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WEEK TWO NOTES

LESSON 2: IMPORTANCE OF ENTREPRENEURSHIP

Role of Entrepreneurship in Economic Development

The role of entrepreneurship in economic development has nine salient takeaways:

1. Raises Standard of Living

The standard of living means, increase in the consumption of various goods and services by a

household for a particular period. A significant role of entrepreneurship in economic

development is that it can greatly enhance the standard of living for individuals and communities

by:

- Setting up industries and creating wealth and new positions. Entrepreneurship not only

provides small scale and large-scale employment and ways to generate income,

- It also has the potential to improve the quality of individual life by developing products

and services that are affordable, safe to use, and add value to their lives.

- Entrepreneurship also introduces new products and services that remove the scarcity of

essential commodities.

2. Economic Independence

Entrepreneurship can be a path to economic independence for both the country and the

entrepreneur.
 - It reduces the nation’s dependence on imported goods and services and promotes self-

reliance.

- The manufactured goods and services can also be exported to foreign markets, leading to

expansion, self-reliance, currency inflow, and economic independence. Similarly,

entrepreneurs get complete control over their financial future.

- Through their hard work and innovation, they generate income and create wealth,

allowing them to achieve economic independence and financial security.

3. Benefits of New Firms and Businesses

- Entrepreneurs identify market needs and develop solutions through their products and

services to begin their business venture. By starting new firms and businesses,

entrepreneurs play a key role in shaping the economy and creating a more dynamic and

diverse business landscape.

- Entrepreneurship also promotes innovation and competition leading to new and improved

products and services that contribute to economic growth and development.

- It helps find solutions to societal problems and increase the standard of living of people.

4. Creation of Jobs

- Entrepreneurship is a pivotal driver of job creation. Running the operations of new

businesses and meeting customer requirements results in new work opportunities.

- It provides an entry-level job, required for gaining experience and training for unskilled

workers- e.g. apprenticeship.

entrepreneurs and investments, creating new jobs in a wide range of industries, from

manufacturing and construction to service and technology sectors.

5. Encourages Capital Formation

- Capital formation is the process of accumulating resources, such as savings and

investments, to fund new business ventures and support economic growth.

Entrepreneurship can encourage capital formation by attracting investment from wealthy

individuals, industrialists, bankers

- In addition, the creation of new businesses and the growth of existing firms can also

contribute to the development of a more diverse and dynamic economy that encourages

capital formation and opens the door to a wide range of investment opportunities.

6. Elimination of Poverty

- Entrepreneurship has the potential to lift people out of poverty by generating employment

and stimulating economic activity.

- Entrepreneurship also contributes to the development of local economies and helps

improve the overall standard of living; Bodaboda, JuaKali artisans, posho mills etc.

7. Community Development

- Many entrepreneurs also make a positive impact on their communities and improve their

well-being by catering to underserved areas and developing environment-friendly

social and economic development.

- It brings about changes in society and promotes facilities: like higher expenditure on

education, better sanitation, fewer slums, an higher level of homeownership. Therefore,

entrepreneurship assists the organisation towards a more stable and high quality of

community life.

8. Optimal Use of Resources

- Entrepreneurship can help identify market opportunities and allocate resources in the

most effective way possible.

- Entrepreneurs also play a key role in developing innovative products and services that

meet the needs of customers while optimizing the use of available resources- furniture,

traditional vegetables and herbs.

9. Increases Gross National Product and Per Capita Income

- Entrepreneurship can play a significant role in increasing economic growth and

prosperity by increasing Gross National Product (GNP) and Per Capita Income (PCI).

GNP measures the total economic output of a country while PCI calculates the average

income per person.

- The increase in GNP can lead to a rise in PCI. Entrepreneurship can contribute to GNP

by creating new businesses and industries, which can lead to job creation, increased

consumer spending, and higher tax revenue.

10. Supports research and development

market. Therefore, an entrepreneur also dispenses finance for research and development

with research institutions and universities. This promotes research, general construction,

and development in the economy.

11. Social and cultural changes

- Entrepreneurship can also bring about social and cultural changes in society. For

example, the success of entrepreneurs and the creation of new companies can lead to an

increase in wealth and a shift in social and economic power. This can result in a greater

focus on individualism and self-reliance, as well as a more merit-based society where

success is determined by hard work and innovation.

- In addition, entrepreneurship can also lead to changes in cultural norms and values. For

instance, the rise of the gig-unorthodox- economy and the increased popularity of

entrepreneurship as a career choice has led to a more flexible and decentralized

workforce, with people seeking independence and the freedom to pursue their passions.

- This shift in values can have far-reaching impacts on society, from the way we work and

live to the way we think about success and what it means to be successful.

What to do in order to exploit an entrepreneurial opportunity

1. Conducting Market Research: Validate the opportunity by conducting thorough market

research to assess demand and feasibility.

2. Developing a business plan- A business plan is a formal written document containing

business goals, the methods on how these goals can be attained, and the time frame within which

these goals need to be achieved.

organization's financial projections, and the strategies it intends to implement to achieve the

stated targets.

-In its entirety, this document serves as a road map that provides direction to the business.

-Written business plans are often required to obtain a bank loan or other kind of financing.

2. Hiring the human resources

Human resources is the set of the people who make up the workforce of

an organization, business sector, industry, or economy. A narrower concept is human capital, the

knowledge which the individuals embody. Similar terms include manpower, labour, personnel,

associates or simply people.

A human-resources department (HR department) of an organization performs human resource

management, overseeing various aspects of employment, such as compliance with labor law and

employment standards, administration of employee benefits, organizing of employees files with

the required documents for future reference, and some aspects of recruitment and employee off

boarding.

3. Acquiring financial and material resources

Here's an overview of typical sources of financing for start-ups:

 Personal investment. When starting a business, your first investor should be yourself—

either with your own cash or with collateral on your assets. ...

 Venture capital – where members of public are called upon to buy shares to create a

company.

 Angels- An angel investor (also known as a private investor, seed investor or angel

funder) is a wealthy individual who provides provide capital and mentorship for small
 startups or entrepreneurs, typically in exchange for ownership equity in the company.

Often, angel investors are found among an entrepreneur's family and friends.

Both Venture Investors and Angels look for innovative ideas, strong teams, and growth

potential

 Business incubators- Business incubation programs are often sponsored by private

companies or municipal entities and public institutions, such as colleges and universities.

Their goal is to help create and grow young businesses by providing them with necessary

support and financial and technical services.

Incubators provide numerous benefits to owners of startup businesses. Their office and

manufacturing space is offered at below-market rates, and their staff supplies advice and

much-needed expertise in developing business and marketing plans as well as helping to

fund fledgling businesses. iBiz Africa, Nailab, and iHub. Manu Chandaria, CPA

University Hub, are leading incubators in Kenya.

 Government grants and subsidies: Youth Enterprise Development Fund: Provides

loans and grants to youth (aged 18-35) for starting or expanding businesses · Uwezo

Fund: Offers interest-free loans to women, youth, and persons with disabilities

Women Enterprise Fund not only offers credit to women entrepreneurs but also markets

goods and services produced by them. Industrial Development Bank-it offers secured

loans for medium and large industrial enterprises.

 Friends and Family

 Crowdfunding: It is the practice of funding a project or venture by raising money from a

large number of people, typically via the internet. Crowdfunding platforms such as M-

Changa, UleFund, and Kiva can help small businesses in Kenya raise capital from a large
 number of individuals who contribute small amounts of money. However crowdfunding is

best for product-based businesses or social impact ventures. It requires strong marketing to

stand out and attract backers

 Bank Financing. Equity Bank's Jijenge Loan and KCB's Biashara Loan are tailored for

SMEs. Loans are available in Kenyan Shillings and major foreign currencies.

Collateral, good credit history, and detailed business plans are often required

 Microfinance institutions (MFIs) and SACCOs provide financial services to

entrepreneurs who may not qualify for traditional bank loans: Faulu Kenya, Musoni

Kenya, and Kenya Women Microfinance Bank are popular MFIs. They offer small,

short-term loans with more flexible requirements than banks

4. Providing leadership

5. Be responsible for both the venture’s success and failure.

6. Risk aversion-Entrepreneurs are comfortable with uncertainty. Risk aversion is a predictor of

whether an individual will become an entrepreneur (low-risk aversion) or stay an employee

(high-risk aversion.) Entrepreneurs take risks because they're necessary to start and grow a

business.

Entrepreneurship Ecosystem/environment

The entrepreneurial ecosystem is a set of social, economic, cultural, and political factors that

influence the development of entrepreneurs and small businesses.

Leadership & Policy

Leadership and Policy; government programs and services provides strategy and legitimacy to

entrepreneurs and the entrepreneurship ecosystem through promotion and support, problem

solving and venture friendly legislation and incentives.

Finances

Finance provides the fuel for early stage and growth oriented startups and growth of the

entrepreneurship ecosystem through access to micro loans, angel investors, and venture capital.

Support is needed for capital raise preparation and pitch opportunities.

Markets
Markets and market access provides opportunities for proof of concept, sales and distribution.

Customers include both domestic and foreign markets, companies large and small, and

government contracts.

Culture & Media

Culture beliefs influence acceptance and promotion of entrepreneurs and the entrepreneurship

ecosystem. Success stories and role models should be promoted by influential leaders through

media and social media channels.

Human capital

Human Capital in the form of experienced managerial and technical talent is required to ensure

entrepreneurial success. Training institutions and outsourcing support should respond to growing

needs for skills in the marketplace.

Support services

Support Systems should include a wide range of support infrastructure (energy, telecom,

transport) and entrepreneurship networks and networking platforms and events. Experienced

coaches and mentors and professional support services help ensure success.

Elements

 Government programs and services; they promote entrepreneurship and support

entrepreneurs and start-ups

 Non-governmental organizations such as small-business associations and organizations: that

offer advice and mentoring to entrepreneurs (e.g. through entrepreneurship centers or

websites)
 Small-business advocacy organizations: that lobby governments for increased support for

entrepreneurship programs and more small business-friendly laws and regulations

 Entrepreneurship resources and facilities (e.g. business incubators and seed accelerators)

 Entrepreneurship education and training programs offered by schools, colleges and

universities

 Financing (e.g. bank loans, venture capital financing, angel investing and government and

private foundation grants)