Historical Origin of Entrepreneurship

What is Entrepreneurship and Who is an entrepreneur?

 Entrepreneurship refers to the process of starting and managing a business, and an entrepreneur
is the person who does this. However, defining these terms clearly can be tricky because there
are many interpretations.

The History of Entrepreneurship:

1. Ancient Times: The term "entrepreneur" was used to describe someone who managed large
business projects using resources given to them.

2. 17th Century: An entrepreneur was someone who signed contracts with the government to
provide specific products or services at a fixed price. Their profits or losses depended on how
well they managed the business.

3. 18th Century: Richard Cantillon introduced the idea that an entrepreneur is a risk-taker. For
example, merchants buy goods at known prices but sell them at unknown prices, which shows
that they take risks. During this time, the role of the entrepreneur was also separated from that
of a capital provider, which later led to the concept of venture capital.

4. Late 19th and Early 20th Century: Entrepreneurs were seen as people who organized and ran
businesses for personal gain.

5. Mid-20th Century: The idea of an entrepreneur as an inventor was introduced. Entrepreneurs

were seen as people who use new technologies or ideas to create innovative products or
services.

The Meaning of Entrepreneurship:

From its historical development, we can see that the role of an entrepreneur evolved from managing
business projects to applying creativity and innovation in business ideas.

Definitions of Entrepreneurship and Entrepreneur

1. Entrepreneurship:

o Entrepreneurship is the process of finding opportunities in the market, organizing

resources to pursue these opportunities, and using those resources to create long-term
gains. It involves creating wealth by combining resources in new ways to start and run a
business.

2. Entrepreneurship as a Business Creation:

o It's the process through which individuals realize they can own a business, come up with
ideas for it, and make it happen.

3. Entrepreneurship as Innovation:
 o Entrepreneurship can also mean creating something new and valuable, putting in the
time and effort, and taking on the financial, emotional, and social risks in order to get
financial rewards and personal satisfaction.

4. Entrepreneurship as Opportunity and Creativity:

o It’s about identifying good business opportunities, using creativity and imagination to
turn those opportunities into successful businesses. Entrepreneurs create jobs and are
crucial in countries with high unemployment.

5. The Process of Entrepreneurship:

o The process includes five key elements:

1. Seeing an opportunity.

2. Using innovation to commercialize that opportunity.

3. Pursuing it sustainably.

4. Pursuing it systematically.

5. Accepting the risk of failure.

Definition of an Entrepreneur:

1. An entrepreneur is someone who creates a business idea and takes the risk to set up a business
to produce something that meets customer needs.

2. An entrepreneur is a person who finds a business opportunity to create new or improved

products and figures out how to gather the necessary resources to make it happen.

3. An entrepreneur has the ability to spot a business opportunity, raise capital, gather resources,
set goals, and take risks to ensure the success of the business.

4. Entrepreneurs are job creators, not job seekers. They have a vision, are willing to take risks, and
make something out of nothing.

Different Views on Entrepreneurs:

 Economist's View: An entrepreneur brings together resources (labor, materials, etc.) to create
something of greater value and introduces innovation.

 Psychologist's View: Entrepreneurs are driven by a need to achieve, experiment, or escape

authority.

 Capitalist's View: Entrepreneurs create wealth for others, find better ways to use resources, and
create jobs.

Summary:
An entrepreneur is anyone who creates and develops a business, while entrepreneurship refers to the
process. Both men and women can be successful entrepreneurs.
1.5 Role of Entrepreneurs in Economic Development

Entrepreneurs play a crucial role in a country’s economic development. They help improve the economy
in many ways, such as creating jobs, increasing national income, and improving living standards. Here’s
how:

1. Improvement in Per Capita Income/Wealth Generation: Entrepreneurs help in raising the

income level of people. For example, in the past, there was little increase in wealth generation.
However, with the rise of entrepreneurship, income grew significantly, especially in Western
countries. For example, in the 1700s, income increased by 20%, in the 1800s by 200%, and by
740% in the 1900s.

2. Generation of Employment Opportunities: Entrepreneurs create businesses that provide jobs

for others. In many developing countries, such as Ethiopia, unemployment is a big problem. By
starting a business, entrepreneurs not only employ themselves but also create job opportunities
for others, especially for young people.

3. Inspiring Others Towards Entrepreneurship: When entrepreneurs create businesses, they often
hire employees who gain experience and may want to start their own businesses later. This
creates a ripple effect where more people start their own ventures, helping the economy grow.

4. Balanced Regional Development: Entrepreneurs help reduce the economic gap between
different regions. By starting businesses in underdeveloped areas, they help balance out the
economic development in various parts of the country.

5. Increase in the Number of Enterprises: Entrepreneurs create new businesses, which adds to the
number of companies in an area. More companies lead to more competition and innovation,
which encourages new firms to start, especially in niche areas (specialized fields).

6. Providing Diversity in Firms: Entrepreneurs create different types of businesses that offer
various products and services. This variety helps the economy grow because different industries
can share knowledge, which leads to more innovation.

7. Economic Independence: Entrepreneurs contribute to a country’s independence by reducing the

need to import goods. They create industries that produce local products and even export
goods, bringing in money from other countries. This helps reduce the dependency on foreign
products.

8. Combining Economic Factors: Entrepreneurs mix three essential factors of production to create
products: raw materials, labor, and capital (money). They combine these factors in ways that
satisfy people’s needs and create value.

9. Providing Market Efficiency: Entrepreneurs help markets work efficiently by encouraging

competition. Competition helps ensure that products and services are offered at reasonable
prices, and businesses don’t take advantage of customers.

10. Accepting Risk: Entrepreneurs take risks to start businesses. They make decisions without always
knowing the future outcomes. They accept this risk because it’s part of running a business, and
their willingness to take risks is crucial for the success of the economy.
 11. Maximizing Investor’s Return: Entrepreneurs create and run businesses to maximize long-term
profits. This leads to better economic efficiency and benefits for investors.

1.6 Entrepreneurial Competence and Environment

This section looks at the skills and qualities that make someone a successful entrepreneur.

1.6.1 Entrepreneurial Mindset

1.6.1.1 Who Becomes an Entrepreneur?

Anyone can become an entrepreneur if they have certain qualities. Here are some examples of who
might become an entrepreneur:

1. The Young Professional: These are young, educated people with entrepreneurial qualifications
who skip traditional jobs and directly start their own ventures.

2. The Inventor: An inventor develops new ideas, products, or services and chooses to present
them to the market.

3. The Excluded: Some people turn to entrepreneurship because they are excluded from
mainstream job markets. This can include displaced communities, ethnic or religious minorities
who start businesses within their own communities.

1.6.1.2 Qualities of an Entrepreneur

To succeed, entrepreneurs need certain qualities:

1. Opportunity-seeking: Entrepreneurs look for opportunities to create new products or services.

They identify needs in the market and find ways to address them.

2. Persevering: Entrepreneurs must be determined and not give up easily. They keep working
towards their goals despite challenges. A famous example is Thomas Edison, who faced many
failures before his inventions succeeded.

3. Risk-taking: Entrepreneurs take calculated risks. They make decisions even when outcomes are
uncertain. They gain satisfaction from achieving goals and are not afraid of public opinion.

4. Demanding Efficiency and Quality: Entrepreneurs focus on efficiency, meaning they get results
with minimal waste. They also aim for high-quality products that meet or exceed customer
expectations. Maintaining quality helps businesses grow by attracting more customers.

5. Information-seeking: Successful entrepreneurs collect information from various sources like

customers, competitors, and suppliers. This helps them make well-informed decisions and run
their business effectively.

6. Goal Setting: Entrepreneurs set clear, measurable goals. These goals should be specific,
achievable, relevant to the current market, and time-bound. This method is known as SMART
(Specific, Measurable, Attainable, Relevant, Time-bound) goal setting.
 7. Planning: Entrepreneurs need to plan their activities carefully, considering what to do, when,
how, and with what resources. Effective planning helps them prepare for unexpected situations.

8. Persuasion and Networking: Entrepreneurs need to persuade others to support their ideas.
They also need to build networks with other people—customers, suppliers, competitors, and
others—who can help their business grow.

9. Building Self-confidence: Self-confidence is key for entrepreneurs. Believing in their own abilities
and decisions helps them face challenges and inspire others to follow their leadership.

Entrepreneurial Skills

1. What is a Skill? A skill is something you know how to do well. An entrepreneur is someone who
has a good business idea and can turn it into reality. To succeed, an entrepreneur needs to
understand the opportunity deeply, recognize gaps in the market, and figure out what new
products or services can fill those gaps. They also need to know how to tell customers about
their idea and deliver the product or service effectively.

2. Types of Skills Entrepreneurs Need: There are two main types of skills an entrepreneur needs:

o General Management Skills: These are skills needed to organize and manage resources
(money, time, people) to run a business. Some key skills include:

 Strategy Skills: Understanding how the business fits in the market and how to
compete with others.

 Planning Skills: Being able to think ahead and prepare for the future.

 Marketing Skills: Understanding what customers want and why they find a
product appealing.

 Financial Skills: Managing money, keeping track of spending, and understanding

risks and investments.

 Project Management Skills: Organizing tasks, setting goals, and making sure
everything gets done on time.

 Time Management Skills: Using time wisely to get tasks done efficiently.

o People Management Skills: These are skills needed to work well with others, both inside
and outside the business. Important skills include:

 Communication Skills: Being able to express ideas clearly in speaking and

writing.

 Leadership Skills: Inspiring people to do their best work.

 Motivation Skills: Encouraging people to put in their best effort.

 Delegation Skills: Assigning tasks to the right people and helping them develop
their skills.
  Negotiation Skills: Finding solutions that work for everyone involved in a
situation.

All these skills work together, and successful entrepreneurs constantly improve their skills by learning
from their experiences.

Entrepreneurial Tasks

Entrepreneurs are known for what they do, which involves several key tasks:

1. Owning Businesses: Entrepreneurs may own the business themselves or be in charge of

managing it. They are both investors (those who put money into the business) and managers
(those who make it run).

2. Founding New Businesses: Entrepreneurs are often the ones who start new businesses by
bringing together people, resources, and ideas, creating a new company with a legal identity.

3. Bringing Innovations to Market: Innovation means introducing new ways to create value, such
as new products or services, or better ways to deliver them. Entrepreneurs are often the ones
who bring these innovations to the market.

4. Identifying Market Opportunities: Entrepreneurs need to find gaps in the market—places where
they can offer something better than others. These opportunities don’t always show up on their
own, so entrepreneurs must actively search for them.

5. Using Expertise: Entrepreneurs are good at making decisions with limited information, especially
when it comes to using scarce resources effectively.

6. Providing Leadership: Entrepreneurs can’t do everything alone—they need the support of

others, including employees, investors, and customers. Good leadership helps motivate and
guide people in the business.

7. Entrepreneur as a Manager: While entrepreneurs are managers, what makes them different
from regular managers is their focus on innovation, effectiveness, and the overall impact they
have on the business.

Wealth of the Entrepreneur

Wealth is not just money—it includes everything an entrepreneur owns, such as knowledge, skills, and
assets.

1. Who Benefits from the Entrepreneur’s Wealth? Entrepreneurs don’t work alone. Their business
affects many different groups of people, known as stakeholders. These include:

o Employees: They provide physical and mental work. In return, they get paid,
opportunities to grow, and the chance to build relationships.
 o Investors: These are people who provide money to start and run the business. There are
two main types:

 Stockholders: Owners of the business who get paid based on the business's
success.

 Lenders: People who give money as a loan and are paid back with interest,
regardless of how well the business does.

o Suppliers: People or companies that provide materials or services needed to run the
business. They are paid for their goods or services.

o Customers: Customers are rewarded by getting good products at fair prices and services
that meet their needs.

o Local Community: Businesses affect local communities, and entrepreneurs have a

responsibility to act ethically, avoid pollution, and contribute to the community’s
development.

o Government: The government provides services like healthcare and education, and
businesses contribute by paying taxes, which helps fund these services.

1. Entrepreneurship and Environment

 Business Environment: This refers to external factors that affect how businesses operate. These
can be either good or bad. A healthy environment helps businesses grow, while an unhealthy
one makes things harder for businesses.

 Business-Environment Interaction: Businesses need to adjust to the conditions around them,

like the economy, laws, and society. At the same time, businesses try to change their
environment to suit their needs. If businesses don’t pay attention to their environment, they
may lose money or face problems like public disapproval.

 Benefits of Studying Business Environment:

1. Helps businesses operate successfully.

2. Opens up opportunities for new businesses.

3. Helps businesses adapt to changes in the environment.

4. Allows businesses to create a more supportive environment.

 Entrepreneurs must continuously study their environment and try to make it favorable for their
business. The best entrepreneurs not only adjust to their environment but also shape it to help
their business succeed.

2. Phases of Business Environment

 External Environment: Factors outside the business that are hard to control:
 1. Economic Environment: This includes the economy’s structure, policies, income levels,
trade, and industrial conditions. A strong economy helps businesses grow.

2. Legal Environment: Businesses must follow the law. Understanding and obeying laws is
essential for success. Entrepreneurs should stay updated on legal changes.

3. Political Environment: Politics affect businesses. Public opinion can influence laws, and
businesses need to adapt to changing political situations.

4. Socio-Cultural Environment: This involves the social and cultural norms of society.
Businesses need to understand how society views new products or ideas.

5. Demographic Environment: This refers to the population’s characteristics, like age,

income, and education. This helps businesses identify potential customers.

 Internal Environment: Factors that businesses control:

1. Raw Materials: Availability of materials needed for production.

2. Production/Operations: Machinery, tools, and techniques needed for manufacturing.

3. Finance: Money needed to run the business, including startup costs and ongoing
expenses.

4. Human Resources: The people needed to work for the business.

3. Environmental Factors Affecting Entrepreneurship

 Entrepreneurship depends on factors like government policies, political stability, access to

resources (like power, materials, and finance), and market conditions. Negative changes in these
factors can hurt entrepreneurship.

4. Creativity, Innovation, and Entrepreneurship

 Creativity: This is the ability to come up with new ideas and see things from different
perspectives. It involves thinking in new ways to solve problems and take advantage of
opportunities.

o Creative Process: There are five steps:

1. Opportunity/Problem Recognition: Realizing there’s a problem or opportunity.

2. Immersion: Focusing on the problem and gathering ideas.

3. Incubation: Letting the mind work on the problem subconsciously.

4. Insight: Coming up with the solution unexpectedly.

5. Verification and Application: Testing the idea to see if it works.

 Barriers to Creativity: There are several things that stop people from being creative, like focusing
too much on finding the “right” answer or being afraid of failure.
  Innovation: Innovation is applying creative ideas to create something new or improve
something. It can involve creating new products, improving existing ones, or changing how
things are done. Innovation can happen in many areas:

o New products, services, production techniques, delivery methods, operating practices,

or ways of managing relationships within or between organizations.

The Innovation Process

1. Analytical planning: Think carefully about what features the product or service
should have, how it should look, and what resources (materials, people, tools)
are needed.
2. Resources organization: Gather everything needed—this could be materials,
people, money, or technology.
3. Implementation: Use the resources to turn the plan into reality.
4. Commercial application: Make the product or service available to customers, pay
workers for their efforts, and make sure everyone involved (like investors) is
happy.

Areas of Innovation

These are the main areas where innovation can happen:

 New Products: Create something brand-new or improve an existing product. The new product
should give customers a clear benefit.

 New Services: Offer a new way to solve a problem or do a task for customers.

 New Production Methods: Change how products are made to lower costs, improve quality, or
speed up production.

 New Delivery Methods: Make it easier for customers to get the product or service, like skipping
unnecessary steps (e.g., middlemen).

 New Practices for Operating: Improve how services are provided to make them faster, easier, or
better for customers.

 New Ways to Inform Customers: Find better ways to tell customers about your product or
service, such as using creative advertising.

 Improved Internal Communication: Make communication inside the organization smoother so

work gets done more effectively.

 Better Relationships Between Organizations: Improve how organizations work together and
communicate with each other for mutual success.
5. From Creativity to Entrepreneurship

 Entrepreneurship = Creativity + Innovation: Entrepreneurs take creative ideas and turn them
into new products or services that benefit people. Creativity is about generating new ideas, and
innovation is about applying those ideas in practical ways to solve problems or meet needs.