ENTREPRENEURSHIP AND SMALL ENTERPRIS MANAGEMENT

Bernard Nassiuma

2011

TABLE OF CONTENTS 1

FOUNDATIONS OF ENTREPRENURSHIP ---------------------------------------------------------------SCHOOLS OF ENTREPRENEURSHIP THOUGHT -----------------------------------------------------

CHAPTER 1 FOUNDATIONS OF ENTREPRENURSHIP Contents The world of the entrepreneur Who is an entrepreneur? Profile of an entrepreneur Entrepreneurs tasks The role of the entrepreneur What is entrepreneurship? Benefits of entrepreneurship Potential drawbacks of entrepreneurship What drives entrepreneurship? Cultural diversity of entrepreneurship Entrepreneurship as a discipline The power of the small business in Kenya The World of the Entrepreneur Across the globe, growing numbers of people are realizing their dreams of owning and operating their own enterprises. Entrepreneurship in Kenya continues to thrive owing to poverty and unemployment. The future of entrepreneurial activity looks incredibly bright, given technological changes and the dynamic business environment. Employment in the formal sector continues to shrink; partly due to technological changes and, downsizing of large firms among other factors. One standing causality, has been firstly the focus on educational systems worldwide and secondly, job security in large enterprises. The downsizing in large enterprises has created a more significant philosophical change, resulting in the appreciation of small is beautiful. Small enterprises can have a superior competitive age over large enterprise owing to their capacity to use technology to produce products at a much faster rate. Varying rate among nations in the entrepreneurial activity to some degree define the rates of economic growth in most nations (GEM). Nearly a third of the global entrepreneurs are between the ages of 25 &44 years. The road the entrepreneurial activity could be frightening, however, it could be incredibly rewarding both financially and emotionally. It could also look thrilling and dangerous like living life without a safety net. Who Becomes an Entrepreneur?

One who creates a new enterprise in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying significant opportunities and assembling the necessary resources to capitalize on them? Examples of people who become entrepreneurs are as follows: The inventor The unfulfilled manager The displaced manger The young professional The excluded

Entrepreneurial Profile Desire for responsibility Preference for moderate work Confidence in their ability to succeed Desire for immediate feedback High level of energy Full time orientation Skill at organizing Name of achievement over money OTHER CHARACTERISTICS High degree of commitment Tolerance of ambiguity flexibility

Entrepreneurs Tasks Owning organisations Founding new organisations Bringing innovations to markets Identification of market opportunity Application of expertise Provision of leadership The entrepreneur as a manager

The Role of the Entrepreneur Combination of economic factors Providing market efficiency Accepting risk Maximizing investors returns Processing of market information

BENEFITS OF ENTREPRENEURSHIP The benefits of entrepreneurship include; Opportunity and make a difference Opportunity to leap impressive profit Opportunity to contribute and only to be recognized for your efforts Opportunity to do what you enjoy and have fun at it

POTENTIAL CHARACTERISTICS OF ENTREPRENEURSHIP Uncertainly of income Risk of costing your entire investment Long hours of hard work Lower quality and life until business generation established High levels of stress Complete responsibility Discouragement

WHAT DRIVES ENTREPRENEURSHIP Entrepreneurial as heroes Entrepreneurial Education Demographic and economic factors Shifts to a service economy Technological Advances Independent life styles E-Commerce and world wide web 4

International opportunities. Cultural Diversity and Entrepreneurship

Young Entrepreneurs Women Entrepreneurs Street based entrepreneurs Part-Time Entrepreneurs Corporate Entrepreneurs Home-based Entrepreneurs Family businesses Copreneurs Corporate castoffs Corporate Dropouts Social Entrepreneurs

The Power of the Small Business Kenya The micro and small enterprises contribute 97% of all enterprises in Kenya The MSEs contribute 18% to the GDP IN 2004 MSEs contributed 74% of all new jobs Most of the new products and service are generated in the MSEs Ten deadly mistakes of entrepreneurship 1. Management mistakes 2. Lack of experience 3. Poor financial control 4. Weak marketing efforts 5. Failure to develop a strategic plan 6. Uncontrolled growth 7. Poor location 8. Improper inventory control 9. Incorrect pricing

10.Inability to make entrepreneurial transition Management mistakes Poor management Lack of capacity to operate the enterprise Lack of leadership ability & sound judgment Many lack what it takes to run the business A shortage of good judgment and understanding Lack of experience Lack of experience in the field Lack of adequate technical ability Lack of power to visualize, coordinate and integrate the various operations of the business into a synergistic whole The skill to mange and motivate people in and organization Poor financial control Proper financial control essential for the success of the enterprise Lack of sufficient financial resources at start-up Misjudgment of the financial requirements of the enterprise Poor implementation of proper cash management Lack of adequate cash flow to pay bills Poor credit screening, sloppy debt collection practices & undisciplined spending habits Weak marketing effort Field of dreams mistake Building a growing base of customers requires a sustained creative marketing effort Keeping them back requires value, quality, convenience, service and speed Lack of creative marketing strategies Inability to identify the target market Failure to develop a strategic plan Neglect of the strategic planning process Poor self perception in terms of size and lack of time Failure to results in failure to survive 6

Failure to develop a competitive edge in the market place Failure to assess realistically the business potential Failure to state how the business will gain a sustainable edge over its competitors Uncontrolled growth

Growth must be planned and controlled Start-up enterprises in most case out grow their capital base each time the sale increase 40-50% Expansion should be financed by the profits or capital contributions by owners Lack of changes in organisational structure, business practices such as financial control procedures, personnel assignments etc Lack of change in managerial expertise Increase in size and complexity and associated problems Lack of adequate managerial capability during growth stage Poor location

A business choosing the right location is partly a science and partly an art Most business locations are selected without proper study, investigation, and planning Choice is at times based on availability of a vacant building The location of a retail enterprise is influenced on location Poor location

A business choosing the right location is partly a science and partly an art Most business locations are selected without proper study, investigation, and planning Choice is at times based on availability of a vacant building The location of a retail enterprise is influenced on location Improper inventory control

Inventory control is one of the most neglected managerial control responsibilities Insufficient inventory levels result in shortages and stock outs, causing customers to become disillusioned and leave Sometimes there is too much inventory and of the wrong type Lack of a tracking system of inventory Incorrect pricing

Lack of understanding how much it costs to make, market and deliver their products & services Charging of price is based on competitors pricing or some other vague basis Some under price their products or services Lack of understanding of what it costs to make or produce in pricing Inability to make the entrepreneurial transition

The original concepts at enterprise start-up has to change with time Radical change in management style after start-up lacking Managerial ineffectiveness Lack of ability to delegate and to relinquish hands-on control of daily operations Growth pushes them into areas where they are not capable, yet they continue to make decisions rather than involve others

SCHOOLS OF ENTREPRENEURSHIP THOUGHT The great school person The psychological school The classical school The management school The leadership school The Intrapreneurship school CAPITALIST THE GREAT SCHOOL PERSON The great person perspective is an exposition of entrepreneurship in the context of the influence of individualism and capitalism to the occurrence of enterprise and entrepreneur. It holds out individual capabilities and orientation based on individualistic regards of oneself together with a system. Such people will be:- Famous, Achievers, Wealthy, Goal setters and go get, Leaders and Powerful. The psychological school

This perspective relies on the premise that individual needs, desires, attitudes, beliefs and values underlie human behaviour that people with psychological traits and inclinations such as :Need for achievement Propensity for risk taking and 8

Self confidence will be driven into engaging in successful entrepreneurial activities The involvement results from personal needs regulated by their values beliefs and attitudes Distinct personality characteristics

1. Personal value system of honesty, duty responsibility and ethical behaviour that is dependable and conscientious 2. Propensity to take moderate , calculated and controllable risks be it psychic, financial etc 3. High need for achievement setting goals strategies and working for the attainment of the goal 4. High self esteem with high internal locus of control exhibiting initiative commitment and perseverance with a high tolerance for ambiguity The classical school economist theory Pioneered by Schumpeter , cantillon who viewed entrepreneurship as a factor of production alongside land labour and capital The entrepreneur is distinguished in economic productive idea who engages creativity and innovation in the creation and provision of value and consumer satisfaction The school represents the early thinking on how economic production is initiated and carried out Entrepreneurship was seen as the invisible hand entrepreneurship is viewed as responsible for opportunity recognition, creation and seizure The hallmark of entrepreneurship therefore is creativity and innovation that are used to recognize and create opportunity The management school of Entrepreneurship Management is concerned with planning directing, co-coordinating and controlling the activities of an organisation , making decisions for action and solving problems Entrepreneurship is viewed as the management function in an enterprise. The entrepreneur executes this function The proficiency in the performance of this functions may be enhanced through rational analysis and study of cause and effect relationship The entrepreneurial manager will be driven by perception of opportunity and a commitment to opportunity seizure achievement using rent resources by multistage episode commitment relying on consultative and discernment and making decisions often based on information at hand Provides flexibility in its operational systems that is adaptive and responsive to change and opportunity identification and seizure Provides freedom for individual initiative and action in opportunity perception and exploitation, with room for creativity and innovation in organisation methods systems and extension of market horizons 9

The leadership school of Entrepreneurship Leadership is the goal driven motivation of the people for the accomplishment of organisational objectives It focuses on the role of the entrepreneur and the development of leadership capabilities The majority relies on the traits theory of leadership that recognizes the essence of leadership qualities in the efficient performance of entrepreneurial functions The leader is one endowed with intellectual aptitude and facility of language to demonstrate emotional and mental maturity and convince others with intriguing ideas and persuasion and enormous drives for accomplishment Leaders are intelligent, experienced, original charismatic, communicative, understanding with boldness and a sense of justice and fair play In the entrepreneurial context the entrepreneur leader would be one who is:-

1. Charismatic; appealing to others with their deportment and rhetoric 2. Visionary; able to define the vision, able to adjust their styles to situations flexible in their approaches 3. A people manager : - motivating directing and leading by example 4. Skilled in empowering people through delegation At individual level Take advantage and act on the opportunity as it arises Motivated by an inner drive to fulfill themselves through expression and inspiring others to follow Have knowledge to establish strategy and method as basis for action Have inner knowledge and mental resources or demonstrate knowledge needed to establish their plan Are flexible and adaptive to changing business needs doing what it takes to change or alter their course when necessary and adapt to become successful Listen to other opinions and ideas Are charismatic Have a confidence to realise that failure is reason to continue. They have inner fortitude to inspire because of values and belief in what is right Take action assessing risks and challenging inner talents of others to make call to action The Intrapreneurship school Intrapreneurship is the application of entrepreneurship skills within an existing organisation 10

Intensified global and domestic competition compels organisations to rejuvenate themselves by finding sustainable new sources of growth Deregulation worldwide and globalization are intensifying competition Organisations that have experimented with Intrapreneurship have enjoyed net benefits and more are joining the fray Elements of entrepreneurship:- internal new venture creation innovation, self renewal, and within a larger enterprise Corporate ventures have the capacity to revitalize parent organisations They bring new ideas and profit streams into the parent organisations. These help revive weak companies and reinforce strong ones. Intrapreneurship also helps retain promising staff that would otherwise be hired away by more promising careers Intrapreneurship should be encouraged by creating an appropriate organisational culture and fostering an entrepreneurial climate

11