Entrepreneurship

Chapter One

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 Definitions and Meanings of Risk
 Risk and Probability

 Risk and Uncertainty

 Distinction of Risk from Peril and Hazard

 Classes of Risk

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 Chapter One
1.1 Historical Origin of Etnrepreneurship

The word ‘entrepreneur’ is derived from a French word,

entreprender, where an entrepreneur was an individual
commissioned to undertake a particular commercial project.

Entrepreneurship is then what the entrepreneur does.

During the ancient period the word entrepreneur was used to

refer to a person managing large commercial projects
through the resources provided to him.

Copyright AAUSC 2011 3

 Cont’d
In the 17th Century a person who has signed a contractual
agreement with the government to provide stipulated
products or to perform service was considered as
entrepreneur.

In the 18th Century the first theory of entrepreneur has

been developed by Richard Cantillon.

He said that an entrepreneur is a risk taker.

The other concept in this century was - differentiation of

the entrepreneurial role from capital providing role.

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 Cont’d
In the late 19th and early 20th Century an entrepreneur was
viewed from economic perspectives.
The entrepreneur organizes and operates an enterprise for
personal gain.
In the middle of the 20th Century the notion of an
entrepreneur as an inventor has established.
“The function of the entrepreneur is to revolutionize the
pattern of production by exploiting an invention or more
generally untried technological possibility for producing
new commodities or producing an old one in a new way or
opening a new outlet for products by reorganizing a new
industry.”
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 1.2. Definitions of Entrepreneurship
and Entrepreneur
D1: Entrepreneurship is the process of identifying
opportunities in the market place, arranging the resources
required to pursue these opportunities and investing the
resources to exploit the opportunities for long term gains.

D2: Entrepreneurship is the processes through which

individuals become aware of business ownership then
develop ideas for, and initiate a business.

D3: Entrepreneurship can also be defined as the process of

creating something different and better with value by
devoting the necessary time and effort (to be named as an
entrepreneur).
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 Cont’d
D4: Entrepreneurship is the art of identifying viable
business opportunities and mobilizing resources to convert
those opportunities into a successful enterprise through
creativity, innovation, risk taking and progressive
imagination.

Engaging in entrepreneurship shifts people from being

“job seekers” to “job creators”, which is critical in
countries that have high levels of unemployment.

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 Cont’d
In general, the process of entrepreneurship
includes five critical elements. These are:
1) The ability to perceive an opportunity.
2) The ability to commercialize the perceived
opportunity i.e. innovation
3) The ability to pursue it on a sustainable basis.
4) The ability to pursue it through systematic means.
5) The acceptance of risk or failure.

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 Cont’d
Based on the above concepts of entrepreneurship, an
entrepreneur can be defined as follows:
An entrepreneur is 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.

An entrepreneur can also be defined as a professional who

discovers a business opportunity to produce improved or new
goods and services and identifies a way in which resources
required can be mobilized.

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 Cont’d
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

To an economist an entrepreneur is one who brings

resource, labor, materials, and other assets into
combination that makes their value greater than before and
also one who introduces changes innovations.
To a psychologist an entrepreneur is a person typically
driven by certain forces need to obtain or attain something,
to experiment, to accomplish or perhaps to escape the
authority of others.

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 Cont’d
For the capitalist philosopher an entrepreneur is one who
creates wealth for others as well, who finds better way to
utilize resources and reduce waste and who produce job
others are glad to get.

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 Types of Entrepreneurs
1. The individual entrepreneur: An individual entrepreneur is
someone who started; acquired or franchised his/her own
independent organization

2. Intrapreneur: An Intrapreneur is a person who does

entrepreneurial work within large organization.

3. 3. The Entrepreneurial Organization: The entrepreneurial

function need not be embodied in a physical person

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 Role of Entrepreneurs in Economic
Development
1. Improvement in per capital Income/Wealth Generation:

2. Generation of Employment Opportunities

3. Inspire others Towards Entrepreneurship

4. Balanced Regional Development

5. Enhance the Number of Enterprise:

6. Provide Diversity in Firms

7. Economic Independence

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 Role of Entrepreneurs …. Cont’d
8. Combine Economic factors – three primary factors (Raw
materials, Physical and mental labor, Money)

9. Provide Market efficiency

10. Accepting Risk

11. Maximize Investor’s Return

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 Entrepreneurial Competence and
Environment - Entrepreneurial Mindset
Who can be an entrepreuneur

1.The Young Professional

2.The Inventor

3.The Excluded

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 Qualities of an Entrepreneur
1. Opportunity-seeking
2. Persevering
3. Risk Taking
4. Demanding for efficiency and quality
5. Information-seeking
6. Goal Setting
7. Planning
8. Persuasion and networking
9. Building self-confidence
10. Listening to others
11. Demonstrating leadership
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 Qualities of an Entrepreneur

1. Opportunity-seeking
2. Persevering – not discouraged by uncertainties, risks,
obstacles
3. Risk Taking
Set their own objectives where there is moderate risk of
failure and take calculated risks, Gain satisfaction from
completing a job well, Not be afraid of public opinion,
skepticism, Take responsibility for their own actions
Importance of Risk-taking
Build self confidence, Create a feeling of leadership, Create
strong motivation to complete a job well

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 Qualities … cont’d

4. Demanding for Efficiency and Quality

-Quality - A characteristic of the product or service that
makes it fit to use. It makes a product, process, or service
desirable.
Importance of quality
Reduction of waste, Cost-effectiveness, An increase in
market share, Better profitability, Social responsibility,
Reputation
5. Information-seeking - about their customers, competitors,
suppliers, relevant technology, markets, operations, finance,
legislation, and infrastructure.

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 Qualities …cont’d
6. Goal Setting
A Goal - is a general direction, or long-term aim that you
want to accomplish. It is not specific enough to be measured.
Objectives - are specific and measurable. They are concise
and specific.
An entrepreneur must have a goal and an objective which is
Specific, Measurable, Attainable, Relevant, and Time
bound (SMART).
7. Planning
is making a decision about the future in terms of what, when,
where, how, by whom to do and using what resources.

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 Qualities…cont’d
8. Persuasion and networking
Factors that Affect Persuasion and Networking
• Socio-cultural background and perceptions,
• Communication skills (both verbal and non-verbal).
• Negotiation skills
9. Building self-confidence
Risk-taking, Independent, Able to learn to live with failure, Ability to
find happiness and contentment in work, Doing what you believe to be
right, Admitting mistakes and learning from them
10. Listening to others
11. Demonstrating leadership

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 Entrepreneurial Skills
I) General Management Skills
 Strategy Skill, Planning Skills, Marketing Skills, Financial
Skills, Project Management Skills and Time Management
Skills

II) People Management Skills

 Communication Skills, Leadership Skills, Motivation Skills,
Delegation Skills and Negotiation Skills

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 The Entrepreneurial Tasks
1. General Management Skills

2. Founding New Organizations

3. Bringing Innovations to Market

4. Identification of Market Opportunity

5. Application of Expertise

6. Provision of leadership

7. The entrepreneur as manager

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 Wealth of the Entrepreneur
Who Benefits from the entrepreneur’s Wealth?
 Employees,
 Investors,
 Suppliers,
 Customers,
 Local Community,
 Government

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 Entrepreneurship and Environment
• Business environment refers to the factors external to a business
enterprise which influence its operations and determine its effectiveness.
• Business environment may be healthy or unhealthy.
• “The penalty of environmental disregard is heavy. It not only reduces
profit margins and makes opportunities for expansion slip, but it also
arouses social hostility and makes social environment growingly
inhospitable to business operations.”

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 Phases of Business Environment
I. External Environment: It consists of the structure of the economy, the
industrial, agricultural, trade and transport policies of the country, the growth
and pattern of national income and its distribution, the conditions prevailing in
industrial, agricultural and other sectors, the position relating to balance of trade
and balance of payments, and other miscellaneous conditions of the economy

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 Phases …cont’d
B) Legal Environment:

Business must function within the framework of legal structure. Therefore, an

adequate knowledge of laws and rules is necessary for efficient managerial
performance.

C) Political Environment
Managers and entrepreneurs should understand the working of the political system. Public opinion
is very important and today's public opinion becomes tomorrow's legislation.

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 Phases …cont’d
D) Socio-Cultural Environment
•Itconsist the social and cultural norms of a society
•Shows values, beliefs, norms, fashions and fads of a particular society

•Helps to understand level of rigidity/flexibility of a given society towards a new

product/service/concept.
•Traditional culture should be protected in so far as it is not a hindrance to innovation,
motivation, and development.
E) Demographic Environment
•It assesses the overall population pattern of a given geographical region. (age profile,
distribution, sex, education profile, income distribution)

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 Entrepreneurship and Environment…cont’d
II. Internal Environment
A)Raw Material: It assesses the availability of raw material now and in the near
future.
B)Production/Operation: It assesses the availability of various machineries,
equipment, tools and techniques that would be required for production/operation.
C)Finance: It assesses the total requirements of finance in terms start-up expenses,
fixed expenses and running expenses.
D)Human Resource: This helps in estimating the cost and level of competition in hiring and
retaining the human resources.

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 Environmental Factors Affecting
Entrepreneurship
 Sudden changes in Government policy.
 Sudden political upsurge.
 Outbreak of war or regional conflicts.
 Political instability or hostile Government attitude towards industry.
 Corruption among Government agencies.
 Ideological and social conflicts.
 Unreliable supply of power, materials, finance, labor and other inputs.
 Rise in the cost of inputs and unfavorable market fluctuations.
 Non-cooperative attitude of banks and financial institutions.

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 Creativity, Innovation and
Entrepreneurship
• Creativity is the ability to come up with new idea and to
identify new and different ways of looking at a problem
and opportunities.
Steps in the Creative Process
Step1: Opportunity or problem Recognition
Step2: Immersion - recall and collect information that seems relevant,
dreaming up alternatives without refining or evaluating them.
Step 3: Incubation - the person keeps the assembled information in mind
for a while
Step 4: Insight - the problem-conquering solution flashes into the
person’s mind (the Aha! Experience)
Step 5: Verification and Application - gathering supporting evidence,
using logical persuasion, and experimenting with new ideas.
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 Barriers to 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’m not creative

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 Innovation

It is the implementation of new idea at the individual, group or organizational

level.
Four distinct types of innovation
Invention - described as the creation of a new product, service or process
Extension - the expansion of a product, service or process

Duplication - defined as replication of an already existing product, service or

process
Synthesis - the combination of existing concepts and factors into a new
formulation

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 The Innovation Process

1.Analytical planning: carefully identifying the product or service features, design &
resources that will be needed.

2.Resources organization: obtaining the required materials, technology, human or capital

resources

3.Implementation: applying the resources in order to accomplish the plans

4.Commercial application: the provision of values to customers, reward employees and

satisfy the stakeholders.

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 Areas of Innovation
 New product
 New Services
 New Production Techniques
 New Way of Delivering the Product or Service to the Customer
 New Operating Practices
 New Means of Informing the Customer about the Product
 New Means of Managing Relationship within the Organization:
 New Ways of Managing Relationships between Organizations:

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 From Creativity to Entrepreneurship
 Creativity is the ability to develop new ideas and to discover new ways of
looking at problems and opportunities.
 Innovation is the ability to apply creative solution to those problems and
opportunities in order to enhance people’s lives or to enrich society.
 Entrepreneurship = creativity + innovation

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End of Chapter One!

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