3. THEORIES OF ENTREPRENEURSHIP 2024.ppt

3. THEORIES OF ENTREPRENEURSHIP.ppt

1. ENTREPRENEURSHIP &
INNOVATION
THEORIES OF ENTREPRENEURSHIP
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THEORIES OF ENTREPRENEURSHIPTHEORIES OF ENTREPRENEURSHIP
A consistent universal theory does not exist
in entrepreneurship, but rather it consists
of several different approaches including:
psychology, sociology and economics.
PSYCHOLOGICAL THEORIES
Psychological theories pay attention to
personal traits, motives and incentives of
an individual and conclude that
entrepreneurs have:-
 1. strong need for achievement

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Psychological Theories of Entrepreneurship
High Internal locus control- To master and
manipulate physical objects, human being or
ideas. to excel one’s self.
High risk taking propensity- To overcome
obstacles and attain a high standard,
Tolerance of ambiguity – To accomplish
something difficult
Psychodynamic model- being rebellious
Self-efficacy- task -specific self-confidence

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Psychological Theories of
entrepreneurship
Psychological theories view entrepreneurial
behavior as a function of inborn qualities.
Individuals with a high need for achievement, a
strong sense of independence, an internal locus
of control, and a moderate risk-taking
tendency are more likely to start their own
businesses compared to others who do not
possess these qualities

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Sociological Theories of
entrepreneurship
Sociological theories
Sociological theories suggest that
entrepreneurial attitudes and intentions are
socially generated and sustained.
Individuals who grew up around a society
or family that runs a business or where
business is highly valued are likely to learn
and model this tendency, perceiving it to be
feasible and more socially desirable and
rewarding than employment.

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Theories of Entrepreneurship
Education, Training and Experience
These will influence the choice of an entrepreneur in
setting up of an enterprise. Normally the business is
set up in one’s area of specialization which provides
confidence and reduces the uncertainty associated
with the new business.
Family, Role models and association with similar
type of individuals
All these add vigor to the desire of an individual to set up
a new venture
Financial conditions
Both adverse and supporting financial conditions can
motivate an individual to set up a new venture.

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Theories of Entrepreneurship
Recognition
The success of an enterprise is associated with
the efforts and success of an entrepreneur
as he gets enough recognition to enhance
his self-esteem.
Social Status
Entrepreneurship is the way to earn huge
profits, it raises the social status of an
individual employing a number of
individuals and taking important decisions.

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Theories of Entrepreneurship
Social Networks – reduces transaction cost,
based on trust not opportunism.
Life course stage – back ground of the
entrepreneur
Ethnic identification – disadvantageous
background of entrepreneurs (Chagga &
Kinga)
Population ecology – examines the survival
of enterprises in relation to environmental
factors

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Economic Theories of
Entrepreneurship
Economic theories considered to be responsible for
business formation are the push (discourages) and
pull (encourages)factors. Push factors force one to
become an entrepreneur and pull factors motivate
one to be an entrepreneur. Hence, people who have
greater access to other opportunities, including
employment, may have less interest in starting their
own businesses. In Tanzania, as in other developing
countries, people are driven to start businesses out of
economic necessity; they do not have employment
and must start some income-generating activity to
meet basic needs. But those who start businesses
because of economic necessity generally have a
passive disposition towards the future and are neither
risk takers nor innovative.

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Theories of Entrepreneurship
PULL FACTORS:-
Supportive government policies
Government formulating policies to promote
entrepreneurs in different fields e.g. tax
holidays.
Availability of financial assistance from
various funding bodies:-
If financial assistance is available from
financial institutions, this can facilitate the
setting up of a new venture.

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Theories of Entrepreneurship
Ancillary Support;
This support from customers, distributors, retailers etc. can
act as a great encouragement to set up ventures.
Availability of Infrastructures like electricity, water, working
premises
These will facilitate setting up of new ventures and even
the success of the businesses.
Business Environment
Supportive business environment like low rate of
competition, high profit margins, good economic conditions
of the region, high demand – all contribute towards
motivating an individual to set up a new venture
PUSH FACTORS:-
To supplement income- salary/wages not enough
To meet basic economic needs- due to redundancy, serving
jail term

12. Economic Theories of
Entrepreneurship
Economic factors that encourage or discourage
entrepreneurship include:
taxation policy
industrial policy
easy availability of raw materials
easy access to finance on favorable terms
access to information about market conditions
availability of technology and infrastructure
marketing opportunities
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13. ENTREPRENEURIAL PROCESS
Definitions: Entrepreneurial
Process
Bygrave and Hofer (1991) defined
Entrepreneurial Process as the one
involving all the functions,
activities, and actions associated
with the perceiving of opportunities
and the creation of organizations to
pursue them.
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14. The Entrepreneurial Process
(Timmons, 2000)
Opportunity Resources
Team
Communication
Business Plan
Fits and Gaps
Creativity
Leadership
Capital Market Forces
Uncertainty
Ambiguity
Exogenous Forces
Founder

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Entrepreneurial Process: These Entrepreneurial Process: These
processes are:processes are:
Identify an opportunity
Entrepreneurship is about sensing an opportunity at a regent time
where others see chaos, contradiction and confusion as it takes an
enterprise ahead of others who take time to catch up
Opportunity is the business concept that, if turned into tangible
product or service offered by a business enterprise, will result in
financial profit
Establish a vision: An entrepreneur further move to
establish a vision – a dream for future. Even if some market
forces change, he would readjust his vision to reap his dream
viable and fruitful.
Persuade others: an entrepreneur cannot work alone; he
needs multiple skills to make business successful. He prepares the
business plan to make the vision and means of achieving the
vision charter to the others who would join the team including
financiers including family members who put in their trust in the
entrepreneur.

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Entrepreneurial Process
Gather Resources: A business enterprise needs resources
to become successful. Resources can be considered in four
categories:
(a) Financial resources: It is the life blood of any
organization. It includes Personal savings, family and
friends, retained capital, banks, government institutions,
NGO’s floating public issues.
(b) Operating Resources: Building, plant, office
equipment, raw material, electricity, management,
transportation, and operating procedures.
(c) Human Resources Management: Human resources
are the only living and vibrant part of the organization. It
can provide the cutting edge over the others.
(d) Information Resources: Organizations have to
work hard to run an efficient MIS in order to have timely
information about customers, markets, external environment
and even their employees.

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Entrepreneurial Process
Create New Venture: The next step is the
creation of new venture and running the business
successfully this requires lot of perseverance and
passion to believe in self.
Change with time:A change has become the rule of
the game in today’s business environment; it requires
adaptability of human resources towards the change
environment.
The essence of entrepreneurship is not creation and
accumulation of wealth but distribution of wealth
amongst all those who are associated with the
business.

18. Analysis
Strategy
Formulation
Eval., Review,
& Feedback
Implementation
The Entrepreneurial Process

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SMALL BUSINESS MANAGEMENT
The Concept
•There is no proper definition of Small
Business
•It is a subjective and ambiguous ‘term’ since it
all depend on the country or institution
defining it. What is small in Europe might be
bigger in Africa
A study by USAID (1993) found over 50
different definitions in 75 different countries
around the world. Various criteria are used.

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Basic Criteria for Categorization
Number of employees
Capital investment
Share capital
Number of Shareholders
Total assets turnover
Geographical market coverage
(Customer base), Etc
SME Policy (URT,2002)

21. CATEGORIES OF SMEs IN TANZANIA
Category Employees Capital in Machinery (Tshs)
Micro enterprise 1 – 4. Up to 5 mil.
Small enterprise 5 – 49 Above 5 mil. to 200 mil
.
Medium enterprise 50 – 99 Above 200mil.to 800 mil.
Large enterprise 100 + Above 800 mil.
 
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Common Terms
There are three common terms used to
express Small Business
Informal Sector (IS)
Micro and Small Enterprise (MSE)
Small and Medium Enterprise (SME)
A Small Business is:
‘One which is independently owned and
operated and not dominant in its field of
operation’

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Characteristics of Small Business
Small Size of the business
Independently owned
Independently managed
It has small Market share
It has localized operations
Presence of entrepreneurial spirit

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The Role of Small Business in
Tanzanian Economy
Sources of employment about 20%
Contributes about 38% of GDP
Improve standard of living
Increased customers’ choice
Specialized products can easily provided
Part of distribution channels of large
firms
Supplies to Large firms, etc

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Why Small Businesses Fail?
Management problems
Under – capitalization
Lack of training
Lack of relevant experience (No self
preference)
Lack of Markets’ information
(misleading)
Lack of commitment ( fraud,
negligence….)

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How to Improve the Entrepreneurial
Behavior?
Sensitize the owners
A good reward mechanism
Supportive Government policies TZ
formulated the policy to support SMEs)
Easy access to Financial and non-
financial services (eg. CRDB Bank,
FINCA, PRIDE)

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SME………..
The term ‘small’ is always subjective
Entrepreneurial skills are highly needs to
make SMEs successful
You need to start thinking of your own
small Business, write a proposal of how
you will operate?, finance? and expand.
You should not be afraid of starting!
Provided that you have engaged the
brain!

28. LEGAL FORMS OF BUSINESS
In order to do business in Tanzania,
one needs to form a business entity
in a form a sole proprietorship,
partnership or limited liability
company. A business entity in a form
of sole proprietorship or partnership
must be registered under the
Business Names Registration Act.
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29. LEGAL FORMS OF BUSINESS
The most common business entity is
Limited Liability Company. All
businesses operating in Tanzania,
whatever their legal form, must
register with the Business
Registration and Licensing Agency
(BRELA),
 
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30. FINANCING SMEs
INTERNAL FINANCING:
 is obtained from firm owners,
retained earnings and trade credit
that is, delays in paying for purchases
of goods and services.
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31. Financing SMEs
EXTERNAL FINANCING, some are:-
Bank loans and overdrafts;
Leasing and hire-purchase
Angel ; Seed fund
Private equity;
factoring and invoice discounting,
Government grants or loans.
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32. LEASING
A lease is a contract whereby the
owner of an asset grants to another
person exclusive right to use the
asset for an agreed period of time, in
return for the payment of a rent.
Capital assets like land, buildings,
equipment, machinery, vehicles are
the usual assets which are generally
acquired on lease basis.
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33. HIRE-PURCHASE
Acquiring a capital asset for use,
without paying its price immediately.
Under hire purchase arrangement
goods are let on hire, the hirer is
allowed to pay the purchase price in
installments and enjoys an option to
purchase the goods after all the
installments have been paid.
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34. Private Equity
Private equity – these are shares
representing ownership of an entity
which is publicly listed or traded. It
derives from high net worth
individuals and firms that purchase
shares of private companies The
private equity industry are made up
of pension funds and large private
firms funded by a group of investors.
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35. FACTORING
Factoring is a financial service in
which the business entity sells its bill
receivables to a third party at a
discount in order to raise funds
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36. INVOICE DISCOUNTING
Invoice discounting is a technique or
a process by which a company can
borrow cash from financial institutions
on the basis of the invoices raised. In
other words, invoice discounting is
more of a short-term borrowing;
where a company can draw cash
against the invoices.
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37. GRANTS
Grants are non-repayable funds or
products disbursed one party often a
government department, corporation,
foundation or trust, to a recipient,
business or an individual. In order to
receive a grant, some form of "Grant
Writing" often referred to as either a
proposal or an application is required.
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38. LOAN
Loan is the lending of money by one
or more individuals, organizations, or
other entities to other individuals,
organizations etc. The recipient (i.e.
the borrower) incurs a debt, and is
usually liable to pay interest on that
debt until it is repaid, and also to
repay the principal amount borrowed.
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39. ANGEL FUNDING
Angel funding is from Angel investors
who are high net-worth individual
who invests in and supports start-up
companies (or new ideas) in their
early stages of growth, aiming at
achieving higher returns. They
contribute their time and experience,
offer introductions to contacts that
are essential to the success of the
business
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40. SEED CAPITAL
Seed capital is a direct capital
contribution to start-ups and early
stage initiatives in the hope that
some of them will achieve
outstanding results. Seed capital can
be used to purchase equipment, fund
start-up costs, or to absorb initial
losses.
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