Unit 1: Core Concepts of Entrepreneurship PDF

UNIT 1 CORE CONCEPTS OF ENTREPRENEURSHIP Chapter 1 Topics Δ Lesson 1 – Defining key terms Δ Lesson 2 – Salient features of Entrepreneurship Δ Lesson 3 – Theories on Entrepreneurship Δ Lesson 4 – Entrepreneurship and Ordinary Small Business Activities’ Δ Lesson 5 – Mis...

UNIT 1 CORE CONCEPTS OF ENTREPRENEURSHIP Chapter 1 Topics Δ Lesson 1 – Defining key terms Δ Lesson 2 – Salient features of Entrepreneurship Δ Lesson 3 – Theories on Entrepreneurship Δ Lesson 4 – Entrepreneurship and Ordinary Small Business Activities’ Δ Lesson 5 – Misconceptions on Entrepreneurship Δ Lesson 6 – Importance of Entrepreneurship Δ Lesson 7 – Sources of Entrepreneurial Ideas LEARNING OUTCOMES: At the end of this chapter, the learner should be able to: 1. define entrepreneur and entrepreneurship 2. describe the salient features of entrepreneurship, 3. discuss the different theories on entrepreneurship, 4. distinguish between entrepreneurial venture and ordinary small business activities, 5. determine factors that contribute to the misconceptions on entrepreneurship, 6. describe the importance of entrepreneurship, and 7. identify the source of entrepreneurial ideas. LESSON 1 DEFINING KEY TERMS At the end of this lesson, the learner should be able to: 1. define entrepreneur and entrepreneurship What comes into your mind when you hear the words entrepreneur and entrepreneurship?  a person who makes money by starting or running business an individual who creates a new market make changes to improve their operations a person bearing the most of the risks and enjoying most of the rewards Risk-taker commonly seen as an innovator use personal savings as capital or convince investors to finance the business idea  Do you imagine yourself becoming an entrepreneur and managing your own business in the future? Plain ignorance of the fundamental entrepreneurial concepts may contribute to the failure of your endeavor There is no universally accepted definition of entrepreneurship, even among universities and colleges offering entrepreneurship program in the Philippines and abroad. 1. Different views and theories have been developed in the field of entrepreneurship. 2. The scholars who provided the definition for entrepreneurship are largely influenced by their own individual personal beliefs. 3. The entrepreneurial models introduced by scholars are predominantly influenced by the prevailing economic situations during specific periods in history. 4. The frameworks and methodologies of researches on entrepreneurship are highly dependent on the theories and the contexts of the research endeavors. Joseph Schumpeter Ø an Australian economist and political scientist Ø gave much emphasis on the concept of product innovation, marketing, and production methods. Ø described an entrepreneur as an individual with distinct social characteristics or attributes Ø according to him, there are very few among the millions in the population who can be considered as entrepreneurs  ENTREPRENEUR Originates from the French word “entreprende” which means “to undertake”. It connotes a business paradigm which signifies the start of a new business undertaking A person practicing entrepreneurship ENTREPRENEUR A person who organizes, operates, and assumes the risk of business ventures A person who strongly advocates and correctly practices the concepts and principles of entrepreneurship in operating and managing the self-owned business venture. This venture is also called enterprise. ENTREPRENEURSHIP (operational definition) The art of observing correct practices in managing and operating a self-owned wealth-creating business enterprise by providing goods and services that are valuable to the customers. It refers to a particular field of practice or process. the science of converting processed ideas into a remarkable business venture. why study Entrepreneurship? Usefulness of the course to the students ä Learners consider becoming an employer rather than an employee. ä Learners change their attitude towards the course as a means of living. ä Learners change in personal and career attitudes such as communication, problem-solving, collaboration, motivation, creativity, and teamwork. ä increase the level of knowledge, competence and improve the quality of life SMALL BUSINESS AND ORDINARY SMALL BUSINESS SMALL BUSINESS– refers to a business or enterprise that correctly adopts and practices the principles of entrepreneurship. It is owned by one person with a limited workforce of not more than 20 persons. It also includes the small and medium enterprises (SMEs) that strongly promoted by both government and non-governmental organizations (NGOs) SMALL BUSINESS AND ORDINARY SMALL BUSINESS ORDINARY SMALL BUSINESS – pertains to a business enterprise managed and operated by an owner who is not an advocated of and does not practice the concepts and principles of entrepreneurship.  Are all business people entrepreneurs? Yes or No? “While entrepreneurs are business people who start, organize, manage, and assume the risks of a business or enterprise, not every business person engages in these entrepreneurial activities.” “The mere opening of a business enterprise is not entrepreneurship and the person owning and running its day-to-day operations is not an entrepreneur but rather a business person.” LESSON 2 SALIENT FEATURES OF ENTREPRENEURSHIP At the end of this lesson, the learner should be able to: 1. Enumerate the salient features of entrepreneurship 2. explain each feature  what is your favorite restaurant? Why do you like their products and services? Five (5) Salient Features of Entrepreneurship The salient features provide Providing value to better understanding of the customer whole concept of entrepreneurship. Wealth- Opening and creating managing venture self-owned business Entrepreneurship They also act as the point of reference in determining Art of Risk-taking whether a particular business correct practices venture endeavor is operating within the realm of entrepreneurship. 1. An Art of Correct Practices “Entrepreneurship is an art and not a science.” Δ As an art, entrepreneurship is dynamic. Δ As an art, entrepreneurship is closely related to creativity Δ Creativity results in new It is not governed ideas which are the by fixed and backbone of absolute rules entrepreneurship unlike science. 2. ENTREPRENEURSHIP IS A WEALTH-CREATING VENTURE ΔEntrepreneurship is operating within the concept of wealth creation rather than profit generation ΔProfit in its strict sense, does not equate to wealth ΔWealth is defined as the abundance of money, property, or possession. (Webster’s Dictionary) ΔThe concept of abundance, and not of accounting profit, is the very essence of wealth in entrepreneurial endeavor. 3. ENTREPRENEURSHIP IS PROVIDING VALUE TO CUSTOMERS ΔThe owner of a business, in most instances, is engaged in the sale of goods and services. However, the mere act of selling goods or providing services does not make a person perform or act within the concept of entrepreneurship. ΔEntrepreneurship creates economic wealth by providing goods and services to the consumers. These goods and services must have a value in order to create wealth. ΔOne essential principle in entrepreneurship then is, “not to sell waste to consumers but only valuable goods and services.” ΔAnything of no value to anybody is definitely a waste. Customer value is vital for enhancing the overall customer experience and satisfaction levels, leading to increased loyalty and repeat purchases. “Value shall always be defined from the perspective of the buyers and not from the sellers.” 4. ENTREPRENEURSHIP ENTAILS OPENING AND MANAGING THE SELF-OWNED ENTERPRISE This feature highlights two (2) important elements: 1) the concept of opening a self-owned enterprise and 2) the concept of managing it. It must be self-owned in order to qualify as an entrepreneurial endeavor. ΔBusiness that are being managed by others for the benefit of the owners do not fall within the sphere of entrepreneurship. Such business are operating under the concept of Intrapreneurship (franchising and buyout) 5. ENTREPRENEURSHIP IS A RISK-TAKING VENTURE “Risk is inherent in an entrepreneurial venture.” ΔOnce an entrepreneurial venture is born because of new ideas or opportunities, risk comes simultaneously with the venture. ΔRisk cannot be detached from any entrepreneurial venture and the only way to remove it is to close the venture. Business risk – the risk in entrepreneurship  1. True or False. Entrepreneurs are employed by others to manage their False company. 2. Refers to a business or enterprise that correctly small adopts and practices the principles of business entrepreneurship. 3. pertains to a business enterprise managed and ordinary operated by an owner who is not an advocated of small and does not practice the concepts and principles of business entrepreneurship. 4. This is vital for enhancing the overall customer experience and satisfaction levels, leading to customer increased loyalty and repeat purchases value LESSON 3 THEORIES ON ENTREPRENEURSHIP At the end of this lesson, the learner should be able to: 1. Identify some theories on entrepreneurship and 2. Cite the importance of the theories on entrepreneurship THEORY ä is a generalization that explains a set of facts or phenomena ä it is not an absolute truth ä it can be supported by another observation or proven to be otherwise Theories of Entrepreneurship: 1. Innovation theory 2. Keynesian theory 3. Alfred Marshall theory 4. Risk and uncertainty-bearing theory 5. Other theories on entrepreneurship INNOVATION THEORY äThe innovation theory on entrepreneurship was contributed by Joseph Schumpeter, an Austrian economist and political scientist. He wrote about it in his book, The Theory of Economic Development ΔThe innovation theory regards economic development as the product of structural change or innovation. An economy without any revolutionary change is deemed to be static and cannot expect any economic development. ΔInnovation is the force that will propel change. INNOVATION THEORY It becomes the primary role of the entrepreneur to introduce innovation in any of the following forms: 1. New product 2. New production 3. New market 4. New supplier 5. New industry structure KEYNESIAN THEORY * äWas developed by John Maynard Keynes, a British economist äThe key concepts of the theory were included in his book, The General Theory of Employment, Interest and Money, which was published during the Great Depression in 1936. The theory put so much emphasis on the government in entrepreneurial and economic development, most especially when the economy was eperiencing depression. ALFRED MARSHALL THEORY äAlfred Marshall is an English economist that introduced this theory in his book, Principles of Economics. äThere are four (4) factors in the production (land, labor, capital, and organization) of goods and services in the economy. He considered organization as the coordination element. ä Without the active participation of organization, the other factors of production will remain inactive in their role for economic development. ä Marshall regarded the entrepreneurs as the prime movers in the organization and without their active participation in the economy, development will surely be slow and limited. ALFRED MARSHALL THEORY RISK AND UNCERTAINTY-BEARING THEORY äFrank Hyneman Knight, an American, conceptualized this theory of entrepreneurship in his book, Risk, Uncertainty and Profit. ä He emphasied that risk-taking as an important dimension that differentiate an entrepreneur from a worker. ä Knight considered uncertainty an important factor in the production of goods and services. ä He believed that the entrepreneur must anticipate possible random events to happen while shouldering the risk at the same time. The entrepreneur would eventually be rewarded with high profits. WEBER’S SOCIOLOGICAL THEORY äIn sociological theory, Max Weber stressed that culture is the primary driving element of entrepreneurship. äThe entrepreneur is expected to perform the role of a good constituent by executing his or her entrepreneurial activities in line with good customs and traditions, religious beliefs, and morals. KALDOR’S TECHNOLOGICAL THEORY äThe technological theory was developed by Nicholas Kaldor who considered modern technology as an essential factor in production. ä In the absence of modern technology as an essential factor in entrepreneurship, economic development would be slow and growth might not be expected. ä The entrepreneur is expected to keep abreast with modern technology and find ways to apply the same in the entrepreneurial endeavor. LEIBENSTEIN’S GAP-FILLING THEORY äHenry Leibenstein proposed that the primary role of entrepreneurship in any economic activity is to fill the existing gap. ä Responsible for recognizing trends in the market ä The entrepreneur is expected to possess abilities that will connect the different markets. ä He/she must extend assistance to entrepreneurial ventures experiencing failures and deficiences. KIRZNER’S LEARNING-ALERTNESS THEORY äIsrael Kirzner was the main proponent of this theory. äHe pointed out spontaneous learning and alertness as the two major attributes of entrepreneurship in any given economy. äThe entrepreneur must be alert in recognizing entrepreneurial opportunities and the ignorance of consumers as well. äHe or she must immediately find appropriate remedies to correct the error or wrong perception. LESSON 4 Entrepreneurship and Ordinary Small Business Activities At the end of this lesson, the learner should be able to: 1. distinguish between entrepreneurship and ordinary small business activity and 2. determine the importance of knowing the distinction. Entrepreneurship and the activities of ordinary small businesses differ in the following areas: 1. Motive in opening a business 2. Perception of risk in the business 3. Reactions to changes in the environment 4. View on competition 5. Vision for development and growth 6. Horizon of business operation 7. Sources of business funds 1. Motive in Opening a Business ENTREPRENEUR OWNER OF ORDINARY SMALL BUSINESS Business venture based on entrepreneurial concepts Make it his/her source of and principles livelihood. Wealth creating venture Finds himself/herself Earning a profit improve his/her life. 2. Perception of Risk in the Business ENTREPRENEUR OWNER OF ORDINARY SMALL BUSINESS Takes and faces the business risk squarely Business risk is a deterrent to the Risk-taker and finds ways operation and it must be to minimize the effect avoided Avoidant of taking risk “There’s a very thin line between being aggressive and being purely reckless; I’m aggressive, but not reckless, I consider myself a risk-taker. But I think there’s also a defensive side to taking risks, which is very important.” - Edgar “Injap” Sia II 3. Reaction to Changes in the Environment ENTREPRENEUR OWNER OF ORDINARY ä Changes would be a SMALL BUSINESS creative mechanism ä Change is not a plus factor to the daily operations but rather a source of negative consequence ä Passive and static to the ä Reacts positively to the changes changes 4. View on Competition OWNER OF ORDINARY ENTREPRENEUR SMALL BUSINESS ä Presence of competition ä Discourage competition and is a sign of healthy uncomfortable working in a economic environment. competitive environment. ä Competition is unhealthy element in the business and tries to avoid it. 5. Vision for Development and Growth OWNER OF ORDINARY ENTREPRENEUR SMALL BUSINESS ä Manages the venture to ä Relies upon chance or luck in provide development and maintaining the status quo of growth. business. ä Vision and mission of ä Not so much concerned about his/her business is clear. the development and growth as long as he/she is satisfied with its earnings. 6. Horizon of Business Operation OWNER OF ORDINARY ENTREPRENEUR SMALL BUSINESS ä Concerned with the major economic events both local ä Expansion has never been an idea worth entertaining and global business market. for the owner. ä Centered only on the local environment. 6. Sources of Business Funds ENTREPRENEUR OWNER OF ORDINARY ä He/she explores ways to SMALL BUSINESS generate the much-needed funds from both internal ä Tends to limit the funding and external resources. of his/her business enterprise to personal resources. ä He/she fears that financial institutions will not be willing to extend financial assistance to the business. LESSON 5 MISCONCEPTIONS ON ENTREPRENEURSHIP At the end of this lesson, the learner should be able to: 1. identify some misconceptions on entrepreneurship and 2. state the importance of having the correct perception on entrepreneurship COMMON MISCONCEPTIONS ON ENTREPRENEURSHIP 1. Entrepreneurship applies only to manufacturing businesses. 2. Entrepreneurship applies only to small business. 3. Entrepreneurship mostly to persons with good educational background in business courses. 4. Entrepreneurship applies only to a good economy. 5. Entrepreneurship is simply a opening a small business. 1. Entrepreneurship applies only to manufacturing businesses ä It is a misconception that entrepreneurship is only applicable to manufacturing but not to merchandising and service. ä Regardless of whether the business venture is merchandising, service, or manufacturing, the concept of entrepreneurship is applicable. 2. Entrepreneurship applies only to small business ä Entrepreneurial concepts and principles do not make any distinction as to the size of business venture. 2. Entrepreneurship applies only to small business ä Corporate entrepreneurship – is a process that goes on inside an existing business venture and may lead to new ones and the development of new products and services. (ex. Ebay, Kinko’s, J.C. Penney, Wallmart and Marriot)  3. Entrepreneurship applies mostly to persons with good educational background in business courses äNobody is born an entrepreneur äIt does not provide an assurance that you will become a dynamic entrepreneur. äEntrepreneurship applies mostly to persons with sound academic background in business courses is a misconception. 4. Entrepreneurship applies mostly to a good economy An entrepreneur finds business opportunities in both flourishing and distressed economies. Big businesses are contracting their production output during such an event while small businesses increase their output. 5. Entrepreneurship is simply opening a small business ä Does not merely mean opening a small business. ä Business must have already passed through the preliminary stages of scanning the environment and preparation of the feasibility study and business plan. Does not start and end with opening a small business. LESSON 6 Importance of Entrepreneurship At the end of this lesson, the learner should be able to: 1. describe the importance of entrepreneurship Contributions of Entrepreneurship Philippine Filipino People Local Economy Economy THE FLOW OF ENTREPRENEURIAL BENEFITS  JENNY’S HAIR SALON Jenny, from Davao, upon seeing a promising and brilliant business opportunity in the community, opened a beauty shop. She went to the Department of Trade and Industry (DTI), the City Government of Davao City, and the Bureau of Internal Revenue (BIR) to process, pay, and comply with all the documentary requirements and fees in opening a business. The total taxes and licenses paid by Jenny in opening the business amounted to P5,000.00. Upon receipt of the business permit, Jenny immediately bought all the needed equipment and materials for her beauty shop. For all these equipment and fixtures, she paid P60,000.00. She then rented a business space at P10,000.00 per month.  JENNY’S HAIR SALON She hired and employed five beauticians and provided them salary above the minimum salary and all statutory benefits. The total annual compensation and benefits paid by Jenny to her employees for the year amounted to P540,000.00 Jenny at the end of the year is enriched by P590,000.00 after paying the annual income tax of P110,000.00 to the BIR. Who benefited from the business of Jenny through her Jenny’s Hair Salon? 1. Jenny Benefits and Contributions Jenny as the entrepreneur is enriched by P590,000.00 during the year. 2. Five (5) employees of The five employees or Jenny beauticians are enriched financially at a total amount of P540,000.00. 3. Owner of the The owner of the rented building is rented building enriched by P10,000.00 per month or P120,000.00 for the whole year 4. Supplier The supplier of equipment and fixtures was enriched by P60,000.00. 5. Local and national Local government collected local government taxes amounting to P5,000.00 and the national government, through its collection agency, BIR, collected the annual income tax of P110,000.00. 6. General public The taxes collected by the local and national government will be returned to the general public in the form of services like roads, street lights, police security, and other public services. Importance to the Filipino People 1. It provides guidelines in their wealth- creating ventures. 2. It helps improve their financial and social life. 3. It helps broaden their creativity. 4. It helps make their lives happy, fruitful, and successful. Importance to the Local Community 1. It provides employment in the community. 2. It creates new demand in the market. 3. It makes substantial contributions to the raising and collection of taxes. 4. It facilitates the movement of the factors of production. 5. It creates new business opportunities. 6. It promotes a peaceful and loving community. 7. It increases constructive competition. Importance to the Philippine Economy 1. It encourages competitiveness and thereby challenges entrepreneurs to keep improving their products and services. 2. It helps find an entrepreneurial niche in the world market. 3. It helps hasten the economic recovery process of the Philippines during financial turmoil or crisis. 4. It facilitates the smooth flow of money in the market. 5. It assists the national government in its desire to have favorable economic ratings in the world market. LESSON 7 Sources of Entrepreneurial Ideas At the end of this lesson, the learner should be able to: 1. identify the source of entrepreneurial ideas Entrepreneurial Process Opening of entrepreneurial venture Identification of entrepreneurial opportunities Creation of Entrepreneurial idea As an entrepreneur-to-be, always remember that a business must be firmly founded on the existing business opportunities and there can be no business opportunities in the absence of an entrepreneurial idea. In sad contrast the owner of an ordinary small business usually opens a business even if there are no business opportunities existing in the community.  Sources of Entrepreneurial ideas 1. Changes in the environment 2. Technological discovery and advancement 3. Government’s thrust, programs, and policies 4. People’s interests 5. Past experiences 1. Changes in the Environment External environment refers ⚫ Physical environment Climate ⚫ Societal environment Natural resources Economic forces ⚫ Industry environment Wild life Sociocultural forces Government Political forces Competitors Technological Suppliers environment Customers Creditors Employees Physical Environment Climate Societal Environment Industry Political Environment Economic forces forces The new business venture Technological government Socio-cultural environment forces Natural resources Wild life  As an Entrepreneur you must keenly observe and be vigilant to the reactions of the people to the changes in the external environment. It may or may not be the implication but you must determine, therefore, what changes have entrepreneurial indications. For example: change in climate (summer/rainy season) What kind of business venture is the best to respond to the needs of the people during summer and rainy period? 2. Technological Discovery and Advancement The use of technology are another good source of entrepreneurial ideas and opportunities. For example: a person with sufficient knowledge in the repair and installation of a mechanical engine discovered that the additional engine parts he installed during the repair had reduced considerably the fuel consumption of such mechanical engine. How will you use this as business opportunity? If he had any entrepreneurial drive, he would see his discovery as a business opportunity to manufacture the new engine parts that could reduce fuel consumption. 3. Government’s Thrust, Programs, and Policies Priorities, projects, programs, and policies of the government are also good sources of entrepreneurial ideas. ( Government in this lesson refers to the local government (municipal, city, or provincial) or the national government and its branches. Whenever there are changes in the policies and programs of the government, new entrepreneurial ideas are likely born. For example, the use of firecrackers to celebrate New Year's Eve is strictly prohibited. What will you do as an entrepreneur? An entrepreneur will take it as an opportunity to come up with a new product that will serve as a substitute for firecrackers. 4. People’s Interest Interests, hobbies, and preferences of people are a rich source of entrepreneurial ideas. As an entrepreneur your business venture should be adaptive to the interests and hobbies of the people to protect and sustain your business. Examples: What are the needs of people for fun and relaxation? 5. Past Experiences Past experiences and exposures Expertise and skills developed by a person for having worked in a particular field may lead to the opening of a business enterprise. For example: An auditor who has learned the appropriate auditing and management advisory skills and techniques in a prominent auditing firm can start his/her entrepreneurial venture by opening his/her own auditing office.