Entrepreneurial Decison

UNIT 2: THE ENTREPRENEURIAL DECISION
The decision to start an entrepreneurial venture

consists of several sequential decisions
2.2.1 The decision to leave a present career or life
style.
2.2.2 The decision that an entrepreneurial venture
is desirable.
2.2.3 The decision that both external and internal
factors make the venture possible.
2.2.1 Change From Present Life-style
The two forces driving a person to leave a present life-style

and start a business are;
Pull factors are those which encourage individuals to
become entrepreneurs by virtue of the attractiveness of the
entrepreneurial option. Some of the most important pull
factors are:
• The financial rewards of entrepreneurship
• The freedom to work for oneself
• The sense of achievement to be gained from running one’s
own venture
• The freedom to pursue personal innovation
• A desire to gain the social standing achieved by
entrepreneurs.
Push factors are those which encourage
entrepreneurship by making the conventional
option less attractive. Push factors include.
• The limitation of financial rewards from
conventional jobs
• Being unemployed in the established economy
• Job insecurity
• The inability to pursue a personal innovation in
a conventional job
• Being a misfit in an established organization
2.2.2 The Decision that an Entrepreneurial Venture is Desirable
The perception that starting a new company is desirable

results from an individuals culture, subculture, family,
teachers, and peers.

Culture
•A culture that values an individual who successfully
creates a new business will spawn more company
formation than one that does not
. For example, the American culture places a high value on
being your own boss, having individual opportunity, being a success, and
making money – all aspects of entrepreneurship.
On the other hand, in some countries (Ethiopia is included) successfully establishing a
new business and making money is not as highly valued and failure may be a disgrace.

Family
• Family traits play an important role in entrepreneurship.
• The independence achieved by being company owners, professionals, artists, or
farmers permeates the entire family life, giving encouragement and value to the
company formation activity.
Teachers
• Encouragement to form company is further gained from teachers,
who can significantly influence individuals regarding not only business careers but
entrepreneurship as one possible careers path.
• Schools with exciting courses in entrepreneurship and innovation
tend to spawn.
Peers
• Finally, peers are very important in the decision to form a company.
• An area with an entrepreneurial pool and meeting places where
entrepreneurs and potential entrepreneurs meet and discussion
ideas, problems and solutions spawn more new companies than an
area where this does not occur.
2.2.3 Possibility of an Entrepreneurial Decision
what makes it possible to form a new company?
Several factors – government, background, role models, and finance –
contribute to the creation of a new venture.

Government
• The government contributes by providing the infrastructure to
support a new venture.

Background
• Here the entrepreneur must have the necessary background needed to
make the company formation possible and keep it running.
• This can be knowledge acquired from formal education or previous
business experience.

Marketing
• There must be a sufficient market size for the
products or services of the new venture
• A company is more easily formed in an area where
there is a market demand.

Role Models
• That is, to see some one else succeed makes it easier
to picture yourself doing a similar activity better.
• “If that person could do it, so can I”
Finance
• More new companies are formed when seed (startup)
capital is readily available.
Choose a career that fits what you value most.
Working for Yourself or Someone Else
Reasons for working for someone else:
1.
2.
3.
4.
5.
Reasons for working for oneself:
1.
2.
3.
4.
ADVANTAGES OF WORKING FOR YOURSELF
1. Personal satisfaction
• To some people, the chief reward of working for
yourself is personal satisfaction.
• Personal satisfaction means doing what you want with
your life
2. Independence:
 Independence is freedom from control of others.
 You are able to use your knowledge, skills and
abilities as you see fit.
 driven by spirit of self-reliance and individual
survival.
 have more freedom of action
3. Profit and income:
 Profits go to the owner of a business.
 Being self-employed, you would be able to
control your income.
4. Job security: Job security is the assurance of
continued employment and income.
Self-employed persons cannot be laid off, fired, or
forced to retire at a certain age.
5. Status: Status is a term used to describe a
person’s social rank or position.
Self-employed persons receive attention and
recognition through customer contact and
public exposure.
Closely related to social status is pride in
ownership; most people enjoy seeing their
names on buildings, vehicles, stationery and
advertisements
CONSTRAINTS OF WORKING FOR YOURSELF
possible loss of invested capital, uncertain or low income, long hours and routine
chores.
Possible loss of invested capital: One risk of being self-employed is the possibility
of losing your invested capital.
It may take years to repay banks, suppliers and individuals who loaned the money
to get the business started.
Uncertain or low income: Another disadvantage of owning your business is the
possibility of uncertain or low income. Unlike the salaries of employed workers,
profits usually vary from one month to another
Long business hours: Entrepreneurs do not work just forty hours a week; they do
not punch time clocks. Many self-employed persons work fourteen or more
hours a day, six or seven days a week.
Routine chores: Running your own business may involve routine chores you do
not like to do
Risks: You stand the best chance of success if you are prepared to take calculated
risks.
Calculated risks allow you to estimate the chances of failure or success without
taking a gamble. Very low risk ventures have less reward in terms of profits
Time involvement: Starting a small business takes a
lot of hard work. In fact, it may consume most of
your waking hours in the first few years.
People contact: contact with customers, with
employees, and with suppliers.

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UNIT 2: THE ENTREPRENEURIAL DECISION

The decision to start an entrepreneurial venture

The two forces driving a person to leave a present life-style

The perception that starting a new company is desirable

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