UNIT 2: THE ENTREPRENEURIAL DECISION

Content
2.0 Aims and Objectives
2.1 Introduction
2.2 The entrepreneurial Decision
2.3 Summary
2.4 Answer to Check Your Progress

2.0 AIMS AND OBJECTIVES

This portion of the text is devoted to the presentation of the decision making process in
entrepreneurship.

After reading this unit, you should be able to:

 identify and explain the different factors under each of the three self ventral sub
decision of the entrepreneurial decision.

2.1 INTRODUCTION

For a person who actively starts his or her own business, the experience is filled with
enthusiasm, frustration, anxiety, and hard work. There is a high failure rate due to poor sales,
intense competition, or lack of capital. The financial and emotional risk can be very high.
What then causes a person to make this difficult decision?

Many individuals have difficulty bringing their ideas to the market and creating a new venture
yet, entrepreneurship and the actual entrepreneurial decision have resulted in several million
new businesses throughout the world.

2.2 THE ENTREPRENEURIAL DECISION

Many companies have been formed through a very personal human process that, although
unique, has some common characteristics. Like all processes, it entails a movement from
something to something – a movement from a present life-style to forming a new enterprise as
indicated below.

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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.
desirable.
2.2.3 The decision that both external and internal factors make the venture possible.
possible.

2.2.1 Change From Present Life-style

The decision to leave a present career and life style is not an easy one. It takes a great deal of
energy to change and create something new. The two forces driving a person to leave a
present life-style and start a business are; the pull factors and push factors.
~ 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

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The above push and pull forces can also be summarized as: work environment and disruptions

Change from present life style Form new enterprise

 Desirable
 Work environment
- Culture
 Disruption - Subculture
- Family
- Teachers
- Peers
 Possible
~ Government
~ Background
~ Marketing
~ Finance
~ Role models

The two most important incentives to leave a present life-style and start a business will be
discussed as follows:

1. Work environment
Individuals tend to start businesses in familiar areas that they are working now. And here two
work environments tend to be particularly good in spawning new enterprises. They are: 1)
Research and Development & 2) Marketing. Working in technology (research and
development) individuals develop new product ideas or processes and often leave to from new
companies when the present employer do not accept the new ideas. Similarly, individuals in
marketing become familiar with the market and unfilled customers’ want and needs and
frequently start a new enterprise to fill these needs.

2. Disruptions
Perhaps even more incentive to leave a present life-style and overcome the inertia by creating
something new comes from a negative force disruption. Disruption is a push factor towards
establishing a new venture. A significant number of companies are formed by people who
have retired, who are relocated, or who have been fired. There is no greater force than
personal dislocation to galvanize a personal into action. Another cause of disruption and
resulting company formation is the completion of an education degree.

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Yet what causes this change due to personal disruption to result in a new company being
formed instead of something else? The decision to start a new company occurs when an
individuals perceives that it is both desirable and possible.

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. Therefore, it is not surprising to find a high rate of
company formation in the United States. 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.

~ Subculture
However, even an entire culture is not totally for or against entrepreneurship. Many different
subcultures that shape value systems are operant within a cultural framework. There are
pockets of entrepreneurial subcultures in every culture. More individuals actively plan to form
new enterprises in these supportive environments.

~ Family
Family traits play an important role in entrepreneurship. Studies of companies in a variety of
industries in many countries indicate that 50 to 72 percent of founders of companies had
fathers and /or mothers who valued their independence. 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.

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 ~ 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

While the desire generated from the individuals culture, subculture, family, teachers, and
peers must be present before any action is taken, the second part of the question centers
around the question: what makes it possible to form a new company? Several factors –
government, background, magbeting, 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. It is no

wonder that more companies are formed in the United States given the roads, communications
and transportation system utilities, and economic stability available versus that available in
other countries. Even the tax rate for companies and individuals in the United States is better
than in countries such as Ireland or England.

~ 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. In
addition, the entrepreneur must have the marketing know-how to put together the best total
package of product, price, distribution and promotion needed for successful product
launching. A company is more easily formed in an area where there is a market demand.

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 ~ Role Models
The existence of role models will also make the entrepreneurial decision possible. 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
While most of the start up money for any new company comes from personal savings, credit,
friends, and relatives there is still often a need for seed (startup) capital. More new companies
are formed when seed capital is readily available.

Check Your Progress Questions

1. Briefly explain the factors under each of the three sub decision in the context of the
Ethiopian business environment.
………………………………………………………………………………………………
………………………………………………………………………………………………

2.3 SUMMARY

The entrepreneurial decision involves a movement from a present life-style to the formation
of a new business. The decision includes:
(1) The avoidance of present life style and developing an entrepreneurial career which can be
made through work environment and a negative factor which is known as disruption. Now
the actual decision of starting a new business occurs when the entrepreneurs perceives that
the decision is both desirable and possible.

Therefore, the second sub decision that will be made by the entrepreneur is to determine the
desirability of the decision from cultural, family, teachers and peer perspectives. Finally the
possibility of the decision can be assessed by considering the roles contributed by
government, marketing, background, role models and finance in the new venture.

2.4 ANSWER TO CHECK YOUR PROGRESS

Base your answer on the factors under 2.2.1, 2.2.2 and 2.2.3

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