EVOLUTION OF ENTREPRENEURSHIP

Introduction
The chapter stresses the importance historically of entrepreneur- ship. It provides a basic
understanding of the beginning and the modern economic definitions. To be a successful
entrepreneur, an individual must be an independent thinker who is willing to take risks and to dare
to be different. Personal initiative, ability to consolidate resources, management skills, and risk
taking are just a few of the important qualities needed to be a successful entrepreneur

Specific Objectives
By the end of this sub-module unit, the trainee should be able to

a) Describe the history of entrepreneurship

b) Describe the myths associated with entrepreneurship
c) Explain the theories of entrepreneurship
d) Explain the importance of these theories

CONTENT

History of entrepreneurship globally and in Kenya

Entrepreneur is a French word meaning “between – taker” or “go-between”, or “under taker”.

The evolution of entrepreneurship is discussed in several stages:

Earliest period
Earliest definition was by Marco polo, he attempted to establish trade routes to the Far East. As a
go- between, Marco polo would sign a contract with a money person to sell his goods. While the
capitalist was a passive risk bearer, the merchant adventurer took the active role in trading, bearing
all the physical and emotional risks. The profit would be divided between the two of them with
the capitalist taking 75% while the merchant – adventurer settled for the remaining 25%

Middle ages
As time went by the term entrepreneur changed to describe both an actor and a person who
managed large production projects. This individual did not take any risks but merely managed the
project using the resources provided, usually by the government of the country. A typical
entrepreneur in the middle ages was the person in charge of great architectural works.

17th century
The person associated with this period is Richard Cantillion an economist. He development the
early theories of entrepreneurship and is regarded as the one who developed the term risk taker.
The emergent connection of risk with entrepreneurship developed in this century with an
entrepreneur being a person who entered into a contractual arrangement with the government to
perform a service or to supply stipulated products. Since the contract price was fixed, any resulting
profits or losses were the entrepreneurs.
18th century
This is the period in which an entrepreneur was distinguished from the capital provider. One
reason for this differentiation was the industrialisation occurring throughout the world. Most
inventions developed during this time were reactions to the changing world.

19th century
In this era entrepreneurs were viewed as managers and mainly from an economic perspective. An
entrepreneur was seen as one who organises and operates an enterprise for personal gain. He
contributes his own initiative, skills, and ingenuity in planning, organising and administering the
enterprise. He also assumes the chance of loss and gain consequent to unforeseen and
uncontrollable circumstances.

20th century
In the 20th century, the understanding of entrepreneurship owes much to the work of the
economist Joseph Schumpeter. Schumpeter defines an entrepreneur as a person who is willing
and able to convert a new idea or invention into a successful innovation. Entrepreneurship
employs what Schumpeter called "the gale of creative destruction" to replace in whole or in part
inferior innovations across markets and industries, simultaneously creating new products
including new business models.

For Schumpeter, entrepreneurship resulted not only to new industries but also to new
combinations of currently existing inputs. Schumpeter's initial example of this was the
combination of a steam engine and then current wagon making technologies to produce the
horseless carriage. In this case, the car innovation was transformational, but did not require the
development of a new technology. Different scholars have described entrepreneurs as, among
other things, baring risk. For Schumpeter, the entrepreneur did not bare risk: the capitalist did.
To him an entrepreneur is more of an innovator.

The ability to innovate can be observed throughout history from Egyptians who designed and built
great pyramids out of stone blocks, to laser surgery then wireless communication. Although the
tools have changed with advances in technology, the ability to innovate has been present in every
civilisation.

Myths associated with entrepreneurship in Kenya

The following are some of the myths associated with entrepreneurship:

i) Entrepreneurs take wild risks at the start of their business.

Even though risk is an integral part of business, the start of business is not considered the highest
risk. An entrepreneur is more likely to face bigger risks at the latter stage of the business.

ii) Entrepreneurs introduce break-through inventions in their start-up business.

It would be easy to assume that entrepreneurs introduce new inventions, usually technological
inventions. This is not true. Innovation may be important, but what makes entrepreneurship
successful is the ability to execute an ordinary idea exceptionally.

iii) Most successful entrepreneurs have years of experience in their chosen line of business.
Bill Gates was still a student when he started Microsoft with Paul Allen. This story of several
inexperienced entrepreneurs starting out a new business venture is replicated over and over again
in the lives of millions of other successful entrepreneurs.

iv) One needs a lot of money to start a business.

This is not so. Money is not always an important prerequisite to be able to start a business. What
sets the successful entrepreneur apart from the not-so-successful is the ability to make do with
what little he or she has. For instance, they look for other sources of money such as borrowing to
grow their business.

v) Start-ups use equity, not debt money.

Entrepreneurs who put up equity coming from their own pocket only comprise less than 50% of
the total start-ups. The majority of the companies are financed by debt.

Other myths

1 Entrepreneurs are doers, not thinkers.

 Entrepreneurs have a tendency toward action, but they are also thinkers.
 Emphasis today is on the creation of clear and complete business plans.
Entrepreneurs are born, not made.

 Traits include aggressiveness, initiative, drive, a willingness to take risks, analytical ability,
and skill in human relations.
 Entrepreneurship has models, processes, and case studies that allow the traits to be acquired.

Entrepreneurs are always inventors.

 This is a result of misunderstanding and tunnel vision.

 Many inventors or innovators are also entrepreneurs.
 Numerous entrepreneurs encompass all sorts of innovative activities.

Entrepreneurs are academic and social misfits.

 This myth results from people who have started successful enterprises after dropping out
of school or quitting a job.
 Historically, education and social organizations did not recognize the entrepreneur.
 The entrepreneur is now viewed as a professional.
Entrepreneurs must fit the “profile.”
 Many books and articles have presented checklists of characteristics of the successful
entrepreneur.
 The environment, the venture itself, and the entrepreneur have interactive effects, which
result in many different profiles.
All you need is luck to be an entrepreneur.
 Being in the right place at the right time is always an advantage.
 “Luck” happens when preparation meets opportunity.
 What appears to be luck could really be several factors.
A. Preparation
B. Determination
C. Desire
D. Knowledge
E. Innovativeness
Ignorance is bliss for an entrepreneur.
Key factors in successful entrepreneurship
 Identifying the strengths and weakness of a venture
 Setting up clear timetables with contingencies for handling problems
 Minimizing problems through careful strategy formulation
 Careful planning is the mark of an accomplished entrepreneur.
Entrepreneurs seek success but experience high failure rates.
 Many entrepreneurs suffer a number of failures before they are successful.
 Failure can teach many lessons to those willing to learn and often leads to future success.

Theories of entrepreneurship

These refer to the various approaches, which have been advanced to give an explanation as to why
entrepreneurs behave the way they do. They are also known as the perspectives of
entrepreneurship.

The theories try to explain whether entrepreneurs are born or made. The born entrepreneurs inherit
the entrepreneurial behaviour from their parents and grandparents while made entrepreneurs
acquire entrepreneurial behaviour from the behaviour in which they live in.

The following are some of the entrepreneurial theories:

Economic theory

The theory holds that entrepreneurial behaviour is determined by economic factors. Thus
entrepreneurs are greatly influenced by economic activities. From an economic point of view an
entrepreneur is a person who brings together the factors of production into a combination to make
their value greater than before.

According to Schumpeter, entrepreneurs are innovators who bring together the various resources
to produce a new product/service through new ways/methods of production, finding new markets,
finding new sources of materials to create a new business.

The economic theory provides basic data in the economic environment – activities for business
start-ups. Thus entrepreneurial activities take place where conditions are supportive/conducive to
investment. This theory revolves around an entrepreneur being an innovator, combining the
various resources/ factors of production to create new products/wealth.

Psychological theory

The theory holds that entrepreneurs possess unique needs, values and attributes, which drive them
into entrepreneurial behaviour. It holds that people have personal traits and attributes, mental
desires to be independent.

The main proponent of this theory is McClelland who attributed entrepreneurial behaviour to the
high need for achievement. Entrepreneurs are characterised by high need for achievement, which
tends to give them high desire to take personal responsibility in risks. They have little interest in
routine activities, which are not challenging. According to this theory, entrepreneurial behaviour
is environmentally determined and is inherent during childhood, where parents have certain high
standards achievement.
Sociological theory
The sociological theory maintains that environmental factors such as values and beliefs influence
entrepreneurial behaviour. (Max Weber, 1904). According too this theory, beliefs and societal
aspects such as social status and recognition influence entrepreneurial behaviour.

Importance of Entrepreneurship theories

i) Entrepreneurship theories bring greater understanding of entrepreneurship behaviour exhibited

by different entrepreneurs.
ii) They enable one to understand the need for entrepreneurship and why some people are more
entrepreneurial than others.
iii) The theories bring out various approaches and perceptions held by entrepreneurs.
iv) Show that the desire for entrepreneurship is innate as well as environmentally determined.
v) Helps us to understand the role played by role models through networks that provide support.

Activities

1. Discuss business environmental factors affecting entrepreneurship development.

2. Group discussions on historical evolution of entrepreneurship in Kenya