Introduction to Entrepreneurship
- 2. Introduction to Entrepreneurship The foundation of nation’s economies is not a preserve of the big businesses only but also the small businesses as well. Small businesses and Entrepreneurs have boosted the economy of great nations such USA, to the extent that the authorities initiate strategic and financial programs to support them Small businesses usually graduate to become entrepreneurs. The word Entrepreneur is derived from French “entreprendre” literally meaning to initiate or to undertake to go-between. The earliest use of the term expressed the sense of a “middleman” who directed resources provided by others. The word is now used to indicate one who is risk taker, organizer or innovator
- 3. Entrepreneurship or Entrepreneur Misconceptions Successful entrepreneurs need only a great idea Its easy Its risky gamble Its found only in small businesses Entrepreneurial ventures and small businesses are the same thing Entrepreneurship cannot be developed
- 4. Definition of Entrepreneur A distinction is often made between the small business owner and the entrepreneur. The small business owner is seen as one who establishes and manages a business to attain personal objectives (owners needs and not general public) In contrast, an entrepreneur creates a business to build the enterprise for growth and profit (global interest) The entrepreneur uses deliberately planned approach that applies strategic management concepts and techniques, that makes him highly innovative, creating new methods of production and management.
- 5. Therefore, an Entrepreneur is one who effectively combines the other factors of production (land, labor, capital) in an unusual ways to create goods and services for the society One who incubate ideas, gather resources, take individual risks and persist in seeing their ventures succeed One who creates a new business out of opportunities, in the face of risk and uncertainty for the purpose of achieving profit and growth. Those who incubate new ideas, start enterprise based on those ideas, and provide added value to society based on their independent initiatives.
- 6. In effect, an Entrepreneur is an innovator or developer who recognizes and seizes opportunities; converts those opportunities into workable ideas; adds value through time, effort, money, or skills; assumes the risks of the competitive marketplace to implement these ideas; and realizes the rewards from these efforts (Ronstadt, 1984) Richard Cantillon: Entrepreneur is an agent who buys factors of production at certain prices in order to combine them into a product with a view to selling at uncertain prices in future
- 7. The New Encyclopedia Britannica: Entrepreneur is an individual who bears the risk of operating a business in the face of uncertainty about the future conditions Joseph Schumpeter: Entrepreneur is an individual who introduces something new in the economy Entrepreneurs are creative disrupters. They bring resources together in an unusual situations to generate profits. Peter F. Drucker: Entrepreneur is one who always searches for changes, responds to them and exploit them as an opportunity
- 8. From all indications, as propounded by the various authors and authorities, we can conveniently describe the term Entrepreneur to include the following: Doers and not thinkers Do unexpected things Adventurers, they can at once disrupt a society and instigate progress Change agents of progressive societies Movers and shakers who constructively disrupt the status quo Give an example in west Africa?
- 9. Entrepreneurship Entrepreneurship is a process or behavior that includes: i. Taking initiatives ii. Organizing or reorganizing (turning resources, ideas into practical account) iii. Taking or accepting risk It can be defined as the process of doing things that are not generally done in ordinary course of business routine.
- 10. Process of reforming the pattern of production by exploiting an invention or untried technological possibility for producing a new commodity or producing an old one in a new way Robert Ronstadt defines entrepreneurship as a dynamic process of creating incremental wealth. This wealth is created by individuals who assume major risks in term of equity, time and career commitment of providing value for some products or service
- 11. HIGGINS: Entrepreneurship is the function of seeking investment and production opportunity, organizing an enterprise to undertake a new production process, raising capital, hiring labor, arranging the supply of raw materials, finding site, commodities, discovering new sources of raw materials and selecting top managers for day to day operations of an enterprise A COLE: Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or aggrandize profit by production and services Entrepreneurship is therefore: A multi dimensional concept A purposeful economic activity A dynamic and risky process A fusion of capital, technology and human intellect.
- 12. Features or Characteristics of Entrepreneur / Entrepreneurship Entrepreneurs globally tend to exhibit several characteristics and there is no one isolated set of traits for their identity. The following are the characteristics: Locus of control & responsibility: Entrepreneurs have the perception that all events in their life must be under their control, so as to influence such events and determine their fate, control their resources, use those resources to achieve self determined goals. That's a deep sense of personal responsibility
- 13. Calculated risk taking: Entrepreneurs are not wild risk takers but are instead calculating risk takers Confidence in the ability to succeed: Entrepreneurs tend to be optimistic about their chances for success or ability to succeed Desire for immediate feedback: Entrepreneurs expect to know how they are doing and constantly looking for feedbacks. Future orientation: Always stay focused for the future. They are less concerned with what they did yesterday than with what they might do tomorrow.
- 14. Skill at organizing: Entrepreneurs know how to put the right people together to accomplish a task. Value achievement over money: One of the most misconception about entrepreneurs is that they are driven wholly by the desire to make money. To the contrary, achievement seem to be primary motivating force then money. High degree of commitment: Entrepreneurship is hard work and total commitment to any successful launching.
- 15. Tolerance for ambiguity: Tolerate ambiguous situations in business and have greater ability to handle uncertainty. Flexibility: Entrepreneurs are flexible and able to adapt to changes. Tenacity: Obstacles, obstruction and defeat typically do not dissuade entrepreneurs from pursuing their vision. They simply keep trying. Knowledgeable about market and versatile in knowledge Creative Dynamic leader
- 16. Self confident and optimistic Independent minded Energetic and diligent: The energy is a critical factor for an entrepreneur. They are more energetic than the average person. Long hours and hard work are the rule rather than the exception. Responsive to suggestions Takes initiatives Resourceful and persevering Responsive to criticism
- 17. Types of Entrepreneurs Joseph Schumpeter (Adventurous Entrepreneur): One who acts on his own account, introduces changes that others do not dare to experiment with. Arthur Cole (Empirical Entrepreneur): One who hardly introduces anything revolutionary as follows the rule of thumb. Arthur Cole (Rational Entrepreneur): One who is well informed about the general economic conditions and introduces changes that look more revolutionary. Cognitive Entrepreneur: One who is well informed, draws upon the advice and services of experts and introduces changes that reflect complete break from the existing frame of things.
- 18. Clarence Danhof’s Classification of Entrepreneurs Clarence Danhof’s has classified entrepreneurs into four types namely: i. Innovative Entrepreneur ii. Imitative or Adoptive Entrepreneur iii. Fabian Entrepreneur iv. Drone Entrepreneur
- 19. Innovative Entrepreneur: Those who introduces new products, new methods, new methods of production, opens new markets and reorganizes the enterprise. These entrepreneurs are usually aggressive in nature and present their product or service with zeal and devotion. Example is Hennery Ford who wanted to replace the petrol fuel or the diesel engine with the Kerosene fuel system. They exhibit cleverness in putting attractive possibilities into practice. It is important to note that such entrepreneurs can work only when a certain level of development is already achieved, and people look forward to change and improvement. They focus on revolutionalization and development. It is the innovative entrepreneurs who built the modern capitalism. They are commonly found in developed countries.
- 20. Imitative Entrepreneur: Another name for imitative entrepreneurs is Adoptive Entrepreneurs. They adopt victorious innovations launched by the innovative entrepreneurs. They duplicate the technology and techniques innovated by others. E.g. CD China Shipyard used technology provided by Mitsubishi Heavy Industries, Japan. This type of entrepreneurs are suitable for underdeveloped countries.
- 21. Fabian Entrepreneur: These are the second generation Entrepreneurs and are very skeptic about taking a step unless and until they are definite about it. Very cautious, shy, and sometime lazy. They only imitate if they see fit and have a clear and broad picture of things. They do not prefer to take risk, are very rigid and fundamental in their thinking to taking risks. They mostly follow the traditional method and do not prefer to change. No risk but follows footsteps of predecessors, and are guided by custom, tradition, past practices. Example of Fabian are more applicable in the Indian rural agriculture environment, where traditional acquired land is passed down to their successors, the new Landlord try to run their business in a pre- historic manner with traditional methods of book keeping and less changes.
- 22. Drone Entrepreneur: Also called Laggards. They are stubborn to the changes, even if they have to bear a certain amount of decrease in the profits. They prefer to run the enterprise the way it is regardless of the change in demand and the trend in the market. They usually suffer losses, as they refuse to make any modifications in the existing production methods.
- 23. Other Categories of Entrepreneurs Solo Operators: Solo operators are those entrepreneurs who essentially work alone or have a few employees. Most entrepreneurs start their enterprises like this. Active Partners: Active partners are basically solo operators who start an enterprise as a joint venture. It is important that all of them actively participate in the business of the firm. Partners: There are certain entrepreneurs who only contribute funds to the enterprise without actively participating in various activities of the firm are known as simply partners.
- 24. Inventors: They like to invent new products and services through their research and innovative activities and may need to set up a business enterprise to make them commercially viable. Their interest is basically in research, and they often-lack managerial experience or desire to run a business. Challengers: These are the entrepreneurs who get into the business because of the challenge it represents. They tend to get bored when it seems that challenges are met and doing well. Then they begin to search for newer challenges. First-Generation Entrepreneurs: These entrepreneurs who start their industrial unit by means of their own innovative skill and expertise. They usually combine different technologies to produce marketable products or services for the consumers. They are essentially innovators having no entrepreneurial background. Second-Generation Entrepreneurs: Those who inherit family businesses and passed them from one generation to another
- 25. Classical Entrepreneurs: A classical entrepreneur is a stereotype entrepreneur who aims at maximizing his economic returns at every level consistent with the survival of the firm with or without an element of growth. Modern Entrepreneurs: Modern entrepreneurs are those who undertake ventures which run smoothly along with the changing demand of the products or service in the market. They also take up such ventures which suit the current marketing needs of the consumers. Men Entrepreneurs: When an entrepreneur is a male one who owns, manages, and controls the business enterprise is called a men/male entrepreneur. They are the key players in any developing economy particularly in terms of their contribution to economic development.
- 26. Women Entrepreneurs: Women or female entrepreneurs are those section of the female population who venture out into industrial activities in the field of manufacturing, assembling, job works, repairs/servicing and other business. The women take the lead, organize and manage the business or industry and help in providing employment to others. Rural Entrepreneurs: Rural entrepreneurs are those who want to carry out their entrepreneurial activities in the rural and backward sector of the economy. They set up their enterprises in rural areas. Urban Entrepreneurs: Urban entrepreneurs are those who establish their enterprises in the urban or developed sector of the economy and carry out their entrepreneurial activities more successfully than the rural entrepreneurs.
- 27. Serial Entrepreneurs: Those who repeatedly start a business and grow it to a sustainable size before striking out again Leap Froggers: People who start a company, manage its growth until they get bored, and then sell it to start another. Parallel Entrepreneurs (Jugglers): People who start and manage several companies at once.
- 29. Functions of Entrepreneur Risk measurement & risk taking: Risk taking is the primary function of entrepreneur. Innovate, create or discover: entrepreneurship is innovativeness of individual and does not involve ownership. Analyze opportunities: Entrepreneurs seek opportunities, evaluate them creditably and chose suitable alternatives which will prove to be profitable in future Develop business plan: a business plan is a written document containing details about every aspect of proposed business venture. The plan provides roadmap to employees working in company to attain objectives of the company. Resource acquisition: they acquire various types of resources (capital, labor, machinery etc) for the progress of the organization
- 30. Organize and start ventures: Entrepreneurs are able to deploy resources at right places in right time to ensure effectiveness in the business operations Develop and grow ventures: entrepreneurs do not only start businesses but also develop them and grow them to satisfactory positions Delegate, direct and lead: the growth of an organization depends on certain factors, including management direction and style. During the growth stage of an organization, entrepreneur provides the resources needed for the upkeep of the organization Supervise & Control: Entrepreneurs do have a tracking systems for managing and controlling the affairs of the organization.
- 31. Intrapreneur Intrapreneur is the person who works within the organization, utilizes the resources available within the organization and tries to accomplish present task in innovative and creative manner by effective utilization of available resources. That is, a person who pursues an innovation, becoming a champion for its development, but does so from within the security of his or her organizational position
- 32. Features of an Intrapreneur Create new ventures: Giving birth to new business within the existing organization is a typical characteristics of intrapreneur. Innovate products and services: Intrapreneur updates organization techniques through implementation of new technology in company Innovates process: As a matter of competition, intrapreneur renew company processes and activities in order to gain an urge over competitors Proactive: Intrapreneur attempt to lead rather than follow competitors through their activities in terms of advance operation in company Risk Taking: Intrapreneur posses risk taking attitude with regard to investment decisions and strategies actions under uncertain situations Brand image: Intrapreneurs come out with new strategies to develop company’s brand image in market
- 33. Emergence of entrepreneurial class In the beginning was the invention of a hand ax, then wheel and new ways of growing crops was discovered. The work of entrepreneurship became real in the 19th century, during the industrial revolution The three early pioneers of entrepreneurship included Samuel Colt, Eli Whitney and Samuel Morse Colt was synonymous with weaponry, which helped to increase firepower needed to expand westwards Whitney was to cotton gin which promoted cotton productivity for export Morse’s telegraph revolutionalized communication technology
- 34. The foundation of modern industry were laid in 20th century. Tycoons of the time included” Andrew Carnegie, founded the American Steel Industry Henry Ford pioneered mass assembly of automobile Swift for meat packaging Vanderbilt for railroads John D. Rockefeller for oil empire and fortunes. The oil empire was in place before age 30
- 35. Contemporary period of entrepreneurship began with innovators such as : i. Cyrus McCormick, for mechanical reaper that revolutionalized agriculture ii. Alexander Graham Bell for telecommunication industry with the telephone. Henry Ford was not an inventor but an astute entrepreneur. Created a manufacturing process based on a system of specialization that no one could matched. He eclipsed some early auto inventors together to form the General Motors
- 36. Thomas Edison is credited with light bulb. Was not only an inventor but an astute entrepreneur. He was successful only after he made the light bulb commercially viable by establishing an electric generating industry to power the bulb. Thus the entrepreneurs were responsible for innovations that significantly improved human productivity. Many industry giants began modestly as entrepreneurial ventures e.g. Intel Corporation in microelectronics, Sun Microsystems in electronic workstation, Wang Laboratories in office systems etc.
- 37. Entrepreneur Versus Entrepreneurship Entrepreneurship is the process of doing things or reforming the pattern of production by exploiting an invention or untried technological possibility for producing a new commodity or producing an old one in a new way Those individuals who assume major risks in term of equity, time and career commitment to produce new commodities or producing an old one in a new way or providing value for some products or service are the Entrepreneurs
- 38. Entrepreneurship & Creativity & Invention & Innovation Creativity is the seed that inspires entrepreneurship. As per Schumpeter, innovation is the process of entrepreneurship Innovation by Drucker is the means by which the entrepreneur either creates new wealth producing resources or endows existing resources with enhanced potential for creating wealth Innovation implies action, not just conceiving new ideas When people have passed through the illumination and verification stages of creativity, they may have become inventors, but not yet innovators
- 39. Invention versus Innovation (fig.1) Invention Creating of something new Result in new knowledge Innovation Transformation of an idea into useful application Result in new product
- 40. Elements in innovation process (fig.2) Analytical planning Organizing resources Implementation Commercial application To identify: •Prod .design •Mkt Strategy •Financial need To obtain: •Materials •Technology •HR •Capital To accomplish: •Organization •Product design •Manufacturing •Service To provide: •Value to customer • Empl.reward •Investors rev. •Satisfaction for founders Translation of idea into a useful application
- 41. Creativity is the ability to bring something new into existence, conceiving the idea and articulating the new knowledge. Creativity has been defined as a non-rational process of incubating ideas, allowing the subconscious mind to wonder and to pursue fantasies. Research have shown that human brain has two distinct hemisphere: The right is the creative side where spatial relationships are developed, intuition prevails and nonverbal imagination influences one’s behavior. The left is the analytical side where abstract thoughts and concepts may be formulated, but only through logical and rational process Psychologists are of the view that people tend to have dominant orientation, either to the left side (rational & analytical behavior) or to the right side (creative & intuitive behavior)
- 42. Invention is the creation of new products, processes, and technology not previously known to exist. Inventor we define as those who create new things or products, however, inventors are not limited to the creation of new product but they also identify new technological processes, new form of plant life, and new designs. Edison’s electric power system illustrate the point. Inventors are usually stereotyped as people who deal with ‘things’ such as new products Innovation is the development process. For an idea to have value, it must be proven useful or marketable and to achieve either status, the idea must be developed as in fig.2
- 43. Innovation is the transformation of creative ideas into useful applications by combining resources in new or unusual ways to provide value to society for new or improved products Whilst an Inventor might only create a new product, an Entrepreneur will not only create a product but gather resources, organize talent and provide leadership to make it a commercial success.
- 44. Entrepreneur takes the bold step (dare the risk and provide leadership) to reforming the pattern of production by exploiting an invention or untried technological possibility for producing a new commodity or producing an old one in a new way for customers satisfaction. Entrepreneur will need to obtain material and technical capabilities, staffing operations, organize the system to be able to produce a product Note, Henry Ford is not an inventor, but an astute entrepreneur Note, Thomas Edison is an inventor and an astute entrepreneur
- 45. One major function of management is planning. Most business entrepreneurs plan to some degree. But the amount of planning is typically less than the ideal Whereas the overriding function of management is to provide order and consistency to organizations, the primary function of entrepreneurship is to effectively combines the other factors of production (land, labor, capital) in an unusual ways to create goods and services for the society. Management may avoid risk in their operations, yet entrepreneur takes calculated risk. Managers are reactive and prefer to work with people to solve problems but do so with low emotional involvement. But entrepreneurs need not work with people to solve any problem. They are emotionally active. Managers manage things and entrepreneurs get things done. Entrepreneurship versus Management
- 46. Entrepreneur versus Leader While entrepreneurship involves a process of creating incremental wealth by assuming major risks and leadership, leadership is a process of influencing the group for a change or a common purpose. Leaders work within the group but entrepreneurs need not work in a group Leaders influences the follower but entrepreneurs may not necessarily have followers to influence A leader may avoid risk taking (positional or appointed leader) but entrepreneurs are risk averse. They must always go under the load to get the task accomplished An entrepreneur may use different style of leadership (coercive, authoritative, democratic etc) to get the best out of the organization and the employees Entrepreneurs implement their leadership in organizing and directing the firm’s operation.
- 47. Leadership & Management distinction Leadership is a process that is similar to management in many ways Leadership involves influence, as does management Leadership entails working with people, management entails as well Leadership is concerned with effective goal accomplishment, and so do management But leadership is different from management in the sense that, whereas the study of leadership can be traces back to Aristotle, management emerged around the turn of the 20th century in the industrial revolution era. Whereas the overriding function of management is to provide order and consistency to organizations, the primary function of leadership is to produce change and movement
- 48. Management is about seeking order and stability but leadership is about seeking adaptive and constructive change Bennis & Nanus 1985 maintain that management means to accomplish activities and master routine but to lead means to influence others and create vision for change Bennis & Nanus claim, managers are people who do things right and leaders are people who do the right things Rost 1991, whereas leadership is concerned with the process of developing mutual purposes, management is directed towards coordinating activities in order to get a job done Koter 1990 contended that both management and leadership are essential if organization is to prosper.
- 49. Koter maintain that an organization with strong management without leadership, the outcome can be stifling and bureaucratic. Conversely, if organization has strong leadership without management, the outcome can be meaningless or misdirected change for change sake. To be effective, the organization need to nourish both management and leadership competence or skills Zaleznik 1977 argue that managers are reactive and prefer to work with people to solve problems but do so with low emotional involvement. But leaders are emotionally active and involved Managers manage things and Leaders lead people Fact that the substance of the connection between leader and follower differ from that between a manager and subordinate or employee To be an outstanding manager often necessitates being a good leader, and to be an outstanding leader requires one to be good at decision making, planning, organizing, directing and controlling – the essence of managing
- 50. ENTREPRENEUR VS.MANAGER: OWNERSHIP : An entrepreneur is the owner of the enterprise which he established himself but a Manager acts in the Capacity of a servant in the enterprise (Servant) Profit: The Reward of the Entrepreneur is profit which is highly uncertain but the reward for a manager is salary and his salary is certain and fixed. Full Risk Bearing : As the Owner, the Entrepreneur has to bear all risks and uncertainties involved in the business but managers need not bear any risk involved in the enterprise. All Functions : an Entrepreneur has to perform many functions in order to run the enterprise successfully yet Managers are responsible for managerial activity only. Innovator : An Entrepreneur mainly acts as an Innovator and prepare plans for execution yet Managers mainly act as Executors of plans prepared by the Entrepreneur.
- 51. Entrepreneur VS. Intrapreneur : Entrepreneur own their businesses and generate ideas for company's growth but Intrapreneurs operate in big Organizations that do not belong to them. In other words, they are top executives with Entrepreneurial talents who are encouraged to generate new ideas and then convert them into products through research and development carried out within the organization. This concept of Intrapreneurship has gained popularity in developed countries like America. The managements or owners are not often receptive to their ideas, which usually caused them to leave their parent organization and start Ventures of their own.
- 52. Entrepreneur VS. Copreneur: When a Married Couple share ownership, Commitment and Responsibility for a business they are called “ Copreneur ”. The concepts of married couple working together in a business is as old as the family itself. ONTREPRENEUR / NETPRENEUR: In these day of information technology one can become an entrepreneur very easily by launching “online business.” The Internet has changed the concepts of everything including the business. With a small investment, any person can set up a website and look for potential customers in the line of business that he offers. An Individual who launches a new business or an innovation through the internet has been called Ontrepreneur and also know as Netpreneur .
- 53. Entrepreneurs vs. Ultrapreneurs Ultrapreneur is someone who has exceeded in their undertaking as an entrepreneur but also has a profound effect on their family, community, country or humanity Ultrapreneurship is a holistic approach encompassing all aspects of one’s life including entrepreneurship, health and well being, family, spirituality, morality and mentality which come together to provide supreme balance. The Urban dictionary defines Ultrapreneurs as someone who has many profit generating pursuits at once. Example, Pdiddy
- 54. Role of Entrepreneurship in economic development Create employment opportunities: unemployment is a major problem faced by developing and under developing countries around the world. As small scale industries are labor intensive in nature, they generate more employment opportunities rather than large scale industries who are more of technology and tend to employ less. Inspire employees: they inspire the employees regarding the setting up of new ventures Knowledge bank to the firm: New firms usually gain the benefit by the experience and knowledge deplored by the entrepreneur. Provide diversity in the firm: entrepreneurship activity results into creation of variety of firms, which operates into diverse activities and thereby foster economic development in the country
- 55. Limitations of Entrepreneurship Legal & Regulatory Environment: One needs to register as an Entrepreneur to be able to function in a country. However, if the administration procedure and laws are unclear and cumbersome, then that in itself will defeat the craze for entrepreneurship Political Environment: An instability in government of a country may wipe off good and credible innovators. The revolution of Ghana did not spare certain innovators like Appian Minka Soap production
- 56. Corruption & Unfair Competition: Corruption can lead to unfair competition, which in turn can become a major hurdle for entrepreneurship activity within the country. Financial obstacles: where the financial institutions within the country are reluctant to give loans and support for the entrepreneurs to grow, start up and other existing firms may collapse Tax burden: where government tends to tax the enterprises unfavorably, individuals may recoil into their selves rather than coming out Raw material source: In the case of timely production of products in the market, it is important to have proper supply of raw materials. Anything less this is a big challenge