CHAPTER ONE

The Nature of
ENTREPRENEURSHIP
 Learning objectives

When you have completed this chapter you will be able to:
 Historical origin of entrepreneurship

 Definition entrepreneurship and entrepreneur

 Types of entrepreneurs

 Role of entrepreneurship in economic development

 Entrepreneurial competence and environment (mindset)

 Relate entrepreneurship, creativity and innovation

 Mid gymnastic
• Why USA becomes most advanced country, but
Ethiopia not?
• Entrepreneurship
• Entrepreneur
• Why to become an entrepreneur
• The role of entrepreneurship in the economy
1.1. Entrepreneurship: introduction

There is no universally accepted definition of

entrepreneurship.
• The word entrepreneur a loanword from
French, Entreprendre, which means, “to
undertake”. It was coined by Richard
Cantillon in the 18th C.
• He wrote a book so called “Essay on the
nature of commerce in 1755.
 Historical origin of
entrepreneurship
• What is entrepreneurship?

• Who is an entrepreneur?
– To answer this most frequently asked questions,
lets take a look on the historical evolution of
entrepreneurship
 Ancient period: Historical..
17th C:
Entrepreneur:
a person
managing large Entrepreneur:
commercial a person who signed a
contractual
projects
agreement with the
gov’t to provide P/S.

18th C:
R. Cantillon 19th & 20th C:
Entrepreneur:
A person who is risk Entrepreneur:
taker. Viewed from economic
i.e. merchants, farmers .. perspective.
buy products at a • organizes and operates
known an enterprise for
price and sell it at personal
unknown price gain.
 Historical …..Now (21st
• Entrepreneurship
C)
 Creating and growing for-profit businesses and other
social enterprises that add value beyond the
traditional bottom line.
 Reviving civic pride and the sense of connection
empowered individuals pursuing meaningful work.
 Definitions of E/ship and
Entrepreneur
• Entrepreneurship is the process of

– identifying opportunities in the market place,

– arranging the resources required to these

pursue
opportunities and

– investing the resources to exploit the opportunities for long

term gains.
• Entrepreneurship is a practice and a process that results
in creativity, innovation and enterprise development and
growth.
 Entrepreneurship
• The process of entrepreneurship includes five critical
elements. These are:
i. The ability to perceive an opportunity
ii. The ability to commercialize the perceived opportunity i.e.
innovation
iii. The ability to pursue it on a sustainable basis.
iv. The ability to pursue it through systematic means.
v. The acceptance of risk or failure.
 Entrepreneur
• An entrepreneur is any person who creates and
develops a business idea and takes the risk of
setting up an enterprise to produce a product or
service which satisfies customer needs.
• An entrepreneur is a professional who discovers a
business opportunity to produce improved or
new goods and services and identifies a way in
which resources required can be mobilized.
 Entrepreneur
• Others definitions: from three perspectives
1. To an economist
– one who brings resource, labor, materials, and other
assets into combination that makes their value greater
than before
– one who introduces changes innovations.
 Entrepreneur
2. To a Psychologist
– A person typically driven
by certain forces need to
obtain or attain something,
to experiment, to
accomplish, to escape
authority of others
 Entrepreneur

3. For the capitalist

philosophers
– One who creates wealth for others
– who find better way to utilize
resources and reduce waste,
– who produce job to others
 Types of entrepreneurs

The individual • Who started; acquired/franchised

entrepreneur own independent organization

• A person who does entrepreneurial

Intrapreneur work within large organization.

The • The entrepreneurial function need not

be embodied in a physical person.
entrepreneurial • Every social environment has its own way
orgn. of filling the function
 The Process of Entrepreneurship

 It has four phases:

1) Identifying and evaluating business
opportunity
2) Developing business plan
3) Determining the resources required for
business and
4) Managing the enterprise
 1.4 CLASSIFICATIONS OF ENTREPRENEURS

A. According to Types of Business

B. Classification According to Motivation

C. Classification by Danhof

D. Classification According to Use of Technology

 A. ACCORDING TO TYPES OF BUSINESS

 Business entrepreneur: is an individual who

conceive an idea for a new product or service .
 Trading entrepreneur: is one who undertakes
trading activities and is not concerned with the
manufacturing.
 Industrial entrepreneur: is essentially a
manufacturer who identifies the potential needs of
customers and tailors product or service to meet the
marketing needs.
 Corporate entrepreneur: is a person who
demonstrate his innovative skill in organizing and
managing a corporate undertaking.
 Agricultural entrepreneur: those who undertake
such agricultural activities as raising & marketing of
B. According to Motivation
1. Pure Entrepreneur: - an individual
motivated by psychological &
economic reward.
2. Induced Entrepreneur: - the one who
is induced by an opportunity (incentives,
govt. assistance) to take up
entrepreneurial task
3. Motivated Entrepreneur: - persons
coming with the possibility of making
and marketing some new product.
4. Spontaneous Entrepreneur- is one who
is motivated by his/her natural
talent/blessings from God to begin a
 C. DANHOF CLASSIFICATION
1. Innovative entrepreneurs: These are individuals
who are constantly seeking new ideas and ways to
create unique products or services. They are driven by
a desire to disrupt the market and introduce
groundbreaking innovations. Innovative entrepreneurs
are often risk-takers and are willing to invest time and
resources into developing new concepts.
2. Imitative entrepreneurs: Imitative entrepreneurs
are those who observe successful business models or
products and replicate them in their own ventures.
They may not necessarily come up with original ideas,
but they are skilled at adapting existing concepts to
suit their own needs and markets. Imitative
entrepreneurs focus on efficiency and replication
rather than innovation.
 CONT.

3. Fabian entrepreneurs: Fabian entrepreneurs are

known for their cautious and strategic approach to
business. They prefer to move slowly and methodically,
carefully analyzing risks and opportunities before
making decisions. Fabian entrepreneurs prioritize long-
term sustainability and growth over rapid expansion,
and they are adept at managing resources efficiently.
4. Drone entrepreneurs: Drone entrepreneurs are
individuals who operate on autopilot, following
established processes and routines without much
deviation. They may lack creativity or a willingness to
take risks, instead preferring to stick to tried-and-tested
methods. Drone entrepreneurs may be successful in
maintaining stability and consistency in their
businesses, but they may struggle to adapt to changing
market conditions or innovate in the long run.
 D. ACCORDING TO USE OF TECHNOLOGY
1. Technical Entrepreneurs: Technical entrepreneurs are
individuals who have a deep understanding of technology
and leverage it to create innovative products or services.
 They are often experts in fields such as engineering,
computer science, or biotechnology, and use their technical
knowledge to develop cutting-edge solutions.
 Technical entrepreneurs are adept at identifying market
needs and opportunities that can be addressed through
technological advancements.
 They are skilled at developing prototypes, conducting
research and development, and implementing new
technologies in their businesses.
 Technical entrepreneurs often collaborate with other experts
in their field to bring their ideas to life and stay at the
forefront of technological advancements.
 CONT.
2. Non-Technical Entrepreneurs: Non-technical
entrepreneurs are individuals who may not have a
strong background in technology but still successfully
run businesses that rely on technology for their
operations.
 These entrepreneurs may focus on industries such as
retail, hospitality, or services where technology plays
a supporting role rather than being the core of the
business.
 Non-technical entrepreneurs often partner with
technical experts or hire professionals to handle the
technical aspects of their business, allowing them to
focus on other aspects such as marketing, sales, and
strategy.
 Non-technical entrepreneurs may excel in areas such
as customer relations, business development, and
 CONT.
3. Professional Entrepreneurs: Professional
entrepreneurs are individuals who bring specialized
skills and expertise from their professional
backgrounds into entrepreneurship.
 They may have experience in fields such as law,
finance, healthcare, or consulting and use their
professional knowledge to start businesses that
cater to specific industries or niches.
 Professional entrepreneurs often offer specialized
services or solutions that require industry-specific
expertise and regulatory knowledge.
 They may leverage technology to streamline
processes, improve service delivery, and reach a
wider audience while maintaining high professional
standards.
 Relationship of
Entrepreneur,
Entrepreneurship and
ENTREPRENEURSHIP
• Enterprise
ENTREPRENEUR
Process • Person
• Abstraction; Involves creating • Tangible people; Individuals
and starting enterprise who establish and manage their
own business
• Outcome of complex socio-
• A key individual who play
economic, psychological and
central role to make
other factors things happen
• Act • Actor
• Decision making • Decision maker
• Risk taking • Risk taker
• Creation • Creator
 Role of entrepreneurship
in economic
development

• The industrial health of a society depends

on the level of entrepreneurship existing in
it. True / False? Why?
 Role of entrepreneurship…
• A country might remain backward not because of lack
of natural resources or dearth (insufficient) of capital
[as it is many times believed]
– but because of lack of entrepreneurial talents or its
inability to tap the entrepreneurial talents existing in that
society

“There are no ‘under-developed’ countries any more. There are

only mismanaged countries”. P.F. Drucker
 Role of….
• Entrepreneurial development is the most important input in
the economic development of any country.
• It is foundation for
– industrial development,
– balanced regional growth, and
– generation of employment opportunities

• Entrepreneurs are key to the creation of enterprises, and

rejuvenate sustainable economic development through;
 Role of…
• Improvement in per capita Income/Wealth Generation
• Generation of Employment Opportunities:
• Inspire others Towards Entrepreneurship
• Balanced Regional Development
• Enhance the Number of Enterprise
• Provide Diversity in Firms
• Economic Independence
• Combine Economic factors
• Provide Market efficiency
• Accepting Risk:
• Maximize Investor’s Return:
 Entrepreneurial competence
and environment
• Who become an entrepreneur?

• What are the qualities of entrepreneur?

• What skills should acquired/ is required?

• What are the main tasks of an entrepreneur?

• Who are beneficial of an entrepreneur’s wealth?

 Entrepreneurial mind-
set

MIND: the ability to think SET: group of things

or imagine

MIND-SET
Mind-set is a set of assumptions, methods, or notations held
by one or group of people that determine how people will
interpret and respond to situations.
 Types of mindset
There are two types of mindset (Dr. Carol Dweck
Standford University)

• A fixed mindset
– People believe that their basic qualities i.e. intelligence or talent
are simply fixed traits (rigid)
– Also believe that that talent alone creates success
• A growth mindset
– People believe that their most basic abilities can be developed
through dedication and hard work.
– brains and talents are just starting points
 Types of mindset
Fixed Growth
• Intelligence is static • Intelligence is
developed
Avoi Challenges Embraces
d
Obstacles Fortitude
Give up
Effort Work hard
No point

Deflect
Criticisms Learns
Success of
Feel threatened others Celebrates
Who becomes an
entrepreneur?
• Anyone with the following characteristics can be
an entrepreneur.
1. The young professional:
– Educated people
2. The inventor:
– Innovators – high-tech or traditional technologies
3. The excluded:
– Unemployment, immigration, layoff, displacement, school
dropout
– E.g. Jack Ma; co-founder of Alibaba group
– 27% of USA entrepreneurs are immigrants
– T. Edison, B. Gates, M. Zuckerberg
– Discuss other entrepreneurs in Ethiopia
 Entrepreneurial
mindset
• Entrepreneurial mindset is the ability to quickly
– Sense

– Take action and

– Get organized under certain conditions

• The ability to persevere / persistently

– Accept and learn from failure and

– Get comfortable with a certain level of discomfort

 Entrepreneurial
•
mindset
Entrepreneurial mindset is a set of cognitive (thinking) process that
triggers the individuals' to act or to behave entrepreneurially.
• Also known as entrepreneurial talent or mentality
• It is the basis for individual behaviour
Having the right attitude
– Able to work without supervision
– Able to self-motivate
– Able to make quick decision
– Open-minded and flexible
 Qualities of an entrepreneurs
• Opportunity-seeking:
– high demand, access to credit, training ..
• Persevering:
– persistent determination/effort to achieve goal
– Genius is 1% inspiration and 99% perspiration. Accomplishment depends not on
ingenuity rather on hard work

Risk Taking: calculated risk

Financial Risk, Career Risk, Psychic Risk, Family
Risk, Social Risk
• Demanding for efficiency and quality:
– waste minimization, cost-effectiveness, increase market
share, better profitability, social responsibility
• Information-seeking:
– no room for guess work. Gather information about the
environment
 Qualities of an entrepreneurs …
• Goal Setting:
– goal is general direction not specific and measurable when we
compare it with objectives which is SMART
• Planning:
– future oriented, answer “wh” questions
• Persuasion and networking:
– ability to convince people, and build relationship
• Building self-confidence:
– emotional state of mind, capability of doing activities
• Listening to others:
– learn from others
• Demonstrating leadership:
– inspire, encourage, lead others
 Perseverance: The story of Thomas
Edison (activity 1.1.)
When he was young, Thomas Edison’s parents took him out of school after his
teachers declared that he was “stupid” and “unteachable.” Edison spent his
early years working and being fired from various jobs, culminating in his
firing from a telegraph company at the age of 21. Despite these numerous
setbacks, Edison was never discouraged from his true calling in life:
inventing!
Throughout his career, Edison obtained more than one thousand patents. And
although several of these inventions such as the light bulb, stock printer,
phonograph and alkaline battery – were ground breaking innovations, the vast
majority of them could be fairly described as failures.

Edison is now famous for saying that genius is

“1% inspiration and 99% perspiration.”

One of Edison’s best examples of perseverance

occurred after he was already a successful man.
 ….Thomas Edison
• After inventing the light bulb, he began seeking an inexpensive light
bulb filament. At the time, ore was mined in the Midwest of the
United States, and shipping costs were very high. In order to
minimize his costs with ore, Edison established his own ore-mining
plant in Ogdensburg, New Jersey. For nearly ten years, he devoted
his time and money to the enterprise. Edison also obtained 47
patents for innovations that helped make the plant run more
smoothly. And even despite those inventions, Edison’s core project
failed because of the low quality of ore on the East Coast.
However, despite that failing, one of those 47 inventions (a crushing
machine) revolutionized the cement industry, and actually earned
Edison back almost all of the money he had lost. Later, Henry Ford
would credit Edison’s Ogdensburg project as the main inspiration
for his Model T Ford assembly line. And in fact, many believe that
Edison paved the way for modern-day industrial laboratories.
Edison’s foray into ore-mining demonstrates that dedication can pay
off even in a losing venture.
 Reflection questions:
• What are the major challenges that Thomas Edison faced?

• What were his achievements?

• What are the causes for his success?

• What do we learn from the story of Thomas Edison?

• “1% inspiration and 99% perspiration.” what is your

interpretation?
 Entrepreneurial
skills
• Skill is the ability to perform in a certain way-
demonstrated by action.
• Entrepreneurs is the one who has a good business
idea and can turn that idea into reality.
• Turning an idea into reality calls upon two sots
– General management skills and
– People management skills
 General management skills
• Are skills required to organize the physical and financial resources
needed
to run the venture.
The important general management skills are
• Strategy skills:
– ability to consider the business a as whole.

• Planning skills
– An ability to consider what the future might offer

• Marketing skills
– Satisfying customers through the marketing mixes

• Financial skills
• Project management skills
• Time management skills
 People management
skills
• Business are made by people
• People are the most invaluable assets in
an orgn.
Important skills
• Communication skills
• Motivation skills
• Delegation skills: ability to allocate tasks to d/t
people
• Negotiation skills
 The entrepreneurial
tasks
• Owning organizations
• Founding new organizations
• Bringing innovations to the market
• Identification of market opportunities
• Application of expertise
• Provision of leadership
• The entrepreneurs as a manager
 Wealth of the
entrepreneur
• Wealth can be money, knowledge, assets etc that money can buy.

• Who are benefits from the entrepreneur’s wealth?

– Employees

– Investors

– Suppliers

– Customers

– Local community

– Government

How?
Entrepreneurship and
environment
• Business environment refers to the factors external to
a business enterprise which influence its operations
and determine its effectiveness.
• Business environment can be healthy or favorable and
unhealthy or unfavorable.
Phases of business environment
PESTLED
• Political
External • Economic
environme •
nt Socio-cultural
(Macro) • Technological
• Legal
Micro
• Environmental
• Demographic

Internal
environment
• Raw material
• Production/operation
• Finance
• Human resource
 Environmental factors
affecting
• What factors entrepreneurship
can hinder entrepreneurial growth?
– Sudden changes in Government policy.
– Sudden political upsurge.
– Outbreak of war or regional conflicts.
– Political instability or hostile Government attitude towards
industry.
– Excessive red-tapism and corruption among Government
agencies.
– Ideological and social conflicts.
– Unreliable supply of power, materials, finance, labor and other
inputs.
– Rise in the cost of inputs.
– Unfavorable market fluctuations.
– Non-cooperative attitude of banks and financial institutions.
Why do People Want to Become Entrepreneurs?

Pull factor
Opportunity to gain control over your own
destiny
Opportunity to reach your full potential
Opportunity to reap unlimited profit
Opportunity to contribute to the society
Opportunity to turn previous work experience
into business for self and family.
Financial incentive
Push factor
Redundancy
Unemployment
Disagreement with the previous
employer.
 Creativity, innovation and
Entrepreneurship
• Creativity, innovation and entrepreneurship,
have been recognized as important
contributors to a nation’s economic growth.
Entrepreneurship, Creativity & Innovation

Entrepreneurship is adding or creating

value.
Creativity
is the ability to bring something new into
existence, whether a new solution to a
problem, a new method, or device or a new
artistic objects or form.
is the seed that inspires entrepreneurship
is the prerequisite to innovation.
Innovation
is the transition of creative idea into a
useful application.
is the process of entrepreneurship.
Is commercialization of new idea.

ASSIGNMENT
Distinction between manager and
entrepreneur.
Distinction between investor and
entrepreneur.
 END OF
CHAPTER
ONE
THANK YOU!!