BSM Unit 2 Notes PDF

ENTREPRENEURSHIP – UNIT 2 BUSINESS MANAGEMENT Learning Outcomes Define the term entrepreneur Discuss the concept of entrepreneurship and the entrepreneurial process Describe the roles of entrepreneurs and small businesses in the economy Explain how to become an entrepreneur Comment on the...

ENTREPRENEURSHIP – UNIT 2 BUSINESS MANAGEMENT Learning Outcomes Define the term entrepreneur Discuss the concept of entrepreneurship and the entrepreneurial process Describe the roles of entrepreneurs and small businesses in the economy Explain how to become an entrepreneur Comment on the skills and resources required to become an entrepreneur Identify and describe the different ways of entering the business world Present recommendations regarding the choice of a business opportunity Elaborate on what a feasibility study is and its value to the entrepreneur. 1. INTRODUCTION  An entrepreneur is defined as an individual who initiates a business with the goal of making a profit and takes on the risk of potential losses.  The terms "entrepreneur" and "entrepreneurship" are often misapplied to small business owners, as not all small businesses qualify as entrepreneurial ventures.  Entrepreneurship is a key factor of production that integrates natural resources, human resources, and financial resources to address societal needs and demands.  Entrepreneurship involves creating value from limited resources amidst uncertainty, characterized by taking risks and having the determination to succeed.  Entrepreneurs are individuals who utilize initiative to harness production factors, aiming to provide goods and services, with profit as their reward and potential financial loss as their consequence.  Understanding the motivations and processes of entrepreneurship is crucial for business management students, as it enhances their comprehension of how organizations operate, and the significant role managers play in their success or failure 1. Different concepts of what an entrepreneur is   Economists view entrepreneurs as profit-driven individuals who combine resources to create products and services.  Behaviourists focus on the psychological traits of entrepreneurs, such as achievement orientation, creativity, and risk-taking.  Marxists perceive entrepreneurs as exploiters of labor.  Corporate managers consider entrepreneurs to be small-scale operators without the capacity to manage large enterprises.  Market economy advocates see entrepreneurs as vital contributors to national prosperity.  Entrepreneurs are characterized as creative, innovative, and capable of identifying and pursuing opportunities.  They take financial risks to potentially gain personal profit while fostering economic growth and job creation.  Entrepreneurs play a crucial role in starting and managing sustainable small businesses, contributing to overall economic development. ENTREPRENEURSHIP  The field of entrepreneurship encompasses various disciplines, each providing unique perspectives on new venture creation.  Historians analyze entrepreneurial activities in relation to significant political and economic events throughout history.  Anthropologists focus on the evolution of civilizations through entrepreneurship, examining technology, capital accumulation, and the development of entrepreneurial elites.  Geographers investigate regional patterns of entrepreneurial activity, linking them to natural resources and studying the diffusion of innovations and entrepreneurial values.  Sociologists approach entrepreneurship by exploring the origins of entrepreneurial groups and the influences of social factors like ethnicity and family dynamics, as well as examining the dynamics within entrepreneurial organizations.  Psychologists concentrate on individual entrepreneurs, exploring personality traits, decision-making processes, and factors influencing both the choice to become an entrepreneur and the likelihood of success. 2. ENTREPRENEURSHIP IN SA   South Africa's economic growth has declined significantly over the decades, with GDP growth averaging nearly 6% in the 1960s, decreasing to 2.2% in the 1980s, and experiencing no growth in the 1990s.  Despite a brief increase in GDP growth to 4.9% in 2006, it fell to -3% in Q2 2009, and averaged just 2% from 2008 to 2012, with only 1.5% growth in 2014 and a mere 0.3% in 2016.  To improve economic development, South Africa needs a growth rate exceeding 7% per year, with a focus on the role of entrepreneurs in driving growth and job creation.  High unemployment in South Africa is attributed to rigid labor laws and a shortage of businesspeople engaged in small businesses, highlighting the importance of entrepreneurship.  The Global Entrepreneurship Monitor (GEM) survey indicates that South Africa's Total Early-stage Entrepreneurial Activity (TEA) rate is below average, with a notable decline in entrepreneurial participation, particularly among men. 3. The role of entrepreneurs and small-business owners in society  Entrepreneurs play a crucial role in utilizing a country's resources to create products and services, generating wealth in the form of jobs and profits. Their activities drive economic growth and social development, a factor that was historically undervalued. 3.1 Entrepreneurial Qualities  Entrepreneurship is ignited by self-efficacy, creativity, skills, and expectations of individuals.  Individuals with entrepreneurial talents can effectively mobilize resources by establishing enterprises that grow, creating employment opportunities.  Entrepreneurial individuals are rare and valuable resources that significantly contribute to the production of goods and services. Entrepreneurial Businesses vs. SMMEs There is a distinction between entrepreneurial ventures and small, medium, and micro-enterprises (SMMEs). While entrepreneurial businesses focus on growth and development, many SMMEs are primarily income- generating ventures that provide autonomy and lifestyle needs for their owners.  True entrepreneurs aim for growth and expansion, creating opportunities for employment and economic advancement.  Small business owners, on the other hand, are content with autonomy and a reasonable income without the intention of entrepreneurial growth.  Not all small businesses exhibit entrepreneurial characteristics. 3.2 Why do entrepreneurs do what they do? 3.2.1Entrepreneurs’ traits and characteristics 1. Achievement Motivation:  Entrepreneurs possess a high level of achievement motivation, characterized by intense effort, determination, and a strong desire to succeed.  Preference for Challenges: Individuals with high achievement motivation are attracted to challenging tasks that require problem-solving skills and prefer outcomes that depend on their personal efforts rather than guaranteed successes.  Independence and Control: Entrepreneurs seek personal responsibility, goal-setting autonomy, feedback on their success, and creative control over their time and resources, reflecting a desire for independence in their venture 2. An internal locus of control:  Entrepreneurs possess a strong internal locus of control, believing their actions influence outcomes, as opposed to relying on luck or external factors.   An internal locus of control enables individuals to take responsibility for mistakes, make informed decisions, and manage resources effectively.  Innovation and creativity are crucial for entrepreneurs, allowing them to improve existing products/services or create new ones to seize market opportunities.  Entrepreneurs often adapt competitors' innovations through creative adjustments in products and marketing. 3. Risk-Taking  Entrepreneurial behaviour is characterized by the ability to assess and manage risks, distinguishing successful entrepreneurs who take calculated risks from those who make impulsive decisions.  Successful entrepreneurs analyse critical variables and avoid high-risk opportunities, ensuring they base their decisions on thorough research and analysis of potential outcomes.  Entrepreneurs manage risks by maintaining control over their enterprises, gathering necessary information, and involving investors while accepting the potential loss of control. 4. Other Traits  The other traits of entrepreneurs include high levels of energy, confidence, future orientation, optimism, the desire for feedback, high tolerance for ambiguity, flexibility/adaptability, passion, commitment and determination, opportunity orientation and motivation to excel. 3.2.2 Entrepreneurs’ skills & Industry Experience Most significant reasons to become an entrepreneur:  Successful entrepreneurship is influenced by skills, knowledge, and the quest for independence, as well as experience and education in a specific field.  Job termination and dissatisfaction can motivate individuals to pursue entrepreneurship, particularly in contexts like South Africa where unemployment may drive this choice. 1. Two types of entrepreneurs: Necessity-Based & Opportunity-Based 3.2.3Opportunities arising owing to outsourcing  Outsourcing involves delegating work to external individuals or companies rather than relying on full- time employees, as exemplified by SABMiller's shift to owner-drivers for beer distribution.  Companies often outsource activities that specialized firms can perform more efficiently or at a lower cost, even if the quality is comparable.  Many large organizations, including government departments, outsource services to reduce personnel costs and access specialized skills, facilitating the creation of new businesses by entrepreneurs.  A survey by the International Facility Management Association identified the most commonly outsourced services, including architectural design, waste removal, and food services.  Outsourcing is part of strategic planning for companies, primarily aimed at acquiring specialized skills, focusing on core competencies, and enhancing overall quality and customer satisfaction.  In South Africa, human resources functions are frequently outsourced due to complex labor laws and environmental issues. 3.2.4 Other reasons for entrepreneurship   SMMEs (Small, Medium, and Micro Enterprises) are thriving even as large businesses lay off employees, providing opportunities for retrenched workers to become self-employed or join new ventures.  Former employees of large organizations are successfully transitioning to entrepreneurship, as seen in a case where ex-employees of a mining group purchased and revitalized mines, leading to profitability and growth.  The trend of privatization has contributed to the emergence of entrepreneurs from various backgrounds, highlighting the diverse nature of small business owners. 3.3The entrepreneurial process  Entrepreneurship involves identifying and pursuing opportunities that others may overlook, combining resources to establish a successful business.  Many entrepreneurial ventures do not succeed, with success often hinging on the entrepreneur's preparation and research.   The entrepreneurial landscape is complex, with varying problems and options depending on the specific opportunity.  Different businesses, even within the same industry, can have diverse developmental paths and operational strategies.  Entrepreneurs face numerous decisions, and making the right choices is critical for business survival.  Utilizing a scientific decision-making framework enhances the chances of entrepreneurial success by providing a logical sequence of steps.  Key elements influencing venture success include the personal characteristics and skills of the entrepreneur.  Access to essential resources, including financial, natural, and human resources, is crucial for establishing a business.  Conducting a feasibility study is necessary to evaluate the potential for turning an identified opportunity into a viable business.  The entrepreneurial process is dynamic and involves continuous learning from both successes and failures while focusing on creating new value. The dynamics of the entrepreneurial process 3.3.1 Skills required for entrepreneurship  Strategy  focus on understanding the business as a whole, its position in the skills marketplace, and how to deliver value more effectively than competitors.  Planning  involve forecasting future impacts on the business and identifying skills necessary resources and actions for preparedness.  Marketing  entail evaluating products and services to meet customer needs, skills managing pricing, promotion, and distribution, and building personal relationships to enhance customer loyalty.  Financial  are crucial for managing cash flow, tracking expenditures, and skills assessing investment potential and risks  Project  are about organizing projects, setting objectives, creating schedules, management and ensuring resources are allocated effectively skills  Human  encompass leadership, motivation, and communication abilities for relations skills effectively engaging with people 3.3.2 Resources needed to start a business  Entrepreneurs need adequate resources or access to them to start a business, focusing on control rather than ownership of these resources.  Resources are essential inputs that entrepreneurs transform into products and services for the community, categorized into financial, human, and operating resources.  Financial resources include cash, loans, credit, and investment capital, necessary for exploiting business opportunities.   Human resources consist of skilled individuals such as management teams, lawyers, and consultants who contribute to the venture's success.  Operating resources encompass physical assets like offices, equipment, and raw materials essential for business operations.  Acquiring resources involves risk, as entrepreneurs may lose personal savings or assets if the business fails and must be aware of investor expectations regarding returns and risks. 3.3.3 Business Opportunities  Finding a viable business idea is the crucial first step for entrepreneurs, but having a great idea alone does not guarantee success; execution and market capture are essential.  Most new venture ideas stem from the entrepreneur's prior work experience, industry knowledge, and market understanding.  A systematic approach to idea generation involves analyzing the business environment and identifying trends that can inspire new opportunities. 3.3.3.1 New Venture Ideas NEW VENTURES(CONTINUED)  A good investment opportunity requires a clearly defined market need for the product or service, focusing on customer demands.  It should be capable of achieving a sustainable competitive advantage.  The opportunity must have growth potential and provide rewards for both investors and entrepreneurs.  Timing is crucial; the opportunity must be presented when the market window is open to be successful. 3.3.3.2 Buying an existing business Buying an existing business allows for immediate customer retention, as clients are already familiar with the company and its location. New owners can achieve quicker profitability, benefiting from established financial records rather than relying on startup projections. Existing inventory, equipment, and experienced employees streamline operations for the new owner.  The timing of the purchase can be advantageous if it aligns with the seller's legitimate need to sell, potentially creating a favourable deal for the buyer. 3.3.3.3 Franchising  Entrepreneurs can enter the business world by acquiring a franchise, which allows them to operate a proven business model.  The entrepreneur becomes a franchisee, gaining the right to use the franchisor’s name, products, and systems in exchange for ongoing fees.  Franchisees have limited freedom, as they must follow the franchisor's established plans and cannot implement their own innovative ideas.  Some franchisees, particularly those with multiple outlets, exhibit entrepreneurial characteristics and may operate with more autonomy.  Many franchisors are medium to large businesses that oversee numerous franchise locations as part of their operations.  The trend of multiple-unit franchisees is recognized by franchisors as beneficial and reflects a continuation of entrepreneurial opportunities within the franchise model. 3.3.3.4 Corporate entrepreneurship  Corporate entrepreneurship, or intrapreneurship, involves creating new business ventures within an existing company by identifying new opportunities or ideas.   This approach allows large businesses to diversify their product or service offerings using internal resources and processes.  It facilitates the creation of new industries and investment opportunities, leading to increased profits for the corporation.  Corporate entrepreneurs play a significant role as wealth creators, benefiting from readily available funding during the establishment and growth phases of new ventures. 3.4 The feasibility of the idea or opportunity  A feasibility study is an assessment of practicality of a proposed plan or method.  Small businesses often originate from ideas that must be transformed into practical applications to hold value.  Not all ideas can be developed into viable ventures; a feasibility test is necessary to assess their potential.  Entrepreneurs should conduct feasibility analyses on both ideas and opportunities, as existing competition may diminish their uniqueness.  Even acquiring an existing business or franchise does not guarantee success; feasibility assessments are crucial.  A feasibility study collects data to forecast the viability of an idea or venture, guiding entrepreneurs in their decision-making process.  If an idea proves feasible, the entrepreneur can then create a business plan to implement the idea into reality. 3.5 The small business 3.5.1 Defining a small business:  Defining a small business is challenging due to varying economic conditions and standards across countries.  South African towns host a diverse range of small businesses, such as hair salons, greengrocers, video shops, and hardware stores.  A small business example is a woman-owned restaurant that specializes in organic food, started after gaining experience in the industry.   The perception of what constitutes a small business can vary based on individual perspectives and comparisons with larger businesses.  Quantitative criteria commonly used to define small businesses include the number of employees, sales volume, asset value, and market share.  According to the National Small Business Amendment Act (2004), micro-businesses have five or fewer employees and a turnover of up to R200,000.  Very small businesses can employ up to 20 people, while small businesses can employ up to 50, with turnover varying by sector.  A small and medium-sized enterprise (SME) in South Africa is generally defined by criteria such as fewer than 200 employees, annual turnover below R64 million, and capital assets under R23 million 3.5.2 The role of small businesses in the economy:  Entrepreneurs are essential for economic development in developed economies, as they innovate, take risks, and employ people.  Small businesses play a strategic role by producing goods and services, fostering innovation, supporting larger enterprises, and creating jobs.  They efficiently combine societal resources to produce offerings, benefiting from greater flexibility and productivity compared to large firms.  Small businesses are responsible for a significant portion of global innovations, with many breakthroughs originating from them rather than large corporations.  Notable inventions by small businesses include photocopiers, jet engines, insulin, personal computers, and various technology products like cell phones and the Internet.  Small businesses support large enterprises by supplying products and services, enabling these corporations to compete in both local and international markets.  They provide many job opportunities, often creating new positions while large corporations tend to reduce their workforce.  The entrepreneurial spirit within small businesses drives economic development and stimulates competition, leading to improved productivity. 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