CHAPTER 1 PP Slides (2).pptx

ENTREPRENEURSHIP SKILL 1 ENT 15W2 MR S NTSHEBE CHAPTER 1: THE NATURE AND DEVELOPMENT OF ENTREPRENEURSHI P  LEARNING OUTCOMES LO 1: Identify the contribution of...

ENTREPRENEURSHIP SKILL 1 ENT 15W2 MR S NTSHEBE CHAPTER 1: THE NATURE AND DEVELOPMENT OF ENTREPRENEURSHI P  LEARNING OUTCOMES LO 1: Identify the contribution of entrepreneurs to the economy. LO 2: Describe the development of entrepreneurship theory. LO 3: Discuss and define the concept of entrepreneurship. LO 4: Differentiate between entrepreneurial and small businesses. LO 5: Describe a model for entrepreneurship development. LO 6: Describe the entrepreneurial process.  1.1INTRODUCTION Entrepreneurs are the heroes of society, they are central to value creation, drive capital markets and they enable economic evolution. Read: Magda Wierzycka: exemplary entrepreneur and business leader in entrepreneurship  1.2ENTREPRENEURS IN PERSPECTIVE Entrepreneurs are the core and essence of any economy. Without entrepreneurs, there would be no business, and without business, there would be no government, as there would be nobody to pay taxes to finance it. Examples of notable South African entrepreneurs include: Ernest Oppenheimer Patrice Motsepe Herman Mashaba Pam Golding  1.3 THE DEVELOPMENT OF ENTREPRENEURSHIP THEORY 1.3.1 The economists First we must qualify the popular belief that entrepreneurship originated from the science of economics alone. A careful reading of the first two authors usually identified as the pioneers in the field, Cantillon (1755) and Say (1803, 1815, 1816, 1839), reveals that they were interested not only in the economy but also in the managerial aspects of businesses, business development and business management. The economist who launched the field of entrepreneurship – Schumpeter (1934: 24): The essence of entrepreneurship lies in the perception and exploration of new opportunities in the realm of business … it always has to do with bringing about a different use of national resources in that they are withdrawn from their traditional employ and subjected to new combinations.  1.3 THE DEVELOPMENT OF ENTREPRENEURSHIP THEORY (continued) 1.3.2 The behaviourists The term “behaviourists” includes psychologists, psychoanalysts, sociologists and other specialists in human behaviour. One of the first authors from this group to show an interest in entrepreneurs was Max Weber (1930). The behaviourist who launched the field of entrepreneurship – McClelland (1961: 57): An entrepreneur is someone who exercises control over production that is not just for his personal consumption.  1.3 THE DEVELOPMENT OF ENTREPRENEURSHIP THEORY (continued) 1.3.3 The explosion of the field of entrepreneurship Exploded in the 1980s – driven by two events: – First encyclopaedia on entrepreneurship published – First annual conference on entrepreneurial research (Babson Conference). Researchers from different fields began to take an interest. First doctoral theses appeared. Entrepreneurship was integrated into other disciplines.  1.3 THE DEVELOPMENT OF ENTREPRENEURSHIP THEORY (continued) 1.3.4 The development of entreprenology Entrepreneurology: the study of entrepreneurial behaviour in a broad sense Entreprenology: the study of the overall entrepreneurial process  1.4 DEFINING TERMS 1.4.1 Entrepreneur and entrepreneurship Entrepreneurship: This is the process that causes changes in the economic system through innovations of individuals who respond to opportunities in the market. Entrepreneur: An entrepreneur is a person who sees an opportunity in the market, gathers resources, and through innovation creates and grows a business to meet these needs. He or she bears the risk of the business and is rewarded with profit if it succeeds.  SEVEN IMPORTANT ASPECTS OF ENTREPRENEURS AND ENTREPRENEURSHIP 1. Identifying an opportunity – There must be a real business opportunity 2. Innovation and creativity – Something new and different is required 3. Getting resources – Capital, labour and operating equipment must be found 4. Creating and growing a business – Starting of a new business venture or conversion of an existing one 5. Taking risk – Personal and financial risk involved for the person who embarks on the entrepreneurial process 6. Being rewarded – It can be in the form of profit or an increase in the value of the business 7. Managing the business – There must be planning, organisation, leadership and control of all the functions in the business  1.4 DEFINING TERMS (continued) 1.4.2 Small business Any business that is independently owned and operated, but is not dominant in its field and does not engage in any new marketing or innovative practices. In terms of the qualitative criteria, which relate to the ownership structure of the business, it must – be a separate and distinct business entity – not be part of a group of companies – include any subsidiaries and branches when measuring the size – be managed by its owners – be a natural person, sole proprietorship, partnership or a legal person, such as a close corporation or company.  1.4 DEFINING TERMS (continued) 1.4.2 Small business (continued) Businesses are classified into micro, very small, small and medium, using the following guidelines: – Total full-time paid employees – Total annual turnover – Total gross asset value (excluding fixed property)  1.4 DEFINING TERMS (continued) 1.4.3 Entrepreneurial businesses Small businesses are different to entrepreneurial businesses: – Innovation – small businesses are mostly concerned with established products/services. – Potential for growth – small businesses operate within an established industry and given market in a defined locality. – Strategic objectives – small businesses’ objectives are limited to survival, sales and profit targets.  1.5 A MODEL FOR ENTREPRENEURIAL DEVELOPMENT Figure 1.1 A model for entrepreneurship development  1.5 A MODEL FOR ENTREPRENEURIAL DEVELOPMENT (continued) 1.5.1 Entrepreneurial orientation Celebrated in some countries (US) CULTURE Retarded in former communist block countries FAMILY AND Extent of direct exposure to entrepreneurship ROLE MODELS Entrepreneurship can be learned EDUCATION Focus – learners should be taught how to become employers, not employees WORK Type of work/skills contributes to orientation EXPERIENCE Knowledge, skills and experience gained as employees Creativity and innovation (experimentation) Autonomy (independence) PERSONAL Risk taking ORIENTATION Proactiveness (taking initiative, and pursuing and anticipating opportunities) Competitive aggressiveness (achievement oriented)  1.5 A MODEL FOR ENTREPRENEURIAL DEVELOPMENT (continued) 1.5.2 The supportive environment and entrepreneurial ecosystem The external environment should create a climate or ecosystem favourable to the entry of entrepreneurs: – Infrastructure (roads, electricity, water, telecommunications) should exist beforehand. – Deregulation of certain economic activities will encourage entrepreneurs. The following will discourage entrepreneurs: – Restrictions of free trade areas. – Other trading restrictions. – An overabundance of legal regulations. Business development services to be offered by the government/support agencies: – Financing – supplied by banks and other institutions which offer risk capital – Training – risk-taking attitude cultivated, with a focus on the managerial process  1.6 THE ENTREPRENEURIAL PROCESS The entrepreneurial process is one through which a new business is created by an entrepreneur. There are four distinct phases in this process (Nieman & Bennett 2006): 1. Identify and An entrepreneur must deliberately come up with evaluate the creative ideas that can be converted into a opportunity business opportunity. 2. Develop the A good business plan must be developed to exploit the business plan opportunity identified. Resources comprise the capital available for investment 3. Determine the in the business, people who need to be employed, and resources physical assets such as equipment, machinery, buildings required and vehicles. 4. Start and After the minimum capital for start-up has been acquired, manage the the entrepreneur must use it by implementing the business business plan.  1.7IMPACT OF ENTREPRENEURSHIP ON THE ECONOMY Global Entrepreneurship Monitor (GEM) determines the prevalence of opportunity versus necessity entrepreneurs: Opportunity entrepreneurs – are entrepreneurial with an innovative orientation – can identify opportunities in the market – are usually innovative. Necessity entrepreneurs – are forced to start a business due to circumstances such as unemployment or displacement – exhibit low entry levels, high levels of competition, minimal differentiation and no innovation. 1.8 IMPACT OF ENTREPRENEURSHIP ON THE ECONOMY (continued) South Africa is failing to create new entrepreneurs. The total entrepreneurial activity (TEA) of adults starting their own businesses within the previous three and a half years was 10.8% (GEM, 2019/20: 172). TEA of other efficiency-driven economies – 14.3% Of South African youth, 60% believe they have no entrepreneurial ability. This is exacerbated by a culture of entitlement, lack of business experience, education and entrepreneurial exposure.