Lecturer: Philip J.

Buya, Technical University of Mombasa

LECTURE SESSION ONE
FOUNDATION OF ENTREPRENEURSHIP
Lecture Outline
1.1 Introduction
1.2 Learning outcomes
1.3 Concepts of Entrepreneurship.
1.4 Characteristics of an Entrepreneur.
1.5 Evolution of Entrepreneurship
1.6 Myths of Entrepreneurship
1.7 Summary
1.8 Review Activity
1.9 References and Further Reading

1.1 Introduction
Welcome to this first lecture in Entrepreneurship Skills. Our first session will cover the
Foundations of Entrepreneurship. In this lecture, we shall discuss the concept of
Entrepreneurship, Evolution of Entrepreneurship and the traits of an entrepreneur.
Finally we shall discuss the Myths of Entrepreneurship.

1.2 Learning Outcomes

By the end of the session, the learners will be able to;
i. Explain the concept of entrepreneurship.
ii. Narrate the historical development of entrepreneurship.
iii. Examine the personal characteristics of entrepreneurs.

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1.3 Concepts of Entrepreneurship
1.3.1 An Entrepreneur
An entrepreneur is one who creates a new business in the face of risk and
uncertainty for the purpose of achieving profit and growth by identifying significant
opportunities and assembling the necessary resources to capitalize them.
An entrepreneur is a person who constantly scans the environment with the aim of
identifying a viable business opportunity, then marshall all the necessary resources,
initiate a successful business activity and get rewards.

Activity
1. Outline the key aspects/Words that comes out from this
second definition.
2. Describe the details of the words you underlined.

Probably you outlined the following words; constantly scans, environment, viable
business opportunity, resources, initiating a business, and rewards.
Now let us describe these words in detail.
To scan means looking at all parts of (something) carefully in order to detect some
feature.
Environment- this refers to the business environment/ the location where you can
set a business activity, such as, the classroom environment, the college campus, the
estate where you live, the county, the country and the world at large. Modern
technology has made it possible to do business even internationally. As a youth, you
can do business within your county if you have a registered business. The
government policy has allowed businesses owned by the youth, women and the
disabled to get 30% of the tenders in public institutions.
Viability measures your business' ability to start, grow and survive. It factors in
target markets, competition, sourcing and overall financial potential. The creation of
a business plan will help you determine if your business is viable.

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Resources refers to the employees ( human resources), finance and other facilities
required by the entrepreneur to enable him start and manage a business enterprise.
Rewards – this includes profits and satisfaction derived by the entrepreneur as he
does his/her business.

Entrepreneurs are often contrasted with managers and administrators who are said
to be very methodical and less prone to risk –taking. Such person-centric models of
entrepreneurship have shown to be of questionable validity, not least as many real-
life entrepreneurs operate in teams rat her than as single individuals.

1.3.2 Entrepreneurship
Let us start our discussion by asking ourselves this question.

Question 1: Discuss the Origin of Entrepreneurship?

Well done. I believe you have said that Entrepreneurship comes from the Word,
“Entrepreneur” . which originally came from French word “Entreprendre” meaning to
undertake. Which means then that entrepreneurship is the making of one an
entrepreneur? Now let us look at the Concept of entrepreneurship, Evolution of
entrepreneurship and the Myths of Entrepreneurship.

Entrepreneurship refers to a process of actions an entrepreneur undertakes to

establish his business. It is a creation and innovative response to the environment
and an ability to recognize, initiate and exploit an economic opportunity.

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Entrepreneurship is the ability to foresee or ascertain the various opportunities
related with investment and then to evaluate these various opportunities and
forming enterprise, the purpose of which is to give the maximum contribution in the
nation’s growth. When we combine these activities performed by entrepreneurs the
result is known as entrepreneurship.

Entrepreneurs is the practice of starting new organizations or revitalizing mature

organizations, particularly new businesses generally in response to identified
opportunities.

Entrepreneurship is often a difficult undertaking, as a vast majority of new

businesses fail. Entrepreneurial activities are substantially different depending on
the type of organization that is being started. Thus, entrepreneurship ranges in scale
from micro enterprise (even involving the entrepreneur only on part-time) to large
enterprises that are undertakings creating many job opportunities.

Take Note
The entrepreneurial process involves the following;
i. Identifying a viable business opportunity.
ii. Evaluating the business opportunity.
iii. Develop a business plan.
iv. Initiate a business activity.
v. Get rewards.

Now let us look at the traits that make successful entrepreneurs.

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1.4 Characteristics of an Entrepreneur.
Entrepreneurs connote the following aspects that describe their profile:
i. Desire for responsibility: Entrepreneurs feel a deep sense of personal
responsibility for the outcome of the business they start. They prefer to be in
control of their resources, and they use those resources to achieve self-
determined goals.
ii. Preference of moderate risk: Entrepreneurs take moderate risk to ensure that
their businesses succeed.
iii. Confidence in their ability to succeed: Entrepreneurs typically have an
abundance of confidence in their ability to succeed and are confident that
they choose the correct career path.
iv. Desire for immediate feedback: Entrepreneurs enjoy the challenge of
running a business and they like to know how they are doing and are
constantly looking for feedback.
v. High level of energy: Entrepreneurs are more energetic than the average
person. That energy may be a critical factor given that incredible effort
required to launch a startup firm. They work for long hours to ensure their
business succeeds.
vi. Future orientation: Entrepreneurs have a well-defined sense of searching for
opportunities. They look ahead and are less concerned with what they did
yesterday than what they might do tomorrow.
vii. Skill at organizing: Entrepreneurs should know how to organize resources
in their firms. These resources include financial, human physical etc.
viii. Value of achievement over money: Entrepreneurs experience joy of creating,
getting things done, or exercising one’s energy and ingenuity and not only
money.
ix. High degree of commitment: Entrepreneurship is hard work, and launching
a firm successfully needs total commitment from entrepreneurs.

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 x. Tolerance of ambiguity: Entrepreneurs tend to have a high tolerance of
ambiguous ever changing situations, the environment in which they most
operate. This ability to handle uncertainty is critical because these business
builders constantly make decisions using new, sometimes conflicting
information obtained from a variety of unfamiliar sources.
xi. Flexibility: Entrepreneurs should respond to changing demands of their
customers and their businesses.
xii. Tenacity: Obstacles, obstructions and defeat typically do not dissuade
entrepreneurs from doggedly pursuing their visions. They simply keep;
trying.

1.5 Evolution of Entrepreneurship

Entrepreneurship is derived from the French entrepreneur, meaning “to undertake”
An entrepreneur is one who undertakes to organize, manage, and assume risks of a
business.

Today s/he is seen as innovator/developer who recognizes and seizes

opportunities, converts those opportunities into workable/marketable ideas, adds
value through time, effort, money, or skills, assumes risks of competitive market
place to implement these ideas and realizes the rewards from these efforts.

Entrepreneur is an aggressive catalyst for change in the world of business,

independent thinker who dares to be different amid background of common events.
Although no single definition of entrepreneur exists and no one profile can
represent today’s entrepreneur, research is providing an increasingly sharper focus
on the subject.

Entrepreneurship was recognized in 18th Century in France by Richard Cantillon,

“Risk Bearing” activity in the economy.

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Jean Baptiste Say (1803) and Joseph Schumpeter (1934) –Entrepreneurship and
Economic development is the focus of an entrepreneur. Thus Entrepreneurship is
seen as:
i. Doing things that are not generally done in an ordinary course of business
routine.
ii. Bridge between the society, non-economic aspects of the society and the
profit oriented institutions established to take advantage of its economic
endowments and to satisfy the best they can, it is economic desires.
Entrepreneurship according to Robert C. Ronstadt refers to the following:
i. The dynamic process of creating incremental wealth.
ii. This wealth is created by individuals who assume major risks in terms of
equity, time, and/or career commitment of providing value for a product
or service.
iii. The product or service itself may or may not be new or unique but the
entrepreneur must somehow infuse value by securing and allocating the
necessary skills and recourses.
The acts of entrepreneurship are often associated with true uncertainty, particularly
when it involves bringing something really new to the world, whose market never
exists. Before Internet, nobody knew the market for Internet related businesses such
as Amazon, Google, YouTube, Yahoo etc. Only after the Internet emerged did
people begin to see opportunities and market in that technology.

Entrepreneurship can be seen as process as well as a discipline. As a process, it

involves identification of new opportunities and taking risks in order to make profit.
It further involves an act of creating a viable investment. As a discipline, one studies
it and involves learning the theory, skills and attitudes required in the venture
creation and management process.

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 Take Note
The term Entrepreneurship means the process of making one an
entrepreneur. The Concept of Entrepreneurship refers to the
concept of developing and managing a business venture in order
to gain profit by taking several risks in the corporate. Evolution of
Entrepreneurship refers to how entrepreneurship
originated/came about.

Having looked at the Concept of Entrepreneurship and Evolution of Entrepreneurship,

we shall now turn our attention to discuss an entrepreneur and the Myths of
Entrepreneurship.

1.6 Myths of Entrepreneurship

1. The Risk-Taking Myth: “Most successful entrepreneurs take wild,

Uncalculated risks in starting their companies.”
Risk is an intrinsic part of any business venture. Starting a company of any type places
tremendous strain on the founders' personal lives. The cost of the uncertainty that
comes
with a new venture can be staggering in terms of stress on family relationships, self-
image,
and personal bank accounts.
But according to Bhidé and others, the highest measurable levels of risk to the founder
of the Eearly Growth Company(EGC) – financially and professionally – come much
later in the development of the
business and not at the start, as is commonly thought. At this earliest stage of
development,
the founders of entrepreneurial growth companies do not take on the majority of the
risks

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that are associated with the company. They find others to take on these risks

2. The High-Tech Invention Myth: “Most successful entrepreneurs start

their companies with a break-through invention – usually technological in nature.”
Going by mainstream media coverage, it would be easy to imagine that most successful
EGCs are built around some sort of invention or breakthrough – probably technological
in
nature. But that is not the case. “Revolutionary ventures” are relatively rare among
successful
growth companies, according to Bhidé. He cites Federal Express, which was started in
the
1970s on the then-unheard of idea of creating a worldwide system of transportation
dedicated
to providing overnight delivery of packages, as the exception that proves the rule

3.The Expert Myth: “Most successful entrepreneurs have strong track

records and years of experience in their industries.”
Jann Wenner started Rolling Stone magazine when he was just 21 years old and just
out of college. Steve Wozniak, who helped found Apple Computers, was an
“undistinguished” engineer at Hewlett-Packard when he built the first Apple computer.
John Katzman was a part-time tutor at Hunter Collegein New York City when he
founded the Princeton Review, a test-preparation and tutoring company

4. The Strategic Vision Myth: “Most successful entrepreneurs have a

Well-considered business plan and have researched and developed their ideas before
taking action.”
While it might be easy to assume that most successful entrepreneurs start out with a
Well-considered plan of action, strategic planning and research are in fact hallmarks of
the

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later stages of development, rather than a necessary initial ingredient.
For many start-ups, extensive research and planning are often both unnecessary and
financially impossible. At the early stages, Bhidé finds that successful entrepreneurs do
not
necessarily have grand plans or a horizon-to-horizon vision of where they want to take
their
businesses

5. The Venture Capital Myth: “Most successful entrepreneurs start their

companies with millions in venture capital to develop their idea, buy supplies, and
hire employees.”
Of all the myths and misunderstandings surrounding entrepreneurship, the role of
venture capital is perhaps the most exaggerated. The venture capital phenomenon has
received so much attention that it often appears to those looking in from the outside
that
most decent business ideas would receive venture backing. The media lavishes
coverage
on venture-backed startups, and has highlighted the massive growth in business
“incubators”
around the country.
In truth, venture capital is dominant in some industry sectors where capital
requirements force companies to skip the early growth stages. For example, venture
capital
backing is a common feature among biotechnology ventures, some high-tech startups,
and
the Internet industry. For example, at the height of the boom, Internet startups received
roughly $17 billion out of $21 billion (80 percent) in venture capital during the first
quarter

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of 1999. But even after the “dot-com crash” (the third quarter of 2000) Internet
companies
still accounted for 45 percent of all venture capital investments.

Activity
List any FIVE Characteristics of a successful entrepreneur.

Well done.You have been able to list FIVE characteristics of a successful entrepreneur.
This leads us to our last subsection in this lecture on Foundations of Entrepreneurship.

1.9 Summary
The session embarked on highlighting the Concept of an
entrepreneur, Evolution of entrepreneurship and the myths of
entrepreneurship. Emphasising the ability to foresee or
ascertain the various opportunities related with investment
and evaluate these various opportunities and form enterprises.
It also looks at how Entrepreneurship evolves from the French
word meaning “to undertake”. It also endeavours to uphold or
demystify some myths of entrepreneurship.

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1.8 Review Activity
i)Explain the “Concept of Entrepreneurship”
ii)Briefly describe the process of Entrepreneurship Evolution
iii)Highlight at LEAST TEN aspects that connotes the profile
of an entrepreneur

1.9 References and Further Reading

1. Hirsch, R.D., Peters, M.P. & Shepherd, D.A.(2014).
Entrepreneurship, 8th Edition. Boston, U.S.A:
McGraw Hill Education (ISBN: 987-0073530321).
2. Kuratko, D. F. (2016). Entrepreneurship: Theory,
Process and Practice, 10th Edition. Boston, MA, USA:
CENGAGE Learning (ISBN-13: 978-1285051758).
3. Scarborough, M.N.(2015). Essentials of
Entrepreneurship and Small Business management, 8th
Edition

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 LECTURE SESSION TWO
THEORIES AND PERSPECTIVES OF ENTREPRENEURSHIP
Lecture Outline
1.1 Introduction
1.2 Learning Outcomes
1.3 Theoretical Definition of Entrepreneurship
1.4 Modern Perspective of Entrepreneurship Theories
1.5 Theories/School of Entrepreneurship
1.6 Summary
1.7 Review Activity
1.8 References and Further Reading

1.1 Introduction
Welcome to this second lecture in Entrepreneurship skills. In this lecture, we shall
introduce the theoretical development of Entrepreneurship, Modern Perspective of
Entrepreneurship theories and Theories/Schools of entrepreneurship.

1.2 Learning Outcomes

1. At the end of this lecture, you should be able to: Describe the
nine theories behind the development of entrepreneurship.
2. Explain the three perspectives of entrepreneurship theories.

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1.3 Theoretical development of Entrepreneurship.
Let us start our discussion by asking ourselves this question.

Intext Question 1: Explain what is a theory?

Well done. I believe you have said that A theory is an array of logically interrelated
propositions that purport to describe a set of phenomena. The only test of a theory is
the success of its prediction. Prediction and explanation are two sides of the theory.
Various scholars’ contribution to the development of theories of entrepreneurship
include:
a) Adam Smith (1776) – An entrepreneur is a person who acts as agent in
transforming demand into supply.
b) Jean Baptiste Say (1803) – An entrepreneur is a person who shifts resources from
an area of low productivity to higher productivity.
c) John Stuart Mill (1848) – An entrepreneur is a prime mover in the private
enterprise. The entrepreneur is the forth factor of production. Others include
land, labor and capital.
d) Carl Menger (1971) – The entrepreneur acts as an economic agent who
transforms resources into products and services. These transformation processes
gives added value to the output.
e) Joseph Aloysius Schumpeter (1934) – The entrepreneur is an innovator. The
economy moves through leaps and bounds because of the innovations. This
process is known as “creative destruction”
f) Alfred Marshall (1936) – The process of entrepreneurship development is
evolutionary. The entrepreneur is responsible for the evolution of sole
proprietorships into a public company.

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 g) David C. McClelland (1961) – The entrepreneur is a person with a high need for
achievement is the foundation of the entrepreneurship process.

Take Note
These are Classical definitions. The years could be old. But these
are the authors who came up with the original theories, and we
are here appreciating them.

Having looked at the theoretical development of Entrepreneurship, we shall now turn

our attention to discuss Modern Perspective of Entrepreneurship Theories.
1.4 MODERN PERSPECTIVE OF ENTREPRENEURSHIP
1.1.1 Macro View: External Locus of Control
a) The Environmental School of Thought: Considers the external factors that affect
a potential entrepreneur’s lifestyle.
b) The Financial/Capital School of Thought: Based on the capital-seeking process
– the search for seed and growth capital.
c) The Displacement School of Thought: Alienation drives entrepreneurial
pursuits. These alienations include:
 Political displacement (laws, policies, and regulations)
 Cultural displacement (preclusion of social groups)
 Economic displacement (economic variations)

1.1.2 Micro View: Internal Locus of Control

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 a) The Entrepreneurial Trait School of Thought: Focuses on identifying traits
common to successful entrepreneurs. Achievement, creativity, determination,
and technical knowledge.
b) The Venture Opportunity School of Thoughts: Focus on the opportunity aspect
of venture development – the search for idea sources, the development of
concepts, and the implementation of venture opportunities.
Corridor principle: New pathways or opportunities will arise that lead
entrepreneurs in different directions.
c) The Strategic Formation School of Thought: Emphasizes the planning process in
successful venture development. Strategic formulation is a leveraging of unique
elements:
Unique Markets – mountain gap strategies
Unique People – great chef strategies
Unique Products – better widget strategies
Unique Resources – water well strategies.

1.1.3 Process Approach

a) An Integrative Approach
Built around the concepts of inputs to the entrepreneurial process and outcomes
from the entrepreneurial process.
Focuses on the entrepreneurial process itself and identifies five key elements that
contribute to the process.
Provides a comprehensive picture regarding the nature of entrepreneurship that can
be applied at different levels.
b) Dynamic States Approach: Stresses dependency of venture on environment and the
interaction of:
i) The dominant logic of the firm
ii) The business model
iii) Value creation

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1.1.4 Framework of Framework Approach
Works of Donald Kuratko, Michael Morris and MinetSchindehutte
Schools of thoughts and the process approaches that exist in entrepreneurship are based
on phenomenon that incorporate many diverse and heterogeneous dimensions that
only a comprehensive framework approach might afford researchers the capacity to
explore and expand the knowledge base.

1. School of thought Framework

a. Environment school of thought (a, b, and c – Macro level school of
thought)
b. Financial/Capital school of thought (d, e, and f- Micro level school of
thought)
c. Displacement school of thought
d. Entrepreneurial trait school of thought
e. Venture opportunity school of thought
f. Strategic formulation school of thought
2. Integrative framework
Entrepreneurial process
a. Environment
b. Entrepreneur
c. Resources
d. Concepts
e. Content
3. Typology of Entrepreneurs Framework
Behavioural
a. Psychological Characteristics
Decision Process
a. Cognition

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 b. Meta Cognition
c. Cognitive adaptability
4. Process Framework
a. Integrative models
b. Assessment models
c. Dynamic models
5. Venture Typology Frameworks
Size
a. Micro enterprise
b. Small enterprise
c. Medium enterprise
d. Large Enterprise
Growth Rate
a. Lifestyle
b. Medium growth
c. Fast growth (Gazelle)
6. Life Cycle Frameworks
Stages/Risk Levels
a. Idea development
b. Venture startup
c. Venture growth
d. Venture maturity
e. Venture harvest

We have discussed the characteristics of scientific research. We shall now shift our
attention and ask ourselves the following question

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 Activity
Discuss FOUR scholars who contribute to the development of
entrepreneurship theories?

Well done.You have been able to discuss some scholars who contribute to the
development of entrepreneurship theories. This leads us to our last subsection in this
lecture on Theories/School of Entrepreneurship.

1.5 THEORIES/SCHOOLS OF ENTREPRENEURSHIP

 Entrepreneur traits, creativity, innovation, business planning and growth
management are five of the main concepts of entrepreneurship. Many authors have
published lists of characteristics common to entrepreneurs, but others suggest that
previous experiences are more important.
 Entrepreneurial creativity requires a paradigm shift and there are many techniques
available to help the entrepreneur to see things in a different perspective, to come up
with new ideas.
 Innovation involves implementing newly created ideas. The innovation process can
be categorized into four basic types, suggests Kuratko and Hodgetts (2004). These
are: invention, extension, duplication and synthesis.
 Novel products or services are ‘inventions’, and the application of a current concept
to a different application is an “extension” An improvement to an already existing
concept is ‘duplication’ and forming a new application from existing concepts is
syntheses.
 Strategic planning is used to assess the entrepreneur’s position in external/internal
environments, identify key success factors/competencies and to implement a
strategy.

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 Finally, the issue of growth management requires the entrepreneur to settle on what
size of company he is happy with, how much direct control is afforded to him and
how entrepreneurial spirit can be retained in a growing business.
 Many authors have published lists of characteristics that they consider to be
displayed by entrepreneurs. Cunningham and Lischeron (1991) have grouped these
contributions into six schools of thought. These schools are:
a) Great person – Born entrepreneurs, for example Fords, Rockefeller, Trump, Bill
Gates, Vimal Shah etc.
b) Psychological – Entrepreneurial personality, behaviour developed over time.
c) Classical – Entrepreneurial key factors are innovation and creativity.
d) Management – Entrepreneurs can be developed or trained in the classroom.
e) Leadership – Attract people to support a vision and transform it into reality.
f) Intrapreneurship – Encouraging people to work in semi-autonomous units.
 However, much criticism is leveled at these theories because many of the
characteristics are not unique to entrepreneurs and can be found in successful
managers and executives. Liles (1974:43) proposes that “certain kinds of experiences
and situational conditions – rather than personality or ego – are the major determinants of
whether or not an individual becomes an entrepreneur” and Bailey (2003) questions
whether entrepreneurs possess different characteristics or whether they are merely
products of unique situational factors.
 This view is also supported by O’Neile (1989), who affirms that the entrepreneur is a
“product of historical and environmental circumstances.” The choice to become an
entrepreneur must be influenced by events that led to the decision, claims
Brockhaus and Horwitz (1986). They suggest that previous experience has an effect.
These previous experiences could be positive, such as role models and education, or
they could be negative displacements. Refugees and migrants may choose
entrepreneurship if gaining employment is difficult. Job dissatisfaction or job loss
may be other stimuli to select entrepreneurship.

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 Although an agreed upon definition may serve to unite the field, research activity
seems to fall within six schools of thought, each with its own underlying set of
beliefs. Each of these schools can be categorized according to its interest in studying
personal characteristics, opportunities, management or the need for adapting an
existing venture.
 The schools of thought are:
(i) Assembling Personal Qualities
a) The “great person” school of entrepreneurship
b) The psychology characteristics school of entrepreneurship
(ii) Recognizing Opportunities
c) The classical school of entrepreneurship
(iii) Acting and Managing
d) The management school of entrepreneurship
e) The leadership school of entrepreneurship
(iv) Reassessing and Adopting
f) The Intrapreneurship school of entrepreneurship

1.1.5 The “Great Person” School of Entrepreneurship

 Are entrepreneurs born, or are they made? Does the individual come into this
world carrying the genes or the inborn natural capacity to perform their
activities?
 Biographies frequently identify the initiative ability of the great people to
recognize an opportunity and make the appropriate decision. They imply that
without this in born faculty for instruction, the individual would be like rest of
us mortals who lack the instinct which fragrances will sell and which will not.
 They respond more to their instinct, feeling and intuition the successful
entrepreneur is also described as having strong derives for independence and
success, with high levels of vigour, persistence, has an exceptional belief in
himself and his abilities.

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  Attention is paid to such traits as energy, perseverance, vision and single-
mindedness or such abilities as being inspiration or motivational. Other traits
frequently mentioned include physical attractiveness, popularity and intelligence
of speech, track, diplomacy and decisiveness.

1.1.6 Psychological School

 This psychological school focuses on personality factors, beliefs that entrepreneurs
have unique values and attitudes towards work and life. These along with certain
dominant needs, propel the individual to behave in certain ways.
 People who possess the same characteristics as entrepreneurs do/will have a higher
tendency to perform entrepreneurs’ acts, than do people who do not exhibit such
characteristics.
 Three personality characteristics have received considerable attention in research.
These are:
a) Personal/Values System: An entrepreneur should be honest and upright, have a
sense responsibility and duty to other people, ethical, incorruptible, scrupulous,
dependable and conscientious. This school generally believes that entrepreneurs
cannot be developed or trained in classroom situation. Much of the entrepreneurs’
ability relates to a personality or style of behaviour, which develops over time
primarily through relationships with parents and teachers early line life. Values are
learned and internalized and reflect the process of socialization into a culture.
Personal values are basic to the way an individual behaves and will expressed
regardless of the situation.

b) Risk-Taking Propensity: John Stuart Mill, introducing the term entrepreneurship to

the field of economics, suggested that risk bearing is the key factor in distinguishing
entrepreneur from managers. An entrepreneur prefers to take moderate risks in
where they have some degree of control or skill in realizing profits, they do not
prefer situations which involve either extremes of risk or certainty. McClelland

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 (1961). The classical school pointed distinguished entrepreneurial activity from
management activity of insisting that one is no longer an entrepreneur once the
innovative/creative activity is not completed.

c) Need for achievement: industriousness and the need for achievement are specific
values broadly held by many individuals in certain cultures.

 In summary the psychological school of entrepreneurship believes that certain

individual values and needs are the necessary preconditions for entrepreneurship.
Since these values are learned early in life and well established prior to adulthood,
entrepreneurial characteristics are hard to inculcate in university and schools. The
characteristics, which have received a great deal of attention, include locus of
control, risk taking and tolerance of ambiguity.

1.1.7 Capitalism School

 Theory of Capitalism holds that some cultures achieve more than others because of
the values of their people. The development of capitalism and entrepreneurial drive
are largely due to the cultural values, which are dominant in certain countries.
 Protestant values encourage the need for achievement since a person’s life is to be
judged by his or her accomplishments, McClelland (1961) held the belief that
entrepreneur might have a distinctly higher-need for achievement (a desire to do
well for the sake of an inner feeling of personal achievement). Individuals who
exhibit a higher-need for achievement tend to:
(i) Prefer activity to passivity
(ii) Seek prompt and concrete feedback on their performance
(iii) Set goals that is intermediate
(iv) Take calculated risks to maximize their chances of success
(v) Defer gratification
(vi) View people as means rather than ends

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 (vii) Tend to become pre-occupied with uncompleted tasks.

 However, the need for achievement, isolated from other variables may be a weak
prediction of an individual’s tendency to start business. Having such a need and
finding oneself blocked and frustrated by the bureaucracy of large organization
provides the conditions, according to this school, to propel the individual into
entrepreneurship venture.

1.1.8 Sociology School

 Weber (1904-1920) came up with two schools i.e charisma and protestant (work)
ethic. Charismatic leader is constrained neither by tradition non law and that
his/her appeal is the very fact that he/she undertakes to break the constraints
imposed by established customs and roles in order to bring about change.
Charismatic leader is therefore, seen as an innovator whom, others want to follow.
However, in the Capitalist exchange economies the influence of ‘charismatic’ leader
is somewhat constrained as change is due to the activities of enterprise and their
pursuit of profit in the market.
 In protestant (work) ethic he identified the positive change that took place in public
attitudes towards entrepreneurship after reformation in the western world proposed
that Protestantism that helped in bringing up diligence in working. Protestants
were perceived to be more entrepreneurial than other religions.
 Calvinists became noted for their moralists’ dedication to work and their willingness
to deny immediate gratifications in order to invest effort and wealth in the long-
term improvement of their worldly condition. These attitudes made protestant
Europe the locus for the modern capitalist economy and once such attitude had
become accepted not only did it become legitimate to make money, but society
become imbued with a new, more disciplined and methodical approach to world.
For example, Europe Member of Parliament Sir Fredrick Cather believed that it was
the duty of the Christian to use his/her abilities to the limit of his/her physical and

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 mental ability. He/she cannot relax as soon as a duty to train and develop abilities.
When he/she has mastered one job he/she should not content to administer but
should try to improve and renovate what went wrong. He should not stop until it is
quite clear he has reached his ceiling.
 Weber also addressed the concept of Bureaucracy as becoming more prevailing
both, within the firm, the state as society. Because the entrepreneur is used to
assuming responsibility and making his own decisions, he is not prepared to obey
orders or follow procedures. Hence, he/she is the only person who can check the
progress of bureaucracy, which he considered as considerable apprehension.
 Lipset (2000) – culture values affect entrepreneurship and economic development.
Used North and Latin American cultures – entrepreneurship is influenced by early
Bevian culture that downgraded manual labour commences and industry. Whereas
North American is influenced more by the protestant ethic of post-reformation
Europe with its puritan values and emphasis on work and money making as a
vocation in God’s honour. Thus, a scholarly humanities education and landed
property became the mark of success in Latin America.
 Prosperity for entrepreneurship in the different sectors of the society, Mertin (1968)
is an event that link between entrepreneurship and crime. It’s argued that in those
societies where there is a strong emphasis on economic success and few means
through which the average person can achieve it, there is often an increase in
deviancy and crime.

1.1.9 The Classical School of Entrepreneurship/Economics School

 Economic contribution made before the latter part o the nineteenth Century. It was
referred to as “Political economy”, rather than straight economics. Several
approaches can be identified, and these can be categorized according to country of
origin.
a) The American School

13
 Work of Amasa Walker (1799-1875): Role of the Entrepreneurs – creator of
wealth. His son Francis A Walker (1840-97) Successful entrepreneurs has
foresight, a facility for organization and administration, energy and leadership
qualities. He identified 4 types of entrepreneur.
 The rare, gifted person – has foresight, is firm and resolute and is able to
motivate and lead others.
 High ordered talent – have a natural mastery, are wise, prompt and
resolute.
 Those that do reasonably well in business are diligent rather than people
with genius and flair.
 The never do well – those who have misidentified their vocation.
 Profit is the return to the entrepreneur for his/her skill, ability or talent. Hawley
(1843-1929) profit is reward to entrepreneur for assuming risks and as a result of
his work, the concepts of risk and uncertainty attracted considerable attention.
 All business transitions are carried out in a condition of uncertainty and people
who engage in business are, therefore, entrepreneurs.

b) The Australian School

 Carl Menger (1840-1921) in his works suggested that entrepreneurial activity is
about obtaining information activity in order to make decisions that give rise to
economic change.
 Entrepreneur faces uncertainty with regard to the quantity and quality of the
goods to be produced. Risks’ bearing is not an essential function of the
entrepreneur.

c) The British School

 Adam smith (1723-1790) and David Ricardo (1772-1823) combined the function
of the entrepreneur with that of the capitalist. Profits were regarded as the

14
 reward for risking capital not for anticipating the future and directing the
business accordingly.
 Entrepreneurs invested in their own business according to the demand for their
product and were for their products, which were rewarded accordingly.
 Jeremy Bentham (1748-1832) proposed the concept of laissez faire, arguing that
there are three key factors that impinge on production.
a. Inclination, (the will to produce wealth),
b. Technical knowledge (the knowledge of how to produce wealth)
c. Capital power (the ability to produce wealth)
 Argued that governments could do little through legislation to affect these 3
factors thereby advocating the laissez-faire approach.

d) The French School

 This school derived the term “entrepreneur” which came from the word
“Enterprendre” meaning, “to undertake” someone who undertakes to make
things happen and does them.
 Richard Cantillon, one of the main contributors to this school, suggested that the
entrepreneur engages in exchange for profit and is someone who exercises
business judgement in the face of uncertainty. Distinguished between the
capitalist and entrepreneur. Entrepreneur was a risk taker unable to calculate the
risks involved in making decisions but not an innovator in that he was expected
to estimate demand but not to create it.
 Baudeau (1730-1792) – Entrepreneur is innovator i.e he/she invests and applies
new techniques in order to reduce costs and raise profits to achieve this; he
recognized that certain qualities – ability and intelligence – are needed.
 Jean Baptiste Say (1767-1832) Entrepreneur is a manager who is required to
estimate or forecast demand and managers factors of production take risks (risk
taker).
e) The German School

15
  This school concentrated on how an entrepreneur is compensated. Thunen
(1785-1850) – Distinguished bet6ween the return to the entrepreneur and the
return to the capitalists by emphasizing a residual, which risk. Distinguished
between a manager and entrepreneur. Entrepreneur takes the problems of the
firm home and is both a risk taker and innovator. His/her return is thus the
reward for uninsurable risks taking and entrepreneurial ingenuity as problem
solver and innovator.
 Magoldt (1824-1868) developed the issue of risk by distinguishing between
producing goods to order or for market. This enables an entrepreneur to focus
on the nature of production and the degree of risk. Where goods are produced
to order clearly the risk entailed is reduced. He also suggested that the longer
the time to sale the greater the uncertainty, implying that the entrepreneurialism
was enhanced.
 Innovation, creativity or discoveries are the key underlying the classical body of
thought and research. Entrepreneurship in this view refers to the process of
creating an opportunity or “the opportunity seeking style of management that
sparks innovation”.
 For Peter Drucker the Classical school should be guided by marketing and
innovation that enables creation of goods and services which links an
organization to its customers.
(i) Creativity – ability and power to develop new ideas
(ii) Innovation – use of new ideas to develop new products and services.

1.1.10 The Management School

 The management school suggests that an entrepreneur is a person who organizes or
manages a business undertaking, assuming the risk for the sake of profit.
 This school holds that entrepreneurship consists of management roles and functions
namely; planning, organizing, staffing, and budgeting, coordinating and controlling.

16
 The management school further avers that management is the fourth factor of
production.
 Mintzberg (1975) clustered management roles into three:
a) Interpersonal roles
b) Informational roles
c) Decisional roles – acts as an entrepreneur because he launches new ideas.
 John Stuart Mills (1848), in describing the entrepreneur noted that in addition to risk
taking, the functions of an entrepreneur include supervision, controlling and
providing direction to a firm in addition to risk taking. Holds that an entrepreneur
deals with functions, which relate to start-up, strategizing, developing the solid
business plan, getting started, and managing development and growth of the firm.
 According to Robert (1987) a firm will grow from entrepreneurial to professional
management. He averred that the business would fail, if this transition from
entrepreneurial to professional management is not affected.
 This management school deals with the technical aspects of management and seems
to be based on the belief that an entrepreneur can be developed or trained in the
classroom.
 According to this school, entrepreneurship is a series of learned activities, which
focus on the central functions of managing a firm. The management school is
directed at improving a person’s management capability through developing his or
her rational, analytic, as well as cause – effect orientation, since according to this
school, entrepreneurship can be taught. Therefore, a central aim is to identify the
specific functions involved and provide training to existing and potential
entrepreneurs.
a) Business Planning School
 Entrepreneurs are repeatedly monitoring windows of opportunity. These
windows are continuously opening and closing, and strategic planning is
required to assess if the opportunity is worthwhile for the entrepreneur and
how it should be successfully exploited.

17
  Whilst strategic planning is essential to ensure successful operation, it is a
particularly useful tool when the entrepreneur’s business is growing, it serves
a niche market or business performance is improving.
b) Design School Model
 There are many schools of strategic management thought available to the
entrepreneur and Mintzberg (1990:112) illustrates the Design School Model.
 The Design School Model can be described as having eleven components:
i. External appraisal – An examination of the external elements influences the
entrepreneur’s strategy options. This involves investigating customers,
competitors, market and the environment. Where the environment is
political, economic, society, technology and ecology considerations.
ii. Threats and opportunities in the environment – The external appraisal
reveals the opportunities that the entrepreneur can exploit and the threats he
faces. Opportunities are regarded as positive trends and threats are negative
trends.
iii. Key success factors – Key success factors are competitive assets or
competences that the entrepreneur needs to compete successfully in his
chosen industry. An absence of strategic necessities is a weakness and
possession of strategic strengths will give advantage to the entrepreneur.
iv. Internal appraisal – An examination of the skills of the entrepreneur’s
employees, resources, innovations and financial position discloses how the
business is constrained by its capabilities and resources.
v. Strengths and weaknesses of the organizations – Any activities that the
entrepreneur does well are identified as strengths from the internal appraisal.
Any lack of resources or activities that the entrepreneur does not do well is
identified as weaknesses.
vi. Distinctive competencies or assets – distinctive competencies are the
activities that the entrepreneur does exceptionally well.

18
vii. Social responsibility – Social responsibility is the entrepreneur’s obligation,
beyond that required by the law and economics, to pursue long-term goals
that are good for society.
viii. Managerial values – This describes how the entrepreneur’s managers
establish, promote and practice the business values. The building of team
spirit, influencing marketing efforts, shaping of employee behaviour and
guidance for manager’s decisions and actions are examples of the main
purposes of managerial values.
ix. Creation of strategy – Strategic alternative strategies need to be developed by
the entrepreneur for evaluation. These strategies should take advantage of
environmental opportunities and exploit the company’s strengths.
x. Evaluation and choice of strategy – Some of the criteria used for selection of
a strategy from alternatives are scenario consideration, sustainable
competitive advantage pursuit, organizational vision and objective
consistency, feasibility and the relationship to the other strategies of the
entrepreneur.
xi. Implementation of strategy – For the entrepreneur to succeed the chosen
strategy must be implemented and this involves converting strategic
alternatives into an operating plan. Implement the strategic plan. The final
stage of business planning is to actually implement the strategic plan and
four approaches are suggested. Strengths and weaknesses can be identified
on a year-to-year basis in an opportunity management approach. Activities
can be carried out sequentially in a milestone planning approach with
achievable goals along the way. Expert theory can be used in a strategic
model ap0proach, which states how the plan should be prepared and
executed. Significant variables, venture phase and the entrepreneur’s growth
preferences can be applied to a contingency model.

19
 External Appraisal
Threats & Opportunities in the
environment
Key success
Factors

Creation of
strategy

Creation of
strategy

Social responsibility Managerial values

Implementation of strategy

Fig. 1.1: Mintzberg’s (1990:112) Design School Model

1.1.11 The Leadership School

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 An entrepreneur is often a leader who relies on people to accomplish purposes and
objectives. The leadership school suggest that entrepreneurs need to be skilled in
appealing to others to join the cause, A successful entrepreneur must also be a
people manager or an effective leader/mentor who plays a major role in motivating,
directing and leading people.
 Thus, the entrepreneur must be a leader able to define a vision of what is possible
and attract people to rally around that vision and transform it into reality.
 This school describes a leader on the social architect or as one that is primarily an
expert in the promotion and protection of values. The school implies that leaders
must be effective in developing and monitoring people.

1.1.12 The Intrapreneurship School

 The Intrapreneurship School evolved in response to the lack of innovativeness and
competitiveness within an organization. Gifford Pinchot first used the term
intrapreneurship in 1985. He distinguished an entrepreneur from intrapreneur.
According to him, Entrepreneur – independent businessman. Intrapreneur –
operating within a bureaucratic system.
a) Small businesses are very innovative, so as to be able to survive in the market.
b) Discovery – something is identified to be there but is not known to exist.
c) Invention – use of discovery to develop something new. One is not capable of
making profits out of it.
d) Innovation – commercialization of an invention.
 Intrapreneurship emerged due to lack of innovativeness and competitiveness of the
big firms in the US. Intrapreneurs possesses independent discretion for action.
They need to feel that they can implement their ideas within the organization
without being rejected or penalized. Intrapreneurs are alert to opportunities within
their environment. Hence Intrapreneurs are able to extend the organization’s
dominance and discover new opportunities. Nielsen et al (1985) avers that

21
 Intrapreneurship involves the development of independent units designed to create
markets and expand innovative services and products within an organization.
 Three Factors that make Intrapreneurship to succeed according to Drucker (1985)
are:
(i) Personal restlessness with the status quo.
(ii) Responding to change as an opportunity and not as a threat.
(iii) Being task – result oriented.
 Knight (1988) holds that Intrapreneurship is difficult because some of its
assumptions are always in conflict with the organizational operations. This is so
because Intrapreneurs want to go beyond their mandate. Hence, Intrapreneurship is
a steam entrepreneurship.
i) Ideas generation
ii) Championing – market the idea to top management’s
iii) Project manager
iv) Sponsoring/coaching – getting right skills/resources for use.
v) Gate keeping (watchman and secretary) – control flow of information in and out
of the organization.
 Alternative factors that make an intrapreneur to succeed:
i) Sponsor
ii) Champion
iii) Mentor (coach)
iv) Critic (devil’s advocate) – makes you crosscheck and make contingency
measures
v) Institutional leader – to link you up with the top management
 Intrapreneurs are able to act as entrepreneurs and implement their ideas without
themselves becoming owners. Alertness to opportunity is one dimension of
intrapreneurial activity.
 Intrapreneurs involves the development of independent units designed to create
market, and expand innovative services, technologist etc.

22
 Intrapreneurial school generally assumed that innovation can be achieved in
existing organization by encouraging people to work as entrepreneurs in senior
autonomous units.

1.1.13 Anthropology School

 Barth (1963) – Entrepreneurship is about connecting two spheres in society between
which there exists a difference in value and transferring value between them.
Theory places emphasis an entrepreneurship as opportunity recognition and
stresses that it may involve challenging some of the basic values in a community.
 The theory is used by the western world in stressing that entrepreneurship practices
that exist in their countries can be taught in less developed countries. Within this
school the pull and push factors have been credited with source of entrepreneurship
practice within some societies.

1.6 Summary
We have come to the end of lecture one. This lecture laid the
background for this unit course by explaining theoretical
development of Entrepreneurship, Modern Perspectives of
Entrepreneurship theories and The Theories/Schools of
Entrepreneurship from different scholars and continents. We have
said that a theory is an array of logically interrelated propositions
that purport to describe a set of phenomena. We also said we have
macro and micro views of modern perspectives of
entrepreneurship theories.

23
1.7 Review Activity
1. Discuss at LEAST TEN theories of Entrepreneurship?

1.8 References and Further Reading

1. Hirsch,R.D. Peters, M.P. &

Shepherd,D.A.(2014).
Entrepreneurship, 8th Edition. Boston,
U.S.A: McGraw Hill Education (ISBN:
987-0073530321).
2. Kuratko, D. F. (2016).
Entrepreneurship: Theory, Process and
Practice, 10th Edition. Boston, MA,
USA: CENGAGE Learning (ISBN-13:
978-1285051758).
3. 3Scarborough,M.N.(2015). Essentials of
Entrepreneurship and Small Business
management, 8th Edition

24
 LECTURE SESSION THREE

BENEFITS AND DIVERSITY OF ENTREPRENEURSHIP

Lecture Outline

1.1 Introduction
1.2 Learning Outcomes
1.3 Benefits of Entrepreneurship
1.4 Drawbacks of Entrepreneurship.
1.5 What Drives Entrepreneurs into Business.
1.6 The Cultural Diversity of Entrepreneurship.
1.7 Summary
1.8 Review Activity
1.9 References and Further Reading

1.1 Introduction
Welcome to this third lecture in Entrepreneurship skills. In this lecture, we shall look at
the Benefits and Drawbacks of Entrepreneurship. We shall also explore what drives
entrepreneurs into business. And finally the diverse mix of people who make up the
rich fabric of entrepreneurship.

1.2 Learning Outcomes

i) Describe the benefits of entrepreneurship.

ii) Explain the Drawbacks of Entrepreneurship.
iii)Discuss the vast cultural diversity of Entrepreneurship

1
1.10 1.3 Benefits of Entrepreneurship

Let us start our discussion by asking ourselves this question.

Intext Question 1: Why embark on Entrepreneurship?

Well done. I believe you have said that one embarks on entrepreneurship to make
money. However there a number of benefits which motivate one to venture into
business.
1. The benefits of entrepreneurship include:
a) Opportunity to create your destiny: Owning a create your destiny: Owning a
business provides entrepreneurs the independence and the opportunity o
achieve what is important to them.
b) Opportunity to make a difference: Increasingly, entrepreneurs are starting business
because they see an opportunity to make a difference in a cause that is vital to
them. Social entrepreneurs are business builders who seek innovative solutions
to some of society’s most critical problems.
c) Opportunity to reach your full potential: Those people who find their work boring,
unchallenging and unexciting, opt for entrepreneurship to do things on their
own.
d) Opportunity to reap impressive profits
e) Opportunity to contribute to the society and be recognized for your efforts
f) Opportunity to do what you enjoy and have fun at it.
g) Self-employment
h) Affording high quality goods as a result of competition
i) Use of modern technology.

1.1 DRAWBACKS OF ENTREPRENEURSHIP

2. The drawbacks of entrepreneurship are constraints or issues that affect
entrepreneurship process in the country. These include:
a) Uncertainty of income
b) Risk of loosing your entire investment through losses
c) Long hours and hard work
2
 d) Lower quality of life until the business gets established
e) High levels of stress
f) Complete responsibility
g) Discouragement
h) Lack of viable concept
i) Lack of market
j) Lack of skills
k) Social stigma
l) Legal constraints and regulations
m) Inhibitions due to patents
n) Infrastructure problems

Take Note
As much as there are BENEFITS of going into business there are
also DRAWBACKS. DRAWBACKS are those constraints or issues
that affect the entrepreneurship process in the country.

Having looked at the benefits and drawbacks of entrepreneurship, we shall now turn
our attention to discuss What is feeding the entrepreneurial fire?

1.2 WHAT IS FEEDING THE ENTREPRENEURIAL FIRE?

 These refer to forces that are driving the entrepreneurial trend in the economy.
Specifically, these are factors that have led to the age of entrepreneurship.
i) Entrepreneurs are heroes. Perception or attitude people have towards
entrepreneurs. Normally entrepreneurs are raised to the level of the heroes,
such as Bill Gates (Microsoft Corporation), Oprah Winfrey (Harpo Productions
and Oxygen Media), Jeff Bezos (Amazon.com), Steve Jobs Apple), Kenyatta
(Brookside Milk), Vimal Shah (Bidco).
ii) Entrepreneurial education. Higher institutions of learning have discovered that
entrepreneurship is an extremely popular course of study. Many students

3
 enroll in these intuitions knowing that they want to initiate their ventures
rather than considering entrepreneurship as possibility later in life.
iii) Demographic and economic factors such as population, age, gender etc. Nearly
two thirds of entrepreneurs start their business between the ages of 25 and 45
years, which; is the largest in many countries. In addition, the economic
growth that spanned most of the last 25 years created a significant amount of
wealth among people of this age group and many business opportunities on
which they can capitalize.
iv) Shift to a service economy. A sharp rise in the service-based industries because
of their relatively low start up costs, they have become very popular among
entrepreneurs. The booming service sector continues to provide many business
opportunities, from health care and computer maintenance to Mpesa shops and
mobile phone repairers.
v) Technology advancements. With the help of modern business machines such as
laptop computers, personal computers, copiers, colour printers, answering
machines and voice mails, even one person working at home can look like a big
business.
vi) Independent lifestyle. Many people want the freedom to choose where they live,
hours to work, and what they want to do.
vii)E-Commerce and the world wide web. The proliferation of the world wide web
(www), the vast network that links computers around the globe via the Internet
and opens up oceans of information to its users, has spawned thousands of
entrepreneurial ventures since its commencement in 1993. Online retail sales
have gown rapidly.
viii) International opportunities. The shift to a global economy has opened the
door to tremendous business opportunities for entrepreneurs willing to reach
across the globe. The emergence of potential markets across the globe and
crumbling barriers to international business because of trade agreements have
opened the world to entrepreneurs who are looking for new customers.

We have discussed the impetus making people go into business. We shall now shift our
attention and ask ourselves the following question

Activity
Many small business start ups fail within the first THREE years of
operation. Discuss?

4
Well done. Could these be related to drawbacks of entrepreneurship we just studied?
This leads us to our last subsection in this lecture on The Cultural diversity of
entrepreneurship.

1.5 The Cultural Diversiy of Entrepreneurship.

This refers to the diverse mix of people who make up the rich fabric of
entrepreneurship.
a) Young entrepreneurs (Millennial generation or generation Y) who are in their
early 20’s.
b) Women entrepreneurs
c) Minority enterprises (Minority owned enterprises that include those owned by
Asians, Arabs, Somalis in Kenya)
d) Immigrant entrepreneurs
e) Parttime entrepreneurs
f) Home based entrepreneurs
g) Family businesses
h) Ecopreneurs
i) Social entrepreneurs
j) Intrapreneurs
k) Corporate entrepreneurs

3. Other scholars have diversified entrepreneurship further as follows:

a) Lessern (1986) suggests various types of entrepreneur resulting from how the
various personality traits combine. He identifies 7 entrepreneurial types.

Table 1.1: Types of Entrepreneurs

S/No. Entrepreneurship Type Personality Type Attributes
1 Innovator Imagination  Originality
(Sir TeranceConvan)  Inspiration
 Love
 Transformation
2 New Designer/Enabler Intuition  Evaluation
(Mary Quant)  Development
 Symbiosis
 Connection
3 Leader Authority  Direction
(Sir John Harvey Jones)  Responsibility
 Structure
 Control

5
4 New Entrepreneur Will  Achievement
(Jack Danyoor)  Opportunity
 Risk taking
 Power
5 Animator Sociability  Informality
(Nell Eichner)  Shared values
 Community
 Culture
6 Adventurer Energy  Movement
(Anita Roddick)  Work
 Health
 Activity
7 Change Agent Flexibility  Adaptability
(Stere Shrley)  Curiosity
 Intelligence

b) Clarence Danhof in his study classified entrepreneurs as follows:

i) Innovating entrepreneurs – introduces new goods, new methods of
production, new markets, new organizations.
ii) And new channels of distribution
iii) Imitating entrepreneurs – adopt successful innovation by innovating
entrepreneurs
iv) Fabian entrepreneurs – entrepreneurs who imitate when it is necessary.
v) Drone entrepreneurs – entrepreneurs who refuse to adopt opportunities to
make changes in production techniques even with reduction of cost.

c) Developing countries have diversified entrepreneurs as follows:

i) Micro
ii) Small
iii) Medium
iv) Large

6
1.6 Summary
We have come to the end of lecture one. This lecture laid the
background for this unit course by looking at the benefits of
entrepreneurship, Drawbacks of Entrepreneurship and The
cultural Diversity of Entrepreneurship. What is propelling
entrepreneurship and the constraints. And the varied people
involved in making it happen.

1.7 Review Activity

1. Explain how you would go about overcoming the Constraints of
Entrepreneurship?
2. distinguish between micro ,small and medium enterprises?

7
 1.8 References and Further Reading
1.Hirsch, R.D., Peters, M.P. & Shepherd, D.A.(2014).
Entrepreneurship, 8th Edition. Boston, U.S.A:
McGraw Hill Education (ISBN: 987-0073530321).
2 Kuratko, D. F. (2016). Entrepreneurship: Theory,
Process and Practice, 10th Edition. Boston, MA, USA:
CENGAGE Learning (ISBN-13: 978-1285051758).
3 Scarborough, M.N.(2015). Essentials of
Entrepreneurship and Small Business management, 8th
Edition

8
 LECTURE SESSION FOUR
ENTREPRENEURIAL MOTIVATING FACTORS
Lecture Outline
1.1 Introduction Learning Outcomes
1.2 Learning Outcomes
1.3 The Concept of Motivation in Entrepreneurship
1.4 Motivating Factors for Entrepreneurship
1.5 Reasons for Entrepreneurship
1.6 Entrepreneurial Self Concept
1.7 Summary
1.8 Review activity
1.9 References and Further Reading

1.1 Introduction
Welcome to this fourth lecture in Entrepreneurship Skills. In this lecture, we shall
discuss the concept of Motivation in Entrepreneurship. We shall also discuss the general
motivating factors for Entrepreneurship and finally look at why most people engage in
entrepreneurship.

1.2 Learning Outcomes

At the end of this lecture, you should be able to:
1. Discuss the concept of Motivation in Entrepreneurship.
2. Explain the Motivating factors for Entrepreneurship.
3. List the activities linked with Entrepreneurial self concept.

1
1.3 The Concept of Motivation in Entrepreneurship.
Let us start our discussion by asking ourselves this question.

Intext Question 1: Define Motivation?

Well done. I believe you have said that Motivation is the word derived from the word
“motive” which means needs, desires, wants or drives within the individuals. It is the
process of stimulating people to actions to accomplish the goals. Now we can go to our
discussion of Concept of motivation in Entrepreneurship.
2.1.1 Meaning
 Motivation is the way in which urges, drives, desires, aspirations, striving or needs
direct control or explain the behaviour of human being. It is process of attempting
to influence others to do your will through the possibility of gain or reward.
 Motivation is an internal psychological feeling, which produces goal directed
behaviour. It is an on going process since human needs are never completely
satisfied. A person is stimulated to act in a particular manner. Thus, it inculcates all
internal and external factors that induce one to take a particular course of action.
Entrepreneurship is a product of motivation.

2.1.2 Characteristics of Motivation

 Personal and internal feeling. Psychological phenomenon, which arises in the mind of
an individual when his/her needs and wants are satisfied.
 Continuous process. Human needs are unlimited and a person always feels a need.
Satisfaction of one need leads to a feeling of another and the process continues.
 Human needs are interrelated and influence human behaviour in different ways. A person
cannot be partly motivated, as he/she is a self contained and inseparable unit.

2
 Causes goal directed behaviour. Feeling of need creates tension. One works for the
goals to acquire rewards that satisfy his/her needs. When the need is satisfied,
tension is removed and the person feels motivated to work for the common goal.

2.1.3 Motivation Process

 Motivation results from interaction of human needs and incentives. One feels
motivated when available incentives lead to the satisfaction of his/her motives or
needs. Thus, the steps in the process of motivation are as follows:
i) Awareness of needs. Motives are directed towards the realization of certain goals,
which in turn determine the behaviour of individuals. This behaviour leads to
goal directed behaviour.
ii) Search for action. One develops certain goals and makes an attempt to achieve
them in order to relieve tension and satisfy his/her needs.
iii) Fulfilment of need. If one is successful in his/her attempt, his/her need is satisfied
and s/he feels motivated. In case of unsuccessful attempt, the need remains
unsatisfied and the individual engages him or herself in search of a new action.
S/he will engage him or herself in constructive or defensive behaviour.
iv) Discovery of new need. Once one need is fulfilled, some other need will emerge
and the individual will set a new goal. This process continues to work within an
individual because human needs are limited.

2.1.4 Theories of Motivation

a) Maslow’s Hierarchy of Needs
 Abraham Maslow (1908 – 1970), an American psychologist who is credited to be the
father of modern management psychology, by conceptualizing hierarchy of human
needs. He suggested that human motivation is driven by five need, which are:
a) Physiological needs such as air, food, water, sex, sleep, clothing and shelter.
b) Security/safety needs that include personal security, financial security, health
and wellbeing.

3
 c) Belongingness and love needs (social needs) which comprises of friendship,
acceptance, family, sexual intimacy.
d) Esteem needs that involve self-esteem, confidence, achievement, and respect by
others.
e) Self-actualization and self-fulfillment that involve aesthetic needs (such as
symmetry, order, beauty) and cognitive needs (such as knowledge,
understanding and novelty).
 For this theory to hold, the following assumptions should exist.
a) Man is wanting being, his/her wants are growing continuously even when some
are satisfied
b) Needs have a definite hierarchy of occurrence
c) A satisfied need is not a motivator
d) As one needs is satisfied, another replaces it.

b) McClelland’s Acquired Needs Theory

 David McClelland derived the theory called acquired needs theory. A person
acquires these types of needs at any time. These are:
1) Need for achievement. Desire to accomplish something with one’s own efforts.
The urge to succeed or will to do well. According to McClelland, this need is
classified highly among many entrepreneurs.
2) Need for power. Desire to dominate and influence others by controlling their
actions and use of physical objects.
3) Needs for affiliation. Desire to establish and maintain friendly and warm
relations with others.
 Others are:
4) Need to succeed
5) Need to grow

c) Alderfer’s ERG Theory

4
 Alderfer’s theory is about existence, relatedness and growth. One acquires these
aspects namely,
1) Existence Needs. Includes basic needs and safety needs.
2) Relatedness Needs. Needs are satisfied by personal relations and social
interactions.
3) Growth Needs. Includes self-actualization needs.
 For the proper development of entrepreneurship, relatedness and growth needs are
more important.

Take Note
The term Motivation is the drive that propels behavior

Having looked at the Concept of Motivation in Entrepreneurship, we shall now turn

our attention to discuss the motivating factors for Entrepreneurship.

MOTIVATING FACTORS FOR ENTREPRENEURSHIP

2.2.1 General Motivating Factors for Entrepreneurship

 Several research studies have been conducted to identify the factors that inspire
entrepreneurs. Some of these factors include:
a) Desire to succeed
b) Desire to achieve
c) Educational background
d) Occupational experience

5
 e) Family background
f) Desire to manufacture goods
g) Desire to work independently
h) Assistance from financial institutions
i) Endowment factors such technology and raw material abundance
j) Favourable business environment
k) Stable political climate

 The above factors can be categorized into categories namely internal and external
motivating factors to entrepreneurship.

2.2.2 Internal Motivating Factors to the Entrepreneur

 These are factors that are internally driven. Most of these factors originate from the
entrepreneur and hence are closely connected to his/her background. These factors
include:
a) Strong desire to do something independently in lie
b) Technical knowledge and manufacturing experience
c) Business experience in the same related line
d) Desire to achieve
e) Desire to succeed
f) Family background

2.2.3 External Motivating Factors to the Entrepreneur

 These are factors that are externally driven. Most of these factors are as a result of
the environment the entrepreneur occupies. These factors include:
a) Assistance from the government
b) Assistance form nongovernmental organizations such as financial institution,
donors
c) Profit margin

6
 d) Unstable units available at a cheap price
e) Heavy demand
f) Encouragement from large businesses
g) Accommodation in industrial estates
h) Availability of technology
i) Availability of raw material.

Activity
Outline the Motivating factors that motivate people to venture
into agribusiness.

Well done.You have been able to list FIVE factors that motivates people to venture into
agribusiness.. This leads us to our last two subsection in this lecture on Entrepreneurial
Motivating factors.

2.3 REASONS FOR ENTREPRENEURSHIP

The internal and external motivating factors to entrepreneurship mentioned above
are reasons why most people engage in entrepreneurship. They are factors behind
entrepreneurial growth and can be classified in three categories:
a) Entrepreneurial ambitious: these are also known as pull factor. Specifically, they
include pleasant life events, which can attract someone into entrepreneurship.
They include:
 To make money
 To fulfill desire to self and family
 To continue family business
 To secure self employment/independent living

7
  To gain social prestige
 Making of decent living
 Desire to do something creative
 Provide employment.

b) Compelling Reasons: Also referred to as push factors. These are unpleasant life
experiences and events, which push or compel someone into becoming an
entrepreneur. These include:
 Unemployment
 Dissatisfaction with the job
 Make use of funds
 Make use of the technical skills/professional skills
 Maintenance of large families.

c) Facilitating Factors: These are supportive factors that enhance or supports one to
be an entrepreneur and they include:
 Previous association
 Previous employment in the same or other line of activity
 Success stories of other entrepreneurs
 Property inherited
 Advice or influence
Other associations.

2.4 ENTREPRENEURIAL SELF CONCEPT

Entrepreneurial self concept is linked with activities such as:
a) Generation of business idea
b) Identification of investment opportunities
c) Making decisions towards exploiting such opportunities
d) Formulating organizational objectives

8
e) Conducing market research and survey
f) Putting together scarce resources (human, financial, and physical)
g) Establishing and enterprise
h) Starting off the actual business operations
i) Distributing and promoting and enterprise’s commodities
j) Organizing and managing the human and material resources for the attainment
of the objective of the enterprise.
k) Bearing of risks and uncertainties


1.6 Summary
The session looked at the concept of Motivation in
Entrepreneurship, motivating factors for entrepreneurship and
reasons for entrepreneurship. This whole session was geared
towards making students appreciate that a driving force has to
exist to propel one into business.

1.7 Review Activity

i)Explain the “Concept of Motivation in Entrepreneurship”
ii)Briefly describe the Motivating factors in Entrepreneurship.

9
 1.8 References and Further Reading
I)Hirsch,R.D., Peters, M.P. & Shepherd,D.A.(2014).
Entrepreneurship, 8th Edition. Boston, U.S.A: McGraw
Hill Education (ISBN: 987-0073530321).
ii)Kuratko, D. F. (2016). Entrepreneurship: Theory,
Process and Practice, 10th Edition. Boston, MA, USA:
CENGAGE Learning (ISBN-13: 978-1285051758).
iii)Scarborough,M.N.(2015). Essentials of Entrepreneurship
and Small Business management, 8th Edition

10
 LECTURE SESSION FIVE
NATURE OF ENTREPRENEURSHIP
Lecture Outline
1.1 Introduction Learning Outcomes
1.2 Learning Outcomes
1.3 Entrepreneur and Manager
1.4 Characteristics of Entrepreneurs
1.5 Functions of an Entrepreneur.
1.6 Role of Entrepreneur in Economic Development.
1.7 Summary
1.8 Review activity
1.9 References and Further Reading

1.1 Introduction
Welcome to this fifth lecture in Entrepreneurship Skills. In this lecture, we shall
highlight the distinction between an Entrepreneur and a Manager. We shall also look at
the characteristics of Entrepreneurs and their functions. Finally we shall look at the Role
of Entrepreneurhip in Economic Development..

1.2 Learning Outcomes

At the end of this lecture, you should be able to:
i)Distinguish between an entrepreneur and a manager.
ii)Explain the characteristics of a successful entrepreneur.
iii)Identify the functions of an entrepreneur.
iv)Enumerate the Role of entrepreneurs in the economic
development of the country.

1
1.3 The Characteristics of Entrepreneurs..
Let us start our discussion by asking ourselves this question.

Intext Question 1: What inbuilt qualities should one have to be

successful in business?

Well done. I believe you have given many reasons that make people be successful in
business. s. Now we can go to our discussion of characteristics of Entrepreneurs.

CHARACTERISTICS OF AN ENTREPRENEUR
 Various literature of entrepreneurship have cited successfully entrepreneurs such as
Henry Ford, Bill Gates, Ray Kroc, Warren Buffet, Ibrahim Ambwere, Vimal Shah,
and others, who have initiated their ventures with small size and made good fortes.
 Success or otherwise of a small venture is to a great extent, attributed to the success
or otherwise of the entrepreneur him/herself.
 Then, the question is, what makes the entrepreneurs successful? Whether they had
anything common in their personal characteristics? The scanning of their personal
characteristic indicates that there are certain characteristics of entrepreneurs, which
are found usually prominent in them.
a) Innovative. This involves coming up with new things using new techniques of
creating them. Innovation is the core aspect of entrepreneurship. Successful
entrepreneurs try to create value and make a contribution to commodities.
Entrepreneurs create new and different values and new and different satisfaction
to convert material into resources or combine the existing resources in a new and
more productive configuration.
b) Risk Bearing. An average entrepreneur is a risk bearer. This may either be
avoidable or unavoidable risk. Without some elements of risk in the business, an

2
 entrepreneur may not be challenged to work hard towards success. Some
decisions s/he takes depend on the nature of the risks inherent in the enterprise.
The risk involved must be first evaluated to see if it can be avoided, reduced or
transferred. Before venturing in any enterprise, the outcome should first be
assessed to ensure that it is commensurate with the risk involved. In other
words, high and moderate risks should have high and moderate returns.
c) Internal Locus of Control. Locus of control occurs when an individual general
expectancy of the outcome of an event as being either within or beyondone’s
personal control or understanding. An entrepreneur should believe strongly that
the success of his/her business depends on some personal controllable factors
and not on fate or luck. S/he should believe that in her/him lies the controlling
factor for the change s/he is looking for and not on anyone else or on the
circumstance around her/him.
d) Tolerance of ambiguity and uncertainty. The term ambiguity refers to dealing
with new or complex situations. It is an uncertainty about an outcome or result
due to insufficient convictional data, information or knowledge. Because
ambiguity and uncertainty exist, and humans must cope with them; individuals
display varying levels of tolerance or intolerance of ambiguity or ambiguous
situations. Ambiguous situations are conceptualized as lack of sufficient
information and this lack emerges in three contexts:
i) A completely new situation in which there are no familiar cues
ii) A complex situation in which there are a great number of cues to be taken
into account
iii) A contradictory situation in which different elements or cues suggest
different structure.
e) Need of Independence or Autonomy. This refers to taking actions without
guidance from others. Entrepreneurs have known to make their own decisions
in running their enterprises and follow their routine. In entrepreneurship
process, autonomy implies to actions undertaken by individuals or teams

3
 intended to establish a new business concept, idea, or vision or to do things
without regard to what others may think and to avoid responsibilities and
obligations.

f) Self-confidence: This is being sure of one-self. An entrepreneur is confident of

achieving realistic and challenging goals. An entrepreneur gets into business or
industry with a high level of self confidence. This, coupled with a sense of
effectiveness will ultimately contribute to the success of the venture
g) Need for Achievement. This is the desire to accomplish something with one’s
own efforts. The urge to succeed or will to do well. Entrepreneurs have a high
need for achievement and are guided by their inner self, motivating the behavior
towards the accomplishment of goals. Most of the successful entrepreneurs are
attracted to this innovative career, because it is challenging and demands a high
degree of intelligence and involvement. Achievement motivate entrepreneurs
are the doers. They always accept any challenge and take calculated risk to do
something worthwhile.
h) Goal Setting. Human behavior is goal oriented. Goal setting is necessary part of
all the activities of an entrepreneur. The goal should be clearly defined,
attainable, and challenging. Setting goals both for herself/himself and for other
employees’ serves as a driving force for the accomplishment of the enterprise
objective.
i) Initiative and Personal Responsibility. An entrepreneur, as an innovator and
inventor, takes responsibility towards accomplishing the defined goal. It is
her/his sole responsibilities to see that the target s/he sets for herself/himself is
achieved. s/he takes initiative action and assumes personal responsibility
necessary for the success of her/his business. S/he does this willingly without
coercion and compulsion from anywhere.

4
 j) Commitment. An ideal entrepreneur is one who has a strong determination,
with sound thinking, strong willpower with a hundred per cent commitment and
two hundred per cent involvement. It is the determination that provides the
entrepreneur energy to work for 14 to 18 ours a day, 7 days a week and 365 days
in a year, till her/his unit reaches a natural stage of take off.
k) Ability to work for a longer period
l) Total involvement
m) Persistent Problem Solving
n) Competitiveness
o) Dealing with Failure
p) Seek Feedback on how business performs
q) Team Building
r) Clear objective
s) Human relations
Also,
1. Curiosity

Successful entrepreneurs have a sense of curiosity that allows them to continuously

seek new opportunities. Rather than settling for what they think they know, curious
entrepreneurs ask challenging questions and explore different avenues.

In Entrepreneurship Essentials, entrepreneurship is described as a “process of

discovery.”

Without the drive to continuously ask questions and challenge the status quo, valuable
discoveries can easily be overlooked.

5
2. Structured Experimentation

Along with curiosity comes the need for structured experimentation. With each new
opportunity that arises, an entrepreneur must run tests to determine if it’s worthwhile
to pursue.

For example, if you have an idea for a new product or service that fulfills an
underserved demand, you’ll have to ensure customers are willing to pay for it. To do
so, you’ll need to conduct thorough market research and run meaningful tests
to validate your idea and determine whether it has potential.

3. Adaptability

The nature of business is ever-changing. Entrepreneurship is an iterative process, and

new challenges and opportunities present themselves at every turn. It’s nearly
impossible to be prepared for every scenario. Entrepreneurs need to evaluate situations
and adapt so their business can keep moving forward when unexpected changes occur.

4. Decisiveness

To be successful, an entrepreneur has to make difficult decisions and stand by them. As

a leader, they’re responsible for guiding the trajectory of their business, including every
aspect from funding and strategy to resource allocation.

Being decisive doesn’t always mean having all the answers. If you want to be an
entrepreneur, it means having the confidence to make challenging decisions and see

6
them through. If the outcome turns out to be less than favorable, the decision to take
corrective action is just as important.

5. Team Building

A great entrepreneur is aware of their strengths and weaknesses. Rather than letting
shortcomings hold them back, they build well-rounded teams that complement their
abilities.

In many cases, it’s the entrepreneurial team, rather than an individual, that drives a
venture toward success. When starting your own business, it’s critical to surround
yourself with teammates who have complementary talents and contribute to a common
goal.

6. Risk Tolerance

Entrepreneurship is often associated with risk. While it’s true that launching a venture
requires an entrepreneur to take risks, they also need to take steps to minimize it.

While many things can go wrong when launching a new venture, many things can go
right. The key, according to Entrepreneurship Essentials, is for entrepreneurs to actively
manage the relationship between risk and reward, and position their companies to
“benefit from the upside.”

Successful entrepreneurs are comfortable with encountering some level of risk to reap
the rewards of their efforts; however, their risk tolerance is tightly related to their efforts
to mitigate it.

7
7. Comfortable with Failure

In addition to managing risk and making calculated decisions, entrepreneurship

requires a certain level of comfort with failure.

It’s estimated that nearly 75 percent of new startups fail. The reasons for failure are vast
and encompass everything from a flawed business model to a lack of focus or
motivation. While many of these risks can be avoided, some are inevitable.

Successful entrepreneurs prepare themselves for, and are comfortable with, failure.
Rather than let fear hold them back, the possibility of success propels them forward.

8. Persistence

While many successful entrepreneurs are comfortable with the possibility of failing, it
doesn’t mean they give up easily. Rather, they see failures as opportunities to learn and
grow.

Throughout the entrepreneurial process, many hypotheses turn out to be wrong, and
some ventures fail altogether. Part of what makes an entrepreneur successful is their
willingness to learn from mistakes, continue to ask questions, and persist until they
reach their goal.

9. Innovation

8
Many ascribe to the idea that innovation goes hand-in-hand with entrepreneurship.
This is often true—some of the most successful startups have taken existing products or
services and drastically improved them to meet the changing needs of the market.

Innovation is a characteristic some, but not all, entrepreneurs possess. Fortunately, it’s a
type of strategic mindset that can be cultivated. By developing your strategic thinking
skills, you can be well-equipped to spot innovative opportunities and position your
venture for success.

10. Long-Term Focus

Finally, most people think of entrepreneurship as the process of starting a business.

While the early stages of launching a venture are critical to its success, the process
doesn’t end once the business is operational.

In Entrepreneurship Essentials, it’s stated that “it’s easy to start a business, but hard to
grow a sustainable and substantial one. Some of the greatest opportunities in history
were discovered well after a venture launched.”

Entrepreneurship is a long-term endeavor, and entrepreneurs must focus on the process

from beginning to end to be successful in the long run.

9
 Activity
Choose FIVE characteristics and give a real life example of how
EACH will be achieved?

Well done.You have been able to give examples of FIVE characteristics and how they
can be achieved in real life. This leads us to our last two subsections in this lecture on
functions of an entrepreneur and the role of Entrepreneur in Economic Development.

FUNCTIONS OF AN ENTREPRENEUR
 An entrepreneur does perform all the functions important right from the genesis of
an idea until the establishment of an enterprise. These can be listed in the following
sequential manner:
a) Idea generation and scanning of the best suitable idea.
b) Determination of the enterprise objective
c) Commodity analysis and market research
d) Determination of the form of the ownership of business
e) Completion of promotional formalities
f) Raising necessary funds
g) Procuring raw materials and machines
h) Recruitment of staff
i) Undertaking the enterprise operations
j) Upgrading process and commodity quality
k) Introduction of new production techniques and commodities
l) Management of customer and supplier relations
m) Dealing with the public bureaucracy.
 Modern scholars of entrepreneurship have categorized the above functions into
three categories

10
 a) Innovation
b) risk taking and uncertainty bearing
c) Organization and management of enterprise so as to have leadership and control
over it.

3.4 ROLE OF ENTREPRENEUR IN ECONOMIC DEVELOPMENT

 Economic development of a country is the outcome of purposeful human activity.
In most developed countries, industrialization has been known to contribute to the
high growth of the economy. Most of these industries have emerged as a result of
entrepreneurship.
 Entrepreneurship contributes significantly to economic growth of any country in the
following areas:
a) Employment Generation :-Entrepreneurship activities raise the levels of
employment in the economy and also the levels of national income.
b) Source of foreign exchange
c) Effective utilization of domestic resources
d) Nurturing new entrepreneurs(Role Models)
e) Equitable distribution of income and wealth
f) Linkages and networking among industries
g) Competition
h) Development of new markets
i) Discover new sources of materials
j) Mobilize capital resources
k) Introduce new technologies, new industries and new commodities.
l) Capital formation:-It’s easily brought up entrepreneurial activities through
production of goods and services.
m) Increasing per Capital Income:- This refers to average income in a country with
all citizens assumed equal shares. Entrepreneurship raise levels of individual
income and therefore boosting per-capita Income.

11
n) Growth of infrastructure:-It plays a great role in opening of infrastructure such as
factories, roads, buildings, schools, which contributes to economic growth and
development.
o) Boosting economic Independence:- Entrepreneur through their activities
enhances self-reliance or it minimizes the level of external or foreign dependence
economies. This makes a community/Country self-reliant.
p) Improving the standards of living:- Through innovative activities, they produce
essential goods and services that contribute to the welfare of the citizens.
q) Growth of Industries:-Entrepreneurial activities results to growth of industries.
r) Provision of Essential goods and services:-Which are key to economic growth
and development.
s) Diversification of business
t) Promotion of Technology
u) Promotion of an entrepreneurial culture
v) Conversion of waste products into useful products.
w) Tax obligations—Add revenue to the exchequer
x) Assist in marketing local products abroad.

1.6 Summary
The session looked at entrepreneur and characteristics of a
successful entrepreneur. Also it looked at the functions of an
entrepreneur and the Role of entrepreneurs in Economic

12
Development of the country.

1.7 Review Activity

i) Explain in your own words the difference between a
Manager and an Entrepreneur.
ii) Discuss how entrepreneurs have impacted your local area
development wise.

1.8 References and Further Reading

I) Hirsch, R.D., Peters, M.P. & Shepherd, D.A.(2014).
Entrepreneurship, 8th Edition. Boston, U.S.A: McGraw
Hill Education (ISBN: 987-0073530321).
ii) Kuratko, D. F. (2016). Entrepreneurship: Theory,
Process and Practice, 10th Edition. Boston, MA, USA:
CENGAGE Learning (ISBN-13: 978-1285051758).
iii) Scarborough, M.N. (2015). Essentials of Entrepreneurship
and Small Business management, 8th Edition

13
14
 LECTURE SESSION SIX
PHILOSOPHY OF ENTREPRENEURSHIP
Lecture Outline
6.1 Introduction
6.2 Learning Outcomes
6.3 Creativity and Entrepreneurship
6.3.1 Creativity and Innovation
6.3.2 The Creativity Processes
6.3.3 Elements of Innovation
6.3.4 Importance of Innovation
6.3.5 Innovation and Entrepreneurship
6.4 Creative problem-Solving Techniques.
6.5 Summary
6.6 Review Activity
6.7 References and Further Reading

6.1 Introduction
Welcome to this Sixth lecture in Entrepreneurship Skills. In this lecture, we shall explore
the concepts of Creativity and Innovation.

6.2 Learning Outcomes

At the end of this lecture, you should be able to:
i) Differentiate between creativity and innovation.
i i) Describe the FIVE stages in the creative process.
iii) Explain the importance of innovation in
entrepreneurship.

1
Let us start our discussion by asking ourselves this question.

Intext Question 1: How many boxes do you see in the below

figure?

Well done. I believe you answered NINE. However some people will see more boxes
than NINE They will see 25. Try to count and see these boxes. This introduces us to
creativity. You must be able to stretch yourself and see outside the box.

6.3 Creativity and Entrepreneurship

Creativity is the ability to design, form, make or do something in a new or different
way. The ability to come up with creative solutions to needs/problems and to
market them often marks the difference between success and failure in business.
It also distinguishes high-growth or dynamic businesses from ordinary, average
firms. Real, successful entrepreneurs are creative in identifying a new product,
service or business opportunities.

6.3.1 Creativity and Innovation

Creativity is the ability to design, form, make or do something in a new or different
way. The ability to come up with creative solutions to needs/problems and to market
them often marks the difference between success and failure in business.
Innovation is a process of doing new things. Ideas have a little value until they are
converted into products, services or process. Innovation, therefore, is the process of

2
transformation of creative ideas into useful applications, but creativity is prerequisite to
innovation.
Entrepreneurship can be partly described as a combination of creativity followed by
innovation, where creativity is the act of ‘thinking’ new things, coming up with ideas
and innovation is ‘doing’ new things or implementing newly created ideas.

6.3.2 The Creativity Process

Ideas usually evolve through a creative process whereby imaginative people germinate
the ideas, nurture them and develop them successfully. The Seven stages in creative
process include:

1. Preparation – This is the first stage at which the base for creativity and innovation is
defined; the mind is prepared for subsequent use in creative thinking. During
preparation the individual is encouraged to appreciate the fact that every opportunity
provides situations that can educate and experiences from which to learn.

The creativity aspect is kindled through a quest to become more knowledgeable. This
can be done through reading about various topics and/or subjects and engaging in
discussions with others. Taking part in brainstorming sessions in various forums like
professional and trade association seminars, and taking time to study other countries
and cultures to identify viable opportunities is also part of preparation. Of importance
is the need to cultivate a personal ability to listen and learn from others.

2. Investigation – This stage of enhancing entrepreneurial creativity and innovation

involves the business owner taking time to study the problem at hand and what its
various components are.

3. Transformation – The information thus accumulated and acquired should then be

subjected to convergent and divergent thinking which will serve to highlight the
inherent similarities and differences. Convergent thinking will help identify aspects that

3
are similar and connected while divergent thinking will highlight the differences. This
twin manner of thinking is of particular importance in realizing creativity and
innovation for the following reasons:

4. Incubation – At this stage in the quest for creativity and innovation it is imperative
that the subconscious reflect on the accumulated information, i.e. through incubation,
and this can be improved or augmented when the entrepreneur:

- Engages in an activity completely unrelated to the problem/opportunity under

scrutiny
- Takes time to daydream i.e. letting the mind roam beyond any restrictions self-
imposed or otherwise
- Relax and play
- Study the problem/opportunity in a wholly different environment

5. illumination – This happens during the incubation stage and will often be
spontaneous. The realizations from the past stages combine at this instance to form a
breakthrough.

6. Verification – This is where the entrepreneur attempts to ascertain whether the

creativity of thought and the action of innovation are truly effective as anticipated. It
may involve activities like simulation, piloting, prototype building, test marketing, and
various experiments. While the tendency to ignore this stage and plunge headlong with
the breakthrough may be tempting, the transformation stage (3rd) should ensure that
the new idea is put to the test

7. Implementation – This is where the product of creativity and innovation is made into
a reality and it's what defines the difference between inventors and entrepreneurs.

4
6.3.3 Elements of Innovation

Collaboration

Teamwork is essential to getting things done. In todays global and digital 24/7 world,
challenges are more complex; it's becoming increasingly important to bring more,
diverse minds to the table and to break down silos.

Collaboration is one type of group activity familiar to community development. There

is no shortage of initiatives intended to be collaborative. Collaboration has never been
easy, mostly because conflict and competition within and among groups dominates the
landscape. As everyone tends to avoid tension, what we actually may be left with in
communities is peaceful (or less than peaceful) coexistence, and not collaboration. It
may be a good time for re-thinking collaboration.

Collaborative process is more than working together. It means the ability to think
together and to act on complex projects. The traditional strategic planning process is not
a model for the disciplines required to transform our economies. Rather, strategic
"doing" offers a framework to achieve results. Thinking together is open innovation.
Strategic doing guides open innovation. Strategic doing means:

Listen and explore—what can we do together?

Learn and adjust—how will we learn together?
Focus and align—what should we do together?
Link and leverage—what will we do together?

Ideation

Fresh, new ideas help your organization stand out. With intense competition for
resources, organizations must differentiate in order to survive.

5
Implementation

What good are new ideas if they are not put to use? Organizations must engage the best people
to champion their ideas and keep those great ideas moving forward.

There is no shortage of conversations on how technology is changing lives and how

technological innovations are being implemented at lightning speed

Value Creation

You don't have innovation if your new ideas aren't creating value. Organizations must
implement ideas and programs identified as most effective in delivering value
to stakeholders.

The failure rate of established companies has skyrocketed during the past year.
However, there are companies still experiencing monumental success despite the
economic downturn. These companies are thriving because they effectively deliver
products valued by consumers.

The purpose of innovation is to create business value. Value can be defined in many
ways, such as incremental improvements to existing products, the creation of entirely
new products and services, or reducing cost. Businesses seek to create value because
their survival, growth and ability to compete in a rapidly changing market depend on
whether they innovate effectively.

Many companies develop experimentation brands, joint ventures or co-brands. This

gives them the freedom to test new ideas and create value without the risk of damaging
an established brand..

Need-finding is a process of looking for new opportunities. To understand the

customer's experience, researchers look for gaps in customer service because they may
represent opportunities.

6
a) 6.3.4 Importance of innovation
a) Reduced costs of production and distribution
b) Improvement in the quality and quantity
c) Customer satisfaction
d) Corporate image
e) Customer loyalty such as repeat purchase and favourable recommendations by
satisfied customers.
f) Competitive advantage
g) Motivation to employees
h) Expansion of business.

6.3.5 Innovation and Entrepreneurship

 Innovation refers to:
a) Doing something differently.
b) Process of improving what already exists
c) In entrepreneurship it is regarded as one of the features of an entrepreneur.
Thus, the most successful entrepreneurs are innovators.
d) It gives an entreprneur a competitive advantage.
 Schumpeter (1934) identified the entrepreneur’s challenge as discovering and
implementing new ideas. He asserts that innovation is a unique feature, which
separates entrepreneurs from managers. It’s stated that this is achieved by:
1) Developing new products or services
2) Developing new methods of production
3) Identifying new markets
4) Discovering new sources of supply, and

7
 5) Developing new forms of organizations, carrying out of new form of
organization of any industry by creating of a monopoly position or the breaking
up of it.
Emphasizing the role of innovation, Schumpeter averts that the entrepreneur is
someone who carries out “new combinations” by such things as introducing new
products or processes, identifying new export market s or source of supply, or creating
new types of organization. Schumpeter presented a heroic vision of the entrepreneur as
someone motivated by the “dream and the will to find a private kingdom”; the “will to
conquer: the impulse to fight, to prove oneself superior to others”; and the “joy of
creating.”

In Schumpeter’s view the entrepreneur leads the way in creating new industries, which,
in t urn, precipitate major structural changes in the economy. Old industries are
rendered obsolete by a process of “creative destruction.” As the new industries
compete with established ones for labour; materials, and investment goods, they drive
up the price of these resources. The old industries cannot pass on their higher costs
because demand is switching to new products.

As the old industries decline, the new ones expand because imitators, with optimistic
profit expectations based on the investor’s initial success, continue to invest.
Eventually, overcapacity depresses profits and halt s investment. The economy goes
into depression, and innovation stops. Invention continues, however, and eventually
there is a sufficient stock of unexploited inventions to encourage courageous
entrepreneurs to begin innovation again. In this way Schumpeter used
entrepreneurship to explain structural change, economic growth, and business cycles,
using a combination of economic and psychological ideas.

Schumpeter was concerned with the “high-level” kind of entrepreneurship that,

historically, has led to the creation of railroads, the birth of the chemical industry, the

8
commercial exploitation of colonies, and the emergence of the multidivisional
multinational firm. His analysis left little room for the much more common, but no less
import ant, “how-level” entrepreneurship carried on by small firms.

Distinguish between innovation and innovation.

a) Invention – occurs when new methods and new materials are discovered.
b) Innovation –occurs when the new methods and materials are utilized to form
new combinations.

Activity
Identify FIVE cases of innovation and creativity that happened in
recently in your country?

Well done. You have been able to give examples of FIVE innovations that have
happened in the recent past. This leads us to our last section creative Problem
solving Techniques.

6.4 Creative problem-Solving Techniques.

Creativity is an important attribute of a successfully entrepreneur. Creativity can be
unlocked and creative ideas and innovations generated by using any of creative
problem-solving techniques discussed below.

i Brainstorming
In this method, creative problem-solving method is applied which is a method for
obtaining new ideas focusing on parameters.

ii Reverse Brainstorming

9
1. This is a group method for obtaining new ideas focusing on the negative. Criticism
is allowed in when discussing an idea.
2. The technique is based on finding fault by asking the question. The process in this
method involves finding out of everything wrong with an idea, followed by a
discussion of ways to overcome these problems.

iii Brain writing

This is a form of written brainstorming in which participants are given more time to
think than brainstorming sessions, where ideas are expressed spontaneously.
It is a silent, written generation of ideas by a group of people. Participants write their
ideas on special forms or cards that circulate within the group, which usually consists of
the members.

iv Gordon Method
This is a method for developing new ideas when the individuals are unaware of the
problem. Members are not aware of the problem to ensure that the solution is not
clouded by preconceived ideas and behavioral patterns.

The entrepreneur starts by mentioning a general concept associated with the problem.
The group responds by expressing a number of ideas. Then a concept is developed,
followed by related concepts, through guidance by the entrepreneur. The actual
problem is then revealed, enabling the group to make suggestions for implementation
or refinement of the final solution.

v Checklist Method

10
This is a method of developing a new idea through a list of related issues. The
entrepreneur can use the list of questions or statement to guide the direction of
developing entirely new ideas or concentrating on specific idea areas.

vi Free Association
In this method, an entrepreneur develops a new idea through a chain of word
associations. This technique is helpful in developing an entirely new slant to a problem.
A word or phrase related to the problem is written down, then another and another,
with each new word attempting to add something new to the ongoing through process,
thereby creating a chain of ideas ending with a new product emerging.

vii Forced Relationship

This is the method of developing a new idea by looking at product combinations. It is a
technique that asks questions about objects or ideas in an effort to develop a new idea.
The new combination and eventual concept is developed through five steps namely,
Isolate the elements of the problem;
1) In the relationships between these elements;
2) Record the relationships in an orderly form;
3) Analyze the resulting relationships to find ideas or patients;
4) Develop new ideal from these patterns.

Viii Collective Notebook Method

In this method, group members develop new regularly through recording ideas in a
small notebook that easily fits in a pocket containing statement of the problem, blank
pages and any pertinent background data is distributed. Participants consider the
problem and its solutions, recording ideas at least once, but preferably three times, a
day. At the end of the week, a list o the best ideas is developed, along with any
suggestions.

11
ix Attribute Listing
This is the method of developing a new idea by looking at the positives and negatives.
It is an idea finding technique that needs the entrepreneurs to list the attributes of an
item or problem and the look at each from a variety of viewpoints.
Through this process, originally unrelated objects can be brought together to form a
new combination and possible new uses that better satisfy a need.
x Big Dream Approach
This method entails developing a new idea by thinking without constraint. In this
approach an entrepreneur is required to dream about the problem and its solution, in
other words, think big.
Every possibility should be recorded and investigate without regard to all, the negative
involved or the resources required. Ideas should be conceptualized without any
constraints until an idea is developed into a workable form.

xi Parameter Analysis
This is the method of developing a new idea by focusing on parameter identification
and creative synthesis. Step one involves (parameter identification) involves analyzing
variables in the situation to determine their relative importance. These variables
become the focus of the investigation, with other variables being set aside.

After the primary issues have been identified, the relationships between parameters
that describe the underlying issues are examined. Thorough an evaluation of the
parameters and relationships, one or more solutions are developed; this solution
developed is called creative synthesis.

6.5 Summary
The session looked at Creativity and innovation in business. It has
also explored innovation and how it impacts entrepreneurship.
We finished with the various Problem solving Techniques which

12
also double up as methods of coming up with business ideas.

6.6 Review Activity

i) Explain some of the attributes of the entrepreneur that
propagate the Philosophy of entrepreneur.
ii) Discuss how creativity can be enhanced in an organisation?

6.7 References and Further Reading

i. Hirsch, R.D., Peters, M.P. & Shepherd, D.A. (2014).
Entrepreneurship, 8th Edition. Boston, U.S.A:
McGraw Hill Education (ISBN: 987-0073530321).
Ch. 2, 5-6, 11-12
ii. Kuratko, D. F. (2016). Entrepreneurship: Theory,
Process and Practice, 10th Edition. Boston, MA, USA:
CENGAGE Learning (ISBN-13: 978-1285051758).
Ch.5 - 7
iii. Scarborough,M.N.(2015). Essentials of Entrepreneurship
and Small Business management, 8th Edition. Chapter 1.

13
 LECTURE SESSION SEVEN
ENTREPRENEURIAL BEHAVIOUR
Lecture Outline
7.1 Introduction Learning Outcomes
7.2 Learning Outcomes
7.3 Business Ideas viz. Business Opportunities.
7.3.1 Reasons for Generating New Business Ideas.
7.3.2 Characteristics of a Good Business Opportunity.
7.4 Sources of Business Ideas.
7.5 Summary
7.6 Review activity
7.7 References and Further Reading

7.1 Introduction
This is our seventh lecture in Entrepreneurship Skills. In this lecture, we shall look at
Business idea and Opportunity; We shall also look at how we generate business ideas.
Finally we look at the sources of business ideas.

7.2 Learning Outcomes

i. At the end of this lecture, you should be able to:
Differentiate between a Business Idea and a Business
Opportunity
ii. Outline reasons for generation of business ideas.
iii. Discuss the characteristics of a good business opportunity.
iv. Explain the sources of business ideas
v. Identify a viable business Idea.

1
7.3 Business Ideas versus Business Opportunities.
Let us start our discussion by asking ourselves this question.

Intext Question 1:Is there a difference between a business Idea

and a Business Opportunity?

Well done. Let us pick our discussion from this point.

A business idea is the response of a person or persons, or an organization to solving an
identified problem or to meeting perceived needs in the environment (markets,
community, etc.) Finding a good idea is the first step in transforming the Entrepreneur’s
desire and creativity into a business opportunity.

Take Note
Two things should however be noted:
a) Although it is a prerequisite, a business idea is only a tool;
b) An idea by itself, however good, is not sufficient for success.

In other words, notwithstanding its importance, an idea is only a tool that needs to be
developed and transformed into a viable business opportunity.

A business opportunity may be defined simply as an attractive investment idea or

proposition that provides the possibility of a return for the person taking the risk. Such
opportunities are represented by customer requirements and lead to the provision of a
product or service that creates or adds value for its buyer or end-user.
However, a good idea is not necessarily a good business opportunity. For example, you
may have invented a brilliant product from a technical point of view and yet the market

2
may not be ready for it (read Samantha). Or the idea may be sound, but the level of
competition and the resources required may be such that it is not worth pursuing.
Sometimes there may even be a ready market for the idea, but the return on investment
may not be acceptable. It is therefore important for all ideas and opportunities to be
well screened and assessed. Identifying and assessing business opportunities are not an
easy task. Yet it is necessary to minimize the risk of failure. It involves, in essence,
determining risks and rewards/returns.

So, what turns an idea into a business opportunity? A simplified answer is when
income exceeds costs profit. Let us first examine the reasons for coming up with new
business ideas.

7.3.1 Reasons for Generating New Business Ideas.

There are many reasons why entrepreneurs or would-be entrepreneurs need to generate
business ideas. Here are just a few:
i. You need an idea – and a good one for business. As indicated earlier, in looking
at the rationale for this topic, a good idea is essential for a successful business
venture – both when starting a business and to stay competitive afterwards.
ii. To respond to market needs, Markets are made up essentially of customers who
have needs and require their wants to be satisfied. Those people or firms that are
able to satisfy these requirements are rewarded.
iii. Changing fashions and requirements provide opportunities for entrepreneurs to
respond to demand with new ideas, products and services.
iv. To stay ahead of the competition. Remember, if you do not come up with new
ideas, products and services, a competitor will. The challenge is to be different
or better than others.
v. To exploit technology – do thins better. Technology has become a major
competitive tool in today’s markets, with the rate of change forcing many firms
to innovate. There are several companies in the world, operating in the

3
 electronics and home appliances industries, which come up with dozens of new
products every month. For these and many others in today’s global markets,
generation of business ideas is crucial.
vi. Because of product life cycle. All products have a finite life. As the product life
cycle chart shows, even new products eventually become obsolete or outmoded.
Thus, there is a need to plan for new products and the growth of these. The
firm’s prosperity and growth depend on its ability to introduce new products
and to manage their growth.
vii. To spread risk and allow for failure. Linked to the product life cycle concept is
the fat that over 80 per cent of new products fails. It is therefore necessary for
firms to try to spread their risk and allow for failures that may occur from time to
time by constantly generating new ideas.

7.3.2 Characteristics of a Good Business Opportunity.

a) Real Product demand, - the product responds to unsatisfied needs or requirements
of customers who have the ability to purchase and who are willing to exercise that
choice.
b) Favorable Returns on investment, - the product should provide durable, timely and
acceptable returns or rewards for the risk and effort required. It is important to
determine the level of investment required for the business opportunity and then
compare with the expected returns. If the return on your investment in business is
likely to be high, in such a business opportunity can be pursued further.
c) Be competitive, the product should be equal to or better from the viewpoint of the
customer than other available products or services.
d) Meet objectives, the product benefits meet the goals and aspirations of the person
or organization taking the risk.
e) Availability of resources and skills – these should be within the reach of the
entrepreneur in terms of resources, competency, legal requirements, etc.
i) Availability of raw materials

4
 Raw materials are a critical element in production of any items for sale. You
should, therefore, assess and find out if the required raw materials are available..
ii) Skill requirements
Some businesses require certain specialized skills to start and run, for instance, a
medical clinic, an accountancy or a law firm. If you have the sills then a business
opportunity exists that can be exploited.

Activity
Distinguish between a Business Idea and a Business opportunity?

Now we can move ahead and talk about the sources of business ideas.

7.4 Sources of Business Ideas

There are millions of entrepreneurs throughout the world and their testimonies suggest
that there are many potential sources of business ideas. Some of the more useful ones
are outline below.
i) Training, Personal Skills and Experience
Over half of the ideas for successful businesses come from experiences in the work
place, e.g., a mechanics with experience in working for a large garage who eventually
sets up his/her own car repair or used car business.
Thus, the background of potential entrepreneurs plays a crucial role in the decision to g
o into business as well as the type of venture to be created. Your skills and experience
are probably your most important resource, not only in generating ideas but also in
capitalizing on them.

5
 Take some time and Think

a) What training and experience have you had?

b) What businesses have been started in your area of
training? Make a list of them.
c) What businesses could you start in your area of
training? List as many as possible.
d) Could you list ways in which you could improve
some of the businesses you have listed in (b)?

ii) Hobbies
A hobby is a favourite leisure-time activity or occupation. Many people, in pursuit of their
hobbies or interests, have founded businesses.
If, for example, you enjoy playing with computers, cooking, music, traveling, sport
or performing, to name but a few, you may be able to develop it into a business.
Do you have any hobbies or special interests? List them.
List as many businesses as possible that are in line with your hobbies or interests.
For example, a gardener can sell potted plants and flowers.

iii) Franchise
A franchise is an arrangement whereby the manufacturer or sole distributor of a
trademark, product or service gives exclusive rights for local distribution to
independent retailers in return for their payment of royalties and conformity to
standardized operating procedures.

6
Franchising may take several forms, but the one of interest is the type that offers a
name, image, method of doing business and operating procedures e.g., “Kengeles” is a
franchise name that was registered in Kenya by Bell, the current CEO of Africa
Franchise.
Apart from buying a franchise, one can also develop and sell a franchise concept. There
are many directories and handbooks as well as associations, including the International
Franchise Association, which can provide further information.

iv) Exhibitions
Attending shows, exhibitions and any other fairs will expose you to innovative
products and services that you could easily turn into a business idea. By visiting such
events regularly, you will not only discover new products and services, but you will
also meet sales representatives, manufacturers, wholesalers, distributors and
franchisers.
These are often excellent sources of business ideas and information that will help in
getting started. Some of them may also be looking for someone just like you.

v)Surveys
The focal point for a new business idea should be the customer. The needs and wants
of the customer, which provide the rationale for a product or service, can be ascertained
through a surrey. Such a survey might be conducted informally or formally by talking
to people:
a) Informal Survey
i) Personal Contacts: when you next meet a friend or an acquaintance or
relative, try to find out what they have observed about people’s needs and
what sort of opportunities they have noticed. Try to keep note of problems
that they may mention. It is people’s needs and the problems they face that
supply you with opportunities. Make a note for every person you meet in a
format such as the one below:

7
 People’s needs mentioned --------------------------------------------------
Business ideas mentioned --------------------------------------------------
People’s problems mentioned ---------------------------------------------
-----
Can you find ways of converting needs into business opportunities?

ii) Observation: Beside talking to people, you could also get information
through observation. For example, in deciding whether to open a shop on a
particular street, you can observe and count the number of people going past
on given days and compare these to other sites. Or, if you are interested in an
area frequented by tourists, you may be able to set up or market products
from a craft business. Or you may have noticed that there is no decent
restaurant or hotel on a tourist route or in a given town. Observing what
goes on around you, the problems people face, their aspiration, their needs,
and thinking about ways of doing things better can offer a large number of
ideas. Try to develop sensitivity for people’s discomforts, needs and others
many businesses are started to supply comforts and satisfy needs.

Activity
Go out into the community and;
 Identify businesses operating there. Make a list
of them;
 Identify and list unmet needs.
 Identify ways in which these businesses could be
improved.

8
 b) Formal Surveys
a) Questionnaire: You may start by talking to your family and friends to find
out what they think is needed or wanted that is not available. Or, for
example, whether they are dissatisfied with an existing product or service
and what improvements or changes they would like to see. You can then
move on and talk to people who are part of the distribution chain, which is
manufacturers, wholesalers, distributors, agents and retailers. It would be
useful to prepare beforehand a set of questions, which might be put on a
questionnaire or used in n interview. Given their close contact with
customers, channel members have a good sense of what is require and what
sill not sell.
b) Interviews: Shortcomings in existing business can be identified through
interviews. You should talk to as many customers as possible -both existing
and potential customers. The most information you can get from them, the
better. One way of ensuring that you are not negligent in this area is to be
silent at all times to the needs and opportunities o do business. One that did
not adequately fulfil its intended purpose another monitored the toys of a
relative’s children looking for ideas for a market niche.

 Surveys are very important to help you decide whether the idea is worthwhile. A
surrey is used to answer questions like:
i) What do the people need?
ii) When do they need it?
iii) Why do they need it?
iv) Which people need it?
v) Who decides what is to be bought?

9
vi) Complaints
Complaints and frustrations on the part of customers have led to many a new product
or service. Whenever consumers or customer complain bitterly about a product or
service, or when you hear someone say “I wish there was…” or “If only there were a
product/service that could…”, you have the potential for a business idea. The idea
could be to set up a rival firm offering a better product or service, or it might be a new
product or service, which could be sold to the firm in question and/or to others.

vii) Brainstorming
Brainstorming is a technique for creative problem solving as well as for generating
ideas. The object is to come up with as many ideas as possible.
It usually starts with a question or problem statement. For example, you may ask
“What are the products and services needed in the home today which are not
available?” Each idea leads to one or more additional ideas, resulting in a good
number. When using this method, you need to follow these four rules:
a) Do not criticize or judge the ideas of others. Group members will tend to talk
less I this happens. This means fewer ideas will be expressed. The group leader
should discourage phrases such as: “that’s a dumb idea.”
b) Freewheeling is encouraged – ideas that seem to be wild or crazy are welcome.
The wider the range of ideas, the better. It is easier too tame down a wild idea
than it is to think up another one.
c) Quantity is desirable – the greater the number of ideas, the better the chance of
getting good ones. The axiom is, “quantity helps breed quality”.
d) Combine and improve upon the ideas of others. Group members should state
their ideas. They should also suggest how the ideas of others could be turned
into better ideas. Sometimes two or here ideas could be integrated to form
another idea.

10
 Take Note
Furthermore, all sides, no matter how seemingly illogical or crazy,
must be recorded.

viii) Mass Media

The mass media is a great source of information, ideas and often opportunity.
Newspapers, magazines, television, and nowadays the Internet are all examples of mass
media. Take a careful look, for example, at the commercial advertisements in a
newspaper or magazine and you may well find businesses for sale. Well, one way to
become an entrepreneur is to respond to such an offer.

Articles in the printed press or on the Internet or documentaries on television may

report on changes in fashions or consumer needs. For example, you may discover a
new concept for which investors are required, such as a franchise. Read stories or
advertisements in several issues of newspapers, magazines and journals and identify
five different businesses that interest you. In the space below, list the five businesses
and tell why you selected each:
Types of business Why are you interested in
it?
a) ---------------------------------------------------- ---------------------------------------------
-
b) ---------------------------------------------------- ---------------------------------------------
-
c) ---------------------------------------------------- ---------------------------------------------
d)
e) -

11
ix) Resources
If you find the following resources and wastes, e.g. minerals, agricultural, marine and
other natural resources may signify the presence of a business opportunity.

x) Linkages
The presence of manufacturing concerns may indicate possibility of business
opportunity in supply of ingredients or distributing the products from those concerns.

xi) Export oriented/import substitution products

In a given area there is a possibility of some items either being imported from other
countries or of items that would possibly be exported to other countries. Such items
offer excellent opportunities to promote enterprises based in exports and imports.
Between the two, import substitution items make more attractive enterprises. In such
cases not only special incentives are available but the market is already established.
xii) Special products
You may see business opportunities existing in research and invention-assed products
and skill/knowledge based products.
xiii) Service Sector
This includes household repair and maintenance and service establishments cater to
industrial and household needs.

xiv) Research and Development

This is the largest source of new ideas through one own effort which can be formal
endeavour contracted with one’s current employment or an informal laboratory in the
business.
xv) Focus group
This is a group of individuals providing information in a structured format. A
moderator leads a group of people through an open, in depth discussion rather than
simply asking questions to solicit participants response.

12
For a new product area, the moderator focuses discussion of the group in either a
directive or nondirective manner. The group of 8 to 14 participants is stimulated by
comments from other group members in creatively conceptualizing and developing a
new product idea to fill a market need.
xvi) Problem Inventory
This is a method for obtaining new ideas and solutions by focusing on the problems.
Consumers are provided with a list of problems in a general product category. They
are then asked to identify and discuss products in this category that have the particular
problem.

The method is highly referred because it is easier to relate known products to suggested
problems and arrive at a new product idea than to generate as entirely new product
idea by itself.

7.5 Summary
The session Distinguished between a business idea and a Business
opportunity. Thereafter we looked at the sources of a Business
Idea.
.

7.6 Review Activity

i)Explain some of the attributes of the entrepreneur that
propagate the Philosophy of entrepreneur.
ii) Discuss how creativity can be enhanced in an organisation?

13
 7.7 References and Further Reading
i) Hirsch,R.D., Peters, M.P. & Shepherd,D.A.(2014).
Entrepreneurship, 8th Edition. Boston, U.S.A: McGraw
Hill Education (ISBN: 987-0073530321).
ii) Kuratko, D. F. (2016). Entrepreneurship: Theory, Process
and Practice, 10th Edition. Boston, MA, USA: CENGAGE
Learning (ISBN-13: 978-1285051758).
iii) Scarborough,M.N.(2015). Essentials of Entrepreneurship
and Small Business management, 8th Edition

14
 LECTURE SESSION EIGHT
CONCEPTUALIZING A BUSINESS IDEA
Lecture Outline
8.1 Introduction
8.2 Learning outcomes
8.3 Perspectives to Conceptualize Business Idea.
8.3.1 Business Model View.
8.3.2 Business Strategy View
8.4 Dimensions of the Framework for Conceptualizing a Business Idea.
8.5 Summary
8.6 Review Activity
8.7 References and Further Reading

8.1 Introduction
Welcome to this eigth lecture in Entrepreneurship Skills. In this lecture, we shall discuss
the Framework for conceptualizing a business Idea and the Dimensions of the
Framework for Conceptualizing a Business Idea.
.

8.2 Learning Outcomes

At the end of this lecture, you should be able to:
i) Discuss the two Perspectives to Conceptualize a Business
Idea.
ii) Describe the five important dimensions that the
entrepreneur can use to think through the
conceptualization of the business idea.

1
Let us start our discussion by asking ourselves this question.

Intext Question 1: Describe the TWO views of conceptualizing a

Bsiness Idea?

Well done. I believe you have looked at the reasons of making choices for the business
Model and Business Strategy Model. Lets look at the two in detail.

8.3 Perspectives to Conceptualize Business Idea.

There are two perspectives of conceptualizing business idea: business model and
business strategy views.

8.3.1 Business Model View

It is essential for an entrepreneur to make the right choices for the business model of an
idea for it to be successful. The entrepreneur must have a good understanding of the
components of the business model to conceptualize the business idea.

8.3.2 Business Strategy View

An entrepreneur needs to have a clear understanding of the strategic objectives of the
enterprise and relate them to conceptualize their idea. The idea needs to align to the
enterprise strategies and should differentiate with other similar competitive offerings.
The two important aspects of the business strategy view for the entrepreneur, is the
competitive positioning for the idea and how the core competencies of the enterprise
facilitate the operating activities critical to developing the idea and sustaining it in the
market place.

2
According to Michael Porter, strategy is the creation of a unique and valuable position,
involving a different set of activities. An enterprise can outperform rivals only if it can
establish a difference that it can preserve. It must deliver greater value to customers or
crate comparable values at a lower cost or do both.
.

Take Note
Business Model view is essential for an entrepreneur to make the
right choices for the business model for an idea for it to be
successful. Business Strategy View alludes to the fact that any
entrepreneur needs to have a clear understanding of the strategic
objectives of the enterprise and relate them to conceptualize their
idea.

Having looked at the perspectives to conceptualize business idea lets now turn our
focus to the dimensions of the framework for conceptualizing a business idea.

8.4 Dimensions of the Framework for Conceptualizing a Business Idea.

The two views of the business model for the idea and the business strategy of the
enterprise combine to give five important dimensions that an entrepreneur can use to
think through and conceptualize the business idea.
a) Competitive Advantage: The unique selling proposition for the idea is the key
differentiating factor. It should provide a unique competitive position for the
enterprise in the market place for the idea.
b) Business Alignment: It is essential for the entrepreneur to relate the idea to the
current and future business directions of the enterprise. The differentiating
factors of the business idea should be conceptualized around the key strategic
focus of the enterprise and its goals. It is also important to consider how the idea
leverages the core competencies of the enterprise.

3
 c) Customers: Knowing the customers for an idea is very important to
conceptualize it based on the wants and needs of the customer. A key learning
for an entrepreneur is to define the customer segment, understand their wants
and conceptualize the unique differentiators along what is perceived as
important for the particular market segment.
d) Execution: Execution is the complementing capabilities that are required to
develop the business idea into a successful innovation and for taking it to the
market. The entrepreneur should think about how to incubate the idea, what
techniques are best suited to develop the idea, and how to co-create leveraging
the competencies available in the enterprise. Identification of resources,
processes, risks, partners and suppliers and the eco-system in the market for
succeeding of the business idea is also important. Some of the execution tasks
are required in the later stages in the innovation life cycle particularly in business
incubation and commercialization. It is nevertheless, important for the innovator
to articulate a plan for execution.

Activity
After coming up with an Idea a businessman wants to
conceptualize the Idea. Advice him/her?

Well done.You have been able to list FOUR DIMENSIONS to help conceptualize an
idea. This leads us to our last subsection in this lecture business value.

Business value: Business value refers to the mechanism that will bring value to the
business in pursuing the idea. It covers how revenues will be generated, what is the
market size, how is it shared with the partners, what is the cost structure and how
profits are generated? This dimension addresses the important benefits for the
enterprise it pursuing the business idea and how the benefits are realized. The value

4
definition is a critical aspect of the business model of the idea and forms the basis for
the selection of the idea as it progresses through the various gates in the innovation

8.5 Summary
The session deals with the perspectives to conceptualize
business idea. Later it also looked at the dimensions of the
framework for conceptualizing a business idea, before
finalizing with the valu to theBusiness this conceptualization
will have.

8.6 Review Activity

i)Explain Conceptualization of an idea Why conceptualize?
ii)Briefly describe the dimensions of the framework for
conceptualization.

8.7 References and Further Reading

i. Hirsch,R.D., Peters, M.P. & Shepherd,D.A.(2014).
Entrepreneurship, 8th Edition. Boston, U.S.A:
McGraw Hill Education (ISBN: 987-0073530321).
ii. Kuratko, D. F. (2016). Entrepreneurship: Theory,
Process and Practice, 10th Edition. Boston, MA, USA:
CENGAGE Learning (ISBN-13: 978-1285051758).
iii. Scarborough,M.N.(2015). Essentials of Entrepreneurship
and Small Business management, 8th Edition

5
 LECTURE SESSION NINE

BUSINESS ACQUISITION AND FINANCING

Lecture Outline

9.1 Introduction
9.2 Learning Outcomes
9.3 Acquiring Business
9.3.1 Reasons for Acquiring Business.
9.4 Buying an On-going Business
9.4.1Advantages
9.4.2 Disadvantages
9.4.2 Things to consider when buying an Ongoing Business.
9.5 Franchising
9.5.1 Types of Franchise
9.5.2 Reasons for Franchising
9.5.3 Drawbacks of buying a Franchise.
9.5.4 Strategies for Franchise Leadership Development
9.6 Financing the Business
9.6.1 Sources
9.6.2 Personal versus external sources
9.6.3 Debt versus Equity Financing Sources.
9.6.4 Venture capital
9.6.5 Crowd funding.
9.6.6 Other Sources of Equity Financing
9.7 Entrepreneurial Ethics
9.8 Legal Forms of Business
9.9 Summary
9.10 Review Activity
9.11 References and Further Reading

1
9.1 Introduction
Welcome to this ninth lecture in Entrepreneurship Skills. In this lecture, we shall
discuss Business acquisitions, buying on-going business, Franchising, financing the
business, and entrepreneurial ethics and legal forms of business.

9.2 Learning Outcomes

At the end of this lecture, you should be able to:
i. Explain the process of acquiring a business.
ii. Identify the various sources of business financing.
iii. Examine the legal forms of business the entrepreneur can
use.

Let us start our discussion by asking ourselves this question.

Intext Question 1: Why Acquire a business?

Well done. I believe you have said that Entrepreneurs acquire business to expand and
grow the business. We shall move to the reasons for acquiring business and their
motivation.

9.3 Acquiring a Business

Acquiring business is one pathway to entering the entrepreneurial world. It is a process
of buying an existing business to venture in. The acquiring of the business involves the
following process:

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 a) Identify and approach the candidate. If a business is advertised for sale, the
proper approach is through the channel defined in the advertisement.
Sometimes one can contact a broker to help locate a potential target business.
b) Sign a nondisclosure document which is a legally binding contract that ensures
the secrecy of the parties of the negotiations.
c) Sign a letter of intent which is a nonbinding document that state that the buyer
and the seller have reached a sufficient meeting of the minds to justify the time
and expense of negotiating a final agreement. The letter should state clearly that
it is nonbinding, giving either party the right to walk away from the deal.
d) Buyer’s diligence investigation. The buyer should do his/her research on the
value of the business to ensure that the business is of god value.
e) Draft the purchase agreement. This document spells out the parties’ final deal.
It sets forth all of the details of the agreement and is the final product of the
negotiation.
f) Close the final deal. Upon drafting of purchase agreement, al that remains to
making the dal official is the closing. Both the buyer and the seller sign the
necessary documents to make the sale final. The buyer delivers the required
money, and the seller turns the business over to the buyer.
g) Begin the transition. For the buyer, the real challenge now begins, making the
transition to a successful business owner.

9.3.1 Reasons for Acquiring Business.

a) Developing more growth phase products by acquiring a firm that has developed
new products in the business’s industry.
b) Increasing the number of customers by acquiring a business whose current customer
will broaden substantially the customer’s base.
c) Increasing market share by acquiring a business in the same industry.
d) Improving or changing distribution channels by acquiring a business with
recognized superiority in the business’s current distribution channel.

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e) Expanding the product line by acquiring a business show products’ complement
and complete the business’s product line.
f) Developing or improving customer service operations by acquiring a business with
an established service operation, as well as a customer service network that includes
the business’s product.
g) Reducing operating leverage and increasing absorption of fixed costs by acquiring a
business that has a lower degree of operating leverage and can absorb the business’s
fixed costs.
h) Using idle of excess plant capacity by acquiring a business that it can operate in the
business current plant facilities.
i) Integrating vertically, either backward or forward, by acquiring a business that is a
supplier or distributor
j) Reducing inventory levels by acquiring a business that is a customer (but not and
end user) and adjusting the business’s inventory levels to match the acquired firm’s
orders.
k) Reducing indirect operating costs by acquiring a business that will allow elimination
of duplicate operating costs such as warehousing and distribution.
l) Reducing fixed costs by acquiring a business that will permit elimination of
duplicate fixed costs such as corporate and functional groups.

9.4 Buying an On-going Business

Traditionally, people who what to have a business would always think of doing a start-
up, acquiring a franchise or joining a multi-level marketing network. However, one
must not forget that buying an existing business is another way to become an
entrepreneur.
Buying an established business is not as easy as it may seem. First of all, you need to
consider its advantages and disadvantages.

9.4.1 Advantages

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a) The business is already up and running.
b) It already has existing customers
c) The business has established good rapport with existing suppliers

9.4.2 Disadvantages
a) Buying a business usually requires a large initial investment.
b) The seller may choose not to mention or forget some important details about the
business.
c) Allot of legal papers to process.

9.4.3 Things to consider when buying an Ongoing Business

Buying an existing business can be highly profitable, but it is also complicated. Yet,
with enough patience, enthusiasm and diligence, you could discover real goldmine and
take yourself one step closer to financial freedom.

9.5 FRANCHISING
Is a system of distribution in which semi-independent business owners (franchisees)
pay fees and royalties to a parent business (franchisor) in return for the right to become
identified with its trademark, to sell its products or services, and often to use its
business format and system.

9.5.1 Types of Franchise

There are three basic types of franchising: trade name, product distribution and pure
franchising.

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 a) Trade Name Franchising involves a brand name such as Shell BP, the franchise
purchases the right to use the franchisor’s name.
b) Product distribution Franchising involves a franchisor licensing a franchise to
sell specific product.

9.5.2 Reasons for Franchising

a) To own a business relatively quickly and to identify yourself with an
established product and brand name.
b) To get business experience from the franchisor.
c) To gain access to the business system that has proven record of success.

9.5.3 Drawbacks of buying a Franchise

a) Franchise fees and on-going royalties may be high.
b) Strict adherence to standardized operations
c) Restrictions on Purchasing.

9.5.4 Strategies for Franchise Leadership Development

a) Develop a clear vision and plan

b) Choose your model
c) Examine your current team
d) Get outside help
e) Use technology tools

9.6 FINANCING THE BUSINESS

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Financing a business ensures that funds are made available to initiate or sustain the
business. Funds used to initiate a business are known as capital or seed finance or
equity capital. Businesses face a dilemma in accessing capital.
It is important to the entrepreneur to understand different sources of capital,
expectations and requirement to each. When looking for capital to start the business
and entrepreneur should consider the following factors.
a) The right sources of capital
b) Type of source of finance available
c) Time required to raise finance
d) Creative financing
e) Availability of source of financing information
f) Security
g) Guarantors

9.6.1 Sources
a) Personal versus External
b) Debt verses Equity
c) Venture capital financing

9.6.2 Personal versus External Sources

Personal sources come from personal savings of the entrepreneur. These include one’s
savings, personal assets, and insurance policy.
External sources of finance to the business include:
a) Borrowing from friends and relatives – these funds come from people who are
related to you. Repaying is flexible. However, one can suffer from hidden costs
such as interference and loss of freedom. To minimize this, stick to formal
relationships by signing agreement.
b) Trade credit – a seller allows you to buy a product and delay paying for it
through special arrangement.

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 c) Leasing companies – Renting equipment to businesses without necessarily
selling them off. By leasing and not buying, a business avoids capital
expenditure, but still get the services of that equipment.
d) Hire purchase – an arrangement where equipment is acquired after payment of
an initial installment. The equipment can be used to generate money to pay itself
off.
e) Customers – potential customers can offer financial assistance to start or expand
the business especially something they are interested in such as where forms get
into subcontracting arrangement to produce input.
f) Savings and Credit cooperative societies (SACCO) – people borrow from them to
finance their businesses.
g) Strategic alliances – Firms get into alliances to be able to secure financing.

9.6.3 Debt versus Equity Financing Sources

a) Debt Financing
Debt is a direct obligation to pay something (cash) to someone (investor or lender) in
exchange for having lent the money. An investor will expect to be aid interest, which is
the cost of borrowing. When choosing this source of fiancé, consider the following.
a) Repayment ability
b) Amount required
c) Source of the debt
d) Cost of borrowing (interest rate)
e) Period of payment
f) Mode of payment
g) Collateral or security
h) Management experience.

This source of finance is preferred because of the following.

a) Maintain control and ownership of the company

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 b) Financial freedom
c) More borrowing available
d) Low interest rates reduce the opportunity cost of borrowing

It is not preferred because of the following.

Taxing to pay monthly payments because of the interest rates charged.
Difficulty in obtaining the financing
Heavy use of debt an inhibit growth and development.

Sources of debt financing include:

a) Bank loan
b) Peer to peer lending
c) Trade credit
d) Accounts receivable financing – a short term financing that involves either the
pledge of receivables as collateral for a loan or the sale of receivables (factoring).
Accounts receivable loans are made by commercial banks, whereas factoring is
done primarily by commercial finance companies and factoring concerns.
Factoring is the sale of accounts receivable. Whereas, finance companies are
asset-based lenders that lend money against assets such as receivables, inventory
and equipment.

b) Equity Financing
Equity Financing is the money invested in the business with no legal obligation for
entrepreneurs to pay the principal amount or pay interest on it. Equity investors
purchase part of the business by supplying some of the capital a business requires.
They are interested in the business’s long-term success and future profitability.
Financial equity instruments, which give investors a share of the ownership, may
include:

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 a) Loan with warrants provides the investor with the right to purchase stock at
fixed rate at some future date. Terms of the warrants are negotiable and it
provides for the purchase of additional stocks, such as up to 10 per cent.
b) Convertible debentures are unsecured loans that can be converted into stock.
c) Preferred stock is equity that gives investors a preferred lace among the creditors
in the event the business is dissolved.
d) Common stock is the most basic form of ownership. The vote carries the right to
vote for the board of the directors.

This source of finance is preferred because of the following.

a) No repayment of the money invested by the owners (unless a payoff
agreement is made at the time of investment)
b) It can be an important way of raising finance especially when other forms of
financing attract a high premium.
c) Ones ideas for making the business successful may carry more weight with a
potential equity investor than with a debt investor.
d) It can be a good source of advice and contacts for the growth of the business
as opposed too debt investors who have no contacts with the management of
the business.
The disadvantages of this source of finance include.
a) You give up some control of your business some equity investors may insist
on decision making.
b) Some equity investors do not agree with the ordinary shareholder plans for
the business.
c) Tends to be complicated and may require the advice of layers and
accountants.

Other sources of financing related to equity financing are as follows.

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 a) Public offering where a firm goes public. Such a firm will raise its capital
through sale of securities or shares at a stock exchange or market.
b) Private offering where a firm raises its funs through private placement of
securities or shares. Small ventures owned by family members use this
method of raising funds.

9.6.4 Venture capital

Capital advanced as equity to new or young firm, that is, one, which is unproven.
Unproven means that one needs to provide only the business proposal for financing.
People who provide this capital are called venture capitalists. Venture capitalists are
professional investors who invest in the business, providing capital for start-up, early
stage, or expansion.
Venture capitalists are looking for higher rate of return than would be given by more
traditional investments. They are valuable and powerful source of equity financing for
new business. These experienced professionals provide a full range of financial services
for few or growing businesses including the following.
Capital for start-up and expansion
Market research and strategy for the businesses that do not have their own
marketing department
Management consulting functions and management audit ad evaluation
a) Contact with prospective customers, suppliers, and other important business
people
b) Assistance in negotiating technical agreement
c) Help in establishing management and accounting controls
d) Help in employee recruitment and development of employee agreements
e) Help in risk management and the establishment of an effective insurance
program
f) Counseling and guidance in complying with a myriad of government
regulations.

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9.6.5 Crowd funding
This is a recent financial phenomenon of the twenty first century where funds to start
the business are solicited from the general public. Funds are raised from large number
of people through Internet.

9.6.6 Other Sources of Equity Financing

a) Personal savings
b) Friends and family members’ contributions
c) Partners’ contributions.

9.7 ENTREPRENEURIAL ETHICS

Ethics is a set of principles prescribing a behavioral code that describes what is good
and right or bad and wrong (Kuratko, 2016).
Entrepreneurial ethics are sound business principles to be employed by entrepreneurs
or businessmen as to succeed in life, thereby creating impacts in the society. The
essence of entrepreneurial ethics is to build entrepreneurs; whose activities grow wealth
in any society.
The principles of ethics include:
Beneficence
Autonomy
Justice
Truth-telling
Promise-keeping
An entrepreneurial firm builds its ethical bedrock by adopting the following elements:
Respect: as an entrepreneur building a business, you need to respect yourself and
surround yourself with people you can respect.
Honour
Integrity

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 Customer focus
Results-oriented
Risk-taking
Passion
Persistence.

9.7.1 Relevance of Entrepreneurial Ethics

a) Integrity. Hand
b) Labour. How
c) Clientele. Your
d) Environment. It is difficult

9.7.2 Ethics Reality Check for the Entrepreneur Ethics

a) Entrepreneurs must first recognize that there are ethical dilemmas surrounding
them within the culture of entrepreneurship.
b) They must decide to make ethics a principle value of their business’s objectives and
missions. The entrepreneur today should embrace doing business ethically in order
to improve their standards. Good business ethics should be visible to all who come
into contact with the business. Ethical policies should be included in business plans,
in the business’s mission statements, and in all other business documents.
c) The ethical entrepreneur ought to seek out favourable opportunities to made his or
her ethical commitment bona fide. It is the business of an entrepreneur to
communicate clearly to all, from the initial stages of business, the ethical standards
they enjoy. This entrepreneur will no doubt enjoy both financial success and a
superb reputation.
d) The ethically made entrepreneur should be un-naively aware of the inevitable and
unavoidable tensions in the business world, and anticipate these tensions not with
fear, but with resilience, and so be able to put in place, a reasonable action plan that

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 helps the entire team to deal with these tensions before the situations are actually
encountered. This practice should be included in the business’s plan and mission
and become part of a more formal “ethics training” for all.
e) Not every situation an be anticipated, but the ethical entrepreneur must always keep
an open-door policy so that new and uncommon ethical issues can be worked out as
they arise.
f) The ethical entrepreneur looks for opportunities t o engage the business as a whole
and align them to the community and its needs. His aids in team building and
strengthening interpersonal relationships.
g) The ethical entrepreneur thinks and talks about the ethical values that matter at any
given opportunity. The frantic and elaborate, rapid growth of start-ups makes it
easy to submit to the temptations of malpractices in order to stay alive in this highly
competitive business world. Always keep your objectives clear in front of you and
visible for all to see and acknowledge.
h) The ethical entrepreneur challenges growth and renews the commitment to ethical
practices. Businesses change as they grow, and so to do their work objectives. As
the entrepreneur and his/her business grows, revaluation is important and needed
where ethics is concerned. Ethical values and the commitment to continue ethical
practices must be reworked and re-communicated every time change occurs,
thereby prepping all involved in the business to deal with the changing and
evolving ethical dilemmas.
i) The ethical entrepreneur looks for opportunities to engage the business as a whole
and align them to the community and its needs.

The rewards of being an ethical start-up are many. Personal and business sources is
accomplished, and client and team satisfaction, is the most prominent benefit for all.
Everyone feels better about themselves and the butterfly effect happens magically as
everyone freely and satisfyingly chose to act ethically in their dealings with others.

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For the individual entrepreneur, a reputation for much needed ethical practices can
place your business on the top lists of ethical businesses with which others will
unhesitatingly choose to do business with, increasing your opportunities for successful
business partnerships. It is imperative, hat the entrepreneur today understand that the
business they run has responsibilities too everyone.

9.7.3 Ethical Issues in Business

a) Fraud
b) Scandals
c) Mistrust among executives

9.7.4 Establishing a Strategy for Ethical Enterprise

a) Ethical Code of Conduct: A statement of ethical practices or guidelines to which an

enterprise adheres. These codes cover a multitude of subjects, ranging from misuse
of corporate assets, conflict of interest, and use of inside information to equal
employment practices, falsification of books or records, an antitrust violation.
b) Ethical Responsibility: Entrepreneurs need to analyze the ethical consciousness of
their enterprises, the process and structure devised to enhance ethical activity, and
their own commitment to institutionalize ethical objectives within the enterprises.
Keeping these points in min, entrepreneurs eventually can start to establish a
strategy for ethical responsibility. This strategy should encompass:

i) Ethical Consciousness: an entrepreneur creates ethical consciousness through

his/her vision and mission of creating the enterprise. An open exchange of issues
and processes within the enterprise, established codes of ethics for the enterprise,
and the setting of examples by the entrepreneur are all illustrations of how this is
done.

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 ii) Ethical process and Structure: these are procedures, opposition statements
(codes), and announced ethical goals designed to avoid ambiguity. Having all
key personnel read the enterprise’s specific ethical goals and sign affidavits
affirming their willingness to follow those policies is a good practice for
enterprises.
iii) Institutionalization: A deliberate step to incorporate the entrepreneur’s ethical
objectives with the economic objectives of the enterprise. At times, an
entrepreneur may have to modify policies or operations that become too intense
and infringe on the ethics of the situation.
9.8 LEGAL FORMS OF BUSINESS
This refers to the type of ownership of the business by the entrepreneurs which in
essence is the legal structure of the enterprise. An entrepreneur needs to choose the
right legal form of ownership for his or her risk profile.

Prospective entrepreneurs need to identify the legal structure that will best suit the
demands of the enterprise. The necessity of this derives from:
Changing tax laws
Liability situations
The availability of capital
a) Complexity of business formation.

When examining these legal forms of business, entrepreneurs need to consider the
following factors:
a) How easily the form of business organization can be implemented
b) Entrepreneur’s vision regarding the size and nature of the enterprise
c) The amount of capital required to implement the form of business organization
d) Legal considerations that might limit the options available to the entrepreneur
e) The tax effects of the form of organization selected
f) The potential liability to the owner of the form of organization selected.

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 g) Level of structure an entrepreneur needs to deal with
h) Expected profit or loss of the business
i) Management and control of the business
j) Transfer of ownership
k) Government regulations
l) Merits and demerits of each of the business types.

In deciding on the nature of the business organization to engage in, the entrepreneur
should make his or her choice from the list of business available considering the merits
and demerits of each one of them. These businesses include:
a) Sole proprietorship
b) Partnership cooperative society
c) Limited liability companies or Joint stock companies.

9.8.1 Sole Proprietorship

A sole proprietorship is a business that is owned and operated by one person. The
enterprise has no existence apart from its owner. This individual has a right to all of the
profits and bears all of the liability for the debts and obligation of the business. A sole
proprietor has unlimited liability, which means that his or her business and personal
properties stand behind the operation. If the business cannot meet its financial
obligations, the owner may be forced to sell the personal properties and whatever assets
would satisfy the creditors.

To establish a sole proprietorship form of business, one merely needs to acquire

whatever local and state licenses are necessary to begin operations. If the proprietor
selects a fictitious or assumed name, he or she also must file a certificate of assumed
business name with the county. In ease of formation makes it most widely used legal
form of business ownership.

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a) Features of Sole Proprietorship
These areas the six distinguishing features of sole proprietorship that include:
i) Unlimited liabilities
ii) The business is self-managed
iii) The proprietor is the sole provider of the business finance either through
borrowing or from past savings.
iv) A sole proprietor is responsible for all debts
v) A sole proprietor is the sole owner of the business income and profit.
vi) A sole proprietor takes the business decision all alone.

b) Merits of Sole Proprietorship

Some of the merits associated with sole proprietorships are as follows:
i) Ease of formation. Less formality and fewer restrictions are associated with e
stablishing a sole proprietorship than with any other legal form. A sole
proprietorship needs little or no governmental approval, and it usually is less
expensive than any other forms of legal business ownership.
ii) Sole ownership of profits. A sole proprietor is not required to share profits with
anyone.
iii) Decision-making and control vested in the owner. No co-owners or partners
must be consulted in the running of the operation.
iv) Flexibility. Management is able to respond quickly to business needs in the
form of day to day management decisions as governed by various laws and
good sense.
v) Relative freedom from government al control. Except for requiring the
necessary incenses, very little governmental interferences occurs in the
operation.
vi) Freedom from corporate business taxes. A sole proprietor is t axed as an
individual taxpayer and not as businesses.

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 vii) Quick decision making. No consultation with others when making decisions of
the business.
viii) Formality. There is not much formality before the business can be dissolved.

c) Demerits of Sole Proprietorship

Sole proprietorship form of business also has demerits. Some of these are discussed
below:
i) Unlimited liability. The individual sole proprietor is personally
responsible for all business debts. This liability extends to all of the
proprietor’s assets.
ii) Lack of continuity. The enterprise may be crippled or terminated if the
owner becomes ill or ides.
iii) Less available capital. Ordinarily, sole proprietorships have less available
capital than other types of business ownership.
iv) Relative difficulty obtaining long term financing.Because the enterprise
rests exclusively on one person, it often has difficulty raising long term
capital.
v) Relatively limited viewpoint and experience. The operation depends on
one person, and this individual’s ability, training, and expertise will limit
its direction and scope.
vi) Long working hours. A sole proprietor puts in long working hours and
sometimes sacrifices his or her gains for the business.
vii) Risk bearing and losses. A sole proprietor bears risks, responsibilities and
losses associated with business alone.

9.8.2 Partnership
Partnership form of business according to Partnership Act of 1980 is defined as a
relationship or an association of two or more persons who act as co-owners of a

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business for profit. Each partner contributes money, property, labour, or skills, and
each shares in the profits (as well as losses) of the business.

Although not specifically required, written articles of partnership are usually executed
and are always recommended. This is because, unless otherwise agreed to in writing,
the courts assume equal partnership – that is, equal sharing of profits, losses, assets,
management, and other aspects of the business.
The partnership agreement stipulates the following guidelines of the business:
i. Financial contributions of each partner
ii. The profit (or losses) sharing ratio
iii. Duration of agreement
iv. Type of partner: general or limited, active or silent
v. Sharing of salaries
vi. Settlement of disputes procedures
vii. The nature of the business
viii. In the event of dissolution, how the assetsor liabilities of the business will be
shared
ix. Where the books and the records of partnership will be kept
x. Admission of new partners
xi. Death of a partner (dissolution and windup)
xii. Authority (individual partner’s authority on business conduct)
xiii. Whether drawings will be made from the business funds by the partners and at
what interest rate
xiv. Additions, alternations, or modifications of partnership.

a) Types of Partners
The two main types of partners are as follows:
i. General Partner. A partner whose liability is unlimited and who
participate actively in the day today running of the business activities.

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 ii. Limited Partner. A partner whose liability is limited to the inti al
investment made in the business. In the event of bankruptcy, he or she
does not participate actively in the management of the partnership.
b) Merits of Partnership
i) Ease of formation: Legal formalities and expenses are few compared to a
company.
ii) Flexibility in decision making: Different types of partners involved in the
business, their decisions can easily be altered.
iii) Pooling of resources together: Partners can easily raise the required funds for the
business through contributions unlike in the sole proprietorship.
iv) Application of special skills: a wide variety of technical and intellectual
knowledge can be tapped from different partners.

c) Demerits of Partnership
i) Unlimited liability of at least one partner: Though some partners can have
limited liability, at least one must be a general partner who assumes unlimited
liability.
ii) Lack of continuity: if any partner dies, is adjudged insane, or siply withdraws
from the business, the partnership arrangement ceases.
iii) Relative difficult obtaining large sums of capital: Most partnerships have some
problems raising capital, especially when long term financing is involved.
iv) Bound by the acts of just one partner: A general partner can commit the
enterprise to contract and obligations that may prove disastrous to the
enterprise.

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9.8.3 Limited Liability Company
A legal entity that subscribes it shares at the stock market. An entity that is formed by
between two to infinity number of the people. Limited liability companies exist in two
forms, namely, private and public.

A private limited company is a legal entity that is formed by exclusively members of

one family and range between two to fifty members in number. Whereas public limited
liability company is made up of between seven to infinity members.
The following documents are required for the company registration:
i) Memorandum of Association
ii) Articles of Association
iii) List of members who have consented to act as directors
iv) Statement of the nominal or authorized capital

a) Features of Limited Liability Companies

The main features of the limited liability companies include:
i) A company’s legal entity that has perpetual succession
ii) A company once incorporated become a legal entity, meaning that it can sue or
be sued
iii) Subscribe shares at the stock exchange
iv)Limited liabilities
v) Public limited liability companies release their financial statement too the public
twice a year.

b) Merit of Limited Liability Company

Some of the merits associated with limited liability companies are as below
i) Limited liability. The shareholder’s liability is limited to the individual’s
investment. This is the most money the person an lose.

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 ii) Transfer of ownership. Ownership an be transferred through the sale of shares
to the interested buyers.
iii) Unlimited life. The company has a life separate and distinct from that of its
owners and can continue for an indefinite period of time.
iv) Relative ease of securing capital in large amounts. Capital can be sourced
through the issuance of securities and shares of stock and through short term
loans made against the assets o the business or personal guarantees of the
major stockholders.
v) Increased ability and expertise. The company is able to draw on the expertise
and skills of a number of individuals, ranging from the major shareholders to
the professional managers who are brought on board.
vi) Perpetual succession. The company continues to exist even when some
shareholders withdraw from it.
vii) Company is legal entity. The company has the right to sue or hold shares in
another company.

c) Demerits o Limited Liability Company

Limited Liability companies have disadvantages. Some of these are shown below:
i) Formations Cost. The cost of forming a limited liability company is high.
ii) Activities of the company. The activities of the limited liability companies are
subject to the statutory bodies for the publishing of their annual accounts.
iii) Double taxation. Income taxes are levied both on company’s profit and on
individual salaries and dividends.
iv) Regulation. Extensive government regulations and reports required by the
county and the state agencies often result in a great deal of paperwork and red
tape.
v) Lack of representation. Minority shareholders are sometimes outvoted by the
majority, who force their will on the others.

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vi) Activity restrictions. Company’s activities are limited by the charter and various
laws.
vii) Complication in the transfer of ownership. Transfer of the ownership through
shares an communicate matters thereby making the management of the
company inefficient.

9.9 Summary
The session embarked on acquiring business, buyng an
ongoing business, franchising, financing the business and
entrepreneurial ethics and legal forms of business. All this
aimed at expanding and growing the business.

9.10 Review Activity

i) Explain THREE ethical issues you know?
ii) Describe THREE legal forms of business.

9.11 References and Further Reading

i. Hirsch, R.D., Peters, M.P. & Shepherd,D.A.(2014).
Entrepreneurship, 8th Edition. Boston, U.S.A:
McGraw Hill Education (ISBN: 987-0073530321).
Ch. 2,5,6 11-12.
ii. Kuratko, D. F. (2016). Entrepreneurship: Theory,
Process and Practice, 10th Edition. Boston, MA, USA:
CENGAGE Learning (ISBN-13: 978-1285051758).
Ch.12
iii. iii)Scarborough, M.N.(2015). Essentials of
Entrepreneurship and Small Business management, 8th
Edition. Ch.5,11-13.

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