CHAPTER ONE

ENTREPRENEURSHIP AND
FREE ENTERPRISE

By: Yadata Asafa. (MBA)

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Objectives of the chapter
• After completing this chapter you would be
able to:
 Define the concept of Entrepreneurship and
Entrepreneur.
 Identify Characteristics and skills of
entrepreneurs
 Distinguish the difference between
Entrepreneur And Manager
 Describe Myths of Entrepreneurship
 Recognize Charms of Being An Entrepreneur
 Identify Forms of Entrepreneurship
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 Objective of the chapter,
Cont…nd
describe the role of
Entrepreneurship in Economic
Development
Recognize barriers to
Entrepreneurship
Explain entrepreneurship
development in Ethiopian context
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 What Does Entrepreneurship
Mean?
• Entrepreneurship:
Is a process of creating something
new with value by devoting the
necessary time and effort, assuming
the accompanying financial, psychic
and social risks and receiving the
resulting rewards.
• This definition stresses four basic
aspects of being an entrepreneur:

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 Cont…nd
– First it involves the creation process –
creating something new of value
– Second, it requires the devotion of the
necessary time and effort
– Third, it involves the rewards of being
an entrepreneur (independence,
personal satisfaction and monetary
reward for profit entrepreneurs)
– The final aspect of entrepreneurship is
taking risks in a very calculated
fashion:
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 What is an entrepreneur?

Entrepreneurs – People
who risk their time,
money, and other
resources to start and
05/02/2025 BY :Feyissa M. manage a business. 6
 What is an entrepreneur?
Cont…nd
• One who creates a new business in
the face of risk and uncertainty for
the purpose of achieving profit and
growth by identifying opportunities
and assembling the necessary
resources to capitalize on them.

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 Cont…nd
• Entrepreneurs do things that are
not generally done in the
ordinary course of business

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 Cont…nd

• Some usually think an entrepreneur

as:
– One who is highly responsive to change,
sees opportunities that others may not see
and mobilize resources to make new things
– Others feel that entrepreneurs are born,
not made but experience has shown that
entrepreneurship can be taught
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 In general the four key elements in
entrepreneurship are:

• Vision (Identifying emerging opportunities)

• Innovation (Doing some thing new)
• Risk taking (Assuming different types of risks:
financial, psychological, social)
• Organizing (Coordinating resources and
creating enterprise)

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On the whole the process of entrepreneurship includes five critical elements.

• The ability to perceive an opportunity.

• The ability to commercialize the perceived
opportunity i.e. innovation
• The ability to pursue it on a sustainable basis.
• The ability to pursue it through systematic
means.
• The acceptance of risk or failure.

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 The entrepreneurial process has four steps.

• Identifying and evaluating business opportunity

• Developing business plan

• Determining the resources required for business and

• Managing the enterprise

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 Forms of
Entrepreneurship
• The Individual Entrepreneur: - An
individual entrepreneur is someone who
started, acquired, or franchised his or her
own independent organization.
• Intrapreneur: - An intrapreneur is a
person who does entrepreneurial work
within large organizations.
Intrapreneur is someone in an existing
organization who turns new ideas into
profitable realities.
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 Forms of Entrepreneurship,
Cont…nd
• Not every employee has the ability to
become a successful intrapreneur.
• It takes well-developed strategic action,
teamwork and communication abilities.
• The Entrepreneurial Organization: An
organization that creates an environment
in which all its members can contribute in
some fashion to entrepreneurial function
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 Classifications of Entrepreneurs

A. According to types of business

1. Business entrepreneur: are individuals who
conceive an idea for a new product or service
and then create a business on materializing
their idea in to reality.
2. Trading entrepreneur: is one who undertakes
trading
3. Industrial entrepreneur: is essentially a
manufacturer who identifies the potential
needs of customers
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 Cont…
4. Corporate entrepreneur: is a person who
demonstrate his innovative skill in organizing and
managing a corporate undertaking
5. Agricultural entrepreneur: are those entrepreneurs
who undertake such agricultural activities as raising
and marketing of crops, fertilizers, and other inputs
of agriculture.

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 Classification by Danhof

• Innovative Entrepreneurs: an innovating

entrepreneur is the one who introduces new goods.
• Imitative Entrepreneurs: imitative entrepreneurs do
not innovate the change themselves, they only
imitate techniques and technology innovated by
others.
• Fabian Entrepreneurs: Fabian entrepreneurs are
characterized by very great caution and skepticism in
experimenting any change in their enterprises.
• Drone Entrepreneurs: these are characterized by a
refusal to adopt opportunity to make change in
production formulae. BY :Yadata A.
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 Classification According to Motivation

• Pure Entrepreneur: - is the entrepreneur undertakes

the enterprise for his personal satisfaction.
• Induced Entrepreneur: -is the one who is induced to
take up entrepreneurial task due to the policy
measures of the government.
• Motivated Entrepreneur: - motivate due to provide
new product to the market.
• Spontaneous Entrepreneur- is one who is motivated
by his/her natural talent to begin a business.

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Classification According to Use of Technology

• Technical Entrepreneurs:
Have technical knowledge regarding innovation of
new products
• Non technical Entrepreneurs
Are not concerned with technical aspect of a
product
Concentrate on developing alternative marketing,
distribution and promotion aspects of their
product rather than manufacturing aspect
• Professional Entrepreneurs are sell their business
ideas and look on to creating
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Entrepreneurial traits (Character)

Mental ability:
Clear objectives:
Business secrecy:
Human relation ability
Communication ability
Technical knowledge:

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 Some key characteristics of successful entrepreneur are:

• Motivator:
• Self-confidence:
• Long-term involvement:
• High energy level:
• Persistent problem-solver
• Initiative:
• Goal setter:
• Future Oriented:
• Learn from any failures.
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 Types of Risks Assumed by Entrepreneurs

• Financial Risk
• Career Risk:
• Psychic Risk:
• Family Risk:
• Social Risk

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 Why do People Want to Become Entrepreneurs?

A. Pull factor
• Opportunity to reap unlimited profit

• Opportunity to contribute to the society

• Opportunity to turn previous work

experience into business
• Financial incentive
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 Cont…
B. Push factor
• Community attitude
• Unemployment
• Disagreement with the previous employer:

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 Drawbacks of entrepreneurs

• Uncertainty of income:
• Risk of losing entire capital
• Psychological and Social Tensions
• Long hours and hard work: -
• Lower quality of life until the business get
established.
• Complete responsibility
• Tremendous competition:

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 Manager and Entrepreneur
Similarity:
• Both managers and entrepreneur are
answerable for producing results
• Both have to produce results trough people
working with them though they deal with
different set of people.
• Both are decision makers but the decisions are
different as their tasks vary.
• Both have to operate under constraints.
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 Entrepreneur Vs
Manager
• E- innovator where as M- keeps on an established
business rules
• E- focuses on Opportunity where as M- focuses on
handling Problems
• E- Independent where as M- is under the
supervision of his/ her employer
• E- earns huge profit where as M- earns a fixed
salary with fixed time period
• E-takes calculated risks where as M- is less
tolerant of uncertainty
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 Barriers to
entrepreneurship
Lack of practical concept
Lack of market knowledge
Lack of seed capital
Lack of technical skill
Lack of business know how
Lack of motivation
Social stigma
Legal constraints
Monopoly/protection
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 Entrepreneurship, Creativity
and Innovation

• Creativity - is “the ability to

bring something new into
existence, but not emphasis on
the activity.
• Creativity is a prerequisite to
innovation.
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 Cont…nd

Innovation - is the
transformation of creative ideas
into useful applications.
Creativity is thinking new things,
and innovation is doing new
things.
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 Creativity
• The Creative Process
1. Idea Germination (Seeding stage of new
ideas)/ Recognition
2. Preparation (Conscious search for new
ideas)/ Rationalization
3. Incubation (Subconscious assimilation
information)/ Fantasizing
4. Illumination (Recognition of ideas as
being feasible) / Realization
5. Verification (Application or test to prove
ideas has value)/Validation
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 Characteristics of the creative persons

• Passion, commitment ,Curious, Enjoy

challenges , Optimistic, Able to suspend

judgment, See problem as opportunity, Does ’t

give up easily.
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 Cont…

• Hard work humble and proud of the same

time., Flexibility, Open and sensitive, Risk

taker, Trust their own intuition (feeling).

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 Creative methods

A. Evolution: a method of incremental improvements

from previous ones.
B. Synthesis: it is a method of combination. Two or
more existing ideas are combined into a third, new
idea.
C. Revolution this is a complete and comprehensive
change from the known ones.

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 Cont…

D. Reapplication: this means looking at something

old in a new way.

E. Changing direction: many creative breakthroughs

occur when attention is shifted from one angle of

a problem to another.
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 Innovation requires four things

• Analytical planning

• Organizing recourses

• Implementation

• Commercial application: - it is the stage where

creative idea transforms into application.

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 Barriers to Creativity

1. Searching for the one “right”

answer.

2. Blindly following the rules.

3. Becoming overly specialized.

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Barriers to Creativity, Cont…nd

4. Avoiding ambiguity.

5. Fearing mistakes and failure.

6. Believing that “I am not

creative”.
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 Innovation

Types of innovation
1. Invention: The creation of a
new product/service/process in
a fashion.
2. Extension: The expansion of a
product/service/process in a
fashion that creates a different
application or brings together
different applications.
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 Types of Innovation, Cont…nd

3. Duplication: The replication of any

product/service/process in a fashion that
includes enhancements or improvements
that are capable of beating competition.

4. Synthesis : The combination of existing

concepts or factors into new
formulation, or simple integration.

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 Entrepreneurship=Creativity +
Innovation

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