Bahir Dar Institute of Technology (BiT)

Faculty of Mechanical and Industrial Engineering

Industrial Engineering Program

Entrepreneurship for Engineers

5th year WRHE

2009E.C.

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 Contents
Part 1 Introduction to Entrepreneurship

Part 2 Starting Technology based new venture

Part 3 Entrepreneurial cycle (process of business dev’t)

Part 4 Choosing The Legal Form of Ownership

Part 5 Operations of Business startup

Part 6 Risk and insurance of Business enterprises

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 Chapter One
Entrepreneurship
1.1 Meaning and concepts of the terms
entrepreneur, entrepreneurship
1.2 The entrepreneur vs the manager
1.3 Characteristics of Entrepreneurs
1.4. Kinds of Entrepreneurship
1.5. Success factors for entrepreneurs
1.6. Motivation for starting a business
1.7. ways of going in to business & becoming
an entrepreneur
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1.6 Small business
 1.1. Meaning of the terms Entrepreneur,
Entrepreneurship

What is Entrepreneur?

 Entrepreneurs are action-oriented, highly motivated individuals

who take risks to achieve goals.

 Entrepreneurs are people who have the ability

 to see and evaluate business opportunities,

 to gather the necessary resources to take advantages

 to initiate appropriate action to ensure success.

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 Economists may view entrepreneurs as those who bring

resources together in unusual combinations to generate

profits.

 Psychologists tend to view entrepreneurs in behavioral

terms as those achievement- oriented individuals driven

to seek challenges and new accomplishments.

Example: It is the entrepreneur who only knows

 Opening of new college or university near the society
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 Opening of Hotels near tourists’ attraction-center
What is Entrepreneurship?
“ Entrepreneurship is the dynamic process of creating
incremental wealth.
This wealth is created by individuals who assume the
major risks in terms of equity, time and /or career
commitments of providing value for some product or
service.
The product or service itself may or may not be new or unique
but value must somehow be infused by the entrepreneur by
securing and allocating the necessary skills and resources”
Robert Ronstadt
Entrepreneurship is very rarely to get rich-quick; rather, it is a

6 long-term value and durable cash flow streams.

 What Is An Entrepreneur
& Entrepreneurship ?
ENTREPRENEUR
 A vision-driven individual who assumes significant personal
and financial risk to start or expand a business.

ENTREPRENEURSHIP

 The pursuit of opportunity through innovation, creativity

and hard work without regard for the resources currently
controlled.
 Entrepreneurship is an economic concept. Economics
describes four factors of production, namely, land, labor,
capital and entrepreneurial ability (organizational skill).
 1.2. The entrepreneur versus the owner manager
(similarities and differences)
Entrepreneur
a. Entrepreneurial function is the organization of production

b. Decision-making and calculated risk bearing

c. An entrepreneur has an all-round personality

d. High levels of achievement motivation

e. Innovative, creative, imaginative soul

f. The entrepreneur is the owner of the business who enjoys

the position of an employer.

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 Cont’d…
Owner Manager
 They may or may not be entrepreneurs.
 They own and manage a small enterprise, in a way, which
fits with their personal motivations.
 They are more intent on survival than seeking innovative
change and growth.
1. Limited scope for innovativeness, creativity and imagination
2. Managerial jobs are transferable
-As a manager in the business organization, his job is
transferable from office to office, from one unit and
location to another location
3. Managers do not bear-risk
9 -Risk bearing capacity is an entrepreneurial quality
1.3. Characteristics of Entrepreneurs /personal competencies
1. Need for Achievement:- vision
2. Willingness to take risks:-financial, careers, family ,
3. Self-Confidence:- internal and external locus of control
4. Innovation:-. The entrepreneurial manger is constantly looking
for innovations, not by waiting for a flash of inspirations, but
through an organized and continuous search for new ideas
5. Total Commitment
6. All-rounders
7. A need to seek refuge:- escape from environmental factor
a. The Foreign Refugee
b. Corporate Refugee
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c. Other Refugees
 Cont’d…
Other types of “ refugees” mentioned are the following:

1.The parental (paternal) refugee

Who leaves a family business to show the parent that “I can do it
alone”.
2.The feminist refugee
Who experiences discrimination and elects to start a firm in which
she can operate independently male chauvinist.
3.The housewife refugee
 Who starts her own business after her family is grown or at some
other point when she can free herself from household
responsibilities.
4.The educational refugee
 Who tires of an academic program and decide to go into business.
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 1.4. Kinds of Entrepreneurship
 Founding Entrepreneurs /Founders/: Generally considered to be

the “Pure” entrepreneurs, funders may be inventors who initials

business as an the basis of new or improved products or services.

 General managers: As new firms become well established,

founders become less innovators and more administrators. Thus,

we recognize another class of entrepreneurs called general
managers.
 Franchisees: A system in which semi-independent business
owners (franchisees) pay fees and royalties to a parent company
(franchiser) in return for the right to become identified with its
trademark, to sell its products or services, and often to use its
12 business format and system.
 Cont’d…
 Women Entrepreneurs.

 Founders and other Entrepreneurs.

a. Founding Entrepreneurs /Founders/

b.General mangers and
c. franchisees

 High-Growth and low-Growth Firms

a.Marginal Firms
b.Attractive Small Companies and
c.High potential ventures.
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 1.5. Success factors for entrepreneurs

Most new ventures succeed because their founders are

capable individuals.
1.The entrepreneurial team
2.Incremental growth of product or services
3.Marketing and timing: Market potential is
critically influenced by timing of new products or
services.

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Drawbacks of entrepreneurship

a. Limited resource:- entrepreneurship mostly starts from small

investment or contribution of owners are more than one
individual
b. Lack of experience:- most of entrepreneurs have no
experience and this may lead to in efficiency
c. Disagreement between member: if the owner of entrepreneur
is more than one person, disagreement between them can be
created. This disagreement can limit the operation of the
business.
d. Uncertainty of income:- opening and running a business
provide no guarantee that an entrepreneur will earn enough
15 money to survive
e. Risk:- starting or buying a new business involves risk and the
higher rewards the greater the risk entrepreneurs usually face.
This is why entrepreneurs tend to have evaluate risk very
carefully
f. Lower quality of life until the business gets established:- the
long hour and hard work needed to launch a business can take
their tall in the rest of the entrepreneurs life

g. Complete responsibility:- it is great to be the boss but many

entrepreneurs find they must make decision on issues about
which they are not knowledgeable. When there is no one to ask
the pressure can build quickly the realization that, the decisions
they make are the cause of success or failure.
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 1.6. Motivation for starting a business
The reason for small firm formation can be divided between “pull” and
“push” influences.
I.“Pull” Influence
 Some individuals are attracted towards small business ownership
by positive motive such as a specific idea which they are
convinced will work. ”Pull” motives include:
a. Desire for independence
b. Desire to exploit an opportunity
c. Turning a hobby or previous work experience in to a business
d. Financial Incentive
 The promise of long-term financial independence can clearly be a
motive in starting new firm, although it is usually not quoted as
frequently as other factors.
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“Push” Independence

 Many people are pushed into founding a new enterprise by variety of

factors including:

1.Redundancy==>Being without a job (idleness)

2.Unemployment (or threat of)
3.Disagreement with previous employer==>Uncomfortable relation at
work has also pushed new entrants into small business.

 The dividing line between those “pulled” and those “pushed” is

often blurred.
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 Outcomes of Entrepreneurship
 Economic growth
 New industry formation
 Job creation

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 1.7. Small business
Definition: A small business is defined as:

1. A business in which there is no public negotiability of common

stock, and

2. A business in which the owners must personally guarantee any

existing of any planned financing.

The 1990 definition of a small business as given by the Small

Business Administration is linked to the Standard Industrial Codes
(SIC). By this definition a small business does not dominate the
industry, has
 less than $10 million annual sales, and
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 less than 1000 employees.
 Cont’d…
Some trends have prevailed as to variables most often used to
describe between small and large business. These variables
include:
Number of employees

Annual sales

Amount of assets

Management organization structure

Dominance in its operating industry

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 Elements involved in Entrepreneurship

1.RISK:- Simply stated risk is “a condition in which there

is a possibility of an adverse deviation from a desired
outcome that is expected or hoped from applied to a
business risk translates in to the possibility of losses
associated with the assets and the earning potential
of the firm. ”

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 Business risks can be classified in to two broad category
market risk and pure risk.
Entrepreneurs face a number of different types of risk. These
can be grouped in to basic areas.
a. Political risk:-
b. Business risk:-
c. Economic risk:-
d. property risk
e. Personal risk

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 2.Information
Information gives the following importance to the businessmen’s
 To know the position of their competitors that is their
strength and weaknesses, business strategy they use and their
long term plan.
 To know threats and opportunity in doing business
 Helps to design long term objectives and goals indicate
capital requirement (labor, capital and machinery)
 Helps to know market position locally and internationally.

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 Sources of information
 Information are obtained from two main methods of data
collection. That is primary data collection and secondary data
collection
1. Collection of primary data:
 Observation method
 Interview method
 Through questioner
 Other methods which includes warranty cards, consumer
panels, etc

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 2. Collection of secondary data:-Secondary data are available
in
 Various publication of the central state and local government
 Various publications of foreign government or international
bodies and their subsidiary organization.
 Technical and trade journals
 Books, magazines and newspapers
 Reports
 Public records and statistics, historical documents.

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 By way of caution, the entrepreneur before using secondary data
must see that the process following characteristics

1.Reliability of data
a. Who collected the data?
b. What were the sources of data?
c. Were they collected by using proper methods?
d. At what time they collected. Etc.

2.Suitability of data:- the data that are suitable for one enquiry
may not be suitable for another enquiry, then the researcher
has to check the suitability of the data properly.

3.Adequacy of data
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 Chapter Two

Starting Technology Based New Venture

Outlines:
2.1. Introduction to technology and business
2.2 Important aspects of Technology in Business
2.3. Formation, development, and growth of technology-
based new enterprises
2.4. Technology transfer for business development
2.5. Innovation in Technology based business
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 2.1. Introduction to technology and business
Introduction
 Advances in technology are the only source of permanent increases

in quality and productivity.

 Technological changes are basically the results of innovations

which in turn are the outputs of innovative Entrepreneurs.

 Firms become innovative when they successfully incorporate a

technological change new to enterprise as well as to the economy,

and a change has diffused into the economy in addition to being
adopted by the firm.

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2.2. Important aspects of Technology in Business
Technology Intelligence for Business
 is an activity that enables companies to identify the technological

opportunities and threats that could affect the future growth and
survival of their business.

 is a technology-related information that is useful and utilized by

firms during strategic decisions.

 As technology life cycles shorten and business become more

globalized having effective capabilities is becoming increasingly

important.

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 Important aspects of Technology in Business …
Intelligence gathering may be deployed at the macro level, industry
or business level, and/or at the program or project level. The
process of gathering external data and analyzing it to derive
intelligence for major strategic decisions is referred to as
mapping the technology environment.

Conceptually, this process consists of four interlinked steps:

1. scanning the environment,
2. monitoring specific environmental trends,
3. forecasting future environmental changes, and
4. assessing current and future environmental changes for their
impact on organizational strategy.
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 Important aspects of Technology in Business …
Technology and Competition
 Technological change includes both the processes of innovation

and diffusion.

 Resource requirements, collateral assets, institutional setting, and

speed are all important characteristics of competitive domains

that frequently influence the development of technological
strategies.

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 Important aspects of Technology in Business …

Appropriation of Technology
 The appropriation of technology refers to the acquisition of
technology in both of the following two ways:
 in-house research and development and
 from external sources by acquisition or strategic alliances.
 Choosing to adopt a portfolio of technology appropriation
projects involves some basic principles.
 First, technological opportunity and appropriable of the project
are determined by the competitive impact of technology.
 Second, firms should undertake projects only in areas where
they are competitively strong.
 Third, risks and rewards need to be considered in terms of the
portfolio.
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 Important aspects of Technology in Business …

Deployment in New Products

 The development of new products has always been a
considerable generator of sales and profits for businesses.
 New products range from products that are entirely new to the
world to repositioning of already-existing products.
 The process of developing new products is characterized by two
phases:
I. The strategic phase is critical in the process in that it
determines the profit potential and ultimate success of the
product.
II. The operational phase is just as crucial in that it results in the
actual production of the new product.

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 Important aspects of Technology in Business …

 A continuum of research and development is an important

process before new products are physically exist for the market.
Figure 2.1 Development Continuum

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 2.3. Formation, development, and growth of technology-
based new enterprises

2.3.1. Introduction
 The innovative capacity of an entrepreneur and more accurately,

of companies operating in that field, is a key determinant of its

capability to;
 enhance the economic development and

 upgrade the standard of living of a country.

It is widely accepted that one of the indicators of this innovative
capacity is the rate of creation of New Technology-Based firms
(NTBF).
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 Introd.Cont’d…
 The nurturing of small firm formation and growth has become
increasingly important to the health of developed economies in
general, and to the creation of new innovative industrial sectors in
particular.
 Technology incubators, which play a role in accelerating the
commercialization of R&D outputs and the transfer of technology,
have contributed to startups of high technology-based enterprises in
the newly industrializing economies of developing and developed
economies of the world.
 Strengthening and promoting technology based ventures through
incubation programs for new technology based enterprises is
necessary for them to survive in a competitive society.

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 2.3.2. How to form and develop Technology based
ventures?

 Entrepreneurship studies have identified three critical factors

linked to successful creation of technology ventures:
 technology,
 talent and
 capital.
 The strategic focus of new ventures is to
 facilitate the effective fusion of innovative technology,
 strong scientific, entrepreneurial and management talent,
 investment capital to create a successful venture.

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 How to form and develop Technology based ventures? …

 Government policies:

 Business consulting services

 Technical consulting services

 Financing support activities

 Intellectual property assistance

 International assistance

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 2.3.3. Factors contributing to the Success of High
Technology based Enterprises
What are the main factors for the success of high-
technology based enterprises? Discuss

 national policies,
 research and development institutions
 technological entrepreneur development
 innovative finance support systems & protecting intellectual
property
 science and technology parks
 promoting and developing strategic business alliances and
networking
 standardization, quality control and marketing.
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 Factors to success of TBNE …
Some methods of ensuring such catalytic factors for developing
economies are:
a. Technocratic leadership should be given, a national vision on the creation of
knowledge-based enterprises should be boldly articulated and incentives for
innovation and risk-taking should be provided;
b. The microeconomic framework, together with a master plan prepared
in consultation with local communities, entrepreneurs and stakeholders, should
stimulate innovation and markets for new goods and services;
c. Commensurate investments should be made in scientific research and
technology development, engineering and management consultancy, technical education
and continuous learning, entrepreneurial development, quality assurance and
environmental preservation, transport and communications infrastructure;
d. Long-term plans should be formulated for developing convergent
enterprise support systems encompassing the full range of small business
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development services, anchored possibly in a business incubator and
technology park;
 How to form and develop Technology based ventures? …

e. A proactive supervisory board and a carefully selected and trained

management team are critical to success. They should make efforts to
mobilize broad community support and networks of external
professional service providers;

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Fig. 2.2. Technology based business development
process
 How to form and develop Technology based ventures? …
 Although there are different ways to formulate the formation and
development process of a NTBF, there are four fundamental
growth stages that most entrepreneurs should focus on:
Stage 1: Conception and development
 The primary focus of the entrepreneur is on the product
development, the securing of adequate financial backing and the
identification of market opportunities.
 Dominant problems of NTBF at this point include construction
of a product prototype and selling of the business idea to
investors.
 In this stage, there are many problems or barriers related to
conception that reduce the chance for new ventures. Barriers
related to: Lack of opportunities , Lack of well qualified
entrepreneurs and Lack of entrepreneurial culture
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 How to form and develop Technology based ventures? …
 Developing the new idea includes writing a business plan that
evaluates all aspects of the economic viability of the business
venture including a description and analysis of the business
prospects.
Stage 2: Commercialization
 In this stage, the major focus of new ventures is on
commercializing the product itself. The dominant problems at
this point include acquiring adequate facilities, establishing a
vendor network, and developing product support capability. All
this ends at a series of typical problems as the following ones:
 Some of the programs carried out by the different administrations
are oriented to:
 Simplify proceedings for the creation of a new
company
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 How to form and develop Technology based ventures? …
 Accessibility to different resources (financial and facilities)
and services in advantageous conditions.
 Training entrepreneurs to enable them its new challenges
 Creating incubators which are organized in order to support
and facilitate processes of enterprise creation.
Stage 3: Growth
 This stage is characterized by high growth in both sales and

employees. The major problems of the firm at this stage are to

produce, sell, and distribute the product in volume while
attaining profitability.
 Important barriers are related to the lack of financial resources to
maintain the rapid growth of the enterprise and difficulties in
45 managing internally the effects of the growth
 How to form and develop Technology based ventures? …
Programs to overcome above-mentioned problems have to do with:
 Training entrepreneurs in new managing techniques; special
attention to internationalization.
 Processes of clustering companies of the same industry in
order to facilitate the interchange of experiences and best
practices
 Access to financial resources

Stage 4: Stability
 The growth rate of the firm slows to a level consistent with
market growth. The major problems of the firm at this point are
to maintain growth momentum and market position. Therefore,
the entrepreneur should focus on the introduction of second-
generation product for acquiring new opportunities
 Enhancing the innovative capacity of firms.
46 Facilitating their internationalization
 Drive for acquire new technology
 Cost: Technology can cut costs in many ways: reducing material,
labor or distribution costs
 Speed of delivery: The key competitive priority may be the speed
of delivery, as measured by lead time required to deliver a product.
Example, Automated guidance vehicle(AGV),
 Quality: Technologies help to improve the quality and reduce the
production costs.
 Flexibility and customization: The global market place of 1990s
is characterized by short product lifecycles, increased product
variety, and extensive customization. To retain and increase market
share in such competitive environment, firms have to be more
flexible in their operations.
* Increased production volume
*Higher living standards
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 Examples:

Technology in manufacturing Technology in service

Numerically controlled (NC) machines Office automation


Industrial robots Image processing system
CAD Electronic data interchange
CIM Decision support system and expert system
Automated Materials Handling (AMH) Networked computer system and expert
Flexible Manufacturing System (FMS) system
 Successful innovation depends on the development, acquiring and

integration of new knowledge in the innovation process. In order

to successfully innovate, a firm usually combines different
innovation activities. In addition to doing own research and
development, firms typically are engaged in the acquisition of
knowledge on the technology market and cooperate actively in
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 2.4. Technology transfer for business
development
 Technology transfer is the process by which existing knowledge,
facilities or capabilities are utilized and marketed to fulfill public
and private needs.
 It is the process by which basic science research and fundamental
discoveries are developed into practical and commercially relevant
applications and products.
 Technology transfer processes constitutes technology transfer,
technology promotion, technology deployment, technology
innovation, technology development, technology research,
technology assessment, technology information and
communication, technology investment, technology collaboration
and technology commercialization

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 Steps in Technology Transfer
 It has three parallel components that need to be taken into
consideration.
Science and Technology
Marketing:
Financing:

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 Steps in Technology Transfer…

 Each of the above components requires the inputs of different

organizations in a market, bringing to the process different
resources and skills that will eventually lead to the success of the
technology and product being developed.
Figure 2.3. Process of Technology Transfer

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 2.5. Innovation in Technology based Business
 Innovation refers both to the output and the process of arriving

at a technically feasible solution to a problem triggered by a

technological opportunity or customer need.

 Innovations are new ways to achieve tasks.

It is distinguish as
 process innovations and
 product innovations
 Service innovation
 Product innovation: results in new or improved products.
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 Innovation in Technology based Business …
 Process innovation: occurs when the manufacturing processes are
improved to make the production of existing products cheaper, or
when new processes are developed specifically for making a new
or improved product.
 Service innovation: occurs when new ways of delivering services
are developed.
Discussion, give an example for each types of innovation
 The innovation process, which leads to useful technology, requires:

– Research

– Development (up-scaling, testing)

– Production

_ Marketing and – Use

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 Innovation in Technology based Business …
 The process of innovations can also be classified as Market-pull

and Technology-push innovation:

a. Market-pull innovations: advancement of technology oriented
primarily toward a specific market need
 a) Occur when customers are technologically sophisticated
 b) Occur more frequently with older technologies
 c) Tend to be incremental innovations
b. Technology-push innovations: advancement of technology
oriented primarily toward increased technical performance
 a) Require that the firm’s scientists, engineers, and inventors have
direct experience with users
 b) Occur more frequently with new and emerging technologies
 c) Tend to be the major source of breakthrough innovations
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 Innovation in Technology based Business …

 The

Figure 2.4. Market-pull and Technology-push innovation processes

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56
Figure 2.5. the relationship of technology, market and product
 Promotion and Commercialization of technology-
based innovation
 The process of taking an invention from idea to business concept

and then to market is called technology commercialization.

 Consequently, products must be developed faster, prototyped

earlier, and brought to market in record time.

 The promotion of technology appears to be essential to the process

of industrialization. Though transfers of technology can temporarily

be beneficial, potentialities of technology promotion are believed to
lie in a systematic utilization of research and development.

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 Entrepreneurship and Technological Change

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 Summary… Technology, Entrepreneurship and
Innovation
 The role of the Engineer in Entrepreneurship

 Engineers drive technological entrepreneurship, as inventors,

researchers, designers, and as managers
 Engineers make up the largest percentage of:
 Most start-up founders and early employees
 Chief Executive Officers
 Engineers are often the first hires and an important part of the
technical (and management!) team
 “Technically, engineers are well-qualified in many respects for
this activity, but often lack the necessary business skills and
entrepreneurial mentality.”
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 Summary… Technology, Entrepreneurship and Innovation…

 Entrepreneurship and Innovation

“Innovation is the specific tool of the

entrepreneur”
 Peter F. Drucker

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 Summary… Technology, Entrepreneurship and Innovation…

 What is Technological Innovation?

“An Innovation is an idea, practice, or object that is perceived as
new by an individual or other unit of adoption…if an idea is
new to an individual, it is an innovation.”
 Rogers, Diffusion of Innovations, 4th Edition, 1995
“Creativity is thinking up new things. Innovation is doing new
things.”
 Theodore Levitt
“Innovation: the process of bringing new goods and services to
market, or the result of that process.”
 Public Investments in University Research: Reaping
the Benefits, Advisory Council on Science and Technology

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 Summary… Technology, Entrepreneurship and Innovation…

 What is importance of Technological Innovation?

“Business has only two basic functions – marketing and

innovation.”
 Peter F. Drucker

1. Innovation provides competitive advantage

2. Innovation provides a better quality of life

How?

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 Summary questions
1. What is technological entrepreneurship?
2. What is the impact of entrepreneurship on society?
3. What is the role of the engineer in new ventures?
4. What is technological innovation?
5. Describe Creativity, Innovation, Technology and
entrepreneurship
6. Discus The process of innovation (market pull and
technology push innovations)
7. Discuss technology transfer, promotion and
commercialization of technology based innovation
8. What are the Drives for acquiring new technology
9. Factors contributing to the Success of High Technology
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based Enterprises