The Entrepreneur and the Entrepreneurial Venture

1.1 Entrepreneur & Entrepreneurship

Introduction:
Entrepreneurship is widely considered to be a critical factor
in the economic growth of nations, particularly least
developed countries (LDCs) like Ethiopia.
Entrepreneurial input spells the difference between
prosperity and poverty among nations.
Thus entrepreneurship has emerged as one of the priority
agendas of many developing countries.
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 Who is an entrepreneur and what is entrepreneurship ?
Agreed and universally accepted definition has not emerged.
The term entrepreneur derived from the 17th century French word
‘entreprendre’ refers to individuals who were “undertakers,” meaning
those who “undertook” the risk of new enterprise.
WHO IS AN ENTREPRENEUR?
*What profile do we imagine when term entrepreneur is mentioned?
*This raises a number of issues for which we must seek answers to a
variety of questions.
*What is the makeup of entrepreneurs?
*Are entrepreneur born or made?.
*Can anyone become an entrepreneur?
*How do we identify entrepreneurs?
*Can we separate entrepreneurs from non-entrepreneurs?
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*(Adam Smith)
Entrepreneur is a person who only provides capital without taking active
part in the leading role of an enterprise.
*(B. Say)
Entrepreneurs are persons endowed(provided or equipped) with the qualities
of judgment, determination, and knowledge of the world as well as of
business.
*Schumpeter
Entrepreneur is a person who introduces innovative changes.
Entrepreneur is an integral part of economic growth and is a
fundamental source of economic disequilibria (change).

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*Frank Young
Described the entrepreneur as a change agent.
*Francis A. Walker
Observed that the true entrepreneur is one who always searches for change,
responds to it, and exploits it as an opportunity.
*Robert D. Hirsch
Said entrepreneur is the person who establishes a new business venture and
is a visionary leader:-a person who dreams great dreams.

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*Entrepreneur is a person who organizes and manages a business
undertaking assuming the risk for the sake of profit (Hull, et al).
*Entrepreneur is person who has the ability to see and evaluate
business opportunities, to gather the necessary resources to take
advantage of them, and to initiate appropriate action to ensure
success (Meredith, 1982).
*Entrepreneur is someone who is specialized in taking judgmental
decisions about the coordination of scarce resources (Casson).
*Entrepreneur is a person who owns, organizes, manages and runs an
enterprise assuming the risk of a business (NIESBUD, 1994).

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*The character we seek to define the entrepreneur is much
more complex and inexplicable and no definition can be
either comprehensive or wholly satisfactory.
*In general, it can be said that entrepreneurs are not
characterized by every action they take, but by a particular
set of actions aimed at creation of new wealth with their
ventures.
*Wealth creation is a general managerial activity.
*Entrepreneurship is characterized by a particular approach
to wealth creation.

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In general an entrepreneur can be considered as:
*a manager undertaking an activity – i.e., in terms of the
particular tasks they perform and the way they undertake
them;
*an agent of economic change – i.e., in terms of the effects
they have on economic systems and the changes they
derive; and
*an individual – i.e., in terms of their psychology,
personality, and personal characteristics.
*Entrepreneurs are found in all professions.

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*As the term is usually a misused and confused one and a variety of
definitions exist for it, it appears useful to briefly discuss what
entrepreneurship involves.
*Let’s consider the following definitions.
*Entrepreneurship is the process of doing something new and something
different for the purpose of creating wealth for the individual and adding
value to the society (KAO, 1993).
*Entrepreneurship is a creative and innovative response to the environment
in any field of social endeavor – business, industry, agriculture, social
work, and the like. It refers to doing new things or doing things that are
already being done in a new way (Rao).
*Entrepreneurship is a quality required to perceive opportunities, organize
resources, create facilities, and set up and run a business successfully.
(NIESBUD, 1994)

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*Entrepreneurship means the willingness to exercise
initiative and to take considerable risk to operate one’s
own business. (Mauser, et al, 1982).
*Entrepreneurship is the dynamic process of creating
incremental wealth. The wealth is created by individuals
who assume the major risks in terms of equity time and/or
career commitment or providing value for some product or
service. (Robert C. Ronstad.)
*Entrepreneurship is a dynamic process that requires the
function of talents, ideas, capital, and know-how, the
process of which can be risky, uncertain and sometimes
hazardous, but always dynamic. (Kao)
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*Essentially a creative activity that consists of doing things that are
not generally done in the ordinary course of business.
*Generally a mannerism, a skill, and a profession, which must be
developed;
*Considered as the personal quality that enables people to start new
business vigorously and innovatively and expand an existing one;
and Composed of five crucial elements:
➢The ability to perceive an opportunity;
➢The ability to commercialize the perceived opportunity
➢The ability to follow it on a sustainable basis; and
➢The ability to pursue(carry it out) it through systematic means
➢The acceptance of risk or failure
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In almost all of the definitions of entrepreneurship there is agreement
that we are talking about a kind of behavior that includes:
(1) Initiative taking;
(2) The organizing and reorganizing of socially/economic mechanisms
to turn resources and situation to practical account; and
(3) The acceptance of risk or failure. (Albert Shapiro)
*Moreover, although each of these definition views entrepreneurs
from a slightly different perspective, each contains similar notions
like:
*Newness
* Organizing wealth, and
* Risk taking.
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*Divine gift:-
* Heaven gift, insight, imaginative efforts, illumination, outside of normal
being human, magical quality
*Accident
* Simply arise by chance
*Personality
* Natural human trait (quality, or tendency that someone has)
* Some people seem to have a facility for creative thinking
* With practice people can improve
*Association
* From one area of knowledge to another
*Cognitive (involved in, perception, learning, and understanding
things)

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*Original?, Feasible?, Marketable?, Profitable?

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Creativity
*Creative behaviors possessing an element of newness,
novelty (different, new, and unusual.), and difference
(Herrmann, 1996)
*Creativity is an act, an idea, or product that changes an
existing domain, or that transforms an existing domain
into a new one, and creative person is whose thoughts or
actions bring these changes.
*Creativity leads to innovation
*Creativity is about the “ability” to bring something new
into existence.
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*Exploring and developing new technologies and new ways of doing things.
*Vital for the future viability(development) of an organization.
*Innovation is a key to long-term success.
*“Innovation is the specific instrument of entrepreneurship. The act endows
resources with a new capacity to create wealth. Innovation, indeed, creates
a resource.” (Drucker)
*Entrepreneurship is all about innovation.
Innovation: Five C’s
*Capability: the ability to innovate
*Culture: the innovation requires supportive culture
*Cash and Recognition: the innovation must be capable of being resourced, it must be
recognized as having potential

*Customer Orientation: innovative endeavors must target customer requirement

*Cut Losses: if market conditions change, innovators should be capable of stopping dev’t.
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a). Individual Entrepreneur (Proprietorship):
*‘Business owned by an individual’
*However, individuals who simply, substitute income by leaving their
jobs to operate local stores or independent service businesses are
described as small businesspersons.
*Distinguishing factors that entrepreneurs have:
✓Vision for growth,
✓Commitment to constructive change &
✓Persistence to gather necessary resources & energy to achieve unusual results.
b) Corporate entrepreneurship (Intrapreneurship).
*Is legal entity separate from the individuals who own it.
C) Partnership – association of two or more persons acting as co-
owners of a business 19
*Entrepreneurship is one of the most effective methods for bridging
the gap between science and technology and the market place
creating new enterprises and bringing new products and services to
market.
*These entrepreneurial activities significantly impact the economy of
an area by building the economic base and providing jobs.
*Many economic theories emphasize on the vital function of the
entrepreneur in economic development.
*Some even contend that economic growth was bound to be less
unless there was an adequate supply of entrepreneurs looking for
new ideas willing to take the risk of introducing them.
*Zinkin (1961) briefly expressed the importance of entrepreneurs
stating “No entrepreneur - No development”.
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*Hence many countries regard the scarcity of entrepreneurs as a
hindrance (difficulty) to economic development.
*It is even asserted that the presence of abundant natural resources
skilled and unskilled labor and capital in the form of cash or
technology has not proven itself sufficient enough to result in
arousing enterprising zeal in people and lifting them out of economic
doldrums (stagnation).
Why Entrepreneurships Fail?
*Lack of capital
*Poor knowledge of the market
*Faulty product design
*Human resource problems
*Poor understanding of the competition
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Some important effects of entrepreneurial activity are listed
below.
Combination of Economic Factors(resources).
*Value is created by combining factors of production (land,
labor, and capital) together in a way which satisfies human
needs. Thus value is added to the resources and output
increases.
*However, factors do not combine themselves. They have
to be brought together by individuals working together and
undertaking different tasks.

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*Economic theory suggests that the most efficient economic system is
one in which unrestrained markets determine the price at which
goods are bought and sold.
*Efficient means that resources are distributed in an optimal way, i.e.,
the satisfaction that people can gain from them is maximized.
*An economic system can only reach this state if there is competition
between different suppliers. Entrepreneurs provide that efficiency.
*If suppliers are not facing competition, then they will tend to
demand profits in excess of what the market would allow and so
reduce the overall efficiency.

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*No matter how well we plan, there is always the possibility that
some chance event will result in outcomes we neither expected nor
wanted.
*This is risk. Some economists have suggested that the primary
function of the entrepreneur is to accept risk on behalf of other
people.
*Risk is something that people, generally, want to avoid.
Entrepreneurs provide a service by taking this risk off people’s
hands. Of course, entrepreneurs expect that in return for taking the
risk they will be rewarded.
*This reward, the profit stream from their ventures, is the price that
customers have agreed to pay to get the benefits of the product and
yet not face the risk of developing it.
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*Classical economics makes the assumption that all the relevant
information about a market is available to and is used by producers
and consumers. In practice, however, markets work without all
information being made available or being used.
*Entrepreneurs keep an eye out for information that is not being
exploited. By taking advantage of this information, they make
markets more efficient and are rewarded out of the revenues
generated. This information is information for opportunity.

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*This aspect provides a starting point for understanding the
entrepreneur and the way in which they are different from other
types of manager. These tasks include:
1. Owning Organizations:
*When an entrepreneur actually owns the business, then he/she is in
fact undertaking two roles at the same time: that of an investor and
that of a manager. In developed economies, however, sophisticated
markets exist to give investors access to new ventures and most
entrepreneurs are active in taking advantage of these to attract
investors. So, we recognize many people as entrepreneurs even if
they don’t own the venture they are managing.

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*Many thinkers see entrepreneurs as the person who
undertakes the task of bringing together different elements
of the organization (people, property, productive
resources, etc.) and giving them a separate legal identity.
This is considered to be an essential characteristic for the
entrepreneur.
*Entrepreneur makes major changes in their organizational
world. Making major change is a broad notion, but it goes
beyond merely founding the organization and
differentiates entrepreneurs from managers who manage
within existing organizational structures or make only
minor or incremental changes to them.
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*Innovation is a crucial part of the entrepreneurial process. It is
process of wealth creation (J.A. Schumpeter). Entrepreneurs must
do something new or there would be no point in their entering a
market. Innovation is the central task for the entrepreneur-manager
(Peter Drucker).
* Innovation in business can mean new product/service, but it can
also include a new way of delivering an existing product or
service, new methods of informing the consumer about a
product and promoting it to them, new ways of organizing
company or even new approaches to managing relationships
with other organizations. The entrepreneur’s task goes beyond
simply inventing something new. It also includes brining that
innovation to the market place and using it to deliver value to
consumers.
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*An opportunity is a gap in a market where the potential exists to do
something better and create value. New opportunities exist all the time,
but they do not necessarily present themselves. If they are to be exploited,
they must be actively sought out. The identification of new opportunities
is on the key tasks of entrepreneurs.
5. Application of Expertise:
*Entrepreneurs have a special ability in deciding how to allocate resources
in situations where information is limited. It is their expertise in doing this
that makes entrepreneurs valuable to investors.
6. Provision of Leadership:
*Leadership is increasingly recognized as a critical part of managerial
sources. Entrepreneurs need the support of other people to achieve their
innovation to market on their own. These people must, however, be
supported and directed by entrepreneurs and entrepreneurs must show
leadership.

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*Entrepreneurs come from a variety of educational backgrounds,
family situations, and work experience. A potential entrepreneur can
also be male or female. But what differentiate entrepreneurs from
the general populace?
*Locus of Control. One common concern people have when
considering forming a new venture is whether they will be able to
sustain the drive and energy required not only to overcome the
inertia in forming something new but also to manage the new
enterprise and make it grow.
*Feeling on Independence. Closely related to this feeling of control
is the need for independence. An entrepreneur is the kind of person
who needs to do things in his or her own way and time each has a
difficult time working for someone else.

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*Need for Achievement. Of a more controversial nature is the
entrepreneur’s need for achievement. McClelland’s work on the need
for achievement identified psychological characteristic present in
entrepreneurs. He specified three attributes from his overall theory
of need for achievement (nAch) as characteristics of entrepreneurs:
* a) Individual responsibility for solving problems, setting goals, and reaching
these goals through own efforts;
* b) Moderate risk taking as a function of skill, not chance; and
* c) Knowledge of results of decision/task accomplishment.
*Risk Taking. Virtually all recent definitions of an entrepreneur
indicate a risk-taking component. Indeed risk taking whether
financial, social, or psychological is a part of the entrepreneurial
process. Many studies of risk taking in entrepreneurship have
focused on the component of general risk-taking propensity, the
results of which are inconclusive.
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1.8.1 Entrepreneurial Characteristics:
Characteristics of successful entrepreneurs include:
*Hard work. They put a lot of effort in to developing their ventures
*Self Starting. They do not need to be told what to do.
*Setting of Personal Goals. They tend to set themselves clear and
demanding goals.
*Resilience. They do not pick themselves up after things have gone wrong
but learn positively from experience and use that learning to increase the
chances of success the next time around.
*Confidence. They demonstrate they believe in themselves and in their
venture.
*Receptiveness to New Ideas. They recognize their limitations and the
possibilities that they have to improve their skills.

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* Information Seeking. They are characterized by curiosity. They are never
satisfied by the information they have at any one time and constantly seek more.
They question more than they make statements when communicating.
* Eager to Learn. They are always receptive to a chance to improve their skills and
to develop new ones.
* In tune to Opportunity. They constantly search for new opportunities. They are
never really satisfied with the ways things are any moment in time.
* Receptive to Change. They always are willing to embrace change in a positive
fashion.
* Commitment to Others. They are not selfish. They recognize the value that other
people bring to their ventures and the importance of motivating those people to
make the best effort they can on its behalf.
* Comfort with Power. They can become very powerful figures. They are aware of
the power they possess and recognize it as an asset. They are not afraid to use it.

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The backgrounds of entrepreneurs are also very important for the
success of entrepreneurs.
*While a wide variety of aspects of an entrepreneur’s background
have been explored, only a few have differentiated the entrepreneur
from the general populace or managers. The background areas
explored include:
* Childhood, family environment, education, personal values, age
and Work history.
a. Childhood Family Environment
Specific topics in the family environment of the entrepreneur include
birth order, parent’s occupation and social status, and relationship
with parents.
➢Birth Order. Being the firstborn or an only child is postulated to
result in the child receiving special attention and thereby developing
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more self-confidence.
➢Parent’s Occupation and Social Status. In terms of the occupation
of the entrepreneurs’ parents, there is strong evidence that
entrepreneurs tend to have self-employed or entrepreneurial fathers.
Having a father who is self-employed provides a strong inspiration
for the entrepreneur. The independent nature and flexibility of self-
employment exemplified by the father is ingrained at an early age.
➢Relationship with parents. Some parents are supportive and
encourage independence, achievement, and responsibility. This
supportive relationship of the parents (particularly of the father),
appears to be most important for entrepreneurs. Entrepreneurs tend
to grow up in middle - to upper-class environments, where families
are likely to be relatively child centered and be similar to their
fathers in personality.

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b. Education.
*The education of the entrepreneur has received significant research
attention. While it is frequently stated that entrepreneurs are less
educated than the general population, the research findings indicate
that this clearly is not the case. Education was important in the
upbringing of the entrepreneurs.
*Its importance is reflected not only in the level of education
obtained, but also in the fact that it continues to play a major role in
helping to cope with problems confronted and correcting divinities
in business training.
*Entrepreneurs have cited an educational need in the areas of finance,
strategic planning, marketing (particularly distribution), and
management. The ability to deal with people and communicate
clearly in the written and spoken word is also important in any
entrepreneurial activity. 36
c. Personal Values.
*While there have been many studies indicating that personal values
are important for entrepreneurs, frequently these studies fail to
indicate that entrepreneurs can be differentiated on these values from
managers, unsuccessful entrepreneurs, or even the general populace.
*While personal value scales for leadership as well as support
aggression, goodwill, conformity, actuality, and resource seeking are
important for identifying entrepreneurs, they frequently also identify
different set attitudes about the nature of the management process
and business in general.

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d. Age.
*The relationship of age to the entrepreneurial career process has also
been carefully researched. In evaluating these results, it is important
to differentiate between entrepreneurial age (the age of the
entrepreneur reflected in the experience) and chronological age.
*Entrepreneurial experience is one of the best predictors of success,
particularly when the new venture is in same field as his/her
business experience.
e. Work History.
*Is important in the growth and eventual success of the new venture.
*While dissatisfaction with various aspects of one’s job - challenge,
promotional opportunities, frustration, and boredom - often
motivates the launching of a new venture, previous technical and
industry experience is important once the decision to launch has
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been made
*A skill is simply knowledge which is demonstrated by
action. It is an ability to perform in a certain way. An
entrepreneur is someone who has a good business idea and
can turn that idea into reality.
*Turning an idea into reality, calls upon two sorts of skills.
1. General management skills are required to organize the
physical and financial resources needed to run the
venture.
2. people management skills are needed to obtain the
necessary support from others for the venture to succeed.

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*Strategy skills – An ability to consider the business as a whole, to
understand how it fits within its marketplace, how it can
organize itself to deliver value to its customers and the ways in
which it does this better than its competitors.
*Planning skills – An ability to consider what the future might
offer how it will impact on the business and what needs to be done
to prepare for it now.
*Marketing skills - An ability to see past the firm’s offerings and
their features to be able to see how they satisfy the customer’s needs
and why the customer finds them attractive.
*Financial skills – An ability to manage money to be able to keep
track of expenditure and to monitor cash –flow but also an ability to
assess investments in terms of their potential and their risks.
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*Project management skills - An ability to organize projects to set
specific objectives to set schedules and to ensure that the necessary
resources are in the right place at the right time.
*Time management skills - An ability to use time productively to be
able to prioritize important jobs and to get things done to
schedule.
People Management Skills
*Businesses are made by people. A business can only be successful if
the people who make it up are properly directed and are committed
to make an effort on its behalf.
*An entrepreneurial venture also needs the support of people from
outside the organization such as customers, suppliers and investors.
To be effective an entrepreneur needs to demonstrable a wide variety
of skills in the way he or she deals with other people.
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*Leadership skills – An ability to inspire people to work in a specific
way and to undertake the tasks that are necessary for the success of
the venture Leadership is about more than merely directing people it
is also about supporting them and helping them to achieve the goals
they have been set.
*Motivation skills – an ability to stimulate people and get them to
give their full commitment to the tasks in hand. Being able to
motivate demands an understanding of what drives people and what
they expect from their jobs. It should not be forgotten that for the
entrepreneur an ability to motivate oneself is as important as an
ability to motivate others.
*Delegation skills – An ability to allocate tasks to different people.
Effective delegation involves more than instructing. It demands a
full understanding of the skills that people possess how they use
them and how they might be developed to fulfill future needs.
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*Communication skills - An ability to use spoken and written
language to express ideas and inform others Good communication is
about more than just passing information. It is about using language
to influence people’s actions.
*Negotiation skills – An ability to understand what is wanted from a
situation what is motivating others in that situation and recognize the
possibilities of maximizing the outcomes for all parties. Being a
good negotiator is more about being able to identify win—win
scenarios and communicate them than it is about being able to
bargain hard.
*All these different people skills are interrelated. Good leadership
demands being able to motivate. Effective delegation requires an
ability to communicate. The skills needed to deal with people are not
innate they must be learnt. Leadership is as much an acquired skill
as is an ability to plan effectively. The ability to motivate and to
negotiate can be learnt in the same way as project management
techniques. 43
*A persistent notion is that most entrepreneurs are “born” with innate
characteristics that prepare them for the often topsy-turvy life of new
venture creation. Entrepreneurs have personal characteristics that
lead to a more venturesome destiny.
*Successful entrepreneurs tend to be:
*Optimistic, Keen sense of determination, Energetic, and Often
have an entrepreneurial parent.
*However, there is substantial evidence that entrepreneurial
characteristics may be environmentally based.
*Firstborn children, for example, are often expected to take over
parental business as heirs to established entrepreneurs.
*One’s childhood background often forges an entrepreneurial spirit
as individuals from less-fortunate economic conditions have to
find routes to success other than through traditional jobs.
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1.9.1 Born Cases
*Those who believe entrepreneurs are born conclude that
entrepreneurship cannot be taught. This suggests that studying how
new ventures are formed or how innovation takes place is of little
value.
*If entrepreneurs are born, then it implies that once we identify and
understand the main distinguishing characteristics of an
entrepreneur, there is nothing we can do to help those lacking or who
do not posses it: we cannot train or develop them for that is only a
futile pursuit, and if so, letting them board on any business advisor
who support to create a new man would be advised to concentrate on
teaching useful skills than encouraging independent enterprise.

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1.9.2 Made cases
*On the other hand, and just contrary to the above, the more popularly
accepted proposition is that entrepreneurs are made by their
experiences and the working environment would encourage the
creating of such conditions. This means clearly that with very few
exceptions, entrepreneurs are not necessarily born but can be made.
*It is now widely accepted that entrepreneurs can be developed
through a lengthy process of education, training, experience transfer,
etc. In this respect, therefore, training indeed plays a vital role as a
significant input influencing the varied components of
entrepreneurship-to mould the makeup of entrepreneurs.

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CHALLENGES OF BEING AN ENTREPRENEUR:
*Must be comfortable with change and uncertainty
*Must make a bewildering number of decisions
*May face tough economic choices
*Must be comfortable with taking risks
*Need many different skills and talents
*Must be comfortable with the potential for failure
ENGINEER ENTREPRENEURS
*Engineer entrepreneurs will feed a continuous flow of new products
and service innovations (in the form of intellectual property) into
these “virtual global design/manufacturing/service factories provide
to the market.
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*To be effective contributors, engineers must become entrepreneurs,
i.e., must know exactly:
* What to invent,
* Why it should be invented,
* Who will actually buy the invention,
* What to do with the invention after it is invented,
* How to make money off the invention.
*Engineers must be capable of immediately and effectively applying
entrepreneurial skills as they join teams – must hit the ground
running.
*The engineer as entrepreneur:
* Must learn how to run an innovative business,
* Must learn how to be an innovative business.
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