ENTREPRENEURSHIP

 (BUS 255) (BUS 270) Mzumbe University

                                                  

                     

 CHAPTER 1

                                       ENTREPRENEURSHIP

 Objective

• To understand the evolution of the expression entrepreneurship.
• To study the reasons for the current growth in entrepreneurship.
• To list various factors that inspires a person to set up an entrepreneurial venture.
• To explore the characteristics and skills of successful entrepreneurs
• To categorize different types of entrepreneurs

   INTRODUCTION

Researchers and writers describe it with terms such as new, innovation, flexibility, dynamic, creativity and risk-taking.

Common themes in the definitions of Entrepreneurship are: Process, the entrepreneur, Uniqueness, innovation, growth, organization, value creation, profit and not for profit (Gartner (1990))

Entrepreneur, one who assumes the responsibility and the risk for a business operation with the expectation of making a profit.

The entrepreneur generally decides on the product acquires the facilities, and brings together the labor force, capital, and production materials. If the business succeeds, the entrepreneur reaps the reward of profits; if it fails, he or she takes the loss.

DEFINITION

Many authors have said that identifying and pursuing opportunities is an important part of entrepreneurship.

Such authors are such as Flamholtz and Randle (2000), Venkataraman S (1997),  Katz JA (1997), Busenitz WL (1996), Krackhardt D (1995), Venkataraman (1997, p. 120) states that "Entrepreneurship as a scholarly field seeks to understand how opportunities to bring into existence ‘future’ goods and services are discovered, created, and exploited, by whom, and with what consequences".

    
“Entrepreneurship is interdisciplinary nature of the topic, involving scholars from the fields of economics, business strategy, organizational behavior, sociology and psychology, often further fragmented in competing strands and research traditions. For instance, scholars of business strategy and management typically apply a behavioral and process perspective, interested in how to act entrepreneurially. Conversely, economists primarily care about how the economic the system works and therefore characterize entrepreneurship by the particular functions it fulfills in order to enhance the operations of the overall system. Yet, when labor economists deal with entrepreneurship, they are specifically concerned with the occupational choice of either being a salaried employee or self-employed. Finally, sociologists and scholars of organization studies investigate the social and organizational embeddedness of entrepreneurial behavior, while psychologists add their expertise to explain how entrepreneurship relates to personal characteristics and individual cognitive processes within varying situational contexts”

-Ability to create something from practically nothing. It is initiating ...and building an enterprise rather than watching one.

-Willingness to take risks

-It is a skill for sensing opportunities where others see chaos, contradiction, and confusion

-Ability to build a founding team to complement one’s skills and talents           (Bridge et al 1998)

WHO IS ENTREPRENEUR?

Naftzinger (1984:309) stated that Entrepreneur can be viewed in at least four ways:

(1)Coordinator of other production resources such as Land, Labour and Capital note that entrepreneur is regarded as the fourth factor of production)

(2)The decision-maker under uncertainty

(3)The innovator

(4) The gap filler and input completer.

Bird (1988) defines an entrepreneur as an individual who starts (create) an independent new, profit making a business venture.

Oxford English Dictionary (2000) defines an entrepreneur as a person who makes money by starting or running businesses especially when this involves taking financial risks.

TYPES OF ENTREPRENEURS

Classifying entrepreneurs into various categories is a tricky issue. The taxonomy of entrepreneurs can be carried out in various ways. Entrepreneurs can be classified on the basis of their socio-cultural background, scale or potential of operations, or timing of venture creation in relation to their professional life spam.

Classification based on the timing of venture creation.

Early starters:

An early starter starts the venture with little or no full-time work experience. He/she is convinced of the great potential of his/her business idea and feel that the opportunity may cease to exist if he/her waist too long.

Experienced

This type of entrepreneur has spent a few years working in the family business or in some other large company. Usually, the venture is related to the type of work the entrepreneur was previously engaged in. The entrepreneur brings a lot of experience, skills and personal credibility into the venture.

Mature

A lot of very senior professionals, some at the level of CEO, are quitting their jobs to start their own ventures. This is probably because they have very high confidence in their abilities and have a desire to do things in a way that may not be totally acceptable to their erstwhile employers.

Classification based on socio-culture variables.

• First-generation Entrepreneurs

This category consist of those entrepreneurs whose parents or family had not been into business and were salaried.

• Entrepreneurs from business families

Traditionally. There have been few socio-ethnic groups who have donated the business scene in Tanzania. Prominently, the Chaga from Arusha

It is argued that entrepreneurship becomes easier for someone from a business family or from a business community as there is a very solid support structure to help in times of need. But entrepreneurial success needs far more than just that.

• Women entrepreneurs

Women as entrepreneurs have been a recent phenomenon in Tanzania. The socio norms in Tanzania had made it difficult for women to have a professional life. Now, this has changed. Progressive laws and other incentives have also boosted the presence of women in entrepreneurial activity in diverse fields.

    Coulter(2005) identifies five types of Entrepreneurs: 

• Nascent entrepreneur

  This is an individual who is in the process of starting a new business 

• Novice entrepreneur

An individual with no prior business ownership experience. He could be the inheritor of business or purchaser of the business. 

• Habitual entrepreneur

An individual with prior business experience 

• Serial Entrepreneur

 An individual who has sold or closed business, established another new business, sold or closed the business and established another new business and sold and continue with this trend of starting or selling business.

• Portfolio Entrepreneur

 An individual who retains an original business and builds a portfolio of additional business through inheriting, establishing or purchasing them

• Social Entrepreneurs

 An individual who is motivated by a desire to help, improve and transform social, environmental, educational and economic conditions.

 Social entrepreneur is driven by an emotional desire to address some of the big social and economic conditions in the world rather than profit; for example Poverty and diseases.

 These individuals make significant contributions to their communities adopting business models to offer creative solutions to social problems. They can be found in charities, NGOs, the public sector e.g. local Government.

  ADVANTAGES OF BEING AN ENTREPRENEUR  

• You become your own boss. You are independent.
• You no longer work for somebody. Hence you face no frustration.
• You create jobs for others / a job provider and no longer  remain a job seeker.
• You can use your talents, skills and knowledge for your own benefit  and Also for our nation prosperity.
• No fixed salary. You can earn a large income. Your successful enterprise can bring you a successful enterprise that can bring unlimited rewards.
• You prove to the world that you are ’an' Achiever, because you seek nothing less than excellence.

DISADVANTAGE OF BEING AN ENTREPRENEUR

• You can’t blame the boss.
• Things constantly change, especially with this economy.
• You’ll have to learn to like marketing and sales, whether you supervise or do it yourself.
• To be successful, you must make and follow a budget.
• You have to make lots of decisions quickly all of the time.
• More than likely you will battle isolation disease.
• You have to be a self-motivator.
• There is a tendency to have a do-it-yourself the attitude which causes extremely late hours and several problems in the long run.
• It’s very easy to get caught up in the day-to-day tasks and forget about making goals.
• Most entrepreneurs delay paying themselves which is one reason they are not as successful.
• You can work flexible hours, sometimes taking too much time off without realizing it.
• No one keeps you focused and helps you avoid pitfalls, except if you’re smart and hire a business coach.
• You forget about listening to your intuition or gut instincts.

CRITERIA FOR SUCCESS

- Shared vision and  Leadership by example

- A marketable idea.
- A sound strategy and an implementation action plan.

CHARACTERISTICS OF ENTREPRENEURS

Some or all of these characteristics can be found among successful people of all endeavors.

Koh, (1996) mentioned five core entrepreneurial traits which are self-confidence, flexibility, need for achievement, strong the desire for independence and propensity to take the risk.

Samsom (2004)  entrepreneurial characteristics are Consciousness, doing more with less, drive, energy and health, innovativeness  and creativity, energy, and health, integrity, and fairness, cost-conscious, passion, stakeholder orientation, values and willingness to reflect.

S.M and Peterson S.J. (2000) argued that Pro-activeness, competitive aggressiveness, risk-taking, creativity, and internal locus of control, Self-efficacy and Opportunity seeking are the key characteristics of the entrepreneurs.

Wickman (2006) mentioned several entrepreneurial characteristics namely:

    Hardworking, self starting, Setting of realistic personal goals, Resilience, confidence, Receptiveness to new ideas, Assertiveness (Commitment to outcomes and not means), information seeking, Eager to learn, Attuned to opportunity, Receptive to change, Commitment to others (Recognizing the value of others)

Kuratko and Hodgets (2007) pointed out personal qualities and traits of successful entrepreneurs as follows:

Commitment, determination, perseverance, drive to achieve, opportunity orientation,

Initiative and responsibility, Persistent problem solving, seeking feedback, internal locus of control, tolerance of ambiguity, Calculated risk-taking, integrity and reliability, tolerance of failure, high energy level, creativity and innovativeness, vision, self-confidence and optimism, independence and team building.
  

ENTREPRENEUR`S TASK

Wickham (2006) pointed out some of the entrepreneurial tasks:

1. Owning organization-being the principals as opposed to being the agents.

2. Founding new organisations-Organising the three factors of production and gives them a separate legal entity.

3. Bringing Innovation to market-Introduction of new ways of doing things, new services, and products. New ways of informing customers about the product so as to create value.

4. Identification of market opportunity

Opportunity refers to a gap in a market where the potential exists to do something better and thereby create value.

5. Application of expertise.

This refers to the ability to bring something new, different and better or to spot a new business opportunity. Moreover, this refers to having skills to locate scarce resources in a situation where information is limited.

6. Providing leadership to own entrepreneurial ventures.

Leadership is a critical part of managerial success. This is because innovation needs support of other people to bring the product or service into the market; this is where the leadership ability of the entrepreneur becomes visible.

Management talked about can come through general management skills that come through the experience of running the venture.

CONTRIBUTION TO THE SOCIETY

•      Expression of a person’s unique vision, creativity, purpose, and fulfillment in life.
•      Creation of material wealth as measured in shareholder value
•       Innovation through new products and services and competitiveness in the economy
•       Job creation through venture employment and additional creation of jobs
•      Contribution to the quality of life in the local community

SOME BASIC GUIDELINES FOR STARTING A SMALL BUSINESS

1)   START SMALL, AS SMALL AS IS POSSIBLE

2)   DO NOT BORROW MONEY TO START A BUSINESS

3)   START YOUR BUSINESS AT HOME IF POSSIBLE

4)   DO SOMETHING THAT YOU LIKE DOING

5)   TAKE THE TIME TO PLAN PROPERLY

6)   ENSURE PROPER RECORD KEEPING

7)   MARKETING IN THE BASIS OF BUSINESS SUCCESS

8)   DO NOT MIX FAMILY AND BUSINESS RESOURCES

9)   KEEP IT SIMPLE

 

ENTREPRENEURIAL FAILURE

Entrepreneurial success is not the result of a single person’s efforts. There is always a team involved. The team is made up of other investors, working partners, employees, vendors, and clients. All play an important part in the success of the enterprise. Although other people are involved, there is a tendency to believe that they play far less important roles and are easily replaced. At the end of the day, success or failure of the enterprise will be largely attributed to the entrepreneur.

There is a number of reasons for the failure of a new venture, which are discussed below. Usually, there is a combination of reasons rather than one single reason.

LACK OF EXPERIENCED MANAGEMENT

One of the main problems faced by new enterprises in that the management team is usually very new to this role. The entrepreneur and his/her top management usually have no prior record of being in charge of the fortunes of a whole company. Even in some rare cases, when the management has some individuals who have led a company in the past, they are now faced with a new situation where the company itself has no previous track record. It is a very different kind of situation.

FEW TRAINED or EXPERIENCED MANPOWER

A shortage of skilled and experienced manpower is faced with new ventures, which represent a riskier job opportunity. Most people prefer to work with a well-established organization employing hundreds of employees and having a stable track record. New ventures are also reluctant to use manpower for and to invest in training. Lack of experienced and skilled manpower can lead to a general drop in productivity and quality of output. The absence of quality manpower is particularly felt during a crisis.

POOR FINANCIAL MANAGEMENT

Operational issues keep an entrepreneur busy and as a result, financial management is likely to get neglected. Often, the entrepreneur may find the technicalities of accounting and finance intimidating and avoid looking deep into it. Common errors in financial management can be bad receivables management, unproductive investments, and poor budgeting decisions.

RAPID GROWTH

Sudden unplanned growth is not always a desirable situation. Higher growth will mean greater stress n production facilities, manpower, and marketing channels. Sometimes, these will not be designed to cater to the rise in volumes and might need further capital investments. It will lead to a stage of continuous firefighting and ultimately, many things may not keep pace with the growth. Most commonly, the organization may run out of money.

WEAK MARKETING EFFORTS

Entrepreneurial firms are very reluctant to spend on marketing efforts. Investing in a marketing campaign is not going to give you assured returns and the link between the marketing expenditure and sales is not very easy to establish. An investment of Rs. X in raw material will give you a very tangible Y kg of output but a similar investment of Rs. X in a newspaper insert will not give you a sale of Y units, which you can demonstratively tie into the newspaper insert.