Introduction to entrepreneurship


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Introduction to entrepreneurship

  1. 1. INTRODUCTION TO ENTREPRENEURSHIPA Definition of EntrepreneurshipThe concept of entrepreneurship has a wide range of meanings. On the oneextreme an entrepreneur is a person of very high aptitude who pioneers change, onthe other extreme of definitions, anyone who wants to work for himself or herself isconsidered to be an entrepreneur.The word entrepreneur originates from the French word, entreprendre, whichmeans "to undertake." In a business context, it means to start a business. TheMerriam-Webster Dictionary presents the definition of an entrepreneur as one whoorganizes, manages, and assumes the risks of a business or enterprise.Schumpeters View of EntrepreneurshipAustrian economist Joseph Schumpeter s definition of entrepreneurship placed anemphasis on innovation, such as: new products new production methods new markets new forms of organizationWealth is created when such innovation results in new demand. From thisviewpoint, one can define the function of the entrepreneur as one of combiningvarious input factors in an innovative manner to generate value to the customerwith the hope that this value will exceed the cost of the input factors, thusgenerating superior returns that result in the creation of wealth.Entrepreneurship vs. Small BusinessMany people use the terms "entrepreneur" and "small business owner"synonymously. While they may have much in common, there are significant
  2. 2. differences between the entrepreneurial venture and the small business.Entrepreneurial ventures differ from small businesses in these ways: Amount of wealth creation - rather than simply generating an income stream that replaces traditional employment, a successful entrepreneurial venture creates substantial wealth, typically in excess of several million dollars of profit. Speed of wealth creation - while a successful small business can generate several million dollars of profit over a lifetime, entrepreneurial wealth creation often is rapid; for example, within 5 years.Risk - the risk of an entrepreneurial venture must be high; otherwise, with theincentive of sure profits many entrepreneurs would be pursuing the idea and theopportunity no longer would exist.Innovation - entrepreneurship often involves substantial innovation beyond what asmall business might exhibit. This innovation gives the venture the competitiveadvantage that results in wealth creation. The innovation may be in the product orservice itself, or in the business processes used to deliver it.EntrepreneurA person who is able to identify business opportunities and implement actions tomaximize on the opportunities. An entrepreneur initiates enterprise creation,undertakes risks, and manages resources to establish and operate a businessenterprise that is capable of self-sustainance.Definition According To J.B. SayAccording to a French economist, J. B. Say, an entrepreneur is a person who shiftseconomic resources out of an area of lower productivity into an area of higherproductivity and greater yield.Entrepreneur In Developing EconomiesIn the case of a developing economy like ours (Kenya) the concept of an
  3. 3. entrepreneur is understood differently. An entrepreneur in a developing economy isone who starts an industry (old or new), undertakes risks, bares uncertainities andalso performs the managerial functions of decision-making and co-ordinating.He also puts new processes based on technological research into operation.He is called an entrepreneur even if he imitates any techniques of production froma developed economy.The term entrepreneur has now been attributed to all small industrialists, tradersand agriculturalists. Hence, all people who are gainfully engaged in work ofmanufacturing, distribution or service in other sectors are called entrepreneurs.The entrepreneur can be considered as the fourth factor of enterprise. Theenterprise is the basic unit of an economic organisation. It produces goods andservices worth more than the resources used. Enterprise is an undertaking,especially one which involves four factors, land, labour, capital and now theentrepreneur. It involves the willingness to assume risks in undertaking aneconomic activity.imageIt also involves innovation, risk taking, and decision making. Enterpreneurs are thepersons who start new enterprises. The entrepreneur and enterprise arelinked as the success of an enterprise depends on the entrepreneur.IntrapreneurThis is an employed staff e.g manager who innovates for the company and takesrisks only on behalf of the employer. He is therefore an intra companyentrepreneur for whom the term intrapreneur is coined. Intrapraneurs are,therefore, the main entrepreneurs in large companies who innovate and take riskson behalf of their employer.These are creative people usually working together as teams, who function as
  4. 4. entrepreneurs within corporations. The idea is to use a company‟s existingresources such as human, financial and physical resources to launch new productsand gain more profit.IntrapreneurshipThis is the development within a large co-operation of internal markets andrelatively small autonomous business units producing products, services ortechnologies that employ the firms‟ resources in a unique way. It gives themanagers of the co-operation the freedom to take initiatives and try new ideas. Itis entrepreneurship within an existing business.ENTREPRENEURSHIP AND INNOVATIONCreativity is the ability to generate ideas while innovativeness is the ability toimplement the appropriate ideas. An entrepreneur is expected to be creative andinnovative so as to be able to solve problems, cope with business challenges, planand implement activities successfully.An entrepreneurs innovativeness is reflected in the following ways: Initiating new ideasInitiative is the ability to start acting on an idea. Entrepreneurs are crusaders ofnew ideas. They do not wait for conditions to be perfect to act on a new idea.They act on them and solve obstacles and difficulties as they arise. As a result anentrepreneur creates an advantage over their competitors. Searching for new informationAn entrepreneur is always open for information which facilitates the generation ofnew ideas for the business.
  5. 5. Translating ideas and information into a business ventureExcellent ideas and information are not enough. An “average” idea acted upon anddeveloped is far better than a “very good” idea that dies because it is not followedup. Entrepreneurs are action-oriented and translate good ideas to actions.InquisitivenessAn entrepreneur is always curious to know what is happening in the businessenvironment. This ability of being inquisitive and sensitive to the environmentupgrades the entrepreneur‟s level of thinking and approach to business problems. PerseveranceEntrepreneurs do not give in to failure. Rather, they seek out the faults andweakness and then correct them. They persevere in their effort to overcomeproblems and setbacks and eventually win. Removing mental blocks and acceptanceMental blocks and acceptance are traits that inhibit creativity and innovativeness.Some of these are traditional methods and beliefs. An entrepreneur has the abilityto remove these barriers and encourage clear thinking and independence in his orher venture.ENTREPRENEURIAL CONTRIBUTION TO ECONOMIC DEVELOPMENTUtilization of Local ResourcesLocal resources, some of which would be otherwise declared useless, are put tomore gainful use. The value of the resources is improved. For example, theconversion of waste products such as nylon papers to make plastic posts,bottletops from used bottles to make door curtains, sisal fibre to make the world‟sfamous “ciondo” etc.
  6. 6. Promotion of TechnologyEntrepreneurs are very creative hence they contribute to the utilization anddevelopment of technology. For example, the development of the energy savingjiko, wheel chairs, washing machines, vegetable and fruit cutting machines,charcoal refrigerators etc.Capital FormationEntrepreneurs help in the creation of wealth for the country through job creation (as employees save their salaries and wages through the banking system and othersystems, they contribute to capital formation). As the entrepreneurs pay tax andsave their earnings they too directly contribute to capital formation.Creation Of Employment OpportunitiesEntrepreneurs help in solving the unemployment problem. Majority of indigenousKenyan entrepreneurs are in Small Scale and Jua Kali Sector which is a majoremployer in the country.Promotion of an Entrepreneurial CultureBy portraying successful images, entrepreneurs become models to the upcomingKenyan generation. A country which embraces entrepreneurial culture is bound tobe economically stable.Export PromotionMany products manufactured by the Kenyan Jua Kali/Small Enterprise sector findtheir way to foreign markets and in return Kenyan entrepreneurs identify foreignmarkets. Through these activities, entrepreneurs are able to earn the countryforeign exchange.
  7. 7. Favourable Balance of PaymentThe improvement of the Jua Kali Sector has seen a reduction in the rate of lossthrough import only. There is now a balance between the import and exportbusiness.The rate of improvement of industries in Kenya has gone up as a result of animprovement in the Jua Kali and Small Scale Enterprises sector.Improved Marketing of Locally Produced ProductsThe improvement in the Jua Kali sector has resulted in an improvement in theinternal and external markets. With the current competition, every business iscompelled to produce quality products/services and aggressively market the same.Improved InfrastructureCreation of businesses leads to improved cities and towns which in turn result inimprovement of roads, banking services, telephone network, electricity etc.Promotion of Talent and HobbiesThe Jua Kali and Small Scale Enterprise Sector encourages young people to exploittheir talents.Improved Growth In Gross Domestic ProductThere is now favourable trade internally and this has seen an increase in economicgrowth.Self-relianceEntrepreneurs enable citizens to survive comfortably without too much borrowing.ENTREPRENEURSHIP AND SELF-EMPLOYMENT
  8. 8. This is a state in which a person puts his effort in a business or an activity thatbelongs to him/her. He or she works independently and earns a living from it.An entrepreneur is one who recognises an opportunity and takes the risks as abusiness owner of providing a needed product or service for which an adequatereward (profit) is realised. Thus both risk and profit are involved.These descriptions both fit entrepreneurship and self-employment so they are oneand the same, although entrepreneurship is a more serious and deliberate level ofself-employment.Factors To Consider Before Going Into Self-employment Business Idea Skills (Technical/Managerial) Market Capital (Opening, Working or Long-term) Machinery (Technology) Raw materials Location (Strategic) Legal Issues CompetitionREASONS FOR SELF-EMPLOYMENTNeed to improve personal incomeBesides the inability to secure any type of employment this is the most basicreason which causes many low income earners to directly embark on business byway of self employment. Inflation often impairs the ability of low income earners toafford basic necessities of life to an extent they have to look for alternative ways ofensuring survival, and this may lead them to set up smallbusiness.
  9. 9. Inability to secure a desirable jobThe number of Kenyans eligible for employment is very high. There are not enoughemployment opportunities in the formal sector. The small business sector has thecapacity to create many jobs.Influence of othersAlthough many aspiring entrepreneurs make a personal decision to go into businessthere are also strong indications that just as many if not more get courage to takethe plunge as a result of influence or inspiration gained from close associates suchas friends or relatives already in business.To fulfil a life long ambitionThere are those people in society whose ultimate goal is to go into business atsome defined point life no matter how attractive wage employment might seem.These people are usually highly motivated internally and do not need extrinsicmotivators to go into business. They are often high achievers who aim for selffulfilment which comes from doing something unique.To seek more independenceThese are people who prefer to be introduced to a task without being led everystep required for the accomplishment of the task. They like to be left alone to thinkand develop their own initiative. When guided closely they feel belittled, frustratedand impatient. Occasionally these people rebel and will often end up in selfemployment if the present opportunity does not give them the opportunity to seekchallenge and contribute their own ideas.Love for adventureInnovative people thrive on exploring new ideas and opportunities even if theoutcome might be uncertain and risky. They derive satisfaction from the thrills that
  10. 10. arise from a mixture of success and uncertainity.Dissatisfaction with wage employmentThis may be as a result of , poor prospects of career advancement delayed promotions lack of recognition or appreciation of special accomplishments poor terms of service unsatisfactory working conditions pending redundancyFavourable environmentThese include appropriate incentives eg access to credit facilities laws governing small enterprise creation access to raw materials and machinery good infrastructure eg roads telephone networks electricity inexpensive cost of labourCHARACTERISTICS OF ENTREPRENEURSIntroductionM. M. P. AKhouri, formerly Executive Director, National Institute forEntrepreneurship and Small Business Development (NIESBUD), New Delhi,describes an entrepreneur in words that clearly bring out the characteristics of anentrepreneur. He describes entrepreneur “as a character who combinesinnovativeness, readiness to take risk, sensing opportunities, identifying andmobilizing potential resources, concerns for excellence and who is persistent inachieving the goal.”
  11. 11. Characteristics 1. An eye for opportunity: Many entrepreneurs start by finding a need and quickly satisfying it. They are always alert to opportunities. They are very much quick to see and grab opportunities. They plan intellectually and anticipate carefully how to achieve their goals in realizing an opportunity. 2. Independence: Even though most entrepreneurs know how to work within the framework for the sake of profits, they enjoy being their own boss. They like doing things their own way. The characteristics of independence and the sense of determination are the drives that make anentrepreneur start their own business. In a way, their own business fulfills their need for independence. 3. An appetite for hardwork: Most entrepreneurs start out working long, hard, hours with little play. Entrepreneurs are always at work even when other people have stopped. They are persistent and strongly believe that working hard will help them attain their goals. They hence focus on the end result. 4. Self-confidence: Entrepreneurs must demonstrate extreme selfconfidence in order to cope with all the risks of operating their own business. Most successful entrepreneurs are confident of achieving realistic and challenging goals. They get into business or industry with a high level of self-confidence. This, couples with a sense of effectiveness ultimately contribute to the success of the venture. 5. Discipline: Successful entrepreneurs resist the temptation to do what is unimportant or the easiest but have the ability to think through what is the most essential. Entrepreneurs are economically efficient, do not like to waste time and they like to see work completed. They use discipline as a guide to their destination.
  12. 12. 6. Judgement: Successful entrepreneurs have the ability to think quickly and make a wise decision. This is possible because they have a plan, they have an economic goal, they know what they want and they know what they can do. Entrepreneurs are unaffected by personal likes and dislikes. They stand beyond these types of prejudices as they are realistic in their approach. At the time of their need they select experts rather than friends and relatives to assist them. They usually avoid emotional and sensitive attitude towards their business or problem.7. Ability to accept change: Change occurs frequently when you own your own business, the entrepreneur thrives on changes and their business grow. An entrepreneur may need to change his/her plans in order to help the business grow. Entrepreneurs look at many solutions to their problems. They realize that other people may know how to do something better. Entrepreneurs can choose the best way to do something, even if it is different from how they want to do it.8. Make stress work for them: On the roller coaster to business success, the entrepreneur often copes by focusing on the end result and not the process of getting there. Entrepreneurs are capable of working for long hours and solving different complexities at the same time. As the captain of an industry or an enterprise, an entrepreneur faces a number of problems and in right moment he takes right decisions which may involve physical as well as mental stress.9. Need to achieve: Although they keep an “eye” on profit, this is often secondary to the drive toward personal success. Entrepreneurs have strong desire to achieve higher goals. Their inner self motivates their behaviour towards high achievement. To an entrepreneur, winning is achievement.
  13. 13. 10. Focus on profits: Successful entrepreneurs always have the profit margin in sight and know that their business success is measured by profits.11. Risk-bearing: Entrepreneurs are the persons who take decisions under uncertainty and thus they are willing to take risk, but they never gamble with the results. They choose moderate risk rather than play wild gamble.They, therefore, undertake calculated risk which is high enough to be exciting, but with a fairly reasonable chance to win.12. Locus of control: Closely consistent with McClelland‟s theory of need for achievement, is the belief in internal locus of control. According to Rotter‟s locus of control theory, an individual perceives the outcome of an event as being either within or beyond his personal control. Entrepreneurs believe in their own ability to control the consequences of their endeavour by influencing their socio-economic environment rather than leave everything to luck. They strongly believe that they can govern and shape their own destiny.13. Creative and Innovators: Successful entrepreneurs are innovators. They constantly put their efforts in introducing new products, new method of production, opening new markets and reorganizing the enterprise. They always try not to be satisfied with conventional and routine way of doing things, but always think of how they can do them in a better way.14. Leadership: Entrepreneurs should possess the quality of leadership. Leadership is the ability to exert interpersonal influence by means of communication towards the achievement of goals. Entrepreneurs as leaders should provide the necessary spark of motivation by guiding, inspiring, assisting and directing the members of the group for achievement of unity of action, efforts and purpose. According to George R. Terry: “Leadership is the activity of influencing people of strive willingly for group objectives”. Thus, entrepreneur, as the leader of the group, can
  14. 14. ensure high performance by creating a well-to-do environment among others. They must have the capability to arrive at prompt and correct direction and win the confidence of their subordinates. Being the leader of the enterprise, they should possess the following characteristics: o Existence of followers o Assumption of responsibility o Empathy conduct o Exemplary conduct o Developing teamwork o Common objectivity o Facilitating change o Building morale o Maintenance of discipline o Active participation15. Hence, entrepreneurs by their own leadership styles and behaviour reduce the problems with careful listening and proper handling of situations. Good administrative work depends upon effective leadership of the entrepreneur.16. Ability to mobilize resources: Entrepreneurs must have the ability to marshal all the inputs to obtain the end product. They have to mobilize 6Ms, i.e. Man, Money, Material, Machinery, Market and Method effectively to realize the final product as entrepreneurship is a function of gap filling and input completing.17. Conclusion Entrepreneurs have many qualities that help them their businesses successful. However, an entrepreneur does not have to possess all the qualities. In that case he has either to learn or hire the services of those who possess the qualities he does not have.
  15. 15. GENERATING A BUSINESS IDEAA business idea is a prerequisite for a person venturing into business. It could bedefined as an entrepreneurs understanding of: 1. Self 2. Market and 3. Product or servicewhich helps to generate ideas and determine which idea would be best to developinto a business opportunity.Generating business ideas requires entrepreneurs to be constantly aware of theirenvironment and economic needs of people living in that environment.It is important that entrepreneurs are original in their ideas to be able to followthem through to success. They must avoid the “Me too” syndrome.SOURCES OF BUSINESS IDEABusiness ideas are all around you. Some business ideas come from a carefulanalysis of market trends and consumer needs; others come from serendipity. Ifyou are interested in starting a business, but dont know what product or serviceyou might sell, exploring these ways of getting business ideas flowing will help youchoose.Examine your own skill set for business ideas.Do you have a talent or proven track record that could become the basis of aprofitable business? To find a viable business idea, ask yourself, "What have Idone? What can I do? Will people be willing to pay for my products or services?"Keep up with current events and be ready to take advantage of businessopportunities.If you read or watch the news regularly with the conscious intent of findingbusiness ideas, youll be amazed at how many business opportunities your brain
  16. 16. generates. Keeping up with current events will help you identify market trends,new fads, industry news - and sometimes just new ideas that have businesspossibilities.For instance, African dishes have become very popular with the Kenyan people andthere are now entrepreneurs who are running successful restaurants specializing inAfrican dishes. One such restaurant is „amaica‟ restaurant, Luyha name for cookingplace situated in Nairobi and which is a popular eating place even for foreignersvisiting Kenya because of its delicious African dishes.Invent a new product or service.Think back 30 years ago. Nobody ever appreciated the adverse effect on usingkerosene lanterns in rural African homes. But one young Kenyan, Evans Wadongo,whose eye sight has been affected to date because of using kerosene lanternsduring his initial years of schooling, has seen the need to save other Kenyans forsuffering the same effects by inventing a solar-powered LED lanternwhich he hopes will ultimately improve education and reduce poverty and hungeramong the rural population of Kenya.Look around and ask yourself, "How could this situation be improved?" Ask peopleabout additional services that theyd like to see. Focus on a particular targetmarket and brainstorm business ideas for services that that group would beinterested in.Add value to an existing product.The difference between raw wood and finished entertainment unit is a goodexample of putting a product through an additional process which increases itsvalue, but additional processes are not the only way value can be added. You mightalso add services, or combine the product with other products. For instance, a localfarm which sells produce also offers a vegetable deliveryservice; for a fee, consumers can have a box of fresh vegetables delivered to their
  17. 17. door each week.What business ideas can you develop along these lines? Focus on what productsyou might buy and what you might do to them or with them to create a profitablebusiness.Really. Once you develop an entrepreneurial frame of mind, youll see that findingbusiness ideas is just as easy as finding leaves on trees.Investigate other markets.Some business ideas arent suited to local consumption - but appeal greatly to aforeign market. Kilifi residents for instance, think that the chameleon is one urglyscary creature, but one entrepreneur discovered that there was a good market forthis creature abroad and is now doing booming business by harvesting thesecreatures and exporting them to the foreign market. Finding out about othercultures and investigating other market opportunities is an excellent way to findbusiness ideas.Improve an existing product or service.A few years ago, the baby coat for example, was a simple woven basket likeproduct which had only space for the baby to sleep. The current baby coat is agreat improvement on this as it is now wooden or metal, lifted up, it wide, coveredby a net to keep away flies and mosquitoes, and has a place where the baby‟sdiaper can be changed. This change has been necessitated by themodern mother‟s change in taste.There are very few products (or services) that cant be improved. Start generatingbusiness ideas by looking at the products and services you use and brainstormingideas as to how they could be better.Get on the bandwagon.Sometimes markets surge for no apparent reason; masses of people suddenly
  18. 18. "want" something, and the resulting demand cant be immediately met. Forexample, during the Obama campaign fo the presidency of American, there was aninsatiable demand among some Kenyans for anything with the portrait of PresidentObama or on which his name was printed, be it a cap, T-shirt, wristband, headband, etc and many entrepreneurs, especially in Kisumu capitalized on thisbusiness idea.Look at existing businesses and the products and services they offer and determineif theres a need for more of those products or services. If there is, developbusiness ideas to fit the market gap.Are you brimming with ideas for starting a business now? Write your business ideasdown. Let them swirl around in your head and coalesce. And keep an open mindand continue to assess everything you read and hear from an entrepreneurial pointof view. You dont want to run with the first business idea you think of; you want todiscover the idea thats best suited to your skills and desires. Dream, think, plan -and youll be ready to transform that business idea into the business youve alwayswanted.Other Sources: Newspapers/magazines Exhibitions/shows Hobbies Interests Through surveys Brainstorming Matching skills with opportunities and Social interaction and employment