INTRODUCTION TO ENTREPRENEURSHIP

Definition of Terms

Definition of an entrepreneur

 An entrepreneur is a person who identifies a business opportunity, harnesses and obtains the
resources necessary to initiate a successful business activity.
 The entrepreneur implements the idea
 Undertakes to operate the business
 An entrepreneur is therefore a central key individual in the society who makes things
happens for economic development.

Entrepreneurship meaning
 In the broader sense entrepreneurship refers to the means of stimulating innovative and
creative undertakings for a better business community or world.
 The act or process of identifying business opportunities and gathering the necessary
resources to initiate a successful business activity.
 Entrepreneurship is a French word meaning to undertake and focuses on a business enterprise
 Entrepreneurship can exist in any situation – therefore it is the creation of values through
establishing a business enterprise.
 Entrepreneurship means having an idea of one’s own and trying to implement the idea to
create values on it.
 Entrepreneurship is a term which encompasses what entrepreneurs do i.e
□ Identifying a business opportunity of a particular demand
□ Look at the opportunity as a process of creating, something that did not exist.
□ Constantly searching/ harnessing ones environment and resources to implement the
activities.
□ Creating a totally new product and using it in as new.
 Entrepreneurship there is the practice of starting a new business or revitalizing existing
businesses in response to identifying opportunities.
Self-Employment
 Working independently and earning a living from it.
 This is a concept that arises when the entrepreneur relies on revenues from his business as a
source of income
 What is Unemployment? Advantages and disadvantages of Self Employment?
 What is Salaried Employment? Advantages and Disadvantages of Salaried employment?
Enterprise
 A business undertaking by an individual for the purpose of making a profit.
Factors impeding the growth of Entrepreneurship
 High Taxation Levels
 Corruption and Official Harassment
 Unregulated competition from outside countries
 Decline in personal incomes
 The high cost of finance
 Lack of entrepreneurial culture
 Poor transport and communication networks
 Lack of skills and knowledge
 Explain the distinctions between an Entrepreneur and a Manager

Contribution of Entrepreneurship to National Development

 The economic growth, the improved quality of life, the equitable distribution of resourcesand
the capacity of the economy to deal with economic, social and environmental development.
 Main objectives of national development include:
□ Provide basic needs to every citizen:- food, shelter, health, security, education,
clothing
□ Elimination / Reduction of poverty: reduce rural-urban migration □Provision of
opportunities for employment and personal advancement
□ Trying to narrow the income differences between the rich and the poor.
i) Employment Creation:
ii) Promotion of National Productivity: This is through production of goods and services
within the country and therefore they contribute to the Gross Domestic Product (GDP)
iii) Raising Standards of Living: It’s measured by the capacity of people of a country to buy
goods and services. Entrepreneurs contribute by employing people and giving themsalaries
or wages to buy their necessities.
iv) Conservation of foreign Exchange: Entrepreneurs produce goods and services that are
needed by people and reduction in importing those goods and hence the governmentsaves
foreign exchange.
v) Export Promotion: Entrepreneurs who produce goods and services for export earn
vi)Conservation Agent: Entrepreneurs can contribute to conservation and utilization of
resources e.g. manufacturing a Jiko that uses sawdust instead of wood charcoal
vii) Rural development which in effect.
  Promotes change to the formal sector from informal sector üEquitable development
 Reduced rural-urban migrations.
viii) Development of technology through
 establishment of research institutions ii) education systems
ix) Government revenue
 Through taxes. From domestic borrowing (TBs)
x) Facilitating community development through
 Establishment of small businesses ii) Participation in community dev. Projects
xi) Providing a positive role model and facilitating.
 Competition between domestic entrepreneurship and imported üStimulating dev. Of
entrepreneurship.
xii) Reducing dependence on imported goods and services.
xiii) Stimulates competition through
 Quality production methods are adopted
 Quality products are produced
 Variety goods and services are produced.
xiv) Facilitated development of the financial sector through which;
 Capital accumulation is possible through savings
 Loaning is facilitated
 Development of the capital market.
Entrepreneurship
i) Entrepreneurship looks at particular individuals in a business set-up. It operates in large
business or organization which is business minded to make profit.
ii) Entrepreneurs operate autonomously for the welfare of the organization.
iii) The term Intra – refers to within – therefore Entrepreneurship is a process whereby an individual
or group within a large organization creates something new or different to maximize on the
available opportunities to that organization. iv)Intra can therefore beequated to entra within
the context of a large organization where the workers are a leeway to be creative or innovative
on their own.
v) They become competitive, socially and economically the idea is to allow individuals within the
organization to act and think independently.
Entrepreneurial Behavior
 Several theories have been developed to explain why entrepreneurs behave the way they
do.
 There has been debate on whether entrepreneurs are born or made
 Born-hereditary, made-entrepreneurs are environmental influenced by where they are born.
 These are;
i) Economic
 The theory explains entrepreneurial behavior as influenced by economic factors
through which.
 a) It is possible to introduce new methods
b) It is possible to find new sources of materials
c) It is possible to open new markets
 The economic prospective is important since they create enabling environment for the
entrepreneur to combine the factors of production.
ii) Psychological factors
 The theory states that entrepreneurs have unique values, attitudes and needs within
which drive them.
 It is mostly concerned with personality traits as the main determinants of
entrepreneurial behavior
 People are likely to become entrepreneurs because of high liking of say.
a) Independence
b) Attitude
c) Need to satisfy certain needs.
iii) Sociological factors
 Maintains that environmental factors such as beliefs, culture, social structures
determine entrepreneurial behavior.
iv) Management factors
 Emphasizes on the organization of resources in a specific way to attain profits
 Leadership impacts on behavior and facilitates pioneership, achieving of goals and
provides vision.

The Functions of an Entrepreneur

i) The bearing of uncertainty is the primary function of the entrepreneur i.e losses
or profits.
ii) The management of the business enterprise ie can delegate iii)
Provision of risk capital and invention.
iv) Identifying gaps in the market and turning such gaps to business opportunities i.e to
initiate a business.
v) Financing the businesses, through raising and mobilizing the necessary resources to
exploit opportunity.
vi) Searching for business opportunities through environmental scans. vii) Mobilization
of resources needed to start and run a business e.g. from
a) Personal savings
b) Friends & relatives
c) Financial institutions e.t.c
viii) Evaluation of business opportunities to access viability and any other benefits that might
accrue to the business.
ix) Provide the necessary leadership for the business and those working in it.
Advantages of Entrepreneurship
i.) Financial gains
ii.) Self-employment which leads to job satisfaction and flexibility
iii.) Provide job opportunities to the unemployed or those seeking better jobs.
iv.) A means of opening up new industries especially in the rural areas - facilitating
globalization
v.) A source of generating income and increased economic growth.
vi.) Facilitates competition encouraging high quality products
vii.) Facilitates production of more goods and services
viii.) Leads to the development of newer markets
ix.) Promotes use of modern technology in especially small- scale manufacturing to enhance
higher productivity

Drawbacks of entrepreneurship
a) Challenges of a being an entrepreneur
 long working hours
 poor pay
 unclear future
 fear of losing all that has been invested
 bankruptcies and closure
b) Other challenges
 Fear of delegating
 the problem do it yourself and know it all
 competition by established business
 lack of funds especially before break even
 Mis- management by employees
Promotion of Entrepreneurship
 Integrating entrepreneurship into the education system
 Registration to encourage risk taking
 National companies to promote entrepreneurship
 Support of entrepreneurs through friendly loans at the appropriate time.

2. EVOLUTION OF ENTREPRENEURSHIP

The Evolution of Entrepreneurship in Kenya

 Interest in the development of entrepreneurship and small enterprise in Kenya gained
momentum as a possible remedy to the stagnation of economic development and the
escalating unemployment problem between the early 1960 and 1970s
 Although there were attempts by the government to develop entrepreneurship, the main
impetus came from the international labor organization (ILO) report.
 The report centered on the potential of the informal sector and suggested that the bulk of
Kenya’s urban workers were self –employed in small enterprises.
 The report proposed that the development of this sector could;
i.Promote employment ii.Facilitate development
iii.Facilitate equitable
distribution of resources.
 Based on this report the government responded with a seasonal paper in 1973 – which
recognized the role of entrepreneurship in employment creation not just in the informal
sector but also in the formal sector.
 Subsequent development plans have devoted time to the development of strategies and to
promote small-scale enterprises and entrepreneurs which include. oThe industrial estate
programme oEstablishment of development agents e.g ICDC and KIE oPolicy and
institutional framework to promote entrepreneurs. oPromoting indigenous Kenyan
enterprises.

Economic, Social and Political Factors Affecting Entrepreneurial Development

a) High taxation levels. For business and personal incomes
 Which in effect reduce profits earned making it un-attractive to engage in business
 Taxation of raw materials and other inputs raise production costs.
b) Corruption and official harassment
 Occurs where entrepreneurs are forced to bribe officials in various government departments
to allow operation or start up.
 Raids under one pretext or another which tends to be very harassing.
c) Unregulated competition from the outside world due.
 Liberalization which opened importation competing locally produced goods.
d) Declining personal incomes of people due to
 Over-increasing cost of living
 Arise in unemployment
e) The high cost of finance
 The cost of borrowing is high
 Business collapses because they lack ability to repay loans.
f) Lack of necessary skills and knowledge due to
 lack of training opportunities
 high education costs
g) Poor transport and communication network
 making business difficult
 Inconveniencing consumers
 High energy costs
 Lack of entrepreneurial culture
Myths Associated with Entrepreneurship

1) Entrepreneurs are doers not thinkers: Although it is true entrepreneurs tend towards action,
they are also thinkers.
2) Entrepreneurs are born not made: The idea that the characteristics of entrepreneurs cannot be
taught or learned, that they have innate trait, has long been prevalent. Today, however, the
recognition of entrepreneurship as a discipline is helping to dispel the myth.
 3) Entrepreneurs are always inventors: entrepreneurship covers more than just invention. It
requires a complete understanding of innovative behavior in all forms.
4) Entrepreneurs are academic and social misfits. The belief that entrepreneurs are academically
and socially ineffective is as a result of some business owners having started successful
enterprise after dropping out of school or quitting a job. Today the entrepreneur is considered
a hero socially, economically and academically and no longer misfit.
5) Entrepreneurs must fit the profile many books and articles have presented checklist of
characteristics of a successful entrepreneur. Today we realize that a standard entrepreneurial
profile
6) All entrepreneurs need to run a business successful is money: Many business fail because of
managerial incompetence, lack of financial understanding, poor planning etc. To many
entrepreneurs money is a source but not an end in itself.

7) All entrepreneurs need is luck. Being at “the right place at the right time” is always an
advantage. But luck happens when preparation meets opportunity as an equally appropriate
advantage. Prepared entrepreneurs who seize the opportunity when it arises often seem
“Lucky” they are in fact simply better prepared to deal with situations and turn them into
success. What appears to be luck really is preparation, determination, desire, knowledge and
innovativeness?
8) Entrepreneurs must fail; in fact failure can teach many lessons to those willing to learn and
often leads to future successes.
9) Entrepreneurs are extremely risk takers (Gamblers). Entrepreneur is usually working on a
moderate or calculated risk.
10) It takes a lot of money to start a business. This is false because it is all about using the little
resources to make the most out of it.
11) Those who make it are those with rich backups. You can start from scratch with no special
favors or advantages and succeed
12) Some people go about thinking that banks do not lend to those who wish to start upbusinesses.
13) Those who start business, do so in very attractive industries
14) All entrepreneurs are rich and have financial success
15) Starting a business is easy. It is difficult and getting it running takes a lot.

Theories of entrepreneurship
The theories that explains entrepreneurship include:
a) Psychological Theory
b) Motivational Theory
c) Sociological Theory
d) Economic Theory
e) The Resource Based Theory
f) Competence Based Theory
 g) Heterogeneous Demand Theory
Psychological theory
• The focus is that entrepreneurs have unique values, attitudes and need which drive them.
• People’s behavior results from their attempts to satisfy their unique needs and values.
• The psychological school focuses on personality factors believing that entrepreneurs have
unique values and attitudes towards work and life.
• Among the most frequent traits of entrepreneurs include the Need for achievement, Locus of
Control and Risk taking propensity.
Motivational Theory
• Motivation is that which causes you to behave in the way you behave i.e. the why of
behavior
• Entrepreneurial motivation is those factors and forces or events that energizes an individual,
his desires and the needs to go into and sustain a business venture.
• Types of motivation; i) Internal Motivation Factors ii) External Motivation Factors
• Internal Motivations and Drives
 Refers to those personal traits and desires that induce a person to become an
entrepreneur. Such motivations are;
i. Employment Creation Need.
ii. Need for independence or self-Reliance: iii.Need for Power:
iv.Need for Recognition:
v. Need for Security:
vi. Self-actualization need:
□External Motivations and Drives
i. Infrastructure:.
ii. Credit Facilities: iii.Information Support iv.Pricing
Policy v.Tax Policy vi.Legal Control vii.Political
Climate viii.Technical Technology Assistance
ix.Training Consultancy Assistance x.Friends
Motivation
Maslow’s Need Theory
Theory of human needs is identified with the psychologist Abraham Maslow. This theory is based on three
specific assumptions:
1. The human beings are never satisfied. Their wants are determined by what they have. When
people are hungry or thirsty, the quest for food or water influences how they behave. However
if food and water is acquired, the same person will want something else, perhaps a safe place
to live in or a social status.
2. A satisfied need does not cause behavior. Once people satisfy their need for safety, they are
motivated by yet unsatisfied needs, not the ones – that are satisfied,
3. Human needs are arranged in hierarchy of importance. These needs range from low level
biological (physiological) needs to such high level needs as self-actualization.
 Esteem Needs (awareness of importance of

Discus Impetus for entrepreneurship. Discus factors that propel people to self-employment.
Factors Affecting Entrepreneurial Development
Political Factors
 Political environment is concerned with the policies pursued by the government.
Components of political environment include; oThe political stability oPolitical system e.g.
i. Capitalism: whereby the means of production are owned by individuals.
A capitalist is a wealthy merchant who uses his/her money to invest in
trade for profit.
ii. Socialist: means of production are owned by government iii.Market
economy: whereby means of production are owned by government and
individuals.
oPolitical climate being favorable oPoliciespursued by the
government: e.g.
 Changes in monetary and fiscal policy
 Policies concerning price and wage control
 Policies concerning nationalization
 Economic Factors: Concerned with factors that affect consumers purchasing power and
spending patterns:
o Inflation: increase in prices of goods and services without a corresponding increase
in output.
 o Money supply: Quantity of money in circulation which is supplied by Central Bank
oInterest Rates: rate charged by commercial banks on the money that it lends
oExchange rates and controls
o Taxes and subsidies(Incentives given to encourage production of good or service)
oIncome levels
 Social Cultural Factors
o Is made up of institutions and other forces that affect a society’s basic values,
perceptions, preferences and behaviors. People grow up in a particular society that
shapes their basic beliefs and values.
o Social factors e.g. family, religion, social roles and status, reference groups
oCultural factors like values, beliefs, customs and lifestyle.
 Technological Factors. Ways and means of production
THE ENTREPRENEUR

Types of Entrepreneurs
a) Craft entrepreneurs
 Exploits and utilizes personal skills to start a business without thinking of its growth or the
expansion objectives
 Often times than not in this type of entrepreneurship;
i.There is no expanding even after a long time ii.It is not business expansion
oriented. iii.The skills can be technicalskills, professional skill e.t.c
b) Opportunistic entrepreneurs
 This is a person who starts a business, acts as a manager and with a view to expand the
business to maximum.
 He might not have the skill or profession but he has the opportunity to start and direct others.
 He sees beyond and has abilities to initiate and venture into business that will expand and
grow.
 He is innovative i.e. somebody able to delegate activities to others, ready and able to see,
scan the environment.
c) Social entrepreneur
 Recognizes a social problem and uses entrepreneurial principles to organize, create and
manage a venture to achieve social change.
d) Political entrepreneur
 Is a business person who utilizes political systems or seeks support from political bodies in
order to promote, expand and profit from their own commercial ventures.
 Apolitical player who seeks to gain certain political and social benefits in return for providing
the common goods that can be shared by an organized general public. e)High Tech:
  New technological developments have created opportunities for those with the right technical
expertise
f) Concept Multipliers
 Someone who identifies a successful concept that can be duplicated by others eg
g) Acquirer :
 Those who take over a business started by others and use their own ideas to make it
successful
h) Buy/Sell artists: those who buy a company for the purpose of improving it before selling it for
a profit.
i) Economy of Scale exploiters: Those who benefit from large volume of sales by offering
discount prices and operating with low overheads.
j) Inventors: Those with particular inventive abilities who design a better product and then create
companies to develop, produce and sell the item.
k) Self-employed: individuals who perform all the work and keep all the profit.
l) Speculator/Value: Those individuals who buy property at a low price with the anticipation that
prices will go up and sell at a higher price.
m) Conglomerate: an entrepreneur who builds up a portfolio of ownership in small businesses,
sometimes using shares or assets of one company to provide the financial base to acquire another.
n) Matriarch or patriarch: The head of family owned business who often employs several
members of the family.

Characteristic/Traits of a Potential Entrepreneur

a) Initiative and risks taken by;
 Doing things before being asked or forced by events
 Acts to extend business in to new areas products etc
 Sees and acts on opportunities
 Looks for and takes action on opportunities.
 Sees and acts on new business opportunities
b) Persistence and patience through
 Taking repeated action to overcome obstacles
 Taking action to overcome obstacles
 Taking action in the face of significant obstacles.
c) Information and property seeking
 Takes action on his own to get information to help reach business objectives
 Does personal research on how to provide a product or service
 Consultation of experts on business and technical advice
 Asks questions to clarify information
 Undertakes market research analysis and investigation.
d) Concern for high quality work by
  Acting to do things that meet or beat existing standards
 A desire to produce and sell top and better quality products or services üCompares own
work favorable to other.
e) Commitment to work contract by
 Placing the highest priority on getting the job completed.
 Accepts full responsibility for problems that may arise in getting the job done üExpresses
concern on customers satisfaction.
f) Efficiency orientation by;
 Finding ways of doing things faster and cost effectively üUses information to improve
efficiently.
 Express concern on costs improvements change etc.
g) Systematic planning;
 by developing and using logical plans to meet goals
 breaking tasks down to sub-tasks
 developing plans which anticipate obstacles
 evaluates alternatives
 takes logical and systematic approach to activities
 identifies new and potential unique ideas to reach goals üSwitches to alternative strategies
to reach goals.
h) Self –confidence;
 has a strong belief in self and own abilities
 expresses confidence in own ability to complete task or meet challenges
 Sticks with own judgment in the face of opposition or early lack of success üconfronts
problems and issues directly üTells others what they have to do.
i) Persuasion;
 convinces people to buy the products or service
 convinces people on providing funds
 Asserts own competence reliability and the company product.
j) Uses strategic influence and networking;
 To develop business contact
 Uses influential people as agent to accomplish objectives Role of an entrepreneur in
an enterprise;
 Risk taker, Mobilizer, Marketer, Financier, Shareholder, Director, Initiator
Factors to consider in starting a business
a) Personal Factors
i. Personal abilities
One must have personality traits that will enable him/her to start, continue and succeed in business. One
must have entrepreneurial traits and be motivated and determined to succeed in business. E.g. one must
be willing to work hard and pursue his/her goals persistently he/she must be innovative, creative and
optimistic. ii.Skills: One needs to have the training and experience necessary in the proposed line of
business. He/she must have adequate knowledge about product or service and thenecessary
managerial skills for the business to succeed.
iii. Interests / hobbies: As an entrepreneur, how much interests does one have in line of
his/her business? Ann interest or hobby can be a basis for a business.
iv. Family: Small businesses and family are inseparable, one affects the other. You
need to consider possible effects of the business on the family and how the family
could affect the business.
v. Health: Running a business successfully calls for a lot of hard work. It involves a lot
of physical and mental energies. If an entrepreneur has failing health, it is advisable
to engage in less strenuous activities.
b) Resource Factors
i.) Financial Resources: These include money saved by the entrepreneur and money that may be
borrowed from individuals and institutions like banks, building societies, cooperatives, etc to start and
run a business.
ii.) Labor Resources: The availability and suitability of labour should be assessed.
iii.) Equipment/Machinery: Tools of the trade that are essential in any business. They may include
furniture, office equipment, machine for a specific job, etc.
iv.) Raw Materials: These are items that are to be converted to states that can be readily used by
consumers. These include timber if one is furniture business, clothe materials if in dress making
business.
c) Environmental factors
i.) Location: Factors such as community profile, communication, road, water, safety, source of raw
materials and competition should be considered when locating a business. This enables easy
accessibility of the business by customers.
ii.) Government Policies / regulations: Policies such as taxation, pricing, licensing, loans and policy
documents affect small enterprises. Information on the above is available from district Information
Offices, Trade Organizations, Kenya Chamber of Commerce and Government Printers.
iii.)Infrastructure: Availability of roads, power, water and telephone services are very important in
some types of business.
iv.) The economy of the society: The average income and employment trends determine the demand
for goods and services within the community to sell products or servicesat reduced profits, a strong
economy creates ample demand and good profits.
v.) Competition: An entrepreneur should try to assess the number of competitors in his or her
environment in order to compete with them successful.
vi.) Market: A market for the product or services is very important to the entrepreneur.
One has to assess whether there’s a steady market.
vii.) Community and Culture: The entrepreneur has to consider:
a) General Customs of the region eg customs about mode of dressing
b) The mix of politics
c) Taboos / beliefs eg Muslims cannot operate any business dealing with pork
products
d) Traditions peculiar to his / her community