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ENTREPRENEURSHIP

LECTURE NOTES

CHAPTER ONE

ENTREPRENEURSHIP

INTRODUCTION:

Course content:

This course is intended to equip the learner with the necessary knowledge, skills and the attitudes that

will enable them to start, operate and maintain a good personal relationship of a business enterprise

General objective

At the end of this course the learner should be able to;-

i. Demonstrate positive attitude towards self-employment ii. Identify viable business opportunity iii. Understand factors likely to affect the success of a business iv. Acquire management skills necessary for running a successful enterprise

 There has been a great deal of confusion and contradiction in literature about entrepreneurship; it is however interesting about entrepreneurship came about into existence.

 Adam Smith looked upon an entrepreneurship as the process of owning business to which he/she supplies the capital, therefore the classical economist‘s lumped interest and profit together.

 Cantillon after separating the called entrepreneurship from capitalist recognized it as a separate process that has a definite function in an economy.

 J.B.S a French economist felt that there was also an aspect of risk in daily life transactions. Prf. B.R Knigut conceived the dual functions of risk taking and control whereas Schumpeter identified entrepreneur with innovation.

Entrepreneur

An entrepreneur is an agent of change i.e. the person who innovates visual ties and realizes the ideas of creating a venture.

Entrepreneurship.

i. A.H Cole, defines it as the purposeful activity of an individual or group of associated individuals undertaken to iniate, maintain or aggrandize profit by production of goods and services. ii. Peter Drucker Knew it as a practice .It has a knowledge base .Knowledge in entrepreneurship is a means to an end. That‘s by the practice.

• Promotes capital familiar by mobilizing the idle saving of the public.
• It induces the backward and forward linkages which stimulates the process of economic development in the country.
• It provides immediate large scale employment.
• It also promotes the country‘s export trade i.e. important ingredient to economic development.

FUNCTIONS AND SCOPE OF ENTREPRENEURSHIP

Specific objectives: At the end of the topic the trainee should be able to:  Define the term entrepreneur  The role of entrepreneur economic development  Explain the functions of an entrepreneur  Outline the various characteristic of entrepreneurship  Explain the various economic systems of entrepreneurship  Give reason for slow growth of entrepreneurship in developing economy.

A careful analysis of the theories provided by Adam Smith outlines that an entrepreneur provides

capital;Catllon separated the entrepreneurship from capitalist and regonise it as separate factor i.e contributing

through taxation ;Marshall fest that the important function of entrepreneur are organization and management of

the enterprise;Prof B.R includes risk taking and control as a function. This show that the entrepreneur has to

perform once or more of the function outlined in these theories

Function of an entrepreneur as a vital factor of production

• Innovative :This implies during new things or doing that are already being done in a nor way
• Risk taking and uncertain bearing: By taking risk an entrepreneur may make profit or incur losses. This risk may be insurable or non-insurable. The non-insurable are called uncertain
• Taking business decisions-Once an entrepreneur is convinced that particular line of production offers large prospects of profit ,he decides to entre it thus he has to formulate an action plan regarding the product and quality of production to be produced.
• Managerial function. He arranges finances purchase raw material provide infrasture supervise sales and marketing and also assumes personnel manager.

FACTORS AFFECTING ENTREPRENEURIAL GROWTH;

Economic factors :

They include the following:

o Lack of adequate overhead facilities: o Non-availability of capital o Risk – Its greater in loss developed countries than in a developed nation i.e lack of reduce information, small market for goods & service

o Non-availability of labour and skills.

Social factors :

Less developed countries are characteristised by the presence of social set-up which is generally hostile to entrepreneurship compared to developed countries whereby societies are rational and decision making

Cultural factors

They are as follows;

 Hander disparity where certain group of the society are viewed as superior  Belief for instance the case of Muslim vs. the park industry  Religion Certain religion group prohibits the members from participating in certain economic social dysfunction

Personality factors :

In certain undeveloped countries the entrepreneur is looked upon with suspicion thus his/her personality is

greatly affected, he/she is seen as profit makers and exporters.

NATURE AND CHARACTERISTICS OF ENTREPRENEURSHIP

 Innovation :-It involves problem solving and the entrepreneur is the problem solver.Enterpreneurship is a

creative activity

 Achievement _People having higher achievement needs are mere likely to succeed as entrepreneurs

 Organizational building: It‘s the most critical skill required for industrial development  Status withdrawal: An entrepreneur should feel a sense of increased pleasure‘ when facing a problem and

tolerates disorder without discomfort .In tradition societies position of an charity was granted on the basis of status rather than industrial ability.

 Managerial skill and leadership: They are most important facet industrial entrepreneur must have more than

the drive to earn profit i.e ability to lead and marriage.

 Help filling function – The entrepreneur must fill the gap or make-up deficiencies which always exist in the

knowledge about the production function.He /she has to meshall all the inputs to realize the final product.

 Group level pattern – Entrepreneural activity is y the particular family background experience as a member of certain groups and as a reflection of general values.

 A function of social political and economic structure: Enterpreneurial structure opportunity strut and labour

structure .Entrepreneurship depends on rather specific ambition of circumstance which are difficult to create and easy to destroy.

ECONOMIC SYSTEM AND ENTERPRENEURSHIP

An economic system is a that form under which a given business enterprise endeavors to operate i.e the industry

the monetary policies prevailing etc .The economic system can be broadly classified into three

 Capitalism  Socialism  Mixed economy

IMPORTANCE OF ENTREPRENEURSHIP DEVELOPING ECONOMY

Developing economy is that which is geared towards industrialization or an industry that is in its infancy stage

lacking advanced technology. Hence its importance can be summaries below.

 General employment  Revenue to the government  Contribution to social development  Technology development  Balance regional development  Organization of human resources.

REASON FOR SLOW GROWTH OF ENTRENEURING IN DEVELOPING COUNTRIES:

These are reasons for slow growth of entrepreneurship in developing countries thus espouse of:

 Financial problem formalities in obtaining loans high interest rates

 Lack of entrepreneurship training

 Reluctance to assurance risk e.g. being risk averse

 Lack of infrasture e.g. power transport communication act

 Insecurity

THEORIES OF ENTERPRENEURSHIP;

OBJECTIVES;

By the end of the topic trainee should be able to :  Explain entrepreneur ship theories in detail  Outline various views of diriment theories of entrepreneurship.  Be able to identify and explain different theoretical views of different theorists

Theories of entrepreneurship There are three theories namely i. Economic theory ii. Sociological theory iii. Physiological theory

i)Economic Theory According to their theory Entrepreneurship and economic growth will take place in those situations where economic conditions are favorable. J.B suggests that it is a function of Entrepreneur to combine the forces of production into a new production of organization. I.S Mill vies superintendence control and direction as entrepreneurial functions. Superintended is to assemble the means to supervise the work and to turn out maximum at the minimum cost. Therefore Mills emphasizes on the managerial and administrative functions.

Kirzener views as the alertness to unnoticed opportunities which create an ever circular flow of equilibrium. Harvey Eisenstein states that an entrepreneur is an individual will the following characteristic. i. He connects different markets ii. Making market deficiencies/Gap filling iii. Input completer iv. Expand time – binding

ii) Sociological Theory According to these theory social sanctions, cultural values and role expectations are responsible for the

emergency of Entrepreneurship.

Weber Stresses that religious believers produce generate entrepreneurial growth. According to peter Morris to assemble or reassemble form what is available i.e concrete kind of imagination

seeing what others has missed being sensitive to business and social environment and entrepreneurial courage

are the factors that make up an entrepreneur.

John Kunkeil argue that it is a function of surrounding social structure both past bad present and can readily

be manipulated by social and economic incentives.

Iii) Psychological Theory. According to this theory entrepreneurship emerges when a society has individuals with particular

psychological characteristics. Schumpeter believes entrepreneurs are motivated by will to power to find or will

to conquer.

The main characteristic are Capacity to see things which afterwards proves correct Will and mind to overcome fixed habits of though Capacity to withstand social oppositions

According to Mc Celland it‘s the high need for achievement which drives people towards entrepreneurial

activities.

Hagen‘s consider withdraw of status has triggering mechanism for change which leads to entrepreneurship

he therefore indentified your events that can produce withdrawal:

i. Displacement by force ii. Designations of valued symbols iii. Inconsistency of status symbols iv. Non-acceptance of expected status.

He analyzed religion and its impacts on enterprising culture. To him the spirit of capitalism is a set of

attitudes towards requisition of money and other activities involved.

―The spirit of capitalization ―subjected to a strick discipline while capitalism can be generated only when

the mental attitude is favorable to capitalism.

McClelland’s views on Entrepreneurship;

He indentifies two characteristics of entrepreneurship

 Doing things in a new better way  Making decisions under uncertainty

He stressed the need for achievement as the most relevant factors for explaining economics behavior i.e

those people with high need of achievement motive is stable characteristics of an individual i.e. one does not

expect later events to change the achievement motive and behavior.

Hagen’s views on Entrepreneurship;

Hagen visualizes on innovative personality it require creativity and individuals to bring about economic growth.

He has formulated a sequence for the formation of creative personality i.e.the child rearing practice is the main

element in personality ,he therefore suggests that whenever there is withdrawal of status respect,it will give rise

to your different responses and four different,

Types of personality would emerge they are;-  Retreats: One who does not have any expectations nor he is ambition he belongs to withdrawal status.  Ritualist: He acts in the ways accepted and approved in the society but with no hopes of improving his position i.e he his of defensive attitude/self centered.  Reformist He his rebellion and condones the wrong dongs the hopes for the new society.  Innovator: Creative indidual always searching for new ideas and ways of doing things.

ENTREPRENEUR;

Objectives; At the end of this chapter the learner should be able to simply the following.

**1. Definition of entrepreneur

2. The contribution of entrepreneur to developing economy of country
3. Outline various characteristic of a successful entrepreneur.
4. Distinguish between entrepreneur and entrepreneurship entrepreneur and manager.
5. Identify different types of entrepreneurs
6. Classify entrepreneurs based on motivation**

A case study of an entrepreneur A case study of Shahnaz Hussein-a successful woman entrepreneur

She belongs to a royal Muslim family which migrated from the smerkhand to India later held high positions in the princely kingdom of Bhopal Hyderabad before indies‘ independence. She received her schooling in Irish convent and because of the influence of her father c.j nu beg, she developed love for poetry and literature. She was married at the age of 15 and she was a mother by next year. when her husband moved out ,she developed an interest in beauty treatment and decided to study cosmetology. To sport her carrier, she wrote articles for Iran tribune on various topics under different names In the course of her studies, she learnt of harmful effects of chemicals on the human body,consequently,she turned her attention to Ayurreda,which she believed was the ideal alternative to chemical cosmetics which not only harmed the human system but also led to determination of the environment in the long-run After leaving Tehran she trained extensively in the cosmetic industry for 10 years in some of the leading institute of London,paris,new York and coppenhagen.on her return to Nadia in 1977,she set up own salon at her house in Delhi with initial investment of rs.35000.in contrast to salons offering chemical treatment,shahnas offered Ayuverdic products. she uses Ayuvedic method of terament,which uses natural formulation to cure ailments. she is the pioneer and the leader of Ayuvedic beauty products in the world offering ‗natural care and cure‘, the saunas Hussein group offers today exclusive salon treatments greed towards individual needs as well as a number of commercial formulations for the treatment of specific problems like acne,pimples,pigmentation,dehydration,alopecia etc. Shana has recently launched the oxygen cream, an oxygen mask and facials using ingredients which breathe life into the skin and revitalize it. a degree of control is exercised its every stage of the product development right from the raw materials to the end. Despite the huge business hues has never advertised, she has relied entirely on the word of the mouth publicly to make her product known to customers..She believes that a satisfied customer is the best form advertising. She has been able to achieve growth to quality of her products and the results oriented treatment she offers. she has the largest network of over 600 franchises and the associates clinics around the world. all the franchises are required to undergo training in specialized treatment at saunas school of beauty bad therapy. the group has however diversified into ayuvedic center for Panchkarms,Dhana and Kerala. Question; Based on the above, highlight various characteristics of an entrepreneur and how they contribute to economic development clearly citing relevant cases room the text.

Definition;

Entrepreneur;

a) R. Cantillon define it as the agent who buys means of production at certain prices in order to combine in to a product that cell able at a given price having incurred a cost. b) J.B say define as an economic agent who unites all the factors of production and finds value of the products that comes from the employment, the reconstitution of the entire capital, the value of the wages interest and the rent which he pays as well as the profits

Importance of an Entrepreneur ;  Provision of entrepreneurial skill i.e. the ability to deal with situation, organization, social and economic forces as they arise from time to time.  Planner: He prepares short term and long term plans by analyzing internal and external environment which would reveal strength and weakness of the organization; The internal environment involves

-analysis of manpower -analysis of physical resources -analysis of financial resources The external would reveal the opportunities and treats of the organization it involves -analysis of competition -analysis of the government policies -analysis of customer preference.

 Motivator: provides incentives both monetary and non-monetary and non-monetary; monetary includes salaries and wages bonuses etc .Non-monetary include welfare facilities appreciation, delegation of authority etc.  Facilitates economic development i.e they play a critical role in regional development through setting up of industries in backward or underdeveloped areas.  Facilitator of social development i.e they contribute funds towards social courses e.g. education health and other amenities

Characteristics of an Enterprepreneur.

The scanning of the attributes shows that there certain characteristic in entrepreneurs which are prominent in

they as discussed below:

 Creativity: This is the ability to bring something new into existence. Entrepreneur should be creative process where they should build them into existence nurture and develop them successfully.  Mental ability: He must be intelligent, creative, and be able to analyses various problems and situations.  Dynamism : He should always set attainable goals which are accomplished within defined period, solve problems instead of running away i.e he should believe in ―Win-win‖ situation.  Clear objectives i.e understands the exact nature of the business /good to be produced.  Communication ability  An entrepreneur is more likely to succeed if he can communicate effectively with employees creditors, suppliers etc.  Technical knowledge

 They must have sufficient expertise to stand in a much better chance of success.  Business secrecy  He should guard business secrets i.e competitor should not know strategies of business  Commitment  He should have strong determination with sound thinking. Strong will power this 100% commitment and 2002 involvement.  Other characteristics include human relation hard work desire for high achievement.  Optimism, Independence, foresight, motivator, self confidence etc

ENTREPRENEURIAL DEVELOPMENT CIRCLE

Introduction;-

An entrepreneurial development cycle describes the stages of growth of a business enterprise. It seeks to explain the business‘ activities in each stage. It therefore helps in creating an effective business plan since it will act as a guide to how the business should adapt to the industry in each stage. In relation to our discussion, we have included the important factors in the business development cycle which include;  Challenges/Enterprenual hazards in each stage.

 Focus/Competitive advantage.

 Money Sources/Business Strategies.

ENTREPRENEURAL DEVELOPMENT CYCLE DEFINITIONS

Entrepreneur Definitions of an Entrepreneur include;  A person who has possession of a new enterprise, venture or idea and assumes significant accountability for the inherent risks and the outcome.

 An entrepreneur can also be defined as an individual who is passionate about his/her venture and communicates this excitement to potential investors, customers and mentors.

 An entrepreneur is a person who habitually creates and innovates to build something of recognized value around perceived opportunities. He is able to overcome obstacles and turns problems and risks into opportunities; delivers – sees ideas through to final application.

Entrepreneur can be an individual entrepreneur or an entrepreneurial team or even an entrepreneurial organization.

Entrepreneurship

Entrepreneurship is the act of starting or organizing a commercial enterprise especially involving financial risk. It is the art of finding creative profitable solutions to problems. Development Cycle

 Over estimated money needs and the time to market. The main challenge for the entrepreneur is not to burn through what little cash he has. He has to learn what profitable needs his clients have and also carry out a reality check to see if the business is on the right track.

 The product may not work in the market.  The product may not sell.  Cost may exceed expectations.  The product may be in the wrong market.

Focus Start-ups require establishing a customer base and market presence along with tracking and conserving cash flow. It focuses on two objectives; Operative Objectives which include;

 Sales: To achieve projected sales, mix of product and services are summarized in feasibility plan.

 Revenue: To achieve cash flow within budget based on sales volume and price projections. It helps to meet target above variable cost with appropriate operating margins.

 Growth: To realize incremental growth within seasonal pattern of forecasts.

 Position: To solidify a long term position in appropriate markets as a result of adaptation during start-up. The focus is also on identifying market strategy for niches or opportunities in new products and services or market.

Entrepreneurs also focus on positioning the enterprise for long term growth.

Money Sources Owner, friends, family, suppliers, customers, grants and banks.

GROWTH STAGE

This is a period of intense growth which can occur at different rates ranging from slow growth through incremental higher sales to explosive growth through quantum changes in consumer demand. At this stage revenues and customers are increasing with many new opportunities and issues. Profits are strong, but competition is surfacing.

Challenge The biggest challenge entrepreneurs face at this stage is dealing with the constant range of issues with financers, human resource and suppliers to ensure the business continues with its production process. Effective management with a possible new business plan is required. Entrepreneurs should learn how to train, delegate and motivate their staff to conquer this stage of development.

Focus Growth life cycle businesses are focused on running the business in a more formal fashion to deal with the increased sales and customers. Better accounting and management systems will have to be set up. New employees will have to be hired to deal with the influx of business.

Money Sources Banks, profits, partnerships, grants and leasing options.

ESTABLISHED STAGE

The enterprise is now mature and thriving into a company with a place in the market and loyal customers. Sales growth is not explosive but manageable. Business life has become a routine to the entrepreneur.

Challenge The market place is relentless and competitive. The company needs to stay focused on the bigger picture. Issues like the economy, competitors or changing customer tastes can end everything the company has worked for.

Focus An established life cycle company will be focused on improvement and productivity. To compete in an established market, the company will require better business practices along with automation and outsourcing to improve productivity.

Money Sources Profits, banks, investors (e.g. shareholders) and government.

EXPANSION STAGE

This life cycle is characterized by a new period of growth into new markets and distribution channels. At this stage, it is often the choice of the business owner (entrepreneur or shareholders) to gain a larger market share and find new revenue and profit channels.

Challenge Moving into new markets requires the planning and research of a seed or start up stage business. Focus should be on businesses that compliment the existing experience and capabilities. Moving into unrelated businesses can be disastrous. Focus Adding new products or services to existing markets or expand existing business into new markets and customer types.

Money Sources Joint ventures, banks, licensing, new investors and partners.

MATURE/DECLINE STAGE

Year after year sales and profits tend to be stable, however competition remains fierce. Eventually sales start to fall and a decision is urgently needed whether to expand or exit the business.

Challenge

It is important for the entrepreneur to realize the need for cash well in advance so that raising the necessary funds

can be planned in plenty of time rather than being a panic measure when it is really too late.

Other options include;

 Selling off the business/part of it.  Seek a joint venture partner.  Change direction of the business.  Licensing

Money Sources

The company seeks to find a business valuation partner, consult with its accountant and financial advisors for the best tax strategy to sell or close-out down business. The company could be placed under receivership: Receivership is a type of corporate bankruptcy in which a receiver is appointed by bankruptcy courts or creditors to run the company. The responsibility of the receiver is to recoup as much of the unpaid loans as possible.

CASE STUDY

Uchumi Supermarket is chosen as a case study since it covers almost all of the stages of a business life cycle.

Uchumi Supermarket

Start-Up Stage

1976 – Uchumi Supermarket Westlands, Agha Khan Walk branches open. Shareholders enter into a management contract with Standu SPA of Italy.

Established Stage

1992 – Uchumi supermarket goes public with sixty million shares floated in the Nairobi Stock Exchange (N.S.E). First branch outside Nairobi is opened in Nakuru East.

Expansion Stage

1997 – Uchumi‘s first Hypermarket opens to its customers along Ngong Road. 2000 – Spreads its wings by opening Mombasa Station Hyper. 2002 – Uchumi crosses borders and opens its shop in the Nakusero suburb of Kampala - Uganda and becomes an instant success.

Decline Stage

2005 – Uchumi closes ten of perennially loss making branches. It raises 1.2 billion shillings in a successful rights issue that saw majority shareholders whittle their shareholding from 52% to less than 20%.

Exit Stage

2006 – Uchumi Board of Directors declares the company insolvent. The company is put under receivership by the secured lenders. (Being in receivership is not an enviable situation for a company. Oftentimes, receivers find that the best way to pay back loans is to liquidate company assets, which effectively puts the company out of business). In the same year, following the closure of Uchumi retail trading by the board in the financial year ending June 2006, revival of the chained stores was commenced in July 2006 to February 2007.

2008 – The company returns a profit of 106 million Kenyan shillings against a loss of 257 million Kenyan shillings of the previous year making a turnaround of 356 million Kenyan shillings. This is marked as a milestone for the chain stores as the last recorded profit was back in 2001/02 financial year. Uchumi Supermarket has 15 operating branches ; eleven in Nairobi, one in Meru, one in Karatina, one in Eldoret and one in Kampala. The Supermarket has a workforce of over 1000 employees.

RECOMMENDATION

Whether the business is a glowing success or a dismal failure depends on the ability to adapt to its changing life cycles. What one will focus on and overcome today will change in the future. Understanding where a business fits on the life cycle will help one to foresee upcoming challenges and make the best business decisions.

CONCLUSION

Each stage of the business life cycle may not occur in chronological order. Some businesses may be built to flip quickly; going from start-up to exit. Others will choose to avoid expansion and stay at the established stage. The enterprise process does not stand alone. It is set in the context of a support infrastructure and an operational environment that determine the strength and development of the process in a region. To reach a point where the process is self-sustaining, attention has to be paid to the internal elements as well as the external infrastructure and environment factors.