KENYATTA UNIVERSITY INSTITUTE OF OPEN LEARNING

UCU 1O4 : INTRODUCTION TO ENTREPRENEURSHIP

DR. MARK OGUTU Ph.D DEPARTMENT OF BUSINESS STUDIES

TABLE OF CONTENT LESSON ONE ENTREPRENEURSHIP 1.0 Introduction 1.1 Objectives 1.2 Definitions 1.2.1 Entrepreneur 1.2.2 Entrepreneurship/Intrepreneurship 1.2.3 Self Employment 1.2.4 Small Business 1.3 Classification of Entrepreneurs 1.3.1 Craft Entrepreneur 1.3.2 Opportunistic Entrepreneur 1.4 Self-Employment Vs Paid Employment 1.4.1 Advantages of self employment and paid employment Their Disadvantages. 1.5 Characteristics of a successful entrepreneur 1.6 Reasons for Business failure 1.7 The family business 1.8 Self-Assessment Questions. LESSON TWO ENTREPRENEURAL OPPORTUNITIES 2.0 Introduction 2.1 Objectives 2.2 What is a business idea? 2.2.1 Services needed by others 2.2.2 Classification of business ideas 2.3 Sources of business ideas 2.4 Evaluating a Business Opportunity 2.4.1 Meaning 2.4.2 Prefeasibility Study 2.4.3 Feasibility Study 2.4.4 Characteristics of a good business opportunity 2.4.5 Identification process for business opportunities 2.5 Self-Assessment Questions LESSON THREE TYPES OF BUSINESS CONCERNS AND THEIR LEGAL ASPECTS 3.0 Introduction 3.1 Objectives 3.2 Legal forms of Business Organization 3.2.1 The Sole Proprietorship 3.2.2 Partnership
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3.2.3 Limited Company 3.2.4 What is the liability of the owner (s) 3.2.5 How does the legal organization affect continuity of business? 3.2.6 How does the legal structure affect business management and taxes? 3.2.7 Advantages and Disadvantages of the tree legal forms of business. 3.3 Business Laws and Regulations 3.4 Business contracts 3.4.1 Essential components of a contract 3.5 Self-Assessment Questions LESSON FOUR BUSINESS FINANCE FOR ENTREPRENEURS 4.0 Introduction 4.1 Objectives 4.2 Sources of Business Finance 4.2.1 Equity Financing 4.2.2 Borrowing form lending institutions 4.2.3 Assessing personal financial capacity 4.3 Factors in selecting business finance 4.4 Self-Assessment Questions LESSON FIVE: SELF-ASSESSMENT AND PROBLEMS OF ENTREPRENEUR 5.0 Introduction 5.1 Objectives 5.2 Techniques for self assessment 5.3 Problems of small enterprise ventures 5.4 Solutions to business problems 5.5 Self-Assessment Questions LESSON SIX ENTREPRENEURAL AWARENESS 6.0 Introduction 6.1 Objectives 6.2 Procedure in starting a business 6.2.1 Importance of a business plan 6.2.2 Business Plan 6.3 Government policy/strategies 6.4 Business ethics 6.5 Market and customer information 6.6 Self-Assessment Questions LESSON SEVEN ENTREPRENEURAL MOTIVATION AND CONTRIBUTIONS 7.0 Introduction 7.1 Objectives 7.2 Entrepreneurial motivation (incentives for aspiring entrepreneur.) 7.3 Entrepreneurial contribution to national development 7.4 Self assessment questions LESSON EIGHT CASE STUDIES 8.0 Introduction
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8.1 8.2

8.3

8.4 8.5

Objectives Case study 1 8.2.1 Questions 8.2.2 Hints/suggested responses Case study 2A 8.3.1 Case study 2B 8.3.2 Required Case study 3 8.4.1 Questions Case study 4 8.5.1 Questions

OVERVIEW The study of introduction to entrepreneurship has a vital role in promoting socio-economic well being of Kenyans. This is important because of our state of development, what is in annual/operation oriented. We have unlimited personnel to spearhead this, i.e. necessitating entrepreneurial skills. Entrepreneurship thus remains the focal point of our only future career option. People get their own jobs, income and even brighter future sustainability. Students only need to identify business risks involved and get prepared for the future. This module consists of eight lessons. Lesson one discusses meaning of entrepreneurship, self-employment and family business. Lesson two discusses business opportunities including business ideas and identification processes. Lesson three is on types of business concerns and their legal aspects, lesson four is on business finance and factors affecting sources of finance. Lesson five pinpoints self- assessment and problems of small businesses. Lesson six covers entrepreneurial awareness procedures of starting a business, business plan, government policy and business ethics. Lesson seven covers entrepreneurial motivation or incentives for aspiring entrepreneurs and finally lesson eight is about case studies and a hint on expected responses. In each lesson, we also have sample questions to boost learning process.

LESSON 1
INTRODUCTION TO ENTREPRENEURSHIP 1.0 Introduction This lesson is intended to help in understanding the terms in entrepreneurship and their relationship and be aware of the potential careers in self-employment. It entails the various factors to be considered in becoming self-employed. The lesson will also seek to understand characteristics that underlie the success of an entrepreneur. 1.1 Objectives

At the end of this lesson the learner should be able to: (i) Define the terms entrepreneur and Entrepreneurship and show their relationship to self-employment. (ii) Identify the characteristics of a successful entrepreneur as well as causes of Business failure.

1.2 Definitions of; 1.2.1 Entrepreneur This is a person who is able to identify business opportunities and obtain the necessary resources to initiate a successful business activity. 1.2.2 Entrepreneurship This is the act or process of identifying business opportunities and gathering the necessary resources to initiate a successful business activity. Intrapreneurship: becoming enterprising from within an organization. Self-employment. This is being in business by oneself.

1.2.3

1.2.4

Small Business Is one that is independently owned and operated and not dominant in its operation Classification of entrepreneurs. They can be classified into 2 types. Craft entrepreneurs This is a person who exploits and utilizes personal skills without expanding the business. They are also called skill-based entrepreneurs. Opportunistic entrepreneurs This type of entrepreneur is more of a coordinator who is interested in having the business grow and expand delegating responsibility to others, increasing the number of employees working in the business. They are also called environment Based entrepreneurs. Self-employment Vs paid employment Factors to be considered in becoming self-employed include; (i) Opportunity cost considering the advantages and disadvantages of going into small scale enterprise and employment. (ii) Types of businesses Looking into possible types of businesses within the various classifications. (iii) Market. Places situations where there are sellers who have products and services to sell and buyers who have the capacity and willingness to purchase. (iv) Government policies. Policies affecting small enterprises such as location, taxation, pricing, licensing, loans e.t.c. (v) Location. These are the factors to be considered when deciding where to locate a business, for example, the community profile, communication, roads, water, buildings, sources of raw materials, competition e.t.c. (vi) Resources. These include labour, raw materials, source of finance and equipment e.t.c. Advantages And Disadvantages Of Self-Employment And Paid Employment. (i) Advantages of self-employment. a) Personal satisfaction This means doing what you want with your life. It enables one to spend each working day in a job you enjoy. For example, if you like hair dressing and beauty care, you will start your own salon, hence, personal satisfaction when a customer is pleased by your service. b) Independence.
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1.3

1.3.1

1.3.2

1.4

1.4.1

Independence is freedom from control of others. You are able to use your knowledge, skills and abilities as you deem fit. You have freedom of action as you can make decisions without approval of someone else. c) Profit The profit left after the owner enjoys all the other expenses. It enables one to control his/her own income and increase the income which is not often the case when you work for someone else. d) Job security. Job security enables assurance of continued employment and income. Self employed persons cannot be laid off, retrenched, fired or forced to retire at a certain age. e) Status Self-employed persons receive attention and recognition through customer contact and public exposure hence enjoy status above others. They also enjoy pride in ownership, enjoy seeing their names on buildings, vehicles, stationery and in advertisement, e.g. kuguru food processors. Community service identifies and provides needs, desires and wants of the community. Family employment provides a place of employment. Challenge they look for challenging businesses. (ii) Disadvantages of self-employment a) Loss of invested capital There is high possibility of losing your invested capital i.e. money used in starting the enterprise, hence, the problem in repaying banks, suppliers, and other persons. b) Uncertainty. There is high possibility of uncertainty or low income even in a wellestablished business. c) Long hours Many self-employed persons work fourteen or more hours a day, six or seven days a week. The owner is often the first to arrive in the business in the morning and the last to leave at night. Customers dictate the hours but not the desire of the owner. d) Routine chores Running your own business may involve routine jobs you do not like to do. Advantages Of Paid Employment. Specific/ fixed responsibilities Steady income Fringe benefits Fixed hours of work More certain future Set span of control Minimal risk

(iii)

Disadvantages of paid employment

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Strict following of orders Set income Limited responsibility Difficult in implementing ideas Dependency on employer 1.5 Characteristics of a successful entrepreneur 1. Desire to achieve An entrepreneur would always like to excel, to succeed in competition with others as well as accomplish something. 2. Action Oriented This is exhibited by their motivation to take action when and where necessary. 3. Problem solver They have the ability to solve problems and make decisions which involves striving with determination. They have high drive and ability to constantly struggle to accomplish solutions for business success. 4. Risk taker They take moderately calculated risks, they enjoy the excitement of challenges, they do not gamble etc. 5. Initiative They have the ability to generate new ideas and implement them ahead of the others to be able to create a competitive edge. 6. Independence They like doing things their own way. Their own business fulfils their need for independence. They like to be their own boss. 7. Positiveness The entrepreneur approaches tasks with the hope of success and not with fear of failure. They are optimistic persons. 8. Self -confidence An entrepreneur is confidence of achieving realistic and challenging goals, coupled with a sense of effectiveness, will ultimately contribute to the success of the venture. Reasons for Business Failure (a) Neglect which may result from bad habits, poor health, marital difficulties, complacency or laziness. (b) Fraud This may be a problem in which workers are involved or owner at least fail to guide against. (c) Disaster Entrepreneur sometimes fail to insure against disaster by not having insurance or protection of some kind against fire or burglary. (d) Lack of experience This is whereby the owners of a small business lack technical knowledge in their particular businesses. This however, tends to be just part of the problem. (e) Incompetence Some people do not have the personal skills or technical knowledge necessary to run a business. These people could employ other people as managers.
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1.6

(f) Lack of customers Part of an entrepreneurs job is to find and keep customers. Customers avoid certain businesses for a variety of reasons; i.e. Poor services, indifferent attitude of employees, failure of business to settle arguments and lower prices offered elsewhere. (g) Selling on credit Lack of clear-cut credit policy and method of collection. (h) Unreasonable expenses Expenses not kept to absolute minimum levels. (i) Excessive fixed assets Too much money is kept or tied up in buildings, land and equipment. (j) Stock-trouble Overstocking or buying slow moving goods can be costly. (k) Location Poorly located businesses away from customers are not accessible. (l) Personal characteristics example immaturity, unbalanced personality and unaggresive people may interfere with the effective performance of a going concern. (m) Others (i) Lack of tax knowledge, poor marketing research. (ii) Inadequate records, legal problems. (iii) Lack of product development, diversification. (iv) Nepotism example family business. (vi) Poor administrative co-ordination, one-person management with person business. 1.7 THE FAMILY BUSINESS These are emphasized in term of issues like: (a) Commitment They belong to the business because it is theirs. (b) Contribute money From the members of the family. (c) Culture Family culture is put into business culture, a family business generally goes beyond three to four generations. (d) Focus on the long run It is seen as a business which will benefit the members.

Disadvantages (a) Many times members clash with one another and spreads into the business. (a) The business tends to interfere with family matters. (b) Family business ends with rivalry between siblings. (c) Parents assume that their children should also join and continue with the same. (d) Family (children) wrecks the business since they get priorities than others. (e) It brings stress to members example wife and some siblings. (f) When a dormant father dies, it likely to fail. (g) In laws also tend to lend hard problem beginnings. (h) Succession problems i.e. Standing into borders of the father or mother or transfer of leadership is hard.
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SELF-ASSESSMENT QUESTIONS

(i) (ii) (iii) (iv) (v)

Define entrepreneur and entrepreneurship. What are the characteristics of an entrepreneur? Distinguish between self-employment and paid employment. What are the reasons for business failure? Outline the advantages and disadvantages of self-employment and paid employment. (vi) Site some illustrations of small businesses in the manufacturing, merchandising and service sectors in Kenyan economy. (vii) Most businesses in the economy are small business. Is this an accurate statement? Support your answer. (viii) What are the advantages and disadvantages of a family business?

Activity

1. Identify four basic types of business that you can initiate on an entrepreneur. 2. You are required to prepare a chart identifying the advantages and disadvantages
of self-employment and paid employment. 3. Mr. Juma is a very successful entrepreneur in a small town of Muhura Bay. What are some of the characteristics expected of him?

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Summary

In this lesson, we have discussed about the meaning of Entrepreneur, entrepreneurship, self-employment, classification of entrepreneurship. We have seen some of the advantages and disadvantages of self-employment and paid employment. We have also seen the characteristics of a successful entreprepreneur. We have as well known key issues pertaining to family business as well as reasons for business failure.

Definition of Key Words

1. Entrepreneur - A person who identifies a business and takes advantage of that opportunity. 2. Entrepreneurship - The process of identifying the same and becoming a successful business man 3. Self-employment - Being in a business by ones self 4. Family Business - A business owned by a family 5. Unpaid employment - Is where one is employed, instructed and paid by the business management.

FURTHER READINGS

Coughlin P. and G. Ikiara. Eds. 1991 Kenya Industrialization Dilema. Nairobi. Heinemann Kenya Ltd. Conglin, Peter (1986) The vehicle Assembly Industry: In Studies on Kenya Industries, Eds. P. Conghlin et el. Report to the World Bank. Nairobi, Kenya. De Soto. H (1989) The Other Path. The invisible Revolution in the Third World. New York. Harper and Row. G.O.K. (1992) Sessional paper no. 2. Small Enterprise and Jua Kali Development In Kenya. Nairobi: Government Printers. G.O.K. (1989) Survey of Micro-Small Enterprises Unpublished Mimeo, Central Bureau of statistics. Schmitz, H. (1990) 'Small Firms and Flexible Specialization in Developing Countries.' Labour and Society Volume 15, (3)

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