UNIT ONE - ENTREPRENEURSHIP AND FREE ENTERPRISE

1.1. Definition and philosophy

 the common attributes of the definitions of entrepreneurship
 Entrepreneurship is the process of creating incremental wealth.
 Entrepreneurship 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.
 third definition views the term from three perspectives; i.e. from the
economist, psychologist and capitalist philosophers’ point of view.
 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 also one who introduces changes
innovations.
 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.
 For the capitalist philosopher an entrepreneur is one who creates
wealth for others
In general, the process of entrepreneurship includes five critical elements. They 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.
5. The acceptance of risk or failure.
1.2. History
 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 the 18th Century the first theory of entrepreneur has been developed by Richard
Cantillon. He said that an entrepreneur is a risk taker.
 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.

1.3. Role within the economy

 Products and Services:- The fundamental economic function of business is to
make and distribute the products and services that people want.
 Employment:- Business ventures are the major providers of “real” jobs
 Income (wages, salaries and profits):- Through its employment creation,
business provides an income base to its stakeholders in terms of salaries, wages,
profits and taxes.
  Taxes
 Disposable income:- Disposable income refers to income after taxes available for
spending on consumer goods, or for savings.
 Investment in productive assets
 National well-being
 Environmental sustainability
Importance of Entrepreneurship
 Employment creation
 Local resources
 Decentralization and diversification of business
 Promotion of technology
 Capital formation
 Promotion of an entrepreneurial culture
1.4 Entrepreneurship, Creativity and Innovation
Innovation: A process of intentional change made to create value by meeting opportunity and
seeking advantage.
Types of innovation
- 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
Sources of innovation
- Unexpected events
- New-knowledge concept
- Changes of demographics
Barriers to innovation
- Organization does not encourage innovation
- Insufficient sources
- Traditional management behavior
- Also can be derived from individual behavior such as:
- Fear of trying
- Fear of making mistakes
- Improper motivation
- Fear of change
- Fear of failure
- Self-image block
Creativity: A process of assembling ideas by recombining elements already known but wrongly
assumed to be unrelated to each other.
The process of creativity
Phase 1: Knowledge accumulation
Phase 2: Incubation
Phase 3: Ideas
Phase 4: Evaluation and implementation
Barriers to creativity
- Personal beliefs
- Fear of criticism
- Over-management
- Stress
How to generate creative ideas
- Brainstorming
- Forced analogy
- Do it
- Mind Mapping
- Nominal group
Characteristics of creative individuals
- Humble and proud at the same time
- Very passionate but can be objective
- Brave to try new things
- Open minded and willing to accept criticism
- Playfulness and discipline, or responsibility and irresponsibility
- High-self control
- Goal-directed, deliberate and considerate in decision making
- Willing to take calculated risk

UNIT TWO: SMALL BUSINESS

Small businesses are common in many countries, depending on the economic system in
operation.
The legal definition of "small business" varies by country and by industry.
In the Ethiopian context on the basis of the size (number of employees, startup capital and
Volume of sales) business enterprises can be categorized as Micro, Small, Medium and Large. In
Ethiopian context each of them are defined as:
 Micro:
• Number of employees: less than or equal to five (owner, family members and
employed employees).
• Start-up capital excluding building
 Service: Less than or equal to 50,000
 Industry: Less than or equal to 100,000
 Small:
• Number of employees: 6 to 30 employees (owner, family members and
employed employees).
 • Start-up capital excluding building
 Service: 50,001 – 500,000
 Industry: 100,001 – 1, 500,000
 Medium:
 Number of employees: 21 to 50 employees (owner, family members and
employed employees).
 Large:
 Number of employees: above 51 employees (owner, family members and
employed employees).
Economic social & political aspects of small business enterprise
Small businesses play four major roles in the economy:
 Creating Jobs
 Producing New Products
 Serving Large Corporations
 Providing Specialized Products
Small Business Failure factors.
What are the major reasons for small business failure?
 Lack of experience
 Insufficient capital (money)
 Poor location
 Poor inventory management
 Over-investment in fixed assets
 Poor credit arrangement management
 Personal use of business funds
 Competition
 Low sales
Here are the top preventable causes for small business failure
 Not saving enough money
 Lack of a niche focus- Too many small business owners sell to anyone they
think has money.
  No marketing plan- Too many small business live off referrals, which is good,
but that eventually will dry up
 Not managing your brand online- It’s now easier than ever to build a brand
online.
 Not communicating with existing customers- It’s cheaper to keep a customer
than to go out and get a new one.
 No clue about how hard it is to run a business
 Lack of fiscal discipline- If you do not run your household with a budget, you
won’t run your business with one.
 No network- “Your network is your net worth.” You must spend time
cultivating the market to develop and nurture your professional and personal
connections.
Problems in Ethiopia small business
 Access to capitalExegetic Energy A primary challenge as a small business is having
access to capital in order to facilitate our exposure.
 Finding ways to grow Info people Corporation Growing the business with limited
access to capital and resources presents a big challenge
 Getting access to potential customers The biggest challenge is trying to identify who
the buyers are. It is very hard to crack that code.
 Affording marketing That means you are not selling your product immediately
 Choosing a Bad Business Location
 Poor Marketing Strategy
 Charging Too Little One of the most common problems of new businesses is trying to
beat the competition by offering lower prices.
Setting Small Business
What is Basic Business Idea?
A good business idea is essential, or even a prerequisite, for a successful business venture.
Meaning of Business Idea
A business idea is the response of a person or an organization to solving an identified problem or
to meeting perceived needs in the local environment (markets, community, etc.). Finding a good
idea is the first step in transforming the entrepreneur’s desire and creativity into a business
opportunity.
Why Generate Business Ideas?
 You need an idea to start a new business.
 To respond to market needs.
 To respond to natural threats and scarcities.
 To stay ahead of the competition
 To exploit technology-do things better.
 Because of product life cycle