Topic 2: Entrepreneurship - Business Studies Form One Notes
OUTLINE OF THE TOPIC
- The concept of Entrepreneurship
- Meaning of Entrepreneurship
- Types of Entrepreneurship
- Business Entrepreneurship
- Intrapreneurship / Corporate Entrepreneurship
- Social Entrepreneurship
- Intrepreneur vs Intrapreneurship
- Characteristics of Entrepreneur
- Relationship between Invention, Innovation & Creativity
- Entrepreneurship skills
- Business Management Skills
- Leadership Skills
- Interpersonal & Intrapersonal Skills
- Importance of Entrepreneurship
- Theories of Entrepreneurship
- Innovation Theory
- Need Achievement Theory
- Theory of Status Withdrawal
- Economic Theory of Entrepreneurship
- Risk Bearing Theory
THE CONCEPT OF ENTREPRENEURSHIP
MEANING OF ENTREPRENEURSHIP
Entrepreneurship is the process of taking risks to initiate, organise and control factors of production such as land, labour, and capital to start and manage a business. It is the process of identifying a business opportunity, gathering the necessary resources, and taking the risk to establish and manage a new business venture with the goal of making a profit.
TYPES OF ENTREPRENEURSHIP
There are three main types of entrepreneurship based on the fundamentals of starting business. These are:
1. BUSINESS ENTREPRENEURSHIP
This is a type of entrepreneurship that begins with the identification of business opportunity, generation of business idea, setting-up of the business entity, and running a business with a purpose of making profit.
It is the most common type of entrepreneurship widely seen in the world. It generally exists in most Small and Medium Enterprises (SMEs).
For examples of such business are Local grocery stores, tea shops, plumbers, electricians, barbers, carpenters, and consultants.
Characteristics of Business Entrepreneurship
1. Profit-Making Goal
Business entrepreneurs focus on earning money by selling goods or services. For example, a person opening a food kiosk in a busy market focuses on earning a profit by selling chapati, tea, and rice to customers. Their goal is to earn more than what they spend on ingredients and rent.
2. Risk-Taking
Entrepreneurs invest their resources, knowing there’s a chance they might lose. For example, someone who starts a mama ntilie business (small food vendor) risks preparing food every day without knowing if all the food will sell.
3. Finding Market Opportunities
Business entrepreneurs identify what people in their community need but don’t have. For example, if a village doesn’t have a shoe repair shop, a person with skills in shoe repair might open one to meet that need.
4. Innovation and Creativity
Successful entrepreneurs often introduce new ideas or improve existing ones. For instance, a tailor might start offering personalized kitenge designs to attract customers who want something unique.
5. Growth and Expansion
Entrepreneurs aim to grow their businesses by serving more customers or introducing new products. For example, a fruit seller who starts by selling bananas might expand to sell mangoes, oranges, and pineapples as their business grows.
2. INTRAPRENEURSHIP / CORPORATE ENTREPRENEURSHIP
Intrapreneurship refers to entrepreneurial activities carried out by employees within an existing organization. Intrapreneurs act like entrepreneurs but operate under the umbrella of the company they work for. It is a process of behaving entrepreneurially in an established organisation.
Characteristics of Intrapreneurship
1. Using Organizational Resources
Intrapreneurs use their company’s tools, funds, and infrastructure to bring their ideas to life. For example a worker at a factory might suggest using leftover fabric to create affordable school uniforms, using materials the company already has.
2. Innovation Within the Organization
Intrapreneurs find ways to make their organization better by improving products or processes. For instance, a librarian in a school might suggest creating a digital catalog system to make it easier for students to find books.
3. No Personal Financial Risk
Unlike business entrepreneurs, intrapreneurs don’t lose their own money if their ideas fail. For example: a bank employee who introduces a mobile banking system doesn’t lose anything if the project doesn’t work because the bank absorbs the loss.
4. Helping the Organization Grow
Intrapreneurs’ ideas contribute to the success of the organization. For example, a teacher suggesting a school farm project might increase the school’s income by selling produce to nearby communities.
5. Team Collaboration
Intrapreneurs often work with others in their organization to implement their ideas. Example: A nurse in a hospital might work with doctors and administrators to start an outreach program for health education in rural areas.
MEANING OF ENTREPRENEUR AND INTRAPRENEUR ENTREPRENEUR
An entrepreneur is a person who starts and manages their own business or project, taking on financial risks to make a profit. Entrepreneurs use their creativity and skills to identify opportunities, solve problems, and build something new.
INTRAPRENEUR
An intrapreneur is an employee who is self-motivated and proactive in the use of his or her entrepreneurial abilities and initiatives to pursue creative and innovative activities within an organisation. However, they do not own the business and don’t bear personal financial risks.
3. SOCIAL ENTREPRENEURSHIP
This type of entrepreneurship that focus to provide innovative solutions to social problems such as access to food, money, environmental challenges and education. Such enterprises include garbage collection, recycling, environmental conservation, and community micro-finance initiatives. The goal of these enterprises is to make the world better.
Characteristics of Social Entrepreneurship
1. Solving community problems
The core purpose of social entrepreneurship is to address social, cultural, or environmental issues, rather than simply making profits. For example, in a village without electricity, someone might create affordable solar lamps that students can use for studying at night.
2. Inclusive and collaborative approach
Social entrepreneurs engage communities, stakeholders, and beneficiaries to ensure their solutions are relevant and widely accepted. Collaboration with local organizations and governments is common. For example, a project to install solar panels in rural homes involving local technicians to ensure sustainability.
3. Measurable Social Impact
Social entrepreneurs prioritize measurable results that show how their work benefits the community or the environment. They focus on outcomes such as improved literacy rates, reduced waste, or increased access to healthcare.
CHARACTERISTICS OF ENTREPRENEUR
Entrepreneurs have many characteristics that affect their entrepreneurial behaviour and enterprising tendencies. They include the following:
1. Creativity:
This is an ability to produce new and unique ideas. In a competitive business environment, the presence of creativity is vital for the survival of a company as it fosters the generation of fresh concepts and ideas.
2. Innovativeness
This involves the act of being able to come-up with new or improved ideas and commercialize them. It can be done either by developing new or improved businesses, products, ways of production, distribution and promotion.
3. Risk taking:
Risk-taking is the ability of an entrepreneur to embrace uncertainty and invest resources, such as time and money, into ventures with no guaranteed success. Entrepreneurs carefully calculate these risks, knowing that failure is possible, but they see it as an opportunity to learn and grow.
4. Curiosity:
This is the desire to know or learn through investigation and inquiry. It enables an entrepreneur to learn from mistakes, try new things, and explore new business ideas.
5. Perseverance
This is the ability to remain determined and focused despite challenges, setbacks, or failures. To build a perseverance mindset, entrepreneurs need to resist the desire to quit, create an action plan, and prioritise improvements.
6. Vision:
This refers to the designed thoughts for achieving certain goals or objectives. Entrepreneurs must have the ability to form thoughts, concepts or objects by imagination. They must have a clear vision, then set goals and objectives to achieve that vision.
7. Need for achievements
This is the internal drive to excel and achieve in relation to a set of self-imposed goals. Entrepreneurs with a high need for achievement are more likely to start and sustain their businesses.
8. Networking
This is the ability to connect with people and identify opportunities for partnership or collaboration. Meeting with people gives access to resources and knowledge required to run the business.
9. Passion:
This refers to loving what one is doing. Passion helps entrepreneurs to work hard and handle challenges faced in running a business. It makes entrepreneurs enjoy doing their work.
10. Self-motivation:
This refers to personal initiatives to pursue goals and complete tasks. They are self-driven to initiate and try different alternatives to reach their goals.
11. Hard working:
This is the use of extra efforts to achieve a certain goal. Entrepreneurs are always ready to do any job in the business and to commit any amount of time to succeed in their ventures.
12. Commitment:
This is an intense dedication to the business or project. Starting and sustaining a business requires dedication and sacrifice. Commitment may be manifested through sacrifice which may be in terms of time, energy and other resources dedicated to the business.
13. Optimism:
This is a sense of being positive and maintaining high expectations even in hard and challenging situations. They aim and hold high expectations about their businesses.
14. Flexibility:
This is the willingness to change, compromise, and adjust to the changing environment. This is because business factors like technology, price of products, costs of acquiring factors of production, resources, laws and regulations, value for money and purchasing power varies with time.
15. Proactiveness:
This is the ability of acting in advance of a future situation, rather than reacting. Entrepreneurs are self- starters who take the initiative to tum their ideas into reality. They do not solely wait for opportunities to come to them but actively create opportunities and drive their businesses forward.
16. Autonomy:
This is an independence or freedom of an entrepreneur preferring to work alone. Entrepreneurs strongly need to do their own things on their own way. They prefer being their own bosses.
RELATIONSHIP BETWEEN INVENTION, INNOVATION & CREATIVITY
1. Creativity
Creativity is the ability to generate new ideas, think outside the box, or find unique solutions to problems. It forms the foundation for both invention and innovation. Creativity often involves imagination, curiosity, and exploration of possibilities
2. Invention
Invention is the process of creating something entirely new that did not exist before. It typically involves developing a novel product, device, or method using creative ideas. Inventions are often technical or scientific breakthroughs
3. Innovation
Innovation refers to improving or modifying existing ideas, processes, or products to make them more effective, efficient, or relevant. It often involves applying inventions in practical ways to solve real-world problems.
ENTREPRENEURIAL SKILLS
Entrepreneurial skills are abilities that an individual needs to possess as an entrepreneur. These skills are:
1. Business management skills
These are necessary skills for an entrepreneur to manage various aspects of the business. They include the following:
i) Financial management skills
This is an ability to manage business finances. It is important for an entrepreneur to be able to predict a business cash flow, sales, as well as profit and loss.
ii) Sales and marketing skills
This involve effectively promoting products or services to attract and retain customers while driving revenue growth. Key skills include communication, understanding customer needs, branding, advertising, and digital marketing.
iii) Decision making skills
This involve the ability to analyze information, evaluate alternatives, and choose the best course of action to achieve a desired outcome. It requires critical thinking, problem-solving, and assessing risks and benefits to make informed, timely, and effective choices.
iv) Negotiation skills:
This is the ability to resolve an issue in an acceptable and clear manner with others. An entrepreneur faces issues, discusses them, and bargains to gain advantages for own business.
2. Leadership skills
Leadership is the ability of an entrepreneur to influence people towards accomplishment of common goals. It involves the use of friendly influences to direct the behaviour of the group members towards achieving certain goals.
3. Interpersonal and Intrapersonal skills Interpersonal Skills
Interpersonal skills are the ability to interact effectively with others, building strong relationships and maintaining a positive environment. It includes
i) Networking skills
This involve building and maintaining relationships with others in a way that benefits both parties, creating opportunities for collaboration, growth, and support. For example using social media to connect with people and share business ideas.
ii) Communication
This is the entrepreneur’s ability to communicate and interact with others for the purpose of establishing and maintaining positive relationships in a business environment
Intrapersonal Skills
Intrapersonal skills refer to the ability to understand and manage your own emotions, thoughts, and behaviors, which helps with self-motivation, stress management, and personal growth. It includes
i) Self-discipline:
This is the capacity to stick with what one believes to be correct despite pressure to change one’s mind. It increasing inner strength and power to stick to one’s own decisions.
ii) Self-reflection
This is the internal examining one’s thoughts, actions, and emotions to gain deeper insights and improve personal growth. It helps identify strengths and areas for improvement.
IMPORTANCE OF ENTREPRENEURSHIP
The importance of entrepreneurship includes:
1. Creating employment:
Entrepreneurial activities create employment opportunities through creating jobs for oneself as well as for those who will be employed in that business.
2. Promote innovation:
It promote innovation which enhances the creation of new and improved products, markets, sources of raw materials, production systems, and organisations.
3. Fosters economic development:
Entrepreneurship fosters economic development through established businesses which create job opportunities for the people and create new products and contribute to the national income.
4. Promotes social change:
Entrepreneurship promotes social change by making entrepreneurs think beyond ordinary ways of doing things which leads to improved lifestyles, morals, and better financial options in society.
5. Encourages investment:
Through market research on the availability of various business opportunities, entrepreneurs establish new types of businesses in different economic sectors, which lead to increased investments.
6. Stimulates competition:
Entrepreneurs often compete for the same market and resources; hence, they ensure production of quality and sufficient quantity of goods and services with affordable prices to win the market.
7. Improved Standard of Living
By providing goods and services that meet people’s needs, entrepreneurship can improve quality of life and overall well-being in society.
8. Personal Development
Entrepreneurship encourages personal growth by challenging individuals to be innovative, resilient, and adaptable to market changes.
9. Community Development
Social entrepreneurs often reinvest in their communities, supporting local initiatives, creating social programs, and improving infrastructure.
10. Resource Optimization
Entrepreneurs often find creative ways to use available resources efficiently, reducing waste and maximizing the impact of limited assets, which contributes to environmental sustainability and cost- saving practices
11. Cultural Impact
Entrepreneurs help shape and redefine culture by introducing new ideas, brands, and lifestyles. They create trends that influence how people think, live, and interact with one another, driving social and cultural change.
THEORIES OF ENTREPRENEURSHIP
Entrepreneurship theories are frameworks that explore the various approaches and concepts that explain how entrepreneurs identify opportunities, innovate, and manage risks to build successful businesses. These theories includes the following:
1. INNOVATION THEORY
Theory Details:
The theory says that entrepreneurs bring new ideas to life by creating new products, improving ways of working, or finding better ways to sell goods. They use innovation to change the way businesses and economies work.
2. NEED ACHIEVEMENT THEORY
Theory Details:
The theory says that people who have a strong desire to achieve goals and do things better are more likely to become entrepreneurs. These people take calculated risks, work hard, and focus on achieving success.
According to David McClelland, a person acquires three types of needs based on life experiences. These are:
i) Need for Achievement
This is the desire to excel, accomplish challenging goals, and do tasks better. This helps entrepreneur to be motivated by success, set ambitious but realistic goals, and take calculated risks.
ii) Need for Power
This is the desire to control or influence others and have authority. It helps entrepreneur in leadership and in making decisions
iii) Need for Affiliation
This is the desire to build and maintain friendly and close relationships with others. It helps entrepreneur to build teamwork, avoid conflict, and create social connections and approval.
These three needs vary from person to person and influence their behavior, choices, and success as entrepreneurs.
3. THEORY OF STATUS WITHDRAWAL
Theory Details:
The theory states that entrepreneurship emerges when certain groups or individuals experience loss of status or prestige in society. This loss motivates them to withdraw from traditional roles and innovate or start businesses as a way to regain respect and recognition.
Example: Individuals affected by job losses in traditional industries (like coal mining or agriculture) may innovate and start new ventures in different fields, such as technology or services.
FOUR TYPES OF PERSONALITIES
The loss of status, cause the rise of entrepreneurship is influenced by certain personalities. These personalities are
i) Retreat: Entrepreneur who continues to work in society but remains indifferent to his work or status;
ii) Ritualist: One who works as per the norms in the society with no hope of improvement in the working conditions or his status;
iii) Reformist: One who is a rebellion and tries to bring in new ways of working and new society.
iv) Innovator: An entrepreneur who is creative and tries to achieve his goals set by himself.
4. ECONOMIC THEORY OF ENTREPRENEURSHIP
Theory Details:
5. RISK BEARING THEORY
Theory Details:
The theory suggests that entrepreneurs are people who take risks by investing resources in uncertain situations to earn profits. The more risk the nature of business is, the greater must be the profit earned by it. Entrepreneurs are rewarded with profits as compensation for bearing this risk.
According to the theory, entrepreneurs face the following types of risks:
a) Market Risk. Uncertainty about customer demand for a product or service.
b) Risk of losing money due to investment or borrowing. For example: If a business fails, the entrepreneur might lose their savings or be unable to repay loans.
c) Production Risk. Challenges in making products or delivering services efficiently.
d) Competitive Risk. The risk of being outperformed by competitors in the market.
e) Economic Risk. Risks due to changes in the economy, such as inflation or recession.
f) Legal and Political Risk. Risks from changes in laws, regulations, or government policies.
g) Natural Risk. Risks caused by unforeseen natural events like floods or earthquakes.
IMPORTANCE OF ENTREPRENEURSHIP THEORIES
The following are the importance of entrepreneurship theories.
1. Provides a Framework for Understanding
Theories explain what entrepreneurship is and how it works, helping individuals grasp its key concepts and practices.
2. Guides Entrepreneurial Decisions
They offer insights into risk-taking, innovation, and resource allocation, enabling entrepreneurs to make informed decisions.
3. Encourages Innovation
Theories highlight the role of creativity and innovation, motivating entrepreneurs to develop unique products or services.
4. Identifies Opportunities
They help entrepreneurs recognize gaps in the market and seize opportunities for business growth.
5. Risk Management
Theories explain how to assess and handle various risks, reducing the chances of failure in entrepreneurial ventures.
6. Supports Policy Development
Governments use these theories to create policies and environments that encourage entrepreneurship.
7. Inspires Aspiring Entrepreneurs
Understanding the challenges and rewards of entrepreneurship motivates individuals to start their own businesses.
8. Contributes to Economic Growth
Theories emphasize the role of entrepreneurship in job creation, innovation, and improving the economy.