CHAPTER ONE:

INTRODUCTION
The words entrepreneur and entrepreneurship have acquired special significance in the

context of economic growth in rapidly changing socio-economic and socio-cultural climates

both in developed and in developing countries. The concept of entrepreneurship varies

from country to country as well as from period to period and the level of economic

development thoughts and perceptions. A concise and universally accepted definition has

not yet emerged.

According to Global Entrepreneurship Monitor reports, the kind of entrepreneurial

activity in a country is the level of reflection of the economic development a country

has attained. Thus, the nature and focus of entrepreneurship in a factor driven

economy, efficiency driven economy and innovative driven economy varies significantly in

focus.

FACTOR-DRIVEN EFFICIENCY-DRIVEN INNOVATION-DRIVEN

From subsistence agriculture to
extraction of natural resources,
creating regional scale-intensive
agglomerations
Increased industrialization & R&D, knowledge intensity, and
economies of scale. Large firms expanding service sector.
dominate, but supply chain Greater potential for innovative
niches open up for small & entrepreneurial activity
medium enterprises.

Economic Development Phases

Economic Development Phases National Framework Conditions for profiling

economic development phases
Basic requirements  Institutions
(Key to factor Driven Economies)  Infrastructure
 Macroeconomic stability
 Health and Primary education
Efficiency Enhancers-  Higher education and training
(Key to efficiency driven economies)  Goods market efficiency
 Labor market efficiency

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  Financial Market sophistication
 Technological readiness
 Market size
Innovation and sophistication  Business sophistication
factors- (Key to innovation-driven  Innovation
economies)
Source: GEM report, 2014

The role of Entrepreneurship in Different Phases of Economic development

1. Entrepreneurship in Factor driven Economies

Economic development consisits of changes in the quantity and character of economic

value added (Lewis,1954). These changes result in greater productivity and rising per
Capita incomes, and they often coincide with migration of labor across different
economic sectors in the society, for example from primary and extractive sectors to the
manufacturing sector, and eventually, services (Gries and Naude, 2008). Countries with
low levels of economic development typically have a large agricultural sector, which
provides subsistence for the majority of population who mostly still live in the
countryside. This situation changes as industrial activity starts to develop, often around
the extraction of natural resources. As extractive industry starts to develop, this triggers
the economic development, prompting surplus population from agriculture to migrate
toward extractive and emergent scale-intensive sectors, which are often located in
specific regions. The resulting oversupply of labor feeds subsistence entrepreneurship in
regional agglomerations, as surplus workers seek to create self-employment opportunities
in order to make a living.

2. Entrepreneurship in Efficiency-Driven Economies

As the industrial sector develops further, institutions start to emerge to support further
industrialization and the buildup of scale in the pursuit of higher productivity through
economies of scale. Typically, national economic policies in scale intensive economies
shape their emerging economic and financial institutions to favor large national
businesses. As increasing economic productivity contributes to financial capital
formation, niches may open in industrial supply chains that service these national
incumbents. This combined with the opening up of independent supplies of financial

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 capital from the emerging banking sector, would spur opportunities for the development
of small-scale and medium-sized manufacturing sectors. Thus, in a scale intensive
economy, one would expect necessity-driven industrial activity to gradually fall and give
way to an emerging small-scale manufacturing sector.

3. Entrepreneurship in Innovation-Driven Economies

As an economy matures and its wealth increases, one may expect the emphasis in
industrial activity to gradually shift toward an expanding service sector that caters to the
needs of an increasingly affluent population and supplies the services normally expected
of a high-income society.
The industrial sector service evolves and experiences improvements in variety and
sophistication. Such a development would be typically associated with increasing
research and development and knowledge intensity, as knowledge-generating institutions
in the economy gain momentum. This development opens the way for the development of
innovative, opportunity seeking entrepreneurial activity that is not afraid to challenge
established incumbents in the economy. Often, small and innovative entrepreneurial firms
enjoy an innovation productivity advantage over large incumbents, enabling them to
operate as “agents of creative destruction”. To the extent the economic and financial
institutions created during the scale-intensive phase of the economy are able to
accommodate and support opportunity-seeking entrepreneurial activity, innovative
entrepreneurial firms may emerge as significant drivers of economic growth and wealth
creation.

1.1. MEANING OF ENTREPRENEURSHIP AND ENTREPRENEUR

Some of the common definitions/ descriptions of Entrepreneurship

 According to Ronstadt, “Entrepreneurship is the dynamic process of creating

incremental wealth

 Entrepreneurship is the innovative process of identifying opportunities in the

market place, marshaling resources required to exploit the opportunities for the

long term gains by assuming risk.

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  It is the ability to see economic opportunities and transform them into business

and economic gains.

 It is a creative human act that builds something of value in pursuit of

opportunities through application of vision, passion, and commitment. It also

requires willingness to take calculated risk

 Entrepreneurship is one of the four mainstream economic factors: land, labor,

capital, and entrepreneurship.

(Joseph Schumpeter, 1934 view)

Entrepreneurship is a force of “creative destruction” where by established ways of doing

things are destroyed by the creation of new and better ways to get things done.

o Creative Destruction: the process by which existing products, processes, ideas and

businesses are replaced with better ones. Entrepreneurs are driving forces behind

the process of creative destruction.

o Entrepreneurship involves innovation and untried technologies.

o According to him, not all businesspeople are entrepreneurs but all entrepreneurs

are innovative businesspeople.

o Schumpeter‟s views on entrepreneurship are relevant to developed nations.

The common theme:

 It is a process of identifying and pursuing opportunities

 Ability to utilize opportunities to gainful ends

 Creativity and Innovation („creative distraction‟, revolutionizing, transforming ,

introducing radical or incremental approaches)

 The process of creating value

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  The propensity of calculative risk taking

MISCONCEPTIONS ABOUT ENTREPRENEURSHIP

1. Successful entrepreneurship needs only a great idea

Having a great idea is only part of the equation for successful

entrepreneurship. Understanding of the different phases of the

entrepreneurial process, taking an organized approach to developing the

entrepreneurial venture, and copying with the challenges of managing the

entrepreneurial venture are also key ingredients to successful

entrepreneurship.

2. Entrepreneurship is easy

Be warned that entrepreneurship is not easy! It takes commitment, determination,

and hard work. And even if you have these qualities, it still is not effortless!

3. Entrepreneurship is a risky gamble

Although entrepreneurs are not afraid to take risks, entrepreneurship involves

calculated risks, not unnecessary ones. In fact, there are times when

successful entrepreneurship means avoiding or minimizing risks.

4. Entrepreneurship is found only in small businesses reality

Entrepreneurship can be found in any size organization. Because an

organization is small does not automatically make it entrepreneurial.

5. Entrepreneurial ventures and small businesses are the same thing

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 Entrepreneurial ventures: An organization that is pursuing opportunities; is

characterized by innovative practices, and has profitability and growth as its

main goals. Many small businesses lack these features.

1.2. THE ENTREPRENEURIAL PROCESS

Many entrepreneurs follow the entrepreneurial decision process, which entails a

movement from something to something-a movement from a present life-style to

forming a new enterprise. The entrepreneurial decision process consists of the following

three interrelated steps. These are:

 The decision to leave a present career or life-style

 The decision that an entrepreneurial venture is desirable, and

 The decision that both external and internal factors make the

Venture possible.

The decision to leave a present career and life-style is not an easy one. It takes a great

deal of energy and courage to change and create something new and different. The two

most important incentives to leave a present life-style and start a business are working

environment and disruption.

The perception that starting a new company is desirable results from an individual's

culture, subculture, family, teachers, and peers.

The entrepreneurial process comprehends all functions, activities, and actions that

are connected to the perception of the possibilities and the construction of the

organization for the fulfillment of these opportunities:

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 The entrepreneurial process in general involves the following steps:

1. Deciding to be an entrepreneur: having the desire to become an entrepreneur

or simply put the desire to become one‟s own boss; pursue one‟s own dream

in anticipation to also fulfill financial dream.

2. Developing successful business idea : that include generating business idea or

recognizing business opportunity

Hints to identify opportunity:

 Observing trends

 Solving problems

 Finding gaps in the market place

3. Moving from an idea towards the stage of creating entrepreneurial firm

4. Managing and growing the entrepreneurial firm

1.3. THE CHARACTERISTICS AND TRAITS OF ENTREPRENEUR

The key questions are related to:

 Who are entrepreneurs?

 Are entrepreneurs born or made?

 What really distinguish entrepreneurs from non-entrepreneurs?

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The most common elements of entrepreneurs include:

 Being visionary and goal oriented

 Risk taking

 Innovation

 Capable of organizing skills

 Self–disciplined

 Strongly motivated and achievement oriented

 Planner and implementer

PERSONALITY PROFILE OF ENTREPRENEURS:

 Visionary and goal oriented

 Unusual creativeness

 Propensity of risk taking

 strong need for achievement

 Total commitment, determination and perseverance

 Taking initiatives and personal responsibilities

 persistent problem solving

 Realism and sense of humor

 Seeking and using feedback

 Internal locus of control

 Calculated risk taking

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  Integrity and reliability

HOW TO CHARACTERIZE ENTREPRENEUR (TRAITS)

 Entrepreneur ( innovative, flexible, dynamic, risk-friendly, creative, growth

oriented)

 An entrepreneur is someone, who sees an opportunity (market gap) and turn it

in an organization in order to bridge the gap

 Who create something new and different with value by creating profitable

venture.

SUPPLEMENTARY REMARK
The most important characteristics of successful entrepreneurs

 Dream: (imagination, visualization, and capacity to turn dream into reality)

 Decisiveness (overcoming procrastination and making relevant timely decision)

 Determination (courage and commitment to realize dreams)

 Dedication (scarifies )

 Devotion (loving what they do, the power of love of what they do sustain the

venture )

 Details (be on the top of critical details )

 Destiny (taking prime responsibility for either success or failure)

 Dollar (reward and making fortune)

 Distribute (share of ownership )

1.4. ENTREPRENEURIAL COMPETENCIES

What is competence?

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  It is combination of knowledge, skills, and appropriate motives or traits that an

individual must possess to perform a given task.

In the 1980s, the research and analysis made by Management System International

(MSI) identified three major clusters (3 qualities overall) or groups of competencies

that entrepreneurs own commonly in all countries. The 3 clusters include:

1. Achievement motivation cluster (composed of 5 competencies)

2. Planning cluster (composed of 3 competencies)

3. Implementing cluster (composed of 2 competencies)

ACHIEVEMENT MOTIVATION COMPETENCIES

 Risk taking propensity (extent of risk friendly, take action to control risk and

control outcomes).

 Opportunity seeking and initiatives ( ability to proactively identify opportunities

and take initiatives to optimize; the acts to extend the business to new areas,

products or services)

 Persistence ( the courage to face obstacles and the capacity to overcome it ;

taking personal responsibility to achieve the desired goal)

 Commitment to the work and contract (extent of exerting personal sacrifices and

extraordinary efforts to keep promises, meet deadlines; extent of concern for

goodwill and reputation).

 Demand for efficiency and quality (find ways to do things better, faster and

cheaper; act to do things that meet or exceed standards of excellence; always

strive to ensure and continuously improve quality )

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PLANNING COMPETENCIES
 Goal setting ( proactive move, setting meaningful and challenging goals;

aspiration for future growth …)

 Information seeking (personal seeking information from clients, suppliers,

competitors; continuous search for market information and openness to seek

expert support and advice…)

 Systematic planning and monitoring ( create time bounded tasks ; revise plans in

light of feedback on the performance or changing circumstances; keeping accurate

track records )

IMPLEMENTATION COMPETENCIES
 Persuasion and networking

 Use deliberate strategies to influence and persuade others

 Use key people as agents to accomplish own objectives

 Acts and develop and maintain business contacts

 Independence and self confidence

 Seek autonomy from the rule or control of others

 Ensuring sound judgment

 Express confidence in own abilities to meet a challenge

1.5. MOTIVATIONAL FACTORS

What drives entrepreneurship aspiration, intention and motivation?

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  What are entrepreneurship start-up motives? (increased income, independence,

personal fulfillment, dissatisfaction with early job, escaping from unemployment,

to meet customer needs, …)

 Personal motives for entrepreneurship could be diverse

 The factors influencing entrepreneurship decision broadly :

i. Antecedent influences (family influences, educational choices, and career

experiences…)

ii. The incubator organization (location, skills and knowledge acquired…)

iii. Environmental influences (economic conditions, access to customers, access to

finances, availability of support services).

The reasons /factors for small firm formation can be divided between "Pull" and"

Push" influences.

Pull Influence

Some individuals are attracted towards small business ownership by positive motive such

as a specific;

1. Desire for independence: In several research studies, this future is prominently taken

as the key motivator. The bolon report singled out the need to gain and keep

independence as a distinguished feature of small business owner managers. A study of

female entrepreneurs in Britain found that women were motivated particularly by the

need for autonomy, which had been frustrated by the individual‟s prior training and

background.

2. Desire to exploit an opportunity: The identification of a perceived gap in the market

place through personal observation or experience is also a common reason for starting

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 a business. Entrepreneurs may seek to exploit this opportunity through special

knowledge, product development or they may hire the appropriate technology and

skills.

3. Financial incentive: The promise of long-term financial independence can clearly be a

motive in starting a new firm, although it is usually not quoted as frequently as

other factors.

Push influence

Many people are pushed into finding a new enterprise by variety of factors including;

1. Redundancy (Being without a job, idleness): This has proved a considerable push in

to entrepreneurship particularly when accompanied by a generous handshake in a

locality where other employment possibilities are low.

2. Unemployment: job insecurity and unemployment varies in significance by region, and

by prevailing economic climate. The latest researches shows that at least 50% of

entrepreneurs pushed in this way to the entrepreneurial ventures.

3. Disagreement with previous employer: Uncomfortable relation at work has also

pushed new entrants into small business.

Necessity vs. Opportunity based Entrepreneurship

Necessity driven entrepreneurship Opportunity driven entrepreneurship

 Pushed due to lost employment
 Survival strategy
 Reluctant entrepreneurship
 Response to perceived market opportunity
 Deep seated desire for greater self-satisfaction
and autonomy, personal independence
 More to contribute to national growth and
development opportunity

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 1.6. CLASSIFICATION OF ENTREPRENEURSHIPS

Types of entrepreneurs

Entrepreneurs found among different walks of life and disciplines

 “Novice” entrepreneur (without entrepreneurial experience)

 “Habitual” entrepreneur (a person with previous entrepreneurial experience)

 “Nascent” entrepreneur (a person who is in the process of creating a new

organization – he or she can be “novice” and “habitual”

 “Serial” entrepreneur (a person who constantly establishes and sells

organizations)

 “Portfolio” entrepreneur ( a person who owns several organizations at the same

time)

 “Intrapreneur “(a person who acts entrepreneurially in the context of an existing

organization)

1.7. BENEFITS OF ENTREPRENEURSHIP

Is there a link between entrepreneurship and development?

Significance of Entrepreneurship

 Entrepreneurs initiate and sustain the process of economic development in the

following areas:

 Innovation

 Employment generation and increased number of new startup

 Capital formation

 Improvement of per capita income

 Creation of balanced regional development

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  Improvement of living standards

 Backward and forward linkage of development

 Socio-political stability

SUPPLEMENTARY READING

Entrepreneurs versus Managers

A manager is a person who plans, organizes, staffs, directs and controls the activities of an
already established business. It is the manager who leads the business to its targets and who is
responsible for the business's success or failure. However, unlike the entrepreneur, a manager is
not necessarily the owner or the founder of the business.
Alternatively, the entrepreneur may not be the manager of the business. Even though it is true
that most entrepreneurs are the managers of their businesses, an entrepreneur may hire a manager
to run her/his business. Moreover, a manager may not have the qualities of an entrepreneur while
the entrepreneur may not have the skills to effectively manage an organization like a good
manager does. In fact, the problem many entrepreneurs face is leading their businesses to success
in today's dynamic environment.
The entrepreneur is the person who makes judgmental decisions under conditions of uncertainty
and who creatively turns the uncertainty into an advantage for the business she/he runs. Further,
one of the greatest strengths of the entrepreneurs is that they know what they do and don’t know.
Managers are also expected to manage already established organization by another person, the
entrepreneur.
Howe ever an entrepreneur is different from a manager. A manager is an employed person while
an entrepreneur manages the enterprise for his personal gain. The role of the entrepreneur and the
manager may, however, overlap in many cases. Generally, the major points of differences
between the managerial and entrepreneurial qualities are summarized below.

An entrepreneur
 Launches a new business
 Is more than an innovator
 Is a change agent
 Is strategic oriented to survive
A manager
 Operates an existing enterprise
 Is neither an innovator nor inventor
 Is the product of change
 Short term oriented to meet quotas and

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 Is her/his own boss
 Follows dreams in making decisions
 Involves directly more than delegation
of tasks
 Takes calculated risk
 Faces uncertainty
 Is motivated by perception of
opportunities and profit
 Profits are uncertain and irregular,
which may be negative
 Is self employed
budgets
 Is not independent of his/her employer
 Usually aggressive with upper management
positions
 Delegates and supervises more than direct
involvement
 Does not share in the business share
directly
 Is less tolerant of uncertainty
 Is motivated by externally imposed
goals(office, promotion, power)
 Is paid fixed and regular salary
 Is salaried person.
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