BSEN 311

Week 1 & 2
INTRODUCTION AND OVERVIEW
Objectives
Understand the meaning, nature and role of Entrepreneurship
Describe who is an entrepreneur and the characteristics of successful entrepreneurs
Differentiate entrepreneur from enterprise
Describe the role and functions of entrepreneurs
Describe the various types of entrepreneurs
Explain the theories influencing entrepreneurs drive/Behaviours
Examine Joseph Alois Schumpeter’s view on entrepreneurship

ENTERPRISE, ENTREPRENEUR AND ENTREPRENEURSHIP

BRIEF INTRODUCTION
Economic growth hinges upon entrepreneurship. A vibrant entrepreneurial climate provides new jobs,
increases competitiveness, and produces novel goods and services. It is not surprising, therefore, to
learn that policymakers attempt to increase entrepreneurial activity in numerous ways. They may
reform the regulatory environment in order to reduce the number of permits and licenses required to
start a business. They may make more capital available to new firms via loans, subsidies or tax
incentives. They may also increase the amount of resources devoted to education in general and
business education in particular, in order to create a set of attitudes and skills in the populace that is
conducive to entrepreneurship.

ENTREPRENEURSHIP DEVELOPMENT
Entrepreneurship development is concerned with:
• Study of entrepreneurial behaviours, the dynamics of business set-up, development and
expansion of the enterprise.
• Growth potential and innovation.
• Process of improving the skills and knowledge of entrepreneurs.
The whole point of entrepreneurship development is to increase the number of entrepreneurs,
accelerate employment generation and economic development, and increase the competitiveness and
growth of business and industries.
Entrepreneurship development is therefore a tool of industrialization and a solution to the
unemployment problem for any country.

Key concepts in entrepreneurship development enterprise, entrepreneur and entrepreneurship. The

entrepreneur is the actor while entrepreneurship is the act. Then the actor and the act is defined as the
enterprise. These three concept originated in the works of Richard Cantillon and Jean Baptiste Say both
of whom are responsible for introducing the concepts in economic thought.

ENTREPRENEURSHIP
- Simply stated, entrepreneurship involves the process of enterprise creation
- Entrepreneurship is defined as:
a) The process of doing something new or different so as to create wealth for one self and to
add value to the society (Kao,1995), or

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 b) The process of creating something new with value by devoting the necessary time and
effort, assuming the accompanying financial, psychic and social risks, and receiving the
resulting rewards of monetary, personal satisfaction and independence. (Hisrich, Peters
and Shepherd, 2005)

Nature of Entrepreneurship
1) Economic Activity
Entrepreneurship is an economic activity because it involves the creation and operation of an enterprise
with a view to creating value or wealth by ensuring optimum utilization of scarce resources.
2) Dynamic Activity
Since this value creation activity is performed continuously in the midst of uncertain business
environment, therefore, entrepreneurship is regarded as a dynamic force.
3) Involves Creativity and Innovation
It involves continuous search and discovery of new ideas using the art of imagination, and
identification of new methods and techniques for operating the business more efficiently and
effectively.
4) Profit potential
Profit potential is the likely level of return to the entrepreneur for taking the risk of developing an idea
into an actual business venture.
5) Has Risk Bearing
Willingness to assume the risk is the essence of entrepreneurship without which he/she cannot
succeed. It occurs due to the creation and implementation of new ideas. Such ideas are often uncertain,
and so the result may or may not be positive and instant.
6) It is a behavior
Entrepreneurship is a competitive behavior that drive the market process through introduction new
products and services also known as innovations

Importance of entrepreneurship to an economy

1. Creation of employment: Through entrepreneurship, jobs are created which help in absorbing
people who would otherwise have been jobless e.g. people employed in the jua kali sector.
2. Formation of capital: Profit earned by entrepreneurs may be used to expand the business or even
to start other businesses. Wages and salaries paid to the employees is a source of capital to them.
3. Raising standards of living: Entrepreneurs pay wages and salaries to their employees which enable
them to acquire goods and services they need to live comfortable lives. Entrepreneurs also provide
a wide variety of goods and services to consumers hence leading to improved living standards.
4. Encourages the use of local resources: Entrepreneurship makes it possible to use/exploit local idle
resources.
5. Improving infrastructure: The existence of businesses in the economy makes the government
establish or improve infrastructure such as roads, communication facilities and water. At other
times, entrepreneurs may combine forces to improve infrastructure in their area of operation.
6. Savings on imports: Local entrepreneurs are able to produce goods and services that are a
substitute to imports. This helps the country to reduce the amount of money required to pay for
such imports.
7. Reducing foreign dominance of the economy: Participation of local entrepreneurs in various
business activities helps in reducing investments by foreigners in the particular area.

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8. Promotion of technology/promotion of innovation, research and development: Entrepreneurs are
creative and they come up with new and better ways of accomplishing tasks. Most of the inventions
and innovations in our society have been developed by entrepreneurs.
9. Promotion of entrepreneurial culture/helps in the creation of role models: Successful
entrepreneurs/entrepreneurial ventures encourage other members of society to initiate their own
businesses and hence act as role models in the business world.
10. It contributes to government revenue: Taxes and fees paid by entrepreneurial ventures constitute
part of government revenue/income that helps it to facilitate its operations.
11. It promotes economic growth: Entrepreneurs produce goods and services. This increases the
volume of goods and services in the economy leading to expansion of the economy.
12. It may promote self-actualization and esteem: By initiating businesses in which they are their own
bosses, entrepreneurs’ pride is boosted and this may promote the overall productivity of the
economy.

ENTERPRISE
• An enterprise is a business organization or venture that is formed to provides goods and services,
creates jobs, contributes to national income, exports and overall economic development.
• Enterprise is the term generally applied to a small or medium-sized business.
• An enterprise can be a start-up, an early stage business or a fully developed business.
• It can be a lifestyle business, perhaps trading locally with no long-term growth objectives, or
• it can be a small new business with high growth potential that may one day evolve into a multi-
national corporation.
• It can also be a social enterprise or not-for-profit business

The nature of enterprises

The nature of business enterprises is characterized by several key aspects that define their operations
and objectives.
1. Profit-oriented: Enterprises primarily aim to generate profits by providing goods or services to
customers. Profit is essential for sustaining operations, reinvesting in the business, and rewarding
stakeholders.
2. Economic activities: Enterprises engage in economic activities that involve the production,
distribution, and consumption of goods and services.
3. Risk and Uncertainty: Enterprises operate in an environment of risk and uncertainty. They face
various challenges such as changing market conditions, competition, technological advancements, and
economic fluctuations. Enterprises must effectively manage these risks to ensure their survival and
success.
4. Legal Entity: Enterprises are legal entities separate from their owners. This means the business has
its own identity, assets, liabilities, and legal rights. It can enter into contracts, sue or be sued, and engage
in various legal transactions.
5. Organizational Structure: Enterprises have a defined organizational structure that outlines the
hierarchy, roles, and responsibilities of individuals within them. This structure ensures efficient
coordination and division of labor to achieve business objectives.
6. Continuous Operations: Enterprises are designed to operate continuously, with the goal of long-
term sustainability and growth. They employ strategies to adapt to changing market conditions,
consumer preferences, and technological advancements.

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7. Value Creation: Enterprises create value by providing goods or services that satisfy the needs and
wants of customers. They add value through various activities through creativity and innovation.
8. Social Responsibility: Enterprises are increasingly expected to fulfill their social and environmental
responsibilities. This includes ethical business practices, corporate social responsibility initiatives, and
sustainable operations that benefit society and minimize negative impacts.
An understanding of these characteristics will help in comprehending the dynamics and
objectives of business enterprises.

ENTREPRENEUR
- The term entrepreneur is derived from a French word, entreprendre, which means “to
undertake, between-taker or go-between” In a business context, it means to undertake a
business activity or simply to start a business.
- In the words of Richard Cantillon an entrepreneur is a person who takes the risk of starting a
new organization or introducing a new idea, product or service to society.
- According to J.B. Say, an entrepreneur is an economic agent who unites all means of
production; land of one, the labour of another and the capital of yet another and thus produces
a product. By selling the product in the market the entrepreneur pays rent of land, wages to
labour, interest on capital and what remains is his profit.
▪ An entrepreneur is simply a person who starts an enterprise.

Characteristics of Successful entrepreneurs

Although many behaviors have been ascribed to entrepreneurs, several are common to those who are
successful such as:
1) Passion for business:
This refers to an overbearing liking to participate in entrepreneurial activities. Passion typically
stems from the entrepreneur’s belief that the business will positively influence people’s lives
2) Execution intelligence:
This is the ability to effectively execute a solid idea into a viable business. This means being able to
develop a business model, putting together a new venture team, raising money, establishing
partnerships, managing finances, leading and motivating employees. It also demands the ability to
translate thought, creativity, and imagination into action and measurable results.
3) Self-confidence:
Entrepreneurs demonstrate extreme self-confidence in achieving realistic results and challenging
goals. They have an abundance of confidence in their ability to succeed, and they tend to be
optimistic about the chances of business success. Entrepreneurs believe they can do anything.
4) Opportunity Orientation:
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.
5) Hardworking:
Successful entrepreneurs believe that working hard will help them attain their goals. They hence
put a lot of physical and mental efforts into developing their ventures, and often work for long
hours.
6) Goal oriented:
Entrepreneurs set high but attainable goals that enable them to focus their energies. Goal orientation
helps them define priorities and measure how well they are performing
7) Need to achieve:

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 Entrepreneurs have strong desire to achieve higher goals. Their inner self motivates their
behaviours towards high achievement. To an entrepreneur, winning is achievement that contributes
to their success.
8) Internal Locus of control:
Entrepreneurs believe in their own ability to control the consequences of their endeavor. They
strongly believe that they can govern and shape their own destiny.
9) Creative and Innovative:
Successful entrepreneurs are innovative. 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
(creative) of how they can do things in a better way.
10) Risk taking Propensity.
Entrepreneurs are not wild risk-takers but are instead take calculated risks. They rarely gamble.
Entrepreneurs often have a different perception of the risk involved in a business situation.
11) Visionary:
Entrepreneurs know where they want to go. They have a vision of what their enterprise can be.

Role and Functions of Entrepreneurs

Entrepreneurs are significant because they have important effect on world economies. Their role and
functions include:
1. Risk-bearing function: Risk bearing still remains the most important function of an entrepreneur.
They accept all possible risks of business which emerges due to the possibility of changes in the
tastes of consumers, modern techniques of production and new inventions, on behalf of other
people.
2. Organizing function/combination of economic factors: As an organizer, entrepreneurs brings
together various factors of production order to create value that satisfies human needs.
3. Innovative function: An entrepreneur performs the function of coming up with new products,
services, ideas and information’s for the enterprise. As an innovator, the entrepreneur foresees the
potentially profitable opportunity and tries to exploit it and is always involved in the process of
doing new things.
4. Managerial function: Entrepreneur also performs a variety of managerial function like
determination of business objectives, formulation of production plans, product analysis and market
research, organisation of sales procuring machine and material, recruitment of men and
undertaking, of business operations.
5. Decision making function: A. H. Cole described an entrepreneur as a decision maker as far as
activities of the enterprise are concerned, and attributed the following decision making functions
to the entrepreneur:
i. Determines the business objectives suitable for the enterprise.
ii. Develops an organization and creates an atmosphere for maintaining a cordial
relationship with subordinates and all employees of the organization.
iii. Decides on securing adequate financial resources for the organisation and maintains
good relations with the existing and potential investors and financiers.
iv. Decides on introducing advanced modern technology in the enterprise to cope up
with changing scenario of manufacturing process.

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 v. Decides the development of a market for his product, develops new product or
modify the existing product in accordance with the changing consumer's fashion,
taste and preference.
vi. Decides to maintain good relations with the public authorities as well as with the
society at large for improving the firms image.
6. Forecasting business changes: Most businesses face some kind of uncertainty as they develop. An
entrepreneur's role in this aspect is to anticipate any challenges and address them as quickly as
possible
7. Catalyst of Economic Development: An entrepreneur plays an important role in accelerating the
pace of economic development by discovering new uses of available resources and maximizing
their utilization
8. Research: An entrepreneur is a practical dreamer and does a lot of ground-work before taking a
leap in his ventures. In other words, an entrepreneur finalizes an idea only after considering a
variety of options, analyzing their strengths and weaknesses by applying analytical techniques,
testing their applicability, supplementing them with empirical findings, and then choosing the best
alternative.
9. Providing market efficiency: they ensure optimal utilization and distribution of resources.

Types of Entrepreneurs
1. Innovative entrepreneurs:
➢ are characteristized by the smell of innovativeness
➢ Have the ability to sense opportunities for introduction of new ideas, new technology, opening
of new markets and creation of new organizations, they produce new possibilities
2. Imitative entrepreneurs:
➢ They follow the path of innovative entrepreneurs usually copying technology and techniques of
innovative entrepreneurs. They imitate because the environment in which they operate does not
permit them be creative and innovative in their own way. They themselves do not make
dynamic innovations. They adopt techniques and methods initiated by others.
3. Fabian entrepreneurs
➢ Fabian entrepreneurs do not show initiative in visualizing and implementing new ideas and
innovations
➢ They respond very slowly to changes in the market, and this affects their growth and
competitiveness. Hence, grow very slowly or do not grow at all because they fail to exploit new
innovations that are normally more profitable. They take extreme care while making any type
of experiment in their business. They are skeptical (pessimistic).
4. Drone entrepreneurs:
➢ Drone entrepreneurs are more satisfied with the existing mode and speed of business activity
➢ they are more conservative and feel comfortable with their old-fashioned technology and
methods of doing business and totally refuse to adopt change under any circumstances.
➢ They reject any opportunity to make improvements in the techniques of production even if
returns have decreased
➢ Slowly but surely, this entrepreneur will be forced out of business
5. Social Entrepreneur:
➢ drive social innovation and transformation in various fields including education, health, human
rights, workers’ rights, environment and enterprise development, and in poverty alleviation
6. Corporate entrepreneur/ Intrapreneur
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 ➢ someone who acts entrepreneurially inside an existing organization which may range from a
medium-sized firm to a large corporation, government agency, or charitable organization.
➢ The constraint of operating from within an Organisational hierarchy, rather than being free to
act independently, is the key feature that distinguishes corporate entrepreneurs / Intrapreneurs
from other entrepreneurs
7. E-Preneurs:
➢ This term has been derived from the wider use of the letter ‘e’ to refer to electronic (email or e-
commerce). It is used to refer to the growing number of people who run businesses that depend
entirely on the Internet.
➢ With the proliferation of Internet-based businesses, it now represents a very broad category, and
could include anyone from the owner of a large online retailing empire to a self-employed
person using an online shopping platform such as eBay.com to sell their innovations.
8. Ecopreneur
➢ Ecopreneur has become popular as a way of describing entrepreneurs who establish ventures,
or introduce new initiatives with the aim of tackling specific environmental problems.
➢ It involves a wide variety of activities, ranging from a small, community-based enterprise selling
organic fresh produce to a large commercial business operating in a low-carbon industry sector,
such as the manufacture or installation of solar panel to entrepreneurial activities that are
concerned with recycling, reuse and reduce perspectives of environmental sustainability
9. Lifestyle entrepreneur
➢ This describes a person who sets up a small business in order to pursue a personal interest such
as a craft (e.g. a pottery studio) or a sporting activity
10. Portfolio entrepreneur
➢ Refers to someone who operates several different ventures at the same time.
➢ Portfolio entrepreneurs range from extremely wealthy owners of multiple businesses to much
less prosperous people, often based in remote rural areas, who engage in several different small
enterprises in order to reduce risks and to maintain an income when local markets, or economic
conditions more generally, are depressed or uncertain.
11. Serial Entrepreneur
➢ Someone who sets up several different ventures over a period of time, often reinvesting profits
from the sale of an existing business in order to finance a new one, sometimes in an entirely
different field of activity.
➢ This pattern may reflect the entrepreneur’s preference for creating new ventures rather than
managing larger established businesses.

Comparison of enterprise and entrepreneur

Entrepreneur Enterprise

1. An enterprise is a business
1. An entrepreneur is a person.
organization.

2. Entrepreneurs take on financial risk 2. Enterprises use resources to

in order to start and grow their produce goods and services for
businesses. profit.

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 Entrepreneur Enterprise

3. Entrepreneurs are often focused on 3. Enterprises can be focused on producing

creating new ideas, products or existing products or services more
services. efficiently.

4. Entrepreneurs may work alone or with a

4. Enterprises often have a larger and
small team in the early stages of their
more established workforce.
business.

5. Entrepreneurs may be more flexible and 5. Enterprises may have more formalized
adaptable. structures and processes in place.

THEORIES INFLUENCING ENTREPRENEURS DRIVE/BEHAVIOURS

Various writers have developed various theories on entrepreneurship and popularized the concept
among the common people.
The theories propounded by them can be categorized as under:
 Economic theories
 Psychological Theories
 Sociological theories
 Cultural theories
(1) Economic Theory of Entrepreneurship
According to this theory economic incentives are the main forces for entrepreneurial activities in any
country. The economic factors which promote or demote entrepreneurship in a country include:
(a) The availability of bank credit
(b) High capital formation with a good flow of savings and investments
(c) Supply for loanable funds with a lower rate of interest.
(d) Increased demand for consumer goods and services
(e) Availability of productive resources.
(f) Efficient economic policies like fiscal and monetary policies, industrial policies
(g) Communication and transportation facilities
(h) Infrastructure availability
(i) Access to information about market conditions, technology.

Among the contributors to economic theory of entrepreneurship are:

i. Kirzner – Alertness - Theory of Entrepreneurship
According to Kirzner, an entrepreneur is a person who discovers and exploits opportunities through
their alertness. Kirzner argues that entrepreneurs balance supply and demand by detecting market
imperfections and exploiting them. The theory emphasizes economic gains and economic incentives,
which emerge the entrepreneurial class in a society. Kirzner underscores the fact that, “the role of
entrepreneurs lies in their alertness to unnoticed opportunities.

ii. Knight - Risk Bearing Theory

Knight saw risk-bearing as the important function of entrepreneurs. According to the theory an
entrepreneur is a person who bears risks on behalf of others.
Some important features of this theory are:

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 ✓ Risk creates Profit: An entrepreneur earns profits because he undertakes risks.
✓ More Risk More Gain: Entrepreneurs undertake different degrees of risk according to
their ability and inclination.

iii. Joseph Alos Schumpeter –Innovation_ Theory of Entrepreneurship

Schumpeter’s Theory is a pioneering work of economic development. He introduced the concept of
innovation as key factor in entrepreneurship. According to his theory, an entrepreneur is basically an
innovator who introduces “new combinations” that include:
1) The introduction of new goods that is the one with which consumers are not yet familiar,
of a new quality.
2) The introduction of new method of production
3) The opening of new market
4) The conquest of new source of supply of raw material
5) The carrying out of new organization

Schumpeterian theory of entrepreneurship has the following features-

a) Distinction between invention and innovation
Schumpeter makes a distinction between innovation and invention. Invention means creation of new
things and innovation means application of new things onto practical use
a) Emphasis on entrepreneurial function-
Schumpeter has given emphasis on the role of entrepreneurial functions in economic development. In
his views; development means basic transformation of the economy that is brought about by
entrepreneurial functions.
a) Presentation of disequilibrium situation through entrepreneurial activity
The entrepreneurial activity represents a disequilibrium situation, a dynamic phenomenon and a break
from the routine or tendency towards equilibrium.
a) Entrepreneurialism dream and the will to find a private kingdom
The motives of creating things and applying these things into practice inspire the entrepreneur to
undertake innovation.

(11) Psychological Theory

According to this theory, an entrepreneurs is a person who possesses unique traits, values, and
attitudes, which drive them into entrepreneurship. Psychological theories of entrepreneurship identify
need for achievement, locus of control and risk-taking propensity as some of the most frequent traits
of an entrepreneur. Some psychological theories include:

i. David C. McClelland’s _Need for Achievement_ Theory of Entrepreneurship:

• According to the theory, needs for high achievement is an essential feature of entrepreneur
behaviours and tends to drive individuals towards entrepreneurial activities.
• The “Burning desire of need for achievement and the desire of reaching heights of excellence
and performance are important entrepreneur drives.
• Hence, an individual with high levels of need for achievement is a potential entrepreneur.
• To McClelland the characteristics of entrepreneur has two features:
i. Doing things in a new and better way and
ii. Decision making under uncertainty
• Three types of needs as a result of one’s life experience that propel individuals to be
entrepreneurs.
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 ▪ Need for Achievement. A drive to excel, advance and grow.
▪ Need for Power. A drive to dominate or influence others and situations.
▪ Need for Affiliation. A drive for friendly and close inter-personal relationships
• The specific characteristics of a high achiever (entrepreneur) can be summarized as follows:
i. They set moderate realistic and attainable goals for them.
ii. They take calculated risks.
iii. They prefer situations wherein they can take personal responsibility for solving
problems.
iv. They need concrete feedback on how well they are doing.
v. Their need for achievement and personal accomplishment are intrinsically more
satisfying to them.

ii. Rotter’s _ Locus of control _Theory of Entrepreneurship

Locus of Control offers people the belief that control resides within an individual i.e. internally or can
be created externally
• High internal locus of control: In this case, people believe that they are in charge of their actions
and fortune. Events would be determined on the basis of their qualities and conduct.
• High external locus of control: In this scenario, individuals believe that outcomes are out of their
control and it completely depends on external factors such as fate, change
According to the theory, Individuals who have a high tendency towards risk are more likely to
become an entrepreneur.
Therefore, this theory manages to explain that entrepreneurs with internal locus believe that emergence
of success is due to their capabilities and actions. While entrepreneurs with external locus assume
chances of success or survival are driven by institutional and external forces.

(111) Sociological Theory of Entrepreneurship

Sociological theory holds that the entrepreneurial activities is affected from social status hierarchy and
values. Individuals’ position, tradition, cultural values, mobility and social status among others
influence entrepreneurship supply in a socirty. Entrepreneurs should accept the system of a society for
the development of themselves as well as their startup.

i). Max Weber Theory of Entrepreneurship growth (based on Religious Beliefs)

 According to Weber, entrepreneurship is a function of religious beliefs and impact of religion
shapes the entrepreneurial culture.
 Some religions have basic beliefs to earn and acquire money and some have less of it. He calls
them a “spirit of capitalism” and “adventurous spirit”
 He emphasized that entrepreneurial energies are generated and supplied by religious beliefs.
The important elements of Weber’s theory are:
 Spirit of Capitalism: a set of attitudes towards the acquisition of money and the activities
involved in it including entrepreneurial activities.
 Adventurous Spirit: is affected by free force of impulse and tends to promote
entrepreneurship culture
 Protestant ethic: emphasized diligence, discipline, and prudent which were highly
compatible with entrepreneurship development.
 Inducement of profit: The spirit of capitalism intertwined with the motive of profit
results in creation of greater number of business enterprises.

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ii). Everett E. Hagen’s _Withdrawal of Status Respect _Theory of Entrepreneurship
• Hagen stated that, “Entrepreneurship is a function of status withdrawal.”
• Status withdrawal occurs when members of some social group perceive that their purposes and
values in life are not respected by the groups in the society they show aggressive entrepreneurial
drive and turn to innovations to get the respect of the society.
• He attributed the withdrawal of status respect of a group to genesis of entrepreneurship.
Meaning that the creativity of a disadvantaged minority group in a given society is the main
source of entrepreneurship.
• Hagen postulates four types of events which can produce status withdrawal:
1. Displacement of a traditional elite group from its previous status by another traditional
group by physical force.
2. Denigration of valued symbols through some change in the attitude of the superior
group.
3. Inconsistency of status symbols with a changing’ distribution of economic power.
4. Non-acceptance of expected status on migration to a new society.
Hagen visualized an innovative and creative personality. who is likely to be an entrepreneur.

iii). Cochran Theory of cultural values or model personality

The theory emphasizes cultural values, role expectations and social sanctions as the key elements that
determine the supply of entrepreneurs. An entrepreneur represents a society’s model personality.
Thus, if a person performs like an entrepreneur, their performance is shaped by factors such as:
• the attitude of the person towards their profession,
• the societal role expectations that are held by sanctioning groups and,
• the operational requirements of the job he is engaged with

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