mne2601_notes_best_summary

ENTREPRENEURSHIP & SMALL BUSINESS MANAGEMENT - MNE2601 STUDY UNIT 1 Chapter 1: The Nature and Development of Entrepreneurship The Economic impetus of Entrepreneurship Economic development can be directly attributed to the level of entrepreneurial activity in a country. A combination of all types of businesses from Small, Medium, and Micro enterprises (SMME’s), to large National and International organisations (Private and Public owned) collectively determines the overall state of the economy. GDP – real Gross Domestic Product – is the value of all production within a country’s geographical boundaries, and it is used to measure the growth (or decline) activity within our economy. Employment is also closely linked to the state of the economy. During periods of poor economic growth, less job opportunities are available. The importance of entrepreneurs is crucial for the improvement of the South African economy and is also regarded as the best opportunity that exists. The Development of Entrepreneurship Theory (entreprenology) Can be divided into five periods according to Fillion (1991). Period Topic Authors & researchers What entrepreneurs do 1950 Economic perspective Cantillon, Say, Schumpter Who entrepreneurs are Behavioural perspective Weber, McClelland, Rotter, De Vries What entrepreneurs do Management science perspective Drucker, Mintzberg What support is needed by entrepreneurs Social perspective (economists, geographers and sociologists) Gartner, Welsh, Bygrave, Reynold What entrepreneurial activities are 1990 - Entrepreneurial perspective (finance, marketing, operations, human resources) Timmons, Vesper, Brockhaus Defining Entrepreneurship, Small business and Entrepreneurial ventures Entrepreneur and Entrepreneurship Entrepreneurship: is the emergence and growth of new business. The motivation for entrepreneurship is to make a profit. Entrepreneurship involves the process that causes changes in the economic system through innovations of individuals who respond to opportunities in the market. In the process entrepreneurs create value for themselves and society. Carland, Hoy, Boulton & Carland: An entrepreneur is an individual who establishes and manages a business for the main purposes of profit and growth. Watson: The distinguishing factors of entrepreneurs are mostly innovation, opportunity recognition and growth in a business Entrepreneur: an entrepreneur is a person who sees an opportunity in the market, gathers resources and creates and grows a business venture to meet these needs. The entrepreneur bears the risk of the venture and is rewarded with profit if it succeeds. The key concepts of an entrepreneur that follow the definitions above are: • Identifying an opportunity: A real business opportunity must exist • Innovation and creativity: Some new and different is required • Getting resources: Capital labour and operating equipment must be found • Creating and growing a venture: Starting of a new business venture or the conversion of an existing business • Taking risks: Personal and financial risks are involved for the one who takes on the entrepreneurial process. • Being rewarded: It can be in the form of profit or an increase in the value of the business. Small business Watson: Small business owners are individuals who establish and manage their businesses for the principal purpose of furthering personal goals and ensuring security. The activities of artisans/craftsmen, administration/manager and security/family are indicated as characteristics of small business ownership. Carland: Therefore, a small business is any business that is independently owned and operated, but is not dominant in its field and does not engage in any new marketing practices. Qualitative criteria ...which relate to the ownership structure of the business, specifies that it must: • Be a separate 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. Quantitative criteria ...quantitative criteria classify businesses into micro, very small, small and medium, using these guidelines: • Total full-time paid employees • Total annual turnover • Total gross asset value (excluding fixed property) Entrepreneurial Ventures Entrepreneurial ventures: main objectives are profitability and growth. Three characteristics distinguish the entrepreneurial venture from small business (Wickham);  Innovation: Entrepreneurial ventures thrive on innovation. Small business is usually only involved in delivering an established product or service.  Potential for growth: Due to its innovative approach, an entrepreneurial venture has a great deal more potential for growth than a small business. The small business operates in an established industry and is unique only in terms of its locality.  Strategic Objectives: The entrepreneurial venture will usually set itself strategic objectives in relation to: Market targets, Market development, Market share, Market position Entrepreneurial ventures are the ones that create employment. Both ventures require entrepreneurial action for start-up, but the small business will tend to stabilise at an early stage and only grow with inflation. Entrepreneurial Development Factors that influence the entry of entrepreneurs are: • Entrepreneurialorientation: Family and roles models Education Culture Work experience Personal orientation (creativity and innovation, autonomy, risk taking, proactiveness, competitive) • A supportive environment: Financing Training and development • A cooperative environment Universities and other educational institutes The fundamental infrastructure requirements such as roads, electricity, water and communications are vital factors in entrepreneurial development. The domains of Entrepreneurship, Management and Leadership Not all entrepreneurs are good managers or leaders, but certain management and leadership skills are critical for entrepreneurial success. Once established, the role of the entrepreneur then changes to that of a manager, including planning, organising, leadership and control. The various business functions also have to be managed: marketing, purchasing, production, human resources, administration, public relations and finance. Success factors of Entrepreneurs Entrepreneurial Factors Managerial Factors Creativity and Innovation Planning – systematic approach Risk orientation Knowledge of competition Leadership Mainly market orientated Good human relations Client service Positive attitude High-quality work Perseverance Financial insight and management Commitment Business knowledge and skills Use of experts The Entrepreneurial process There are 4 distinct phases: 1) Identifying and evaluating the opportunity: An opportunity is a gap in the market which is not currently served. A good opportunity is attractive, durable and timely. It creates or adds value to the market which it serves. Identifying and evaluating an opportunity is difficult as an entrepreneur must deliberately formulate ideas which can be converted into a business opportunity. A number of techniques can be used: The entrepreneur’s skills, expertise or aptitude, Common needs, existing unsolved problems, Everyday activities In order to convert ideas into opportunities, each short-listed idea requires a feasibility and viability study. A feasibility study: is a general examination of the potential of an idea to be converted into a new business venture, with its primary focus on the ability of the entrepreneur to pursue the idea and match his skills with what is required. A viability study: is an in-depth investigation into the potential of the idea to be converted into a new business venture