesizing two or more unrelated factors or through modification of something that
existed before. Entrepreneurs are inherently creative. They are able to come up with ingenious ideas and
turn them into profits.

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Innovativeness

Innovation is the process of turning ideas and knowledge into new value through creative thinking. It is
also defined as the ability and tendency of entrepreneurial leaders to think creatively and recognize
opportunities to produce novel and practical ideas, create new markets, and introduce new products and
services. Whereas creativity is the ability of imaginative skills to create something new, innovation is the
introduction of the end product of creative imagination.

Innovativeness is an important element of entrepreneurship and also has a significant impact on venture
performance Many authors argue that entrepreneurs have significantly higher levels of innovative
characteristic than managers or non-entrepreneurial counterparts

Product/Customer Focus: Developing products that enhance people’s lives is an aspect of the
entrepreneurial process.

Self-confident all-rounder: Confidence is a hallmark of the entrepreneur. Many confident women and
men gain their sense of self-esteem and faith in their ability to overcome challenges by acting; and then
gaining strength and belief in themselves by seeing the results which makes them gain the praise and
respect of others.

Goal orientation/Results orientation – Entrepreneurs are capable of setting goals and putting their all
into making it happen (achieving them). They also tend to be strategic in their game plans and always
have a clear idea in mind of exactly what they want to achieve and how they plan to achieve it.

Optimism: An optimist is someone who looks at the bright side of things and expects positive and
desirable events happening in the future. Considering the new venture creation is a complex process and
over half of all starting new ventures will probably fail (Knaup 2005), concludes that such positive
emotions are necessary for entrepreneurial activity.

Positive emotional states such as optimism, hope and resiliency have been reported as critical for
successful leaders of high-technology new ventures

Professional risk taking: To succeed means taking measured risks. Though entrepreneurs take high risks,
they exhibit an incremental approach to risk taking; at each stage exposing themselves to only a limited
measured amount of personal risk – moving from one stage to another as each stage is proved.

Ability to bounce back/tenacity: Entrepreneurs can cope with mistakes and failures and always ready to
try again.

Total Commitment: hard work, energy and single-mindedness are essential elements in the
entrepreneurial profile.

They are hands-on: Entrepreneurs are inherently proactive and believe that if there are things that need to
be done, they should do them themselves – meaning they are doers not thinkers and tend to have very
exacting standards. Business to them is an extension of themselves and tends to be an integral part of the
daily operations of business operations.

Thriving on uncertainty – Entrepreneurs are capable of keeping their cool throughout uncertainties and
can still flourish and grow in the wake of any challenges.
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Sense of Ownership/Taking responsibility - Rather than viewing a problem as someone else’s, the
entrepreneur sees it as his or her own and takes pride in finding a solution, leaving things in better shape
than they were before encountering them, and improving upon situations rather than leaving them
unattended. They conduct their duties with care and attention (owning).

High need to achieve: inner drive and crave for success are hall marks of a person with entrepreneurial
desires. The high achievement motive strengthens them to overcome obstacles and temporary setbacks.

Initiative: an entrepreneur should always take the initiative, accept personal responsibility for any action
and make good use of the available resources.

Energy: physical and mental fitness plays an important role in entrepreneurial activities.

Autonomy – one of the common characteristic of successful entrepreneurs has been that they do not like
to be guided by others and to follow their routine.

Optimistic: A positive outlook is an essential element of entrepreneurial behavior. Past shortcomings,

failures, or disappointments are relegated to the past so that they cannot continue to haunt the present or
obstruct the future

b) Skills associated with entrepreneurial success

Opportunity seeking: Entrepreneurs believe in turning every event into a business opportunity and they
constantly generate new and innovative ideas to improve on their operations and offers.

Willingness to listen and learn: The most important element of learning is listening and entrepreneurs are
good listeners. They are often “autodidactic” learners, which means that much of what they know is not
learned in a formal classroom setting but instead on their own by seeking out information, asking
questions, and doing personal reading and research. They also are quick to learn from their own mistakes,
which means they are less prone to keep repeating them.

Communication, Leadership, and People skills: Leadership is the art of influencing others to get
things done. Entrepreneurs are said to have natural abilities to motivate, inspire and influence those
around them including markets. This is made possible because they tend to have strong communication
skills and it’s this strength that enables them to effectively manage people (exhibited in their ability to sell
their products and services to clients, recruit suitable employees and direct their actions (people skills)

Team-work/Team player: Entrepreneurs know how to succeed by employing the physics of interpersonal
synergy and dynamic relationships. True entrepreneurs surround themselves with people who either know
more than they do or know things that are different from what they know. They entertain the views of
others and perspectives that may be unlike their own in order to be better students of human nature. In this
way they continue to enrich themselves with knowledge.

Organizational ability: entrepreneurs are able to use their time, energy, and resources in an effective way
so as to achieve business goals. Organizational skills can be classified into three:

(i) Physical organizational skills – These are measures that make a person's immediate surroundings
neat and conducive to accomplishing tasks in a structured manner.
(ii) Mental organizational skills – These are the skills that help entrepreneurs to make sound
decisions, prioritize and concentrate on tasks to deliver high-quality, desirable results. People
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 need good mental organizational skills to avoid distractions and confusions in the course of
discharging her mandate.
(iii) Time management - involve keeping schedules, delegating duties and working within limited
time frames to achieve desired objectives. A time-conscious person is usually results-oriented
and meets strict deadlines.
Others
 Money management skills
 Marketing and selling
 Strategic thinking and planning

c) Basic technical knowledge: Technical skills are the knowledge and capabilities to perform specialized
tasks, by adhering to specific methods, procedures or rules. E.g. mathematical, engineering, scientific or
computer-related duties, as well as other specific tasks relating to technology. In summary, other than
qualities such as self-confidence, entrepreneurship requires managerial abilities summed up in the above
skills or ability to manage the business enterprise.

Sources of Business Skills

 Family
 Education and training
 Apprenticeship
 Volunteer work
 Learning from mentors
 Life and career experiences

Myths associated with entrepreneurs

 Entrepreneurs are doers not thinkers: Doing is great but if you are not using your head, then
your actions won’t get you far.
 Entrepreneurs are always inventors: some people re-invent the wheel to be more efficient. Most
entrepreneurs utilize something that is already established, slightly twisting the established
product or idea and selling it.
 Entrepreneurs are academic and social misfits: This comes as a result of the media highlights of
the fact that many large and successful companies have owners or creators that were high school
or college dropouts. On the contrary, there are Harvard & Yale or Stanford graduates who run
multi-million dollar businesses.
 All entrepreneurs need money: It is true that ventures need capital to survive. Many successful
entrepreneurs have overcome a lack of money while establishing their ventures. To those
entrepreneurs, money is a resource, but never an end in itself.
 All entrepreneurs need is luck – being in the right place at the right time is always an advantage,
but “luck happens when preparation meets opportunity”. What appears to be luck could be years
of preparation, determination, desire, knowledge-seeking and innovativeness?
Entrepreneurship is unstructured and chaotic: there is a tendency to think of entrepreneurs as
gunslingers – people who shoot from the hip and ask questions later. The reality is that
entrepreneurs are heavily involved in all facets of their ventures and they usually have a number
of balls in the air at the same time but are skilled to know at what point they should toss. As a

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 result they are typically well-organized individuals. Their systems may look chaotic to ordinary
observers but are strategic.
Functions of Entrepreneurs (Role of Entrepreneurs in Business)
Major functional areas
1. Identifying a new venture opportunity
2. Planning a new venture
3. Organizing a new venture
4. Managing Finance
5. Managing production operations
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Functions
- Carry out market research and analyze
Techno-economic feasibility of an idea and
take risks
- Accomplish development of a new product
or service.
- Prepare project reports/business plan;
- Estimate technical knowhow, plant,
machinery; suppliers and supporting
services needed;
- Estimate capital requirements;
- Decide layout of production operations and
space requirements.
- Choose the form of ownership of the
proposed firm (sole proprietor,
partnership, private/public company,
joint venture, merger, franchise etc)
- Determine organization structure;
- Initiate steps for observance of related
statutory and non-statutory and non-
statutory requirements.
- Obtain certificate of registration, required
permits, arrange insurance coverage and
engage staff.
- Decide the financial/capital structure;
outline business credit policy; maintain
proper books of accounts; analyze financial
statements and compare actual performance
with budgeted estimates.
- Formulate purchasing policy and inventory
control systems; formulate framework or
total quality control and guidelines for
production schedule and ensure the 8 Rs
of procurement are maintained – (right
quality, right source, right price, right
quantity, delivered at right place at the right
time, right transport, right contract).
 6. Managing Workforce - Arrange systematic manpower planning;
prepare job descriptions for all positions;
decide on pay and perquisites for each
position; select and recruit right person for
the right job.
Others

 Promoter;
 Organization;
 Manager,
 Business initiation,
 Shareholder,
 Organization structure,
 Designer; negotiator (with financial institutions; suppliers, government agencies etc)

CREATIVITY AND INNOVATION

Entrepreneurs are said to be change agents. Globalization has created firm competitiveness
resulting in an age demanding innovation. Organizations that cannot innovate and change will
experience problems. Cortese (2001) reports that “the incredible period of experimentation and
creativity of the past five years has changed the business environment irrevocably. To survive ,
organizations will need to embrace change and adopt a more proactive approach to innovation –
and this is the domain of the entrepreneur. According to Drucker (1985), ‘Innovation is the
specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a
different business or a different service.

Creativity and Innovation are important both for survival and for building competitive
advantage. Although not every creative business opportunity that entrepreneurs take will be
successful, many who are willing to go beyond conventional wisdom will be rewarded for their
efforts. Successful entrepreneurs are those who are constantly finding creative solutions to
problems.

Definitions of terms: creativity, innovation, invention

Creativity refers to the intellectual power to create something new. This power symbolizes the
quality of imaginative skills to create something original rather than to imitate something which
already exists. Simply put, creativity refers to the intellectual ability to make or do something
never seen or known before, be it a physical object, production process, device, artistic object or
form, solution to a problem etc. Creative ability gains recognition based on what and how
something is created namely:

 A creation which entirely is new;

 A creation achieved by synthesizing two or more unrelated things or factors, and,
 A creation obtained in an entirely new shape by complete modification of something that
existed earlier.

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Michael Michalko, a specialist in creative thinking suggests that persons gifted with creative
skills may be classified into two:

1. People of artistic talent such as: painters, sculptors, musicians, directors, actors, lyricists,
mine artists, comedians and authors;
2. People who use creative ideas in business; profession or personal services in the fields of
architecture, accounting, advertising, health care, information technology, consultancy.
Innovation: The dictionary meaning of innovation is: “introduction of a new thing”. If creativity
is the ability of imaginative skills to create something new, innovation is the actual introduction
of the end-product of creative. In relation to creativity, innovation in fact refers to a creative
change and this change may be in the form of a new product, new service, new found material,
new market opportunity or a newly recognized business enterprise.

In essence creativity leads to conceptualization of a new idea or creation of a new invention, but
innovation facilitates commercialization of a new concept or invention. And this is made
possible as the entrepreneur breaks away from traditional business practices, takes initiative,
mobilizes resources and translates a new finding into a useful thing through innovation.

The entrepreneur assumes risks, introduces a change and thereby plays a key role in
technological progress, industrial advancement and economic growth.

Innovation is characterized by the following elements:

 Process: Innovation is a process (it can be learned and managed).

 Intentional: The process of innovation is carried out on purpose.
 Change: The innovation process results in change.
 Value: The essence of change is to create value (value addition in society, economy and
individual lives).
 Opportunity: Innovations can themselves be opportunities or respond to opportunities in
terms of identified needs.

Invention: Invention is something useful produced or obtained for the first time as a result of
ingenious study and complex experiment. It is a case of infusion of science into creative
thinking. An invention may be a new object, new understanding or new awareness.

Innovation is actually an act of introducing an invention into the market on a business basis for
profit. Invention is a scientific fact whereas innovation is an economic function (Schumpeter).

Role of creativity and innovation

1. In an open market competitive economy, a business person will have to look for a change
that will bring opportunities for him in order to:
 Increase market share, strengthen financial position and thereby protect his business
interests;
 Meet the requirements of a pressing situation;

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  Diversify production base;
 Shift pattern of consumer demand, enhance productivity, improve quality; optimize
resource utilization or reduce per unit production cost. All these require creative
changes. In the world of harsh competition and sustained technological progress, the
combined role of creativity, invention and innovation is increasingly gaining
prominence.
2. Creative ideas, inventions, technological changes, innovations, industrial development
and economic growth are interlinked. Technological changes put into practice through
innovations results in the introduction of new production methods, new merchandise,
better utilization of resources, quality or increased productivity. These achievements
accelerate industrial advancement, which in turn contributes to economic growth.
3. Thanks to the innumerable revolutionary inventions in recent times. Some of the most
impressive technologies and products that have been introduced since world war II
include atomic energy, missiles, computers, satellite communication, chemicals, printing
machinery, medical equipment, jet engine and state-of-the-art electronic gadgets.
Factors that generally help promote development of innovation network are: labor skills, capital
generation, education system, science and technical infrastructure, labor/management
relationship, research and development etc.

Barriers to creativity

 Searching for one right answer;

 Focusing on being logical;
 Blindly following the rules;
 Becoming overspecialized;
 Avoiding ambiguity;
 Fearing mistakes and failures;
 Believing that you are not creative.

The creative process

Idea germination Preparation Incubation Illumination

Verification

Elements in the Innovation process

Translation of creative idea into useful application

Analytical planning Organizing resources Implementation Commercial

Application

To identify to obtain to accomplish to provide

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Key people in the technological innovation

Creative source Champion Sponsor

Inventor or originator Entrepreneur or manager person or organization that

backs
(creates something new) (Pursues the idea) the innovation (finances,
advice)

Forms of Innovation (Four Ps of Innovation)

1. Product Innovation: Consumer Products are the most obvious forms of product
innovation. Examples of product innovation include introducing new products,
enhanced quality and improving its overall performance. E.g. Cell phones.
2. Service Innovation: This takes the form of a new way of providing a service. E.g.
creating an online purchase system for customers; mobile banking services; online mode
of teaching etc.
3. Process Innovation: is the implementation of a new or significantly improved
production or delivery method. Process innovation includes significant changes in
techniques, equipment and/or software as has been applied previously.
4. Position Innovation: changes in the context in which the products or services are
introduced.
5. Paradigm Innovation: A paradigm is a shift to a completely different type of
technology. A recent and more pertinent to this industry example is the iPhone.

Types of Innovation

 Incremental Innovation: Incremental Innovation is the continuous improvement of

existing products or services to provide more value to an existing market. It focuses on
reducing defects and incrementally improving performance with features like product line
expansions, cost reductions, and next-generation products.

Incremental innovation refines and improves existing designs through improvements in

the components.

Products can be made smaller, more user-friendly or more attractive without changing the
basic functions of the product, and services can be made more efficient through
continuous improvement.

 Radical Innovation: Radical innovations call for whole new designs using new
components configured in a new way.

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 The company applies new technology to a new market. This type of innovation is when a
new product, process, or service with high technological advancement has a high market
impact and completely replaces an existing offering. This innovation occurs in the long-
term.

It even offers solutions to needs and problems that we didn’t know we had and changed
markets or even the whole economy.

Technological innovations such as PCs and the Internet are examples of radical
innovations that have changed the way the world works and communicates.

Amazon Web Services, the first and largest cloud computing service in the world,
established the entire cloud computing business and is another example of radical
innovation

iPhone, which paved the way for the modern smartphone market, and the merging of
farming equipment with sensor technology that provides farmers with data that is used to
alter the farming industry.

It was the iPhone's computer capacity that was the real radical innovation.

 Disruptive Innovation is when new technologies and products are created to serve an
existing market. This type of innovation is enabled by new technology that provides a
more efficient and accessible alternative to what already exists in the market. Businesses
apply disruptive innovation to serve the evolving needs of their consumer base, creating
entirely new value streams and service offerings that did not exist before.

Netflix is a classic example of disruptive innovation that used a new business model and
technology to disrupt an existing market. It initially offered a DVD-by-mail rental service
and later launched its online, subscription-based movie streaming service.

Other Examples: Open source software, Peer-to-peer platforms (Airbnb), video streaming
Online encyclopedia and reference, Smartphone.

 Business model innovation

In all its simplicity, the business model is the way companies work and make money. It
consists of core values and resources, strategies, core channels, and target customers, to
name just a few.

Business model innovation is a fundamental change in the way companies provide value
to their customers or differentiate them from the market.

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  Modular Innovation: Does not involve new designs but involve at least significantly
different components where the function remains the same. E.g. a solar lamp.

 Architectural Innovation: Architectural Innovation is the modification of existing

solutions for an entirely new market. Architectural innovation refers to changing the
overall design of a product by putting existing components together in new ways. This
innovation occurs in the short to medium term. Some examples of architectural
innovations include networked computer systems and flexible manufacturing systems,
where the core components of the product remain the same, but the relationship between
these components and how they link to one another, changes.

Others include Sony Walkman, desktop photocopiers

Incremental and architectural innovations extend the relevance and life cycle of an existing
business. These innovation processes follow a formal set of predetermined steps from concept to
commercialization, whereas disruptive and radical innovations supersede existing processes to
redefine industry standards. These innovation types are characterized by several process changes
along the way due to unexpected events and discoveries.

To gain a competitive edge, businesses should explore all four types of innovation and align each
approach with specific company goals.

For successful innovation to occur, an idea needs to address three important criteria: (1)
feasibility; (2) viability; (3) desirability.

 Desirability tests whether your innovation is solving the right customer problem
 Feasibility tests whether your innovation strengthens the busines
 Viability tests your value chain for long-term sustainability and profitability

Left brain/right brain concept

From a neoro-psychological point perspective (Sperry, 1968; Ornstein 1977), the brain is divided
into two hemispheres:

The left side – handles language, logic and symbols. It processes information in a step-by-step
fashion. Left-brain thinking is narrowly focused and systematic, proceeding in a highly logical
fashion from one point to the next.
 Conscious – awareness and focused on problems
 Rational – conscious modeling of issues
 Analytical – use of knowledge in discrete applications to evaluate issues
 Logical deductive reasoning - to establish relations

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The right-side – takes care of the body’s emotional intuitive and spatial functions. It processes
information intuitively, relying heavily on images. Right-brain thinking is lateral,
unconventional, unsystematic and unstructured. It is this right brain lateral thinking that is the
heart of the creative process.
 Unconscious – unaware and unfocused on specific issues
 Non rational – special imagining without direction
 Intuitive – total experiences and emotions allowed to influence ideas
 Synthesizing – illogical reasoning and fantasizing to create analogies

According to Lewis (1987:38-9)

………………while the left brain requires hard facts before reaching conclusions, the right is
happier dealing with uncertainties and elusive knowledge. It favors open-ended questions,
problems for which there are many answers rather than a single, correct solution… The left
specializes in precise descriptions and exact explanations; the right enjoys analogies, similes and
metaphors. The left demands structure and certainty; the right thrives on spontaneity and
ambiguity. Those who have learned to develop their right-brain thinking skills tend to:
 Ask if there is a better way of doing things; challenge custom, routine and tradition;
 Be reflective – deep in thought; play mental games; trying to see issues from a different
perspective; seem mistakes as pitstops enroute to success; realize there may be more than
one right answer.
Although the two halves normally complement each other, on occasion, they compete, or one
half refuses to participate. Most education systems since the time of the ancient Greeks have
tended to develop in their students left-brain capabilities. Lewis says:

“In class students are expected to acquire knowledge one step at a time, adding methodically to
their storehouse of facts until they have sufficient to pass exams. This demands left-brain skills.
The problems they are required to solve more often demand an analytical than an intuitive
approach, this too is a task for the left hemisphere. Written work, by which ability is chiefly
evaluated, must be organized well-argued and logically structured…all left brain skills”.
Gibb (1996) argues that if the education system is to develop entrepreneurs or more enterprising
individuals, there needs to be a shift in focus.

Reading Assignment: Discuss the sources of Innovation

LESSON 5: ENTREPRENEURIAL MOTIVATION (Factors influencing entrepreneurial

engagement)
The word motivation has been derived from the word “motive”. Motives may be defined as drives or
impulses within an individual; implying something within a person which prompts him into action.
Motives are expressions of a person’s needs or wants and hence they are personal and mostly internal.

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Entrepreneurial motivation means the inner drive to achieve or fulfill certain entrepreneurial needs. The
reasons why entrepreneurs become motivated and compelled to establish business enterprises.

Cooper provides a comprehensive framework for explaining the various factors which may contribute to
the entrepreneur’s decisions. He classifies these factors into three groups:

 The entrepreneur himself: this includes the many aspects of his background which affect his
motivations, his perceptions, his skills and his knowledge.
(i) (Personality traits): It is now well accepted that personality is an important predictor of
entrepreneurial behavior.
 Creativity and innovativeness: Traits such as creativity and innovativeness have
proven evidence in research that innovation is a primary motive in starting a new
venture.
 Optimism: Considering the new venture creation is a complex process and over
half of all starting new ventures will probably fail, it can be concluded that such
positive emotions are necessary for entrepreneurial activity.
 Risk tolerance behavior

 Value propositions (what individuals uphold as being important or

worthwhile)…(such as: Dependability,Reliability, Loyalty,Commitment,Open-
mindedness,Consistency,Honesty,Efficiency.

 The organization – for which the entrepreneur had previously worked with, whose characteristics
are likely to influence the location and nature of his new firm;
 Various environmental factors – these are factors external to the individual which make the
climate more or less favorable to the starting of a new firm.
Cooper grouped these three into: “Antecedent influences, incubator organization and environmental
factors.

Antecedent influences

 Genetic factors – First, genes may affect chemical mechanisms in the brain to increase the
likelihood that people will engage in entrepreneurial activity. Second, genes may influence
individual differences such as extraversion and internal locus of control, which predispose people
to engage in entrepreneurial activity (Nicolaou and Shane, 2009). 37 to 48 percent of the
tendency to be an entrepreneur is genetic.

Twin studies show that sensation-seeking and risky behaviour, which are antecedents of
entrepreneurial activity, have a genetic basis

A plethora of studies comparing trait resemblance in pairs of identical and fraternal twins
shows that genetic factors account for the variance of a wide range of behavioral traits ranging
from intelligence, personality attributes, and psychological syndromes to social attitudes,
vocational choices, job satisfaction, religiosity, and even marital status (Plomin et al., 2016). In
the language of behaviour genetics, this empirical evidence demonstrates that such traits are
heritable, meaning that, from the day they are born, individuals possess a certain propensity to
display them.
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  Individual needs – self-actualization, desire to succeed, power needs
 Family influences – (entrepreneurial background or values, family support).
the father or mother plays the most powerful role in establishing the desirability of the
entrepreneurial behavior. Mueller (2006) also found parental role modeling to be the most
significant familial factor on entrepreneurial intention. Through the socialization process of
children, exposure to entrepreneurship experience in the family business constitutes important
intergenerational influence on entrepreneurship intentions. (Carr and Sequeira 2007). McElwee
and Al-Riyami (2003) also found that children who grew up with entrepreneur parents had a
greater tendency to choose a self-employed career. Similarly, Fairlie and Robb (2005) showed
that entrepreneurs tended to have a self-employed mother or father in their family history. These
entrepreneurs also indicated that within the family business context they acquired the skills,
confidence and values required to do their own businesses.
 Educational choices – technical courses/technical skills, entrepreneurship education/business
skills - Entrepreneurship education is all about the development and improvement of
entrepreneurial inspiration, awareness, knowledge and skills that are much needed to successfully
establish and run an entrepreneurial venture. Many authors stress the importance of
entrepreneurial education in cultivating the entrepreneurial spirit in individuals who could start
new ventures.
 Rauch and Frese (2000) also argues that entrepreneurial education can enhance an individual’s
creativity, flexibility and ability to respond to changing situations and thus contribute to
innovative behaviors. Türker and Selçuk (2009), 143 notes that, “…getting an adequate education
may foster entrepreneurial intention of a person”.
 Others posit that besides providing basic business knowledge, entrepreneurial education should
also seek to empower students to become enterprising thinkers with enhanced self-worth and
confidence to recognize business opportunities, deal with challenges in the business world, think
creatively, and serve catalysts for economic growth.
Social factors
 Previous career experiences/experiential activities – (exposure to business). Certain experiences
or activities are known to promote the kind of creative thinking and idea generation central to
innovation and new venture development. A range of life experiences, such as those gained
through living in different cities, traveling outside home country, trying new and different foods,
meeting new people from different cultures and exposure to foreign books, movies and music can
all contribute to cognitive diversity and exposure to new perspectives. Thus, we conclude that
variety and a willingness to seek out new experiences both play important roles in creative
thinking and idea generation. Exposure to others’ creativity also enhances creativity.

Incubator Organization

 Nature of knowledge and skills acquired - Human beings behave according to beliefs, knowledge,
intentions, and goals. They do not only acquire and process information to make an occupational
choice; they also learn from the performance of other people in different careers
 Geographic location
 Motivation to stay with or leave the organization
 Experience in a “small business” setting
 Contact with possible founders

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Environmental factors

 Political and Economic conditions – markets, capital (e.g. credit facilities), labor, fiscal policy
(tax laws); pricing, industrial policy which includes rules and incentives; development in
infrastructure.
Economic instability in a country usually goes together with political instability as well. The lack
of intellectual property rights, bureaucratic barriers, corruption, lack of corporation law and
proper tax arrangements are factors among many others that undermine entrepreneurial activity

Students (in both cultures) who think that the economic and political conditions of their home
country are better for starting a new business will exhibit a higher level of entrepreneurial
intention.

 Social and cultural factors: cultural and social norms are emphasized as the major differentiating
factor that impacts entrepreneurial activity in different countries. Favorable cultural attitudes
towards entrepreneurship and the high status of entrepreneurs has an important impact on
people’s intention to start a new business. A positive attitude of society towards entrepreneurship
motivates people to start a new venture; entrepreneurship cannot prosper in a society where most
members view it with suspicion. Culture influences entrepreneurial intentions through social
norms and valuations (e.g., the image of entrepreneurs in society), generating differences across
national and regional boundaries. Based on this line of thinking, we can suggest that in an
“entrepreneurially supportive” national culture where entrepreneurial activities are valued and
considered to be worthwhile (despite the risks), potential entrepreneurs may develop an intention
to start their own business.
 Accessibility and availability of venture capital
 Examples of entrepreneurial action
 Opportunities for interim consulting

Pull and Push Factors

Entrepreneurial motivations are also often defined as fitting into “push” or “pull” categories. These try to
establish why individuals take the personal and financial risks associated with setting up a new venture?

Push are compelling factors and often have negative connotations. They are characterized by personal or
external factors (including a marriage break-up, or being passed over for promotion),

Alternatively, pull factors are those that draw people to start businesses and have positive connotations
– such as seeing an opportunity (Hakim, 1989). Positive factors pull and negative factors push.

Pull factors form the basis for opportunity entrepreneurs to set up a new venture, while necessity
entrepreneurs are driven mainly by push motivations.

‘Pull’ motivations include:

 the need for achievement,
 the desire to be independent, and

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  opportunities for social development.
 recognition,
 independence,
 Learning and roles (the last of which are driven by the wish to continue the family tradition, to
have more influence in the community, and to follow a role model).
 financial success and self-realization
 personal development, improved welfare and wealth,
‘

Push’ motivations may arise from

 The risk of unemployment,

 family pressure, and,
 Lack of higher formal education
 Individuals’ general dissatisfaction with their current situation.
 Divorce
 Death of a bread winner
 Findings suggest that both women and men appeared similarly motivated by a combination of
push and pull factors. Three gender differences were found in the incidence of motivations:

 women were more influenced by a desire for independence;

 women also considered their children as motivators more so than did men;

 men were influenced more by job dissatisfaction than were women.

Opportunity and Necessity Entrepreneurship

Pull and Push factors draw a line between opportunity entrepreneurship and necessity entrepreneurship.

Opportunity entrepreneurship reflects start-up efforts “to take advantage of a business opportunity”,
whereas necessity entrepreneurship exists when there are “no better choices for work”.

Although opportunity entrepreneurs pursue a business opportunity for personal interest (often when they
are still wage employed), entrepreneurship is often the best “but not necessarily the preferred option” for
individuals who start out of necessity

Practical issues that have influenced some of the most renown entrepreneurs.

 Making a difference in the world. When Bill Gates acted on his dream of putting a computer in
every home and on every desk, he had no idea of the fortune it would bring to him, since he
wanted only to make a difference. Extrinsic motivations often work against entrepreneurs by
leading them to set unrealistic and overwhelming goals.

 Find personal meaning from building a business. In his book, “The Art of The Start 2.0,” Guy
Kawasaki exhorts entrepreneurs to focus on making meaning, not money. He has said many
times that if your vision for your company is to grow it just to flip it to a large company or to take
it public and cash out, "you're doomed.” Do it for meaning.

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  Satisfaction of doing something great. Steve Jobs summarized his intrinsic motivation in 2005 at
Stanford in a talk titled “How to Live Before You Die.” He said, “Your work is going to fill a
large part of your life, and the only way to be truly satisfied is to do what you believe is great
work. And the only way to do great work is to love what you do.”
 Personal growth and accomplishment. To be a successful entrepreneur, one can never stand still.
The best entrepreneurs enjoy the journey as much as the destination. They have a thirst for
knowledge that helps them in their business, as well as in their own personal growth. That
synergy creates a sweet spot that maximizes their impact.
 Seeing the real value of one’s beliefs and challenging the status quo. When asked why he
created Facebook, Mark Zuckerberg replied “It's not because of the amount of money. For me and
my colleagues, the most important thing is that we create an open information flow for people.
Having media corporations owned by conglomerates is just not an attractive idea to me."
 Helping others achieve their goals. If you want to achieve your goals, help others achieve theirs.
Great entrepreneurs keep your eyes open for other businesses in a related space that can
complement theirs. Elon Musk has opened up Tesla car battery patents for use by anyone, which
obviously will benefit his business as well as theirs.
 Many entrepreneurs have found that initial failure is one of the best teachers and even motivator
in this regard. In fact, most investors are wary of anyone who claims to have never failed, reading
that claim as an indication of too much caution, or not able to face their own reality.

The primary message here is not to hide your real motivation from yourself, your team, or your investors.
You can’t fool them all for very long, and you won’t be happy trying. If you can’t find any intrinsic
motivations for what you are doing now, it’s probably time to take a hard look at your lifestyle and your
future. Life is too short to be unhappy and unfulfilled for any part of it.

Reading assignment

Distinguish between entrepreneurs and managers

LESSON 5B: ENTREPRENEURSHIP AND ENGINEERING

Engineering is the creative application of science, mathematical methods, and empirical evidence to the
innovation, design, construction, operation, and maintenance of structures, machines, materials, devices
systems, processes, and organization for the benefit of humanity.

Entrepreneurship on the other hand is the capacity and willingness to develop, organize, and manage a
business venture. Entrepreneurs design business models and commercialize their creations (viable
innovations) through risk taking and with a view to creating benefits in terms of wealth and profit.

Both Entrepreneurship and Engineering have played a significant role in the existence of human beings
from time immemorial. They both continue to play significant roles in economic and social development
by providing goods and services that make human life comfortable and economic processes like
production easy through innovative skills and talent.

Engineers facilitate commercial activities by inventing tools and designing systems that aid trade. Other
than inventing aids to trade, engineers develop innovations which they translate into commercially viable

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goods or solutions. This process of harnessing the business opportunities in engineering and turning them
into profitable commercially viable innovations is called Engineering entrepreneurship.

However, the fact that an engineer creates and designs does not necessarily mean that he is a destined
entrepreneur. He must have the capacity and willingness to harness, develop, organize, and manage the
business venture conceived with an engineering idea and manage the risk involved painstakingly in
order to make a profit. It is imperative therefore for an engineering entrepreneur to first and foremost
master an engineering field of choice (it involves the acquisition of tools, methods, knowledge of
processes) then combine it with the creative mindset and skills needed for problem-solving;, and the
organizational and managerial understanding of innovation and entrepreneurship that will support
business operations.

Success in engineering entrepreneurship therefore entails having an in-depth knowledge of a

marketable technological innovation and significant skill in the following business areas:

Development of a business plan: every business venture needs a solid plan that will evaluate the
commercial viability of the business idea. With a business plan, detailed market research, and the
required customers’ feedback will be evaluated. As the old adage says: ‘those who don’t plan;
plan to fail’.

Human resources: engineering entrepreneurs should learn the art of identifying appropriate
skillsets in those they desire to work with since the right set of people will ensure better
utilization of resources.

Acquisition of financial and material resources: no business thrives without finance, it is the
major driving force of any business idea, engineering inclusive. Ability to identify and manage
finances effectively will enhance business success.

Accountability: as an engineering entrepreneur, it is important for you to be responsible for your

actions, it is essential for you to be accountable to yourself in your sojourn in engineering
entrepreneurship.

Marketing: entails ability to identify customer needs and wants and develop products and
marketing programs that suit varied markets.

Risk Management: ability to effectively identify, assess, and manage the risks associated with a
business is very paramount to how successful that business will be. Engineering in itself involves
a lot of risks but with proper management, such risks will can be minimized. This also involves
the use of the right tools to undertake various tasks.

Mechanical engineer entrepreneur

This is an entrepreneur in the field of mechanical engineering that deals with the design, and production
and operation of machinery. Some of the business jobs that can be undertaken by the entrepreneur include
clutch plates manufacturing, barbed wire production, electro-coating, hacksaw blades manufacturing, nuts
and bolts production, 3D designing and printing.

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In reality, engineering and entrepreneurship are related in the sense that entrepreneurship is the process of
harnessing the different opportunities in the field of engineering. Engineering requires comprehensive
planning; entrepreneurship will offer better management of the engineering resources so that they can be
properly utilized for wealth creation. Entrepreneurship will provide the needed marketing expertise,
proper accounting practices, solid business operations, and administrative knowledge that will nurture a
technological idea into wealth.

However In the current economy, most entrepreneurs come from either Computer Science or Electronics
and Telecom branches.

Civil Engineer-preneur

Civil engineering is a professional engineering discipline that deals with the design, construction, and
maintenance of the physical and naturally built environment, including public works such as roads,
bridges, canals, dams, airports, sewage systems, pipelines, structural components of buildings, and
railways. Examples:
 Infrastructure Engineering: designs and provide basic facilities and systems that help society
function in the most efficient, safe, sustainable, and environmentally friendly way possible.
 Structural Engineering – creates structures such as bridges, towers and skyscrapers to building
homes and public works.
 Environmental engineering - combines the principles of engineering, soil science,
biology, and chemistry to conduct detailed analyses on a broad spectrum of
environmental issues and find solutions. Environmental engineers design methods used to
conserve energy and prevent further pollution to protect the environment and natural
resources.

 Geotechnical Engineering - Geotechnical engineering is concerned with understanding

how a project interacts with the ground and therefore they design methods that support
the design and construction of a project. They will carry out tests and analyses to assess
risk to humans and the environment. These tests will disclose the risk that can arise from
natural hazards such as avalanches, rock falls, sinkholes, and earthquakes. They are very
valuable in construction.
 Transportation Engineers: these are concerned with improvement of the transportation
systems such as roads, airports, bridges and apply technology and scientific principles to
the planning, design, operation and management of transport facilities and large transport
systems. Their primary role is to provide environmentally friendly, safe, sustainable and
sufficient transportation methods that meet specific standards. In today’s environment,
their main focus is to reduce emissions and energy use and make the world more
environmentally friendly.

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Famous Engineering entrepreneurs

Below is a list of some of the famous engineering entrepreneurs who have turned their ideas into business
ventures creating wealth and opportunities for others. These engineering entrepreneurs nurtured their
ideas into a conglomerate of companies and they are contributing immensely to humanity.

Carlos Slim: A Mexican civil engineer by profession, his business interests cut across the fields of
communications, insurance, construction, energy, mining, retailing, publishing, and finance.

Charles Koch: Koch was trained as an engineer — he received master's degrees from Massachusetts
Institute of Technology in both mechanical and chemical engineering. Koch companies manufacture
paper, process minerals, create fertilizers, and refine oil. Some of the subsidiaries are also involved in
ranching, commodities trading, and investing.
His brother, David Koch, with whom he co-owned the Koch Business interests was a chemical engineer.

Bernard Arnaut: Arnault graduated from the École Polytechnique in Paris with a degree in engineering.
In 1971 he took control of his father's construction firm Ferret-Savinel. Eight years later he changed the
company's name to Férinel Inc. and shifted its focus to real estate. He has built his fortune over the span
of almost four decades, amassing a luxury-goods empire that includes some of the best-known names in
fashion, jewelry, and alcohol and oversees a business empire of some 70 fashion and cosmetics brands,
including Louis Vuitton and Sephora. A centibillionaire, Arnault is 2nd richest person in the world
according to Forbes as of July 2022.

Jeff Bezos: The Amazon and Blue Origin founder graduated from Princeton University in 1986 with a
bachelor's in electrical engineering and computer science

Mukesh Ambani: Ambani earned a bachelor's degree in chemical engineering from the University of
Bombay (now the University of Mumbai) and subsequently pursued a master's degree in business
administration from Stanford University. He is the chairman and managing director of Reliance Industries
Ltd. (RIL), a Fortune Global 500 company and India's most valuable company by market value.

Engineering Entrepreneurship ideas

Ideas, they say rule the world, engineering as a field can generate ideas that have the potential of
being profitable and generate wealth. There are a number of business ideas in the field of
engineering which can be embraced by engineers:

Consultancy: naturally, engineers are known for their problem-solving abilities, an engineer can
use his skills to provide consultancy services to the people in need of it. Consulting is a business
that can be run from home and it requires a small capital.

Product design: an engineer may put his skills in engineering to design and develop hardware
for some devices; teaching/couching/training or writing. This can be done by teaching and
training people how to operate, install, and manage some equipment. Another idea is by
operating as a technical writer to the people that will pay for these writings.

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TECHNOLOGY BASED ECONOMY

Technology implies the application of scientific knowledge for practical purposes, especially in industry.
It includes the use of materials, tools, techniques and sources of power to make life easier or more
pleasant, and work more productive.
Whereas Science is concerned with how and why things happen, technology focuses on making things
happen. Technologies are not usually exclusively products of science, because they have to satisfy
requirements such as utility, usability, and safety.

A Technology based economy is one driven by technology and innovation—through the creation of new
industries and the application of technology in traditional industries.
It means that regions or countries have an economic base composed of firms that constantly innovate and
maximize the use of technology in the workplace, leading to Technology Based Economic Development
(TBED).
In this form of environment, the technology is regarded as a primary source in economic development and
the various technological changes contribute significantly in the development of the economy.

Why a Technology based Economy?

1. As scientific knowledge grows through discoveries, so does the new way of doing things. Countries
that have established R & D become more competitive.

2. Research shows that the level of technology is also an important determinant of economic growth. The
rapid rate of growth can be achieved through efficient use of resources.

3. In economics, it is widely accepted that technology is the key driver of economic growth of countries,
regions and cities. Technological progress allows for the more efficient production of more and better
goods and services, which is what prosperity depends on.

4. Schumpeter observed that innovation or technological progress is the only determinant of economic
progress. But if the level of technology becomes constant the process of growth stops.
Robert Solow estimated that technological change accounted for about 2/3 of growth of the U.S.
economy.

5. Technology can save the time it takes to produce goods or deliver services, contributing to the overall
profits of businesses.

Digital platforms such as Amazon, Uber and Airbnb have changed the way business is done and generate
high revenues at low costs. Increased business revenue increases tax revenues for countries.

 The Internet continues to create employment globally.

 Technology can contribute to the efficiency of a company output rate, allowing for larger
quantities of products to be moved or of services to be rendered. This boosts overall GDP.
In conclusion, Technology has deeply affected the global economy and its usage has been linked to
marketplace transformation, improved living standards and more robust international trade.
Technological advances have significantly improved operations and lowered the cost of doing business.

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Effect of technology on business operations
 Marketing: Technology has transformed marketing by making campaigns more personalized at
reduced costs.
Analyses of market needs is simpler and more accurate by use of artificial intelligence. Customer
Relationship Management (CRM) is one technology toolset that has revolutionized the process of
analyzing customers, both current and hopeful, using a highly sophisticated and disciplined
approach to gathering both internal and external information about the customers.
 Marketing Intelligence: “Market Intelligence Technology” automates and facilitates the collection
of information from both the internet and internal sources on competitors, competitor’s products,
and developments that may affect a firm's prospects in the marketplace.
 Productivity: Increased employee productivity; quantity of goods and services produced.
 Cost of running business: Reduction in overheads (transportation, production, power,
communication etc.).
 Data processing: and storage (faster, safer, ease of retrieval)
 Product: Improved product quality through better designs, performance (brand loyalty, increased
profits).
 Finance: Money transmission technologies such as EFT or MPESA aid businesses to move
money from one account to another swiftly. Employees, Suppliers, Customers can have their
financial needs met in an instance.
 Business outsourcing: companies can outsource business functions in international environments.

Negative effect: relationships are impersonal; culture shock; lowers morale; e-commerce making it
difficult for small businesses to compete; unsolicited messages (customers may feel harassed); may
increase the initial cost of doing business.

It can be addicting and it can hurt communication skills. Extended screen time can result in health
ramifications like insomnia, eyestrain, and increased anxiety and depression

Requirements for a technology based economy

Based on the experience of tech-based economies like Silicon Valley, Research Triangle, and Route 128,
the following elements are required for a tech-based economy:
 A research base that generates new knowledge (through research funds, government labs,
university-industry partnerships).
 Mechanisms for transferring knowledge to the marketplace (commercialize research).
 An entrepreneurial culture: Enriching the skills and ability of entrepreneurs, and improving the
environment for entrepreneurial development can be delivered through: venture development
organizations, mentorship programs, and incubators.
 Sources of risk capital: (Avail capital to support emerging companies)
 A technically skilled workforce: Encouraging more students to enter STEM fields, STEM
internship programs and providing technical training for workers in existing companies.

The famous G 7 Countries are technology driven. They also have established R&D.

The G7 is a group of seven of the world's advanced economies: Canada, France, Germany, Italy, Japan,
the United Kingdom, the United States and the European Union. As of 2020, the collective group
accounts for over 50 percent of global net wealth (which is $418 trillion), 32 to 46 percent of global gross
domestic product, and 10 percent of the world's population.
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Today the G7 has incorporated other economically promising states to form the G20. The G20 is a
strategic multilateral platform connecting the world's major developed and emerging economies. The G20
holds a strategic role in securing future global economic growth and prosperity.

The G20 comprises 19 countries and the European Union.

Argentina, Australia, Brazil, Canada, China, European Union, Germany, France, India,
Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey,
United Kingdom, United States of America

Countries with the Highest Technological Expertise

• United States
•Germany
• France
• South Korea
• Sweden
• Israel
• Switzerland
• Singapore
• Denmark
• Finland

Countries with the Highest Technological Expertise

1. United States: there are two technological innovations that profoundly changed business and
individual lives in the 19th century: steam power and electricity.
 The railroad helped expand the U.S. trade
 The telegraph, the telephone, and the typewriter connected people.
 The U.S. has made significant advances in space technology, pharmaceuticals, and
telecommunications.
 The U.S. also has the largest and most technologically advanced military in the world.
 Home to the world's largest technology companies such as Google, Facebook, Apple, and
Microsoft, the U.S.is a powerhouse in global technology.
 Silicon Valley inspired and produced an entire generation of software engineers and
technology companies and is currently home to some of the world's biggest tech
companies, including Boeing which was invented by William Boeing and has since
revolutionized air travel.
 Boeing remains the greatest innovator in aerospace history.

2. Germany: Germany has been an academic powerhouse for a long time, and as such education
is the backbone of Germany's technological advances. Education goal is for good ideas to be
translated quickly into innovative products and services

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 • Four sectors dominate industry in Germany: the automotive, mechanical engineering,
chemical and electrical industries. The global players are Volkswagen, Daimler,
BMW (all automotive), BASF (chemical) and Siemens (electrical).
• Additionally, Germany is now one of the strongest world leaders in medicine, military
technology, and infrastructure.

3. France: France is home to early developments such as:

 Optical Telegraph by Claude Chappe in 1792.
 Modern pencil by Nicolas-Jacques Conté in 1795.
 Paper machine by Louis-Nicolas Robert in 1799.
 Braille in 1825 by Louis Braille, a blind Frenchman: first digital form of writing.
 Parachute: The modern parachute was invented in the late 18th century by Louis-
Sébastien Lenormand. “Parachute” combines he French prefix paracete, meaning to
‘protect against’, and chute, to ‘fall’, to describe the aeronautical device’s function.

4. South Korea: is also among the world's most technologically advanced and digitally
connected countries; it has the third most broadband Internet users among the OECD countries
and the World's number one producer in mobile phones, and global leader in electronics, digital
displays, semiconductor devices and shipbuilding mainly exporting machinery, automotive,
semiconductors and petroleum products.
• With its cutting-edge ICT infrastructure boasting the world's fastest internet speeds,
the country is home to global leading electronics and IT companies such as Samsung
Electronics, LG Electronics, SK Hynix and Naver.

5. Japan: Home of robotics and inventors of Airsoft, IoT in Japan is the core of the “Society 5.0”
project and is represented by autonomous cars, smart factories and homes. Currently, in Japan,
patent domain is dominated by image processing, information retrieval and medical diagnosis
related technologies
•
6. China: is associated with innovations such as papermaking, printing, the compass, and
gunpowder (the Four Great Inventions).
• Known as the factory of the world China is the world's largest producer of concrete,
steel, fertilizer, clothing and toys using high tech industries, as well as advances such
as ultra-high voltage lines and high-speed rail.

As a student of Entrepreneurship, what lessons can you learn from these countries whose
economies are driven by technology?

Local Technologies

Nicknamed the “Silicon Savannah,” Kenya is regarded as one of the best innovation hub in Sub-
Saharan Africa.

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 • Mobile financial transaction apps: are especially popular in Kenya. Nearly 70
percent of the population use these apps regularly…MPESA; Lending companies e.g.
Branch, Tala etc.
• Farming: In 2011, Farmer Kahumbu created iCow which enabled farmers to monitor
their cows’ breeding cycles and milk production. iCow gradually updated to feature
advice and information for farmers to use to maximize their income potential.
• Use of iHub, a technology based co-working facility.
• The Kenya government uses technology to offer services online such as registration
of businesses, tax returns etc.

Characteristics of appropriate technology

Appropriate technology is that technology which is suitable for small businesses and adapted for local
conditions. The low overheads and greater flexibility of such technology would enable small businesses
to compete effectively with larger organizations. The characteristics of such technology encompass:
Simplicity, Availability, Efficiency, Cost effectiveness, Effectiveness etc.

In modern business settings, appropriate technology has become a movement which advocates for
technological choice and application that is small-scale, affordable by locals, decentralized, labor-
intensive, energy-efficient, environmentally sustainable, and locally autonomous.

THE BUSINESS ENVIRONMENT

The condition of the business environment plays a vital role in shaping the nature of entrepreneurial
activity and the dynamics of new enterprises. A business does not operate in a vacuum. It is a product
of business ecology i.e., business environment, the nature, location, product/service, size, volume
price, policies and decisions of the business enterprise are influenced by the business environment.
The affiliation between business and its environment is one of mutuality: this means that, the
environment exerts pressure on the business while the business, in turn, influences some aspects of
its environment. Because the environment is subject to a large degree of change, it needs to be clearly
understood by new as well as existing firms.

Meaning of Business Environment

According to the Institute of Chartered Accountants study pack (2009) business environment can be
defined as a set of factors or conditions that are external to the business but which have influence
on the operations of the business enterprise. External in the context means that these factors or
forces are not usually within the control of the business enterprise.
The environment can also be described as the web of forces which form the setting in which the firm
makes its decisions. It is the aggregate of all conditions, events and influences that surrounds and
affects a business unit.
In order to succeed, an entrepreneur must take its environment into account in making its decisions.
Firms which systematically analyze and diagnose the environment are more effective than those
which don’t”

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The conditions or factors within the business represent its internal environment. Contrasting the
elements of the external environment, these conditions or factors are generally viewed as controllable
by the business. Examples are the quality of interpersonal and inter-grouped relationships, the nature
of the production and distribution facilities, financial and human resources, etc. are subject to the
control of the firm. The external environment is generally interpreted as uncontrollable as no single
business can ascertain or influence it.

Significance/importance of understanding and analyzing the business environment:

Offers immense potential: It offers immense opportunities for potential market exploitation. A
firm is able to locate new markets, new customers and understand the competitors in a better way.
Helps a business to understand its strengths and weaknesses in order to use identified capabilities
to take advantage of opportunities in the marketplace.
Opportunities exist in the business environment. Environmental analysis allows the entrepreneur
to discover new opportunities.
Effective decisions and strategies: Business environmental factors exert a lot of influence over
business decisions and strategies. The business decisions become more effective when entrepreneurs
analyze the environmental properly.
The B.E. is dynamic and ever changing. The factors are volatile. This can present innumerable
threats to the existence of a business. However, a business unit becomes more capable, competent
and strong through conducting environmental analysis. The business is able to understand the sources
of these threats in order to develop appropriate courses of action.
It enables a business unit to understand its strengths and weaknesses.
A business is the product of the technological, political, legal, economic, social, cultural, global
and natural factors amidst which it functions/works. Environmental analysis helps promoters to
initiate a business that reflects the needs of its market.
Survival and success of a business firm depends on its resources and its adaptability to the
environment.

COMPONENTS OF THE BUSINESS ENVIRONMENT

1. The Internal Environment
These are factors within the firm and to a certain extent tend to be controllable because the firm can
change or modify these factors to improve its efficiency. However, the firm may not be able to
change all the factors. The various internal factors are:
a) Mission and objectives
Mission is defined as the overall purpose or reason for its existence which guides and influences its
business decision and economic activities. Vision, Mission and objectives of the company decide the
business domain of the company, direction of development, business philosophy, business policy etc.
are guided by the mission and objectives of the company. The objective of all firms is assumed to be
maximization of profit.

Examples of vision statements

Nike
Vision - “To bring inspiration and innovation to every athlete in the world.”
Mission - to “do everything possible to expand human potential.
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We do that by creating groundbreaking sport innovations, by making our products more sustainably, by
building a creative and diverse global team and by making a positive impact in communities where we
live and work.”

Kenyan companies
(i) Kenya Seed

Vision: To be the leading supplier of top quality seed in Africa and beyond.
Mission: To avail sufficient quality certified seed competitively through research and development to
the satisfaction of stakeholders.
(ii) Safaricom

Vision: To use our ability to deliver connectivity and innovative services to improve the quality of
life and the livelihood of every person we reach. Central to achieving this vision is our continuing
commitment to managing our operations responsibly and ethically.
Mission: We are committed to developing innovative products and services that help our customers
realize this potential and enjoy improved access to essential services. We aspire to use our products
and services to transform lives and contribute to sustainable living throughout Kenya.

b) Organization structure
The organizational structure, the composition of the board of directors, the professionalism of
management etc. are important factors influencing business decisions. The nature of the
organizational structure has a significant influence over the decision-making process in an
organization. An efficient working of a business organization requires that the organization structure
should be conducive for quick decision-making.
Hierarchical structures: The pyramid-shaped organizational chart we referred to earlier is
known as a hierarchical org chart. It’s the most common type of organizational structure—the chain
of command goes from the top (e.g., the CEO or manager) down (e.g., entry-level and low-level
employees), and each employee has a supervisor.
Functional: Primarily, employees are organized according to their specific skills and their
corresponding function in the company. Each separate department is managed independently.
A horizontal/flat: A flat organizational structure fits companies with few levels between upper
management and staff-level employees. Many start-up businesses use a horizontal org structure
before they grow large enough to build out different departments, but some organizations maintain
this structure since it encourages less supervision and more involvement from all employees.

Line Organization: Line organization is the simplest and oldest form of organization structure. It
is also known as military or departmental or scalar type of organization. Under this system, authority
flows directly and vertically from the top of the managerial hierarchy ‘down to different levels of
managers and subordinates and down to the operative level of workers. Line organization clearly
identifies authority, responsibility and accountability at each level.
c) Internal power relationships

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Relationship between board members and the CEO is a critical factor. The cordiality between them is
more important. Support enjoyed by top management from different levels of employees,
shareholders and board of directors influences the decisions and their implementation.
d) Management structure and nature: Some complex management structures and styles delay
decision making. Quality of the board of directors is a vital element. There are some firms with
highly qualified and responsible board. Some have dishonest and unscrupulous board, witty and
corrupt managers who engage in business malpractices that affect a firm’s reputation or value of the
shares.

e) Organizational resources
Resources are the foundation for strategy. They are inputs into a firm’s production process, such as
capital, equipment, employee skills, patents and finance. The unique resources generate opportunities
in the market place.

Resources may be tangible and intangible.

Tangible resources: They can be seen or touched.
The following are some of the tangible resources.
Financial resources: Fund acquisition capacity, and internal fund generation capacity - Financial
factors like financial policies, financial position and capital structure influence business performance.
The business requires a sound capital structure and adequacy of funds to survive and to take timely
advantage of opportunities in the market place
Organizational resources: Information, structure, formal planning, organizing, control and
coordination
Physical resources: Layout of machine and equipment and access to raw material,

production capacity, technology and efficiency of productive equipment, distribution logistics

influence the competitiveness of the enterprise. Technological capabilities of a firm determine its
competitive strength which is an important factor for determining its efficiency and unit cost of
production.
Intangible resources: They cannot be seen or touched. Following are some of the
intangible resources.
Quality of Human resources: Quality of employees is an important factor in business that
contributes to its strength. The characteristics of the human resources like leadership, skill, morale,
capabilities, attitude and commitment Knowledge, skill, and capability could contribute to the
strengths and weaknesses of an organization.
Innovation resources: Implies tactics, and innovation capacity.
Reputational resources: Customer relationship, brand loyalty, quality and reliability. Image of
the company plays a significant role while raising finance, forming joint ventures, soliciting
marketing intermediaries, entering sale or purchase contracts, launching new products etc., brand
equity is also relevant.
Organizational structure: Organizational structure specifies jobs and relationship. It defines the
job allocation, responsibility and accountability. Clear and swift organizational structure is very
important for the implementation of a particular strategy. Quality of interpersonal and inter-grouped
relationships,
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Corporate culture: The value system of an organization means the ethical beliefs that guide the
organization in achieving its mission and objectives. It is a widely acknowledged fact that the extent
to which the value system is shared by all in the organization is an important factor contributing to its
success.

Corporate culture represents the shared values, norms, behavior and belief of an organization.

The value system of the founders and persons holding top positions have some influence on how a
business units respond to customers and society. These values influence their policies, practices,
choice of business, vision-mission and objectives of the organization.
Corporate culture therefore is an important factor for determining the internal environment of any
company.
In a closed and threatening type of corporate culture the business decisions are taken by top level
managers while the middle level and lower-level managers have no say in business decision-making.
This leads to lack of trust and confidence among subordinate officials of the company and secrecy
pervades throughout the organization. This results in a sense of alienation among the lower-level
managers and workers of the company.
In an open and participating culture, business decisions are taken by the lower-level managers
and top management has a high degree of confidence in the subordinates. In this type of culture,
participation of workers in managerial tasks is encouraged. Development of work culture and the
growing involvement of the workers or employees in company affairs and the sympathetic attitude of
the management towards its employees are all equally responsible for maintaining a healthy internal
environment in the business.
f) Labor unions
Labor unions collectively bargain with the managers for better wages and better working conditions
of the different categories of workers. For the smooth working of business firms, good relations
between management and labor unions are required. Otherwise, there will be disruptions through
industrial action.
g) Research and development: capabilities of a company determine its ability to introduce
innovations which enhances productivity of workers. It is, however, important to note that the rapid
technological growth and the growth of information technology in recent years have increased the
relative importance of intellectual capital and human resources as compared to physical resources of
a company. The growth of Bill Gates’ Microsoft Company and Murthy’s Infosys technologies is
mostly due to the quality of human resources and intellectual capital than is superior to physical
resources.

External Environment
The external environment of a business may be further divided into two groups:
General/Remote/Macro environment, and Operating/Task environment.

Operating/Task or Micro Environment

The operating or task environment is composed of the factors that are directly related to the
competitive position of a business. It consists of the actors in the company’s immediate environment

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that affect the performance of the company. These actors comprise different stakeholders who have
direct or indirect interest in the performance of the business.
Stakeholders’ support and response play important roles in the growth and development of a
business. A business can influence the stakeholders through effective strategy.

The various constituents of micro environment are:

a) Suppliers of inputs
An important factor in the external micro environment of a firm is the supplier of its inputs such as
raw materials and components.
Suppliers are the persons or firms that provide inputs to the business needed to produce goods and
services. The quality of product depends on the quality of input. Besides quality; price, delivery time
and other terms and conditions are also very important for a business. A good relationship with the
suppliers always create opportunities to the business.
To reduce risk and uncertainty business firms are advised to keep multiple suppliers of inputs.
b) Customers
The people who buy and use a firm’s product and services are an important part of external micro
environment. Customer is the most important component of task environment. All the business
activities are directed towards satisfying customer needs and retaining them effectively. Customers
may be an individual, family or business. Besides purchasing goods and services, they are also the
source of information and ideas. Customer environment is increasingly becoming global.
Since sales of a product or service is critical for a firm's survival and growth, it is necessary to keep
the customers satisfied. Monitoring customer sensitivity therefore, is very essential. Depending on a
single customer is too risky.
In choosing the customer segments, and company should consider relative profitability,
dependability, and stability of demand, growth prospects and the extent of competition.
Firms employ marketing mix strategies to attract and retain customers. Marketing mix means a set of
controllable variable marketers use to remain relevant in their target markets and include the 4 Ps
(Product, Price, Promotion Place) or 3 Ps (People, Physical evidence, Process)

c) Marketing intermediaries
In the firm's external micro environment, marketing intermediaries play an essential role of selling,
pricing, and distributing its products to the final customers. Marketing intermediaries provide an
important link between a business firm and its ultimate customers.
Distribution management is one of the important factors that determines the effectiveness of a
business. A sound distribution system enables a business to avail the product and services to the
consumer in a stipulated time. Distributors even provide strong manpower and cash support to the
supplier or manufacturer’s promotional efforts. Hence, it is essential for a business to have a close
relationship with the distributors.

d) Competitors
Different firms in an industry compete with each other for sale of their products. Competitors are the
firms that provide similar products in the similar market. Businesses compete for customers. Hence, a
business needs to analyze the competitors through competitive intelligence in which a firm gathers
data and information to understand competitors’ objectives, strategies, assumptions and capabilities.

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Competition takes place within the strategic group. A strategic group is a set of firms emphasizing
similar strategic dimensions to use a similar strategy. Hence, the activities of key competitors from
the same strategic group are very important for a business.

As a consequence of liberalization of the Kenyan economy and globalization there has seen an
increase in firm competitiveness. Now, Kenya firms have to compete not only with each other but
also with foreign firms whose products can be imported. In America, American firms face a lot of
competition from the Japanese firms producing electronic goods and automobiles. Such competition
affects a firm’s marketing mix strategies and more often than not, has cost implications.

e) Publics
Publics are entities that have vested interests in the way firms conduct their businesses and include:
environmentalists, media groups, women’s associations, consumer protection groups, local groups,
citizens associations are some important examples of publics which have an important bearing on the
business decisions of a firm. The existence of various types of publics influences the working of
business firms and compels them to be socially responsible. Co-operation between company and
publics is established for mutual benefit of the company and local community.
Media: A business is very closely related to media. Medias always have a very close look on the
business activities. They largely influence the image of a business. A number of opportunities may be
created with a continuous interaction with the media. It is necessary to address the media promptly.

Government agencies and departments: Government regulates the business system. It further
formulates different policies for the development of business in the country. It attempts to protect the
interest of the consumer as well general public. Hence, the regulations and policies of the
government exert considerable impact on the operation of a business.
Pressure groups: Environmentalists, consumer advocates, and women’s group are some of the
pressure groups that influence the business activities directly. They exert pressure to the business on
the issues of price, quality, employment and environment protection.
A business needs to address the issues raised by the pressure groups as promptly as possible.
Financiers
Individual and institutional lenders. Financing capabilities, their policies and strategies, attitudes
and activity to provide non-financial assistance are very important. These may be angel investors,
insurance companies and other institutions related to capital markets.
Creditors financial banks: Banks are very important for a business, since they provide fund for
short as well as long term financial requirements. Besides fund, they also provide other services. A
sound relationship with the financial institutions always creates opportunities for the business

2. General Remote/Macro Environment

The general environment is composed of the factors that are broad and affect the industries and the
firms competing each other. The general environment should be scanned, monitored, forecasted, and
assessed to determine their effects on the firm i.e. to recognize and evaluate opportunities and threats.
The different components of general environment are

Economic Environment
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The economic environment refers to the nature and direction of the economy in which a firm
competes or may compete. In general, firms seek to compete in relatively stable economies with
strong growth potential. Economic environment includes all those forces which have an economic
impact on business. Accordingly, total economic environment consists of agriculture, industrial
production, infrastructure, planning, basic economic philosophy, stages of economic development,
trade cycles, national income, per capita income, savings, money supply, price level, government
fiscal and monetary policies, exchange rates, employment, and population. Business and economic
environment is closely related.

The state of economic environment determines the general health and wellbeing of an organization.
The elements of economic environment are;
Economic system: It determines the degree of private participation in the economy and role of
market forces. Three types of economic system are prevalent. They are:

Free market economy: It is based on private sector ownership of the factors of production.
Centrally planned economy: It is based on public ownership of all the factors of production.
Mixed system: It is based on co-existing both private and public sectors.

Economic policy: They are the economic guidelines of the government. They aim at development
and growth of different sectors of the economy. Some of the important economic policies are:
Monetary policy: It deals with money supply, interest rates, credit availability and exchange
rates. Monetary policy is a policy of the central bank towards the cost and availability of credit. It
influences savings-investment and consumer spending in the economy.
Fiscal policy: It is related to taxation and government expenditure and regulates the level of
aggregate economic activities. The pattern of public expenditure may affect the development of
industries. E.g.: Taxation policy, government often uses tax incentives or disincentives to encourage /
discourage certain activities.
Industrial policy: It is concerned with industrial licensing, location, incentives, facilities, foreign
investment, technology transfer, and nationalization of industries.

How economic policies affect Businesses 

Industries falling in the priority sector in terms of the government policy get a number of incentives
and positive support from the government.

A liberal foreign investment and technology policy will increase domestic competition and would put
many domestic firms into problems. At the same time, it would benefit many domestic firms by
permitting global sourcing of capital and technology.

Economic conditions
They represent economic soundness of a country. They are represented by;

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Gross domestic product (GDP): It is the broadest measure of a country’s economy. It represents
the total market value of all goods and services produced in a country during a given year.
Inflation: It represents changes in the level of retail prices for the basic consumer basket.
Inflation is tied directly to the purchasing power of a currency.
Employment indicators: They involve number of jobs created or destructed; percentages of
active and unemployed workforce. They indicate the economic health of a country.
Balance of payment: It represents the ratio between the amount of payments received from
abroad and the amount of payments going abroad.
Income distribution: It shows how a notion’s total GDP is distributed amongst its population.
Business Cycles: They affect the health of organization. They may be depression (contraction),
recovery (revival), prosperity and recession.

Economic integration: Regional and global economic integration are also the important components
of economic environment. Economic integration facilitates removing or minimizing tariffs and other
restrictions on economy at international level. It promotes cooperation and free trade among the
countries. Economic integration has been promoted by SAARC, APEC, ASEAN, EU and the WTO.
Types include: Simple free-trade area, Customs union, Common market, monetary union, Economic
community or union.

Examples in Africa
Economic Community of West African States (ECOWAS);
Common Market for Eastern and Southern Africa (COMESA),
Economic Community for Central African States (ECCAS)
East African Community: The mission of the Community is to widen and deepen economic, political,
social and cultural integration in order to improve the quality of life of the people of East Africa through
increased competitiveness, value added production, trade and investments.

Economic integration can reduce the costs of trade, increase consumer purchasing power and employment
opportunities in member nations. Employment opportunities tend to improve because trade liberalization
leads to market expansion, technology sharing, and cross-border investment.
A business usually collects all its required inputs from the economic environment available and also
absorbs the output of business units

Socio-cultural Environment
A business is a social system. It conducts its activities in the society. Socio-Cultural environment is
the sum of all the cultural elements that affect the operation of a business directly or indirectly.
Cultural elements are a complex phenomenon and are transferred over generations. The socio-
cultural environment consists of the norms, values, beliefs, attitudes, language, symbols, and
behavior which are learned and developed over time. Some of the important constituents of socio-
cultural environment are mentioned below:
Attitudes: It is a positive or negative concept towards product, person, organization, and other
elements.

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Beliefs: Beliefs are descriptive thoughts about something. They are based on knowledge,
experience and religion.
Religion: Religion reflects and shapes culture. It is shared beliefs, values and rituals.
Language: It is a medium of communication. It also reflects culture.
Education: It is a continuous process of learning. Education is very important for developing and
nurturing culture. Includes literacy rates/ and levels of exposure.

Family structure and social organizations. Social organization are in the form of common interest
group and communities.
Nature and lifestyles of the people – their values and norms
Importance or place of women in the workforce
Traditions, customs and habits of people
Role of family
Marriage and religion/religious beliefs

The social and cultural environment influences the demand for a variety of goods and the type of
employees the industry requires.
Moreover, the obligation of business to society also depends on the cultural milieu in which the firm
is operating.
Culturally, Kenyans prefer imported items and this has adverse effects on local industries.
The classification of the population into low, middle and high class dictates what businesses should
be located where and the type of goods and services such businesses should offer.
Culture of ethnicity, corruption, tribalism and nepotism are business cancers as they do not favor
enterprise growth.

Political Environment
Political environment of business refers to the government actions which affect the operation
of a business. These actions may be on local, regional, national or international level.
Political environment also constitutes all the factors related to government affairs and the manner in
which the country is governed; including conflict resolution mechanisms.
Governments are charged with responsibilities to ensure that there are structures put in place for the
(i) maintenance of law and order, (ii) provision of basic infrastructure and (iii) security of life and
property to create an atmosphere where meaningful business activities thrive. Also, the government
should ensure that while developing or making policies, laws and regulations, it should help to
accelerate and improve the welfare of the society.
The political segment represents how organization try to influence government and they understand
the influences of government actions on their strategic move.
Managers pay close attention to the political environment to measure how government actions will
affect their company.

The basic components of political environment are:

Political system/Ideologies: Political systems include the democracy and autocracy.

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In democracy, the government is of the people, by the people and for the people. (power is vested in
the people). Democratic systems offer equal rights and opportunities to the people. The private sector
is regarded as the indispensable part of development of the country.
Autocracy is a government by the autocrats. People’s fundamental rights are abandoned by the
rulers. No freedom is given to the political organs of legislature, executive, judiciary and press.
Totalitarian: Under it, the power is centralized to the government that does not tolerate parties of
differing opinion. The private sector doesn’t flourish under such ideology.
Constitution: Constitution is the fundamental law of the country. It is the duty of every citizen to
follow the constitution.
Political parties: Political parties are regarded as the pillars of a democratic system. They try to
win the support of the people to elect their representatives and form legislation.
Government and its Branches: It involves legislative, executive, judiciary and other constitutional
bodies.
Executive: It refer to the organ of the state that is responsible for the overall administration of the
nation. It is composed of the government and its organs as bureaucracy, army and police.
Legislative: Its main responsibility is formulation and enactment of law. It also forms the
executive i.e., the government.

The influence of legislature on business is considerable. Legislature decides the type of business
activities the country should have; their ownership; their size of operations; their earnings and other
related factors.
Judiciary: It refers to the court of law. It is responsible for settling disputes and interpreting the
rules and laws if required. It has the right of judicial review under the constitution.

Other Constitutional Bodies: They involve the constitutional bodies created by law. Some of them
are; Office of the Auditor, Public Service Commission, Election Commission and National Human
Rights Commission
Captains of business units involve in political activities by funding parties or by contesting elections.
Government provides a system of money and credit by means of which transactions can be affected.
Government provides infrastructural facilities, such as transportation, power, finance, trained
personnel and civic amenities.
In view of the foregoing, business organizations that are armed with the policy thrust of the
government are able to anticipate the pulse and direction for the government and thereby adjust their
operations accordingly. However, in times of political instability, there is a situation of policy
instability and uncertainty from the point of view of business organizations. In addition, in most
developing nations, a change in government does not always follow clear-cut procedures. These
frequent changes in governments especially during military dictatorships create unnecessary tensions
and uncertainties.

Legal/Public Policy Environment

The legal environment of a business is composed of the constitution, business related laws, courts
and law administration. The legislative framework of a country provides both opportunities and
threats to the business.

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This environment therefore, consists of the laws, regulations and procedures of a country which
business enterprises are anticipated to comply with in the course of their operations.
These laws may facilitate successful business conduct as well as constitute major handicaps to
successful performance.
Furthermore, in carrying out their business operations, business enterprises are required by law to
pay taxes, value added tax, capital gains tax, import duties, excise duties, etc. There are also labor
laws that synchronize the contract of employment specifically the relationship between employers,
employees and the unions, Trade Mark Act, Essential Commodity Act; Weights and Measures Act;
the minimum wage a person must be paid, employee compensation, etc.

The components of the legal environment are mentioned below:

Constitution: It is the fundamental law of a country.
Business Law: They consist of an array of laws that regulate business activities.
Courts of law: They are the institutions to define and solve legal disputes.
Law administrators: They are the various law enforcement agencies, which ensure implementation of
the laws as well as judgments made by the courts of law.
Peaceful atmosphere is ensured by the law enforcement bodies.

Opportunities: Deregulation of capital markets has made it easy for firms to collect capital from
primary markets; Advertisement of alcoholic and tobacco products is prohibited and one is required
to give statutory warning. Removal of control from foreign exchange encourages foreign investment.

Technological Environment
The technological environment can be regarded as the state of the use of scientific principles and
mechanical arts employed to different tasks in the society.
The technological segment of business environment includes the institutions and activities involved
in creating new knowledge and translating it into new products, processes, and materials. Technology
has pervasive and diversified scope. Hence, it affects many parts of a society.

Given the rapid pace of technological change, it is vital for firms to study the technological segment
thoroughly.
The importance is that early adopters of new technology often achieve higher market shares and earn
higher returns.
The following are the important elements of technological environment.
Level of technology: It may be manual, mechanized, automated, computerized and robotized
technology.
Pace of change: It is the stage and speed of the technological change.
Technology transfer: It implies technology imported from foreign countries or knowledge
organizations.
Research and development budget: It is the spending by the government or business organizations for
technological adaptation, up-gradation and development.

In the Kenyan context, the indigenous technology is applied by those who engage in peasant farming,
small scale businesses and even in the mining, quarrying and construction business. On the other

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hand, more advanced technology is engaged in the steel industry, breweries, textile, banks, hospitals,
Most African countries are not self-sufficient in their technological input and so they rely heavily on
modern technologies from China, America, Japan, India, Korea, Europe, etc. However, their
dependence on foreign technologies has to some extent, advanced the technological climate
positively in some industries and negatively in others. (To solicit for examples from students)

Physical/Natural Environment
The physical environment refers to potential and actual changes in the physical environment.
It also refers the business practices that are intended to positively respond to those changes.
Natural environment influences business in diverse ways. Businesses in modern times are dictated by
nature. The natural environment is the ultimate source of many inputs such as raw materials and
energy, which firms use in their productive activity.

In fact, the availability of natural resources in the region or country is the basic factor in determining
business activity in it. The natural environment which includes geographical and ecological factors
such as minerals and oil reserves, water and forest resources, weather and climatic conditions are all
highly significant for various business activities. For example, steel producing industries are set up
near the coalmines to save cost of transporting coal to distant locations.
The natural environment also affects the demand for goods. For example, in places where
temperatures are high, the demand for coolers and air conditioners are high. Similarly, weather and
climatic conditions influence the demand pattern for clothing, building materials for housing
etc.
Natural calamities like floods, droughts, earthquake etc. are devastating for business activities.
There are many parts of the physical environment that firms should consider.
 Energy consumption: It is concerned with both organizations and nations.
 Environment policy: Companies are required to develop environmentally friendly policies
due to increasing concern about sustaining the quality of the physical environment.
 Compliance of environmental laws: Business should comply with all environmental laws.
Besides, they should seek to understand their impact and continuously improve the business
practices in many areas.
 Natural resources: It involves the availability and the sustainable use of the natural resources
like water, land, forest, mines and minerals.
Due to the efforts of environmentalists and international organizations such as the World
Bank, NEMA, people have now become conscious of the adverse effects of depletion of
exhaustible natural resources and pollution of environment by business activity. Accordingly,
laws have been passed for conservation of natural resources and prevention of environmental
pollution. These laws have imposed additional responsibilities and costs for business firms.
But it is socially desirable that these costs are borne by business firms if nations want
sustainable economic growth and also healthy environment for human species.

Global Environment
This refers to all those elements on the international scene, which can help or inhibit the decisions
and operations of the business enterprise. Globalization denotes expansion of international trade

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borrowing and lending and investment: includes economic globalization, cultural globalization, and
political globalization.

Globalization 2.0 (1800 to 2000) shrank the world from a size medium to a size small, and it was
spearheaded by companies globalizing for markets and labor. Globalization 3.0 (which started around
2000) is shrinking the world from a size small to a size tiny and flattening the playing field at the same
time. A flat world is a metaphor for viewing the world as a level playing field in terms of commerce,
wherein all competitors, except for labor, have an equal opportunity.

Thomas Friedman who invented the term ‘flat’ attributes the flattening to the following:
 The fall of the Berlin wall.
 The World Wide Web and the internet.
 Workflow software.
 Uploading.
 Outsourcing.
 Offshoring.
 Supply chaining.
 Insourcing.

The global environment of a business includes relevant global markets international political events,
and critical cultural characteristics of global markets. With globalization, markets are becoming more
global.
Globalization of business markets may create opportunities to enter new markets as well threats that
new competitors may pose. The markets from which firms generate sales and income are one
indicator of the degree to which they are participating in the global economy.

Firms competing in global markets should recognize the different socio-cultural and institutional
attributes of global markets. There are however several adverse effects of a global environment on
developed countries: terrorism, job insecurity, currency fluctuation, and price instability.

Business responses and managerial practices must therefore be fine-tuned to survive in the global
environment. Today, managers understand that protected markets are no more; the world is becoming
small in size due to advanced transportation and communication facilities; learning foreign
languages is necessary; acquiring familiarity with strange and changing currencies is a must; facing
political and legal uncertainties is inevitable; and adapting their products and services to different
customer needs only makes them to survive.
Globalization is in the self-interest of consumers because they can buy low-cost goods and services
produced in other countries. It is also in the self-interest of MNCs that produce in low-cost regions
and sell in high-price regions. Globalization demands that whatever the nature of their economies,
their level of development, and whatever their location in the global economy, all countries must
pursue a common set of economic policies. In particular, they must permit the free and indiscriminate
operation of transnational corporations in their economies.

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Demographic Environment
The demographic environment includes the size and growth of population, life expectancy of the
people, rural-urban distribution of population, the technological skills and educational levels of labor
force. All these demographic features have an important bearing on the functioning of business firms.
 The labor force in the country is always changing. This will cause changes in the work force
of a firm. The business firms have to adjust to the requirements of their employees. They
have to provide child care services, labor welfare programs etc.
 The technological and educational skills of the workers of a firm are determined by the
human resources available in the economy which are part of the demographic environment.

The size of the population and its rural- urban distribution determine the demand for the products of
industrial firms.
 The growth rate and the age composition of the population determine the demand pattern of
goods. If the child population is high then the demand for baby foods and baby clothes will
be high. On the other hand, if the life expectancy of the people is high then the demand for
goods will be those that will cater to the tastes and needs of elderly people.
 The demographic environment is also important for business firms as it determines the choice
of technology by them.
Some of the critical factors in the business environment common to African states include:
 Near collapse of critical social and economic infrastructure. (EP)
 High bank lending rates which are a great disincentive to new investment.(E)
 Uncontrolled imports leading to high mortality rates of firms in the manufacturing,
agricultural, and mining sectors.(L)
 Lack of long-term investible funds for manufacturing activities.(P)
 Government policy inconsistency (P).
 Deepening weak aggregate consumer demand(E)
 Massive influx and dumping of all kinds of imported finished goods (L)
 Multiplicity of taxes and levies (P)
 Low government patronage of locally manufactured goods (P)
 Insecurity of life and property (P)

IDENTIFYING AND RECOGNIZING OPPORTUNITIES

Definition of terms:
A business opportunity is a positive trend in the external environment that presents entrepreneurs
with a chance to advance entrepreneurial ventures through innovation. It is an occasion to add value
by performing differently from and better than competitors.
An idea is not an opportunity. An idea is the conception of a possibility. It is a course of a perception
that a course of action is potentially profitable or value-adding. However, an idea is important in
business because:
 It serves as a seed from which a business may or may not develop.

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  If refined, it gives forth a great organization. An opportunity is an idea conceived, selected,
planted, cultivated, and harvested. An opportunity is a potentially profitable business refined
from an idea
 The range of business ideas are nearly infinite. Entrepreneurs can therefore generate
numerous business ideas from which they can choose what gives them drive and passion to
do.

Entrepreneurs build successful organization based on skill to create, recognize and identify
opportunities. An opportunity is a favorable set of circumstances that creates a need for a new
product or service.
Opportunity identification refers to ability to recognize a problem or need or gap and create a
business to fill it. Opportunity recognition searches for an opportunity and starts a business.

Evaluation of Business Ideas

After generating business ideas, entrepreneurs evaluate them for the following reasons
 There are so many business opportunities available at any one time and the requirements for
translating them into business activities differ between each of them.
 No individual can turn all the opportunities available into businesses due to limited resources
such as skills, market etc. Hence the need to pick one and most suitable.
 The need to develop a competitive edge by providing something new that has little or no
competition.
 The success and profitability differ between various business opportunities, hence need to
pick one with high profit and success potential.

Opportunities have the following essential characteristics (which entrepreneurs use to evaluate the
viability of business ideas):
 They are attractive – based on returns;
 Durable – based on market scope; long lasting
 Reliable demand – based on markets ability to buy or repetitiveness in purchase;
 Timely – describing the ability of the entrepreneur to capitalize on the opportunity when its
window is open. Window of opportunity explains the time period the firm can realistically
enter a new market to capitalize for instance on “first mover” advantage. When the market
matures, the window of opportunity closes.
 Availability of capital;
 Competitive advantage;
 Compatible with goals and talents - Fits within a firm’s objective and government policy.

Sources of Business ideas

 Reading magazines, books
 Friends/relatives/family
 Networks

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  Observations
 Creativity/creative thinking seminars
 Hobbies
 Active listening
 Franchises
 Personal research and development
 Patent brokers
 Former employers
 Trade fairs/exhibitions/Agricultural shows
 Education and training

Ways to identify opportunities:

1. Observing trends: The first approach to identifying opportunities is to observe trends in the
business environment. Potential entrepreneurs could use two tools: PEST analysis or SWOT
analysis.
 Political and regulatory changes – New laws can create opportunities for one to start a
business to assist companies, individuals and government agencies comply with such laws.
Likewise, changes in government regulations motivate business owners to start firms pursue
“differentiation” by exceeding regulations or introduce new products in the market.
 Economic forces – An understanding of economic trends is helpful in determining areas that
are ripe for new business ideas.
- When the economy is strong, people have more money to spend and therefore willing to
spend cash on discretionary products and services and vice versa,

- Changes in the workforce create opportunities too. An increase in the number of women in
the workforce can lead to increased needs in salon and boutique services.

 Social factors – changes in lifestyles open windows of opportunity in social circles. When
people get busy, it creates opportunities in fast foods industries.
Social networking sites such as the face book should be observed as they create business
opportunities because they allow people to communicate and connect.
Below are examples of social trends that are currently affecting how individuals behave:
- Retirement of baby boomers;
- Increasing diversity of the workforce;
- Increasing interest in healthy foods and “green” products;
- Increasing focus on health care, fitness, and wellness;
- Emphasis on alternative forms of energy;
- Increased globalization of business etc.

 Technological advances: In the case of technological advances the idea is to find out how
technology can be harnessed to help satisfy basic and changing human needs. For example,
the cell phone was motivated by an increasingly mobile population to offer ability to
communicate with co-workers, customers, friends, and families from anywhere and
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 everywhere. E-commerce allow customers to order and pay for goods and services in the
comfort of their homes and offices.
Technological advances also provide opportunities to help people perform everyday tasks in
better or more convenient ways. E.g. making bookings in the hospitality industry online.
Also once technology is created, other businesses emerge to offer services or produce
complimentary products.

2. Solving a problem: The second approach to identifying opportunities is to recognize problems and
find ways to solve them. (i). the problems can be recognized by observing the challenges that people
encounter in their daily lives. People keep complaining about one thing or another e.g. inability to
sleep; very bright bulbs; inability to get rid og garden weeds etc.
(ii). Companies have also been started by people who have experienced problems in their own lives
and realized the problem could be solved by a business opportunity. (iii). some problems are solved
by entrepreneurs who frame a problem differently than it’s thought of before and then propose an
appropriate solution. The solution is often easier and less expensive than previous fixes.

3. Finding gaps in the market place: Product gaps in the marketplace represent potentially viable
business opportunities. Many entrepreneurs discovered in the 19 th century that there weren’t colognes
made specifically for men. One can in this century start a company to make clothing for youth who
want to be stylish but do not want to wear clothes that are too revealing.

4. The corridor principle: Most opportunities are discovered through the corridor principle which
states that once an entrepreneur starts a firm, he starts a journey where “corridors” leading to new
venture opportunities.

5. Recognizing human needs

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Physiological needs – these are physical requirements for human survival and must be met first. If
these requirements are not met, the human body cannot function well. Air, water, and food , sex,
education, medi-care
Safety needs - Once a person's physical safety needs are relatively satisfied, their safety needs take
precedence and dominate behavior – secure jobs, insurance policies, savings accounts, safety needs.
These may be classified in terms of manifest include:
 Personal security
 Financial security
 Health and well-being
 Safety net against accidents/illness and their adverse impacts

Social needs – (Love and belonging) - These are interpersonal and involve feelings of belongingness
in one’s social groups otherwise can create a feeling of loneliness, rejection and depression. Social
needs include:
 Friendship
 Intimacy
 Family

Self-esteem - this includes the need to have self-esteem and self-respect; presents the typical human
desire to be accepted and valued by others. People often engage in a profession or hobby to gain
recognition. These activities give the person a sense of contribution or value. Low self-esteem or an
inferiority complex may result from imbalances during this level in the hierarchy. People with low
self-esteem often need respect from others; they may feel the need to seek fame or glory. This may
include a need for status, recognition, fame, prestige, and attention.

Self-actualization – it is expressed in the saying: "What a man can be, he must be. This quotation
forms the basis of the perceived need for self-actualization. This level of need refers to what a
person's full potential is and the realization of that potential. Maslow describes this level as the desire
to accomplish everything that one can, to become the most that one can be. For example, one
individual may have the strong desire to become an ideal parent. In another, the desire may be
expressed athletically. For others, it may be expressed in paintings, pictures, or inventions.

Self-transcendence - In his later years, Maslow explored a further dimension of needs, while
criticizing his own vision on self-actualization. He explains under this need that the self only finds its
actualization in giving itself to some higher goal outside oneself, in altruism and spirituality.

ENVIRONMENTAL ANALYSIS TOOLS

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1. SWOT Analysis: It is a strategic planning technique used to assess the business environment
in order to understand the internal strengths and weaknesses and to identify opportunities and
threats a firm faces.
It is intended to specify the objectives of a business venture and identify the internal and external
factors that are favorable and unfavorable to achieving those objectives.

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.

Strengths and Weaknesses are internally-related, while Opportunities and Threats emanate from
the external environment.

 Strengths: are characteristics of the business or project that give it an advantage over
others.
 Weaknesses: are characteristics of the business that place the business or project at a
disadvantage relative to others.
 Opportunities: elements in the environment that the business could exploit to its
advantage.
 Threats: elements in the environment that could cause problems or limit a firm’s capacity
to achieve its objectives.

Sources of Business/Project Strengths and Weaknesses (Internal factors)

• Human resources – skill set, board members, access to volunteers, stability, and
supply.
• Physical resources: Business location, buildings, tools and equipment, physical space.
• Financial Resources: sources of income, capital structure, grants, funding agencies.
• Production/Service delivery processes: systems employed, programs run.
• Past experiences: reputation, building blocks for learning.
• Products and services: quality, brand loyalty.

Sources of Opportunities and Strengths

 Political Elements: government stability and probability of changes of political systems;

level of bureaucracy (procedures, permits etc.); power structures; dominance of
government owned corporations; state monopolies; pressure groups; level of government
spending; influence of media and public on policy; trade control (import/export
restrictions.
 Economic Elements: Interest rates; Exchange rates; Recession; Inflation;
Demand/Supply; Employment factors (unemployment rate and trends); strength of trade
unions; level of incomes and spending; level of government rate; financial market
conditions; influence of international organizations (world bank, IMF) Type of economic
system; Infrastructure development (roads, power supply etc.); phase of economic cycle
(prosperity, recession, depression, recovery)…

 Socio-cultural elements: Demographics (changes in age, race, gender etc.); social classes
and their influence on society; level of education; health consciousness; lifestyles,
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 dominant beliefs; common attitudes; fashion trends; relative population of local vs global
imported culture; population growth rate; sex distribution rates; life expectancy; average
family size and family structure; level of emigration/immigration majority and minority
religions and roles etc.
 Technological elements: rapid developments of fast communication networks; growing
efficiency of computer systems; IT security challenges; cyber-crime; shorter life cycles of
technology; new generations of equipment; environmental friendly technologies;
regulations concerning licensing; internet banking and shopping; MRP, ERP and other
types of integrated IT systems; smart technologies etc.
 Ethical Elements: Business ethics deals with moral issues (beliefs, norms, values etc.)
found in business. They establish standards of conduct by recommending certain
behaviors. Elements of the ethical environment would include:
Marketing techniques (telling the truth about products); sharing business information
(informing customers employees and business partners about a firm’s mission statement
and goals; informing shareholders about a company’s situation); insider trading, hiding
information about mergers and acquisitions; eliminating unsafe working conditions;
safety of products/services; profiting from products bad for health (drugs, cigarettes,
alcohol); regulations on discrimination in hiring and promoting; priority of performance
over well-being of employees; side deals; preferential treatment; creating healthy
working conditions for employees; promoting unethical behavior towards customers
(misinformation, cheating).
 Legal Environment: Include all regulatory and law determinants that affect market
actions and management decisions in businesses. Legal factors are closely associated
with ethical elements affecting firms.
Legal factors may include: tax levels and restrictions for individuals and corporations;
export/import restrictions; monetary policy; individual and corporate property rights;
laws involving environmental protection (emissions, waste disposal, recycling); Bans and
restrictions on specific businesses (drugs, explosives, guns); reporting laws for companies
operating in the stock market; laws on finance, banking and insurance; intellectual
property laws; unfair competition and anti-trust laws; trade union regulations;
employment laws on protection against dismissal; anti-discrimination laws (race,
religion, sex, age, harassment); work environment regulations (facilities, hygiene,
temperature); health care laws; retirement laws; fair and minimal wages regulations etc.

2. PEST Analysis
Pest analysis is an environmental analysis tool developed by Francis Aguilar (1967)….initially a
scanning tool called ETPS.
The acronym PEST takes into account elements in four separate factors: Political, Economic,
Social, and Technological. Plenty of other variations besides PEST exist such as PESTLE or
PESTEL. PEST analysis is important in the following ways:

 Helps potential entrepreneurs or individuals to spot opportunities.

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  It gives an entrepreneur advanced warning of significant threats.
 It aids entrepreneurs not to engage in projects that are likely to fail for reasons beyond
their control.
 It reveals the direction of change within the business environment thereby facilitating
controlled change management within the firm.
 It can help international businessmen to break free of unconscious assumptions when
they are entering new regions or markets by developing an objective view of new
business environments.

Elements of the PEST environment are already discussed under SWOT

3. Porter's Five Forces: This is a framework for analyzing competition of a business. It isolates
five forces that determine the competitive intensity and, therefore, the attractiveness of an
industry in terms of its profitability.

It is especially useful when starting a new business or when entering a new industry sector.
According to this framework, competitiveness does not only come from competitors. Rather, the
state of competition in an industry depends on five basic forces: (i) threat of new entrants, (ii)
bargaining power of suppliers, (iii) bargaining power of buyers, (iv) threat of substitute products
or services, and (v) existing industry rivalry.

 The collective strength of these forces determines the profit potential of an industry and
thus its attractiveness.
 If the five forces are intense (e.g. airline industry), almost no company in the industry
earns attractive returns on investments.
 If the forces are mild however (e.g. soft drink industry), there is room for higher returns.

1. Bargaining power of Suppliers: Represents the extent to which suppliers influence the prices.
 When there are many suppliers, buyers can easily switch competition since the suppliers
are not strong enough to influence prices or control the industry.
 When the suppliers are few, they can push prices up. Suppliers are powerful when there
are no alternative products available or the market has a small number of suppliers.

2. The Bargaining power of customers: This represents the ability of customers to affect the
pricing and quality of goods/services.

 When the number of consumers of a particular product are fewer, they will have the
power to affect the pricing and quality.
 When consumers buy products in low quantities, the bargaining power is low.
 Factors that affect the bargaining power of consumers are: number of customers; size of
customer orders; switching costs; substitutes; price sensitivity; availability of
information.

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3. The Threat of new entrants: When barriers to entry into an industry are high, new businesses
can find it difficult to enter the market due to high costs and strong competition. When the
barriers are low, new businesses can take advantage of economies of scale or key technologies
• Possible barriers to entry are: Capital requirements; Brand loyalty; Switching costs;
Access to distribution channels; Access to raw materials; Legislation and other
government controls; existing players have secure customer relations.
4. The threat of Substitutes: When customers can choose between substitute products or services,
buyers determine the prices thereby reducing the power of businesses.
• When a firm however pursues product differentiation strategy, it can determine the ability
of buyers to switch to competition.
• Threat of substitute products is determined by: Up-to-date trends; number of substitute
products available; relative price performance of substitutes; switching costs for
customers; perceived level of product differentiation.
5. Competitive Rivalry: In highly competitive industries, firms can exercise little or no control on
the prices of goods and services. In contrast, when the industry is a monopolistic competition or
monopoly, firms can fully control the prices of goods and services.
• Rivalry among firms is likely to be high when: players are the same size; low market
growth rates; barriers for exit are high; players have comparable strategies; industry
concentration; little or no product differentiation between firms and their products
leading to price competition.

Contemporary environmental issues and effect on Business

• Climate change.
• Weather.
• Pollution.
• Availability of non-renewable goods.
• Political strain between Russia and Ukraine
• Healthcare issues: Viral diseases COVID-19
• Genetically modified foods (GMO)
• Development of robots
• Change in government in Kenya (new government and policy changes

Discuss how these issues affected small businesses in Kenya.

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