UCU 104: INTRODUCTION TO ENTREPRENEURSHIP

LESSON ONE

1.1 Meaning of Entrepreneurship

1. Entrepreneurship is the act or process of identifying business opportunities and gathering the
necessary resources to initiate a successful business activity.

2. It has been variously defined as the process of starting a new business venture through
identifying opportunities and acting on them.

3. It can also be defined as the process of taking risks by pursuing a business venture with the
aim of making profits.

4. Others think entrepreneurship is the creation of new enterprises.

5. Another stream of thought defines entrepreneurship as the process of creating new and unique
combinations of factors of production to produce economic growth. As you can see, the term
seems to have some definitional problems but there are also some commonalities that underlie
these definitions.

1.2 Four factors that define entrepreneurship.

• Development of new ideas

• Allocation of resources such as time, effort, and capital

• Acceptance and assuming of the risks involved

• Reward in the end in terms of personal satisfaction, profits, and independence among
others.

1.3 Distinction between a Sole proprietorship and Entrepreneurship.

A sole proprietorship is one type of entrepreneurship, therefore entrepreneurship is broader term.
Entrepreneur a someone who begins and owns one or more business ventures. A sole proprietor
is an entrepreneur. A sole proprietor takes on major risks in an effort to generate a business
profit on his own. However, an entrepreneur is not always classified as a sole proprietor. In some
cases, entrepreneurs choose to organize themselves into partnerships, limited liability company,
or corporate entities. An entrepreneur might also invest in companies that he does not personally
own or participate in, whereas a sole proprietor is actively involved in the company.
Entrepreneurs also often have more ambitious goals compared to sole proprietors

1.4 Advantages and disadvantages of Entrepreneurship

Advantages of Entrepreneurship
1. It gives a great amount of freedom.
If you are working for a boss and a company, you need to meet all their requirements and only
have very little freedom on the job. On the other hand, if you start your own business, you will
be able to make your own demands and set your own schedule. You dictate everything you do,
giving you a level of freedom that you will not see when you are employed.

2. It can be exciting/enjoyable.
Entrepreneurship can be very exciting, with many entrepreneurs considering their ventures
highly enjoyable. Every day will be filled with new opportunities to challenge your
determination, skills and abilities.

3. It allows you to set your own earnings.

Of course, you will be the one setting your own wage and making investments when you own the
business. The work that you do would be for something you own, which can be a huge advantage
compared to when you are working as an employee for a certain company.

4. It offers flexibility (can schedule working hours).

As an entrepreneur, you can schedule your work hours around other commitments, including
quality time you would spend with your family.

5. It allows independence (independent in making decision).

Entrepreneurs are able to make all of the decisions relating to their company themselves; they
have complete control. This allows for a huge degree of independence and a chance to shape
one’s own life.

Disadvantages of Entrepreneurship
1. It requires you to dedicate a huge amount of time.
One big challenge in starting your own business is the amount of time you have to dedicate to it.
Remember that entrepreneurship is not easy, and for it to be successful, you have to take a level
of time commitment that many people are just not willing to make. And even if you are able to
enjoy flexibility in your work schedule when your venture does become successful, you will still
have to dedicate a substantial amount of time to growing the business.

2. It can be difficult to compete with other businesses.

It is very important for an entrepreneur to stay competitive. This means that you have to
differentiate your business from others in your niche in order to build a solid customer base and,
finally, become profitable.

3. It does not guarantee 100% success.

Entrepreneurship would make your dreams come true, which does not often happen with
traditional employment, but you need to make some sacrifices to make it happen. You should
know that this type of venture does not guarantee 100% success.

4. It comes with unpredictable work schedules.

One major drawback of being an entrepreneur is that more work and longer hours will be
required from you than being an employee. While you want to become your own boss, you must
first know the amount of effort, time and investment to make your venture successful. Even
though there is a lot of a reward coming from it, it also has certain downsides.

5. No Regular Salary.

Being an entrepreneur often means giving up the security of a regular paycheck. If business
slows down, your personal income can be at risk.

1.5 Entrepreneurial ventures:

Entrepreneurial ventures are businesses that are created to introduce new goods or new methods
of production. Small business ventures refer to businesses that are independently owned and
operated by one person. They are commonly referred to as sole proprietorship or single license
businesses.

1.6 A Small Business

A small business is a business whose control and ownership belong to one individual or few
people. The capital contribution is therefore from these few individuals who often control the
decision-making process. In addition to this, small businesses have few employees.
1.7 Difference between Small Business and Entrepreneurship
1. Behavior of Small Business and Entrepreneurship
Entrepreneurs and small business owners are both self-employed, but their behaviors are
different. Entrepreneurs often want to change and develop things. They are happy in creating
energy as opposed to being comfortable with their current situation. Small business owners, on
the other hand, are contented as long as they are successful. They will rarely try to do more.

2. Innovation in Small Business and Entrepreneurship

Entrepreneurs are known to invent and develop things. Their minds are technical as opposed to
small business owners who often do what entrepreneurs are doing already. Whereas
entrepreneurs are proactive, small business owners are reactive.

3. Motive of Small Business and Entrepreneurship

Most entrepreneurs will start up a business because they are passionate about it. They will do
what they love without thinking about the risks or even profits in the case that the business is
successful. On the other hand, small businesses set up their businesses with the main motive of
earning profits. That is why when the risks become too much, they will shut down the business
to avoid losses.

4. Market Share of Small Business and Entrepreneurship

Entrepreneurs often have the vision of helping the world. Therefore, their businesses will have an
impact on many people. For instance, Microsoft is serving almost everybody in the world. They,
therefore, have a significant market share. For small business owners, they have a small market
share because they serve people around them. They put their communities first and their needs.
This brings about a gap in the market shares of entrepreneurs and small businesses.

5. Mindsets of Small Business and Entrepreneurship

Entrepreneurs and small business owners have different mindsets. While entrepreneurs will look
for the next big venture when their companies are good, small business owners will retain their
business. They are sentimental, and they believe that their business is for their community,
1.8 Entrepreneurship vs. Small Business: Comparison Chart

Summary of Small Business vs Entrepreneurship

Both small business owners and entrepreneurs are self-employed, and they have much more in
common. As we have seen above, some of the largest corporations in the world like Apple began
as home-based businesses. Therefore, most entrepreneurs begin from humble beginnings as
small businesses but they bloom because they are always hungry for more success.

Both small businesses and entrepreneurial projects are imperative because they lead to the
development of the economy. In addition to that, they aid in eradicating the high levels of
unemployment which has become a major issue all over the world. The projects have also
assisted in the utilization of local resources and development of technology. Therefore, both are
useful for the economy to prosper.
1.9 Theories of entrepreneurship
1. Economic theories of entrepreneurship

The economic theory is among the main economic theories of entrepreneurship. This theory
asserts that the economy and entrepreneurship are closely linked together.
Entrepreneurship and economic growth can only work when the economic conditions are
favorable. As such, it is usually hard for entrepreneurs to realize growth when the economy is
doing poorly. This theory further states that entrepreneurs find motivation in the presence of
economic incentives which include industrial policy, policies of taxation, financial and resource
sources, availability of infrastructure, investment opportunities, marketing opportunities,
availability of information regarding the conditions of the market and technology among others .
An entrepreneur is therefore a risk taker because he can never fully predict about the
favorability of the economic conditions in future.

2. Sociological theories of entrepreneurship

This is also among the contemporary theories of entrepreneurship. It argues that the success of
an entrepreneur is affected by their social culture. They are more likely to achieve growth in
particular social settings. Among the social aspects that affect an entrepreneur include the social
values, customs, taboos, religious beliefs and other cultural activities. He or she has to
conform to the social expectations when carrying out their business.

3. Entrepreneurship Innovation theory

This is also the top theories of entrepreneurship in Kenya. An entrepreneur does not merely
conduct business to better their lives alone. Rather, through their activities, they are able to cause
development in the economy and the society at large. The inventor of this theory, Joseph
Schumpeter, argued that an entrepreneur grows by being creative and having a foresight.
One of the creative things that an entrepreneur does is introduce a new product. A new
product often comes to solve a certain problem in the society or make it more convenient.
Another innovative aspect is that in a bid to achieve growth and have more profits, an
entrepreneur introduces a new production method. Notably, enhanced production methods lead
to a reduction in the cost of production and an increase in the goods manufactured. Innovation
also comes in when an entrepreneur opens a new market. This is often done after the
identification of a growth opportunity or a void in the economy. The discovery of new sources
of raw materials and establishment of organization are also aspects of entrepreneurs being
innovators. These activities of an entrepreneur lead to the creation of jobs and accessibility of
commodities, thus improving the economy.

4. Psychological theory
According to this theory, an entrepreneur experiences growth when the society has several
individuals with the necessary psychological characteristics. These characteristics include
having a vision, being able to face opposition and having the need to achieve highly. A person
can only possess these traits during their upbringing, when they excel, when they are self-
reliant and when there is low father dominance.

5. Theory of high achievement/Theory of achievement motivation

Not all people are interested in being entrepreneurs. But David McClelland argued that people
who aim to become entrepreneurs must have a need for achievement, a need for affiliation
and a need for power. These act as the basis upon which an entrepreneurial personality is
established. Achievement motivation has a lot of significance in entrepreneurship because it is
the one that leads to economic and social development. Entrepreneurs always want to achieve
success in their endeavors. The need for power comes from the urge to gain dominance in a
certain field and thus cause influence among other people. The need for affiliation comes from
the urge to motive of maintaining friendships with other people. Notably, the need for
achievement stands out amongst the others. It was identified through an experiment known as
Kakinada Experiment by David McClelland. This experiment was conducted in Mexico,
America and India. David McClelland gathered young adults who underwent training for 3
months. The goal was to induce achievement motivation. He asked them to have a positive
thinking and assume as though they wanted success yet were facing various challenges. They
were also asked to emulate their role model. At the end of the study, David McClelland came up
with two conclusions about the characteristics of entrepreneurs. The first was that entrepreneurs
do things in new and better ways. The second was that they make decisions under uncertain
conditions. High achievement motivation is a sign that an individual is likely to become an
entrepreneur because they are passionate about it. As such, even though they are stressed, lack
money or face external pressures, they will work hard to become successful. Additionally,
through the experiment, it was found out that the performance of an entrepreneur can be
enhanced through education and training. It was through the Kakinada experiment that the
essence of the Entrepreneurial Development Programme was understood.

6. Resource based theories

According to these theories, entrepreneurs require resources to go about their businesses. Their
efforts must be combined with resources such as time, money and labor. Failure to access
resources can cause their efforts to become futile. Capital, for instance, enables an entrepreneur
to growth their business. Other aspects that can be considered as essential resources include
access to information, education and leadership. Getting sufficient resources can be quite
hectic at times and that is why entrepreneurs are considered to be people who require to work
hard and smart.

7. Opportunity based theory

With the aim of being successful, entrepreneurs grab any opportunity they come across.
These opportunities are made available through the changes in technology, society or culture.
Notably, as these changes occur, consumers change their preferences. An entrepreneur must
therefore take those changes as opportunities of succeeding in their businesses. Also, technology
sets a basis upon which innovation is created and facilitated. Therefore, this theory suggests
that entrepreneurs are always on the lookout for opportunities that will enable them
increase the growth of their ventures.

8. Status withdrawal theory

E. Hagen attempted to formulate a theory of status withdrawal theory. The theory explains that
when members of some social groups feel that their values and status are not respected by
the society, they turn to innovation to get the respect of the society. According to Hagen,
entrepreneurship is a function of status withdrawal. This theory provides that a class which lost
its previous prestige or a minority group tends to show aggressive entrepreneurial drive. This
theory argues that entrepreneurial aggressiveness can be created when people of a certain
class lose the prestige they initially had or when they belong to a minority group.
Entrepreneurship, if done correctly, can help a person live a satisfactory and content life.
Therefore, individuals will attempt by all means to become as prestigious as they were in the past.
If they come from a minority group, they must better their lives by working hard at being
entrepreneurs. Also, being a successful entrepreneur evokes respect from the society.

LESSON TWO

ENTREPRENEURIAL MOTIVATION

2.1 Meaning of Motivation

Motivation is the driving force within people that get them to act in the ways they do. Motivation
is what encourages us to behave in certain ways, push ourselves to accomplish targets, or makes
us enjoy our jobs. When there is motivation, there is enthusiasm. Motivation is an internal
phenomenon, i.e., it is within us. It drives us to behave and act in certain ways.

2.2 Meaning of Entrepreneurial Motivations

Entrepreneurial Motivations can be defined as the cognitive, biological, and external factors that
prompt certain actions in individuals and societies to act in creative and innovation manner.
Entrepreneurial motivations are necessary steps of getting individuals to become entrepreneurs.
Internally, a person’s orientations determine whether he becomes a successful entrepreneur or
not. The external environment such as access to capital and government policies also encourages
or inhibits an entrepreneurial spirit. The purpose of this lesson is to encourage you to develop
positive attitudes towards entrepreneurship as a career.

2.3 Intrinsic and extrinsic factors that motivate entrepreneurship

Entrepreneurial motivations include intrinsic (internal) and extrinsic (External) triggers for the
energy, persistence, perception, attitude, direction and intention necessary to become a
successful entrepreneur.

2.3.1 Intrinsic (internal) Factors

i. Desire for independence

ii. Desire to exploit an opportunity
iii. Job satisfaction
iv. Need or achievement
Self- actualization determine whether one becomes a successful entrepreneur or not. Intrinsic
factors refer to internal stimuli for entrepreneurial actions.

2.3.2 The extrinsic (external) factors

• Availability of supportive government policies,

• Existence of attractive enterprising cultures,

• Support institutions such as incubation centers and training institutions

• Availability (and access) to credit.

These policies facilities a inspire people to pursue entrepreneurial opportunities. In most cases, a
combination of both intrinsic and extrinsic motivation factors play a part in motivating
entrepreneurial actions.

2.4 Self employment

Self-employment is a situation in which an individual works for himself instead of working for
an employer that pays a salary or a wage. A self-employed individual earns his income through
conducting profitable operations from a trade or business that he operates directly.

2.4.1 Factors to be considered in becoming self-employment include:

1. Opportunity cost (merits & demerits of self employment and employment)

Considering the advantages and disadvantages of going into small scale enterprise and
employment.

2. Types of business
Looking into possible types of businesses within the various classifications.

3. Market (places where to sale your product)

Places situations where there are sellers who have products and services to sell and buyers who
have capacity and willingness to purchase.
4. Government policies

A government policy affects small enterprises such as, taxation, price limits, licensing, e.t.c.

5. Location

These are the factors to be considered when deciding where to locate a business for example the
community profile, communication, roads, water, buildings, sources of raw materials,
competition e.t.c.

6. Resources
These include labour, raw materials, source of finance and equipment e.t.c.

2.4.2 Advantages and disadvantages of self-employment

Advantages of self-employment.

a) Personal satisfaction

This means doing what you want with your life. It enables one to spend each working day in a
job you enjoy. E.g. if you like hair dressing and beauty care, you will start your own salon, hence,
personal satisfaction when a customer s pleased by your service.

b) Independence.

Independence is freedom from control of others. You are able to use your knowledge, skills and
abilities as you deem fit. You have freedom of action as you can make decisions without
approval of someone else.

c) Profit

The profit left after the owner enjoys all the other expenses. It enables one to control his/her own
income and increases the income which is not often the case when you work for someone else.

d) Job security

Job security enables assurance of continued employment and income. Self employment persons
cannot be laid off, retrenched, fired or forced to retire at a certain age.

e) Status (pride)
Self-employed person receive attention and recognition through customer contact and public
exposure hence enjoy status above others. They also enjoy pride in ownership; enjoy seeing their
names on buildings, vehicles, stationery, and advertisement, e.g. kuguru food processors.

Disadvantages of Self-employment
a) Loss of investment capital

There is high possibility of losing your investment capital i.e. money used in starting the
enterprise, hence, the problem in repaying the banks, suppliers and other persons.

b) Uncertainty

There is high possibility of uncertainty or low income even in a well-established business.

c) Long hours

Many self-employed persons work fourteen or more hours a day, six or seven days a week. The
owner is often the first to arrive in the business in the morning and the last to leave at night.
Customers dictate the hours but not the desire of the owner.

d) Routine chores

Running your own business may involve routine jobs you do not like to do.

2.5 Paid Employment

Paid employment jobs are those jobs where the incumbents hold explicit (written or oral) or
implicit employment contracts which give them a basic remuneration which is not directly
dependent upon the revenue of the unit for which they work.

2.5.1 Advantages and disadvantages of paid employment

Advantages of Paid Employment
a) Specific/fixed responsibilities
b) Steady income
c) Fringe benefits
d) Fixed hours of work
e) More certain future
f) Set span of control
g) Minimal risk
Disadvantages of Paid Employment
a) Strict following of orders
b) Set income
c) Limited responsibilities
d) Difficulty in implementing ideas
e) Dependency on employer
LESSON THREE
CHARACTERISTICS, TYPES, AND ROLES OF ENTREPRENEURS

3.1 Characteristics of Successful Entrepreneur

i) Strong desire to achieve

An entrepreneur would always want to excel to successes in completion with others as well as to
accomplish something

ii) Action oriented (able to take decision when required)

This is exhibited by their motivation to take action when and where necessary.

iii) Problem solver

They have the ability to solve problems and make decisions which involves striving with
determination. They have high drive and ability to constantly struggle to accomplish solutions
for business success.

iv) Risk taker

They take moderately calculated risks, they enjoy the excitement of challenges, they do not
gamble.

v) Initiative (proactive or inventiveness)

They have the ability to generate new ideas and implement them ahead of others to be able to
create competitive edge. The power or opportunity to act or take charge before others does.
Proactive rather than reactive

vi) Independence (able to work independently)

They like doing things their own way. Their own business fulfils their need for independence.
They like being their own boss.

vii) Positiveness (sees success not failure)

The entrepreneur approaches tasks and issues with the hope of success and not fear of failure.
They are optimistic persons.

viii) Self-confidence (self determination)

An entrepreneur is confident of achieving realistic and challenging goals, coupled with a sense of
effectiveness, will ultimately contribute to the success of the venture.

3.2 Qualities of an entrepreneur

1. Disciplined
These individuals are focused on making their businesses work, and eliminate any hindrances or
distractions to their goals. They have overarching strategies and outline the tactics to accomplish
them. Successful entrepreneurs are disciplined enough to take steps every day toward the
achievement of their objectives.

2. Confidence
The entrepreneur does not ask questions about whether they can succeed or whether they are
worthy of success. They are confident with the knowledge that they will make their businesses
succeed. They exude that confidence in everything they do.

3. Open Minded (consider every situation as an opportunity)

Entrepreneurs realize that every event and situation is a business opportunity. Ideas are
constantly being generated about workflows and efficiency, people skills and potential new
businesses. They have the ability to look at everything around them and focus it toward their
goals.

4. Self Starter (be the first to start any business activity)

Entrepreneurs know that if something needs to be done, they should start it themselves. They set
the parameters and make sure that projects follow that path. They are proactive, not waiting for
someone to give them permission.

5. Competitive (ready to compete)

Many companies are formed because an entrepreneur knows that they can do a job better than
another. They need to win at the sports they play and need to win at the businesses that they
create. An entrepreneur will highlight their own company’s track record of success.

6. Creative (innovative) great thinker

One facet of creativity is being able to make connections between seemingly unrelated events or
situations. Entrepreneurs often come up with solutions which are the synthesis of other items.
They will repurpose products to market them to new industries.

7. High Determination to succeed (consider defeat as an opportunity)

Entrepreneurs are not thwarted by their defeats. They look at defeat as an opportunity for success.
They are determined to make all of their endeavors succeed, so will try and try again until it does.
Successful entrepreneurs do not believe that something cannot be done.

8. Strong communication skills (convincing & motivating)

The entrepreneur has strong communication skills to sell the product and motivate employees.
Most successful entrepreneurs know how to motivate their employees so the business grows
overall. They are very good at highlighting the benefits of any situation and coaching others to
their success.

9. Strong work ethic (good management of time)

The successful entrepreneur will often be the first person to arrive at the office and the last one to
leave. They will come in on their days off to make sure that an outcome meets their expectations.
Their mind is constantly on their work, whether they are in or out of the workplace.

10. Passion (love their work)

Passion is the most important trait of the successful entrepreneur. They genuinely love their work.
They are willing to put in those extra hours to make the business succeed because there is a joy
their business gives which goes beyond the money. The successful entrepreneur will always be
reading and researching ways to make the business better.

3.3 Types /Classifications of entrepreneurs

Entrepreneurs are classified into different types based on different classifications as mentioned
below:

A) Classification based on the Type of Business:

1. Trading Entrepreneur: (intermediaries)
As the name itself suggests, the trading entrepreneur undertake the trading activities. They
procure the finished products from the manufacturers and sell these to the customers directly or
through a retailer. These serve as the middlemen as wholesalers, dealers, and retailers between
the manufacturers and customers.

2. Manufacturing Entrepreneur:

The manufacturing entrepreneurs manufacture products. They identify the needs of the
customers and, then, explore the resources and technology to be used to manufacture the
products to satisfy the customers’ needs. In other words, the manufacturing entrepreneurs
convert raw materials into finished products.

3. Agricultural Entrepreneur (deals with agricultural products)

The entrepreneurs who undertake agricultural pursuits are called agricultural entrepreneurs. They
cover a wide spectrum of agricultural activities like cultivation, marketing of agricultural
produce, irrigation, mechanization, and technology.

B) Classification based on the use of Technology:

1. Technical Entrepreneur:

The entrepreneurs who establish and run science and technology-based industries are called
‘technical entrepreneurs.’ Speaking alternatively, these are the entrepreneurs who make use of
science and technology in their enterprises. Expectedly, they use new and innovative methods of
production in their enterprises.

2. Non-Technical Entrepreneur:

Based on the use of technology, the entrepreneurs who are not technical entrepreneurs are non-
technical entrepreneurs. The forte of their enterprises is not science and technology. They are
concerned with the use of alternative and imitative methods of marketing and distribution
strategies to make their business survive and thrive in the competitive market.

C) Classification based on ownership:

1. Private Entrepreneur:
A private entrepreneur is one who as an individual sets up a business enterprise. He / she it’s the
sole owner of the enterprise and bears the entire risk involved in it.

2. State Entrepreneur:
When the trading or industrial venture is undertaken by the State or the Government, it is called
‘state entrepreneur.’

3. Joint Entrepreneurs:
When a private entrepreneur and the Government jointly run a business enterprise, it is called
‘joint entrepreneurs.’
D) Classification based on Gender:
1. Men Entrepreneurs:

When business enterprises are owned, managed, and controlled by men, these are called ‘men
entrepreneurs.’

2. Women Entrepreneurs:

Women entrepreneurs are defined as the enterprises owned and controlled by a woman or
women having a minimum financial interest of 51 per cent of the capital and giving at least 51
per cent of employment generated in the enterprises to women.

E) Classification based on the Size of Enterprise:

1. Small-Scale Entrepreneur: An entrepreneur who has made investment in plant and machinery
up to 20 members
2. Medium-Scale Entrepreneur: The entrepreneur who has made investment in plant and
machinery above 50 members
3. Large-Scale entrepreneur: The entrepreneur who has made investment in plant and machinery
more than 100 members

F) Classification based on Clarence Danhof (based on stages of economic devt)

Clarence Danhof (1949), on the basis of his study of the American Agriculturist, classified
entrepreneurs in the manner that at the initial stage of economic development, entrepreneurs have
less initiative and drive and as economic development proceeds, they become more innovating
and enthusiastic.

1. Innovating Entrepreneurs: (one who introduces new goods or new method of production)
Innovating entrepreneurs are one who introduce new goods, inaugurate new method of
production, discover new market and reorganise the enterprise. 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.

2. Imitative Entrepreneurs (they imitate or copy from the others)

These are characterized by readiness to adopt successful innovations inaugurated by innovating
entrepreneurs. Imitative entrepreneurs do not innovate the changes themselves, they only imitate
techniques and technology innovated by others. Such types of entrepreneurs are particularly
suitable for the underdeveloped regions for bringing a mushroom drive of imitation of new
combinations of factors of production already available in developed regions.

3. Fabian Entrepreneurs: (skeptical/ very great caution)

Fabian entrepreneurs are characterized by very great caution and skepticism in experimenting
any change in their enterprises. They imitate only when it becomes perfectly clear that failure to
do so would result in a loss of the relative position in the enterprise.

4. Drone Entrepreneurs: (refusal to accept or adopt)

These are characterized by a refusal to adopt opportunities to make changes in production
formulae even at the cost of severely reduced returns relative to other like producers. Such
entrepreneurs may even suffer from losses but they are not ready to make changes in their
existing production methods.

G) Classification based on behavioral scientists:

1. Solo Operators:
These are the entrepreneurs who essentially work alone and, if needed at all, employ a few
employees. In the beginning, most of the entrepreneurs start their enterprises like them.

2. Active Partners:
Active partners are those entrepreneurs who start/ carry on an enterprise as a joint venture. It is
important that all of them actively participate in the operations of the business. Entrepreneurs
who only contribute funds to the enterprise but do not actively participate in business activity are
called simply ‘partners’.

3. Inventors:
Such entrepreneurs with their competence and inventiveness invent new products. Their basic
interest lies in research and innovative activities.

4. Challengers:
These are the entrepreneurs who plunge into industry because of the challenges it presents. When
one challenge seems to be met, they begin to look for new challenges.

5. Buyers:
These are those entrepreneurs who do not like to bear much risk. Hence, in order to reduce risk
involved in setting up a new enterprise, they like to buy the ongoing one.
6. Life-Timers: (family business)
These entrepreneurs take business as an integral part to their life. Usually, the family enterprise
and businesses which mainly depend on exercise of personal skill fall in this type/category of
entrepreneurs.

Entrepreneurship as an Art
Art implies application of knowledge & skill to trying about desired results. An art may be
defined as personalized application of general theoretical principles for achieving best possible
results. Art has the following characters -
1. Practical Knowledge: Every art requires practical knowledge therefore learning of
theory is not sufficient. It is very important to know practical application of theoretical
principles. E.g. to become a good painter, the person may not only be knowing different
colour and brushes but different designs, dimensions, situations etc to use them
appropriately. An entrepreneur can never be successful just by obtaining degree or
diploma in entrepreneurship; he must have also know how to apply various principles in
real situations by functioning in capacity of an entrepreneur.
2. Personal Skill: Although theoretical base may be same for every artist, but each one has
his own style and approach towards his job. That is why the level of success and quality
of performance differs from one person to another. E.g. there are several qualified
painters but M.F. Hussain is recognized for his style. Similarly entrepreneurship as an art
is also personalized. Every entrepreneur has his own way of doing things based on his
knowledge, experience and personality.
3. Creativity: Every artist has an element of creativity in line. That is why he aims at
producing something that has never existed before which requires combination of
intelligence & imagination. Entrepreneurship is also creative in nature like any other art.
It combines human and non-human resources in useful way so as to achieve desired
results.
4. Perfection through practice: Practice makes a man perfect. Every artist becomes more
and more proficient through constant practice. Similarly entrepreneur learn through an art
of trial and error initially but application of entrepreneurship rules over the years makes
them perfect in their business.
5. Goal-Oriented: Every art is result oriented as it seeks to achieve concrete results. In the
same manner, entrepreneurship is also directed towards accomplishment of pre-
determined goals. Entrepreneurs use various resources like men, money, material,
machinery & methods to promote growth their business.

Entrepreneurship as a Science

Science is a systematic body of knowledge pertaining to a specific field of study that contains
general facts which explains a phenomenon. It establishes cause and effect relationship between
two or more variables and underlines the principles governing their relationship. These principles
are developed through scientific method of observation and verification through testing.

Science is characterized by following main features:

1. Universally acceptance principles - Scientific principles represents basic truth about a

particular field of enquiry. These principles may be applied in all situations, at all time &
at all places. E.g. - law of gravitation which can be applied in all countries irrespective of
the time.

Do we have some fundamental principles in entrepreneurship which can be applied

universally?

2. Experimentation & Observation - Scientific principles are derived through scientific

investigation & researching i.e. they are based on logic. E.g. the principle that earth goes
round the sun has been scientifically proved.
Do we have some principles or rules in entrepreneurship which have been developed
through experiments & practical experiences? E.g. it is observed that innovation can lead
to higher profitability

3. Cause & Effect Relationship - Principles of science lay down cause and effect
relationship between various variables. E.g. when metals are heated, they are expanded.
The cause is heating & result is expansion.
The same is true for entrepreneurship; therefore it also establishes cause and effect
relationship. E.g. if workers are given bonuses, fair wages they will work hard but when
not treated in fair and just manner, reduces productivity of organization leading to losses.

4. Test of Validity & Predictability - Validity of scientific principles can be tested at any
time or any number of times i.e. they stand the test of time. Each time these tests will
give same result. Moreover future events can be predicted with reasonable accuracy by
using scientific principles. E.g. H2 & O2 will always give H2O.

Can this be done in entrepreneurship?

3.4 Roles of Entrepreneurship in Economic Development of a Country

1. Wealth Creation and Sharing:
By establishing the business entity, entrepreneurs invest their own resources and attract capital
(in the form of debt, equity, etc.) from investors, lenders and the public. This mobilizes public
wealth and allows people to benefit from the success of entrepreneurs and growing businesses.
This kind of pooled capital that results in wealth creation and distribution is one of the basic
imperatives and goals of economic development.

2. Job Creation:
Entrepreneurs are by nature and definition job creators, as opposed to job seekers. The simple
translation is that when you become an entrepreneur, there is one less job seeker in the economy,
and then you provide employment for multiple other job seekers. This kind of job creation by
new and existing businesses is again is one of the basic goals of economic development. This is
why the Govt. of India has launched initiatives such as StartupIndia to promote and support new
startups, and also others like the Make in India initiative to attract foreign companies and their
FDI into the Indian economy. All this in turn creates a lot of job opportunities, and is helping in
augmenting our standards to a global level.

3. Balance Regional Development:

Entrepreneurs setting up new businesses and industrial units help with regional development by
locating in less developed and backward areas. The growth of industries and business in these
areas leads to infrastructure improvements like better roads and rail links, airports, stable
electricity and water supply, schools, hospitals, shopping malls and other public and private
services that would not otherwise be available.

4. Increase GDP and Per Capita Income:

India’s MSME sector, comprised of 36 million units that provide employment for more than 80
million people, now accounts for over 37% of the country’s GDP. Each new addition to these 36
million units makes use of even more resources like land, labor and capital to develop products
and services that add to the national income, national product and per capita income of the
country. This growth in GDP and per capita income is again one of the essential goals of
economic development.

5. Improve the Standard of Living:

Increase in the standard of living of people in a community is yet another key goal of economic
development. Entrepreneurs again play a key role in increasing the standard of living in a
community. They do this not just by creating jobs, but also by developing and adopting
innovations that lead to improvements in the quality of life of their employees, customers, and
other stakeholders in the community.

6. Increase Exports:
Any growing business will eventually want to get started with exports to expand their business to
foreign markets. This is an important ingredient of economic development since it provides
access to bigger markets, and leads to currency inflows and access to the latest cutting-edge
technologies and processes being used in more developed foreign markets.

7. Facilitate Community Development:

Economic development doesn’t always translate into community development. Community
development requires infrastructure for education and training, healthcare, and other public
services. For example, you need highly educated and skilled workers in a community to attract
new businesses. If there are educational institutions, technical training schools and internship
opportunities, that will help build the pool of educated and skilled workers.
LESSON FOUR

IDEA GENERATION AND EVALUATION

4.1 Business Idea

A business idea is a concept which can be used for commercial purposes, it is a starting point of
developing a new product. It typically centers on a commodity or service that can be sold for
money. A business idea is a starting point for any current or future entrepreneurs. It is essential
because it is the beginning of a new life – a life of a business and a life of an entrepreneur.

4.2 A business opportunity

A business opportunity is usually attractive situation that can be capitalized to make money. A
business opportunity, in the simplest terms, is a packaged business investment that allows the
buyer to begin a business. (Technically, all franchises are business opportunities, but not all
business opportunities are franchises.) Franchises is an authorization granted by a government or
company to an individual or group enabling them to carry out specified commercial activities, for
example acting as an agent for a company's products.

4.3 Distinction between business idea and business opportunity

A business idea is a concept which can be used for commercial purposes, and it is a starting point
of developing a new product. While business opportunity is attractive situation that can be
capitalized to make money or a packaged business investment that allows the buyer to begin a
business.

4.4 Sources of business ideas & opportunities for entrepreneurs

1. Interests and hobbies

A hobby is an activity that you enjoy doing during your leisure-time and is one of the primary
sources of business ideas. In fact, most people have founded great successful businesses while
pursuing their interests or hobbies. For instance, if you enjoy traveling, playing with computers,
music, sports, performing or cooking, you can seamlessly develop it into a business. You can
join the tourism, entertainment or hospitality industry by venturing deeper into your favorite
activity. These are just a few suggestions since there are lots of leisure activities that can lead
you to the world of successful entrepreneurship. Just consider what you are good at, and you are
ready to go.

2. Customer surveys

The starting point of any new business should be the clients because their needs and wants
justify the service or product that you can offer to them. The wants and needs of the customers
are, therefore, the sources of business ideas generation and you can ascertain them by carrying
out a thorough survey. You can conduct such a survey, whether formally or informally, through
questionnaires, interviews or observation as you list the sources of business ideas that work best
for you. While carrying out the surveys, you can talk with your friends and family to discover
what the potential customers need, yet it is not readily available to them.

3. Brainstorming and dreams

Brainstorming is a method of problem-solving and qualifies as one of the seven sources of

business ideas since every company focuses on offering solutions to the problems facing the
customers. The secret behind brainstorming is to come up with as many ideas and options
as possible. This process usually starts with a problem statement or question. For instance, you
may ask the question “what are the services or products necessary in the home that are hard to
get?” In this way, each design will result in one or more ideas and lead to several opportunities
for becoming an entrepreneur. Dreams are also part of the sources of developing business ideas
though most people tend to ignore them.

4. Franchises
A franchise is a situation where a sole trademark distributor or manufacturer of a product gives
exclusive rights to independent retailers for local distribution. This is done in return for the
consistency of the retailers to the set operating procedures and payment of royalties. As one
of the sources of business ideas for entrepreneurs, franchising can take different forms but the
most common and preferred one is where you are offered the image, operating procedures
and the name of an established business. Besides buying a franchise, you can also build on and
sell its concept at a profit.

5. Mass media
The mass media; including television, newspapers, Internet, radio, and magazines are a great
source of ideas, information, and opportunities. One way to become a successful entrepreneur is
taking a careful look at the advertisements and commercials in these media. By reading a
magazine or newspaper, you can easily come across a business for sale that interests you.
These media can also report on the trending fashion, and pressing customer needs that you
can jump on and start a business. If, for example, you find out that there is a high demand for
physical fitness and healthy eating practices, you can start a fitness and healthy eating center.
While traditional media including television, radio, and newspapers have been great sources of
ideas to run new business, the Internet has emerged as the latest information technology with
instant millions of ideas.

6. Personal experience and talents

Most of the ideas and opportunities for successful businesses are a result of the experiences in
the place of work. For example, an experienced manager working for a leading restaurant
can eventually decide to start a business related to hospitality even before he retires. As a
potential entrepreneur, therefore, you can make the most use of your skills and experiences as
crucial sources of business ideas generation. They also determine the type of venture that you
start as you capitalize on them. If you are gifted or have experience in a specific field, then it is
time to analyze just talent or skills. You can start off with the following self-examination
questions: What am I passionate about? What talents or skills do I possess? Are people willing
to pay me for my skills? What do I need to build on my skills?

7. Trade fairs and exhibitions

Trade fairs and exhibitions are among the top sources of developing business ideas. They are
usually advertised on the Internet, radio, and newspapers, and by attending such events regularly,
you will discover new services and products. You will also meet with manufacturers, sales
representatives, distributors, wholesalers, and franchisers who will answer all your
questions and inspire you to start a business that will thrive. In fact, some of them may be in
need of someone like you to partner with, and this will be an exceptional opportunity to partner
with renowned entrepreneurs and franchisers. Sound business ideas from reliable sources of new
ideas for business become good investments when implemented.
Four characteristics of a good business opportunity
i) Demand. There should be a favorable market scope for the product or service.

ii) Attractive returns on investment. If the returns on investment are attractive then the
business opportunity can be pursued further.

iii) Availability of raw materials. Business opportunity is said to be viable where the required
material to produce the products are available.

iv) Technical requirements. Some businesses require technical or managerial skills.

v. Low capital requirement

A good business opportunity should be cheap to finance. Access to capital is a major

impediment to entrepreneurship implying that entrepreneurs should focus on ideas that are cheap
to finance. Entrepreneurs exploit financing methods such as loans, venture capitalists and
contributions from friends and family among others. Capital suppliers are reluctant to finance
new businesses with huge capital requirements.

vi. Passionate

A good business opportunity is one that aligns with the individual’s passion. The founder’s
motivation is a key determinant of the success of a start-up. A passionate founder has an internal
motivation towards building a bright future for the business. As a result, such a leader creates a
clear vision and mission statements and uses them to motivate stakeholders towards
organisational goals.

vii. Matches individual skills

Individual’s capabilities are a key determinant of the fitness of a business proposal. A good
business proposal aligns with the entrepreneur’s skills that ensure conversance with the
intricacies of the business process.

viii. Growth

Growing a business is one of the principal goals of an entrepreneur. It is therefore paramount to

ensure the scalability of an opportunity before committing resources. A good business
opportunity’s growth regarding profitability, revenue, size, and other yardsticks of
evaluating growth are verifiable.
ix. Reflect environmental realities

A business opportunity should be relevant to the prevailing environment. The business

environment is dynamic, and entrepreneurs should understand how changes in the environment
affect customer needs and business operations. An entrepreneur should have a deep
understanding of the environmental trends to ascertain the opportunity’s long-term viability.

4.5 Four ways of identifying business opportunities

To be successful entrepreneurs, we need to be continually innovating and looking for
opportunities to grow our startups. But how do you find new opportunities to take your startup to
new markets and growth levels? Here are four ways to identify more business opportunities.

1. Listen to your potential clients

When you’re targeting potential customers listen to their needs, wants, challenges and
frustrations with your industry. Have they used similar products and services before? What did
they like and dislike? Why did they come to you? What are their objections to your products or
services? This will help you to find opportunities to develop more tailored products and services,
hone your target market and identify and overcome common objections.

2. Listen to your customers

When you’re talking to your customers listen to what they saying about your industry, products
and services. What are their frequently asked questions? Experiences? Frustrations? Feedback
and complaints? This valuable customer information will help you identify key business
opportunities to expand and develop your current products and services.

3. Look at your competitors

Do a little competitive analysis (don’t let it lead to competitive paralysis though) to see what
other startups are doing, and more importantly, not doing? Where are they falling down? What
are they doing right? What makes customers go to them over you? Analysing your competitors
will help you identify key business opportunities to expand your market reach and develop your
products and services.

4. Look at industry trends and insights

Subscribe to industry publications, join relevant associations, set Google alerts for key industry
terms and news and follow other industry experts on social media.

4.6 Viability of a Business Idea

Viability of business idea is the ability of the proposed idea to work successfully. it is important
as an entrepreneur to evaluate the business ideas through a screening process. The screening
process involves the systematic evaluation of the ideas in order to determine the best idea to turn
into a viable business venture. The screening process must be done carefully, objectively, soberly
and without emotions. The business idea screening is required even when there is only one
business idea to consider. This is important to ensure that the business is profitable.

4.7 How to determine if you have a viable business idea

1. Conduct a Market Research
Search the Internet, visit libraries, and look at industry reports for information about costs,
competition, and the size and viability of your target market. Also, if a real niche exists, chances
are the media will be targeting it. Look for blogs, magazines, trade journals, newspapers, and
other media aimed at your potential customer base. You may end up finding a new market niche
that you never even knew about.

2. Find out if there’s a paying customer.

To have a successful business, you will undoubtedly need to solve a problem for a particular
customer. But before settling on an idea, identify who your ideal customers are, what their
income is, what their buying habits are, and how they make purchasing decisions. You can
get this information by conducting surveys or polls online, interviewing potential customers, and
searching for existing data on your demographic. Once you compile the results, you’ll have a
clearer picture of your paying customer.

3. Solicit honest feedback.

Bounce your business idea off of your family, friends, and peers to get some objective, real-
world advice. Talk to prospective customers, local storeowners, and even your competition
(being careful not to give away your idea) to get their take on fair pricing for your services and
what they currently pay or charge for them. Test a few price points and, if the product is tangible,
let potential customers examine and use it. Ask if there are any features they would like to see
offered that are currently unavailable. You may get some interesting constructive criticism
that you can implement. Please contact your own legal advisor about how you might be able to
protect your ideas while you are seeking feedback.

4. Consider your marketing strategy.

Since you probably have limited time and resources, you’ll want to make sure you get the most
bang for your marketing bucks. Fortunately, many marketing tactics these days are fairly
inexpensive. Small business websites, for example, typically range from $750 to $3,000 for a
basic set up depending on the type of site you need. Social media marketing may also be cost
effective, but you must take the time to test and learn about it in order for it to be successful. Be
sure to master one social media outlet before branching out to others. Other low-cost marketing
techniques include blogging and basic how-to or product demonstration videos. And remember:
Face-to-face networking at local events is still one of the best ways to build potential business
relationships, because people want to do business with people they know.

5. Assess the costs of your venture.

To get a sense of how many sales must be generated to cover your expenses and eventually bring
in some cash, you’ll need to know your monthly “burn rate,” or how much it costs to run your
business each month. Here are some things to consider:

• Cost of materials: How much will your inventory, ingredients or product components cost?

• Cost of labor: If you’re doing the work yourself, what is your time worth? If you’re paying
an employee, subcontractor or freelancer to do the work, how much time and money will it
take that person to make the product or provide the services?

• Overhead: A percentage of your daily business expenses, such as phone, electricity, rent,
heat, insurance, water, accounting, legal, admin support and marketing, should be reflected in
your pricing.
• Pricing: Once you’ve calculated your costs, decide what you’re going to charge your
customers. Remember, you must cover your costs and earn a profit on every sale or you’ll
end up out of business quickly.

LESSON FIVE

THE CREATIVE PROCESS (DESIGN THINKING)

5.1 Meaning of Design thinking

Design thinking is a proven problem solving technique that any business or profession can
employ to achieve business results. Design thinking combines creative and critical thinking that
allows information and ideas to be organized, decisions to be made, situations to be
improved, and knowledge to be gained.

5.2 Five Stages in the Design Thinking Process

1. Empathize (understand deeply)
This is the process of gaining an empathic understanding of the problem you are trying to solve.
This involves consulting experts to find out more about the area of concern through observing,
engaging and empathizing with people to understand their experiences and motivations, as
well as immersing yourself in the physical environment so you can gain a deeper personal
understanding of the issues involved. Empathy is crucial to a human-centered design process
such as Design Thinking, and empathy allows design thinkers to set aside their own assumptions
about the world in order to gain insight into users and their needs.

2. Define (the Problem)

During the Define stage, you put together the information you have created and gathered
during the empathize stage. This is where you will analyze your observations and synthesize
them in order to define the core problems that you and your team have identified up to this
point. You should seek to define the problem as a problem statement in a human-centered
manner.

3. Ideate (generate the idea)

During the third stage of the Design Thinking process, designers are ready to start generating
ideas. You’ve grown to understand your users and their needs in the Empathise stage, and
you’ve analysed and synthesised your observations in the Define stage, and ended up with a
human-centered problem statement. With this solid background, you and your team members can
start to "think outside the box" to identify new solutions to the problem statement you’ve
created, and you can start to look for alternative ways of viewing the problem.

4. Develop Prototype (actual product sample)

The design team will now produce a number of inexpensive, scaled down versions of the
product or specific features found within the product, so they can investigate the problem
solutions generated in the previous stage. Prototypes may be shared and tested within the
team itself, in other departments, or on a small group of people outside the design team.
This is an experimental phase, and the aim is to identify the best possible solution for each of the
problems identified during the first three stages.

5. Test marketing (test the product in the market)

Designers or evaluators rigorously test the complete product using the best solutions identified
during the prototyping phase. This is the final stage of the 5 stage-model, but in an iterative
process, the results generated during the testing phase are often used to redefine one or more
problems and inform the understanding of the users, the conditions of use, how people think,
behave, and feel, and to empathize.