CHAPTER ONE

ENTREPRENEURSHIP

The word ‘entrepreneur’ is widely used, both in

everyday conversation and as a technical term in
management and economics. Its origin from a
French word, entreprender, where an
entrepreneur was an individual commissioned to
undertake a particular commercial project.
A number of concepts have been derived from the
idea of the entrepreneur such as entrepreneurial,
entrepreneurship and entrepreneurial process.
 Definition of Entrepreneurship and Entrepreneur

The concept of entrepreneurship varies from country to country as well

as from period to period and the level of economic development
thoughts and perceptions; a concise and universally accepted
definition has not yet emerged.

Example:
 In the earliest period: An entrepreneur was viewed as a go- between,
who attempt to establish trade routes and signed contracts with many
persons (forerunners of today's venture capitalist) to sell goods.
While the capitalist was a passive risk bearer, the merchant adventure
took the active role in trading, bearing all the physical and emotional
risks.
• In the Middle Ages: The term entrepreneur used
to describe a person managing large production
projects.
• In this case, the person would not take any
risks but would merely manage the project
using the resource provided
Karl Vesper: has researched entrepreneurship and explained that its
nature is a matter of individual perception.
• To an economist: an entrepreneur is one who brings resources;
labor, materials, and other assets in to combination that makes
their value greater than before.
• To a psychologist: such a person is typically driven by behavioral
forces like need to obtain, to experiment, to accomplish
something, or perhaps to escape authority of others.
• To capitalist philosophers: an entrepreneur is the one who creates
wealth for others as well, who finds better ways to utilize
resources and reduce waste and who creates job that others are
glad to get.
Entrepreneurship : Is the process of creating something
different with value by devoting the necessary time and
effort, assuming the accompanying financial, psychic and
social risks, and receiving the resulting rewards of
monetary and personal satisfaction and independence.
Ability of people to bring the necessary inputs together
and produce something valuable.
The process of creating value by devoting resources.
 It is a function of :

seeing investment and production opportunity,

organizing an enterprise to undertake a new
production process,
raising capital, hiring labor, arranging for the
supply of raw materials and
selecting managers for the day to day operation
of an enterprise.
 Generally, entrepreneurship

Is both a science and an art .

Involves vision and passion of innovation and

creation .
Requires willingness to undertake calculated risk.

Involves building a committed and dedicated team.

More over involves accepting challenges, managing

skills and organization of resources.
The Four Key Elements in Entrepreneurship
Vision -Identifying emerging opportunities
Innovation -Doing something new
Risk taking -Assuming different types of risks:
financial, psychological, social
Organizing -Coordinating resources and creating
enterprise.
Based on the above concepts of entrepreneurship,
an entrepreneur can be defined as follows
any person who creates and develops a
business idea and takes the risk of setting up
an enterprise to produce a product or service
which satisfies customer needs

a professional who discovers a business

opportunity to produce improved and
identifies a way in which resources
required can be mobilized.

An entrepreneur is an individual who: has

the ability to identify and pursue a
business opportunity

An entrepreneur is a person who: create

the job not a job-seeker; has a dream, has
a vision; willing to take the risk and makes
something out of nothing
 1.2. Historical origin of of Entrepreneurship

Its origin:
 lies in 17th century France, where an entrepreneur was an
individual commissioned to undertake a particular
commercial project.

Earliest Period:
 In this period, the money person (forerunner of the
capitalist) entered into a contract with the go-between to
sell his goods.
 While the capitalist was a passive risk bearer, the merchant
bore all the physical and emotional risks.
Middle Ages:
 In this age, the term entrepreneur was used to

describe both an actor and a person who managed

large production projects.
In such large production projects, this person did
not take any risks, managing the project with the
resources provided.
A typical entrepreneur was the cleric who managed
architectural projects.
17th Century:

 In the 17th century the entrepreneur was a person who

entered into a contract with the government to perform a
service.
Richard Cantillon, a noted economist of the 1700s,
developed theories of the entrepreneur and is regarded
as the founder of the term.
He viewed the entrepreneur as a risk taker who "buy[s]
at certain price and sell[s] at an uncertain price, therefore
operating at a risk."
18th Century:
 Here, the person with capital was differentiated from
the one who needed capital.
 In other words, entrepreneur was distinguished from
the capital provider.
19th and 20th Centuries:
 Here, entrepreneurs were viewed mostly from an
economic perspective.
 The entrepreneur "contributes his own initiative, skill
and ingenuity in planning, organizing and administering
the enterprise, assuming the chance of loss and gain.
 An entrepreneur is both a risk taker and a
manger.
 1.3 The Process of Entrepreneurship

It has four phases:

I. Identifying and evaluating business

opportunity

II. Developing business plan

III. Determining the resources required for

business and
IV. Managing the enterprise
 PHASE 1: Identifying and Evaluating Business
Opportunity
Sources for business opportunities include:
Consumers
 Business associates.
Channel members of the distribution system-
Retailers,
Wholesalers or
Manufacturer’s
Each opportunity must be carefully screened and
evaluated-this is the most critical element of the
entrepreneurial process.
The evaluation process involves looking at:
The creation and length of the opportunity

Its real and perceived value

Its risks and return.

Its fit with the skills and goals of the
entrepreneur
Its differential advantage in its competitive
environment.
Opportunity analysis, or an opportunity
assessment plan, should focus on the opportunity
and provide the basis to make the decision,
including:
– A description of the product or service
– An assessment of the opportunity
– Assessment of the entrepreneur and the team
– Specifications of all the activities and resources needed
– The source of capital to finance the initial venture..
PHASE 2: Develop a Business Plan
A business plan is a document the entrepreneur
prepares before going to the implementation stage.
It contains description of ;
 The business and the marketing plan,
 Financial plan,
 Organizational plan and
 Operational plans necessary for the foundation of the
venture.
PHASE 3: Determining the Resources Required
Assessing the resources need starts with an
appraisal of the entrepreneur’s present resources.
Resources: Helpful and Critical
Financial resources: Resources which take the
form of or can be readily converted to cash.
Human resource: Qualified personnel who can
efficiently use the facilities using their skills.
Operating Resources: The facilities which allow
people to do their jobs such as buildings, vehicles,
office equipment, machinery, raw materials, etc.
PHASE 4: Managing the Enterprise
Involves:

implementing a management style and

structure,
determining the key variable for success.

developing a control system.

1.4 FORMS OF ENTREPRENEURSHIP
There are different forms of entrepreneurship.

Let us look at each form in detail.

 The individual entrepreneur:

The individual entrepreneur: An individual

entrepreneur is someone who started; acquired
or franchised his/her own independent
organization. The major portion of this module is
also devoted to describe the basic features and
activities of the individual entrepreneur.
 Intrapreneur:

Intrapreneur: An Intrapreneur is a person who

does entrepreneurial work within large
organization. The process by which an
intrapreneur affects change is called
Intrapreneurship
 The Entrepreneurial Organization:

The Entrepreneurial Organization: The entrepreneurial function need not

be embodied in a physical person. Every social environment has its own
way of filling the entrepreneurial function.
1.5 Role of Entrepreneurs in Economic Development

Improvement in per capita Income/Wealth Generation: Generation of

Employment
Opportunities

Inspire others
Provide Market Towards
efficiency, Accepting Entrepreneurship
Risk&Maximize
Investor’s Return:
Combine Economic
factors:
Enhance the Number of
Enterprise:
Economic Independence: Provide
Diversity in
Firms
 1.5. Classifications of Entrepreneurs
According to Types of Business

Classification by Danhof

Classification According to Motivation

Classification According to Use of Technology

 According to Types of Business

1. Business entrepreneur: is an individual who conceive and create an

idea for a new product or service .

2. Trading entrepreneur: is one who undertakes trading activities

(foreign and domestic) and is not concerned with the manufacturing
desire .

3. Industrial entrepreneur: is essentially a manufacturer who identifies

the potential needs of customers and tailors product or service to
meet the marketing needs.

4. Corporate entrepreneur: is a person who demonstrate his

innovative skill in organizing and managing a corporate undertaking.
5. Agricultural entrepreneur: are those entrepreneurs who
undertake such agricultural activities as raising and marketing
of crops, fertilizers, and other inputs of agriculture.

Classification According to Motivation

Motivation is the force that influences the effort of the
entrepreneur to achieve his or her objective.
1. Pure Entrepreneur: - an individual who is motivated by
psychological and economic reward.
 The entrepreneur undertakes the enterprise for his personal
satisfaction.
2. Induced Entrepreneur: -
is the one who is induced to take up entrepreneurial
task due to the policy measures of the government that
provides assistance, incentive and necessary overhead
facilities to start a venture.

3. Spontaneous Entrepreneur-
is one who is motivated by his/her natural talent to
begin a business. These kind of entrepreneurs are very
confident in their natural blessings from God.
 Classification by Danhof

Innovative Entrepreneur: is the one who introduces new goods,

inaugurate new method of production, discovers new market and
recognizes the enterprise.
Imitative Entrepreneurs: imitative entrepreneurs do not innovate
the change themselves, they only imitate techniques and
technology innovated by others.
Fabian Entrepreneurs: Fabian entrepreneurs are characterized by
very great caution and skepticism in experimenting any change in
their enterprises.
Drone Entrepreneurs: these are characterized by a refusal to adopt
opportunity to make change in production
 Classification According to Use of Technology

Technical Entrepreneurs:
• Have technical knowledge regarding innovation of new
products & Concentrate on manufacturing (technical
aspect) rather than marketing
Non technical Entrepreneurs
• Concentrate on developing alternative marketing,
distribution and promotion aspects of their product
rather than manufacturing aspect
Professional Entrepreneurs
• Are interested in establishing a business but doesn’t
have the interest to manage or operate once a business
is established. Professional entrepreneurs sell their
business ideas and look on to creating another business.
 1.6. Entrepreneurial traits

Mental ability: It consists of intelligence and creative

thinking.
Clear objectives: An entrepreneur should have a clear
objective as to the exact nature of the business,.
Should develop SMART objective.
Business secrecy: An entrepreneur must be able to
guard business secrets.
Human relation ability: An entrepreneur must
maintain good relation with d/t stakeholders.
Communication ability: Communication ability is the
ability to communicate effectively with stakeholders.
Technical knowledge: An entrepreneur must have a
reasonable level of technical knowledge.
 Traits cont..
• Clear vision: determining where they want to go
• Persistent problem solving: are not shamefaced by
difficult situation
• Self confidence: successful entrepreneurs have
internal locus of control, they believe in
themselves.
• Seeking feedback and networking: is central to
their learning from their mistakes and setback.
• Tolerance of uncertainty and failure: they do not
become disappointed, discouraged or depressed
by failure.
• Capacity to assume calculated risk:
 1.7. Types of Risks Assumed by Entrepreneurs
Financial Risk: the risk of losing one’s own saving and
entire capital that would result from failures to repay
loans and other financial requirements.
Career Risk: If entrepreneurs fail to be successful, it would
be difficult for them to easily acquire another employment
opportunity.
Psychic Risk: The mind of entrepreneurs is subject to
constant frustration and psychological tensions as to the
fate of their business
Family Risk: The spouses and offspring’s of entrepreneurs
are also subject to certain psychological frustrations in
state of being worried whether their business will fail or
not.
Social Risk:
 Manager and Entrepreneur
• Both make decisions
• Both are visionary
• Both are accountable for their
actions
• Both work under constraints
• Both are organizers
• Both perform management function
 Differences
The main points of difference between the two may be
described as follows:
Primary Motive: The entrepreneur is primarily driven by
innovation, profit and need for independence. On the other
hand, the manager is driven by power and compensation
Focus: Entrepreneurs focus more on exploiting new
opportunities. But managers focus is more on optimizing
the existing resources
Risk taking: An entrepreneur takes calculated risks of a
business venture. He may jeopardize his own financial
security for losses that may occur. By contrast, the manger
does not face the uncertainty of a new venture with its
potential for failure and financial loss. He does not share
any business risks.
 Cont…
Reward: An entrepreneur is motivated by profits while the
manger is motivated by externally imposed goals and
rewards. The gains of an entrepreneur are uncertain and
irregular and can at times be negative. The salary of a
manger is on the contrary, fixed and regular and can never
be negative.
Skills: An entrepreneur needs intuition, creative thinking
and innovative ability among other skills. On the other
hand, a manger depends more on human relations and
conceptual abilities.  
Status: An entrepreneur is self employed and he is his own
boss. On the contrary, a manger is a salaried person and he
is not independent of his employer, the entrepreneur.
 1.8. Why do People Want to Become Entrepreneurs?

Pull factor:
 Opportunity to gain control over your own destiny(i.e.
desire for independence)
 Opportunity to reach your full potential
 Opportunity to reap unlimited profit
 Opportunity to contribute to the society
 Opportunity to turn previous work experience into
business for self and family.
 Financial incentive
Push factor
Community attitude
Unemployment

Disagreement with the previous employer

1.9. Role of Entrepreneurship in Economic Development

Taking to higher rate of economic growth by

creation of value.

Speed up the process of industrial use of the

factors of production.

Creation of employment opportunity

Development of backward and tribal areas.

Improvement of the standard of living of different
weaker section in the society
Bringing social and political change in the society

Develop technological know how

Improve culture of business and expand

commercial activities
Entrepreneurship acts as a change agent to meet
the requirement of the change markets and
customer preferences.
1.10 Entrepreneurship, Creativity and Innovation

Entrepreneurship is adding or creating value.

Creativity
 is the ability to bring something new into existence,
whether a new solution to a problem, a new method, or
device or a new artistic objects or form.
 It is the seed that inspire entrepreneurship
 It is the prerequisite to innovation.
 It is the creation of new idea.
Innovation
 is the transition of creative idea into a useful application.
 It is the process of entrepreneurship.
Creative methods
• Evolution: a method of incremental improvements; new ideas
stem from other ideas, new solutions from previous ones. The
new ones slightly improved over the old ones.
• Synthesis: it is a method of combination. Two or more existing
ideas are combined into a third, new idea.
• Revolution this is a complete and comprehensive change from the
known ones. Sometimes the best new idea is a completely
different one,
• Reapplication: this means looking at something old in a new way.
• Changing direction: many creative breakthroughs occur when
attention is shifted from one angle of a problem to another.
• Note: People become more creative when they feel motivated
primarily by the interest, satisfaction and challenge of the
situation, not by the external pressures.
 End of Chapter One

Thank You Very Much