University of GondAr

Institute of Technology
School of Mechanical & Industrial Engineering

By: Tamrat y.
2010E.C.

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 Chapter one
Introduction to entrepreneurship
Outline
 Meaning of the terms entrepreneurship and
entrepreneur.
 Entrepreneurial skill
 Entrepreneurial competence
 Entrepreneurial decision process
 Advantage and drawback of Entrepreneurship
 Creation and innovation
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 Introduction
Meaning and concept of entrepreneurship and entrepreneur
 ‘’Entrepreneurship is the dynamic process of creating incremental wealth.
This wealth is created by individuals who assume the major risks in terms
of equity, time and /or career commitments of providing value for some
product or service. The product or service itself may or may not be new or
unique but value must somehow be infused by the entrepreneur”(Robert
Ronstadt)
 Entrepreneurship is the process of creating something from practically
nothing.
 Entrepreneurship is a human creative act that involves a team of people
with its different skill, knowledge, and talent. 3
 Who is an Entrepreneur?

There have been hundreds of definitions in dozens of books.

Some of them are given as follows:
Entrepreneurs are action-oriented, highly motivated
individuals who take risks to achieve goals.
Entrepreneurs are people who have the ability to see and
evaluate business opportunities, the ability to gather the
necessary resources to take advantage of them; and the ability
to initiate appropriate action to ensure success.(Meredith,
1982) 4
 Cont…
Economists: may view entrepreneurs as those who bring resources
together in unusual combinations to generate profits.

Psychologists: tend to view entrepreneurs in behavioral terms as

those achievement- oriented individuals driven to seek challenges
and new accomplishments.

Peter Drucker: states, as “Entrepreneur is someone who always

searches for change responds to it, and exploits it as an opportunity.

o Example: It is the entrepreneur who only knows

- Opening of new university near the society
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Cont…

Entrepreneur Entrepreneurship Enterprise

The person The process The outcome

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 Entrepreneurs Vs. Managers
Entrepreneurs
•Entrepreneurial function is the
organization of production
•Decision-making and calculated risk
bearing
•An entrepreneur has an all-round
personality
•High levels of achievement motivation
• Innovative, creative, imaginative soul
•The entrepreneur is the owner of the
business who enjoys the position of an
employer.
Managers
• May or may not be entrepreneur
• Limited scope for
innovativeness, creativity and
imagination
• Managerial jobs are transferable
• As a manager in the business
organization, his/her job is
transferable from office to
office, from one unit and
location to another location
• Managers do not bear-risk
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 Kind of entrepreneurship
a) Founding entrepreneurs (founder): it considered to be the ‘’Pure’’
entrepreneurs, funders may be inventors who initials business as an
the basis of new or improved products or services. Founders refer to
entrepreneurs who bring new firms into existence. They may also be
artisans who develop skills then start their own firms.
b) General managers: As new firms become well established,
founders become less innovators and more administrators. Thus, we
recognize another class of entrepreneurs called general managers.
c) Franchisees: A company or individual who pays for the legal right
to use the product, service, or format of another.
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 Characteristics of an entrepreneur

Need for achievement: They set themselves goals and targets, are self-motivated and
take pleasure in achieving these goals.

Willingness to take risks: The risks that entrepreneurs take in starting and /or
operating their own business are varied. By investing their own money, they assume a
financial risk. If they leave secured jobs, they risk their careers. The stress and time
required in starting and running a business may also place their families at risk.
Self-Confidence: Studies show that successful entrepreneurs tend to be self-reliant
individuals who see the problem in launching a new venture but believe in their own
ability to overcome these problems.

Innovation: Doing things differently is part of entrepreneurs’ nature. It is how they
create a market opportunity and differentiate themselves from the competition.


Total Commitment: Hard work, energy and single mindedness are all essential
elements in the entrepreneurial profile. Running your own business in 24 hours a-day,
7 days-a-week commitment.
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 Cont…
 All rounder: At least in the early stages of the business,
entrepreneurs need to be able to ’make the product, market it and
count money’.

The following are foundational skills entrepreneurs need to

run and operate a successful business:
• Communication Skills
– Writing, Speaking & Listening
• Teamwork
• Human Relations Skills
• Problem Solving & Decision Making Skills
• Technical Skills
• Basic Business Skills
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 Success factor for entrepreneurship
Most new ventures succeed because their founders are capable

individuals.


The entrepreneurial team: The term “team” is used because

entrepreneurs do not start business by themselves; they have teams,

parents, close associates, or extensive networks of advisors.


Venture product or services: Nearly all-successful ventures start small

and grow incrementally; few “gear-up” with substantial organizations

for a big-bang start. Incremental expansion of products and services also

tend to stay within the bounds of positive cash flow.

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 Cont…
 Marketing and timing: Successful entrepreneurs tend to have a
clear vision of both existing and potential customers. There are no
short cuts; innovation requires market demand, not simply a good
ideas. Market potential is critically influenced by timing of new
products or services.
 Self-determination: They probably have great faith in their ability to
control their personal environment, rejecting too high an influence of
chance or fate.
 Desire for independence: They wish for autonomy believing that
independence of action is the only sure way to get what they need.
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 Information as one success factor for entrepreneurship
Information is the result of processed data that helps to give decision.

Decision without information cannot be successful. Information helps

business in all direction. Doing business with out information is like

walking in the dark.

Information gives the following importance to the businessmen’s

 To know the position of their competitors that is their strength and weaknesses,
business strategy they use and their long term plan.
 Helps to design long term objectives and goals indicate capital requirement
(labor, capital and machinery)
Sources of information
Information are obtained from two main methods of data collection. That is
q
primary data collection and secondary data collection. 13
 Cont…
1. Collection of primary data: we can obtain primary data either through
observation or through direct communication with respondents.
a) Observation method
b) Interview method, and
c) Through questioner
2. Collection of secondary data:- secondary data means data that are
already available that is they refer to the data, which have already been
collected and analyzed by some one else.
d) Books, magazines and newspapers
e) Public records and statistics, historical documents
f) Various publications of foreign government or international bodies and
their subsidiary organization
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 Entrepreneurial Decision Process
 The reason for small firm formation can be divided
between “pull” and “push” influences.
• Pull Factors - the factor which attract a person to become entrepreneur
– Perception of Advantages- If a person feels that he can earn better or
overall gains in terms of money.
– Spotting an Opportunity
– Government Policies
– Motivation
– Influenced by Culture, Community, Family Background, Teachers,
Peers, etc.
– Desire for independence
– Desire to exploit an opportunity
– Turning a hobby or previous work experience in to a business
– Financial Incentive
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 Cont…
• Push Factors - the factors that force him/her
– Job Dissatisfaction
– Relocation
– Joblessness(Unemployment)
– Lay off
– Retirement
– Disagreement with previous employer
– Boredom- This is applicable to many ladies from
well to do families. With their army of servants to
take care of home, they find an opportunity to keep
the boredom away and start ventures
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What are the advantages and
drawbacks of entrepreneurship?

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 Advantages of Entrepreneurship
To an Individual
a) Provides Self Employment for the entrepreneur
b) Entrepreneurship often provides an employment
and livelihood for next generations
c) Freedom to use own ideas – Innovation and
creativity
d) Unlimited income / higher retained income
e) Independence
f) Satisfaction
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Cont…
To the nation
(a) Provides larger employment
(b) Results in wider distribution of wealth
(c) Mobilizes local resources, skills and savings
(d) Accelerates the speed of economic
development
(e) Stimulates innovation & efficiency

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Drawbacks of Entrepreneurship
• Uncertainty of income
Opening & running a business provides no guarantee
that an entrepreneur will earn enough money and
survive
Engage in a wrong business & not able gain an
advantage in the short run and eventually in the long
run can be disastrous.
Great effort , proper & effective management need
to use in the beginning to ensure the organization
success.
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 Drawbacks…..Cont
• Risk of losing your entire investment
Small business have a high failure rate
Entrepreneurs must be prepared to face the
consequence of failure
If the business fails the entrepreneur must
have a contingency plan to overcome a
economic or personal failure

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 Drawbacks…..Cont
• Long Hours and Hard work
Entrepreneurs tend to be generally work long
hours & under tremendous pressure to produce the
result they expect
Some even go to the extent of making big sacrifice
& deprive themselves of a personal life, wife &
children and social and family associates.

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 Drawbacks…..Cont
• High level of Stress
Starting the business can be very rewarding experience,
but it can be stressful
An Entrepreneur have left the comfort & security of
secured job to venture in to their own business.
 Failure in the business can bring about tremendous
personal failure, & in turn creates intense level of anxiety
and stress.
Financial burden may increase & Entrepreneurs may face
difficulty sustaining the business or may decide to call it
for day & wind up the business.
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 Limited resource
entrepreneurship mostly starts from small investment or
contribution of owners are more than one individual
 Lack of experience
most of entrepreneurs have no experience and this may
lead to in efficiency
 Disagreement between member
if the owner of entrepreneur is more than one person,
disagreement between them can be created. This
disagreement can limit the operation of the business.

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 Ten Deadly Mistakes of Entrepreneurs
• Business entrepreneurship fail because:
Management mistakes
Lack of experience
Poor financial control
Weak marketing efforts
Failure to develop a strategic & effective plan
Poor location
Improper inventory control
Incorrect or unsuitable price
The inability to move into entrepreneurial mindset & stick on
previous traditional managerial system

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 Cont’d
• Adequate planning leads to the correct
completion of work
• Inadequate planning leads to frustration
towards the end of the project & poor project
performance

Project Start Project End

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 Enterprise

• Is a business or company that can provide

satisfying rewards for those who successfully
establish them.
• The key difference between all types of enterprise
lies in the rewards they provide.
• Classification of Enterprise broadly Classified in
to two:
Manufacturing Enterprise &
Service dealer Enterprise
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 a. Manufacturing Enterprises
•Food and kindred products
•Textile mill products
•Furniture and fixtures
•Printing, publishing and allied industries
• Chemicals and allied products
•Petroleum refining and related industries
•Rubber and miscellaneous plastic products
•Leather and leather products
•Stone, clay, glass and concrete products
• Primary metal industries
•Fabricated metal products
•Machinery
•Electrical and electronic machinery, equipment and supplies
•Transportation equipment
•Measuring, analyzing and controlling instruments (photographic, medical and optical goods;
watches and clocks)
•Miscellaneous manufacturing 28
 b. Service Dealer Enterprises

•Hotels, boarding houses, camps and other lodging places

•Motor vehicle repairs, petrol station services and garages
•Personal services
•Amusements and recreation services
•Business services
•Miscellaneous repair services
•Motion pictures
•Health services
•Legal services

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 SERVICES------ Cont.
• Educational services
• Social services
• Cosmetics/beauty care services
• Computer/office services
• Information technology services
• Security services
• Postal (mail/courier ) services

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 Rewards of being Entrepreneur
1. Self-actualization/ personal fulfillment
2. Feeling of freedom and independence
3. Providing jobs and benefits to others
(investors, suppliers, bankers, subcontractors,
work force and customers)
4. Economic good (product/ service, incomes
for workers, profit for shareholders/ partners)

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Creativity, Innovation & Entrepreneurship

 Creativity is the ability to develop new ideas & to

discover new ways of looking at problems &
opportunities.
 Innovation is the ability to apply Creative solutions
to those problems & opportunities in order to
enhance people’s lives or to enrich society.
 Entrepreneurship is the result of a disciplined,
systematic process of applying creativity &
innovation to needs & opportunities in the market
place.
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 Creative ideas are needed anywhere there are
problems with unknown solutions
 An entrepreneur’s creativity is often the
difference between success and failure in
business.
 To be creative, entrepreneurs need to keep
their mind and eyes open to their environment.
 Some people believe that they are not creative.
(Consider as a gift of God )

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From Creativity to Entrepreneurship

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Creativity is thinking new things, and innovation is doing
new things
 
Researchers believe that entrepreneurs succeed by thinking
and doing new things or old things in new ways .

Entrepreneurship = creativity + innovation

People can develop their creative potential through

learning and practice.

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 Creativity: Exercise
See the figure below. Link all nine dots with only
four straight lines, which have to be drawn
without any breaks and in one.

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Option 1

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Option 2

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Option 3

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 Barriers to Creativity
.
1 Fearing mistakes & failure
2. Lack of market knowledge
3. Lack of technical skills
4. Lack of seed capital
5. Lack of business know how
6. Lack of motivation
7. Fearing looking foolish
9. Believing that I am not creative
10. Legal constraints and regulations
11. Monopoly and protectionism
12. Inhibitions due to patents
13. Lack of a viable concept
14. Searching for the one ‘right’ answer
15. Focusing on being logical
16. Blindly following the rules 40
 Innovation
There are four distinct types of innovation, these are as follows:

Invention - described as the creation of a new product, service or

process

Extension - the expansion of a product, service or process

Duplication - defined as replication of an already existing product,

service or process

Synthesis - the combination of existing concepts and factors into a new

formulation

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