Chapter One

1.1. Introduction to Entrepreneurship

 Why We Study Entrepreneurship?
 Scientists and engineers who want to lead
companies need to know how to back up ideas
with numbers
 You will learn the complex business processes
involved in commercialization
 You learn how to make trade-offs among features,
benefits, price, markets, and operations
 You learn how to adapt to uncertainty and change
 You learn techniques for managing people

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 1.2.Meaning and Concept of entrepreneurship
1.2.1. Meaning entrepreneurship
 Entrepreneurship is the dynamic process of
creating incremental wealth….(Robert Ronstadt)
 Entrepreneurship is the process of creating
and building something of value from
practically nothing.
 Entrepreneurship is very rarely a get rich-quick
proposition; rather, it is one of building long-
term value and durable cash flow streams.
 Fundamentally, entrepreneurship is a human
creative act
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1.2.2. An Entrepreneur

 Entrepreneurs are action-oriented, highly motivated

individuals who take risks to achieve goals.
 Economists --- those who bring resources together
in unusual combinations to generate profits.
 Psychologists --- 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.
 Example: It is the entrepreneur who only knows
 Opening of new university near the society
 Opening of Hotels near tourists’ attraction-center
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 The World of the
Entrepreneur
 Every year in the U.S., entrepreneurs launch
850,000 new businesses.
 Entrepreneurial spirit - the most significant
economic development in recent history.
 Study: 11.3 percent of adult population in the
U.S. is actively involved in trying to start a new
business.
 The World of the
Entrepreneur
 GEM (Global Entrepreneurship Monitor) study
 Globally 9.4 percent of adults are actively engaged in
trying to start a business.
 Men are twice as likely as women to start a business
(exactly the opposite trend in the U.S., however).
 Nearly one-third of global entrepreneurs are between
the ages of 25 and 44.

Chapter 1: Entrepreneurship 5
 1.2.3 The Entrepreneur versus the Manager
A. The Entrepreneur
 Entrepreneurial function is the organization of production:
 Economics describes four factors of production, namely,
land, labor, capital and entrepreneurial ability (organizational
skill).
 combines various factors of production, processes the raw
material, creates utility in the product and converts the raw
material into a finished product, organizes the marketing
function and sells the product in the market in order to earn
profit.
 Decision-making and calculated risk bearing:
 He is decision- maker, risk taker and goal setter.

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,…continued

 An entrepreneur has an all-round personality:

 possesses knowledge, insight into quality and types of raw
materials, machinery, manpower and their behavioral pattern,
government machinery…
 High levels of achievement motivation
 Innovative, creative, imaginative soul
 The entrepreneur is the owner of the business who
enjoys the position of an employer.

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 B. The Manager

 They may or may not be entrepreneurs. They own and

manage a small enterprise, in a way, which fits with
their personal motivations.
 They are more intent on survival than seeking
innovative change and growth.
 Limited scope for innovativeness, creativity and imagination
 Managerial jobs are transferable
 from office to office, from one unit and location to another
location
 Managers do not bear-risk
 Risk bearing capacity is an entrepreneurial quality

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….

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The entrepreneur versus the manager
Entrepreneur
 It’s 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.
The Manager
 Limited scope for
innovativeness, creativity
and imagination
Managerial jobs are
transferable
As a manager in the business
organization, his job is
transferable from office to
office, from one unit and
location to another location
Managers do not bear-risk
Risk bearing capacity is an
entrepreneurial quality
1.2.4 Characteristics of Entrepreneurs
 Need for Achievement:
 Driven by a need to achieve
 They set themselves goals and targets, are self-
motivated and take pleasure in achieving these goals
 Willingness to take risks:
 Self-Confidence:
 Innovation:
 constantly looking for innovations, not by waiting for a flash of
innovation (flashing new idea) but through an organized and
continuous search for new ideas
 Total Commitment: Hard work, energy and single mindedness
 All- rounders:
 At least in the early stages of the business, entrepreneurs need to be
able to ’make the product, market it and count money’.
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 1.2.5. Kinds of Entrepreneurship
 Entrepreneurial leadership maybe classified into three types
 Founding Entrepreneurs /Founders/
 General managers and
 Franchisees
 Founding Entrepreneurs:
 Generally considered to be the Pure entrepreneurs,
inventors of initials business as a service or product
 Founders refer to entrepreneurs who bring new firms into
existence.
 General Managers:
 As new firms become well established, founders become
less innovators and more administrators.
 They manage the week to week and month – to month
production, 1
 …
 Franchisees :A system in which semi-independent business
owners (franchisees) pay fees and royalties to a parent
company (franchiser) in return for the right to become identified
with its trademark, to sell its products or services, and often to
use its business format and system
 Franchising: A legal arrangement by which one company
allows its products, services, or business format to be
used by others for a fee
 Franchisee: A company or individual who pays for the
legal right to use the product, service, or format of
another
 Franchisor: A company that grants to another company
or individual the legal right to use its product, service, or
format

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 Con…

 franchise businesses successfully operating in

different business in Ethiopia.
 Sheraton
 Hilton
 Marriott
 Radisson Blu, and Ramada, Pizza Hut.

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1
I. Types of Franchising

 Trade name (product franchising )

 Product distribution
 Business format
 Franchisee gets the right to use all of the
elements of a fully integrated business operation.
 Essence of what franchisees purchase from the
franchisers: Experience.
 Key Question: What can a franchise do for me
that I cannot do for myself?

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Trade name (product
franchising )
 Arrangements were the franchisee are
granted the right to distribute the
manufacturer product within specified
territory, using a manufacturer trade mark or
trade name, in exchange of fee or loyalty.

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Product
distribution(Traditional)
 Supplier –dealer relation
 Sell franchisor product
 In a traditional franchise, it is the products
manufactured or supplied by the franchisor
that take center stage, not the franchisor’s
system of how the business should be
conducted.

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 Con…

 The manufacturer licenses to the franchisee

the right to sell or distribute a specific
product using the franchisor’s trademark,
trade name, and logo.
 Famous product distribution franchise

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Business format franchisee

 the franchisor licenses to its franchisees its

trade name and service marks together with
its system for delivering products and
services under the franchisor’s brand.
 Business format franchisors establish the look
and feel of the business. They provide the
franchisee with the design and décor for their
business, specify the furniture, fixtures, and
equipment the franchisee will use.
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 Con…

 They also approve the site that the franchisee

selects, establish and enforce product and
service quality standards.
 The franchisor is not providing the franchisee
with any finished manufactured product for
them to sell, but will frequently provide them
with ingredients and supplies they will use in
their businesses.

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Con…

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 II. Benefits of Franchising
 Management training and support
 Brand name appeal (expansion)
 Standardized quality of goods and services…
 Financial assistance

Drawbacks of Franchising
 Strict adherence to standardized operations
 Restrictions on purchasing from Approved suppliers only
 Limited product line
 Contract terms and renewal
 Less freedom,..”Happy prisoners”

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 The Artesian and Opportunistic Entrepreneur
 Artisan (skilled workers) entrepreneur
 those who starts business with primarily technical skill and
little business knowledge.
 They are paternalistic (They direct their business much as
they might direct their own families)
 They define marketing strategy in terms of the traditional
price, quality, and company reputation.
 Their sales efforts are primarily personal.
 Opportunistic entrepreneur
 An entrepreneur who enters business with both
sophisticated managerial skills and technical knowledge.
 They avoid paternalism; delegate authority as necessary for
growth , obtain capital from different source.
 They have a good plan for future growth
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 Success Factors for Entrepreneurs
 The Entrepreneurial Team: includes close associates or
extensive network of advisors
 Venture (incremental expansion) product or services:
 Marketing and timing:
 Having clear vision of existing and potential customers
 Timing of new products or services
 Business Ideology: a system of beliefs about how one
conducts an enterprise
 Self-determination: They probably have great faith in
their ability
 Desire for independence: believing that independence
of action is the only sure way to get what
they need.
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 ,..continued

 Information: result of processed data that helps

to give decision. It helps to:
 To know the position of their competitors i.e.,
their strength and weaknesses, business strategy
they use and their long term plan.
 To know threats and opportunity in doing business
 To design long term objectives and goals indicate
capital requirement (labor, capital and machinery)

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Sources of information
1. Collection of primary data:
 Observation method
 Interview method
 Through questioner
2. Collection of secondary data
 Various publication of the central state and local
government
 Technical and trade journals
 Books, magazines and newspapers

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Drawbacks of Entrepreneurship (Caution!!)

 Uncertainty of income
 Risk of losing your entire investment
 Long hours and hard work
 Lower quality of life until the business gets
established
 High levels of stress
 Complete responsibility and Discouragement

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 End of
CHAPTER ONE

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 The Transition to
Entrepreneurship
 What translates  What does not easily
 Engineers conceive, translate
design, build, and  Linear thinking
operate useful objects or  Formulas
processes
 Solutions in search of a
 Engineering education is
problem
a logical foundation for
 Understanding the way
entrepreneurial
entrepreneurs think
concepts
From Bench to Market

BUSINESS
Technology MODEL Commercial Product
Create & Capture Value

Valley of Death
Why technologies don’t make it to market

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The Role of Innovation and
Entrepreneurship
 Technological change and entrepreneurship
are critical components of growth models
based on market incentives.
 The new economy is characterized by:
 Knowledge workers
 Globalization
 Innovation
 Time-to-market is a key competitive
advantage
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 What is Innovation?
 Producing something new
 Commercializing or extracting value from ideas
 Schumpeter’s five types of innovation
 New product or substantial change in existing product
 New process
 New market
 New sources of supply
 Changes in industrial organization
 Incremental innovation = improvements on existing
products
 Disruptive innovation = game changers

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The Commercialization Process

1 Discovery Invention
Innovation
2 Opportunity Invention Disclosure
Concept Development
3 Feasibility Technology Feasibility
Market Feasibility
Recognition Initial Financials

Rework concept

4 Intellectual
Property &
Provisional patent decision
Non-provisional patent filing
5 Prototype
Development
Platform
Applications
6 Market/
Customer
Field test
Applications
Other intellectual property Testing Testing
Regulatory Regulatory Requirements Pre-clinicals Test Clinical Trials
Requirements
Refine & Redesign

7 Launch
Strategy
License
Start a Business
Sell or joint venture
8 Business
Plan
Execution Strategy
Develop operations plan
Develop marketing plan
LAUNCH
Secure needed management
Identify funding needs & sources

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