ENTREPRENUERSHIP AND

SMALL MANAGEMENT
(Mgmt 3041
 CHAPTE ONE
FUNDAMENTALS OF ENTREPRENUERSHIP
 Outline Of The Chapter
• Concept Of Entrepreneur, Entrepreneurship
• Evolution Of Entrepreneurship
• Characteristics Of Entrepreneur
• Type And Classification Of Entrepreneurs
• Myths Of Entrepreneurship
• Role Of Entrepreneurship In Economic Development
• Creativity, Innovation, And Entrepreneurship
• Barriers To Entrepreneurship
 Definition Of Entrepreneur
 There is no universally accepted definition of
entrepreneurship.
 The word entrepreneur originated from a 17th century
French word, Entreprendre, which means, “to
undertake”.
• Merriam-Webster:
– “one who organizes, manages and assumes the risks of
a business or enterprise.”
• Dictionary.com:
– “a person who organizes and manages any enterprise,
especially a business, usually with considerable
initiative and risk.”
• Entrepreneur is a person of very high aptitude who
pioneers change, possessing characteristics found in
only a very small fraction of the population.
• A person who owns, operates, and takes the risk of
starting a business venture.
• They are often motivated by a spirit of independence
which leads them to believe that their success depends
on raw effort and hard work, not luck.

 Discussion
Why entrepreneur Matters?
 Entrepreneurs—Challenging the Unknown
• Entrepreneurs
– Recognize opportunities
where others see chaos or confusion
– Are aggressive catalysts for
change within the marketplace
– Challenge the unknown
and continuously create the future
 Definition Of Entrepreneurship
• Entrepreneurship is the process of creating something
new with value by devoting;
– the necessary time and effort,
– assuming the accompanying financial, physic, and social risk,
and
– receiving the resulting rewards of monetary and personal
satisfaction and independence.
• J. Schumpeter 's definition of entrepreneurship placed an emphasis on
innovation, such as:
– new products
– new production methods
– new markets
– new forms of organization
 Wealth is created when such innovation results in new demand.
• Discuss your basic understanding of entrepreneurship as an
occupational choice
 Definition of enterprise
• An enterprise is the business organization that provides;
– goods and services, creates jobs, contributes to national
income, exports and overall economic development.
• Enterprise involves measures to encourage individuals
to become entrepreneurs and equip them with the
necessary skills to make a business successful (Mason,
2000)
• In essence, enterprise is about spotting opportunities,
creating new ideas and having the confidence and
capabilities to turn these ideas into working realities
(Nixon, 2004)
• It combines creativity, ideas development and problem
solving ability and skill.
 Key Concepts

• Entrepreneurship
– A process of innovation and new-venture creation
through four major dimensions:
• individual,
• organizational,
• environmental,
• Process that is aided by collaborative networks in
government, education, and institutions.
• Entrepreneur
– A catalyst for economic change who uses purposeful
• searching,
• careful planning, and
• sound judgment when carrying out the entrepreneurial
process.
 Evolution Of Entrepreneurship
• Entrepreneurship is not a one time phenomenon; it occurs
over time
• It is not a 20th or 21st century phenomenon; although it is
more popular.
• The concept of Entrepreneurship has been around for a
long time.

 Earliest Period
 Middle Ages
 17th Century
 18th Century
 19th Century
 20th Century &
 21st century
 Earliest Period
• Early 14th century references to the entrepreneur stage
spokes about tax contractor, individual who paid a
fixed sum of money to a government for the licence to
collect taxes in their region.
• Tax collector bore the risk of collecting individual taxes.
– If they collected more than the sum paid for their licences,
they made profit & kept the excess.
– If they failed to collect enough to match the cost of their
licenses, they made loses.

• Marco polo, as a go-between was an Italian he wants to

trade routes to the far east.
As a go-between, he had to
sign a contract with a
money person (capitalist) to
sell his goods- for
merchant adventurer:

In the contract merchant

adventurer took a loan to
pay interest of 22.5 % for
the loan including
insurance.

When the merchant adventurer

generate profit from sell
capitalist would gain 75% of
Profit and trader would end up
getting 25 % of income.
 Middle period

• Entrepreneur used to describe both

as an actor and a person who
managed large production projects.
• A typical entrepreneur in the
middle age was the priest.
• The person in charge of great
architectural works used
to build castles and fortifications,
abbeys, and cathedrals.
 17th century

• The connection of the risk with entrepreneurship developed in

the 17th century.
• An entrepreneur was a person who entered into a contract with
the government to perform a service of supply of stipulated
products.
• Jonh law, a Frenchman was one of the entrepreneur in that
period; The founder of the royal bank of France and the
Mississippi company, which had an exclusive franchise to trade
between France and the new world
• Monopoly on French trade eventually led to collapse
of the co.
• R. Cantillion, a well-known English economist at the
beginning of the 17th century understood Law’s
mistake.
• He viewed the entrepreneur as a risk taker, observing
that merchants, farmers, craftsmen, and others sole
proprietors ”buy at a certain price and sell at an
uncertain price, therefore operating at a risk.”
18th century- the of spread of industrialization
– In the 18th c, the person with capital was differentiated
from the one who needed capital.
– The entrepreneur was distinguished from the capital
provider.
» One reason for this differentiation was, the
industrialization occurring throughout the world.
– Eli Whitney was an American inventor best known of
inventing the cotton gin.
» This was one of the key inventions of the industrial
revolution.
– Thomas Edison, the inventor of many inventions.
» He was developing new technologies and was
unable to finance his invention himself
– Edison was capital user (an entrepreneur), not provider
(a venture capitalist.)
 19th century and 20th centuries

– In the late 19th and early 20th centuries,

entrepreneurs were frequently not distinguished
from managers and were viewed mostly from an
economic perspective.
– The entrepreneur organizes and manages an
enterprise for personal gain.
– Andrew Carnegies is one of the best example of this
definition.
– Carnegie, who descended from a poor Scottish
family, made the American steel industry one of the
warders of the industrial world.
 In the middle of the 20th century

• The function of entrepreneurs is to recreate or

revolutionize the patters of production by introducing
an invention.
• Edward Harriman, who reorganized the railroad in the
united states
• John Morgan, who developed hi large banking house by
reorganizing and financing the nation’s industries.
• Traditional technologies innovations (translators,
computers, lasers) that are usually associated with the
word invention.
 21st century
• During the present century two characteristics are
associated with the entrepreneur they are
• innovation and creativity.
– Creativity is the ability to bring some thing new into
existence.
– While innovators are practical people and create from
the opportunities available in reality.
– Following principles of innovation have emerged
leading to success of entrepreneur :
a. Action oriented and searching for new ideas
b. Making the product service simple and understandable
c. Trying, testing and revising
d. Learning from failures
e. Hard work is the key to success
 Characteristics Of Entrepreneur
• The ability to learn from others – entrepreneurs tend to be good at
networking.
• Self confidence – a belief in their own abilities and ideas.
• Being innovative/inventive – being able to generate ideas, either
for new products/services or new ways of applying them.
• Self motivation and determination – the drive to keep going and
see things through.
• Showing initiative – it is necessary to have not only the ideas for
the business, but also the detailed plans to achieve objectives (both
thinking and doing).
• Analytical abilities – capable of researching and evaluating each
aspect of the business, from development, through finance,
production, to marketing and sales.
• The ability to make decisions and to take considered risks.
• A focus on results that ensures products are sold for a profit.
• Feels a Sense of Ownership: Taking responsibility for getting things done –
and doing them with care and attention – means to act like an owner.
• Able to Communicate: Entrepreneurs recognize that the most important part
of any business is the human element.
• Team Player: interpersonal synergy and dynamic relationships.
• System-Oriented: Entrepreneurs rely upon systems before they rely upon
people, and they look for system based solutions before searching for human
resource solutions.
• Dedicated: Target a goal, clarify the objective, refine the brand, and narrow the
margin of error.
• Grateful: who are grateful appreciate what they are given. They respect it and
nurture it.
• Optimistic: the optimism and positive mindset of an entrepreneur, helping to
give impetus/energy and momentum for greater accomplishments and increased
hopefulness.
• Gregarious: entrepreneurs tend to be socially outgoing. They get excited about
sharing ideas, products, and services, and that excitement is
contagious/communicable to their employees, clients, friends, and other
contacts both within and beyond the business sphere.
 Distinction Between Entrepreneur And Manager
Entrepreneur
• An entrepreneur is involved with the start-up process
• An entrepreneur assumes financial, material and
psychological risks
• An entrepreneur is driven by perception of opportunity
• An entrepreneur initiates change
• An entrepreneur is his own boss
• An entrepreneur gets uncertain reward
• Entrepreneurs are more concerned with the launching
and sustainability of a business in the face of uncertainty
• Entrepreneurs are generalist. They need to know a little
about everything.
  Manager
• The job of a manager begins only after the entrepreneur has done the
ground work
• Managers are more concerned with the effective and efficient operation
of an on-going business.
• Managers are thoroughly trained in school in the area of business
management.
• To managers, security is the utmost priority- which comes in the form of
a steady paycheck, pension, gratuity, pay raises, job titles, promotions,
• A manager is simply an employee that works in the entrepreneur’s
business
• The managers reward come in form of salaries, pay offs, promotion, job
title, bonus and incentives.
• Managers are conservative and detest risk; they simply avoid it.
• Managers avoid mistakes because it will cost them their job.
• Managers on the other hand are motivated by the next paycheck, bonus,
incentive, pay off, job title and promotion.
 Type And Classification Of Entrepreneurs
I. According to the Type of Business
 Business Entrepreneur:
• individuals who conceive an idea for a new product or service
• creates a business to materialize their idea into reality.
 Trading Entrepreneur:
• undertakes trading activities and is not concerned with the
manufacturing work.
– identifies potential markets,
– stimulates demand and creates a desire and interest among buyers
 Industrial Entrepreneur:
• Is essentially a manufacturer
• a product-oriented man/woman with possibility of making some
new product.
 Corporate Entrepreneur:
-A person who demonstrates his/her innovative skill in organizing and
managing corporate undertaking.
- A corporate undertaking is a form of business organization, which is
registered under some statute or Act, which gives it a separate legal
entity.
- A corporate entrepreneur is thus an individual who plans, develops and
manages a corporate body.
 Agricultural Entrepreneur:
- Entrepreneurs who undertake agricultural activities as raising and
marketing of crops, fertilizers and other inputs of agriculture.
-They are motivated to raise agriculture through mechanization, irrigation
and application of technologies for dry land agriculture products.
II. According to the Technology use
 Technical Entrepreneur:
o Concentrates more on production than marketing.
o He/she demonstrates his/her innovative capabilities in matter of
production of goods and rendering of services.
 Non-technical Entrepreneur:
- Not concerned with the technical aspects of the product
- They are concerned only with developing alternative
marketing and distribution strategies to promote their business.
 Professional Entrepreneur:
- Is a person who is interested in establishing a business, but does not
have interest in managing or operating it once it is established.
- A professional entrepreneur sells out the running business and
starts another venture with the sales proceeds/earnings.
III. According to the Entrepreneur and Motivation
 Pure Entrepreneur
– Is an individual who is motivated by psychological and economic
rewards.
– He undertakes an entrepreneurial activity for his personal
satisfaction in work, ego or status.
 Induce Entrepreneur
– Who encouraged to take up an entrepreneurial task due to the policy
measures of the government that provides assistance, incentives,
concession and necessary overhead, facilities to start a venture.
– enter business due to financial, technical and several other facilities
provided to them by the state agencies to promote entrepreneurship.
 Motivated Entrepreneur
– New entrepreneurs are motivated by the desire for self-fulfillment with the
possibility of making and marketing some new product for the use of
consumers.
– If the product is developed to a saleable stage, the entrepreneur is further
motivated by reward in terms of profit.
 Spontaneous Entrepreneur
– They are persons with initiative, boldness and confidence in their ability,
which activate them, underage entrepreneurial activity.
– Such entrepreneurs have a strong conviction and confidence in their inborn
ability.
IV. According to the Growth and Entrepreneur
 Growth Entrepreneur:
• who necessarily take up a high growth industry, which has substantial growth
prospects.
 Super-Growth Entrepreneur:
• Who have shown enormous growth of performance in their venture.
• The growth performance is identified by the liquidity of funds, profitability and
gearing/equipment.
V. According to the Entrepreneur and Stages of Development
 First-Generation Entrepreneur:
• Is one who starts an industrial unit by innovative skill.
– essentially an innovator, combining different technologies to produce a marketable
product or service.
 Modern Entrepreneur:
• Is one who undertakes those ventures, which go well along with the changing
demand in the market.
• They undertake those ventures, which suit the current marketing needs.
 Classical Entrepreneur:
• Is one who is concerned with the customers and marketing needs through the
development of a self-supporting venture.
 Myths Of Entrepreneurship
(a) Entrepreneurs are born, not made
• According to this myth, the characteristics of entrepreneurs cannot be taught
or learned, they are innate traits with which a person must be born.

– Do you agree with this myth?

– Discuss about the present philosophy of entrepreneur.

(b) Entrepreneurs are academic and social misfits

• The belief that entrepreneurs are academically and socially ineffective is
born of some business owners having started successful enterprises after
dropping out of school or quitting a job.

– What is your view toward present entrepreneurs; socially,

economically and academically?
– Is entrepreneur a professional?
1.7 Entrepreneurs, Intrapreneuers, And Ultrapreneurs
 Entrepreneur:
 takes substantial risk
 the owner and operator of a business
 with expectations of financial profit and other rewards that the business may generate
 Intrapreneuer:
 is an individual employed by an organization for remuneration
 share the same traits as entrepreneurs such as conviction, zeal and insight.
 it will reveal the gap between the philosophy of the organization and the employee.
 Distinction between Entrepreneur and Intrapreneur
 Entrepreneur raises their funds on his own initiative; intrapreneur depends upon the
industry in which he works for getting the finance
 Entrepreneur takes the profit of the business; intrapreneur does not take profit out of
innovation but he can be provided with a variety of perquisite for their innovation
 Entrepreneur is the real owner of the business; intrapreneur is not the real owner of the
business, rather he works for the business
 Entrepreneur operates from outside an organization; intrapreneur operates from within
the organization.
 Ultrapreneurs
 The Definition of Ultrapreneur; from an etymological standpoint- break the word
• Ultra – From the Greek meaning ‘beyond’
• Preneur – From the French word ‘prendre’ meaning to ‘undertake’
From academic perspective the term Ultrapreneur is deifined as: ‘An individual who goes
beyond their initial undertaking’.
According to James B. Arkebauer, the concept of ultrapreneur is to identify a
business
opportunity, determine its viability and form a company; then develop, produce and
market the product or service.
• Characteristics of ultrapreneur;
– Achievement - action orientation
– Commitment - energy
– Goal setting - growth orientation
– Honesty - innovation
– Intelligence - leadership
– Risk tolerance - self-confidence
 Role Of Entrepreneurship In Economic Development
1) Promotes Capital Formation:
. By mobilising the idle savings of public.
They employ their own as well as borrowed resources for setting up their enterprises.
2) Creates Large-Scale Employment Opportunities:
. play an effective role in reducing the problem of unemployment in the country
which inturn clears the path towards economic development of the nation.
3) Promotes Balanced Regional Development:
. remove regional disparities through setting up of industries in less developed and
backward areas; Which lead to a large number of public benefits like road
transport, health, education, entertainment, etc
4) Reduces Concentration of Economic Power:
. it will help to reduce the concentration of economic power in the hands of a few
individuals which results in the growth of monopolies.
5) Wealth Creation and Distribution:
. It stimulates equitable redistribution of wealth and income in the interest of the
country to more people and geographic areas, thus giving benefit to larger sections
of the society.
6) Improvement in the Standard of Living:
. by adopting latest innovations in the production of wide variety of goods and services
which enables the people to avail better quality goods at lower prices
Creativity, Innovation And Entrepreneurship

 Why do organisations adopt a proactive attitude

towards innovation and the creation of new
ventures?
 Discuss the importance of creativity and
innovation for entrepreneurs, Strategies to
encourage creativity and innovation
 What is the entrepreneur’s secret for creating
value in the marketplace?
 Creativity

 Creativity “…involves the development of UNIQUE

and NOVEL responses to problems and opportunities
 A combination of elements: intellectual abilities,
knowledge, styles of thinking, personality, motivation,
and environment.
 Creativity is thinking new things
 Modeling creativity

• The Creative Process

1. - Idea Germination (Seeding stage of new ideas)/ Recognition

2. - Preparation (Conscious search for new ideas)/

Rationalization
3. - Incubation (Subconscious assimilation information)/
Fantasizing
4. - Illumination (Recognition of ideas as being feasible) /
Realization
5. - Verification (Application or test to prove ideas has value).
Validation
 Barriers to Creativity
• Roger Von Oech (1990) identifies ten “mental locks‟ that limit individual
creativity:
1. Searching for the one “right” answer.
2. Focusing on being logical.
3. Blindly following the rules.
4. Constantly being practical.
5. Viewing play as frivolous.
6. Becoming overly specialized.
7. Avoiding ambiguity.
8. Fearing looking foolish.
9. Fearing mistakes and failure.
10. Believing that “I am not creative”.
Research shows that successful entrepreneurs are willing to take some risks,
explore new ideas, constantly ask “what if?” and learn to appreciate ambiguity.
By doing so, entrepreneurs can develop the skills, attitudes and motivation that
make them much more creative – one of the keys to entrepreneurs is ‟successful
performance”.
 Innovation
– Ability to apply creative solutions to problems and opportunities
– Doing new things
– Innovation is intrinsically about identifying and using
opportunities to create new products, services, or work practices
(Van de Ven, 1986).

 creativity is thinking new things, and innovation is doing new

things.
 Barriers to Entrepreneurship
– Lack of viable concept
– Lack of market knowledge
– Lack of seed capital
– Lack of technical skill
– Lack of business know how
– Lack of motivation
– Social stigma
– Legal constraints
– Monopoly/protection
 The Ethiopian Case In
Entrepreneurship Development

»Assignment
• Evaluate ; criticize and recommend Ethiopian
case entrepreneurship