CHAPTER ONE

INTRODUCTION

Chapter Objectives
 After completing this chapter, students will be able
to:
 Define the term entrepreneurship and
entrepreneur
 Identify types of entrepreneur
 Recognize the role of entrepreneurship in the
economy
 Analyze the entrepreneurial competences
 Understand creativity and innovation
 Definitions of Entrepreneurship and Entrepreneur
• it is know that entrepreneurship is the
process and entrepreneur is the person
undertaking entrepreneurial activity such as
undertaking own business.
• Entrepreneurship is the process of identifying
opportunities in the market place,
• Entrepreneurship is the processes through
which individuals become aware of business
ownership then develop ideas for, and initiate
a business
• 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.

• Engaging in entrepreneurship shifts people from

being “job seekers” to “job creators”, which is critical
in countries that have high levels of unemployment
 In general, the process of entrepreneurship includes five critical
elements. These are:
• The ability to perceive an opportunity.
• The ability to commercialize the perceived opportunity i.e.
innovation
• The ability to pursue it on a sustainable basis.
• The ability to pursue it through systematic means.
• The acceptance of risk or failure.
• In general, entrepreneur refers to the person and
entrepreneurship defines the process.
• Both men and women can be successful entrepreneurs; it has
nothing to do with gender. All entrepreneurs are business
persons, but not all business persons are entrepreneurs
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.
 An entrepreneur is an individual who: has the ability to identify
and pursue a business opportunity;
 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
• Other definition, views the term entrepreneur from three
perspectives;
1. 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.
2. 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.
3. 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.
 Entrepreneurship – Historical Perspective

• During Ancient period

A person managing large commercial project
• In 17th Century
A person who sign a contractual agreement with the
government to provide a product or a service.
• In 18th Century
Richard cantillon developed the first theory that
relate an entrepreneur to a risk taker
• In the late 19th and early 20th
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 concept of innovation & untried
technology flourished
 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
2. An Intrapreneur is a person who does entrepreneurial work within
large organization. Intrapreneurs are individuals who often engage in
the entrepreneurial actions in large organizations without the
sanction 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. An organization
can create an environment in which all of its members can contribute
in some function to the entrepreneurial function
 Role of Entrepreneurs in Economic Development
• Entrepreneurial development is the most important input in the
economic development of any country.
1. Improvement in per capita Income/Wealth
Generation
– Entrepreneurs play a vital in the economic
development of a region. 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 issue, especially in the
context of developing economies like Ethiopia.
• Crates direct and indirect employment opportunities .
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.
4.Balanced Regional Development:
• Entrepreneurs help to remove regional inequalities 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.
5.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
6.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.
7.Provide Market efficiency:
 Efficient means resources are distributed in an optimal way that
is the satisfaction that people can gain from them is maximized
8.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.
9.Improvement in the standard of living
 By adopting latest innovation in the production of wide variety
of goods & services in large scale at lower price
 Better quality goods at lower price that result in improvement
of standard of living.

10.facilitate overall Development

 Entrepreneur act as catalytic agent for change w/c result in
chain reaction.
 The process on industrialization is set in motion.
 Generate demand for various types of units required by it and
required output of this units
 Who Becomes an Entrepreneur?
• Anyone with the following characteristics can be an entrepreneur
 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.
 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
 The Excluded: Displaced communities and ethnic and religious
minorities have not been invited to join the wider economic
community due to a variety of social, cultural and political and
historical reasons.
 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.
2. Persevering 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:-
• 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
4.Demanding for Efficiency and Quality
• Efficiency: Being efficient means producing results with
little wasted effort.
• Quality refers to: The ability of a product or service to
meet a customer’s expectations for that product or
service.
Quality plays an important role in this new era of
globalization because it confers certain benefits which
include:
 Cost-effectiveness
 An increase in market share
 Better profitability
 Social responsibility
5.Information-seeking:
 Successful entrepreneurs do not rely on
guesswork
 Instead, they spend time collecting information
about their customers, competitors, suppliers,
relevant technology and markets
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
• Objectives - are specific and measurable. They are
concise and specific. Think of the word “object.” You
can touch it, it’s there, it’s actual, and it’s finite.
• An entrepreneur must have a goal and an objective
which is specific, measurable, attainable relevant,
and time bound (SMART).

7. Planning: Planning is making a decision about the

future in terms of what to do, when to do, where to do,
how to do, by whom to do and using what resources
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
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,
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.
 Entrepreneurial Skills
• A skill is simply knowledge which is demonstrated
by action.
• Turning an idea into reality calls upon two sorts of
skills, these are:
I. General management skills and
II. People management skills
 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:
• 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.
• 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.
• 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.
• 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.
• Time Management Skills – An ability to use time productively,
to be able to priorities important jobs and to get things done
to schedule
• 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.
 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
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 an 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 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 saturations, what is motivating others
in that situation and recognize the possibilities of
maximizing the outcomes for all parties.
 The Entrepreneurial Tasks

• A number of tasks have been associated with the

entrepreneur. Some of the more important are:
• 1. Owning Organizations: Ownership lies with those
who invest in the business and own its stock – the
principals, while the actual running is delegated to
professional agents or managers.
• Therefore, if an entrepreneur actually owns the
business then he is in fact undertaking two roles at the
same time that of an investor and that of a manager.
Here we can also recognize many people as
entrepreneur even if they do not own the venture they
are managing.
 2. Founding New Organizations

• The entrepreneur is recognized as the person

who undertakes the task of bringing together
the different elements of the organization
(people, property, productive resource, etc.)
and giving them a separate legal entity.
• 3) Bringing Innovations to Market: The idea of
innovation encompasses any new way of doing
something so that value is created. Innovation can
mean a new product or service but it can also include a
new way of delivering an existing product or service,
new methods of informing the consumer about the
product or new ways of organizing the company.
• 4) Identification of Market Opportunity: An opportunity
is the 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. Note that opportunity always takes
priority over innovation.
• 5) Application of Expertise: A slight more technical
notion is that they have a special ability in deciding
how to allocate scarce resources in situations where
information is limited. It is their expertise in doing
this that makes entrepreneurs valuable to investors.

• 6) Provision of leadership: Entrepreneurs can rarely

drive their innovation to market on their own. They
need the support of other people both from their
organizations and from people outside such as
investor customer and supplier.