CHAPTER ONE

1. THE NATURE OF ENTREPRENEURSHIP

1.1. Introduction
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, Enterprendre, 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. The idea that the entrepreneur is someone who
undertakes certain projects offers an opening to developing an understanding of the nature of
entrepreneurship. Undertaking particular projects demands that particular tasks be engaged in
with the objective of achieving specific outcomes and that an individual take charge of the
project.

1.2. Historical Origin of Entrepreneurship

What is entrepreneurship? And who is an entrepreneur? These two questions are asked more
frequently reflecting the increasing demand in the field of entrepreneurship. Offering a specific
and unambiguous definition of the term entrepreneurship /entrepreneur presents a challenge. This
is not because definitions are not available, but because there are so money.
Here let us took in to the historical development of entrepreneurship so as to grasp the meaning
of the word entrepreneurship.
During the ancient period the word entrepreneur was used to refer to a person managing large
commercial projects through the resources provided to him.
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 this case the
contract price is fixed so any resulting profit or loss reflects the effort of the 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. If we consider the merchant, farmers and /or the
professionals they all operate at risk. For example, the merchants buy products at a known price
and sell it at unknown price and this shows that they are operating at risk. The other development

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during the 18th Century is the differentiation of the entrepreneurial role from capital
providing role. The later role is the base for today’s venture capitalist.
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 as established. “The function of
the entrepreneur is to reform or 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.”

1.3. Definitions of Entrepreneurship and Entrepreneur

1. 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. It involves creating incremental wealth by bringing
together resources in new ways to start and operate an enterprise.
2. Entrepreneurship is the processes through which individuals become aware of business
ownership and then, develop ideas for, and initiate a business.
3. Entrepreneurship can also be defined as the process of creating something different and
better with value by devoting the necessary time and effort by assuming the accompanying
financial, psychic and social risks and receiving the resulting monetary reward and personal
satisfaction. In this case an individual should come up with something different and better in
order to the named as entrepreneur.
4. 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.
 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 (innovation) on a sustainable basis.
4) The ability to pursue it (innovation) through systematic means.
5) The acceptance of risk or failure.

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 Based on the above concepts of entrepreneurship, an entrepreneur can be defined as
follows:
1) 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.
2) 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.
3) An entrepreneur is an individual who: has the ability to identify and pursue a business
opportunity; undertakes a business venture; raises the capital to finance it; gathers the
necessary physical, financial and human resources needed to operate the business venture;
sets goals for him/herself and others; initiates appropriate action to ensure success; and
assumes a major portion of the risk!
4) 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.
5) Other definition, views the term entrepreneur from three perspectives; i.e. from the
economist, psychologist, and capitalist philosopher’s point of view.
i) 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.
ii) 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.
iii) 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.

1.4. Types of Entrepreneurs

Entrepreneurship can take three different forms. They are:
1. 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.
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2. Intrapreneur: An Intrapreneur is a person who does entrepreneurial work within large
organization.
 The process by which an Intrapreneur affects change is called Intrapreneurship. There are
two facts about Intrapreneurship;
a. The Intrapreneur’s context is often large and bureaucratic organization whereas the
individual entrepreneur operates in the broader, more flexible economic market place.
b. Intrapreneurs are individuals who often engage in the entrepreneurial actions in large
organizations without the blessing of their organizations.
3. 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.
Individuals working in organizations have the potential for being, as do those working
independently to start their own business. An organization can create an environment in which
all of its members can contribute in some function to the entrepreneurial function.

1.5. Role of Entrepreneurs in Economic Development

Entrepreneurial development is the most important input in the economic development of any
country. The objectives of industrial development, balanced regional growth, and generation of
employment opportunities are achievable through entrepreneurial development. Entrepreneurs
are at the core of industrial development which results in greater employment opportunities to
the unemployed youth, increase in per capita income, higher standard of living and increased
revenue to the government in the form of income, sales tax, export duties, import duties etc. The
entrepreneurs serve as a key to the creation of new enterprises, thereby rejuvenating economy
and sustaining the process of economic development in the following ways:
1) Improvement in per capita Income/Wealth Generation: Entrepreneurs play a vital in the
economic development of a region. From the fall of Rome (AD 476) to the eighteenth
century, there was virtually no increase in per capita wealth generation in the West. With the
advent of entrepreneurship, however, per capita wealth generation and income in the
west grew exponentially by 20 Percent in the 1700s, 200 percent in the 1800s, 740 percent
in the 1900 (Drayton, 2004).
2) Generation of Employment Opportunities: By creating a new business enterprise,
entrepreneurs generate employment opportunities for others. Unemployment is a major
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 issue, especially in the context of developing economies like Ethiopia. Educated youth often
are unable to get a suitable employment themselves. Thus, entrepreneurs not only self-
employer/employ themselves, but also create jobs for others.
3) Inspire others Towards Entrepreneurship: The team created by an entrepreneur for his
new undertaking often provides the opportunity for the employees to have a first-hand
experience of getting involved in an entrepreneurial Venture. An existing venture provides a
number of entrepreneurial opportunities through forward and backward linkages, to these
employees even to become entrepreneurs themselves.
4) Balanced Regional Development: Entrepreneurs help to remove regional disparities in
economic development. They set up the industries in the backward areas to avail
various subsidies and incentives offered by the Central and State Governments, thereby
balancing the economic growth in different regions in the country.
5) Enhance the Number of Enterprise: When new firms are created by entrepreneurs, the
number of enterprises based upon new ideas/ concepts/ products in a region increases. Not
only does an increase in the number of firms enhance the competition for new ideas, but
greater competition across firms also facilitates the entry of new firms specializing in a
particular new product or service. This is because the necessary complementary inputs are
more likely available from small specialist niche firms than from large vertically integrated
products (Jacobs, 1969).
6) Provide Diversity in Firms: Entrepreneurial activity often results into creation of a variety
of firms in a region. These firms operate into diverse activities and it has been found that it is
this diversity in firms which fosters economic development and growth rather than
homogeneity. According to Jacobs (1969), it is the exchange of complementary knowledge
across diverse firms and economic agents that yield an important return on new economic
knowledge.
7) Economic Independence: Entrepreneurship is essential for self-reliance for a country.
Entrepreneurs create industries that manufacture indigenous substitutes, thereby reducing the
dependence on imports. Also, the goods are exported to other countries to earn foreign
exchange. This import substitution and export promotion results in more economic
independence to the country

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8) Combine Economic factors: All the products bought and sold in an economy are a mix of
three primary economic factors (the raw materials, nature offers up, the physical and mental
labor people provide and capital (money). Now value is created by combing these three
things together in a way which satisfies human needs.
9) Provide Market efficiency: Efficient means resources are distributed in an optimal way that
is 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.
10) Accepting Risk: Risk is the potential variation in terms of future outcomes. We do not know
exactly what the future will bring. This lack of knowledge creates uncertainty. No matter
how we plan there is always a possibility of adverse deviation from what we expect or hoped
for. Here the primary function of the entrepreneur is to accept risk on behalf of other people.
11) Maximize Investor’s Return: Entrepreneurs create and run organizations which maximize
long-term profit on behalf of the investors which in turn generates overall economic
efficiency.

1.6. Entrepreneurial Competence and Environment

Under this topic entrepreneurial mindset (that will address subtopics such as, who become an
entrepreneur; qualities of successful entrepreneurs; entrepreneurial skills; the entrepreneur’s task
and wealth of the entrepreneur), and Entrepreneurship and Environment.

1.6.1 Entrepreneurial Mindset

1.6.1.1. Who Becomes an Entrepreneur?
Anyone with the following characteristics can be an entrepreneur.
1) The Young Professional: Increasingly young highly educated people often with
entrepreneurial qualifications are skipping the experience of working for an established
organization and moving directly to work on establishing their own ventures.
2) The Inventor: The inventor is someone who has developed an innovation and who has
decided to make a career out of presenting that innovation to the market. It may be a new
product or it may be an idea for a new service. It may be a high-tech or it may be based on a
traditional technology.
3) The Excluded: Some people turn to an entrepreneurial career because nothing is open to
them. Displaced communities and ethnic and religious minorities have not been invited to

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 join the wider economic community due to a variety of social, cultural and political and
historical reasons.

1.6.1.2. Qualities of an Entrepreneur

In order to be successful, an entrepreneur should have the following qualities:
1) Opportunity-seeking: An opportunity is a favorable set of circumstances that creates a need
for a new product, service or business. It includes access to credit, working premises,
education, trainings etc. An entrepreneur always seeks out and identifies opportunities.
He/she seizes an opportunity and converts it into a realistic and achievable goal or plan.
2) Persevering: An entrepreneur always makes concerted efforts towards the successful
completion of a goal. An entrepreneur perseveres and is undeterred by uncertainties, risks,
obstacles, or difficulties which could challenge the achievement of the ultimate goal.
3) Risk Taking: The best entrepreneurs tend to:-
F Set their own objectives where there is moderate risk of failure and take calculated
risks
F Gain satisfaction from completing a job well
F Not be afraid of public opinion, skepticism
F Take responsibility for their own actions
4) Demanding for Efficiency and Quality
Efficiency: Being efficient means producing results with little wasted effort.
Quality refers to:
1. A characteristic of the product or service that makes it fit to use. It makes a product,
process, or service desirable.
2. The ability of a product or service to meet a customer’s expectations for that product or
service.
3. The ongoing process of education, communication, evaluation and constant improvement
of goods/services to meet the customer’s need in a way that exceeds the customer’s
expectations;
5) Information-seeking: Successful entrepreneurs do not rely on guesswork and do not rely on
others for information. Instead, they spend time collecting information about their customers,
competitors, suppliers, relevant technology and markets. Gathering relevant information is
important to ensure that the entrepreneur makes well informed decisions. Information on the
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 area of market, supply, operations, finance, legislation, and infrastructure are important for
entrepreneurs.
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. It is large in scope, not necessarily time-bound, and is something that
people strive for by meeting certain objectives which will hopefully add up to eventually
achieving the goal.
7) Persuasion and Networking
Persuasion is a way of convincing someone to get something or make a decision in your favor.
It is inducing or taking a course of action or embracing a point of view by means of argument,
reasoning, or entreaty; to convince; to succeed in causing a person to do or consent to something;
to win someone over, as by reasoning or personal forcefulness; to cause to believe; to induce,
urge, or prevail upon successfully.
8) Building Self-confidence: Self-confidence is the state of being certain that a chosen course
of action is the best or most effective given the circumstances. Confidence can be described
as a subjective, emotional state of mind, but is also represented statistically as a confidence
level within which one may be certain that a hypothesis will either be rejected or deemed
plausible. Self-confidence is having confidence in oneself when considering a capability.
Overconfidence is having unmerited confidence-believing something or someone is capable
when they are not.
9) Listening to Others: An entrepreneur does not simply impose his/her idea on others.
Rather, he/she listens to other people in their sphere of influence, analyses their input in line
with his/her own thinking and makes an informed decision.
10) Demonstrating Leadership: An entrepreneur does not only do things by him/herself, but
also gets things done through others. Entrepreneurs inspire, encourage and lead others to
undertake the given duties in time.

1.6.1.3 Entrepreneurial Skills

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.

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  To be successful, an entrepreneur must not only identify an opportunity but also
understand it in great depth. He or she must be able to spot a gap in the market and
recognize what new products or services fill the gap. He or she must know what features
it will have and why they will appeal to the customer. The entrepreneur must also know
how to inform the customer about it and how to deliver the new offerings. All this calls
for an intimate knowledge of a particular sector of industry.
 Turning an idea into reality calls upon two sorts of skills, these are:
I) General Management Skills: These are skills required to organize the physical and
financial resources needed to run the venture. Some of the most important general
management business skills are:
F Strategy Skills – An ability to consider the business as a whole, to understand how it
fits within its market place, how it can organize itself to deliver value to its
customers, and the ways in which it does this better than its competitors.
F 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.
F 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.
F 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.
F 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
plat of the right time.
F Time Management Skills – An ability to use time productively, to be able to
priorities important jobs and to get things done to schedule.
II) People Management Skills: Businesses are made by people. A business can only be
successful if the peoples 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 demonstrative a wide variety of skills in the way he/she deals with

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 other peoples. Some of the more important skills we might include under this heading
are:
 Communication Skills– An ability to use spoken and written language to express
ideas and inform others.
 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.
 Motivation Skills – An ability to enthuse people and get them to give their full
commitment to the tasks in hand. Being able to motivate demands and understanding
of what drives people and what they expect from their jobs.
 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 and how they use them and how they might be developed
to fulfill future needs.
 Negotiation Skills– An ability to understand what is wanted from a situation, what is
motivating others in that situation and recognizing the possibilities of maximizing
the outcomes for all parties.

1.7. Creativity, Innovation, and Entrepreneurship

Creativity, innovation, and entrepreneurship have been recognized as important contributors to a
nation’s economic growth. These three terminologies are chronologically interrelated and it is
very important to look in to them to get their full picture.
1.7.1. Creativity
Creativity is defined as the tendency to generate or recognize ideas, alternatives, or possibilities
that may be useful in solving problems, communicating with others, and entertaining ourselves
and others.
Creativity is the ability to come up with new idea and to identify new and different ways of
looking at a problem and opportunities.
It is a process of assembling ideas by recombining elements already known but wrongly
assumed to be unrelated to each other. This definition has several key elements that are worth
considering:
F Process: creativity is a process (implying among other things, that it is more like a skill
than an attitude, and that you can get better at it with practice).
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 F Ideas: creativity results in ideas that have potential value.
F Recombining: the creative process is one of putting things together in unexpected ways.

1.7.1.1. Steps in the Creative Process

Step1: Opportunity or problem Recognition: A person discovers that a new opportunity or a
problem exists or needs resolution.
Step2: Immersion: the individual concentrates on the problem and becomes immersed in it. He
or she will 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. He or she
does not appear to be working on the problem actively; however, the subconscious mind is still
engaged. While the information is simmering it is being arranged into meaningful new patterns.
Step 4: Insight: the problem-conquering solution flashes into the person’s mind at an
unexpected time, such as on the verge of sleep, during a shower, or while running. Insight is also
called the Aha! Experience
Step 5: Verification and Application: the individual sets out to prove that the creative solution
has merit. Verification procedures include gathering supporting evidence, using logical
persuasion, and experimenting with new ideas.

1.7.2. Innovation
Innovation lies at the heart of the entrepreneurial process and is a means to the exploitation of
opportunity. It is the implementation of new idea at the individual, group or organizational level.
Innovation is a process of intentional change made to rate value by meeting opportunity and
seeking advantage.
There are four distinct types of innovation, these are as follows:
 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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1.7.2.1. The Innovation Process
1. Analytical planning: carefully identifying the product or service features, design as
well as the resources that will be needed.
2. Resources organization: obtaining the required resources, 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.

1.7.3. 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.

Fig 1.2:Flow of Creativity, Innovation and Entrepreneurship

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