Entrepreneurship PDF

BM2104 THE CHALLENGE OF ENTREPRENEURSHIP What Is an Entrepreneur? (Cornwall & Scarborough, 2016) An entrepreneur undertakes a new business in the face of risk and u...

BM2104 THE CHALLENGE OF ENTREPRENEURSHIP What Is an Entrepreneur? (Cornwall & Scarborough, 2016) An entrepreneur undertakes a new business in the face of risk and uncertainty to achieve profit and growth by identifying significant opportunities and assembling the necessary resources. Although many people come up with great business ideas, most never act on their ideas. In his book The Theory of Economic Development, economist Joseph Schumpeter wrote that entrepreneurs are more than just business creators; they are change agents in society. The process of creative destruction, in which entrepreneurs create new ideas and new businesses that make existing ones obsolete, is a sign of a vibrant economy. Although this constant developments of businesses—some rising, others sinking, new one succeeding, and many failing—concerns some people, in reality. It indicates a healthy, growing economic system that is creating new and better ways of serving people’s needs and improving their quality of life and standard of living. High levels of entrepreneurial activity translate into high levels of business formation and destruction and make an economy more flexible and capable of adapting to structural changes in the competitive landscape. The US economy has been so successful over time that the constant business developments result from the rapid pace at which entrepreneurs create new businesses, destroy old ones, and overturn entire industries with their creativity and ingenuity. Entrepreneurs are important change agents in the global economy, uprooting industries with fresh new business models that spot market opportunities and deliver customers' products and services. The following are the characteristics of an entrepreneur: Desire for responsibility. Entrepreneurs feel a deep sense of accountability for the outcome of their business ventures. They prefer to control their resources, and they use those resources to achieve self-determined goals. Preference for moderate risk. Entrepreneurs are not wild risk-takers but are instead calculated risk- takers. Self-reliance. Entrepreneurs often fill multiple roles to make their companies successful, especially in the early days of a start-up. Because their resources usually are limited, they end up performing many jobs themselves, even those they know little about. Yet, entrepreneurs demonstrate a high level of self-reliance and do not shy away from the responsibility of making their businesses succeed. Confidence in their ability to succeed. Entrepreneurs typically have an abundance of confidence in their ability to succeed and are confident that they chose the correct career path. Entrepreneurs’ high levels of optimism may explain why some of the most successful entrepreneurs have failed in business—often more than once—before finally succeeding. Determination. Entrepreneurs can focus intently on achieving a singular, long-term goal. Some people call this characteristic “grit.” Studies show that grit is a reliable predictor of achievement and success. Desire for immediate feedback. Entrepreneurs enjoy the challenge of running a business, and they like to know how they are doing and are constantly looking for advice. The feedback they receive from their businesses drives them to set higher standards of performance for their companies and themselves. High level of energy. Entrepreneurs are more energetic than the average person. That energy may be a critical factor given the incredible effort required to launch a start-up company. Long hours and hard work are the rules rather than the exception, and the pace can be grueling. Future orientation. Entrepreneurs have a well-defined sense of searching for opportunities. They look ahead and are less concerned with what they did yesterday than what they might do tomorrow. 01 Handout 1 *Property of STI  [email protected] Page 1 of 6  BM2104 Skill at organizing. Entrepreneurs know how to put the right people together to accomplish a task. Effectively combining people and jobs enables entrepreneurs to transform their visions into reality. Value of achievement over money. A common misconception about entrepreneurs is that they are driven wholly by the desire to make money. On the contrary, triumph seems to be entrepreneurs’ primary motivating force; money is simply a way of “keeping score” of accomplishments—a symbol of achievement. The Benefits of Entrepreneurship (Cornwall & Scarborough, 2016) The following are the benefits of entrepreneurship: Create One’s Destiny. Owning a business provides entrepreneurs the independence and the opportunity to achieve what is important to them. Entrepreneurs want to “call the shots” in their lives, and they use their businesses to make that desire a reality. Make a Difference. Increasingly, entrepreneurs are starting businesses because they see an opportunity to create change in an important cause. Known as social entrepreneurs, these business builders seek innovative solutions to some of society’s most vexing problems. They use their skills to create profitable business ventures and achieve social and environmental goals for society as a whole. Reach One’s Potential. Entrepreneurs’ businesses become their instruments for self-expression and self-actualization. They know that the only boundaries on their success are those imposed by their creativity, enthusiasm, and vision. Owning a business gives them a sense of empowerment. Reap Impressive Profits. Although money is not the primary force driving most entrepreneurs, their businesses' profits are an essential motivating factor in their decisions to launch companies. Contribute to Society. Playing a vital role in their local business systems and knowing that their work significantly impacts the nation’s economy is yet another reward for small business managers. Often, small business owners are among the most respected and most trusted members of their communities. Business deals based on trust and mutual respect are the hallmarks of many established small companies. Pursue One’s Passion. Most successful entrepreneurs choose to enter their particular business fields because they are interested in them and enjoy those lines of work. They turn their hobbies into work. The Potential Drawbacks of Entrepreneurship (Cornwall & Scarborough, 2016) The following are the potential drawbacks of entrepreneurship: Uncertainty of Income. Opening and running a business provides no guarantee that an entrepreneur will earn enough money to survive. Some entrepreneurs make far more through their companies than working for someone else, but other entrepreneurs’ businesses barely earn enough to provide them with an adequate income. In the early days of a start-up, a company often cannot offer an attractive salary for its owner and meet all its financial obligations, meaning that the entrepreneur may have to live on savings or a spouse’s income. Risk of Losing the Entire Investment. Business failure can lead to financial ruin for an entrepreneur, and the low business failure rate is relatively high. Long Hours and Hard Work. Business start-ups usually demand long hours and hard work from their owners. The average small business owner works 51 hours a week, compared to the typical 40 hours per week the regular employee works. High Levels of Stress. Entrepreneurs often have made significant investments in their companies, have left behind the safety and security of a steady paycheck and benefits, and have mortgaged everything they own to get into business. Failure may mean total financial ruin, and that creates intense levels of stress and anxiety. Sometimes entrepreneurs unnecessarily bear the burden of 01 Handout 1 *Property of STI  [email protected] Page 2 of 6  BM2104 managing alone because they cannot delegate authority and responsibility to others in the company, even though their employees are capable. Complete Responsibility. It’s great to be the boss, but many entrepreneurs find that they must make decisions on issues they are not knowledgeable about. Many business owners have difficulty finding advisers. When there is no one to ask, the pressure can build quickly. The realization that the decisions they make are the cause of their success or failure has a devastating effect on some people. Discouragement. Launching a business is a substantial undertaking that requires a great deal of dedication, discipline, and tenacity. Along the way to building a successful business, entrepreneurs will run headlong into many different obstacles, some of which appear insurmountable. In the face of such difficulties, discouragement and disillusionment are common emotions. Successful entrepreneurs know that every business encounters rough spots along the way, and they wade through difficult times with lots of hard work and an abundant reserve of optimism. Entrepreneurial Forces (Cornwall & Scarborough, 2016) The following are the forces that drive entrepreneurship in the economy: Entrepreneurs as heroes. Business founders such as Bill Gates (Microsoft Corporation), Kevin Plank (Under Armour), Jeff Bezos (Amazon), Steve Jobs (Apple), and Mark Zuckerberg (Facebook) are raised by society to hero status. Their accomplishments are published in books and scholarly articles as models to follow. In the Philippines, some notable entrepreneurs as heroes are Tony Tan Caktiong (Jollibee), Socorro Ramos (National Book Store), and Henry Sy (SM Group). Entrepreneurial education. Colleges and universities have discovered that entrepreneurship is an extremely popular course of study. A rapidly growing number of students see owning a business as their best career option. Increasingly, students enroll in college knowing that they want to start their own companies rather than considering entrepreneurship as a possibility later in life; indeed, many are starting companies while they are in college. Demographic and economic factors. More than 75 percent of entrepreneurs start their businesses between the ages of 20 and 44. Also, the economic growth that spanned in recent years created a significant amount of wealth among people of this age group and many business opportunities to capitalize. Shift to a service economy. A relatively large services sector characterizes the Philippine economy’s output structure. The share of the services sector increased from an average of 52.4% in the 1990s to 55.7% in the 2000s. Moreover, from 2010 to 2014, the sector’s value-added share further increased, on average, to 65.4% (DTI, n.d.). In the United States, the service sector accounts for 82.5 percent of the jobs and 79.7 percent of the private-sector gross domestic product (GDP). Because of their relatively low start-up costs, service businesses have become very popular among entrepreneurs. The booming service sector provides many business opportunities, from educational services and computer maintenance to pet waste removal and iPod repair. Technology advancements. With the help of modern business machines such as personal computers, laptop computers, smartphones, fax machines, copiers, color printers, answering machines, and voice mail, even an individual working at home can look like a big business. In the past, the high cost of technology made it impossible for small businesses to compete with larger companies that could afford the hardware. Today, however, powerful computers, smartphones, and communication equipment are priced within the budgets of even the smallest businesses and have drastically reduced the cost of launching a business. Independent lifestyle. Entrepreneurship fits the way most people want to live—independent and self- sufficient. People want the freedom to choose where they live, what hours they work, and what they do. Although financial security remains an important goal for most entrepreneurs, many prioritize 01 Handout 1 *Property of STI  [email protected] Page 3 of 6  BM2104 lifestyle issues, such as more time with family and friends, more leisure time, and more control over work-related stress. Mobile marketing. The proliferation of the Internet, the vast network that links computers around the globe and opens up oceans of information to its users, had spawned thousands of entrepreneurial ventures since its beginning in 1993. Internet-based subscription or pay-per-use software services that allow business owners to use various business applications, from database management and inventory control to customer relationship management and accounting, have reduced business start- up and operating costs. International opportunities. No longer are small businesses limited to pursuing customers within their borders. The shift to a global economy has opened the door to tremendous business opportunities for entrepreneurs willing to reach across the globe. The Cultural Diversity of Entrepreneurship (Cornwall & Scarborough, 2016) The following are the diverse mix of people that make up entrepreneurship in the economy: Young Entrepreneurs. Young people are embracing entrepreneurship enthusiastically as a career choice. A recent survey by the Kauffman Foundation reports that 40 percent of young people between the ages of eight (8) and 24 have already started a business or would like to do so in the future. The top five (5) reasons these young people want to start their businesses include the opportunity to use their skills and abilities, build something for their future, be their own bosses, earn lots of money, and see their ideas realized. Although entrepreneurial activity tends to increase with age, many Millennial generation members (or Generation Y, those born between 1982 and 2000) show high levels of interest in entrepreneurship. Women Entrepreneurs. Despite years of legislative effort, women still face discrimination in the workforce. However, small business has been a leader in offering women opportunities for economic expression through entrepreneurship. Increasing numbers of women are discovering that the best way to break the “glass ceiling” that prevents them from rising to the top of many organizations is to start their own companies. Oprah Winfrey, a TV personality and advocate of women empowerment, founded Harpo Productions and OWN (the Oprah Winfrey Network). In the Philippines, the motorcycle taxi service Angkas was founded by a woman (Angeline Tham). Minority Enterprises. Another rapidly growing segment of the small business population is minority- owned businesses. Hispanics, African Americans, and Asians are the minority groups that are most likely to be entrepreneurs. Part-Time Entrepreneurs. Starting a part-time business is a popular gateway to entrepreneurship. Part-time entrepreneurs can ease into business for themselves without sacrificing the security of a steady paycheck and benefits. The Internet (mainly eBay, Lazada, Shopee, etc.) and mobile communication devices make establishing and running a part-time business very easy. Many part- time entrepreneurs run online businesses from a spare bedroom in their homes or from wherever they are. Home-Based Businesses. An entrepreneur starts a home-based business on average every 12 seconds. Fifty-two percent of all small businesses are home-based, and half of these have at least one employee. Home-based companies allow owners to maintain flexible life and workstyles. Many home- based entrepreneurs relish being part of the “open-collar workforce.” Many entrepreneurs use the Internet to operate e-commerce businesses from their homes that span the globe. They also rely heavily on social media to promote their home-based businesses. Technology, which is transforming many ordinary homes into “electronic cottages,” allows entrepreneurs to run various businesses from their homes. 01 Handout 1 *Property of STI  [email protected] Page 4 of 6  BM2104 Family Businesses. These include two (2) or more members of a family with financial control of the company. Family businesses are an integral part of the economy. In the Philippines, it is estimated that at least 80% of businesses are family-owned. Most big corporations are family-owned or family- controlled. These companies, whose ownership may be already dispersed, are still identified with the founding family. They would include Ayala Corporation (Ayala family), Metrobank (George Sy Family), Meralco (Lopez family), JG Summit Holdings (Gokongwei family), and SM Prime Holdings (Henry Sy family). Although these companies are publicly listed, ownership may include non-family shareholders. Each family’s influence on these companies is still far-reaching: the top position is occupied by a family member (Johnston, n.d.). Copreneurs. These are entrepreneurial couples who work together as co-owners of their businesses. Often, ecopreneurs create a division of labor that is based on expertise as opposed to gender. Avoiding the Pitfalls (Cornwall & Scarborough, 2016) The following are the ways entrepreneurs may adopt to prevent business failures: Know the Business in Depth. It is important to note that aspiring entrepreneurs must have the right type of experience in the business they plan to start. The right experience can be gained by getting the best education in a particular business. Also, entrepreneurs must review trade journals, business periodicals, books, and research reports—relating to their choice of industry and learn what it takes to succeed in it. Personal contact with suppliers, customers, trade associations, and others in the same industry is another excellent way to get that knowledge. Smart entrepreneurs join industry trade associations and attend trade shows to pick up valuable information and make key contacts before opening their doors for business. Build a Viable Business Model. Before launching a business, an entrepreneur should define the business model on which s/he plans to build a company and test it, preferably with actual customers or potential customers, to verify that it can be successful. Grand assumptions about capturing market share and “hockey stick” revenue growth that never materializes have been the downfall of many start-up businesses. Creating a successful business model requires entrepreneurs to identify all of the model’s vital components, including resources, partners, activities they must assemble, customer segments they are targeting, channels they will use to reach them, value proposition they offer customers, and sources of revenue and accompanying costs they will incur. Develop a Solid Business Plan. If an entrepreneur’s business model passes the feasibility test, the next step is to prepare a business plan. For any entrepreneur, a well-written business plan is a crucial ingredient in preparing for business success. Without a sound business plan, a company merely drifts along without any real direction. Yet entrepreneurs, who tend to be people of action, too often jump right into a business venture without taking time to prepare a written plan outlining the essence of the business. Not only does a plan provide a pathway to success, but it also creates a benchmark against which an entrepreneur can measure actual company performance. Building a successful business begins with implementing a sound business plan with a laser-like focus. Understand Financial Statements. Every business owner must depend on records and financial statements to know the condition of their business. All too often, entrepreneurs use these only for tax purposes and not as vital management control devices. To truly understand what is going on in the business, an owner must have a basic understanding of accounting and finance. Manage Financial Resources. The best defense against financial problems is to develop a practical information system and then use this information to make business decisions. No entrepreneur can maintain control over a business unless s/he can judge its financial health. The first step in managing financial resources effectively is to have adequate start-up capital. 01 Handout 1 *Property of STI  [email protected] Page 5 of 6  BM2104 Learn to Manage People Effectively. No matter what kind of business you launch, you must learn to manage people. Every business depends on a foundation of well-trained, motivated employees. No business owner can do everything alone. The people an entrepreneur hires ultimately determine the heights to which the company can climb—or the depths to which it can plunge. Set the Business Apart from the Competition. The formula for almost certain business failure involves becoming a “me-too business”—merely copying whatever the competition is doing. Most successful entrepreneurs find a way to convince their customers that their companies are superior to their competitors even if they sell similar products or services. It is especially important for small companies going up against larger, more powerful rivals with greater financial resources. Ideally, the basis for differentiating a company from its competitors is founded on what it does best. For small companies, that basis often is customer service, convenience, speed, quality, or whatever else is vital to attracting and keeping satisfied customers. Maintain a Positive Attitude. Achieving business success requires an entrepreneur to maintain a positive mental attitude toward business and the discipline to stick with it. Successful entrepreneurs recognize that their most valuable resource is their time, and they learn to manage it effectively to make themselves and their companies more productive. None of this, of course, is possible without passion— passion for their businesses, their products or services, their customers, and their communities. Passion is what enables a failed business owner to get back up, try again, and make it to the top! One business writer says growing a successful business requires entrepreneurs to have great faith in themselves and their ideas, great doubt concerning the challenges and inevitable obstacles they will face as they build their businesses, and great effort—lots of hard work—to make their dreams become reality. References: Cornwall, J. & Scarborough, N. (2016). Essentials of entrepreneurship and small business management (8th ed.). Pearson Education Limited. Department of Trade and Industry (DTI). (n.d.). Securing the future of Philippine industries. http://industry.gov.ph/category/services/ Johnston, S. (n.d.). The family business: Statistics, profiles, and peculiarities. https://www.dlsu.edu.ph/wp- content/uploads/pdf/vcri/cbrd/bus_focus/The_Family_Business.pdf 01 Handout 1 *Property of STI  [email protected] Page 6 of 6