ESD module 2020 - Lecture notes 1 PDF

Preview

Summary

esd and computers...

Description

ENTREPRENEURSHIP SKILLS DEVELOPMENT

1

MODULE 1

CONCEPT OF ENTREPRENEURSHIP Objectives By the end of this chapter the student should be able to: 

Define entrepreneurship



Describe the characteristics of successful entrepreneurs



Discuss the roles of SMEs in the economy



Analyze the various forms of business ownership

Entrepreneurship and Patriotism In Zimbabwe, as elsewhere in the world, patriotic entrepreneurs play a pivotal role in stabilizing and resuscitating the economy. In other words, across the globe, nations largely depend on the entrepreneurs in both the informal and formal sectors. Statistics, in Zimbabwe, shows that 3 000 000 (three million) people are employed in the informal sector (which is about 75% of the employed people in Zimbabwe). This means that the remaining 25% is shared between the state-owned enterprises and the private enterprises in the formal sector. Apart from being the largest employer, the informal sector is the largest foreign currency earner, among other crucial roles it plays to the economy.

What is an entrepreneur? An entrepreneur is the originator (initiator) of an enterprise (economic/business undertaking) in order to satisfy an identified need or want profitably. That is a person who organizes and manages a commercial undertaking especially one involving calculated commercial risks. In other words, an entrepreneur is someone who identifies opportunities in terms of needs and wants of people and mobilizes resources such as land, capital and labor to develop profitmaking projects to meet the identified needs and wants. Successful entrepreneurs are not gamblers but take calculated and moderate risks in business. It should, however, be noted that entrepreneurs believe so strongly in their business ideas that they are willing to take full responsibility for developing them and to assume most of the risks should they fail.

2

What is entrepreneurship? Various authors define entrepreneurship differently, but their definitions somewhat amount to the same meaning. The following are some of the definitions of entrepreneurship: Appleby (1989) defines entrepreneurship as the process of bringing together creative and innovative ideas and coupling these with management and organizational skills in order to combine people, money and other resources to meet an identified need and thereby create wealth. Whereas Appleby defines entrepreneurship as such, Stoner & Freeman (1992) view entrepreneurship as seemingly a discontinuous process of combining resources to produce new goods and services.

Analysis of definitions Both definitions do not fall short of the fact that entrepreneurship is a systematic and logical event as shown by the term ‘Process’. That is entrepreneurship is not a haphazard activity. However, Stoner & Freeman have moved a step further in an attempt to distinguish entrepreneurship from management as they look at entrepreneurship as a discontinuous process. That is, it is a discontinuous phenomenon appearing then disappearing until it reappears to initiate another change, unlike management which is a continuous event. The idea of ‘creative and innovative ideas,’ shows that the two definitions are complete. In business, entrepreneurs should be able to come up with changes or new approaches, means, processes, machinery, tools or techniques and new products in order to meet the needs of turbulent and dynamic market environments. When a new venture is being contemplated on, risks arise involving uncertainties which require imitativeness and process innovation. Whereas Appleby clearly states, the idea of “management and organizational skills” in his definition, Stoner & Freeman have remained silent about it. Organizational skills and management are crucial for successful entrepreneurs. These relate to the ability of the entrepreneur to plan, organize, lead and control the organizational members’ activities and resources in order to achieve the stated goals of the enterprise. In other words, the emphasis here is the ability to organize the other factors of production or resources into creative combination for the purpose of producing goods and services in order to satisfy human needs and wants profitably. The combination of resources is as follows:

3

Land

Labour

Capital

Entrepreneurship

Production of goods and services

For the business to be successful the ‘needs and wants’ should be identified first through a feasibility study. Identification of needs and wants will indicate whether there is a potential market or not. Thus, the viability of a business largely depends on an effective feasibility study to determine the potentiality of the market. In this case, Appleby’s definition of entrepreneurship is clear about identifying first the needs of customers, unlike Stoner & Freeman’s. Thus, for Appleby, new goods and services should not just be produced for unknown customers as this is tantamount to wastage of resources.

Moreover, Appleby’s definition appears to be more comprehensive than that of Stoner & Freeman as he mentions the idea of ‘wealth creation’. The major aim of any business entity is to create wealth or increase the owner’s equity by maximizing profit. Without profit maximization or creation of wealth, the business will not survive.

Entrepreneurship distinguished from Intrapreneurship Investor's or entrepreneurs are innovative and creative but not all of them are able to come up with innovations, and as such they leave innovations to innovative managers or employees. An employee or manager who is innovative and creative in an existing organization is known as an entrepreneur. Managers or employees who carry out entrepreneurial roles are aware of opportunities and they initiate changes to take full advantage of them.

The fundamental issue about the entrepreneur is that he/she has to have innovative ideas and transforms them to profitable activities within an existing organization. In other words, he/she is an initiator or originator of the commercial undertaking. The word intrapreneurship is attributed to Gordon Pinchot an American who founded a school for entrepreneurs to help managers from large corporations to take responsibility for creating innovations and turning ideas into profitable reality.

4

Relationship between entrepreneurship and Patriotism Patriotism is the spirit of loyally supporting one’s nation. The major thrust of patriotism in the context of entrepreneurship in an economy is to refrain from corruption and sabotage or subversion. Thus, the relationship between entrepreneurship and patriotism is reflected in the following roles that a patriotic entrepreneur plays to the nation that is the entrepreneur should have the spirit of: a) Creating jobs without oppressing fellow citizen workers i.e. the entrepreneur will be expected to provide good working conditions and be worker – centered. b) Charging fair and affordable prices c) Producing quality products which compare with international standards d) Conserving natural resources e) Practicing good ethics and social responsibility in business and the community f) Generating foreign currency without externalizing it or taking it to the black or parallel market for exchange, but to the registered banks for official exchange g) Generating government revenue through paying corporate tax. h) Playing supportive role to the giant firms by being subcontracted in construction, manufacturing and distribution i)

Reducing anti-social activities such as theft, robbery, murder, promiscuity by creating employment for self and other citizens

j)

Reducing rural to urban migration by creating employment opportunities in rural areas

Entrepreneurial characteristics In a new business, the entrepreneur is the most important person. The entrepreneur has the responsibility to initiate, manage and see the success of the business. The success of a business largely depends on the entrepreneurial or personal characteristics. The following are some of the characteristics of successful entrepreneurs.

Action oriented Successful entrepreneurs are action oriented, that is, they want to start producing results immediately. The critical ingredient is getting off business and doing something. A lot of people have ideas but they are a few who decide to do something about them now and not tomorrow.

5

Success oriented/optimism Successful entrepreneurs are optimistic, that is successful entrepreneurs do not have ‘ifs’ or ‘buts’ about succeeding. All they think about is how they are going to succeed and not and not what they are going to do if they fail.

Perception of opportunity or opportunity seeking Entrepreneurs should be able to see the unfilled areas or gaps in products, process and application of services. That is successful entrepreneurs are able to see and act on new business opportunities.

Moderate risk taking Entrepreneurs are expected to be able to take moderate and calculated risks. This is contrary to the stereotype that entrepreneurs are gamblers or high-risk takers.

Goal setting In setting a new business, entrepreneurs are expected to have the ability to set goals which are specific, measurable, achievable, realistic and time bound (SMART) basing on their (ENTREPRENEURS) strengths, weaknesses, opportunities and threats (SWOT). Moreover, their goals must be consistent with their interests, values and talents in order to achieve the. Their belief in the reality of their goals is the primary factor in the fulfillment of those goals. Their plans may seem illogical to others but they are perfectly logical in the context of their own personal values and desires.

Long-term perspective Successful entrepreneurs can tolerate considerable amount of frustration and delay in need gratification and they devote a lot of time and effort in goals that often yield profits at a distant point in the future. Entrepreneurs should be able to accommodate hurdles, difficulties and temporary failures in business.

Self-motivation/self esteem/self faith/self confidence Effective entrepreneurs have solid and stable self-esteem and self-motivation which stem from healthy feeling of self worth and self-acceptance. Entrepreneurs with a positive selfimage are basically satisfied to be the type of people they are. This self-faith is even important than self-confidence especially when serious setbacks and failure occur.

6

Innovativeness/initiative ness/creativeness Effective entrepreneurs have the ability to come up with new products, methods or techniques of production and the accompanying machinery and tools.

Adventuresome ness Successful entrepreneurs are adventuresome i.e. they are interested in testing out and experimenting phenomena in an endeavor to come up with solutions to the needs and wants of people.

Commitment To succeed in business, you must be committed. Commitment means that you are willing to put your business before almost everything else.

Some of the characteristics of an entrepreneur include; patience, friendliness, hardworking, reliability, dedicated ness, responsibility, objectivity, rationality, honesty, determination, courage, flexibility, imaginativeness and knowledge. In a word, successful entrepreneurs must have appropriate personal characteristics, business skills where necessary.

TYPES OF BUSINESS ORGANISATIONS A business is an organization that uses economic resources or inputs to provide goods or services to customers in exchange for money or other goods and services. Business organizations come in different types and forms. There are 4 Types of Business,

1. Service Business A service type of business provides intangible products (products with no physical form). Service type firms offer professional skills, expertise, advice, and other similar products. Examples of service businesses are: schools, repair shops, hair salons, banks, accounting firms, and law firms.

2. Merchandising Business 7

This type of business buys products at wholesale price and sells the same at retail price. They are known as "buy and sell" businesses. They make profit by selling the products at prices higher than their purchase costs. A merchandising business sells a product without changing its form. Examples are: grocery stores, convenience stores, distributors, and other resellers.

3. Manufacturing Business Unlike a merchandising business, a manufacturing business buys products with the intention of using them as materials in making a new product. Thus, there is a transformation of the products purchased. A manufacturing business combines raw materials, labor, and factory overhead in its production process. The manufactured goods will then be sold to customers.

4. Hybrid Business Hybrid businesses are companies that may be classified in more than one type of business. A restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold bottle of wine (merchandising), and fills customer orders (service). Nonetheless, these companies may be classified according to their major business interest. In that case, restaurants are more of the service type – they provide dining services.

Forms of Business Organization These are the basic forms of business ownership:

1. Sole Proprietorship 

A type of business unit where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business.



A sole proprietorship is a business owned by only one person. It is easy to set-up and is the least costly among all forms of ownership.

8



The owner faces unlimited liability; meaning, the creditors of the business may go after the personal assets of the owner if the business cannot pay them.



The sole proprietorship form is usually adopted by small business entities.

Characteristics of sole proprietorship form of business organization (a) Single Ownership: The sole proprietorship form of business organization has a single owner who himself/herself starts the business by bringing together all the resources. (b) No Separation of Ownership and Management: The owner himself/herself manages the business as per his/her own skill and intelligence. There is no separation of ownership and management as is the case with company form of business organization. A sole proprietor contributes and organizes the resources in a systematic way and controls the activities with the objective of earning profit. (c) Less Legal Formalities: The formation and operation of a sole proprietorship form of business organization does not involve any legal formalities. Thus, its formation is quite easy and simple. (d) No Separate Entity: The business unit does not have an entity separate from the owner. The businessman and the business enterprise are one and the same, and the businessman is responsible for everything that happens in his business unit. (e) No Sharing of Profit and Loss: The sole proprietor enjoys the profits alone. At the same time, the entire loss is also borne by him. No other person is there to share the profits and losses of the business. He alone bears the risks and reaps the profits. (f) Unlimited Liability: The liability of the sole proprietor is unlimited. In case of loss, if his business assets are not enough to pay the business liabilities, his personal property can also be utilized to pay off the liabilities of the business. (g) One-man Control: The controlling power of the sole proprietorship business always remains with the owner. He/she runs the business as per his/her own will.

9

Merits of Sole proprietorship (a) Easy to form and wind up. (b) Quick decision and prompt action. (c) Direct motivation. (d) Flexibility in operation. (e) Maintenance of business secrets. (f) Personal Touch.

Limitations of sole proprietorship (a) Limited Resources. (b) Lack of Continuity. (c) Unlimited Liability. (d) Not Suitable for Large Scale Operations. (e) Limited Managerial Expertise.

2. Partnership 

A partnership is a business owned by 2 to 20 persons who contribute resources into the entity. The partners divide the profits of the business among themselves.



Types of partnerships include, general / ordinary partnerships where all partners have unlimited liability and limited / extra ordinary partnerships where creditors cannot go after the personal assets of the limited partners.

Characteristics of partnership form of business organization Based on the definition of partnership as given above, the various characteristics of partnership form of business organization, can be summarized as follows: (a) Two or more persons: To form a partnership firm at least two persons are required. The maximum limit on the number of persons is ten for banking business and 20 for other businesses. If the number exceeds the above limit, the partnership becomes illegal and the relationship among them cannot be called partnership.

10

(b) Contractual Relationship: Partnership is created by an agreement among the persons who have agreed to join hands. Such persons must be competent to contract. Thus, minors, lunatics and insolvent persons are not eligible to become the partners. However, a minor can be admitted to the benefits of partnership firm i.e., he can have share in the profits without any obligation for losses. (c) Sharing Profits and Business: There must be an agreement among the partners to share the profits and losses of the business of the partnership firm. If two or more persons share the income of jointly owned property, it is not regarded as partnership. (d) Existence of Lawful Business: The business of which the persons have agreed to share the profit must be lawful. Any agreement to indulge in smuggling, black marketing etc. cannot be called partnership business in the eyes of law. (e) Principal Agent Relationship: There must be an agency relationship between the partners. Every partner is the principal as well as the agent of the firm. When a partner deals with other parties he/she acts as an agent of other partners, and at the same time the other partners become the principal. (f) Unlimited Liability which applies to a general partnership: The partners of the firm have unlimited liability. They are jointly as well as individually liable for the debts and obligations of the firms. If the assets of the firm are insufficient to meet the firm’s liabilities, the personal properties of the partners can also be utilized for this purpose. However, the liability of a minor partner is limited to the extent of his share in the profits. And also, for a limited partnership, liability is limited. (g) Voluntary Registration: The registration of partnership firm is not compulsory. But an unregistered firm suffers from some limitations which makes it virtually compulsory to be registered. Following are the limitations of an unregistered firm. (i) The firm cannot sue outsiders, although the outsiders can sue it. (ii) In case of any dispute among the partners, it is not possible to settle the dispute through court of law. (iii) The firm cannot claim adjustments for amount payable to, or receivable from, any other parties.

11

Merits of partnership form (a) Easy to form (b) Availability of larger resources (c) Better decisions due to consultations. (d) Flexibility (e) Sharing of risks (f) Keen (g) Benefits of specialization (h) Protection of interest (i) Secrecy

Limitations of partnership form A partnership firm also suffers from certain limitations. These are as follows: (a) Unlimited liability (b) Instability (c) Limited capital (d) Non-tra...