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1 INTRODUCTION

The word ‘entrepreneur’ is widely used, both in everyday conversation and as a technical
term in management and economics. Its origin from a French word, entreprender, where
an entrepreneur was an individual commissioned to undertake a particular commercial
project. Several concepts have been derived from the idea of the entrepreneur such as
entrepreneurial, entrepreneurship and entrepreneurial process. The idea that the
entrepreneur is someone who undertakes certain projects offers an opening to developing
an understanding of the nature of entrepreneurship. Undertaking projects demands that
particular tasks be engaged in with the objective of achieving specific outcomes and that
an individual take charge of the project. Entrepreneurship is then what the entrepreneur
does. Entrepreneurial is an adjective describing how the entrepreneur undertakes what he
or she does. The entrepreneurial process in which the entrepreneur engages is the means
through which new value is created because of the project: the entrepreneurial venture.

Chapter Objectives

This chapter is concerned with developing a predominant and integrated perspective of the
entrepreneur and entrepreneurship. It reviews the great variety of definitions given for the
word entrepreneurship and the different activities performed by the entrepreneur.

After completing this chapter, students will be able to:

i. Define the term entrepreneurship and entrepreneur.

ii. Identify types of entrepreneurs
iii. Recognize the role of entrepreneurship in the economy.
iv. Analyze the entrepreneurial competences.
v. Understand creativity and innovation.

2 Historical Origin of Entrepreneurship

What is entrepreneurship? And who is an entrepreneur? These two questions are asked
more frequently reflecting the increasing demand in the field of entrepreneurship. Offering
a specific and unambiguous definition of the term entrepreneurship /entrepreneur presents

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a challenge. This is not because definitions are not available, but because there is so money.
Here let us take in to the historical development of entrepreneurship so as to grasp the
meaning of the word entrepreneurship.

During the ancient period the word entrepreneur was used to refer to a person managing
large commercial projects through the resources provided to him.

In the 17th Century a person who has signed a contractual agreement with the government
to provide stipulated products or to perform service was considered as entrepreneur. In this
case the contract price is fixed so any resulting profit or loss reflects the effort of the
entrepreneur. In the 18th Century the first theory of entrepreneur has been developed by
Richard Cantillon. He said that an entrepreneur is a risk taker. If we consider the merchant,
farmers and /or the professionals they all operate at risk. For example, the merchants buy
products at a known price and sell it at unknown price, and this shows that they are
operating at risk. The other development during the 18th Century is the differentiation of
the entrepreneurial role from capital providing role. The later role is the base for today’s
venture capitalist.

In the late 19th and early 20th Century an entrepreneur was viewed from economic
perspectives. The entrepreneur organizes and operates an enterprise for personal gain. In
the middle of the 20th Century the notion of an entrepreneur as an inventor as established.
“The function of the entrepreneur is to reform or revolutionize the pattern of production by
exploiting an invention or more generally untried technological possibility for producing
new commodities or producing an old one in a new way or opening a new outlet for
products by reorganizing a new industry.”

The concept of innovation and newness are at the heart of the above definition. From the
historical development it is possible to understand the fact that the perception of the word
entrepreneur was evolved from managing commercial project to the application of
innovation (creativity) in the business idea.

1.3 Definitions of Entrepreneurship and Entrepreneur

Here we will see some definitions of entrepreneurship and entrepreneur. Intuitively, it is

known that entrepreneurship is the process and entrepreneur is the person undertaking

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entrepreneurial activity such as undertaking own business. Finally, we will see the common
attributes of the definitions of entrepreneurship and entrepreneur.

1. Entrepreneurship is the process of identifying opportunities in the marketplace,

arranging the resources required to pursue these opportunities and investing the resources
to exploit the opportunities for long term gains. It involves creating incremental wealth by
bringing together resources in new ways to start and operate an enterprise.

2. Entrepreneurship is the processes through which individuals become aware of business

ownership then develop ideas for and initiate a business.

3. Entrepreneurship can also be defined as the process of creating something different and
better with value by devoting the necessary time and effort by assuming the accompanying
financial, psychic and social risks and receiving the resulting monetary reward and personal
satisfaction. In this case an individual should come up with something different and better
to the named as entrepreneur.

4. Entrepreneurship is the art of identifying viable business opportunities and mobilizing

resources to convert those opportunities into a successful enterprise through creativity,
innovation, risk taking and progressive imagination. Entrepreneurship is a practice and a
process that results in creativity, innovation and enterprise development and growth. It
refers to an individual’s ability to turn ideas into action involving and engaging in socially
useful wealth creation through application of innovative thinking and execution to meet
consumer needs, using one’s own labor, time and ideas. Engaging in entrepreneurship
shifts people from being “job seekers” to “job creators”, which is critical in countries that
have high levels of unemployment. It requires a lot of creativity which is the driving force
behind innovation.

In general, the process of entrepreneurship includes five critical elements. These are:

1) The ability to perceive an opportunity.

2) The ability to commercialize the perceived opportunity i.e., innovation

3) The ability to pursue it on a sustainable basis.

4) The ability to pursue it through systematic means.

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5) The acceptance of risk or failure.

Based on the above concepts of entrepreneurship, an entrepreneur can be defined as

follows:

1) 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.

2) An entrepreneur can also be defined as 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.

3) An entrepreneur is an individual who: can identify and pursue a business opportunity;

undertakes a business venture; raises the capital to finance it; gathers the necessary
physical, financial and human resources needed to operate the business venture; sets goals
for him/herself and others; initiates appropriate action to ensure success; and assumes all
or a major portion of the risk!

4) An entrepreneur is a person who: create the job not a jobseeker; has a dream, has a
vision; willing to take the risk and makes something out of nothing

5) Other definition views the term entrepreneur from three perspectives; i.e. from the
economist, psychologist and capitalist philosopher’s point of view.

i) To an economist an entrepreneur is one who brings resource, labor, materials, and other
assets into combination that makes their value greater than before and one who introduces
changes innovations.

ii) To a psychologist an entrepreneur is a person typically driven by certain forces need to

obtain or attain something, to experiment, to accomplish or perhaps to escape the authority
of others.

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iii) For the capitalist philosopher an entrepreneur is one who creates wealth for others as
well, who finds better way to utilize resources and reduce waste and who produce job others
are glad to get.

In general, entrepreneur refers to the person and entrepreneurship defines the process. Both
men

and women can be successful entrepreneurs; it has nothing to do with gender. All
entrepreneurs are businesspersons, but not all businesspersons are entrepreneurs.

1.4 Types of Entrepreneurs

Entrepreneurship can take three different forms. They are:

1. The individual entrepreneur: An individual entrepreneur is someone who started;

acquired or franchised his/her own independent organization. The major portion of this
module is also devoted to describing the basic features and activities of the individual
entrepreneur.

2. Intrapreneur: An Intrapreneur is a person who does entrepreneurial work within large

organization. The process by which an intrapreneur affects change is called
Intrapreneurship.

There are two facts about intrapreneurship.

a. The Intrapreneur’s context is often large and bureaucratic organization whereas the
individual entrepreneur operates in the broader, more flexible economic marketplace.

b. Intrapreneurs are individuals who often engage in the entrepreneurial actions in large
organizations without the blessing of their organizations.

3. The Entrepreneurial Organization: The entrepreneurial function need not be embodied

in a physical person. Every social environment has its own way of filling the
entrepreneurial function. Individuals working in organizations have the potential for being,
as do those working independently to start their own business. An organization can create
an environment in which all its members can contribute in some function to the
entrepreneurial function.

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An organization that creates such an internal environment is defined as entrepreneurial
organization.

1.5 Role of Entrepreneurs in Economic Development

Entrepreneurial development is the most important input in the economic development of

any country. The objectives of industrial development balanced regional growth, and
generation of employment opportunities are achievable through entrepreneurial
development. Entrepreneurs are at the core of industrial development which results in
greater employment opportunities to the unemployed youth, increase in per capita income,
higher standard of living and increased revenue to the government in the form of income,
sales tax, export duties, import duties etc. The entrepreneurs serve as a key to the creation
of new enterprises, thereby rejuvenating economy and sustaining the process of economic
development in the following ways:

1) Improvement in per capita Income/Wealth Generation: Entrepreneurs play a vital in the

economic development of a region. From the fall of Rome (AD 476) to the eighteenth
century, there was virtually no increase in per capita wealth generation in the West. With
the advent of entrepreneurship, however, per capita wealth generation and income in the
west grew exponentially by 20 Percent in the 1700s, 200 percent in the 1800s, 740 percent
in the 1900 (Drayton, 2004).

2) Generation of Employment Opportunities: By creating a new business enterprise,

entrepreneurs generate employment opportunities for others. Unemployment is a major
issue, especially in the context of developing economies like Tanzania. Educated youth
often are unable to get to get a suitable employment themselves. Thus, entrepreneurs not
only self-employ themselves, but also create jobs for others.

3) Inspire others Towards Entrepreneurship: The team created by an entrepreneur for his
new undertaking often provides the opportunity for the employees to have a first-hand
experience of getting involved in an entrepreneurial Venture. An existing venture provides
several entrepreneurial opportunities through forward and backward linkages, to these
employees even to become entrepreneurs themselves. Thus, this process helps in forming

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a chain reaction of entrepreneurial activity which directly contributes to the health of the
economy.

4) Balanced Regional Development: Entrepreneurs help to remove regional disparities in

economic development. They set up the industries in the backward areas to avail various
subsidies and incentives offered by the Central and State Governments, thereby balancing
the economic growth in different regions in the country.

5) Enhance the Number of Enterprise: When new firms are created by entrepreneurs, the
number of enterprises based upon new ideas/ concepts/ products in a region increases. Not
only does an increase in the number of firms enhance the competition for new ideas, but
greater competition across firms also facilitates the entry of new firms specializing in a
particular new product or service. This is because the necessary complementary inputs are
more likely available from small specialist niche firms than from large vertically integrated
products (Jacobs, 1969).

6) Provide Diversity in Firms: Entrepreneurial activity often results into creation of a

variety of firms in a region. These firms operate into diverse activities, and it has been
found that it is this diversity in firms which fosters economic development and growth
rather than homogeneity. According to Jacobs (1969), it is the exchange of complementary
knowledge across diverse firms and economic agents that yield an important return on new
economic knowledge.

7) Economic Independence: Entrepreneurship is essential for self-reliance for a country.

Entrepreneurs create industries that manufacture indigenous substitutes, thereby reducing
the dependence on imports. Also, the goods are exported to other countries to earn foreign
exchange. This import substitution and export promotion results in more economic
independence to the country Combine Economic factors: All the products bought and sold
in an economy are a mix of three primary economic factors (the raw materials, nature offers
up, the physical and mental labor people provide and capital (money). Now value is created
by combing these three things together in a way which satisfies human needs.

9) Provide Market efficiency: Efficient means resources are distributed in an optimal way
that is the satisfaction that people can gain from them is maximized. An economic system

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can only reach this state if there is competition between different suppliers. If a supplier is
not using competition, then they will tend to demand profit in excess of what the market
would allow and reduce the overall efficiency of the system.

10) Accepting Risk: Risk is the potential variation in terms of future outcomes. We do not
know exactly what the future will bring. This lack of knowledge creates uncertainty. No
matter how we plan there is always a possibility of adverse deviation from what we expect
or hoped for. Here the primary function of the entrepreneur is to accept risk on behalf of
other people.

11) Maximize Investor’s Return: Entrepreneurs create and run organizations which
maximize long-term profit on behalf of the investors which in turn generates overall
economic efficiency.

1.6 Entrepreneurial Competence and Environment

Under this topic entrepreneurial mindset (that will address subtopics such as, who become
an entrepreneur; qualities of successful entrepreneurs; entrepreneurial skills; the
entrepreneur’s task and wealth of the entrepreneur), and Entrepreneurship and
Environment.

1.6.1 Entrepreneurial Mindset

1.6.1.1 Who Becomes an entrepreneur?

Anyone with the following characteristics can be an entrepreneur.

1) The Young Professional: Increasingly young highly educated people often with
entrepreneurial qualifications are skipping the experience of working for an established
organization and moving directly to work on establishing their own ventures.

2) The Inventor: The inventor is someone who has developed an innovation and who has
decided to make a career out of presenting that innovation to the market. It may be a new
product, or it may be an idea for a new service. It may be a high-tech or it may be based on
a traditional technology.

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3) The Excluded: Some people turn to an entrepreneurial career because nothing is open to
them. Displaced communities and ethnic and religious minorities have not been invited to
join the wider economic community due to a variety of social, cultural, and political and
historical reasons. As a result, they may form their own internal networks, trading among
themselves and, perhaps, with their ancestral countries.

1.6.1.2 Qualities of an Entrepreneur

i. To be successful, an entrepreneur should have the following qualities:

ii. Opportunity-seeking
iii. Persevering
iv. Risk Taking
v. Demanding for efficiency and quality
vi. Information-seeking
vii. Goal Setting
viii. Planning
ix. Persuasion and networking
x. Building self-confidence
xi. Listening to others
xii. Demonstrating leadership

1) Opportunity-seeking: An opportunity is a favorable set of circumstances that creates a

need for a new product, service, or business. It includes access to credit, working premises,
education, trainings etc. An entrepreneur always seeks out and identifies opportunities.
He/she seizes an opportunity and converts it into a realistic and achievable goal or plan.

2) Persevering: An entrepreneur always makes concerted efforts towards the successful

completion of a goal. An entrepreneur perseveres and is undeterred by uncertainties, risks,
obstacles, or difficulties which could challenge the achievement of the goal.

3) Risk Taking: The best entrepreneurs tend to: -

Set their own objectives where there is moderate risk of failure and take calculated risks.

i. Gain satisfaction from completing a job well.

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 ii. Not be afraid of public opinion, skepticism.
iii. Take responsibility for their own actions.

Importance of Risk-taking

i. Build self-confidence.
ii. Create a feeling of leadership.
iii. Create strong motivation to complete a job well.

4) Demanding for Efficiency and Quality Efficiency: Being efficient means producing
results with little wasted effort.

Quality refers to:

1. The ongoing process of education, communication, evaluation and constant

improvement of goods/services to meet the customer’s need in a way that exceeds the
customer’s expectations.

2. A characteristic of the product or service that makes it fit to use. It makes a product,
process, or service desirable.

3. The ability of a product or service to meet a customer’s expectations for that product or
service.

The importance of quality management in entrepreneurship is reflected in the income

statement of the business. There is always a demand for quality products and efficient
services. Quality plays an important role in this new era of globalization because it confers
certain benefits which include:

Reduction of waste: Striving to maintain quality means examining all processes that
contribute to the creation of a product, to remove non-productive processes and waste. If
businesses keep to their standard of maintaining the quality of the product, the number of
defective products will be reduced. Consumers prefer to buy quality products. Hence the
quality products/services help in increasing the share in market and ensure that they will
not be returned.

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Cost-effectiveness: Striving to ensure quality helps businesses to minimize the chances that
they will make mistakes. As a result, the costs of re-doing work or changing the product
after it has been sold are greatly reduced.

An increase in market share: Customers prefer to buy the same product again and again if
they are satisfied with the quality. If they are satisfied with the quality of a product, then
they will not only purchase the product/services more than once, but they will also
recommend it to their friends. As a result, this contributes to an increase in the company’s
market share.

Better profitability: better quality of product satisfies customers. Increased customers

mean increase sales, increased shares in market and consequently increased profits.

Social responsibility: By providing quality products and services, a company is more likely
to be able to fulfill its responsibility to the community and meet standards set by
government.

Reputation: Quality of goods and services improves the reputation of the business for
competition in the market and growth.

5) Information-seeking: Successful entrepreneurs do not rely on guesswork and do not rely

on others for information. Instead, they spend time collecting information about their
customers, competitors, suppliers, relevant technology, and markets. Gathering relevant
information is important to ensure that the entrepreneur makes well informed decisions.
Information on the area of market, supply, operations, finance, legislation, and
infrastructure are important for entrepreneurs.

6) Goal Setting

A Goal - is a general direction, or long-term aim that you want to accomplish. It is not
specific enough to be measured. It is large in scope, not necessarily time-bound, and is
something that people strive for by meeting certain objectives which will hopefully add up
to eventually achieving the goal.

Objectives - are specific and measurable. They are concise and specific. Think of the word
“object.” You can touch it, it’s there, it’s actual, and its finite.

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An entrepreneur must have a goal and an objective which is specific, measurable, attainable
relevant, and time bound (SMART).

Specific: Great goals are well-defined and focused. The moment you focus on a goal, your
goal becomes a magnet, pulling you and your resources toward it. The more focused your
energies, the more power you generate.

Measurable: A goal without a measurable outcome is like a sports competition without a

scoreboard or scorekeeper. Numbers are an essential part of business. Put concrete numbers
in your goals to know if you’re on track.

Attainable: Far too often, entrepreneurs can set goals which are beyond their reach. Dream
big and aim for the stars but keep one foot firmly based.

Relevant: Achievable business goals are based on the current conditions and realities of the
business climate. For example, you may desire to have your best year in business or
increase revenue by 50%, but if a national economic crisis is looming and three new
competitors just opened in your market, then your goals are not relevant to the realities of
the market.

Time-Based: Business goals and objectives just don’t get done when there’s no time frame
tied to the goal-setting process. Whether your business goal is to increase revenue by 20%
or to find two new clients, it is important to choose a timeframe to accomplish your goal.

7) Planning: Planning is deciding about the future in terms of what to do, when to do, where
to do, how to do, by whom to do and using what resources. An effective entrepreneur
therefore usually plans his/her activities and accounts as best as they can for unexpected
eventualities.

8) Persuasion and Networking

Persuasion is a way of convincing someone to get something or decide in your favor. It is

inducing or taking a course of action or embracing a point of view by means of argument,
reasoning, or entreaty; to convince; to succeed in causing a person to do or consent to
something; to win someone over, as by reasoning or personal forcefulness; to cause to
believe; to induce, urge, or prevail upon successfully.

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Importance of Persuasion in Business

i. We purchase goods from people.

ii. We sell goods to people.
iii. We need support from people.
iv. We work with people.

Without people, be they are suppliers, workers, and most importantly customers, there is
no business.

Networking is an extended group of people with similar interests or concerns who interact
and remain in informal contact for mutual assistance or support. In a business environment
where we are in, we network with customers, suppliers, competitors, various firms,
different organizations, government offices and family, etc.

Factors that Affect Persuasion and Networking

Socio-cultural background and perceptions

Communication skills (both verbal and non-verbal).

Negotiation skills

9) Building Self-confidence: Self-confidence is the state of being certain that a chosen

course of action is the best or most effective given the circumstances. Confidence can be
described as a subjective, emotional state of mind, but is also represented statistically as a
confidence level within which one may be certain that a hypothesis will either be rejected
or deemed plausible. Self-confidence is having confidence in oneself when considering a
capability.

Overconfidence is having unmerited confidence-believing something, or someone is

capable when they are not.

Characteristics of a Self-confident Person

A person with self-confidence may exhibit some of the following characteristics:’

Risk-taking: willing to take risks and go the extra mile to achieve better things.

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Independent: entrepreneurs like to be their own masters and want to be responsible for
their own decisions.

Perseverance: Ability to endure and survive setbacks and continue to build confidence in
whatever you do in your business.

Able to learn to live with failure. Entrepreneurs are going to make mistakes. They are
human. But they learn from these mistakes and then move on.

Ability to find happiness and contentment in work.

Doing what you believe to be right, even if others mock or criticize you for it.

Admitting mistakes and learning from them.

10) Listening to Others: An entrepreneur does not simply impose his/her idea on others.
Rather, he/she listens to other people in their sphere of influence, analyses their input in
line with his/her own thinking and makes an informed decision.

11) Demonstrating Leadership: An entrepreneur does not only do things by him/herself,

but also gets things done through others. Entrepreneurs inspire, encourage and lead others
to undertake the given duties in time.

1.6.1.3 Entrepreneurial Skills

A skill is simply knowledge which is demonstrated by action. It is an ability to perform in

a certain way. An entrepreneur is someone who has a good business idea and can turn that
idea into reality. To be successful, an entrepreneur must not only identify an opportunity
but also understand it in great depth. He or she must be able to spot a gap in the market and
recognize what new products or services fill the gap. He or she must know what features it
will have and why they will appeal to the customer. The entrepreneur must also know how
to inform the customer about it and how to deliver the new offerings. All this calls for an
intimate knowledge of a particular sector of industry. Turning an idea into reality calls
upon two sorts of skills, these

are:

I. General management skills and

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II. People management skills

I) General Management Skills: These are skills required to organize the physical and
financial resources needed to run the venture. Some of the most important general
management business skills are:

Strategy Skills – An ability to consider the business as a whole, to understand how it fits
within its marketplace, how it can organize itself to deliver value to its customers, and the
ways in which it does this better than its competitors.

Planning Skills – An ability to consider what the future might offer, how it will impact on
the business and what needs to be done to prepare for it now.

Marketing Skills – An ability to see past the firm’s offerings and their features, to be able
to see how they satisfy the customer’s needs and why the customer finds them attractive.

Financial Skills – An ability to manage money; to be able to keep track of expenditure and
to monitor cash-flow, but also an ability to assess investments in terms of their potential
and their risks.

Project Management Skills – An ability to organize projects, to set specific objectives, to

set schedules and to ensure that the necessary resources are in the right plat of the right
time.

Time Management Skills – An ability to use time productively, to be able to priorities

important jobs and to get things done to schedule.

II) People Management Skills: Businesses are made by people. A business can only be
successful if the peoples who make it up are properly directed and are committed to try on
its behalf. An entrepreneurial venture also needs the support of people from outside the
organization such as customers, suppliers, and investors. To be effective, an entrepreneur
needs to demonstrative a wide variety of skills in the way he/she deals with other peoples.

Some of the more important skills we might include under this heading are:

Communication Skills – An ability to use spoken and written language to express ideas
and inform others.

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Leadership Skills – An ability to inspire people to work in a specific way and to undertake
the tasks that are necessary for the success of the venture.

Motivation Skills – An ability to enthuse people and get them to give their full commitment
to the tasks in hand. Being able to motivate demands an understanding of what drives
people and what they expect from their jobs.

Delegation Skills – An ability to allocate tasks to different people. Effective delegation

involves more than instructing. It demands a full understanding of the skills that people
possess how they use them and how they might be developed to fulfill future needs.

Negotiation Skills – An ability to understand what is wanted from a saturations, what is

motivating others in that situation and recognize the possibilities of maximizing the
outcomes for all parties.

1.6.2 Entrepreneurship and Environment

Business environment refers to the factors external to a business enterprise which influence
its operations and determine its effectiveness. Business environment may be healthy or
unhealthy. Healthy business environment means the conditions are favorable to the growth
of business whereas unhealthy environment implies conditions hostile or unfavorable to
business operations. Business and its environment interact with each other. Economic
system and other conditions in the environment determine the success of business
enterprises. The firm and its management must adjust to the conditions prevalent around
it. However, business enterprises try to influence and shape the environment. Successful
working of business concerns improves the economic and social conditions in the country.
No business concern can ignore the environment around it except at its own peril. “The
penalty of environ mental disregard is heavy. It not only reduces profit margins and makes
opportunities for expansion slip, but it also arouses social hostility and makes social
environment growingly inhospitable to business operations.”

A study of business environment offers the following benefits:

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1) It provides information about environment which is essential for successful operation of
business firms.

2) It opens fresh avenues for the expansion of new entrepreneurial operations. The
entrepreneurs may come forward with new ideas and with new ventures when they find
environment suitable to their enterprises.

3) Knowledge about changing environment enables businessmen to adopt a dynamic

approach and maintain harmony of business operations with the environment.

4) By studying the environment entrepreneurs can make it hospitable to the growth of

business and thereby earn popular support.

Thus, the entrepreneur should continuously study the nature of environment and its
influence on business. However, mere study is not enough. Attempts must be made to
influence the environment to make it congenial and favorable to entrepreneurial activities.
The most successful entrepreneur is one who not only adjusts to the environment but also
modifies the environment to suit his requirements through the direct and indirect influences
he can exercise over the system.

1.6.2.1 Phases of Business Environment

Business environment may be classified into two broad categories; namely external; and
internal environment.

A) External Environment

It is the environment which is external to the business and hardly to influence

independently.

The following are the components of external environment:

i) Economic Environment

Economic environment is of multidimensional nature. It consists of the structure of the

economy, the industrial, agricultural, trade and transport policies of the country, the growth
and pattern of national income and its distribution, the conditions prevailing in industrial,
agricultural, and other sectors, the position relating to balance of trade and balance of

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payments, and other miscellaneous conditions of the economy. There is a close relationship
between a business firm and the economic environment around it. The success of a business
enterprise depends considerably upon the State and growth of the economy.

ii) Legal Environment

Business must function within the framework of legal structure. Therefore, an adequate
knowledge of laws and rules is necessary for efficient managerial performance. When new
laws are made and controls exercised through legal enactments, the first reaction of the
business community is to oppose them and disobey them. Management should try to
understand what the right laws should be and strictly obey them when so made. In addition,
it can influence the government to change and improve the law and make it useful to the
business community. There are several business laws in our country. A working knowledge
of these laws is very helpful for the entrepreneur. Such knowledge will keep them away
from innocent breaches and resultant penalties. Some laws differ from region to region and
amendments arc made from time to time. Therefore, the entrepreneur must always keep in
touch with those who know the latest position in law. In addition, an entrepreneur should:

b) Read the books that enlighten on the legal side of business

c) Consult government agencies concerned with the implementation of business laws.

d) Retain labor law consultants

iii) Political Environment

In a democratic country, politics cannot be ignored. Managers and entrepreneurs should

understand the working of the political system. Such understanding and concern for
national problems will help them in the long run in discharging their responsibilities to the
satisfaction of the public. Public opinion is very important, and today's public opinion
becomes tomorrow's legislation. Businessmen should, therefore, learn to take public
opinion into account in the decision-making process. If business does not learn how to deal
adequately with public opinion, it will face a disaster. This does not mean that business
should surrender itself to public opinion. Rather, it implies intelligent response to change
wherever necessary and a constructive approach to problems.

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iv) Socio-Cultural Environment

It consist of the social and cultural norms of a society in a given period of time. The
variables that are appraised are values, beliefs, norms, fashions, and fads of a particular
society. It can help in understanding the level of rigidity/flexibility of a given society
towards a new product/service/concept. Traditional culture should be protected in so far as
it is not a hindrance to innovation, motivation, and development.

v) Demographic Environment

It assesses the overall population pattern of a given geographical region. It includes

variables like age profile, distribution, sex, education profile, income distribution etc. The
demographic appraisal can help in identifying the size of target customers.

B) Internal Environment

Internal environment is the environment which is under the control of a given organization.
Following are the components of internal environment of a business:

ii) Raw Material: It assesses the availability of raw material now and soon. If the
availability of raw material is less now or would be less in future, then the entrepreneur
should give a serious thought to establishing a venture as the entire system can come to a
standstill due to shortage of raw material.

iii) Production/Operation: It assesses the availability of various machineries, equipment,

tools, and techniques that would be required for production/operation.

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iv) Finance: It assesses the total requirements of finance in terms start-up expenses, fixed
expenses and running expenses. It also indicates the sources of finance that can be
approached for funding.

v) Human Resource: It assesses the kind of human resources required and its demand and
supply in the market. This further helps in estimating the cost and level of competition in
hiring and retaining the human resources. As stated above, the objective of environmental
scanning should be to gather information from as many sources as possible and to
maximize this information for enhanced probability of success in the business.

1.6.2.2 Environmental Factors Affecting Entrepreneurship

A complex and varying combination of financial, institutional, cultural and personality

factors determine the nature and degree of entrepreneurial activity at any time. The
personal backgrounds of the entrepreneurs are determined mainly by the environment in
which they are born and brought up and work. A multitude of environmental factors
determine the entrepreneurial spirit among people. The entrepreneurs in turn create impact
on the environment. The interaction between the entrepreneur and his environment is an
ongoing process. At any given point of time, the entrepreneurs derive meanings from the
environment prevailing at that time and try to adapt and/or change the environment to suit
their needs. Some of the environmental factors which hinder entrepreneurial growth are
given below:

i. Sudden changes in Government policy.

ii. Sudden political upsurge.
iii. Outbreak of war or regional conflicts.
iv. Political instability or hostile Government attitude towards industry.
v. Excessive corruption among Government agencies.
vi. Ideological and social conflicts.
vii. Unreliable supply of power, materials, finance, labor, and other inputs.
viii. Rise in the cost of inputs.
ix. Unfavorable market fluctuations.
x. Non-cooperative attitude of banks and financial institutions.

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Entrepreneurship is environmentally determined. The most important essential for
entrepreneurial growth is the presence of a favorable business environment. A healthy
business environment requires active social and cultural behavior of the people, efficient
economic conditions, helpful motivating Government policies, etc. When environment
mitigates entrepreneurship, it must be modified.

1.7 Creativity, Innovation and Entrepreneurship

Creativity, innovation, and entrepreneurship, have been recognized as important

contributors to a nation’s economic growth. These three terminologies are chronologically
interrelated, and it is very important to look in to them to get their full picture.

1.7.1 Creativity

Creativity is defined as the tendency to generate or recognize ideas, alternatives, or

possibilities that may be useful in solving problems, communicating with others, and
entertaining ourselves and others.

Creativity is the ability to come up with new idea and to identify new and different ways
of looking at a problem and opportunities.

It is a process of assembling ideas by recombining elements already known but wrongly

assumed to be unrelated to each other. This definition has several key elements that are
worth considering:

Process: creativity is a process (implying among other things, that it is more like a skill
than an attitude, and that you can get better at it with practice)

Ideas: creativity results in ideas that have potential value. Recombining: the creative
process is one of putting things together in unexpected ways.

To be creative, you need to be able to view things in new ways of from a different
perspective. Among other things, you need to be able to generate new possibilities or new
alternatives. Tests of creativity measure not only the number of alternatives that people can
generate but the uniqueness of those alternatives. The ability to generate alternatives or to
see things uniquely does not occur by change; it is linked to other, more fundamental

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qualities of thinking, such as flexibility, tolerance of ambiguity or unpredictability, and the
enjoyment of things heretofore unknown.

Thus, creativity is the development of ideas about products, practices, services, or

procedures that are novel and potentially useful to the organization.

1.7.1.1 Steps in the Creative Process

Step1: Opportunity or problem Recognition: A person discovers that a new opportunity

exists, or a problem needs resolution.

Step2: Immersion: the individual concentrates on the problem and becomes immersed in
it. He or she will recall and collect information that seems relevant, dreaming up
alternatives without refining or evaluating them.

Step 3: Incubation: the person keeps the assembled information in mind for a while. He or
she does not appear to be working on the problem actively; however, the subconscious
mind is still engaged. While the information is simmering it is being arranged into
meaningful new patterns.

Step 4: Insight: the problem-conquering solution flashes into the person’s mind at an
unexpected time, such as on the verge of sleep, during a shower, or while running. Insight
is also called the Aha! Experience.

Step 5: Verification and Application: the individual sets out to prove that the creative
solution has merit. Verification procedures include gathering supporting evidence, using
logical persuasion, and experimenting with new ideas.

1.7.1.2 Barriers to Creativity

Be aware that there are numerous barriers to creativity, including:

1. searching for the one ‘right’ answer

2. focusing on being logical

3. blindly following the rules

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4. constantly being practical

5. viewing play as frivolous

6. becoming overly specialized

7. avoiding ambiguity

8. fearing looking foolish

9. fearing mistakes and failure

10. believing that ‘I’m not creative

1.7. 2 Innovation

Innovation lies at the heart of the entrepreneurial process and is a means to the exploitation
of opportunity. It is the implementation of new idea at the individual, group, or
organizational level.

Innovation is a process of intentional change made to rate value by meeting opportunity

and seeking advantage.

There are four distinct types of innovation, these are as follows:

Invention - described as the creation of a new product, service or process.

Extension - the expansion of a product, service, or process

Duplication - defined as replication of an already existing product, service or process.

Synthesis - the combination of existing concepts and factors into a new formulation

1.7.2.1 The Innovation Process

1. Analytical planning: carefully identifying the product or service features, design as well
as the resources that will be needed.

2. Resources organization: obtaining the required resources, materials, technology, human,

or capital resources

3. Implementation: applying the resources to accomplish the plans

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4. Commercial application: the provision of values to customers, reward employees and
satisfy the stakeholders.

1.7.2.2 Areas of Innovation

The following are some of the major areas in which valuable innovation might be made.

A. New product: A new product can be developed through new or existing technology.
The new product may offer a radically new way of doing something or it may simply be
an improvement on an existing item. The new product must offer the customer an
advantage if it is to be successful.

B. New Services: A service is an act which is offered to undertake a particular task or solve
a particular problem.

C. New Production Techniques: Innovation can be made in the way in which a product
is to be manufactured. A new production technique should allow the end user to obtain the
product at a lower cost, or a product of higher quality or better service in the supply of the
product.

D. New Way of Delivering the Product or Service to the Customer: Customer can only
use product/service they can access. A common innovation is to take a more direct routine
by cutting out distributors or middlemen.

E. New Operating Practices: As with innovations in the production of physical products,

innovation in service delivery must address customers need and offer them improved
benefits, for example easier access to the service, a higher quality service, a more consistent
service, a faster or less time-consuming service etc.

F. New Means of Informing the Customer about the Product: People will only use a
product or service if they know about it. Demand will not exist if the offering is not properly
promoted to them. Promotion consists of two parts; a message what is said and a means –
the route by which that message is delivered.

G. New Means of Managing Relationship within the Organization: Any organization

has a wide variety of communication channels running through it. The performance of the
organization will depend to a great extent on the effectiveness of its internal

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communication channels. These communication channels are guided by the organization’s
structure.

H. New Ways of Managing Relationships between Organizations: Organizations sit in

a complex web of relationships to each other. The way they communicate and relate to
each other is very important.

1.7.3 From Creativity to Entrepreneurship

Creativity is the ability to develop new ideas and to discover new ways of looking at
problems and opportunities. Innovation is the ability to apply creative solution to those
problems and opportunities to enhance people’s lives or to enrich society.

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