Wollo University

Kombolcha Institute of Technology

School of Mechanical and Chemical Engineering
Department of Industrial Engineering

Course: Entrepreneurship for Engineers

CHAPTER ONE
The Entrepreneur and the Entrepreneurial
Venture

Instructor: Abraham A.
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 I. Theories of Entrepreneurship

 An agent that takes on risk and there by equilibrates supply

and demand in the economy.

/Cantillon's theory (1755/
 Entrepreneurship exists in all aspects of life. Thus, housewives

and students are entrepreneurs when reallocating their time for

housework or student activities.
/Schultz Approach (Schultz, 1975) /
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 Con…
 entrepreneurship as “a creative activity”. It is

innovation and not imitation.

 An innovator who brings new products or services

into economy is given the status of an entrepreneur.

 He believes entrepreneur was viewed as the

‘engine of growth’.
(Schumpeter, 1999 Creative destruction theory )
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 Con…
 The concept of innovation and its corollary
development embraces five functions
1. The introduction of a new product with which

consumers are not yet familiar or introduction of a new

quality of an existing product.
2. The introduction of new method of production that is

not yet tested by experience in the branch of

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manufacture concerned,
 Con…

3. The opening of new market that is a market on to

which the particular branch of manufacturer of the

country in question has not previously entered, whether
or not this market has existed before.
4. Conquest of a new source of supply of raw material
5. The carrying out of the new organization of any
industry.
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 Con…
 He views an entrepreneur in terms of Risk, Uncertainty and Profit.

(Knight, 1942, 1971). Knight recognized the distinction between

risk and uncertainty.
 To earn a positive profit, the entrepreneur carries out three tasks.

1. he initiates useful changes or innovations

2. he adapts to changes in the economic environment

3. he assumes the consequences of uncertainty related to the

company
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 I. Theories of Entrepreneurship
 Psychological Entrepreneurship Theories

 The level of analysis in psychological theories is the individual

(Landstrom, 1998).
 They emphasize personal characteristics that define entrepreneurship.

 Personality traits need for achievement and locus of control are

reviewed and empirical evidence presented for three other new

characteristics that have been found to be associated with
entrepreneurial inclination.
 These are risk taking, innovativeness, and tolerance for ambiguity.
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 Psychological Entrepreneurship Theories

 Personality Trait Theory

 defines personality traits as “stable qualities that a person shows in most

situations”.
 there are enduring inborn qualities or potentials of the individual that

naturally make him an entrepreneur

 high level of creativity and innovation, and show high level of management

skills and business know-how.

 They have also been found to be optimistic, (they see the cup as half full
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than as half empty),
  Sociological Theory of Entrepreneurship
Entrepreneurial ventures are clearly social entities,

because even solo ventures implicitly involve a

choice not to share ownership with others in the
founding process.
Enterprises can be formed as a result of teams.

identified four social contexts that relates to

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entrepreneurial opportunity.
 Con…
 Sociological Theory of Entrepreneurship
1. Social networks. the focus is on building social relationships and
bonds that promote trust and not opportunism

2. Life course stage context:- involves analyzing the life situations

and characteristic of individuals who have decided to become
entrepreneurs

3. Ethnic identification:- One’s sociological background is one of the

decisive “push” factors to become an entrepreneur.
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 Con…
 Sociological Theory of Entrepreneurship

4. Population ecology:- environmental factors such as

political system, government legislation, customers,

employees and competition play an important role in the

survival of businesses or the success of the entrepreneur .

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 Anthropological Entrepreneurship
Theoryis the study of the origin, development, customs, and beliefs
 Anthropology

of a community. it emphasizes the cultural entrepreneurship model

which says new venture is created by the influence of one’s culture.
 Cultural practices lead to entrepreneurial attitudes such as innovation that

also lead to venture creation behavior.

 Individual ethnicity affects attitude and behavior and culture reflects

particular ethnic, social, economic, ecological, and political

complexities in individuals.
 Thus, cultural environments can produce attitude differences
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 Resource- Based Entrepreneurship Theories (RBET)
 RBET argues that access to resources by founders is
an important predictor of opportunity-based
entrepreneurship and new venture growth.
It stresses the importance of financial, social and

human resources.
Thus, access to resources enhances the individual’s
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ability to detect and act upon discovered opportunities
 2. The Entrepreneur and Entrepreneurial Venture
2.1 Entrepreneur
 defines entrepreneur as someone who establishes a new business to

produce a new product or to make an old product in a new way

 entrepreneur is one who organizes a new venture, manages it, and

assumes the associated risk.

 Entrepreneur is broadly defined to include business owners,

innovators, and executives in need of capital to start a new project,

14 introducing a new product, or expanding a promising line of business

 Con…
 Six main components are proposed for inclusion in a definition

of the entrepreneur
 innovation
opportunity recognition
risk management
action
use of resources and
added value
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 Con…
 an entrepreneur is an individual who organizes, manages, &
supervises issues related to the production for the supply of
goods and services.
 Moreover, personality traits such as self confidence,

creativity, persistence, calculated risk-taking capacity, need

for achievement, individuality, leadership, versatility,
optimism & liking for challenges characterizes the
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entrepreneurial person.
 Con…
1.2 Entrepreneurship

it is about creating new realities; transforming

ideas into new ventures, and transposing old ideas

into new situations
It focuses on newness and novelty in the form of

new products, new process, and new markets as the

17 drivers of wealth creation
Entrepreneurship vs. Entrepreneur
generally, the relation b/n them are
3. Entrepreneur as an Individual
 What are the personal characteristics of Successful Entrepreneurs ?

 The most important personal qualities for an entrepreneur are:

 courage,

 self-reliance,

 responsibility,

 determination,

 perseverance,

 proactive approach,

 creativity and scholarship in a particular area, where this entrepreneur intends

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to do business
 Con…
 They are independent, autonomous, and rely on themselves

 Entrepreneurs differ from the general population and from paid

employees in a lot of characteristics.

 They are more individually oriented; they have a greater

individual responsibility and effort.

 Two main elements of entrepreneurship are identified: the

ability to recognize business opportunities and the ability to

20 take calculated risk
3 .1 Five personal Competencies of Successful Entrepreneurs
(Frese ,2000)
 Entrepreneurs that acquired the appropriated entrepreneurial

characteristics are likely to achieve their business

1. Autonomy - it means the ability or expectation of entrepreneur

to see and seize the opportunity.

2. Innovativeness - it means having new concepts of productions,

services, or processes which could be applied to business’ benefit.

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 3 .1 five personal Competencies of Successful
Entrepreneurs (Frese ,2000)
3. Risk Taking - it means willing to take risk without knowing the
result of achievement.

4. Competitive Aggressiveness - it means the strong desire to win

the competition by giving all effort to do everything to be far ahead
of competitors.

5. Stability and Learning Orientation - it means not being trembled

by any business circumstance
Achievement Orientation - it means being struggle to fin
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3 .2 Ten personal entrepreneurial characteristics (10 PECs)
 (PEC) of successful entrepreneurs refer to the desired traits,

which enable an entrepreneur to do what is expected of them and

succeed in business.
 Successful entrepreneurs have common characteristics, which are

divided into three clusters (Buiza, 2012)

a) Planning Cluster : three characteristics

b)Achievement Cluster: four characteristics

c) Power Cluster : three characteristics

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 a) Planning Cluster

1. Information Seeking (IS):

 is having the urge to look for the required information in order to

make an informed decision, for example, selecting, starting and

successfully managing the desired business.
 Does personal research on how to provide a product or
service
 Consults experts for business or technical advice.

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 a) Planning Cluster

2. Goal Setting(GS)
 GS is the ability of an entrepreneur to set clear and specific goals

and objectives
 Set goals that must be SMART (Specific, Measurable,
Achievable , Reliable and Time bound), meaningful and
challenging.
 “Without goals, and plans to reach them, you are like a ship that

has set sail with no destination.

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 a) Planning Cluster
3. Risk Taking

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 a) Planning Cluster
3. Risk Taking
 Entrepreneurs are people who prefer taking moderate risks.

 Before they commit themselves and their resources, they assess the

risks that are associated with a business opportunity that they

have selected, and their ability to manage them, the benefits that
they will realize and the challenges that they will face from the
venture to be undertaken.
 Entrepreneurs can earn profits as a result of taking risks and the

27 higher the risks, the higher the profits

 b) Achievement Cluster
4. Systematic Planning and Monitoring
 SPM is the ability to develop plans that will be used in
monitoring and evaluating the progress of the business.
 SPM helps the entrepreneur to carefully monitor his/her

business’ actual performance against desired performance and

turn to other alternatives whenever the need arises; so as to
achieve his/her set goals.
 Plans by breaking large tasks down into time-constrained sub-tasks.
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 b) Achievement Cluster
5. Opportunity Seeking

 It is the ongoing process of considering, evaluating, and

pursuing market-based activities that are believed to be

advantageous for the firm.
 It is keeping an eyes open for new business opportunities.

 Successful entrepreneurs are obsessed with problem-

solving.
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 b) Achievement Cluster
6. Demand for Efficiency and Quality

 Entrepreneurs find ways to do things better, faster or

cheaper; Acts to do things that meet standards of excellence
 Develops or uses procedures to ensure work is completed

on time or that work meets agreed upon standards of

quality
 This is the quality that enables an entrepreneur to do things

30 that meet or surpass existing standards of excellence

 b) Achievement Cluster
7. Persistence
 the entrepreneurs to develop determination to have a

thorough job done at any cost in terms of personal sacrifice.

 entrepreneur remains working towards the achievement of
his/her set goals.
 Takes action in the face of a significant obstacle.

 Takes personal responsibility for the performance necessary

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to achieve goals and objectives.
 c) Power Cluster
8. Commitment to the work contract
 This is the ability to accept final responsibility for completing a job for

the customers
 The entrepreneur should do everything possible to ensure that he/she

fulfills the commitment with his/her customers.

 Makes personal sacrifice or expends extraordinary effort to complete a

job.
 Strives to keep customers satisfied and place long term goodwill over

32 short term gain

 c) Power Cluster
9. Persuation & Networking (PN)
 This is the ability to link, convince and influence other

individuals, agencies and other groups in order to maintain

business contacts at a high level
 Uses key people, as agents to accomplish own objectives.

 Acts to develop and maintain business contacts

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 c) Power Cluster

10. Independence & Self Confidence

 This refers to having a strong belief or confidence in
oneself and the ability to complete a difficult task or
meet a challenge.
 Ability to deal with customers, suppliers, employees

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 4. Creativity and Innovation

 The entrepreneur is an innovator, not an imitator in the

production and, as an innovator, naturally he is monopolist.

 Innovation & creativity have become increasingly important

determinants of organizational performance, success, and

longer-term survival
 Creativity and innovation can occur at individual, work team,

organization, or at more than one of these levels combined

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 4 Creativity and Innovation

 The creativity stage of this process refers to idea

generation, and innovation to the subsequent stage of

implementing ideas toward better procedures, practices,
or products
 creativity occurs not only in the early stages of innovation

processes, but there is a cyclical, recursive process of idea

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generation and implementation
 4 Creativity and Innovation
 Theories of creativity and innovation
4.1 Componential Theory of Organizational Creativity & Innovation-
 work environments such as organizational motivation to innovate,

resources and managerial practices impact creativity by affecting

components that contribute to creativity which represent a basic source
for organizational innovation
 There are three major components contributing to individual or small

team creativity: expertise, creative-thinking skill, and intrinsic

37 motivation
 Con…
4.2 Interactionism Perspective of Organizational Creativity

 creativity is a complex interaction between the individual and their

work situation at different levels of organization

 At the individual level, individual creativity is the result of

antecedent conditions (e.g., biographical variables), cognitive style

and ability (e.g., divergent thinking), personality (e.g., self-esteem),
relevant knowledge, motivation, social influences (e.g., rewards), and
contextual influences (e.g., physical environment).

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 Con…
4.2 Interactionism Perspective of Organizational Creativity

 At the team level, creativity is a consequence of individual

creative behavior, the interaction between the group members

(e.g., group composition), group characteristics (e.g., norms,
size), team processes, and contextual influences (e.g.,
organizational culture, reward systems).
 At the organizational level, innovation is a function of both

individual and group creativity

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 Con…
4.3 Model of Individual Creative Action

 employees have to consider between two competing

options- to be creative or to undertake merely routine,
habitual actions
there are three groups of factors that might influence

this decision: sense-making processes, motivation,

40 knowledge and skills
 Con…
4.4 Theorizing on Cultural Differences and Creativity
 Regarding individuals’ creativity, theorizing has focused on
cultural differences in individual creativity
 how culture moderates influences of leaders, supervisors,

coworkers, and social networks on creativity

 how culture influences the assessment of creativity and

 how culture affects the entire process of creativity

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 Con…

4.5 Four Factor Theory of Team Climate for Innovation

 four team climate factors facilitative of innovation: vision,
participative safety, task orientation and support for innovation.
 Innovation is enhanced if

a. vision is understandable, valued and accepted by the team

members,
b. team members perceive they can propose new ideas and solutions
without being judged or criticized,
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 Con…

4.5 Four Factor Theory of Team Climate for Innovation

c. there is a stimulating debate and discussion of different

possible solutions within the team which at the same time
will more likely be carefully examined, and finally

d. team members perceive support for innovation

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 Con…
4.6 Ambidexterity Theory

 “the ability of a complex and adaptive system to

manage and meet conflicting demands by engaging in
fundamentally different activities”
 ambidexterity represents successful management of

both, exploration (e.g., creating new products) and

exploitation (e.g., production and implementation of
44 products).
THANK YOU…!!