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Entrepreneurship and the Entrepreneur Entrepreneurial Management

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Page 1: Entrepreneurship and entrepreneur

Entrepreneurship and the Entrepreneur

Entrepreneurial Management

Page 2: Entrepreneurship and entrepreneur

Learning Objectives

To understand:1. Entrepreneurship as a Self-employment

Decision2. The Concept of Entrepreneurship3. The Entrepreneur: The Individual that

Steers4. The Myths, Fears and Excuses of People

who are NOT Entrepreneurs5. The Advantage of becoming an

Entrepreneur

Entrepreneurship 2

Page 3: Entrepreneurship and entrepreneur

Entrepreneurship as a Self-employment Decision

Entrepreneurship the ability of an individual to determine and

come up with the proper combination of the resources available in his environment and transform this into an output of either goods or services, and obtain a fair profit at the price the entrepreneur sets.

It entails the activities of spotting opportunities, conceptualizing these ideas into business opportunities, identifying and using resources in his environment, and making use of these resources to produce products and makes profits out of them.

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Page 4: Entrepreneurship and entrepreneur

Entrepreneurship as a Self-employment Decision

Idea - A clear blueprint in the entrepreneur’s mind. It is the entrepreneur’s first investment in his business enterprise.

Raw materials - are the basic inputs the entrepreneur uses to come up with his products.

Capital - refers to the buildings, machinery, equipment and tools used in the course of production.

Laborers -people directly responsible in the production process.

Plant - the place where physical factors used in production are found

Market - the buyers and users of the entrepreneur’s product.

Customers - people who buy the product. Consumers or end-users – people who use the product.

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Page 5: Entrepreneurship and entrepreneur

Entrepreneurship as a Self-employment Decision

Entrepreneurship… Aimed to gear someone towards self-

employment. It pertains to engaging in small and

medium-sized business. Things to Consider as an Entrepreneur

The various government regulatory bodies; The suppliers who control material flow and its

credit and sales policies; The financial creditors and stakeholders; The demands and cycles of the market; and The demands on the entrepreneur’s personal.

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Page 6: Entrepreneurship and entrepreneur

Entrepreneurship as a Self-employment Decision

Table 1.1 Age of Business Failures

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Source: A.J. Williams, “Why Small business Fail”, Real Estate Journal, April 1995, p18

Age of Business (Years)

Failure Rate %

Cumulative (%)

Under 1 27.6 27.6

1-2 13.8 41.4

2.3 11.2 52.6

3-4 10.1 62.7

4-5 6.4 69.1

5-10 9.3 78.4

10-20 8.7 87.1

Over 20 12.9 100

Table 1.2 Causes of Business Failures

%

Neglect 3.0

Fraud 1.1

Lack of Technical Expertise

8.5

Lack of Management Expertise

17.4

Lack of Experience 21.2

Incompetence 44.9

Disaster and other reasons

3.9

100.0

Source: A.J. Williams, “Small Business Caught in Squeeze”’ The Sun-Herald, 8 May 1997, p122.

Page 7: Entrepreneurship and entrepreneur

Entrepreneurship as a Self-employment Decision

Why Small Businesses Fail

Lack of experience Insufficient capital (money) Poor location Poor inventory management Over-investment in fixed assets Poor credit arrangements Personal use of business funds Unexpected growth Competition Low sales

According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years.

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Source: http://www.statcan.gc.ca/daily-quotidien/000216/dq000216b-eng.htm

Source: Michael Ames, “Small Business Management; Gustav Berlle “The Do It Yourself Business Book”, http://www.moyak.com/papers/small-business-failure.html

Page 8: Entrepreneurship and entrepreneur

The Concept of Entrepreneurship

Historical Context Entrepreneurship started in France after the

French Revolution The word entrepreneur originated from the

French word entreprende, which means, “to undertake”. It was coined by Jean Baptiste Say, a renowned French economist.

Evolution of the Term Entrepreneurship

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CONTRIBUTOR AND YEAR OF

CONTRIBUTIONCONTRIBUTION TO ENTREPRENEURSHIP THOUGHT

Jean Baptiste Say(1800)

Entrepreneurship refers to the shifting of economic resources out of an area of lower and into higher productivity and greater yield.

Carl Menger(1871)

Entrepreneurship involves obtaining information, calculation, an act of will and supervision.

Page 9: Entrepreneurship and entrepreneur

The Concept of Entrepreneurship

CONTRIBUTOR AND YEAR OF CONTRIBUTION CONTRIBUTION TO ENTREPRENEURSHIP THOUGHT

Joseph Schumpeter (1910) Entrepreneurship is, in its essence, the finding and promoting new combinations of productive factors.

Harvey Liebenstein (1970) Entrepreneurship is the reduction of organizational inefficiency.

Israel Kirzner (1975) Entrepreneurship is the identification of market arbitrage opportunities

Albert Shapiro (1975) Entrepreneurship involves a kind of behavior that includes initiative taking, organizing and recognizing social mechanism to turn resources and situations to practical account, and the acceptance of risks and failures.

Karl Vesper (1980) Entrepreneurship is the dynamic process of creating incremental wealth

W. Ed Mc Mullan and Wayne A. Long (1990)

Entrepreneurship is the building of new growth organization.

Howard Stevenson (1992) Entrepreneurship is the pursuit of opportunity beyond the resources currently under one’s control

Jeffrey Timmons (1994) Entrepreneurship is the ability to create and build a vision from practically nothing.

Peter Drucker ( 1998) Entrepreneurship is the process of starting one’s own, new and small business. It is also the process of innovation and new venture creation through four major dimensions-individual, organizational, environmental, process – aided by collaborati8ve networks in government, education and institutions.

Robert Hisrish (2001) Entrepreneurship involves the creation process, requires the devotion of the necessary time and effort, assumes the accompanying financial psychic and social risks, and receives the resulting rewards of monetary and personal satisfaction and independence.

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The Entrepreneur: The Individual that Steers

Who is the Entrepreneur Entrepreneurs take and accept risks. Entrepreneurs own ventures Entrepreneurs are managers. Entrepreneurs establish new ventures and develop

existing ones. Entrepreneurs identify opportunities in the market. Entrepreneurs apply their expertise. Entrepreneurs process market information. Entrepreneurs bring innovations. Entrepreneurs provide market efficiency. Entrepreneurs maximize investment returns. Entrepreneurs provide leadership.

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The Entrepreneur: The Individual that Steers

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Entrepreneurs are managers Guidelines that Differentiate the Managerial

mindset from the Entrepreneurial mindset The entrepreneur is a creator; the manager is a

custodian. The entrepreneur takes risks; the manager seeks

stability. The entrepreneur is personally responsible; the manager

is merely responsible. The entrepreneurs achieve; managers attain targets. The entrepreneurs are future oriented; managers are now

oriented. The entrepreneurs thrive on chaos; managers thrive on

structure.

Page 12: Entrepreneurship and entrepreneur

The Entrepreneur: The Individual that Steers

What Makes the Successful Entrepreneur? People who worked hard to attain their dream as

entrepreneurs. People who came from all walks of life and decided to

take control of their lives. People who wanted to explore and test their limits.

Characteristics of the Entrepreneur1. Entrepreneurs are in good physical health.2. Entrepreneurs have superior conceptual abilities.3. Entrepreneurs have the broad thinking of the generalist.4. Entrepreneurs have high self-confidence.5. Entrepreneurs have strong personal drive.

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Page 13: Entrepreneurship and entrepreneur

The Entrepreneur: The Individual that Steers

Characteristics of the Entrepreneur (cont…)6. Entrepreneurs need to control and direct.7. Entrepreneurs have moderate interpersonal

skills.8. Entrepreneurs are moderate risk takers.9. Entrepreneurs have a realistic outlook.10. Entrepreneurs have a high degree of

emotional stability11. Entrepreneurs have low need-level for status.

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The Entrepreneur: The Individual that Steers

Personal Prerequisites that Characterize an Entrepreneurial Personality

1. Unencumbered personal life.2. Monomania.3. Plenty of staying power.4. High energy level, nurtured by periods of relaxation.5. Good judgement about people.

o Other Essential Characteristics Needed to Become a Successful entrepreneur:

1) A positive can-do attitude.2) Psychological preparedness to lose the business.3) Sufficient start-up money.4) A determination to make your first product profitable.5) A pragmatic approach to business and life.

Source: Warren Avis of Avis Rentr-A-Car

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The Entrepreneur: The Individual that Steers

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Important Entrepreneurial Traits

Self awareness CourageSelf motivation ConfidencePatience Risk-takingDecisiveness Hard-workExperience VisionKnowledge OptimismPerseverance CreativityDrive ResourcefulnessTotal commitment InnovationMaturity Emotional balanceIntegrity

Page 16: Entrepreneurship and entrepreneur

The Entrepreneur: The Individual that Steer

Categories of an Entrepreneur The Intrapreneur

He is an entrepreneur within an existing organization, referred to as the corporate entrepreneur.

The Solo Self-Employed Individual Includes all agents, repairmen, brokers, accountants

and physicians who operate alone or with only few employees and perform work personally.

The Dealers to Dealers Include highly knowledgeable businessmen engaged in

various forms of trades frequently, directly or indirectly related to their line of work.

The Team Builders Individuals who go on building larger companies using hiring and delegation.

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Page 17: Entrepreneurship and entrepreneur

The Entrepreneur: The Individual that Steer

Categories of an Entrepreneur (Cont….) The Independent Innovators

Include persons who hit upon ideas for better products or services and then create companies to develop, produce, and sell these products.

The Pattern Multipliers Entrepreneurs who spot an effective business

pattern, quite possibly originated by someone else, and multiply it to realize profits.

The Economy of Scale Exploiters Entrepreneurs who locate their business in lower

rent and tax areas.

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Page 18: Entrepreneurship and entrepreneur

The Entrepreneur: The Individual that Steer

Categories of an Entrepreneur (Cont….) The Capital Aggregators

Smart entrepreneurs who use their experience and expertise n pooling a group of financiers to engage in a business.

The Acquirers Entrepreneurs who acquire businesses.

The Independent Inventors They include pure inventors who really

developed their own product or invention and take care of marketing them.

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Page 19: Entrepreneurship and entrepreneur

The Entrepreneur: The Individual that Steer

Categories of an Entrepreneur (Cont….) The Buy and Sell Artists

They include wise guys referred to as corporate raiders and brokers who turn around, sell and

liquidate Other Categories of Entrepreneur

Immigrant Entrepreneurs, Corporate Castoffs, Copreneurs, Cyber Entrepreneurs, Part time Entrepreneurs, Home-based Business Owners.

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The Myths, Fears and Excuses of People Who Are Not Entrepreneurs. Entrepreneurs are born. Entrepreneurs are super humans. Entrepreneurs are inventors. Entrepreneur inherit business traits Entrepreneurs possess a definite characteristic profile. The gender-difference myths (men are better

entrepreneurs) Entrepreneurs are academic and social misfits. Entrepreneurs are gamblers and risk takers. Luck and money are the only things needed to become

entrepreneurs. Entrepreneurs experience a lot of failures.

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The Myths, Fears and Excuses of People Who Are Not

Entrepreneurs. The Fears and Excuses

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Risks ExcusesFinancial Risk “I do not have the money”

“I do not know where to get the capital”“I am afraid to lose my house, car properties, etc.

Career Risks “I can not risk my promotion”“I can not afford not to have salary”“What would happen to me if I don’t have a job.”

Family Risks “My kids are still young”“My spouse and I are not doing well”“My spouse and I are just getting to know each other”

Social Risks “What would my friends say?”“What if nobody buys it?”“ How am I supposed to beat the large companies?”

Psychic Risks “I am too young”“I am too old for that”“I lack experience”“I can not handle the pressure”“I can not do it”

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The Advantage and Disadvantages of Becoming

Entrepreneurs

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Advantages Have the opportunity to create your own destiny. Have the opportunity to be financially well-off. Have the opportunity of knowing yourself better. Have the opportunity to excel, be recognized and

contribute to society. Disadvantages

Uncertainty of income. Risk of losing your entire invested capital. Long hours of work. Lower quality of life until the business gets established. High levels of stress. Complete responsibility. Confrontation with various risks.

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References Entrepreneurship for Modern Business Camposano, Jorge A., 2007 Entrepreneurship Principles and Practices (A

Modular Approach) Azarcon, Ernie Roy S., et al., 2008 Entrepreneurship and Small Business

Management Second Edition Medina, Robert G., 2010 Entrepreneurship Eighth Edition

Hisrich, Robert D., et al., 2010