Entrepreneurship

Entrepreneurship Notes

Introduction to Entrepreneurship

  • Entrepreneurship is offered as a common course for all freshman students in Ethiopian higher education to foster self-employment.

  • The course aims to bring behavioral changes among students and support them develop self-employment mindset in their personal and professional lives

  • The teaching material consists of seven chapters prepared by over 25 subject matter experts.

Chapter 1: The Nature of Entrepreneurship

  • Origin of the word 'entrepreneur': From the French word entreprendre, referring to someone commissioned to undertake a commercial project.

  • Entrepreneurship: What the entrepreneur does.

  • Entrepreneurial: Adjective describing how the entrepreneur undertakes their work.

  • Entrepreneurial process: The means through which new value is created (the entrepreneurial venture).

Chapter Objectives:

  • Define entrepreneurship and entrepreneur.

  • Identify types of entrepreneurs.

  • Recognize the role of entrepreneurship in the economy.

  • Analyze entrepreneurial competences.

  • Understand creativity and innovation.

Historical Origin of Entrepreneurship

  • Defining entrepreneurship is challenging due to the multiplicity of definitions.

  • Ancient Period: Entrepreneurs managed large commercial projects with provided resources.

  • 17th Century: Entrepreneurs had contractual agreements with the government to provide products or services.

  • 18th Century: Richard Cantillon defined entrepreneurs as risk-takers. Also, the entrepreneurial role was differentiated from the capital-providing role.

  • Late 19th/Early 20th Century: Entrepreneurs were viewed from an economic perspective, organizing and operating enterprises for personal gain.

  • Mid-20th Century: Entrepreneurs were seen as inventors who reform or revolutionize production by exploiting inventions or new technologies.

  • The perception of the entrepreneur has evolved from managing commercial projects to applying innovation in business ideas.

Definitions of Entrepreneurship and Entrepreneur

  • Entrepreneurship: The process of identifying market opportunities, arranging resources, and investing to exploit opportunities for long-term gains.

  • Creating incremental wealth by bringing resources together in new ways.

  • The process through which individuals become aware of business ownership, develop ideas, and initiate a business.

  • Creating something different and better with value by devoting time and effort, assuming risks, and receiving rewards and satisfaction.

Critical Elements of Entrepreneurship:

  1. Ability to perceive an opportunity.

  2. Ability to commercialize the perceived opportunity (innovation).

  3. Ability to pursue it on a sustainable basis.

  4. Ability to pursue it through systematic means.

  5. Acceptance of risk or failure.

  • Entrepreneur: A person who creates and develops a business idea, taking the risk of setting up an enterprise to satisfy customer needs.

  • A professional who discovers a business opportunity to produce improved or new goods and services and identifies a way to mobilize required resources.

  • Someone who identifies and pursues a business opportunity, undertakes a business venture, raises capital, gathers resources, sets goals, acts to ensure success, and assumes risk.

  • Someone who creates jobs, has a vision, is willing to take risks, and makes something out of nothing.

  • Economist's view: An entrepreneur brings resources together to make their value greater and introduces innovations.

  • Psychologist's view: An entrepreneur is driven by a need to achieve, experiment, accomplish, or escape authority.

  • Capitalist Philosopher's view: An entrepreneur creates wealth for others, utilizes resources efficiently, reduces waste, and produces jobs.

  • Both men and women can be successful entrepreneurs.

  • All entrepreneurs are business persons, but not all business persons are entrepreneurs.

Types of Entrepreneurs

  1. Individual Entrepreneur: Someone who starts, acquires, or franchises their own independent organization.

  2. Intrapreneur: A person who does entrepreneurial work within a large organization.

    • Intrapreneurs operate within large, bureaucratic organizations.

    • Intrapreneurs often engage in entrepreneurial actions without organizational approval.

  3. Entrepreneurial Organization: An organization that creates an environment where all members can contribute to the entrepreneurial function.

Role of Entrepreneurs in Economic Development

  • Entrepreneurial development is crucial for economic development.

  • Entrepreneurs drive industrial development, balanced regional growth, and employment opportunities.

Ways Entrepreneurs Contribute to Economic Development:

  1. Improvement in per capita Income/Wealth Generation: Entrepreneurs increase per capita wealth generation and income.

    • Wealth generation grew exponentially in the West with the advent of entrepreneurship.

  2. Generation of Employment Opportunities: Entrepreneurs create new business enterprises, generating employment.

  3. Inspire others Towards Entrepreneurship: Employees in entrepreneurial ventures gain firsthand experience and may become entrepreneurs themselves.

  4. Balanced Regional Development: Entrepreneurs set up industries in backward areas, utilizing government incentives to balance economic growth.

  5. Enhance the Number of Enterprises: New firms based on new ideas increase competition and facilitate the entry of specialist firms.

  6. Provide Diversity in Firms: Entrepreneurial activity leads to a variety of firms, fostering economic development.

  7. Economic Independence: Entrepreneurs create industries that manufacture indigenous substitutes, reducing dependence on imports and promoting exports.

  8. Combine Economic Factors: Value is created by combining raw materials, labor, and capital to satisfy human needs.

  9. Provide Market Efficiency: Competition between suppliers ensures resources are distributed optimally.

  10. Accepting Risk: Entrepreneurs accept risk on behalf of others, dealing with uncertainty.

  11. Maximize Investor's Return: Entrepreneurs maximize long-term profit for investors, generating economic efficiency.

Entrepreneurial Competence and Environment

  • Covers entrepreneurial mindset, qualities, skills, tasks, and the entrepreneur's wealth, and the relationship between entrepreneurship and the environment.

Entrepreneurial Mindset

Who Becomes an Entrepreneur?

  1. The Young Professional: Educated individuals starting their own ventures directly.

  2. The Inventor: Someone developing an innovation for the market.

  3. The Excluded: Individuals from displaced communities or minorities turning to entrepreneurship due to exclusion from the wider economic community.

Qualities of an Entrepreneur

  • Opportunity-seeking

  • Persevering

  • Risk Taking

  • Demanding for efficiency and quality

  • Information-seeking

  • Goal Setting

  • Planning

  • Persuasion and networking

  • Building self-confidence

  • Listening to others

  • Demonstrating leadership

  1. Opportunity-Seeking: Entrepreneurs seek and identify opportunities, converting them into realistic goals.

  2. Persevering: Entrepreneurs make concerted efforts to achieve goals, undeterred by uncertainties or obstacles.

    • The story of Thomas Edison exemplifies perseverance.

    • Edison faced numerous setbacks but remained dedicated to inventing.

    • His ore-mining venture failed, but one invention from it revolutionized the cement industry.

  3. Risk Taking: Successful entrepreneurs set objectives with moderate risk and take calculated risks.

    • Taking calculated risks builds self-confidence and creates a feeling of leadership.

  4. Demanding for Efficiency and Quality:

    • Efficiency means producing results with little wasted effort.

    • Quality involves continuous improvement to meet customer needs and exceed expectations.

    • Quality management includes reducing waste, cost-effectiveness, increasing market share and profitability, social responsibility, and improving reputation.

  5. Information-Seeking: Successful entrepreneurs collect information about customers, competitors, suppliers, and markets.

  6. Goal Setting: Entrepreneurs must have specific, measurable, attainable, relevant, and time-bound (SMART) goals and objectives.

  7. Planning: Entrepreneurs plan activities and account for unexpected eventualities.

  8. Persuasion and Networking:

    • Persuasion involves convincing someone to make a decision in your favor.

    • Networking involves interacting with people with similar interests for mutual assistance.

    • Factors affecting persuasion and networking include socio-cultural background, communication skills, and negotiation skills.

  9. Building Self-Confidence: Self-confidence is the state of being certain that a chosen course of action is the best.

    • Characteristics of a self-confident person include risk-taking, independence, perseverance, and the ability to learn from failure.

  10. Listening to Others: Entrepreneurs listen to others and analyze their input before making decisions.

  11. Demonstrating Leadership: Entrepreneurs inspire and lead others to undertake duties in time.

Entrepreneurial Skills

  • Skills are knowledge demonstrated by action.

  • Successful entrepreneurs identify and understand opportunities in depth.

  • Turning an idea into reality requires general management skills and people management skills.

General Management Skills:

  • Strategy Skills

  • Planning Skills

  • Marketing Skills

  • Financial Skills

  • Project Management Skills

  • Time Management Skills

People Management Skills:

  • Communication Skills

  • Leadership Skills

  • Motivation Skills

  • Delegation Skills

  • Negotiation Skills

  • Entrepreneurial performance results from a combination of industry knowledge, general management skills, people skills, and personal motivation.

The Entrepreneurial Tasks

  1. Owning Organizations: Entrepreneurs invest in and manage businesses.

  2. Founding New Organizations: Entrepreneurs bring together different elements of the organization and give them a separate legal entity.

  3. Bringing Innovations to Market: Innovation encompasses any new way of doing something that creates value.

  4. Identification of Market Opportunity: Entrepreneurs actively seek out and exploit market opportunities.

  5. Application of Expertise: Entrepreneurs use their expertise to allocate scarce resources in situations with limited information.

  6. Provision of Leadership: Entrepreneurs need the support of others to drive their innovation to market.

  7. The Entrepreneur as Manager: Entrepreneurs are managers who manage effectively and make a significant impact.

Wealth of the Entrepreneur

  • Wealth includes money, knowledge, and assets.

Who Benefits from the Entrepreneur's Wealth?

  • Stakeholders: Employees, investors, suppliers, customers, the local community, and the government.

  1. Employees: Rewarded with wages, share schemes, social relationships, and personal development.

  2. Investors: Stockholders and lenders who provide money to start and run the venture.

  3. Suppliers: Paid for providing materials, productive assets, and information.

  4. Customers: Rewarded with quality products, fair prices, and consistent supply.

  5. The Local Community: Benefits from ethical business practices, local development activities, and stability.

  6. Government: Rewarded with taxes to provide central services.

Entrepreneurship and Environment

  • Business environment refers to external factors influencing business operations.

  • A healthy business environment is favorable to growth, while an unhealthy environment is hostile.

Benefits of Studying the Business Environment:

  1. Provides essential information for successful business operations.

  2. Opens up new avenues for entrepreneurial operations.

  3. Enables businesses to adopt a dynamic approach and maintain harmony with the environment.

  4. Allows entrepreneurs to make the environment hospitable to business growth and earn popular support.

Phases of Business Environment

External Environment:

i) Economic Environment: Consists of the structure of the economy, industrial policies, national income, and balance of trade.

ii) Legal Environment: Consists of laws and regulations.

iii) Political Environment: Consists of understanding the working of the political system.

iv) Socio-Cultural Environment: Consists of the social and cultural norms.

v) Demographic Environment: Consists of the population pattern.

Internal Environment:

i) Raw Material: Assesses the availability of raw material.

ii) Production/Operation: Assesses the availability of machineries and equipment.

iii) Finance: Assesses the total requirements of finance.

iv) Human Resource: Assesses the kind of human resources required.

Environmental Factors Affecting Entrepreneurship:

  • Sudden changes in Government policy.

  • Sudden political upsurge.

  • Outbreak of war or regional conflicts.

  • Political instability.

  • Excessive red-tapism and corruption.

  • Ideological and social conflicts.

  • Unreliable supply of inputs.

  • Rise in the cost of inputs.

  • Unfavorable market fluctuations.

  • Non-cooperative attitude of banks and financial institutions.

Entrepreneurship is environmentally determined, requiring a favorable business environment.

Creativity, Innovation, and Entrepreneurship

  • These are important contributors to a nation’s economic growth.

Creativity

  • Creativity is defined as the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful.

Key Elements of Creativity:

  • Process: Creativity is a process and a skill.

  • Ideas: Creativity results in ideas that have potential value.

  • Recombining: The creative process puts things together in unexpected ways.

Steps in the Creative Process:

  1. Opportunity or problem Recognition: Discovering a new opportunity or a problem.

  2. Immersion: Concentrating on the problem and collecting relevant information.

  3. Incubation: Allowing the subconscious mind to arrange information into meaningful patterns.

  4. Insight: The problem-conquering solution flashes into mind (Aha! Experience).

  5. Verification and Application: Proving that the creative solution has merit.

Barriers to Creativity:

Avoiding ambiguity, fearing mistakes, focusing on being logical, and Blindly following the rules

Innovation

  • Innovation lies at the heart of the entrepreneurial process and is a means to exploit opportunity.

  • It is the implementation of new ideas at the individual, group, or organizational level.

Types of Innovation:

  • Invention: Creation of a new product, service, or process.

  • Extension: Expansion of a product, service, or process.

  • Duplication: Replication of an existing product, service, or process.

  • Synthesis: Combination of existing concepts and factors into a new formulation.

The Innovation Process:

  1. Analytical planning

  2. Resources organization

  3. Implementation

  4. Commercial application

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

From Creativity to Entrepreneurship

  • Creativity is the ability to develop new ideas.

  • Innovation is the ability to apply creative solutions.

  • Entrepreneurship = creativity + innovation.

Chapter 2: Business Planning

  • This unit helps understand opportunity identification and evaluation, business idea development, and business plan preparation.

  • Lack of proper opportunity identification, idea development, and business planning are reasons for business failure.

Chapter Objectives:

  • Identify opportunities in the environment.

  • Evaluate the opportunities.

  • Generate business ideas.

  • Explain the concept of business planning.