ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

Economic development is the process of structural transformation of an economy towards a

modern technologically advanced economy based on services and manufacturing. This process
involves not only qualitative changes but also accompanied by quantitative changes to improve
welfare.

Entrepreneurship contribution to economic development

1. Generation of employment
2. Capital formation – through production, profits, investments, savings and further
investments
3. Growth of infrastructure- helps to open up infrastructures such as roads, communication,
factories etc. boosting economic independence by producing goods that would have
otherwise been imported
4. Provision of essential capital goods such as tools and equipment, furniture etc.
5. General improvement of standards of living by providing goods and services to the
society
6. Growth of industries- entrepreneurship results in growth of industries thus contributing
to industrialization
7. Government revenue through taxation
8. Rural development which in effect brings about equitable development
9. Reduced rural-urban migrations
10. Entrepreneurship facilitates structural transformation and innovation.
11. Facilitating transformation from traditional agricultural based economy to modern
industrial economy and production for the market.
12. Entrepreneurs are seen as capitalists and therefore facilitate increased savings through
which capital accumulation is stimulated for investment.
13. Entrepreneurs provide an environment where human capital is accumulated in the form
of; workers specialized and non-specialized Managers of all levels.
14. The entrepreneurial ability determines the sizes of firms and the general growth of an
economy by; The limitative role and ability to take risks and ability to trigger
investments.
15. Entrepreneurship facilitates re-allocation of production factors from less productive areas
to productive areas.
16. They cause an increase in the demand for education of labour.
17. Facilitates adoption of improved technology. Through entrepreneurship creation of new
firms through, which increased production, production for expert market and
employments are achievable.
18. Through entrepreneurship need to knowledge accumulation generalization and
commercialization has had to cooperation between researchers and institutions, private
firms (sector) and the government.
 19. Through entrepreneurship development and production of variety of consumer goods,
producers goods or intermediate goods has greatly increased hence new products are
bought to the market and also application of new technology and profit multiplication.
20. Through entrepreneurship information if provided on what an economy can be good at
producing which in the context of LDCS information is lacking.

IDEA GENERATION AND EVALUATION

Business ideas and Opportunities

A business idea is something that entrepreneurs develop in order to solve a problem or meet an
existing need in the market; whereas a business opportunity is a concept that can be used to make
money. It can be in form of a product or a service developed to solve a need.

A business opportunity emerges from a business idea that has been researched upon, evaluated,
and packaged into a product or service to solve a market problem through a business venture.

Means of Generating a Business Idea

1. Identifying a Need

A need can be an opportunity and indeed a consumer buys to satisfy need. Abraham Maslow in
his humanistic hierarchy of needs, physical needs to very high personalized needs. Identifying
un-served need is a sure way of generating business ideas.

2. Brain Storming

This is a process of detaching analysis of an idea from the actual ideas. The idea may or may not
be related to a given product. In brainstorming even silly and stupid ideas may be generated.

It is the method that allows people to be stimulated to greater creativity by meeting with others
and participating in organized group experience.

When using brain-storming the following rules must be obeyed.

 No criticism or negative comments

 The wilder the idea the better (freewheeling)
 Quality of ideas is desired
 Combinations and improvements of ideas are encouraged.

3. Building on One’s Skill, Hobbies or Interests

Business ideas can be generated through

- personal interests and hobbies

 - Copying or improving somebody’s ideas (Skills)

4. Spotting a Market Niche

Entrepreneurs usually look for gaps in the growing markets, identifying market sections which
are not being utilized.

5. Listening to what People say

These are people who simply say or speak their needs e.g. if these good bus services

6. Recycling waste materials

What would appear waste can be used- say recycles to create a new opportunity.

7. Magazines and newspapers

8. Trade fairs, shows and exhibitions
9. Personal skills and knowledge
10. Improving on existing businesses

How to screen business ideas

After generating business ideas- it is important that some evaluation through a screening process
be made. The screening process is a systematic evaluation of ideas in order to select the best idea
which would suit one. The screening process must be done carefully, objectively, soberly and
without any emotions. The business idea screening is required even when there is only one idea
to consider. This is because this is a stage of starting a business that may be not be profitable or
may be difficult to run.

The screening process must therefore evaluate the following

a. Personal Evaluation
• The objective for going to business
• personal interests
• The degree of commitment to the business or others e.g. family.
b. Personal Skills
c. The self SWOT analysis – this aims at analyzing
 Strengths
 Weaknesses
 Opportunities
 Threats
d. Market evaluations
e. An analysis of skills available
f. Analysis of the government policies.
The Importance of this Screening Stage includes;

• In order to develop a strategic profile.

• To provide a framework to assess the current and future plans
• To act as a control technique when conducted periodically
• To get realization ( reality) on the activities

Evaluation of a business idea

A business idea has to be analyzed to ensure it is viable. It can be evaluated at both
personal and business considerations. Evaluation is necessary in order to select a business
that is likely to succeed.

These considerations are;

1. Personal consideration
Before going into a business, entrepreneurs need to evaluate themselves. One should
analyze his or her skills, goals, interest, commitment and financial status.
a) Personal objectives
b) Knowledge and skills of an entrepreneur
c) Interest of the entrepreneur
d) Financial status of the entrepreneur
e) Commitment of the entrepreneur

2. Business consideration
These are external forces that are likely to affect the business. They include;
a) Markey availability
b) Availability f raw materials
c) Availability of technology
d) Availability of skills
e) Government policy
f) Levels of competition

Components of the SWOT

The screening process or evaluation helps identify;

a. Strength
• Distinctive competence
• Adequate finances
• Access to economies of scale
• Good innovation ability
 • Proven management
b. Weakness
• Lack of key skills
• Internal operations problems
• Low morale
• Poor track records
• Weak internal image
c. Opportunities
• Potential customers
• Potential goodwill
• Health
• A favorable social
d. Threats
• Strong competitions
• Adverse government policies
• Political instability
• Unfavorable legislation

Characteristics of a Good Business idea

1. Easy to manage and involve minimal risk.
2. Does not require excessive capital investments
3. Offers a good returns on capital
4. The idea has scope for growth, expansion and diversification
5. Comparative with owner’s goal and interest
6. Not against expectation of the society
7. Has a short gestation period
8. Has a readily available market
9. Easy to exit when necessary.

The sources of new ideas

Some of the more frequently used sources of business ideas for entrepreneurs include.

1. Consumers

Potential entrepreneurs not only pay attention to potential customers but also monitor their
potential needs through allowing the customers to express their opinions.

2. Existing products and services

Through monitoring and evaluating competitive products and services.

3. Distribution channels
Contact with members of the distribution channels since they are familiar with the needs of the
market and give suggestions of new products and consumer needs.

4. Government

Can be a source of a business idea through

 The patent office which contains numerous product possibilities

 Official government magazines
 Government regulatory bodies
 Government shows and exhibitions
5. Research and development
 largest source of new ideas to the entrepreneur
 Education – i.e picking a given line of study e.g construction
 Vocational training programmes and experience.
 Personal hobbies especially for craft entrepreneurs.
6. Personal contacts and observations through;
 Interactions
 Newspapers and magazines.
 Conducting surveys and interviews of the people around.

Opportunity Recognition
Some entrepreneurs have the ability to recognize a business opportunity which is fundamental to
the entrepreneurial process as well as growing business.

A business opportunity represents a possibility for the entrepreneur to meet a large enough
unsatisfied need that is worthwhile.

The key to recognition of an opportunity lies in the knowledge (education) and experience
gained either by a person or through work by both.

The prior knowledge is as a result of the combination of education and experience.

The entrepreneur needs to be aware of this knowledge and experience and have the desire to
understand and make use of it.

The other important factors in this process include

 Entrepreneurship alertness
 Entrepreneurial networks

Those entrepreneurs who have the ability to recognize meaningful business opportunities are in
strategic position to successfully complete the planning and development process and
successfully launch a new venture.
Definition of a Business Opportunity

A business opportunity may be defined as an attractive project idea which an entrepreneur

accepts for investment on the basis of what is known about the possible success for the project. A
real business opportunity can be distinguished from a mere possibility through the following two
ingredients.

 A good market scope

 An attractive return on investment ( profit)

Qualities (Characteristics) of a Good Business Opportunity

The following are qualities of a good business opportunity.

 Availability of raw materials.

 Availability of relevant skills.
 A good opportunity should give good profit.
 There should be adequate market for the goods or services.
 The technology should be available.
 It should be easy to join and exit the industry.
 It should be easy to manage the business.
 There should be favorable government policies.
 Capital required should be available.
 There should be fair consideration.

Evaluation of Business Opportunities (objectives of a pre-feasibility study)

Once a business opportunity has been identified one needs to confirm that it is viable through a
pre-feasibility study.

The main objective of a feasibility study is to determine whether;

 The investment opportunity is promising enough

 The project is viable from the marketing, manufacturing and other points of view.
 Any aspect of the project that may be crucial to call for in-depth analysis.

The Purpose of Pre-feasibility Study (Market Research)

To verify that the investment opportunity is promising enough to make a firm decision

To confirm that the project is viable from the

 Marketing
 Manufacturing and
 Other points of view
To identify any aspects of the project that is critical or crucial enough to call for in-depth
analysis.

To acquire comprehensive technical, economic and commercial data for the final investment
decision

To enable an in-depth study of aspects such as

 Market potential
 Technical requirements
 Managerial ability
 Financial projections and analysis
 Risks evaluation
 Business environmental analysis.

To enable sourcing reliable information such as

 Authorized publications
 Consultants openings.

To establish the final outcome of whether or not to proceed with the business

Causes of business success

A successful business is one that is able to cater for its needs with ease and make considerable
profits.

1. Availability of credit facilities

Adequate finance and availability credit facilities to entrepreneurs results in the success
of a business. This is because all its activities can operate well hence production is high
or can be increased.
2. Developed infrastructure
Adequate and well-developed infrastructure such as roads, the internet, ports, water and
electricity contribute to high levels of investment and satisfactory performance of
businesses.
3. Skills and character
Entrepreneurship is the character practice and skills of an entrepreneur. This refers to
identifying ideas, products and services mobilizing resources, organizing production and
finally marketing, taking risks with constant growth and excellence.
Majority of businesses succeed because the entrepreneurs have the necessary skills to
match the business requirement.
4. Government support
 The success of businesses is determined by government laws and regulations. Supportive
regulatory environment leads to rapid business growth. Fewer taxes and licenses
encourage entrepreneurs to run businesses. The support of business owners by local
authorities and government official leads to the success of businesses.
5. Access to markets
Access to markets and marketing information leads to success of a business since
entrepreneurs can market their goods and services at the right prices. Availability of
marketing information also enables the entrepreneurs to compare competition and supply
of products in the market hence making informed decisions.
6. Access to skills and technology
Appropriate technology and adequate training institutions to equip potential and
practicing entrepreneurs with modern technological skills are important in running
successful businesses. This leads to high production, high quality and a variety of
products, resulting in high income. Access to technical services such as research and
innovation coupled with high level of education leads to the success of the business.
7. Aggressive marketing
Intensive marketing skills are necessary for a business to be competitive. Entrepreneurs
with marketing skills meet the needs of their customers hence increased sales and
incomes.
8. Financial management skills
Entrepreneurs need to record all their transactions and invest their money in the most
profitable manner possible. Financial management skills enable the business owner to
account for all the resources leading to business success.
9. Entrepreneurial culture
This is a culture that supports entrepreneurship at all levels of education. It exposes
trainees to successful entrepreneurs in their locality and provides opportunities to practice
entrepreneurship. Successful entrepreneurs influence the youth to start and run small
businesses.
10. Evaluate business opportunity
Evaluation of business idea(s) and opportunities before investment leads to creation of
successful businesses. This enables the business owner to identify all resources required
and assess the demand of the products hence the need for a business plan. A business
plan guides an entrepreneur to business success.
11. Right choice of business
A business opportunity needs to be evaluated on the basis of ability to capture a wide
market. This enables it to earn better profits and expand rapidly.

Factors that influence entrepreneurial practices

Entrepreneurship is a process of creating innovative businesses from idea generation to growth
and maturity. A country must work hard to promote an entrepreneurial culture among its citizens
in order to develop.

Some factors the influence entrepreneurial practices include;

1. Conducive environment
This is an environment characterized by adequate physical infrastructure, training
institution, simplified business registration and licensing procedures and reasonable
taxation. To encourage entrepreneurial practice, the government has to create a conducive
environment for the business to thrive.
2. Access to domestic and foreign markets
A ready market of locally produced goods both in domestic and international markets
creates entrepreneurial opportunities. The entrepreneurs are encouraged to make high
quality and a variety of goods based on the consumers needs.
3. Government policies
These are the rules and regulations formulated by the government to influence how
business activities are carried out. Some policies are favorable for example reduction in
taxes. Favorable business policies encourage entrepreneurial activities.
4. Expand credit opportunities
Financial services such as savings and loan facilities from financial institutions and
cooperative societies enable entrepreneurs to exploit business opportunities hence
encouraging the establishment of successful businesses.
5. Entrepreneurship education
This entails equipping the youth with entrepreneurial skills and knowledge and a change
of attitude towards self-employment. The youth are also exposed to successful
entrepreneurs. Role models of successful entrepreneurs in a society can influence
potential entrepreneurs to go into self-employment and at the same time inspire those
already in business to do even better.
6. An enterprise culture
This is an environment that prepares the community to take advantage of available
opportunities in the society. It also supports all people without discrimination to realize
their potential. Such a culture encourages entrepreneurial practices.
7. Natural factors
These influence the type of activities carried out by businesses. For example, areas with
fertile soils and ample rainfall can be used to grow cash crops.