The University of Zambia

in association with

The Zambia Centre for Accountancy Studies

BACHELOR OF BUSINESS ENTREPRENEURSHIP

Fundamentals of Entrepreneurship
MODULE
Year 1
Semester 1

Author: ZCAS
 Copyright

ALL RIGHTS RESERVED

No part of this publication may be reproduced, stored in a retrieval system,
or transmitted in any form or by any means, electronic or mechanical, including
photocopying, recording or otherwise without the permission of the Zambia
Centre for Accountancy Studies.

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TABLE OF CONTENTS

ALL RIGHTS RESERVED ....................................................................................................... i

1.0 INTRODUCTION ......................................................................................................... 1
1.1 MODULE AIM .............................................................................................................. 2
1.2 OBJECTIVES ................................................................................................................ 2
1.3 ASSESSMENT DETAILS ............................................................................................ 3
Prescribed Reading ................................................................................................................ 3
Recommended Reading......................................................................................................... 3
1.5 TIME FRAME .................................................................................................................... 4
1.6 STUDY SKILLS ................................................................................................................. 4
1.7 NEED HELP? ..................................................................................................................... 4
2.0 UNIT ONE: INTRODUCTION: CONTEXT AND ISSUES ........................................ 5
2.1 INTRODUCTION ........................................................................................................... 5
2.2 AIM ................................................................................................................................. 5
2.3 OBJECTIVES ................................................................................................................. 5
2.4 TIME REQUIRED .......................................................................................................... 2
2.5 REFLECTION ................................................................................................................ 2
2.6 DEFINING ENTREPRENEURSHIP ............................................................................. 2
2.7 ENTREPRENEURSHIP AS A FIELD OF STUDY ...................................................... 4
2.8 GROWTH IN ENTREPRENEURSHIP EDUCATION ................................................. 6
2.9 ACTIVITIES ................................................................................................................... 7
2.10 SUMMARY .................................................................................................................. 7
3.0 UNIT TWO: THE ROLE OF ENTREPRENEURSHIP IN THE ECONOMY AND
SOCIETY .................................................................................................................................. 9
3.1 INTRODUCTION ........................................................................................................... 9
3.2 AIM ................................................................................................................................. 9
3.3 OBJECTIVES ................................................................................................................. 9
3.4 TIME REQUIRED ........................................................................................................ 10
3.5 REFLECTION .............................................................................................................. 10
3.6 THE POSITIVE CONTRIBUTIONS OF ENTREPRENEURIAL FIRMS ............ 10
3.7 INFLUENCES ON ENTREPRENEURSHIP DEVELOPMENT ........................... 13
3.8 CHALLENGES OF ENTREPRENEURIAL FIRMS ................................................ 4
3.9 POLICIES TO SUPPORT ENTREPRENEURSHIP ................................................. 9

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 3.10 ACTIVITIES ............................................................................................................... 15
3.11 SUMMARY ................................................................................................................ 15
4.0 UNIT THREE: THEORETICAL APPROACHES TO THE STUDY OF
ENTREPRENEURSHIP ......................................................................................................... 16
4.1 INTRODUCTION ......................................................................................................... 16
4.2 AIM ............................................................................................................................... 16
4.3 OBJECTIVES ............................................................................................................... 16
4.4 TIME REQUIRED ........................................................................................................ 16
4.5 REFLECTION .............................................................................................................. 17
4.6 APPROACHES TO EXPLORE ENTREPRENEURIAL PROCESS .......................... 17
4.7 SOCIOLOGICAL AND PSYCHOLOGICAL APPROACHES ............................. 20
4.8 A TAXONOMY OF ENTREPRENEURIAL THEORY......................................... 22
4.9 ACTIVITIES ................................................................................................................. 23
4.10 SUMMARY ................................................................................................................ 23
5.0 UNIT FOUR: TYPES OF ENTREPRENEURS.......................................................... 25
5.1 INTRODUCTION ......................................................................................................... 25
5.2 AIM ............................................................................................................................... 25
5.3 OBJECTIVES ............................................................................................................... 25
5.4 TIME REQUIRED ........................................................................................................ 25
5.5 REFLECTION .............................................................................................................. 26
5.6 THE NATURE, CHARACTERISTICS AND BEHAVIOR OF THE
ENTREPRENEUR .............................................................................................................. 26
5.7 HABITUAL ENTREPRENEURSHIP PHENOMENON ............................................. 30
5.8 HIGH TECHNOLOGY AND ACADEMIC ENTREPRENEURS .............................. 32
5.9 ACTIVITIES ................................................................................................................ 34
5.10 SUMMARY ................................................................................................................ 36
6.0 UNIT FIVE: TYPES OF ORGANISATIONS: ALTERNATIVE ROUTES TO
ENTREPRENEURSHIP ......................................................................................................... 37
6.1 INTRODUCTION ......................................................................................................... 37
6.2 AIM ............................................................................................................................... 37
6.3 OBJECTIVES ............................................................................................................... 37
6.4 TIME REQUIRED ........................................................................................................ 37
6.5 REFLECTION .............................................................................................................. 38
6.6 FAMILY FIRMS .......................................................................................................... 38

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 6.7 CORPORATE ENTREPRENEURSHIP ...................................................................... 41
6.8 MANAGEMENT BUYOUTS ...................................................................................... 43
6.9 SOCIAL ENTREPRENEURSHIP ................................................................................ 44
6.10 ACTIVITIES ............................................................................................................... 46
6.11 SUMMARY ................................................................................................................ 46
7.0 UNIT SIX: EXTERNAL ENVIRONMENTAL CONTEXT ...................................... 48
7.1 INTRODUCTION ......................................................................................................... 48
7.2 AIM ............................................................................................................................... 48
7.3 OBJECTIVES ............................................................................................................... 48
7.4 TIME REQUIRED ........................................................................................................ 48
7.5 REFLECTION .............................................................................................................. 48
7.6 LAYERS OF THE ENVIRONMENT .......................................................................... 49
7.7 THE EXTERNAL ENVIRONMENT ........................................................................... 49
7.8 THE COMPETITIVE ENVIRONMENT ..................................................................... 51
7.9 EXTERNAL THREATS AND OPPORTUNITIES ..................................................... 51
7.10 ENVIRONMENTAL UNCERTAINTY ..................................................................... 52
7.11 ACTIVITIES ............................................................................................................... 52
7.12 SUMMARY ................................................................................................................ 52
8.0 UNIT SEVEN: ENTREPRENEURIAL FINANCE .................................................... 54
8.1 INTRODUCTION ......................................................................................................... 54
8.2 AIM ............................................................................................................................... 54
8.3 OBJECTIVES ............................................................................................................... 54
8.4 TIME REQUIRED ........................................................................................................ 54
8.5 REFLECTION .............................................................................................................. 55
8.6 THE BUSINESS PLAN ................................................................................................ 55
8.7 SOURCES OF FINANCES ..................................................................................... 61
8.8 ACTIVITIES ................................................................................................................. 68
8.9 SUMMARY .................................................................................................................. 68

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1.0 INTRODUCTION

Welcome to Fundamentals of entrepreneurship. This is an introductory course, which is

designed to engage you with the key concepts, models, debates and problems in the study
of entrepreneurship. Developing this foundation will be beneficial to your subsequent study
of specialised subjects, because you will be able to make connections between different issues.

This introductory course is also a chance for you to develop your academic skills, in particular your
critical approach to the ideas you are presented with. Studying at this level means actually engaging
with what you are reading: considering what is being said in relation to other theories, practical
examples, and your own reflections. The subject of entrepreneurship offers an ideal opportunity to
develop this academic approach, as a wide variety of groups, individuals and organisations offer diverse
opinions and theories regarding the workings of business and successful management.

Throughout the course you will be taking an active part in your learning, developing your own
responses to what you read and so building a deeper appreciation of issues concerning managing
entrepreneurial ventures. It is therefore helpful to view this introductory course as an opportunity to
develop a solid framework of knowledge, as well as a critical academic approach. Together, these will
make your work on this course engaging and stimulating, and will equip you with the tools needed to
do well in your future studies.

It is important to understand all of these at the beginning to ensure that you are able to get the most out
of the course.

The demand for persons and groups of people who are prepared to exploit business opportunities from
the ever changing business environment through creation of new ventures or expansion of existing
business enterprises has made it necessary to study the discipline of entrepreneurship. The level of
unemployment in Zambia is high; and many school leavers and college/university graduates struggle
to find employment upon graduation. Many businesses, especially SMEs, either close down or fail to
grow into large business enterprises. In order to address these challenges, there is need to educate and
train people in entrepreneurial skills and in how to effectively manage small businesses.

This course seeks to introduce you to the principles of entrepreneurship. It explores the definitions of
entrepreneurship, the purpose and contribution of entrepreneurship to individuals and society, the
various types of entrepreneurs and entrepreneurial organisations as well as the sources of finance for
entrepreneurial ventures. Studying these issues by following the course as it is designed should ensure
that although challenging, it will also be an enjoyable and satisfying experience

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In the remainder of this introductory chapter you will be given advice and guidance on the following:

 the course aims and objectives

 the structure of the course
 preparing for the assessment
 the reading system
 your role in using the subject guide

1.1 MODULE AIM

The course aims at presenting fundamental principles of entrepreneurship in order

to enable students to understand the different types of entrepreneurs and various
forms of entrepreneurial organisations and how entrepreneurship contributes to
individuals and society.

1.2 OBJECTIVES

By the end of the course, students should be able to:

 explain why entrepreneurship is an important endeavour and identify the main themes
in studying entrepreneurship;

 discuss diverse economic and social contributions made by entrepreneurs, new firms
and growing firms;

 discuss the views of different scholars on entrepreneurship;

 explain the different types of entrepreneurs and how each type impacts on the
performance of the enterprise;

 evaluate the various forms of entrepreneurial organisations;

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  evaluate the extent to which external environmental conditions can shape the pursuit of
entrepreneurship; and

 discuss the sources of finance and the challenges faced by entrepreneurs in obtaining
finance.

1.3 ASSESSMENT DETAILS

Continuous assessment 50%

2 tests of equal weight 30%
2 assignments of equal weight 20%

Final examination 50%

Total 100%

Prescribed Reading

1. Kirby, D. A. (2009) Entrepreneurship. Berkshire: McGraw Hill

Education.

2. Niema, G. and Nieuwenhuizen C.(2009) Entrepreneurship: A South

African Perspective, 2nd Edition. Pretoria: Van Schaik Publishers.

3. Westhead, P., Wright, M. and McElwee, G. (2011) Entrepreneurship: Perspectives and

cases. London: Pearson Education Limited.

Recommended Reading

1. Barringer, B. R. and Ireland, R. D. (2010) Entrepreneurship: successfully launching

new ventures. New Jersey: Prentice Hall.

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 2.Scarborough, N. M. D., Wilson, D. L. and Zimmerer, T. W. (2009) Effective Small
Business Development: An Entrepreneurial Approach. New Jersey: Prentice Hall.
1. Stokes, D. and Wilson, N. (2010) Small Business Management and Entrepreneurship, 6th
edition. United Kingdom: Cengage Learning EMEA.

1.5 TIME FRAME

To successfully complete this course you need a minimum of 200 hours. You
are expected to spend at least 48 hours of study time on this module. This is
equivalent to 3 hours of lecture and 1 hour of tutorial per week on a full semester
at ZCAS. In addition, there shall be arranged contacts with lecturers from ZCAS from time to
time during the course. You are also requested to spend some time reading additional materials
and recommended books.

1.6 STUDY SKILLS

As a distance education student, you will meet a lot of challenges in your studies,
particularly that you will not always have a lecturer and fellow students to consult.
You need, therefore, to develop a strategy for yourself which will make you succeed.
Firstly, draw a working time-table and stick to it. Secondly, work on all the tasks and
assignments. Self-discipline is very important since no one is monitoring what you are
doing. Submit all the work that you need to on time.

1.7 NEED HELP?

If you need help on the module, please use the following contacts:

Course Tutor

Email: information@zcas.edu.zm
Zambia Centre for Accountancy Studies (ZCAS)
Dedan Kimathi Road, P O Box 35243, Lusaka, Zambia
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 Tel: +260 1 232093/5, Fax: +260 1 222542

2.0 UNIT ONE: INTRODUCTION: CONTEXT AND ISSUES

2.1 INTRODUCTION

For the past few decades, a lot of attention has been paid to the role of higher
education in the creation of graduate entrepreneurs. Interestingly, research on
entrepreneurship undertaken world over points to the fact that entrepreneurial skills may not
be acquired by a process of learning alone but a radical change in intellectual and educational
priorities is needed. What is entrepreneurship? Why is this topic becoming a “hot” issue? This
unit seeks to answer the two questions by exploring various definitions of entrepreneurship
and explaining reasons why institutions of higher learning are developing curricula which
cover the study of entrepreneurship.

2.2 AIM

The unit aims at introducing you to the topic on entrepreneurship through defining
important terms and explaining why it is important to study entrepreneurship.

2.3 OBJECTIVES

At the end of this unit you should be able to do the following

 To explain why entrepreneurship is an important ‘hot’ topic

 To identify the main themes in studying entrepreneurship and how these are used to
structure this module

 To identify the main learning issues that the module will focus on

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2.4 TIME REQUIRED

You are required to spend 1 hour reading through the unit and a further 2hrs
reading through the recommended text. Then spend 30 minutes doing the exercise
at the end of the unit.

2.5 REFLECTION

Do you believe that someone can be taught to be creative, to be innovative,

be able to identify opportunities and exploit them or it is an ability that one
is born with?

2.6 DEFINING ENTREPRENEURSHIP

Entrepreneurship, the entrepreneur, small business and entrepreneurial ventures

There has not been an agreed definition of an entrepreneur or entrepreneurship by scholars. In

most cases the term entrepreneurship is associated with new venture creation and small
business management (Gibb, 1996) and the concepts of self-employment and owner-
management. Not all small businesses can be regarded as entrepreneurial nor are all owner-
managers can be regarded as entrepreneurs. It must be recognised that entrepreneurship is not
confined to solely to new ventures, or that entrepreneurs only work for themselves in their own
business. Many large organisations are entrepreneurial (Carland, 1984 cited in Kirby, 2009)
and many entrepreneurs are found in such organisations.

Entrepreneurship is the emergence and growth of new businesses that will eventually make
profits. It is also a process that causes changes in the economic system through innovations of
individuals who respond to opportunities in the market (Kirby, 2009). According to Timmons
(2000) entrepreneurship is the process of creating or seizing an opportunity and pursuing it,
regardless of the resources currently controlled.

Hirsch and Peters (1998) believe that an entrepreneur is someone creating something new with
the value by devoting time and effort, assuming the accompanying financial, physical and

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social risks, and receiving the resulting rewards of monetary and personal satisfaction as well
as independence.

Kirby (2009) sees an entrepreneur as a person who sees an opportunity in the market, gather
resources and creates and grows a business venture to meet these needs, He or she bears the
risk of the venture and is rewarded with profit if it succeeds.

From these definitions the key concepts that can be derived about entrepreneurship and the
entrepreneur are:-

 Opportunity identification; this means that there must be a real business opportunity

 Gathering resources. Capital, labour and equipment must be available

 Creating and growing the venture. This refers to the starting of a new business venture
or the conversion of an existing business.

 Taking risk. This means that there will be personal and financial risk involved for the
person who embarks on the entrepreneurial process.

 Being rewarded. This can be in the form of profit or an increase in the value of the
business

 Managing the business. This means that there must be planning, organisation,
leadership and control of all the functions in the business venture.

Entrepreneurs prefer to be in control of their businesses but they can also be found in large
corporations where they have the freedom to build their own organisation in their own way
with profit motives. In such cases they are then referred to as intrapreneurs or corporate
entrepreneurs.

Small business

It is essential to know the difference between entrepreneurial ventures and small businesses.
They both contribute to the growth of the economy in different ways. They pursue and create
new opportunities differently, they fulfil the ambitions of their founders and managers in
different ways and they present different challenges to economic policy makers. Both need
entrepreneurial action for start-up, but the small business venture tends to stabilise at a certain
stage and grows only with inflation.

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Small business owners are individuals who establish and manage their businesses for the
principal purpose of furthering personal goals and ensuring security. A small business is
therefore any business that is independently owned and operated, but is not dominant in its
field and does not engage in any new marketing or innovative practices.

Owners of small businesses are not necessarily interested in growth as an objective.

Profitability of the business means success to them. Autonomy and security are the primary
objectives of some owners of small businesses. They consider themselves successful even if
they earn a smaller income than they would have as employees.

Entrepreneurial Ventures

Entrepreneurial ventures are businesses in which the principle objectives are profitability and
growth, Three characteristics that distinguish entrepreneurial ventures from the small
businesses according to Wickham (2001) are:-

 Innovation. Entrepreneurial ventures thrive through innovation, this could be

technological innovation, a new product or a new way of producing, offering a service,
marketing or distribution or even the way the organisation is structured or managed.
Small business is usually involved in delivering an established product or service.

 Potential for growth. Due to its innovative approach, an entrepreneurial venture has a
great deal more potential for growth than a small business. It is in a position to create
its own market. The small business operates in an established industry and is unique
only in terms of its locality. It operates within a given market.

 Strategic objectives. The entrepreneurial venture will usually set itself strategic
objectives in relation to:- market targets, market development, market share, market
position

2.7 ENTREPRENEURSHIP AS A FIELD OF STUDY

There has been a debate world over on whether entrepreneurs are born or made. To some
entrepreneurs are born not bred, while to others “…..to teach individuals to be more
enterprising ….is an undertaking that in both time and scope is beyond the capabilities of an
academic business school….” (Johannisson, 1991, p.79). The teaching of entrepreneurship in
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institution of higher learning dates back to 1947 as one of the first causes was offered at
Harvard Business School and Drucker taught another at New York University in 1953
(Brockhaus, 2001). Since then numerous courses have been developed globally.

Researchers have come to the conclusion that entrepreneurial skills can be acquired by a
process of learning. Barlett (1988, p.26) states that, “education in the form of a formal
academic training dulls the cutting edge of commerce”. Solomon (1989) argues that courses
designed to introduce students to the principles of business and management have appeared to
teach students how to become good employees instead of successful business persons.

It is believed that numerous entrepreneurial programmes that have been introduced in many
parts of the world often do little to develop the entrepreneurial tendencies that are being sought.
It is believed that such programmes educate “about” entrepreneurship rather than “for”
entrepreneurship. They fail to develop in their students the skills, attributes and behaviours of
the successful entrepreneur (Kirby, 2009).

Most entrepreneurship programmes seek to educate students on; the entrepreneurial process,
opportunity recognition, entry strategies, market opportunities and marketing, creating
successful business plans, financial projections, venture capital, debt and other forms of
financing, external assistance for start-ups and small business, legal and tax issues, intellectual
property, franchising, harvesting and entrepreneurship economics. With this knowledge, very
few graduates will set up entrepreneurial ventures (Kirby, 2009).

The successful entrepreneur has a set of personal skills, attributes and behaviour that go beyond
the purely commercial. It is these attributes, the way of thinking and behaviour that needs to
be developed in our students to enhance their entrepreneurial capabilities. Therefore the
contents of courses and the learning process need to change to accommodate this view.

The study of entrepreneurship should therefore be balanced in terms of having a curriculum

that develops students’ business skills and understanding as well as developing their
entrepreneurial skills, attributes and behaviours. The education system should not be
constraining, rather it should release and develop the enterprising tendencies of our young
people.

Developing entrepreneurs in the classroom is about developing the enterprising environment

and approaches to learning in which entrepreneurial aptitudes and capabilities can flourish

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together with business knowledge and understanding. It is about spurring a spirit of innovation
and development of new combinations.

With references to the citation patterns of entrepreneurship articles in the years after 2000, the
following the following themes have attracted considerable attention;- risk taking among
entrepreneurs, organisational learning and problem solving, trust and relational capital,
leadership and management teams, psychological characteristics of entrepreneurs.

2.8 GROWTH IN ENTREPRENEURSHIP EDUCATION

Recognition of the importance of entrepreneurship and its contribution to the economic

development and facilitation of social cohesion, empowerment for the disadvantaged in the
society has led to the massive growth in entrepreneurship teaching. Most universities and
colleges world over are seeking to facilitate the ‘fostering of entrepreneurial mindsets”
throughout the society by including a course on entrepreneurship on programmes on offer.

Jack and Anderson (2001) suggest that teaching entrepreneurship is difficult because the
entrepreneurial process (i.e., imagination, creativity , innovativeness, creating and identifying
resources, assembly in and managing resources, etc.) involves both an “art” (i.e., the creative
and innovative attributes) and a ‘science’ (i.e., functional skills of business and management).
Numerous business and management schools worldwide are now delivering entrepreneurship
and small business modules at various levels. Programmes are now being designed for non-
business students (i.e. arts, media, science and engineering students)

Case studies have been a common mode of delivery to illustrate how problems and
opportunities are addressed by real entrepreneurs. A number of practical, theoretical and policy
books are available relating to entrepreneurship. Most of these texts make use of case studies
to illustrate how theoretical and practical issues are actually exhibited by real entrepreneurs
and businesses. The case study approach aims at stimulating critical thinking and reflective
learning relating to issues briefly discussed in lectures.

Themes explored in this module illustrate the development in the field of entrepreneurship.
The themes are as follows

 Theory. The basic theoretical concepts to the approach to entrepreneurship

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  Types of entrepreneur examined in terms of academic, novice, serial, portfolio and
social entrepreneurs

 The process of entrepreneurship is examined in terms of opportunity creation,

recognition, information search and learning, resource acquisition and business
strategies.

 Type of organisations. Organisational modes selected by entrepreneurs are examined

including family firms, corporate entrepreneurship, management buyouts and social
enterprises.

 The external environment for entrepreneurship. Governments in developed and

developing economies have introduced policies to address attitudinal, resources,
operational and strategic barriers to business formation and development. The merits
and disadvantages of targeted and customises support to entrepreneurs and firms are
being considered by practitioners

 Outcomes of entrepreneurial endeavours. The economic and non-economic of

entrepreneurial are discussed.

2.9 ACTIVITIES
Discussion questions

1. What is entrepreneurship? Discuss the elements of the entrepreneurial process

2. What are the key elements of the ‘art’ and ‘science’ of entrepreneurship?
3. Why is the study of entrepreneurship become important?

2.10 SUMMARY

This chapter has highlighted that entrepreneurship goes beyond small business
development. It is about creativity, innovation and developing new
combinations. Entrepreneurship has now become an interesting discipline
being taught in institutions of higher learning. Established and emerging themes relating to the
entrepreneurial process have been summarised. Key concepts of the entrepreneurial process
were briefly discussed. A distinction between the art and science of entrepreneurship was
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made. The contents and structure of the module as well as the key learning issues were also
discussed. Unit two explores in detail the economic and non-economic contributions of
entrepreneurial firms. Barriers to new firm formation are also summarised.

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3.0 UNIT TWO: THE ROLE OF ENTREPRENEURSHIP IN THE ECONOMY AND
SOCIETY

3.1 INTRODUCTION

Researchers and society at large have debated on the economic and non-economic
contributions made by entrepreneurs, new firms and a growing stock of
entrepreneurial firms. It is believed that entrepreneurial firms are important because they
encourage economic growth, reduce unemployment and poverty. Entrepreneurial firms have
also their equal share of challenges. This unit therefore explains in detail the contributions of
entrepreneurs and entrepreneurial firms to the economy and society and the challenges these
ventures face.

3.2 AIM

The unit aims at explaining the economic and non-economic contributions by

entrepreneurial firms and the challenges these organisations face.

3.3 OBJECTIVES

At the end of this unit you should be able to do the following

 Explain the role of entrepreneurship in society and the economy

 Give reasons for emphasis that is placed on entrepreneurship, in particular the role of
entrepreneurship in:- innovation and change, new venture creation, job creation and
business growth;

 Discuss the factors affecting entrepreneurial performance in economy and society

 Discuss the importance of policies that enhance entrepreneurial development

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3.4 TIME REQUIRED

You are required to spend at least 2 hours to read through the units and do the
exercise given at the end of the unit.

3.5 REFLECTION

Examine the situation in your environment. What is the rate of new firm
creation? Who starts them? How many people do they employ?

3.6 THE POSITIVE CONTRIBUTIONS OF ENTREPRENEURIAL FIRMS

In a business context, entrepreneurship is associated with profit making activities and is

perceived to serve five main functions, namely innovation and change; new venture creation;
business growth; job creation and regional development.

There is also another side of entrepreneurship which is referred to as cultural or aesthetic

entrepreneurship. The main driver is not wealth creation or business capability but creativity.
Many successful businesses have been created by such people. In the process the many
successful make money out of their talent and become extremely wealth, but monetary wealth
is not their main motivation. Rather it is their desire to produce original, imaginative and
innovatory work (Bolton and Thompson, 2000). Often times their creativity is extreme and
they possess a determination to succeed that overcomes opposition and criticism. They believe
in themselves and their creative genius, and get satisfaction out of it, often not caring what
others think.

Their contribution to the economy and society, therefore, is not to wealth creation as such but
to the enrichment of life, by challenging the status quo and by opening up ways of thinking
and behaving that previously did not exist. Such entrepreneurs (Jensen, 1999) contribute to
what may be called “the dream society’

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Innovation and change

Innovation is a crucial part of entrepreneurial process. Drucker (1997) believes that innovation
is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity
for a different business or a different service.

In business sense, innovation can mean a lot more than just developing a new product or a new
technology- it encompasses any new way of doing something so that value is created. Apart
from meaning a new product or service, this can also include:

 A new way of delivering an existing product or service

 New ways of informing the consumer about a product and promoting it to them
 New ways of organising labour and capital in order to produce the product or service,
or even
 New approaches to managing relationships with consumers and other organisations

New venture creation

Entrepreneurs create and own new ventures. This does not mean that all entrepreneurs do this
or that all new ventures are owned and managed by entrepreneurs. Often new ventures are
owned by venture capital companies or institutional investors. Entrepreneurs possess attributes
that enabled him or her to present the venture in such a way as to attract support of the investors

Job creation

Gender:- The creation of new ventures creates employment opportunities for both the
entrepreneur and others. Traditionally, males have made up a significantly greater proportion
of the self-employed sector than females. However there has been a tremendous increase in the
number of women taking up self-employment. Self-employment appears to become
increasingly inviting nearer middle age when the potential entrepreneur can afford the start-up
costs of a new venture, redundancy /early retirement is most likely to occur, and the
entrepreneur has the experience to identify opportunities or ways of doing better. However,
this does not mean that young people cannot set up successful new ventures.

Marital status:- Self-employment is much less likely for the single people than it is for people
in other categories (married, widowed, divorced or separated). It seems that marriage provides
the support necessary to establish a successful new venture, and spouses are often partners in
such enterprises.
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Educational level:- There have been some contrasting views on the education levels of
entrepreneurs, with Curran and Burrows(1989) believing that self-employed people have a
lower level of educational attainment than wage-earners. However, Daly (1991) and Meager
(1991) discovered that the self-employed appear to have a higher level of education than
employees

Business growth

Small firms provide the mean to entry into business for new entrepreneurial talent and the
seedbed from which large companies will grow to challenge to challenge the established
leaders. However, research has revealed that very few new small businesses grow, some do
not even survive.

There are a number of reasons that have been stated why new ventures fail to grow. These have
been classified into: Management and motivation; Sources and Market Opportunities;
Structure (Barber et al., 1989). Cambridge Small business Research Centre (1992) revealed
that financial constraints, the level of demand in the economy and the nature of competition,
suggesting that external factors are more significant bariers to growth than the internal factors,
such as managerial skills or the availability of skilled labour.

Firms that are likely to be limited companies rather than sole traders and partnerships. They
tend to be located in accessible rural areas rather than urban areas or inaccessible rural areas.
They are likely to be owned by individuals who share equity with external individuals or
organisations, and who are prepared to devolve decisions to non-owning managers, to occupy
particular segments where they can exploit any quality advantages they may have, and to be
innovative.

Storey (1994:137) suggested that factors that lead to growth are: the motivation for establishing
the business appears to be of some importance with individuals who are “pushed” possibly
through unemployment, into establishing a business being less likely to found a rapidly
growing firm than those attracted by a market opportunity. The evidence suggests that
individuals’ with higher levels of education are more likely to found rapidly growing firms, as
are those with some prior managerial experience. More rapidly growing firms are more likely
to be founded by groups, rather than single individuals. Finally middle-aged owners are most
like to found rapidly growing firms,

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This can lead to the conclusion that perhaps the primary reason for failure is the quality of
management and the inexperience of the founder.

What motivates growth can be one of the following: the personal attitudes, behaviour and drive
of the founding entrepreneur and his/her team.

The fact that so few new ventures grow restricts the contribution they make toe the job
generation and economic recovery process. Equally it minimises the seedbed effect and has
led to the suggestion that perhaps a more selective approach should be taken to new venture
creation, whereby the winners are picked out at birth for special attention and nurturing. It is
probable that with appropriate managerial support many more businesses could make a more
significant contribution. Instead of picking out the seeds that are worthy of more favoured
attention, perhaps the conditions for growth need to be improved.

3.7 FACTORS INFLUENCING ENTREPRENEURSHIP DEVELOPMENT

Entrepreneurship development may be driven by the motivations of individuals seeking to

satisfy their own personal goals. However, while the key to initiating the process of
entrepreneurship lies within the individual members of society, its development is affected by
the degree to which the spirit of enterprise exists or can be stimulated. The question then arises,
what are the factors that stimulate or prevent individuals from behaving in an entrepreneurial
manner?

Social-cultural factors

A culture that prizes entrepreneurship, an imperative to educate the population, a government

that generously supports pure and applied science, fosters entrepreneurship with enlightened
policies, and enables schools to produce the best educated students in the world.

The heart of any enterprise culture is the ability to innovate, recognise and create opportunities,
work in a team, take risks and respond to challenges. It is a proactive culture that is about
initiating, doing and achieving. There is no such thing as standard, identifiable and universal
culture that stimulates entrepreneurship. Rather there exists a wide range of cultures that
stimulate entrepreneurship to a greater or lesser extent. If the culture contains pro-
entrepreneurial values, it serves as an incubator in the entrepreneurship initiation. The elements

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of culture that influence entrepreneurial initiatives are religion, education, family, history and
role models (Morrison, 2000).

Political-economic factors

The political system can either promote or retard entrepreneurship directly through the way the
economy is managed. In a democratic country entrepreneurial attitudes and behaviours tend to
be encouraged the liberal policies of the state, whereas in countries where there is strong
government and a sense of being “ruled’, either formally or informally, the tendency is to
produce persons who are lacking in the personal attributes generally associated with
entrepreneurs, in particular leadership, creativity, self- reliance and self-confidence (Morrison,
2000). Many economies have attempted to break a dependency culture and stimulate
entrepreneurship. The trend to privatize public utilities and to develop a more enterprising and
business-like approach to the management of public sector is a manifestation of this. Some
countries have tried to stimulate entrepreneurship by direct intervention and the provision of
support to new small enterprises. A carefully planned program of assisting new firm formation
by small-scale entrepreneurs coupled with moderate privatisation may be an answer to private
sector growth without adverse national or regional economic impacts.

However there are other factors that need to be taken into consideration: the state of the
economy, employment levels, industry structure, homeworking and tele-cottaging,
network/multiple level marketing, franchising, and the new dot.com businesses.

The state of the economy;- Entrepreneurship becomes a prerequisite for economic

development when economies are rapidly changing and development is uncertain. In
conditions of little change and steady, predictable economic growth, entrepreneurship is less
significant. Traditionally, entrepreneurship and new venture creation has flourished when an
economy has been in recession. In such circumstances entrepreneurship represents a means by
which the economy and the population can break out of the downward spiral of unemployment
and low economic growth. However, the trend is changing as some economies that are doing
well and also have a high percentage of successful new ventures.

Employment levels:- It is believed that have levels of employment restrict entrepreneurship

as individuals will be sustained by their salaries, while high levels of unemployment foster
entrepreneurship as individuals offer themselves for self-employment. However
unemployment does not provide good conditions for new venture creation. Research has shown

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that businesses created by unemployed people struggle to grow unlike those that are created
by those that are in employment (Storey, 1994).

With continued advent of corporate downsizing individuals might not have options but get into
“forced” entrepreneurship. Employment affects entrepreneurship in a number of other ways.
Few governments are now able to cater for the unemployed because technology has caused a
lot of people redundant. Governments, instead of paying unemployment benefits are availing
funds to individuals who would want to create enterprises.

Industry structure: - There has been a shift in the structure of economies, with movement out
of manufacturing into the service sector. Because of this shift, there has been an increase not
only in the number of smaller, more flexible medium sized enterprises, but in new
opportunities for potential entrepreneurs. The growth of small consultancy firms in developed
and developing countries can be attributed to this process. Recent years have witnessed the
spread of new service sector businesses that have taken a variety of forms, ranging from
homeworking and tele-cottaging, through network/multi-level marketing, to franchising and
new dot.com businesses (Allen et al., 1992; Stanworth, 1991, Price, 1997).

Institutional and organisational factors

There has been a belief that economic growth and national competitive advantage can only be
achieved by economies of scale in production. This belief is anti-entrepreneurial development.
However, this belief is now being overtaken by the era of ‘downsizing’, “delayering”,
‘outsourcing’ and ‘re-engineering’. These create an environment favourable for
entrepreneurship.

Corporate culture can and frequently does, kill entrepreneurship development, particularly if
typified by:

 Hierarchical nature of the large corporation

 The bureaucracy involved in formal reporting system, lines of authority and control
mechanism
 Short term performance standards
 Loss of ownership
 Career mobility and loss of continuity
 Inflexibility and inability to change direction
 Reward systems based on strict performance measures.
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 Corporate prestige: - The prestige with which the large corporations are viewed means that
suppliers (whether of money, education, materials or labour, etc.) often prefer to do business
with these large corporations. This tendency kills entrepreneurship.

3.8 FORCES DRIVING ENTREPRENEURSHIP GROWTH IN ZAMBIA

1
There are a number of forces both positive and negative that have had an effect on people and
organisations becoming entrepreneurs in Zambia. The following are some of the factors that have
led to an increase in entrepreneurial activities.

Infrastructure development- Government has embarked on the development of infrastructure

especially roads both in urban and rural areas. Government allocated K 5.4 billion accounting for
11% of the 2015 national budget to road development (RDA, 2015). Good road network enables
people to have access to various markets for their goods and services. There are a number of
shopping malls that have been built and are being built enabling the public and private sector
facilities to conduct their businesses in a conducive environment.

Advances in technology- the advent increase and advances in technology have had a positive
impact on the growth of entrepreneurs in Zambia. The internet, smart phones, emails, Skype, and
social media have brought about business ventures such as internet cafes and have made doing
business easy.

Demographic and cultural factors- there are a number of people of different ages, gender, race,
religion and culture that are participating in entrepreneurship notable ones are women and the
youth. The women in Zambia were not very enterprising as compared to men, but the trend has
changed and many businesses are female owned. A few examples are Mrs Tecla Ngwenya
proprietor and owner of Tecla lodges and hotels, Charity Nyirongo, owner and fashion designer
of More creations and contour, Mrs Sylvia Banda owner of Sylvia foods and catering. The youth
have also taken an active role in being enterprising and contributing to the economic development
of Zambia through job creation and poverty alleviation.

Political stability - Zambia has been conducting peaceful elections after every 5 years and has
transitioned to new governments without violence. The political stability and peace attracts
entrepreneurs to conduct their business without the fear of losing their investment.

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 Government support – the government of Zambia has recognised the need to encourage
entrepreneurship and has put in place regulatory frameworks and policies that are favourable to
entrepreneurial development. There are government institutions (i.e CEEC) such as the youth and
women empowerment programmes set up to encourage women and youth to participate in
entrepreneurship.

3.9 THE IMPACT OF ENTREPRENEURSHIP ON ECONOMIC

DEVELOPMENT IN ZAMBIA
Entrepreneurs play a significant role in Zambia’s economic development in areas such as
employment creation, foreign exchange, and sources of revenue through various taxes,
competition and reduction of poverty. The development of micro, small and medium
enterprises (MSME) is a sustainable approach to improving the quality of life of the people of
Zambia, as wealth is created through job creation thus reducing poverty levels. The MSMEs
act as a seed bed in the development of entrepreneurial activities, as the lower income groups
are supplied with affordable consumer goods and services. In times of economic recessions,
MSMEs can act as a buffer and lessen the impact of such economic difficulties (MCTI, 2008).

Job Creation

A survey carried out by the Central statistics office (CSO) in 2008 indicates that, in Zambia,
the population aged 15 and above was estimated at 6.7 million, an increase from 6.2 million in
2005. About 80% of the 6.2 million people were economically active in 2005, compared to
74.5% in 2008. Furthermore, 16% of the economically active population in 2005 was
unemployed and in 2008 however, 7.9% of economically active population were unemployed.
The majority of the employed (71.3%) were in Agriculture, primarily farming. The data shows
that those in formal employment were only 11%. On the other hand, the proportion of the
Zambian labour force engaged in the informal economy increased and the majority were in the
rural economy (Central Statistics Office, 2008). As outlined in the Fifth National Development
Plan (FNDP) and the Vision 2030, the development of the MSMEs is vital in the achievement
of broader national developmental goals which include:

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  Reduction of unemployment levels
 to increase citizens participation in economic development
 increase value addition and utilization of local raw materials
 Create avenues of equal wealth creation.

The government of Zambia has set up an enabling environment and platform for
entrepreneurship to thrive. A number of developmental projects are being undertaken in order
to create and encourage the private sector, small and medium enterprises to come on board and
develop a better Zambia for all. Below are a few examples of companies that were started by
entrepreneurs and have made significant contribution to the economic development in Zambia
in terms of job creation, revenue and poverty alleviation.

Zambeef is a small start-up business that started operating in 1994, with limited capital and
60 employees. The company slaughtered 180 cattle per month and used to deliver meat in a
land rover, in a rented abattoir through two rented butcheries. Today, Zambeef is one of the
largest agri-business with an employee base of 5,800 and annual revenue of approximately
US$275 million (Zambeef, 2015).

Java foods is a food manufacturing company, that was started by a high flying lawyer turned
entrepreneur, Monica Musonda. Monica founded the company to provide nutritious and
affordable noodles made from local products. Her journey has not been an easy one but through
hard work, perseverance and a can do attitude, Monica is a living example of a female
entrepreneur in Zambia wh0 is contributing to the development of the nation (Lioness of
Africa, 2014). Monica was named one of Forbes 20 young power women in Africa in 2013
and was also honoured as one of the young global leaders in 2013 by The young global leaders’
movement (World economic forum, 2013).

Trade kings is a manufacturing company that started its operations in 1992 with only 40
employees, one product line, limited capital and 1 delivery van. Today, trade kings has over
1,600 employees , fleet of over 25 medium to heavy duty delivery vehicles and has diversified
its product range. Trade kings have expanded into South Africa and it also operates a steel mill
in Kafue, Zambia (Trade kings, 2015).

Foreign Exchange & Revenue

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In 2005 the hospitality industry grew from 500 establishments to 940 in the year 2009. Average
earnings in tourism increased to US$ 200 million in 2009 from US$ 70 million in 2005. Zambia
recorded an increase in tourists’ arrivals between 2006 and 2010, from a targeted 736,450 an
average of 794,000 arrived in the country. Zambia has excellent opportunities for both local
and international investors in the development of private estates, holiday resorts, hotels as the
number of visiting tourists is increasing each year (Ministry of Tourism, 2015).

Competition & quality products

The increase in entrepreneurial activities brings about competition and improves the quality of
products and services being offered. As each business competes for customers they find better
ways of improving their product or service offering, hence creating choice and variety for
customers.

3.10 CHALLENGES OF ENTREPRENEURIAL FIRMS

Reluctance or inability of most new and small firms to grow

There are numerous barriers to enterprise. The attitudes of individuals are a major barrier to
new firm creation and development. Most new firms are ‘born to die young’ as most cease to
trade within three years of inception (Storey, 1994). The majority of firms that survive are
‘born small and stay small’. Many small firms are more interested in maintaining their current
level of profit than in expansion. One reason that causes the small firms to stay small is that
the ownership and management reside in the same person, or persons; so future firm goals are
determined not only by commercial considerations but by personal lifestyles and family factors
relating to the individuals or teams of individuals who own and manage them. However the
proportion of small businesses that want to grow is greater than the numbers that actually do
grow.

The major barriers to entrepreneurship have been summarised as: -Macro-economic, cultural
barriers and narrow education base, attitudinal barriers, resource barriers, operational barriers,
strategic barriers and government failure to support enterprise growth.

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Macro-economic barriers include:

 Business and personal taxation

 High interest rates
 High or fluctuating exchange rates
 Public spending
 Inflation policy
 Prohibitive regulatory framework
Attitudinal barriers include:-

 Reluctance to select a career in enterprise

 Reluctance to move outside the management comfort zone
 Desire for a “born small stay small firm”
 Reluctance to sell equity to outsiders
 Reluctance to use external professional advice
Resource barriers include:

 Lack of adequate information for decision making

 Inadequate finance
 Lack of premises to operate from
 Lack of skilled labour
 Lack of equipment machinery
Strategic barriers include

 Focus on low price strategy rather than premium price strategy

 Inability to introduce market and/or technological differentiation
 Inability due to attitudinal and resource deficiencies to create new sources of
competitive advantage
 Inability to proactively adapt to constantly changing environment; technological &
regulatory conditions

Government failure

 Government supporting firms that do not require assistance & this assistance does not
generate positive externalities

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  Government failure to develop policies that supports innovation and new ventures

Differences between small and large firms

Entrepreneurial firms can be both large and small. There are broad differences between large
and small enterprises (Westhead, et al, 2011) with regards to: firm structure, management and
control, operations, resources, strategic planning, the market and environment

Firm structure

Some small entrepreneurial firms:

 Are highly flexible as they have loose structures
 Have an organisational hierarchy
 There is informal communication

Advantages of loose structure

 Focus on creativity
 Flexibility and ability to make quick decisions
 No agency problems because ownership and management are aligned
 ‘family’ unit
 Flexible structure
 No need for memos and time consuming meetings
 Accessible and friendly to outsiders, customers and suppliers
Disadvantages of loose structures

 Owners may dominate and pursue family rather than business interests;
 Owners may get demotivated when business is not going on well
 There may be a tendency of giving unqualified relatives key managerial positions
 Owners may be reluctant to sell equity to outsiders
 Owners may resist external monitoring
 Owners may not be embracing change and continue with old ideas
 Owners may be reluctant to engage external expertise required to ensure venture
growth

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Management and control

Small enterprises:
 have a small management team- limited expertise and knowledge
 May lack clear lines of responsibilities
 The management focus on day to day fire fighting issues
 Use informal systems and procedures

Operations and production

Small enterprises:

 Seize business opportunities that require low price product or service delivery
 Flexible service provision
 Quick speed of service or product delivery
 Can provide short production runs for the customers ignore d by larger entities

Small enterprise performance is retarded

 By not experiencing economies of scale
 Being labour intensive
 Limited focus on quality control mechanisms
 Inability to carry stock
 Inability to train staff

Resources

Small enterprises
 Lack of finance or poor cash-flow control
 Poor financial management (high gearing, cash-flow problem, over-trading etc)
 Human capital; management, industry knowhow, technical and entrepreneurial know
how, ability to secure resources, prior business ownership experience. Etc.

Strategic planning

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Small enterprises
 Focus on low price competition alone to satisfy immediate customer demand
 Limited knowledge of business environment; Short, if any, planning horizon
 No specialist staff; No time for planning
 Survival/lifestyle perspective rather than growth perspective
 Reactive rather than a proactive stance to the external environment
 Short-term opportunistic stance instead of a long term strategic stance

External environmental conditions

Small enterprises:
 Have limited market share
 Small product range
 Dependence on a single customer or small numbers of customers
 Limited influence on the market
 A tendency to resist change

CHALLENGES FACED BY ENTREPRENEURS IN ZAMBIA.

Entrepreneurs face different challenges in their business be it in developed or developing
world. These challenges are influenced by factors that are internal or external to their business.
Below are some of the challenges that entrepreneurs will encounter at some stage when setting
up, developing or growing their business venture.

Access to finance;- According to a report from the Bank of Zambia, the relationship between
lending institutions and entrepreneurs operating in the Small and Medium Enterprise sector
can best be described as a difficult one. This arises primarily from the conflicting perceptions
that each holds of the other. Financial institutions tend to regard the MSME Sector as generally
risky and for this reason feel justified in being over cautious and highly selective in offering
credit to MSMEs. Some owners of small and medium firms, on the other hand, seem to think
that financial institutions are generally unsupportive of their businesses and unnecessarily risk
averse. The SME sector faces numerous challenges in accessing finance due to the following
factors, though non exhaustive ( BOZ, 2012).
 Lack of proper verifiable accounting and other records;

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  Lack of acceptable collateral;
 Registration and enforcement of collateral;
 Non-Availability of credit information;
 lack of financial literacy
Access to information & technology; In this highly technologically advanced world, an
entrepreneur will require appropriate technology to be competitive. MSME / entrepreneurs
need to constantly upgrade their operations, equipment and techniques in order to stay up to
date and succeed. In the last decade there has been remarkable development in the area of
information and communication technology, with a penetration rate of 32% compared to 2%
14 years ago. Despite the increase many entrepreneurs have challenges in accessing
information and technology due to limited access and high costs involved in acquiring
equipment such as computers, internet or mobile phones. The cost of broadband service is US$
100 per month as compared to US$ 20 in Europe (Panos, 2011)

Unstable macroeconomic factors:-Volatile exchange and interest rates affect entrepreneurs

negatively as they conduct their businesses (OECD, 2010). The current situation in Zambia in
terms of the exchange rates of the dollar and the rand has had serious impacts on businesses
such as Binnie Zambia ltd, a company that imports Fruitree juice from South Africa. Prices of
juice have had to be increased 3 times in a space of 2 months. Profit margins have been
negatively affected and so have sales as most customers have reduced or stopped ordering the
juice as it has become very expensive.
Other challenges that are faced by entrepreneurs are
 lack of education or the know how to effectively run and grow their businesses
 Lack of proper infrastructure to conduct businesses such as roads, basic utilities such
as water and electricity.
 Entrepreneurs face a number of lengthy and bureaucratic procedures when setting up
their business.

3.11 POLICIES TO SUPPORT ENTREPRENEURSHIP

Most governments are moving away from creating policies that nurtures a dependency
syndrome to culture termed the enterprise culture – the culture whereby both individuals and

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groups become empowered and take responsibility for, or ownership of, their own futures, i.e.
they become more self-reliant

Before considering the generic measures that can be taken to support entrepreneurship
development, think specifically about the support available to new and small business in an
area which you are familiar with.

Macroeconomic policies

Although entrepreneurs can probably cope with uncertainty better than most and some actually
able to benefit from it, a stable macroeconomic environment is believed to be crucial to the
development of entrepreneurship and a strong. Hence governments should aim at creating a
stable macroeconomic environment. Low inflation, low interest rates and stable exchange rates
are desirable. The single currency system used in Europe is intended to reduce the risks
associated with transaction costs and fluctuations in the exchange rates

Simplifying and reducing the burden of taxation on new enterprises is claimed by many to
reduce costs, encourage investment and increase incentives. A high level of taxation may act
as a disincentive to entrepreneurs (Glancey and McQuaid, 2000). Many countries have moved
from direct tax (personal taxation) to indirect tax (Value Added Tax). Many countries have
also simplified the taxation regulations and moved to a system of self-assessment in an attempt
to reduce costs for small firms.

In countries like Japan, large firms are required by law to develop strategic alliances with local
small and medium sized enterprises, using them as suppliers and subcontractors. It is more
usual for governments to encourage their own departments and agencies to support small and
medium sized enterprises through their procurement strategies. This can be facilitated through
making sure that government departments have offered support to small and medium-sized
enterprises seeking to secure government contracts. Some governments are assisting new and
small firms in securing market opportunities overseas, through political alliances, trade
missions and the provision of advice, information etc.

Microeconomic policies

These are normally introduced to correct market failure and are intended to help new and
existing small businesses acquire the opportunities, skills and resources they need to survive
and grow. Often such policies are intended to strengthen economic competitiveness by creating
a healthy, vibrant business sector. Generally they provide what is known as ‘hard’ and ‘soft’
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support. Hard support refers to that which is tangible – money, buildings, equipment etc., while
soft support is essentially intangible – education, know-how etc. both can be provided
nationally, regionally and locally, and can be targeted at all stages in the life cycle of the firm,
though frequently they are intended to raise awareness of the opportunities for self-
employment, stimulate the birth of new firms, and facilitate the survival and growth of small
businesses.

Frequently new and small firms experience difficulties in raising finance. Funding for new and
small firms normally comes from bodies such as banks, venture capital companies and private
investors. There is also government investment grants, loans and loan guarantee schemes, all
intended to ease the flow of funding to the new and small firm sector.

It is often difficult for new ventures to find suitable premises to operate from. In many
countries, governments have developed small factories and office units for rent or offered
subsidies to private property developers for developing such units. These have ranged from
business incubator units to science parks. And are intended to create clusters of new and small
firms’ can benefit from economies of proximity and association, as well as the provision of
common support and advisory services.

Soft support is varied. Training and advice/consultancy are the most widespread forms it takes.
This includes helping prospective entrepreneurs and existing owner-managers acquire general
business skills as well as specialist expertise in subjects such as accounting, taxation, legal
issues, marketing and exporting. These may be provided through the education system or
through specialist organisations in either the public or private sector. Since small firms are
often either unwilling or unable to pay for training and consultancy, governments have
generally subsidised their provision, either in full or in part.

Many governments have introduced policies to support innovations in technology. One set of
policies is often targeted at the country’s universities and government research departments
and is intended to encourage commercialisation of research.

Public support measures include

 Raising awareness of entrepreneurship through the education system.

 Hard and soft measure to facilitate entry, including the provision of premises and
finance
 Funding initiatives and know-how to facilitate growth
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Private support has involved:

 The banks
 The professional services sector
 Large corporations

INTERVENTIONS TO THE CHALLENGES FACED BY ZAMBIAN ENTREPRENEURS.

The United States ambassador to the United States, Eric Shultz has called for an open conducive
business environment if entrepreneurship is to succeed in Zambia. Shultz observed that, it has
become harder to do business in Zambia in recent years. Ambassador Schultz says Government
should work towards reversing this trend so that entrepreneurship can thrive. He was speaking on
a panel discussion on entrepreneurship co-hosted by the US Embassy and We create Zambia, an
NGO supporting women entrepreneurs. Ambassador Schultz explained that government should
not be involved in the productive aspect of the economy but that its job should be to create the
foundation for a successful economy (Lusaka times, 2015).

Below are some of the measures that government has taken in order to reduce the challenges faced
by entrepreneurs and encourage entrepreneurial participation (World Bank, 2014).

 Government has taken a leading role by promoting systems that encourage

entrepreneurship such as the removal of barriers in entry.
 Government is creating a conducive environment by ensuring that infrastructure,
institutions and stable regulations are available.
 Technical support in terms of education should be encouraged by introducing
entrepreneurship courses in schools, colleges and universities.
 Reduction of social security and tax burdens for new firms.
 Recent government measure- Recognising the challenge in citizen participation levels,
Government has had to put in place deliberate measures to avail and secure citizens
participation in the domestic economy, particularly through entrepreneurship and value
chains. Government has selected, Block Making, Poultry Domestic Haulage and Quarrying
sectors for the Reservation Schemes for the following reasons:
 a lot of Zambians are participating in these sectors and increasingly, Zambians have shown
that they can run businesses competitively.
 The barriers to entry and exit into these sectors are low and capital requirements and
regulation are fairly low, thereby making possible for many citizens to participate.

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  Many citizens have the necessary technical and managerial skills to be successful in these
sectors. For Micro, Small and Medium Enterprises that would like to enter these sectors or
need to expand, government will provide support in terms of, entrepreneurial skills, finance
and technology through the Value Chain Development Programme under the Citizens
Economic Empowerment Fund (Ministry of information and broadcasting, 2015).

The government should take a leading role and provide an enabling environment for
entrepreneurship to flourish. Below is information obtained from the websites of various
institutions, in order to have insight of some of the institutions that were established toencourage
an entrepreneurial culture in order to develop the country.

 Ministry of Commerce Trade and Industry

The ministry is a government body whose core responsibility is the administration of national
policies for public and private sector development. The ministry coordinates commercial,
industrial and trade issues and liaises with public and private organisations in the facilitation and
implementation of government policies in order to enhance socio- economic development (MCTI,
2014).

In June 2010, the ministry launched a one stop shop for business registration. The one stop shop
is a strategy by government aimed at reducing the cost of doing business, by providing both local
and international investors with registration processes that are quick, efficient and business
friendly. The one stop shop will make registration services more accessible in all provinces
throughout the country (Zambia Development Agency, 2015).

 Technical Education, Vocational and Entrepreneurship Training Authority

(TEVETA)

Established in 1992, TEVETA is an institution that was established under the Technical Education,
Vocational and Entrepreneurship Training Act number 13 of 1998 and amended by Act No. 11 of
2005. The institution falls under the Ministry of Science, technology and vocational training. The
institution mandate amongst many others was to - Increase participation of stakeholders in the
promotion, administration and management of the technical education, vocational and
entrepreneurship training.

Set minimum standards and qualifications for any occupation, skill and technology in accordance
with trends in industry ( TEVETA, 2010)

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  Zambia Development Agency ( ZDA)

Established in 2006 by an act of parliament, the Zambia development Agency became operational
in 2007, in order to foster and promote economic growth by the promotion of trade and investment.
Before ZDA was established there were 5 statutory bodies that were operating independently
namely The Zambia privatisation agency, Zambia investment centre, Export board of Zambia,
Small enterprise development board and Zambia processing zones authority. The above were
amalgamated to form the Zambia development agency in order to have a coordinated efficient and
effective institution. The main objectives of the ZDA were small and medium enterprise
promotion, skills development and enterprise restructuring (ZDA, 2015).

 Citizens economic and empowerment commission ( CEEC)

The CEEC is a corporate body established with the mandate to promote broad based, equitable
economic empowerment of the Zambia citizens. The CEEC main role is to assist citizens that have
been disadvantaged or marginalized and access to economic resources and development is
constrained due to a number of factors such as age, race, education or disability. Government sees
CEEC as a vehicle that can be used by citizens in playing a pivotal role in the transformation of
their lives and the economy at large (CEEC, 2014).

 Multi facility economic zone ( MFEZ)

The MFEZ is a programme introduced by the Zambian government in 2005, in conjunction with
the Japanese government through Japan international corporation Agency ( JICA). The purpose
was to create an enabling platform for the achievement of economic development by attracting
domestic and foreign direct investment. The main emphasis of the programme was private sector
dynamism, political will, integrity and an efficient service to enable the country attain accelerated
economic development. MFEZ are geographic areas with the high quality of physical and social
infrastructure that have the ability to attract investments in manufacturing and acts as engine for
economic growth, wealth and job creation and increase foreign exchange earnings. To date 6 areas
have been earmarked as MFEZs, i.e. Roma, Lumwana, Lusaka south, Lusaka East, Chambishi and
Ndola ( ZDA, 2014).

The orientation towards MSME development and entrepreneurship, as an important alternative to

Africa’s economic future has been supported by the international community. Donor agencies,
such as the World Bank and IMF, have proposed MSMEs and entrepreneurship, as critical pillars
for economic growth in Africa. These multilateral entities have financed a number of programs in
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 entrepreneurship and MSME development (Nelson and Johnson, 1997). Utilizing their
international development agencies such as GTZ, SIDA, DFID, USAID, ILO have redirected their
foreign aid programs toward promoting entrepreneurship and MSME development in Africa
(Edoho, 2015 p. 128)

There are numerous opportunities in Zambia that are open for investment for both local and
international investors and entrepreneurs.

3.12 ACTIVITIES

Assignment

The promotion of entrepreneurship is seen as a means of combating unemployment

and poverty (Westhead, et al., 2011). To what extent has new and growing firms contributed
to the development of economies in the SADC region? How have the policy- makers
intervened to support enterprises?

3.13 SUMMARY

This unit has highlighted the economic and non-economic contributions

associated with encouraging new firm formation and business development.
Barriers to business formation and development were summarised and a case
for practitioner intervention to address barriers to new private firm formation and business
development were summarised. In unit 4 we discuss what entrepreneurs do with regards to the
entrepreneurial process.

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4.0 UNIT THREE: THEORETICAL APPROACHES TO THE STUDY OF
ENTREPRENEURSHIP

4.1 INTRODUCTION

Having discussed the contributions of entrepreneurship to economies in the previous,

this unit moves a step further into explaining the different theories of
entrepreneurship. From this discussion you will build on a deeper understanding of what
entrepreneurs do, from the different schools of entrepreneurial thought.

4.2 AIM

The unit aims at exploring the different theories of entrepreneurship and hence
enables one to describe what entrepreneurs do from a variety of perspectives.

4.3 OBJECTIVES

At the end of this unit you should be able to do the following

 Economic approaches

 Sociological and Psychological approaches

 A taxonomy of entrepreneurial theory

4.4 TIME REQUIRED

You are required to spend at least 2 hours to read through the units and do the
exercise given at the end of the unit .

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4.5 REFLECTION

Are entrepreneurs born or made?

4.6 APPROACHES TO EXPLORE ENTREPRENEURIAL PROCESS

Entrepreneurship has been studied from a variety of disciplines. Numerous theories have been
developed to explain the activities of entrepreneurs and the organisations they own. The
following approaches have been used to explore the behaviour and contributions of
entrepreneurs and their firms (Westhead, et al., 2011):-

 Economic approaches

 Personality/traits approaches

 Psychodynamic approaches

 Social- psychological approaches

 Cognitive approaches

 Sociological Approaches

The Economic Approach:- What entrepreneurs do:?

Economic concepts can be used to explore entrepreneurship as an input added to land, labour
and capital to extend the theory of production and to complete the explanation of four kinds of
income (i.e., profit, land, rent, wages and interest). Entrepreneurial events may relate to the
introduction of new things such as new work practices, innovation, new products /services and
new venture creation. Economists have explored the entrepreneurial processes to create an
opportunity (i.e., imagination, creativity, radical and incremental innovation to create
instability), discover an opportunity (i.e., alertness and information search to address
instability), and to exploit an opportunity in a firm. Therefore entrepreneurs draw upon skills,
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experience and knowledge to deal with uncertainty; to assume risk and to make (calculated
risk-taking) judgements; and to assemble and manage appropriate resources. The following
five themes have been explored:-

 Imagination and creativity – new ideas, products and business (Theme 1)

 New combinations, radical innovation, new industries and economic development
(Theme 2)
 Opportunity identification, evaluation & pursuit (Theme 3)
 Functions and judgements of entrepreneurs (Theme 4)
 Entrepreneurial business (Theme 5)

Imagination and creativity: New ideas, new product, new business

Shackle (1979) describes an entrepreneur as the “enterpriser” who deals with uncertainty,
makes skilled judgements, assembles and allocates scarce resource and provides new products

New combinations, radical innovation, new industries and economic development

Radical innovation
An entrepreneur is viewed as someone who is an innovator and brings about change through
the introduction of new technological process or product. Entrepreneurs are associated with a
dream and a vision (Schumpeter, 1934, 1943).

 Entrepreneurs are the creators and catalyst of dynamic change

 A special person with the ability to bring about extraordinary
 Innovator bring change through new technology
 Associated with dream and vision
Creative destruction (Schumpeter, 1943)

 Radical innovation creates new wealth and new jobs

 New ventures create new possibilities threatening the continues viability of many
existing products and processes

 Innovative new firms may destroy the traditional markets serviced by existing firms

Opportunity identification, evaluation and pursuit- Demand, supply arbitrage

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  Bearing uncertainty and arbitrage (the process whereby the prices of the same product
in different markets are equated, disregarding transport costs). Cantillion (1755)
suggest that entrepreneurs react to profit opportunities, bear uncertainty and
continuously serve to bring about a balance between supplies and demands in specific
markets.

 Entrepreneurs combine and co-ordinate the factors of production (Say, 1821) to

accommodate the unexpected and overcome problems

 Alertness to opportunity identification (Hayek, 1949). Entrepreneurs are viewed as

those individuals who are most alert to messages from the economy which signal some
failure of co-ordination, and which therefore indicate potential gains from trade.

 Some entrepreneurs accumulate experience and knowledge (Kirzner, 1997). The

possession of additional knowledge by individuals provides opportunities for creative
discovery.

 Individuals firms and information processing. Entrepreneurship involve the study of

sources of opportunities; the processes of discovery, evaluation and exploitation of
opportunities; and the set of individuals who discover, evaluate and exploit them.
(Shane and Venkataraman, 2000)

Functions & judgements of entrepreneurs

Knight (1942) believes that entrepreneurs are responsible for their actions and can make
judgements. They possess skills in assessing risk and uncertainty, reducing inefficiency in
resource use and specialist judgements about resource co-ordination (Leibenstien, 1978;
Casson, 1982).

Entrepreneurial Business

 Knowledge management (Marshall 1890, 1920)

 Incremental innovation
 Resource assemblage and leverage to exploit opportunity
 Power of external environmental conditions
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  Competitive strategy behaviour

Power of external environmental conditions

 Demand and supply factors; Owners and managers of firms are unable to influence
industry conditions.

 Resources; Penrose (1959) identified several resources that need to be accumulated and
leveraged by entrepreneurs that can ensure firm survival and profitability. Resources
relate to an entrepreneur’s human capital resources as well as firm resources relating to
tacit knowledge, technological resources (i.e. imagination, creativity, innovativeness)

 Capabilities refer to the firm’s ability to exploit and combine resources through
organisational routines

 Resources leverage to ensure competitive advantage

4.7 SOCIOLOGICAL AND PSYCHOLOGICAL APPROACHES

The motivations resources and behaviour of entrepreneurs can be explored from a non-
economic view. Insights from non-economic approaches can be used to ascertain the assets
and liabilities associated with entrepreneurs. These approaches can be utilised to explore why
entrepreneurs in particular contexts and points in time made decisions and judgements relating
to the entrepreneurial process. In this section the below approaches are discussed.
 Sociological approaches
 Personality/traits approaches
 Psychodynamic approaches
 Social-psychological approaches
 Cognitive approaches

Sociological approaches
Expectations and access to resources

Dominant values of close associates translate to expectations that shape behaviour. Social
contexts: age, education & employment history, can shape individuals expectations; access to
resources (Licht and Siegel, 2006).

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Demographic characteristics of entrepreneurs

Individual’s human capital profile can shape productivity: Demographic characteristics,

achieved attributes, accumulated work experience have an impact on productivity:- Age,
gender, ethnic background, social class, education (Westhead, et al., 2011).

Personality traits approaches

Personality traits of entrepreneurs have been highlighted by several academic studies. It is
believed that entrepreneurs are associated with:
 Risk taking
 Strong need for achievement
 Locus of control; tolerance to ambiguity
 Need for autonomy; Determination; Initiative; creativity
 Self confidence and trust
 High energy; emotional stability

Critics of personality traits believe that:

 Most entrepreneurs do not possess all of the ideal traits
 People possessing several of these traits might not even be entrepreneurs
 Methods used to measure PT are diverse and it is difficult to ascertain their validity
 Some traits can be acquired over time through learning or experience

Psychodynamic approaches
Socialisation process suggests that the socialisation process in childhood determines personal
attributes. Negative characteristics and drives can promote entrepreneurial behaviour. A
disturbed child hood (absent father) can shape an individual’s personality

Negative drives
Frustrations and perceived deprivations experienced in the early stage of life can have an
impact on individual’s personality
Critics of psychodynamic approaches
 Lack of studies to support this view

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  Its subjective nature does not cover all situations
 Other social pressures to enter self-employment or business ownership need to be
considered
 The approach failed to consider lifelong development and the ability of some people to
“reinvent” themselves.

Social-psychological approaches

These highlight that variation in social context can lead to variations in entrepreneur “type”
and differences in the firm performance. Some social contexts are likely to promote
entrepreneurial behaviour (Carsrurd and Johnson, 1989).

Cognitive approaches

Cognitive theories aid understanding relating to how people make sense of their experience
Entrepreneurial cognition studies provide insights into the way in which entrepreneurs think
and behave.

Links between an entrepreneur’s cognition and behaviour

 Heuristics and biases: Representativeness and overconfidence
 Intrinsic motivation
 Perceived self-efficacy
 Cognition, experience learning

4.8 A TAXONOMY OF ENTREPRENEURIAL THEORY

Against this very diverse theoretical background, Herbert and link (1988) have developed a
useful taxonomy, which identifies 12 themes. According to these, the entrepreneur is:

 The person who assumes the risk associated with uncertainty

 The person who supplies financial capital
 An innovator
 A decision maker
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  A leader
 A manager or superintendent
 An organiser and co-ordinator
 The owner of an enterprise
 An employer of factors of production
 A contractor
 An arbitrageur
 An allocator of resources.

4.9 ACTIVITIES

a. What are the functions of an entrepreneur from an economic view

b. What are the functions, actions and judgements of entrepreneurs according to
McMullen and Shepherd (2003)
c. Schumpeter (1934) Suggests that the entrepreneur is an agent of change. What new
combinations and contributions do Schumpeter “type” entrepreneurs make?
d. Identify the key differences between an entrepreneur and a manager. To what extent do
you think their roles overlap?
e. To what extent can a society shape entrepreneurs?
f. What is meant by entrepreneurial traits?
g. What are the strengths and weaknesses of the entrepreneurial personality/traits
approach?

4.10 SUMMARY

This unit has highlighted the backgrounds, motivations, resources and

behaviour of entrepreneurs from economic-and non-economic lens. The
strengths and weaknesses of different approaches to entrepreneurship were
discussed. Unit 4 highlights that entrepreneurship is not a single event because some

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entrepreneurs have careers in entrepreneurship. In this chapter we discuss habitual
entrepreneurs. A distinction will be made between habitual and novice entrepreneurs.
Corporate as well as social entrepreneurship are also topics for discussion in the same unit.

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5.0 UNIT FOUR: TYPES OF ENTREPRENEURS

5.1 INTRODUCTION

There has been no consistent identification and labelling of entrepreneur ‘types’.

However, there has been a growing academic and practitioner awareness that there
is need for a greater understanding of the process and strategies selected by different types of
entrepreneurs to establish and grow their venture(s). This unit will discuss ‘types’ of
entrepreneurs with regard to their ability to leverage prior business entrepreneurial experience
in relation to the entrepreneurial process.

5.2 AIM

The unit aims at exploring the different types of entrepreneurs, highlighting the
advantages and disadvantages of pursuing each form.

5.3 OBJECTIVES

At the end of this unit you should be able to do the following:-

 Explain nature and characteristics of entrepreneurs

 Discuss the role of prior business experience in leveraging barriers to business

development

 Explain how prior business ownership can shape entrepreneur cognition and behaviour.

 Describe high technology and academic entrepreneurs

5.4 TIME REQUIRED

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 You are required to spend at least 2 hours to read through the units and do the
exercise given at the end of the unit.

5.5 REFLECTION

Consider any entrepreneurs known to you. What attributes do they display?

How do the attributes they display compare with those suggested by the
literature?

5.6 THE NATURE, CHARACTERISTICS AND BEHAVIOR OF

THE ENTREPRENEUR

Despite years of research, literature appears to support the argument that there is no generic
definition of the entrepreneur. It is generally recognized that the early attempts to classify
entrepreneurial types and/or identify the archetypal entrepreneur were at best incomplete and
fixed in both time and space. This section attempts to consider the attributes and ways of
behaving that the reader will need to develop if he/she is to become and more entrepreneurial.

The entrepreneurial personality

There is no uniform, standardized definition of the ‘entrepreneur’ and in all probability; there
is no one stereotypical model. However, it is frequently contended that entrepreneurs display
certain similar characteristics and patterns of behavior (traits). The problem is that there is no
agreement over how many they are or what form they take. The general attributes as
summarized from a variety of authors are (Timmons et al., 1985):

 Total commitment, determination and perseverance

 Drive to achieve and grow
 Orientation to goals and opportunities
 Taking initiative and personal responsibility
 Persistence in problem solving
 Truthful awareness and a sense of humor
 Seeking and using feedback
 Internal locus of control

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  Tolerance of ambiguity, stress and uncertainty
 Calculated risk taking and risk sharing
 Low need for status and power
 Integrity and reliability
 Decisiveness, urgency and patience
 Dealing with failure
 Team builder and hero maker
 High energy, health and emotional stability
 Creativity and innovativeness
 High intelligence and conceptual ability
 Vision and capacity to inspire

These behaviors vary according to the situation in which the entrepreneur is found, and can be
learned or acquired. Very few entrepreneurs possess all the attributes or if they do, they are
combined in different ways. There are different types of entrepreneurs resulting from how the
various personality traits combine. Lessen (1986b) identifies seven entrepreneurial types.

Table 5.1: Entrepreneurial types

Entrepreneurship type Personality Type Attributes

Innovator Imagination Originality,
Inspiration, love
Transformation
New designer/enabler Intuition Evolution, development,
Symbiosis, connection
Leader Authority Direction, responsibility
Structure, control
New entrepreneur Will Achievement, opportunity,
Risk-taking, power
Animateur Sociability Informality, shared values,
community, culture
Adventurer Energy Movement, work
Health, activity
Change agent Flexibility Adaptability, curiosity,

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 intelligence

The individual characteristics of entrepreneurs

Psychological characteristics of the entrepreneur are: - risk taking ability, need for
achievement, locus of control, desire for autonomy, deviancy, creativity and opportunism and
intuition.

Risk-taking ability: - entrepreneurs are more able to cope with the consequent ambiguity and
uncertainty than are non-entrepreneurs

Locus of control: - Essentially a person who believes in internal control believes that the
achievement of a goal is dependent on his/her own behavior or individual characteristics.
Entrepreneurs are believed to possess a high internal locus of control.

Desire for autonomy: - Entrepreneurs want to be in control – hence they have been found to
have a higher need for autonomy. They value individualism and freedom more than do either
the general public or managers, they have a dislike of rules, procedures and social norms. As
a consequence they have difficulty functioning in constraining environments that stifle
creativity, and can experience difficulty relating to others. The desire to manage and take
ownership of one’s own life is a central feature of entrepreneurship.

Deviancy: - An entrepreneur is a “an anxious individual, a non-conformist poorly organized

and not a stranger to self-destructive behavior” Such behavior is the result of a very disturbed
childhood where the father is often absent. As a consequence the entrepreneur becomes a
person: with a low self-esteem, who lacks the ability to reflect critically, who dreams of being
in total control, and independent of everything and everyone. This would thus explain why
entrepreneurs become engaged in risky activities and choose to create their own organisations.

Creativity and opportunism: - Entrepreneurs tend to think in non-conventional ways, to

challenge existing assumptions, and to be flexible and adaptable in their problem-solving. All
these are integral to creativity and the creative process. Inventing something new is creativity
and adopting and using it is innovation. People with low achievement orientation avoid
innovation, give up quickly, demonstrate little effort and lack self-confidence, entrepreneurs
with high achievement orientation exert considerable effort and persist in the face of problems
and barriers They see opportunities and make them happen.

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Intuition: - Instead of adopting a structured, analytical approach to problem solving, which
requires attention to detail, adherence to rules and systematic investigation, iot is believed that
entrepreneurs prefer a more intuitive approach.

Cognitive models of entrepreneurial behaviour

With the use of cognitive theory there is a shift away from the personality of the entrepreneur
to studying the situations that lead to entrepreneurial behaviour. It is believed that individuals
will only activate their entrepreneurial potential if they have:

 A specific ability- a sensitivity

 Environmental possibilities
 Social support

Essentially there are two groups of cognitive models, namely attitude models and achievement
models as well as intrinsic motivation

Attitude models are concerned with how an individual’s attitude towards entrepreneurship
shapes his/her behaviour. According to theory, a person will start and grow a business if he/she
has

 Enough information to form an opinion

 An opinion favourable to the behaviour of starting a business
 The intention to start a business
 Sufficient support/encouragement

Achievement models are concerned with motivation and why individuals behave as they do
risking failure. Two models- perceived efficacy and intrinsic motivation. Perceived efficacy
refers to an individual’s belief that he or she is capable of successfully performing the roles
and tasks of an entrepreneur. Intrinsic motivation is connected with interest and enjoyment. It
is believed that entrepreneurs are intrinsically motivated- that they are successful because they
enjoy what they do- the challenge of creating something new or of growing a business.

This such that if entrepreneurship is to be encouraged, it is necessary for:

 Society to have favourable attitudes towards such an objective

 Individuals to believe they have the ability to do it
 People to believe it is intrinsically rewarding.

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Entrepreneurial Career
Entrepreneurship is not necessarily a single action event. One dimension of the heterogeneity
of entrepreneurial types relates to the possibility that an entrepreneur can have an equity stake
and key decision-making role in more than one venture. Some people have entrepreneurial
careers. Research suggests that entrepreneurs may learn from the experience of owning a
business that ceased to trade or failed to avoid repeating mistakes in subsequent ventures. In
this section we discuss habitual entrepreneurs (also known as experienced or latterly repeat
entrepreneurs). A distinction is made between inexperienced novice entrepreneurs with no
prior business ownership to leverage and habitual (i.e., serial and portfolio) entrepreneurs with
prior business ownership experience.

5.7 HABITUAL ENTREPRENEURSHIP PHENOMENON

Information relating to experience accumulated by an entrepreneur is used by financial
institutions to screen applications for assistance. Direct entrepreneurial experience from
business ownership contributes to entrepreneurship managerial and technical skills.
Entrepreneurial skills focus upon the perceived ability to create, identify and exploit
opportunity. Managerial skills concern the ability to manage and organise people and
resources. Repeated business ownership experience contributes to the development of these
skills. Experience differs according to the numbers and types of businesses previously owned

Novice entrepreneurs: individuals with no prior firm ownership experience, either as a firm
founder or as purchaser of an independent firm, who currently own a minority or majority
equity stake in an independent firm that is either new or purchased.

Habitual entrepreneurs: Individuals who hold or have held a minority or majority ownership
stake in two or more firms, at least one of which was established or purchased. Habitual
entrepreneurs are subdivided as follows:
 Serial entrepreneurs (Sequential) - Individuals who have sold /closed at least one firm
in which they had a minority or majority ownership stake in a single independent firm
 Portfolio entrepreneurs (Simultaneous) –Individuals who currently have minority or
majority ownership stakes in two or more independent firms

Advantages of experience accruing to habitual entrepreneurs

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 It provides entrepreneurs with a variety of resources that can be leveraged to identify
and exploit opportunities. These come in the form of;-
 Direct entrepreneurial experience;
 additional managerial experience
 enhanced reputation;
 better access to and understanding of the requirements of the financial institutions;
 access to broader social and business networks
 Ability to accumulate additional human capital, social and financial capital
 Experience shapes an individual’s mind-set
 It influences an individual’s capacity to acquire and organise complex information
 Provides a framework for processing information
 Allows entrepreneurs with diverse skill (networks, knowledge) to foresee and take
advantage of opportunities that they reactively identify
 Experience-based knowledge can create cognitive pathways which when followed can
lead to greater creativity.

Habitual entrepreneurs who have learnt from their prior business experience may therefore
resemble experts. Expert information processing theory assumes that:

 Experts are able to manipulate incoming information into recognisable patterns and
then be able to match the information to appropriate actions
 Experts can concentrate on new or unique materials
 Experts can leverage knowledge to avoid mental biases
 More experience is associated with superior outcomes
 Habitual entrepreneurs pursue the best opportunities.

Experience is not always the reason for success

 There is very limited empirical evidence to support all these assertions

 There is inconclusive evidence relating to the link between an entrepreneur’s prior

business experience and the propensity to identify additional opportunities and superior
levels of performance

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  HEs can accumulate both assets and liabilities associated with their previous business
ownership experience

 It may therefore be a myth that all habitual entrepreneurs are successful and outperform
novice ones

 The current novices are the future habitual entrepreneurs

 Some successful habitual entrepreneurs might have been associated with failures which
created a valuable learning experience.

5.8 HIGH TECHNOLOGY AND ACADEMIC ENTREPRENEURS

Innovation is of central importance in entrepreneurship. Focus that focus on innovation can
accrue competitive advantage which can promote superior business survival and performance
with sider societal and micro-economic benefits. New technology based firms (NTBS) also
called high technology firms are alleged to play a key role in enhancing entrepreneurship and
economic growth. University research generates local technological spill-overs to the other
firms. Universities stimulate innovation through research and development (R&D).

In this section we discuss why and how universities promote entrepreneurship; strategies
selected by universities to generate new spin-off firms; challenges facing academic
entrepreneurs; how academic entrepreneurs can deal with the challenges; spin-off profiles.

Benefits accrued from Universities R& D

 Encourage national economic development
 Technological spill-overs will broaden the industrial base of regions
 Make less favoured areas more competitive and self-reliant
 Efficient and productive NTBs will improve the competitive capability of existing
firms
 Expansion into international markets
 Employment creation

Initiatives to increase NTBFs

 Science parks represent one mechanism to stimulate technology transfer between
academia and industry (i.e. other mechanisms relate to research consortia, Joint
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 ventures, licensing, consulting, and contract research). Developers who design and
manage science parks argue that new firm formation and development obstacles can be
surmounted by providing NTBFs with proximity to specialised services, flexible
premises; shared resources and business services; links with local universities or higher
education institutes (HEIs); and opportunities for corporation with other tenants.

Commercialisation of knowledge from Universities

Support for academic entrepreneurship:
 Academics have been entrepreneurial in the way that they spot opportunities for new
research areas, and to raise grants to fund their research
 The licensing of innovations, where by a scientist receives a royalty is a way of
commercialising academic research
 Consultancy is also an entrepreneurial form. (Copy rights and patents)

Creation of spin-offs
Universities target the creation of spin-offs by academics in which the university and the
academics hold equity stakes in the belief that the NTBFs will create significant profit streams
and capital gains when they are sold. It is assumed that returns on spin-off firms will exceed
the returns from licensing agreements and contract research.

Types of Spin-offs
 Venture capital backed
 Prospector type:- contract research or consulting path
 Lifestyle type:- start small in a market for products or services and optimise the time to
break even
Development of spin-offs
 Research
 Opportunity recognition
 Entrepreneurial commitment
 Threshold of credibility
 Threshold of sustainability
Strategies to grow spin-offs
 A product market strategy:

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  A financial market strategy
 A hybrid strategy involving a combination

Challenges facing academic entrepreneurs

 Financing
 Recognition
 Sustainability

How academic entrepreneurs can deal with the challenges

 Experience
 Creation of entrepreneurial teams
 Academic entrepreneurial networks

5.9 ACTIVITIES

Discussion questions

a. Should practitioners intervene to support new firm creation by novice entrepreneurs

alone?
b. Are portfolio entrepreneurs winning entrepreneurs?
c. Should public investors target assisting portfolio as well as serial entrepreneurs?
d. How do universities promote entrepreneurship?
e. What are the distinctive aspects and challenges facing academic entrepreneurs
compared with entrepreneurs that establish ‘traditional’ new firms?

Entrepreneurial tendency test

Tick (√) your answer (Yes, Maybe or No) to each of the following questions, then check your
score on the next page.

Yes Maybe No
I am persistent
When I am interested in a project, I need less sleep
When there is something I want, I keep my goal clearly in mind
I examine mistakes and I learn from them

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 I keep New Year’s resolutions
I have a strong personal need to succeed
I have new and different ideas
I am adaptable
I am curious
I am intuitive
If something can’t be done I find a way
I see problems as challenges
I take chance
I’ll gamble on a good idea, even if it isn’t a sure thing
To learn something new, I explore unfamiliar subjects
I can recover from emotional setbacks
I feel sure of myself
I’m a positive person
I experiment with new ways to do things
I’m willing to undergo sacrifices to gain possible long-term rewards
I usually do things my own way
I tend to rebel against authority
I often enjoy being alone
I like to be in control
I have a reputation for being stubborn

Once you have answered all the questions, give yourself 3 points for every “Yes” answer, 2
for every ‘Maybe’ and 1 for every ‘No’. Add up your score.

60-75 points

You possess the attributes of the entrepreneur. You can start your business plan immediately.

48-59 points

You have potential but need to develop yourself. You may not want to start a business alone.
Look for a business partner who can complement you in the areas where you are weak.

37-47 points

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You may not want to start a business alone. Look for a business partner who can complement
you in the areas where you are weak.

37 points and under

The entrepreneurial life may not be for you. You will probably be happier and more successful
working for an established company. If you still hanker after doing your own thing, remember
there are organisations that reward those employees who take an entrepreneurial approach in a
corporate context.

5.10 SUMMARY

Successful entrepreneurs are believed to possess a special set of personal

abilities and characteristics (traits). The psychological literature suggests that
the main characteristics of an entrepreneur are his/her risk –taking ability, need
for achievement, internal locus of control, desire for autonomy and deviancy. Cognitive theory
has shifted the emphasis from studying the personality of the entrepreneur to studying the
situations that lead to entrepreneurial behaviour.

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6.0 UNIT FIVE: TYPES OF ORGANISATIONS: ALTERNATIVE ROUTES TO
ENTREPRENEURSHIP

6.1 INTRODUCTION
Family firms make notable contributions to wealth creation, job generation and
competitiveness. Development of family firms has an impact on local economic
development and social cohesion. The limited job opportunities in developing countries after
school and even after university have made this option far more attractive in recent years.

6.2 AIM

The unit aims at explaining the importance of family business to individuals and
the society at large.

6.3 OBJECTIVES

At the end of this unit you should be able to do the following

 Describe the different forms of entrepreneurial organisations including family firms,

corporate entrepreneurship, management buyouts and social entrepreneurship
 Evaluate the different forms of entrepreneurial organisations

6.4 TIME REQUIRED

You are required to spend at least 2 hours to read through the units and do the
exercise given at the end of the unit.

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6.5 REFLECTION

If you had a family business, what would your family statement of belief
look like?

6.6 FAMILY FIRMS

A family business is one that is influenced by family ties in order to achieve the vision of the
family over, potentially, several generations.

With the above definition in mind, the following general remarks can be made to aid our
understanding of what constitutes a family business

 The family is actively involved in that particular business

 Family members make a definite input into the long term direction of the business
 There is more than one family member involved in the business
 The intention is to continue the family business over time

Uniqueness of family firms

 Family members can be involved in the ownership and management of the firm and
there can be intertwining of family and business objectives

 Business objectives are shaped by three interdependent subsystems of:- family,

ownership and management.

Family firm assets

Family involvement as a source of strength

 Experience and knowledge
 Family resources (labour)
 Stability and longevity
 Family ties provide loyalty and trust

Family firm liabilities

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  Reluctance to sell shares to outsiders
 An aversion to debt that may constrain firm from growth
 Reluctance to adopt a performance based system
 Key managerial positions held by “kinship relations” rather than most talented and
experienced individuals;
 Reluctance to sell shares to outsiders
 An aversion to debt that may constrain firm from growth
 Reluctance to adopt a performance based system

 Key managerial positions held by “kinship relations” rather than most talented and
experienced individuals;

Components of family firms

 Firm demographic characteristics

 Firm objectives
 Management structure
 Strategy
 Performance
 Business transfer

Firm demographic characteristics

 Age :- 30% of family firms are transferred to second generation family owners, 13%
survive to 3rd generation (Ward, 1987).
 Size:-Private family firms have been found to be generally smaller than non family
firms (Donckels and Frohlich, 1991).
 Location:-depends on the industry in which the firm is part of. They can be found in
both rural and urban areas
 Principal industry activity :- family firms are concentrated in agriculture, forestry,
fishing, distribution, hotels and catering;
 They are underrepresented in banking, financing, insurance and business service
sectors;
 A very low percentage is found in the manufacturing sector.

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Firm Objectives
 Ensuring survival of the firm as a going concern
 Ensuring continued independent ownership of the firms
 Only grow the firms to provide employment positions for family members
 Allocate key managerial positions to family members based on relationship ties rather
than expertise and knowledge
Management Structure

 Senior management position occupied by family members

 Non-family members may be part of unskilled labour
 Directors or CEO may leave the organisation on retirement

Strategy:-Family firms are likely to explore new sources of funds that most likely not going
to be used. Few family firms pursue premium pricing. Target marketing is very defined in
family firms

Performance:- Family firms perform better than non-family firms because of :

 Focusing on sustainability of the firm

 Mutual trust amongst workers
 Employee and management development
Types of family firms

 Cousin consortium family firm

 Large open family firm
 Entrenched average family firm
 Multi generation open family firm
 Professional family firm
 Average family firms
 Multi-generation average family firms

Succession

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One of the main aspects ensuring the survival of a family business is succession. Succession
is the process through which the leadership of the business is transferred from the existing
leader to a subsequent family member or non-family member (a professional manager).
However, the following obstacles to succession could result in few family businesses being
transferred successfully to a second and third generation:

 The founder is autocratic and does not want to transfer leadership

 The existing leader acts as though he will never die.
 The existing leader misinterprets environmental trends and does not implement
changes in time
 The leader does not want to make a choice with regard to a possible successor
 The leader selects a successor who can be his or her “slave”.

Succession is not always a natural process in a family business. It remains one that should be
carefully managed.

6.7 CORPORATE ENTREPRENEURSHIP

Defining Corporate entrepreneurship

A variety of terms have been used to describe entrepreneurial activities within an

existing organisation. These being:- Corporate entrepreneurship; corporate venturing;
intrapreneurship; internal corporate entrepreneurship; Development of new ideas and
opportunities within large corporations

It is the process where an individual or a group of individuals, in association with an

existing organisation, create a new organisation or instigate renewal or innovation
within that organisation?

Main components of corporate entrepreneurship

 Strategic renewal- is concerned with the organisation’s revitalisation involving major

strategic and or structural changes,
 Innovation- concerned with introducing new products or services to the market place
 corporate venturing- leads to the creation of new businesses within the corporate
organisation

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Dimensions of Corporate entrepreneurship

 Risk taking
 Venturing
 Innovativeness
 Self-renewal
 Pro-activeness

Forms of Corporate Entrepreneurship

 Traditional Research and development

 Ad hoc venture teams
 Corporate venturing
 Intrapreneurs and champions
 New product development
 Acquisition and take-overs
 Outsourcing
 Hybrid forms
The importance of Corporate Entrepreneurship

 Key to survival in an ever changing environment

 Value creation over the long term
 Drives growth
 Trust can be built between management and employees as suggestions by employees
are heard
 Autonomy improves staff morale.
Benefits of Corporate Entrepreneurship

 Innovation
 Productivity
 Efficiency
 Empowerment
Factors influencing Corporate Entrepreneurship

 Influence of the external environment

 Opportunity-rich environments
 Hostile, threatening environment

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  The influence of firm size
 The influence of firm age and the venture life cycle
An enabling environment for Corporate Entrepreneurship

 Top management support for CE

 Autonomy of employees
 Appropriate use of rewards
 Resources and time availability
 Supportive organisational structure and flexible organisational background
 Capacity development
 Formal corporate entrepreneurship programmes

Table 6.1: Summary of major differences between independent and corporate

entrepreneurship

Independent entrepreneurship Corporate entrepreneurship

Entrepreneur assumes risk Firm bears most of the risk, except career-
related risk
Entrepreneur ‘owns’ the idea and all or Firm owns the idea and intellectual property
much of the business rights
Theoretically the rewards for the Limited or no equity is held by the
entrepreneur are unlimited intrapreneurs
One mistake may mean failure More room for errors
Vulnerable to environmental influence More insulated against environmental
influences
Fast decision making Longer approval cycle
Little security or safety net Job security and dependable benefit
package
Source: Adapted from Morris and Kuratko (2002, p.63)

6.8 MANAGEMENT BUYOUTS

In this section we discuss issues relating to the purchase and development of existing
organisations with reference to management buyouts (MBOs) and management buy-ins
(MBIs). MBOs is where incumbent management purchase and existing organisation in which
they are employed and MBIs where outside managers effect a purchase of an existing
organisation with institutional finance. What are the advantages and disadvantages of MBO
and MBIs?

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6.9 SOCIAL ENTREPRENEURSHIP
Through history people have had social as well as economic needs and the changing nature of
social problems requires much innovative thinking and entrepreneurial action, particularly in
an era when a nation’s welfare system does not, cannot or will not meet such needs.

What is a Social Entrepreneur?

Social entrepreneurs drive social innovation and transformation in various fields including
education, health, environment and enterprise development. They pursue poverty alleviation
goals with entrepreneurial zeal, business methods and the courage to innovate and overcome
traditional practices. A social entrepreneur, similar to a business entrepreneur, builds strong
and sustainable organizations, which are either set up as not-for-profits or companies.

A social entrepreneur is a leader or pragmatic visionary who:

 Achieves large scale, systemic and sustainable social change through a new invention,
a different approach, a more rigorous application of known technologies or strategies,
or a combination of these.

 Focuses first and foremost on the social and/or ecological value creation and tries to
optimize the financial value creation.

 Innovates by finding a new product, a new service, or a new approach to a social

problem.

 Continuously refines and adapts approach in response to feedback.

 Combines the characteristics represented by Richard Branson and Mother Teresa.

The Schwab Foundation employs the following criteria when looking for leading social
entrepreneurs: Innovation, Sustainability, Reach and social impact.

Social entrepreneurs share some come common traits including:

 An unwavering belief in the innate capacity of all people to contribute meaningfully to

economic and social development

 A driving passion to make that happen.

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  A practical but innovative stance to a social problem, often using market principles and
forces, coupled with dogged determination, that allows them to break away from
constraints imposed by ideology or field of discipline, and pushes them to take risks
that others wouldn't dare.

 Zeal to measure and monitor their impact. Entrepreneurs have high standards,
particularly in relation to their own organization’s efforts and in response to the
communities with which they engage. Data, both quantitative and qualitative, are their
key tools, guiding continuous feedback and improvement.

 A healthy impatience. Social Entrepreneurs cannot sit back and wait for change to
happen – they are the change drivers.

What is Social Entrepreneurship?

Social entrepreneurship is

 About applying practical, innovative and sustainable approaches to benefit society in

general, with an emphasis on those who are marginalized and poor.

 A term that captures a unique approach to economic and social problems, an approach
that cuts across sectors and disciplines grounded in certain values and processes that
are common to each social entrepreneur, independent of whether his/ her area of focus
has been education, health, welfare reform, human rights, workers' rights, environment,
economic development, agriculture, etc., or whether the organizations they set up are
non-profit or for-profit entities.

 It is this approach that sets the social entrepreneur apart from the rest of the crowd of
well-meaning people and organizations who dedicate their lives to social improvement.

About organizational models

Leveraged non-profit ventures

The entrepreneur sets up a non-profit organization to drive the adoption of an innovation that
addresses a market or government failure. In doing so, the entrepreneur engages a cross section
of society, including private and public organizations, to drive forward the innovation through
a multiplier effect. Leveraged non-profit ventures continuously depend on outside
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philanthropic funding, but their longer term sustainability is often enhanced given that the
partners have a vested interest in the continuation of the venture.

Hybrid non-profit ventures

The entrepreneur sets up a non-profit organization but the model includes some degree of cost-
recovery through the sale of goods and services to a cross section of institutions, public and
private, as well as to target population groups. Often, the entrepreneur sets up several legal
entities to accommodate the earning of an income and the charitable expenditures in an optimal
structure. To be able to sustain the transformation activities in full and address the needs of
clients, who are often poor or marginalized from society, the entrepreneur must mobilize other
sources of funding from the public and/or philanthropic sectors. Such funds can be in the form
of grants or loans, and even quasi-equity.

Social business ventures

The entrepreneur sets up a for-profit entity or business to provide a social or ecological product
or service. While profits are ideally generated, the main aim is not to maximize financial
returns for shareholders but to grow the social venture and reach more people in need. Wealth
accumulation is not a priority and profits are reinvested in the enterprise to fund expansion.
The entrepreneur of a social business venture seeks investors who are interested in combining
financial and social returns on their investments.

6.10 ACTIVITIES

a. Explain what corporate entrepreneurship is and identify the main forms it takes
in a firm.
b. Examine how factors in the external and internal environment influence
entrepreneurship in a firm.

6.11 SUMMARY

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 The unit highlighted the different forms of entrepreneurial firms. Advantages
and disadvantages of each form were discussed. The next unit will examine the
external environmental forms that have an impact on the operations of
entrepreneurial firms.

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7.0 UNIT SIX: EXTERNAL ENVIRONMENTAL CONTEXT

7.1 INTRODUCTION

The environment is everything that surrounds the organisation. It has an impact on

the organisation, this unit therefore seeks to analyse the impact the environment has
on entrepreneurial organisations.

7.2 AIM

The aim of the unit is to enable you to explore the impact of the environment on
entrepreneurial organisations.

7.3 OBJECTIVES

At the end of this unit you should be able to do the following

 Describe the layers of the environment

 Analyse the impact of external environment on the organisation
 Identify opportunities and threats available to the firm

7.4 TIME REQUIRED

You are required to spend at least 2 hours to read through the units and do the
exercise given at the end of the unit.

7.5 REFLECTION

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 Should entrepreneurial organisations really spend money and time on
analysing the environment only to get information that will be relevant for
a short period?

7.6 LAYERS OF THE ENVIRONMENT

Understanding their environment will normally help organisations to more effectively secure
resources, identify opportunities and minimise threats. Analysis of an organisation’s
environment is systematic and logical if you divide the environment into layers. This can be
achieved by dividing it into three major layers as shown in figure 7.1 below.

Figure 7.1 Layers of the business environment

Source: Johnson, G., Whittington, R. and Scholes, K. (2011) Exploring Corporate Strategy,
9th Ed. London: Pearson

7.7 THE EXTERNAL ENVIRONMENT

The external environment of an organisation is divided into two; the general or macro
environment and the industry/competitive or micro environment.

The General or Macro-Environment

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This refers to those broad environmental forces that are likely to impact to a greater or lesser
extent on almost all organisations.

The PESTEL framework is often used to help identify the key forces that are driving change
in the following spheres:

Political Factors (examples)

 Party politics at national and local levels;

 Pressure groups; Community groups;
 Nationalisation and/or privatisation;
 Regulation and/or deregulation;
 Taxation policies and/or subsidies; etc.

Economic Factors (examples)

 National Income, e.g. GDP and per capita GDP;

 Economic Growth, e.g. growth of GDP;
 Inflation; Interest rates; Exchange rates;
 Private and public expenditure; etc.

Social and Cultural Factors (examples)

 Demography, i.e. structure of population;

 National and regional cultures;
 Lifestyles;
 Education and health;
 Income distribution; etc.

Technological Factors (examples)

 Industry Research & Development expenditures;

 New patents and products;
 Rate of technological change; etc.

Environmental or Ecological Factors (examples)

 Global warming;
 Waste and recycling; Pollution controls; etc.
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Legal Factors (examples)

 Competition laws; Company law;

 Property laws; Intellectual property rights;
 Employment laws;
 Consumer protection;
 Judicial system; etc.

7.8 THE COMPETITIVE ENVIRONMENT

This refers to those forces at work in the most immediate environment of organisations. It most
directly refers to the industry or sector or segment/s they operate within, including the
competitive forces at work in both their input and output markets.

7.9 EXTERNAL THREATS AND OPPORTUNITIES

The scanning and analysis of the external environment will enable organisations to identify the
opportunities and threats posed by the environment.

Opportunities (examples)

 New markets and segments;

 New product development, e.g. due to technological innovation;
 Market growth;
 Demographic and social change, e.g. enhanced purchasing power of young people will
benefit businesses marketing products for young people;
 Positive changes in political or regulative environment, e.g. minimum wage legislation
may create a level playing field for ethical businesses;
 An up-turn in the economic cycle;

Threats (examples)

 Increased competition, e.g. from the threat of new entrants and substitutes;
 Increased pressure from customers and suppliers, e.g. due to enhanced buyer or supplier
power;

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  Technical change that threatens market for product;
 Negative changes in political or regulative environment, e.g. new environmental
regulations may impose higher costs or prohibit certain business activities;
 A down-turn in the economic cycle;
 A currency depreciation or appreciation, e.g. a currency appreciation may price a
business out of export markets

7.10 ENVIRONMENTAL UNCERTAINTY

In the context of business planning, the degree of uncertainty in the environment is of great
importance. The greater the uncertainty, the greater the challenge.

Uncertainty depends on complexity and stability: the more complex or dynamic the
environment is, the more uncertain it is.

 An uncomplicated, stable environment can be dealt with as a matter of routine. The

security and efficiency of a mechanistic or bureaucratic approach to management can
be exploited. Since the future is likely to resemble the past, extrapolation from history
is a satisfactory way of preparing for future events.
 Where the environment is dynamic, the management approach must emphasise
response to rapid change. Scenario planning, intuition and a learning approach are all
valid features of such a response.
 Complexity makes an environment difficult to understand. Diversity of operations and
technological advance contribute to complexity. Complexity is difficult to analyse. It
may be that it is best dealt with by a combination of experience and extensive
decentralisation

7.11 ACTIVITIES

a. What are the major environmental barriers to new firm creation?

b. Can government intervene to reduce regional variations in new firm formation?

7.12 SUMMARY

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 Numerous studies fail to appreciate that the regulatory regime can promote or
retard enterprises. Many people finding it difficult to establish and develop
firms suggest deficiencies in the external environment retard their ability to
fully exploit identified opportunities. Business closure studies detect that entrepreneurs suggest
firm closure is due to problems from the external environment. This unit has highlighted that
a broader appreciation of the entrepreneurial process can be achieved if studies consider the
varying nature of external conditions. In addition to the impact of the external environment at
has also been concluded that entrepreneurial firm fail to grow because of inadequate finances.
In unit seven we discuss the sources of finance that are available to entrepreneurs and how
entrepreneurs can make use of business plans to access funding.

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8.0 UNIT SEVEN: ENTREPRENEURIAL FINANCE

8.1 INTRODUCTION

In the preceding chapters generating of new ideas and identifying opportunities were
discussed. Once the entrepreneur has identified a viable opportunity, he or she should
then pursue it. To be effective the entrepreneur must plan how he or she will go about doing
this. This planning of potential business will be discussed in this chapter. Finding finance or
gaining financial support for any new venture is one of the difficulties experienced by
entrepreneurs. It is important to know what sources of finance are available. This chapter also
seeks to explain sources of finance: short medium and long term as well as the venture capital
market.

8.2 AIM

The chapter aims at explaining how entrepreneurs can access different types of
funding and the document that can be used to facilitate funds which is a business
plan.

8.3 OBJECTIVES

At the end of this unit you should be able to do the following; -

 explain the importance of the business plan and the role it plays in new venture creation,

 describe the different components of a business plan,

 explain the different sources of finance; short-term, medium-tem and long term sources
and

 identify possible sources of finance for the venture.

8.4 TIME REQUIRED

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 You are advised to spend 2 hours reading through the chapter and one hour
attempting the questions provided at the end of the chapter.

8.5 REFLECTION

Why is so much emphasis placed upon the business plan for new ventures?

8.6 THE BUSINESS PLAN

The saying is very common that “if you don’t know where you are going, any road will take
you there.” This statement is not only applicable to individuals lacking objectives and a plan
to achieve them; it also applies to any form of organisations including business ventures.

The business plan is a written document that spells out where the business is heading and
explains in detail how it is going reach that destination. It helps the organisation to focus all its
activities in an organised manner on meeting its objectives. The business plan is a written
presentation that carefully explains the business, its management team, its products or services
and its goals, together with strategies for reaching the goals.

From this definition it can be concluded that the business plan involves:

 A process of planning – what the businessperson would like to achieve, i.e. his or her
goals
 Strategies and action plans for achieving the goals – how the businessperson will
achieve them.

8.6.1 The purpose of a business plan

There are three main reasons for drawing up a business plan. These being: to obtain funding,
to serve the internal purpose and to be used as a toll for reducing risk.

To obtain funding

The business plan can be considered as an important tool for approaching and capturing
financial sources from investors or lenders. Any investor or lender would want to gain

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confidence in where they are lending money to by the knowledge that it has been carefully
planned.

Given the limited resources that most entrepreneurs have at their disposal in the start-up stage,
few can afford to waste these resources. Without a business plan, the entrepreneur could easily
waste the resources without even realising it before it is too late. For existing and even large
businesses, stakeholders such as shareholders, investors and creditors demand a high return on
their capital. This would require optimal utilisation of capital and the other factors of
production. The business plan plays a bigger role towards achieving that.

To serve an internal purpose

The business plan has the potential to provide the business person with:

 A focus – a coordinated efforts towards a clearly defined objective

 An objective – everybody will know where they are heading or what they are working
for.
 A tool for measuring performance against – to know whether performance is
satisfactory, unsatisfactory or outstanding.
 A marketing tool for obtaining finance and selling the business – outsiders will form a
clear picture of what the business is doing or hoping to achieve.
 A roadmap to direct the business
 A systematic evaluation of the chances of success on the market
 A method of determining the risks facing the business, product or idea

To be used as a tool for reducing the risk

The business plan helps the prospective entrepreneur to reduce the risk in starting the new
venture. The process of drawing up the business plan forces the entrepreneur to think carefully
and consider each aspect of the new business venture. In doing so, the entrepreneur quite often
has to consider alternatives and new directions. It also helps the entrepreneur to focus all his
or her efforts on achieving a specific objective. The business plan serves as a yardstick for
comparing actual and budgeted results in order to provide feedback on the success rate or
failure rate of the business activities and effort.

8.6.2 Standard format and layout of a business plan

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There are a lot of specifics that should be included in a successful business plan. A general
outline of a standard format of the layout of a business plan is given in Table 8.1.

This outline should only be used as a preliminary planning guide. The components outlined in
the table are discussed in more detail in the paragraphs below.

Cover sheet

The cover sheet should contain the following information:

 The full name of the business

 Ownership status\
 Full street address
 Address, if different from the street address
 Phone, fax, e-mail and website information
 Contact name and title
 Date of the plan.

Table of contents

 Categorise the contents. List main headings (e.g. 1.1, 1.2) or give detailed (sub-)
categories (e.g. 1.1.1)
 Remember also to list all charts, tables or graphs in your table of contents

Table 8.1 An outline of a business plan

Cover sheet
 Phone, fax and e-mail
 Full name of business
 Contact name and title
 Full street address
 Date of plan
 Postal address
Table of contents
 Lists main headings
 Includes graphs, charts and tables
Summary
Highlights important aspects of the plan
Products and/or service plan
 The business
 The products

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  The industry
Marketing plan
 Outline the 4 Ps (product, price, promotion and place)
 Competitive advantage
 Customers, market size competition and market evaluation
Operational plan
 Focus on facilities, manufacturing, capability and equipment
 The steps and time taken to bring the business up to full speed

Management plan
The management team. List all directors, consultants, advisers and key professionals who will be
involved in the business. Attach detailed CVs as appendices
Financial plan
 Start-up capital
 Projected income
 Projected balance sheet
 Projected cash flow statement
 Projected capital equipment
Appendices
All pieces of evidence, such as CVs product brochures, testimonials and news articles.

Summary

The summary briefly sets out the contents of the business plan. It normally contains key
sentences from each section of the plan to give an overview of the project to the reader. Limit
the summary to two or three pages.

Remember the summary of a business plan must highlight the important features and
opportunities, which will allow the reader a quick overview of whether or not the business
described in it is of interest. The summary is normally written after the business plan up.

Products and/or service plan

This section should briefly describe the product or service, to whom it is sold, the current status
of the industry and where the new business fits in. This will give the reader a chance to establish
a basis for detailed understanding.

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To success, entrepreneurs must know their products or services. To obtain finance, potential
investors or lenders should be provided with the following information of the business’s
products and services:

 Description of the products and service to be sold: Describe the primary end use, as
well as any significant secondary applications. Emphasise any unique features and how
the products or services on offer will account for market penetration.
 Proprietary position: Describe any patents, trade secrets or other features
 Potential: Describe any features of the product or service that will give it an advantage
over the competition. Discuss opportunities for expansion of the product line or service
and how to take advantage of them. Also, discuss any product disadvantages or
technological changes or marketing fads, if applicable

Marketing plan

A critical section that should clearly specify the business’s marketing goals, how they are to
be achieved and who will have the responsibility for achieving them. Attention should be paid
to the 4 Ps, namely product, price, place and promotion. Make sure to describe these in detail.
This section also focuses customers, industry and competition.

 Customers. Discuss who the customers of the product or service are. Briefly describe
the basis of the purchase decisions, for example price, quality, service, personal
contacts
 Industry. Describe the size of the current total market for the product or service offered.
 Competition. Make a realistic assessment of the strengths and weaknesses of
competitive products and service and name the businesses that supply them. Compare
the competing products and services on the basis of price, performance, services
warranties and other pertinent features.

Do not make guesses in this section. Check all facts and note all sources. These will surely be
checked. It is also important to indicate whether the business has a competitive advantage over
similar businesses.

Operations plan

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The length of this section depends on whether it is a service or product business. If it is a
product, it will depend on how technical the product is. The following aspects need attention:-
Capacity, scheduling of production and quality management.

Management plan

The quality of the management team often determines the potential success of the business.
List all directors, consultants, advisers and other key professional who will be involved in the
business. Indicate whether the team has worked together in the past. Detailed CVs of the
management should be included in the appendix. The management plan therefore details the
organisational structure of the business. Also, present current and proposed salary structures
for those on board and for those still to come on board.

Financial plan

The financial part of the business plan has to prove beyond all reasonable doubt that the
business has the potential to operate profitably. It will also explain how much money is needed
to start and operate the business will be financed and the additional funds required. Issues such
as break-even point, pricing policy and the cash flow position have to be addressed. Supporting
projected income statements, balance sheets and cash flow statements for a three year period
will have to be provided.

Appendix

Include all essential pieces of evidence such as CVs, product brochures, customer listings,
testimonials and news articles

Types of business plans and their functions

Business plans are drawn for different reasons and hence they are not all the same. Situations
that require different types of business plans are:

 To plan a new business

 To transform an existing business
 To create a strategic document for an existing or a new business
 To obtain a loan
 To attract shareholders or partners
 To sell the business

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  To provide direction for management and staff in a new or existing business
 To prepare the business for a merger with another business
 To prepare the business for the acquisition of another business
 To help position business in the market

Problems with drawing up a business plan

 Lack of proven market demand

 Lack of objectivity
 Ignoring competition
 Inappropriate market research
 Underestimating financial requirements
 Insufficient proof that loan repayments will be made timeously
 Lack of unique product or service
 Disregard for legal requirements
 Ignoring potential influence of the external environment
 Lack of sufficient financial commitment by the founders
 Lack of appropriate business experience by management and staff

Resources requirements and legal and related aspects

In order to pursue business opportunities, entrepreneurs need resources. Resources are needed
to start and operate a business. Businesses rely on four major kinds of resources: financial,
human, physical and information resources.

Entrepreneurs also have to comply with many legal requirements when starting and operation
their own businesses. Entrepreneurs should be sufficiently knowledgeable about certain legal
aspects that have implications for their prospective businesses. The legal aspects are divided
into two groups: those that relate to the establishment of the business and those that relate to
the operation of the business.

8.7 SOURCES OF FINANCES

Finding finance, or gaining financial support for any new venture, is one of the difficulties
experienced by entrepreneurs. It is important to determine the financial requirements of the
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business venture, getting to know the sources of finance and be able to access funds.
Determining the financial requirements of the business is done through the preparation of the
business plan, which has already been covered in the previous section. Sources of finance may
be short term or long term depending on the purpose of the finance.

8.7.1 Sources of short term finances

Short term finance refers to finance that is normally repayable or reviewed within 12 months.
Short term finance include: trade credit, bank credit

Trade credit

This is when businesses buy their stock or inventory on credit from other firms. Credit means
that the buyer is not expected to pay cash for the goods or services. Payment will be made on
agreed dates and terms e.g. after 30 days. Payment may also be spread over a period of time
e.g. 3 months.

Bank overdraft

In granting the bank overdraft facility, the bank agrees to allow the business to withdraw money
in excess of its bank balance at a specified interest rate. There will also be an agreed limit up
to which the account can be overdrawn. The overdraft is useful to a business in meeting
temporary financial needs and is normally granted to finance transactions that will generate
cash flows in the near future. Interest can be high but is calculated only on the daily balance
actually outstanding and not on the full sum that can be utilised. The rate of interest will depend
on the ruling interest rates and the credit status of the borrower.

Short term sources from other sources are:-

 Bills of exchange
 Acceptance credit
 Factoring
 Customer advance payments
 Shipper’s finance

8.7.2 Sources of medium-term finance

Medium term finance refers to finance that is repayable between one and three years.

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Hire purchase (Instalment sale transaction)

Hire purchase is a credit sale in which it is agreed that the purchase price of the item will be
paid in instalments. Although the buyer takes possession of the item, the ownership of the item
sold will not pass to the buyer until the last instalment has been paid. An initial payment
deposit, which is a portion of the cash price, is usually payable by the buyer of the item. Hire
purchase and leasing are the most popular methods of financing fixed assets such as machinery,
equipment, furniture and motor vehicles. This form of financing is available from most
commercial banks.

Leasing finance

A leasing transaction is a transaction in which goods are leased at a stated sum of money at a
certain dates or a future date, in whole or in instalments. In other words, it is a contractual
arrangement in which the owner of an asset (the lessor) grants the use of hire property to
another person (the lessee) under certain conditions for a certain period. The lessee it therefore
expected to make payment or series of payments for the use of an asset.

Medium-term loans

Many commercial banks have a medium-term loan facility for clients. These loans are
normally payable over a 24 to 36 month period and are granted to finance working capital
providing bridging finance until long-term sources of finance can be obtained or for the
acquisition of fixed assets. The lender will require security for the loan. Therefore these loans
might not be available to the new businesses as they will not have a proven track record or
security.

8.7.3 Sources of long term finance

Long-term funding means that capital is provided for anything up to the entire lifespan of your
business. It is in the form of shares, capital or loans. Most of the sources of long-term finances
are available to public companies (listed and non-listed), although an establishes small or
medium sized business could consider these sources

Equity Capital

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Equity capital is the initial capital that you contribute to the business to get it started. It is
capital invested in the business with no obligation to repay the principal amount, or to pay
interest on it, to another party.

Debentures

Debentures are another form of long-term funding. Money is borrowed from outside sources
by issuing debentures. Debentures are normally printed documents is that fully negotiable and
transferable? The principle sum of money is normally repayable at some future date, while
interest payments at stipulated times (usually annually) are guaranteed. This form of finance
is however, mostly used by public companies. An established track record in profitability and
credit will be pre-requisite for this type of finance.

Retained earnings: Internal financing

For many businesses an important source of finance takes the form of profits that are retained
in the firm as reserves instead of being distributed as dividends. Management has complete
control of this source of finance

It should be noted that depreciation allowances constitute a significant form of internal

financing. Depreciation is the setting aside of funds to replace existing assets. A firm can reuse
those funds for other uses during the lives of the assets in question. For the new venture and
small businesses, this form of ‘self’ finance is virtually the only type of finance available until
it has established itself.

Long-term loans/mortgage bonds

This form on finance can only be considered if the company owns immovable property that is
encumbered or partly encumbered by a mortgage bond. Payments of the mortgage bong=d is
spread a long period of time normally 20-30 years.

Institutions that support small and new business ventures

 Commercial banks
 Merchant banks
 Business partners
 Industrial development corporation
 Local Business support centres (ZDA. CEEC)

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Informal Sources of Finance

The three ‘Fs’ informal sources of finance are: family, fools and friends. Entrepreneurs need
to be very careful when getting finances from these sources as that might introduce a lot of
confusion in the firm through unnecessary interference. The best way to avoid that is by making
sure that loans are gotten on a business like basis.

8.7.4 The venture capital and private equity market

Funds made available for startup firms and small businesses with exceptional growth potential.
Managerial and technical expertise is often also provided. This is also called risk capital.
Venture capitalists are specialist lenders who undertake high risk investments hoping to make
high returns. They lend money in exchange for part ownership of the business in the hope that
the business will flourish and grow and eventually float on the stock market. At this point the
venture capitalists can sell their shares at a profit.

8.7.5 Government Grants and loans

The government can offer grants to entrepreneurs through different channels. In some countries
there is a ministry purely responsible for overseeing the funding of small businesses and
entrepreneurial ventures. There can also be government bodies set to train entrepreneurs then
provide funding that will closely be monitored to make sure that the recipients are using the
funds appropriates. Funding can be issued in the form of grants, loans or a combination of
both. The loans are usually offered at very low interest rates and in most cases with long
repayment period.

8.7.6 Sources of Entrepreneurial finances available to Zambians

If you have indeed a business idea at hand that you are passionate about and you require capital
to get started or to grow your venture, you will need to know more about efficient ways to do
that, here are some of the organizations that you should consider in your search:

Youth Development Fund : The overall objective of the Youth Development Fund is to lend
finance to viable projects by young Zambian entrepreneurs. The Ministry of Youth and Sport
has since 2010 been implementing the youth development fund, and has disbursed a
substantive amount of money to fund young Zambian entrepreneurs.

The Citizens Economic Empowerment Commission (CEEC): is a government body which

was established by the CEE Act whose mandate is to promote broad based and equitable
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economic empowerment of citizens that are or have been marginalized or disadvantaged and
whose access to economic resources and development capacity has been constrained due to
various factors such as race, sex, educational background, status and disability.

The Awesome Foundation Lusaka : This organization supports any/all types of awesome
ideas. It supports ideas that are both on paper and those that have launched. Awesome projects
include initiatives in a wide range of areas including arts, technology, community
development, and more. Many awesome projects are novel or experimental, and evoke surprise
and delight. The foundation gives away a 600 USD grant every month. The deadline is the
last Monday of every month. To qualify for the 600 USD you need to answer 3 questions:

 Tell us about your awesome project?

 How will you use the money?
 Tell us a little about yourself?

Kukula Capital : is a leading venture finance and private equity firm in Zambia. The company
operates under two main business areas: Fund Management and Advisory. The name Kukula
is associated with growth in the local dialects of Zambia. Kukula Capital invests in Zambian
growth companies with capital and expertise. It has invested in ventures such as: Jabulani
Sawmills Ltd, its core business is Sawmilling of timber and production of value-added wood
products such as wood boards and furniture. The expansion was financed with a royalty loan
of USD 270,000.The investment has been used to establish a state of the art wood board factory
which has created 10 new jobs. The company supports a replanting program to ensure
sustainable forestry and operates an orphanage with 18 children.

VC4Africa : VC4Africa is the largest online community of entrepreneurs and investors

dedicated to building game changing companies on the African continent. Entrepreneurs have
access to free online tools, mentorship opportunities and private deal rooms. The community
has members in 159 countries and meet-ups have been hosted in more than 50 cities around
the world. If you’re a start-up looking for Funding for your venture or an investor looking to
invest in the world’s fastest growing continent this is the platform for you.

African Women Development Fund : The AWDF is the first pan-African women’s grant
maker in Africa. Since the start of its operations in 2001, AWDF has provided $17 million in
grants to 800 women’s organizations in 42 African countries. The AWDF only awards grants
to organisations, not individuals. It awards grants ranging from $8,000 up to $50,000.

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The Tony Elumelo Foundation for Entrepreneurship program : The recently launched
$100 million Tony Elumelu Foundation Entrepreneurship Program (TEEP) is an annual
program of training, funding and mentoring, designed to empower the next generation of
African entrepreneurs. Founded by Tony Elumelu, the successful Nigerian entrepreneur and
philanthropist, the fund seeks to identify and support 1,000 start-up entrepreneurs from across
the continent each year over the next decade. The fund expects that the 10,000 start-ups and
young businesses selected from across Africa will ultimately create one million new jobs and
add $10 billion in annual revenues to Africa’s economy.

Seedstars Africa : is a member of Seedstars Group, a Swiss-based venture builder that is active
and invests in 35+ countries around the world especially in emerging markets in Asia, South
America, The Middle East and Africa.

88mph : Is a Seed Fund and Accelerator that started in 2011 and currently operates out of hubs
in Nairobi (Kenya), Cape Town (South Africa), and Lagos (Nigeria). 88mph funds only tech
companies, with a particular emphasis on web and mobile products and services. It currently
has more than $1.5 million in funds for investment in African tech start-ups. Its main focus is
to attract the best entrepreneurs, invest seed cash, and bring them to a point where their
businesses can grow independently, or be adequately evaluated by angels and Venture Capital
firms.

According to human resource experts, out of every 100 unemployed youth above 90 youth are
looking for white collar jobs. Every other youth you speak to wants to work in a bank because
they are convinced that if one wants the good life which includes a BMW and a house one
must work in a bank or a white collar job.

It may not be true that a person simply needs money and connections in order to be a successful
entrepreneur. “It’s all about good strategy and improvising with what you have. Really, the
[best tool] is creativity. If you are a creative person, then you are going to figure it out.” we are
hopeful that youths will change their mind set and take up entrepreneurship as a career.

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8.8 ACTIVITIES

Discussion questions

a. Explain how a business plan can be used to serve an internal purpose for a business
b. Describe components contained in a business plan
c. List situations that may require different types of business plans
d. Discuss the different ways in which new and existing ventures can finance their
businesses with debt
e. Discuss whether commercial banks are prepared to finance new venture start-ups.

Experiential exercises

f. Identify an entrepreneur who wants to start a business. Then draw up a business plan
for the entrepreneur that will enable him or her to obtain a loan from a bank.
g. Visit a bank and or a venture capital firm and learn at firsthand what is required to
obtain funding for a new business venture.

8.9 SUMMARY

In this unit we have defined a business plan as a written presentation that

carefully explains the business, its management team, its products or services
and its goals. There are three main reasons why business plans are drawn-up;
to obtain funding, to serve an internal purpose and to be used as a tool for reducing risks. A
standard layout of a business plan was provided to serve as a preliminary planning guide.

Finding finance for a new and growing business venture is one of the difficulties experiences
by entrepreneurs. Access to finance is acknowledged worldwide as being a barrier to
entrepreneurship. Before embarking on at the venture, the entrepreneur needs to determine the
financial needs of the enterprise. It is important that the term of finance be matched with the
expected lifespan of the asset or project that is being financed, so that the venture will not land
up in a capital crunch. It is therefore important to take note of the various sources of finance
available over the short, medium and long term.

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