Introduction to entrepreneurship

What is entrepreneurship?• ‘Entrepreneurship is creating and building

something of value from practically nothing. • That is, entrepreneurship is the process of

creating or seizing an opportunity and pursuing it regardless of the resources currently controlled. • Entrepreneurship involves the definition, creation

and distribution of value and benefits to individuals, groups, organizations and society. • Entrepreneurship is very rarely a get-rich-quick

proposition; rather it is one of building long-term value and durable cash flow streams.’

• Entrepreneurship involves creating and building something of value e.g. a business enterprise or company. • Note also that the quantity of resources held has

little bearing on entrepreneurship. • Whilst resources are important, their absence does

not necessarily stop entrepreneurship. Entrepreneurship benefits individuals, groups, organizations and society through the provision of goods and services.

• It should be noted that entrepreneurship can be developed.

• People can be stimulated and activated to be venturesome, creative and dynamic. This is why we are talking about entrepreneurship, so that the entrepreneurial spirit can be developed in the reader.

• And finally, entrepreneurship has benefits for the economy, society and the entrepreneur. Benefits to the economy and society and entrepreneur include:

• The establishment and management of small businesses. • The sale of products and services and the creation of

employment. • Benefits to the entrepreneur from self-fulfillment by doing

what they enjoy, reaping profits, contribution to society to recognition for his/her efforts.

Entrepreneurs

• We have established the concept of entrepreneurship, the next question we have to tackle is, but who are entrepreneurs? We will look at two definitions that will help clarify the term.

• Entrepreneurs are skilled at identifying new products, new methods of production or new ways of marketing existing products. They set up operations to provide new products, market the products and arrange the financing of the operations

• This definition emphasizes that entrepreneurs are skilled people in the identification of new products, new methods of production and marketing. Having identified these opportunities, they set up operations to exploit these opportunities.

• This skill can be in-born or developed by reading books, magazines and learning from others.

• Let us look at the next definition. Entrepreneurs are people with the ability to create an enterprise where none existed before.

• They produce combinations of ideas, skills, money, equipment and markets that form a successful enterprise. The emphasis on this definition is the creation of an enterprise (Niewenhuizen et al., 2007).

• An entrepreneur can therefore be described as someone who: • Starts his/her own enterprise • Manages his own enterprise • Buys an existing enterprise • Identifies new products or opportunities • Is creative and/or innovative • Organizes and controls resources (like capital,

labor, materials) to ensure a profit • Has the ability and insight to market, produce and

finance a service or product; • Is willing to take calculated risks

• The common view is that a person who starts and establishes any enterprise, not necessarily an enterprise that shows high levels of innovation, is an entrepreneur. • We pose the question, who can be an

entrepreneur? • The answer is anyone- regardless of age, race,

gender, colour, national origin or any other characteristic can be an entrepreneur. • They need the drive, the energy and other

characteristics that are valuable to an entrepreneur for success.

Any one can be an entrepreneur?

The richest self-made woman in Africa and one of just two female billionaires on the continent. Folorunsho Alakija's first company was an upscale fashion label that catered to Nigeria's elite, including the wife of the former military president, Ibrahim Babangida. This connection paid off: the president later gave Alakija's company a prospecting license for one of the most lucrative oil fields in Nigeria. The drop in oil prices has dented the fortune of Alakija, one of just two women billionaires in Africa.

Source: www.forbes.com•Real Time Net Worth As of 6/29/15 •$2.2Billion

Importance of entrepreneurs

• Entrepreneurs occupy a central position in an economy. It is the entrepreneurs who serve as the spark plug in the economy's engine, activating and stimulating different economic activities. Most nations worldwide can trace their economic success to efforts at encouraging and rewarding the entrepreneurial spirit.

• A society is prosperous only to the degree to which it rewards and encourages entrepreneurial activity because it is the entrepreneurs and their activities that are the critical determinant of the level of success, prosperity, growth and opportunity in any economy. The most dynamic societies in the world are the ones that have the most entrepreneurs, plus the economic and legal structure to encourage and motivate entrepreneurs to greater activities

• The South African economy is experiencing a high unemployment problem. • In such an economy entrepreneurship is

critical both in creating the much needed job opportunities for its citizens and producing products and services. The trend around the world is that small businesses especially the informal sector creates more jobs than large companies.

Personal qualities of entrepreneurs

• Entrepreneurs have some common features that set them apart from people who are not intent on starting their own enterprises. This is not to say that all entrepreneurs have the same characteristics. Each entrepreneur has the unique combination of factors at his/her disposal for achieving success.

• We will discuss the skills, expertise and aptitudes of entrepreneurs and their interpersonal qualities.

• These factors are: • Skill • Expertise and • Aptitude

• Skills refer to the ability to do an activity or job well, especially because you have practiced it. For example, you can learn to become an electrician, dentist, carpenter or a beautician. • Expertise on the hand is knowledge that you

acquire by either studying or through experience. You can be an expert in computer programming, air conditioning systems or manpower recruitment. • Successful entrepreneurs have particular skills,

expertise and aptitudes that can be applied profitably in any enterprise. It is always advisable to start or run an enterprise in something you feel comfortable with and know a lot (expertise) and in which you are skilled.

The personal characteristics of entrepreneurs

• It is not enough to have expertise, skills and aptitude. To enhance chances of success in business, business characteristics and management skills are also needed.

• The following are personal characteristics of entrepreneurs deserve our attention:

• Persistence

• Entrepreneurs have a lot of confidence both in themselves and their enterprises. They press on despite setbacks and difficult situations and problems that may arise. They are not easily discouraged when they make mistakes or fail. They exercise patience until the task at hand has been completed and the goal has been reached.

Commitment to the enterprise

• Entrepreneurs dedicate their time, skills, expertise and resources to establish and build the enterprise. They prove their commitment through the following actions:

• using their own money in the enterprise; • borrowing and securing the loan against their house; • putting in long hours to ensure the success of the

enterprise; • accepting a lower standard of living; usually at the

beginning; • earning little or no income from the enterprise until it

stabilizes.

Reginald Mengi

•Net Worth : $560 Million Source Of Wealth: media, mining, Self Made Residence: Dar es Salaam, TanzaniaCitizenship: Tanzania

Tanzanian media mogul Reginald Mengi sits atop one of the largest media conglomerates in Africa. His IPP Media Group owns 11 newspapers, radio and television stations and internet properties. He also owns Bonite Bottlers, the sole bottler of Coca-Cola products in the northern region of Tanzania. His Kilimanjaro brand of bottled water is the biggest selling in the country. His IPP Resources mines gold, uranium, copper, chrome and coal. A devout philanthropist, he sends hundreds of Tanzanian children with heart ailments to India for treatments. Source: www.forbes.com

Involvement in the enterprise

• Entrepreneurs are actively involved in all aspects of the enterprise and are aware of what is happening in the enterprise. They communicate with staff, suppliers and clients to ensure the success of the business.

Willingness to take risks

• Entrepreneurs take risks, it must be noted that this is calculated risk. The risk must not be excessive, for then the chances of success will be out of the entrepreneur’s hands. On the hand, the level of risks should not be too small as lower risk is not usually challenging and profitable. Entrepreneurs do not take gambles.

Sound relationships

• Entrepreneurs make an effort to cultivate good relationships with people. This is part of networking. They develop good working relations with their staff, clients, suppliers and other entrepreneurs. Success is difficult to achieve in isolation. Networking is critical to the success of the business venture.

Creativity

• Creativity refers to the entrepreneur’s imagination, his ability to think originally or differently.

• Examples include the recently designed sports shoe washing and drying machine. This machine can wash sports shoes and dry them in ten minutes time. This is a good example of creativity.

Positive attitude

• Entrepreneurs remain positive despite setbacks and failure. Yes, sometimes they get discouraged because when situations are not favorable, but they overall they accept their situation and remain positive.

• Whilst anyone can become an entrepreneur, because of the difficulties that are usually encountered, not everyone should become an entrepreneur. Whilst the rewards do come eventually, there may be periods of stress and difficulty.

The objectives of an entrepreneur

• What drives entrepreneurs to work so hard with no guarantee for success? • What forces drive them to risk so much

and to make so many sacrifices in an attempt to achieve the ideal? • Why do entrepreneurs start their own

business? The objectives of an entrepreneur vary depending on the entrepreneur and his circumstances.

To gain control over one’s destiny

• Owning a business gives the entrepreneur the independence and opportunity to achieve what they have always desired. They can get satisfaction in knowing that they are in control of their destiny and determining the direction of their businesses. In addition, to be ones own boss is better for most of us.

To reach full potential

• Entrepreneurship stretches the entrepreneurs to reach their full potential by exploiting a business opportunity that they have identified. Additionally, the demands and challenges of the business, stimulates new levels of determination and creativity. This might be especially appealing as an escape from a boring job.

To contribute to society and be recognised for their efforts

• Entrepreneurs enjoy the recognition they receive from customers for their service. The knowledge that their work has a bearing on the economy brings them satisfaction. They are generally held in high esteem in society for their achievements, which is gratifying.

To start a new career

• The aim of an entrepreneur might be to start a new career after being retrenched or unemployed. After the frustration of retrenchment or losing a job, some people feel they would rather start something of their own and avoid another painful experience of being retrenched or losing their job.

To make a profit

• Entrepreneurs might go into business because they want to make a profit and so supplement their income. The issue of profit is critical to the sustainability of the business. Profit is the money left after expenses incurred by the business have been deducted i.e. Income - Expenses = Profit.

• Profit is important because it enables owners to invest in the continued operations of the business. It should therefore be the objective of any entrepreneur to make a profit from the business and in the long term grow this profit. Profit is the reward for taking the risk and running a business.

Conclusion – Part One

• Entrepreneurship involves creating and building something of value e.g. a business enterprise or company. Note also that the quantity of resources held has little bearing on entrepreneurship. Entrepreneurship benefits individuals, groups, organisations and society. Entrepreneurship is about building long-term value and durable cash flow streams. It is not about making a quick buck.

• Entrepreneurs are people with the ability to create an enterprise where none existed before. They are important to any economy, producing a combination of ideas, skills, money, equipment and markets that form a successful enterprise. The emphasis on this definition is the creation of an enterprise.

Entrepreneurship and the business world• What is a business? • All of us interact with one form of business or another every

day of our lives. We buy food from a business, use transport that is either run by some business or bought from a business. We use phones provided by a business, wear clothes bought from a business and even work for a business our selves.

• But what is a business? A business is any individual or group of individuals that satisfy the needs of people (Smit, 2004). A business focuses on producing, goods or services to its customers. A business will combine capital, labour and technology in providing goods or services to its customers. There are different types of businesses. A business could be in the manufacturing, information technology, services sector etc.

Factors of production

• Resources are required to produce goods and services. Resources are scarce relative to the needs and wants of people and businesses operating in an economy. It is important that these resources are used efficiently in order to maximise the output that can be produced from them. Production factors can be looked at as resources when starting an enterprise.

• Certain factors are needed to start an enterprise. These are called the factors of production:

• Land • Labour • Capital • Entrepreneurship

• 1. Land • Land refers to the natural resources available for production.

Some countries are endowed with natural resources and exploit this by specialising in the extraction and production of these resources - for example – Saudi Arabia has oil in abundance. Other examples of natural resources include water, minerals, wood, leather and iron ore.

• 2. Labour • Your desire to start an enterprise of your own is only the first step

in establishing a business. You need people who can assist you with the business. Labour is the human input into the production process. These employees or labourers are paid a wage or salary. Not all labour is of the same quality. Some workers are more productive than others because of the education, training and experience they have received. The technical knowledge and skills of people who work in an enterprise is called human capital.

• 3. Capital

The word capital has several meanings. It means the finance raised to operate a business (financial capital). Capital also refers to machinery, plant and equipment, new technology, factories and buildings - all goods designed to increase the productive potential of the economy. This is called physical capital. Human capital refers to the technical knowledge and ingenuity of people who work in an enterprise.

4. Entrepreneurship

• Entrepreneurs are people who organize productive resources to make goods and services. The skill in combining the other three production factors in order to generate a product is known as entrepreneurial ability. The success and/or failure of a business often depends on the quality of entrepreneurship.

The location of an enterprise • The enterprise is a body that is established by an

entrepreneur to provide goods and services that meet the needs of consumers. The location or premises where an enterprise operates is called an establishment. In the example of a manufacturing business, this would be a factory. The factory is where the company’s production equipment is located and where raw materials are converted to outputs.

• Every business must have some location or establishment to operate from. The choice of where to locate the premises is not an easy one neither should it be taken lightly. The choice depends on a host of factors including your preference, availability, costs and concentration of customers. A proper study must be done before settling on a location. The key criteria are concentration of customers and least cost. A wrong choice can spell trouble for the enterprise.

The Primary Sector

• The primary sector involves the exploitation of natural resources in their unprocessed form. An example is a citrus plantation.

• The Secondary Sector

• In the secondary sector, natural resources are processed to their final product. For our example, this would be preserving oranges.

• The Tertiary Sector

• Here the final product is transported from the manufacturer or producer to the consumer. Supermarkets such as Checkers, Spar and Woolworth’s belong to the tertiary sector.

Enterprises and their establishments are classified according to their activities into primary, secondary and tertiary sectors. Let us see what these words mean.

Informal enterprises • Let us see what these interesting terms mean.

An informal enterprise is an enterprise that does not have officially recognised business premises. It is not officially recognised and does not keep official records. Examples are people selling oranges and apples at a street corner.

• Clearly there are advantages with this form of business. It is easy to start, as it does not need to be registered or recorded for tax purposes. But there are disadvantages as well. The owner of an informal enterprise cannot rent premises on behalf of his/her enterprise. Obtaining finance will be equally difficult as financial institutions view informal enterprises with suspicion. In addition they usually have little or no security to offer.

• A formal enterprise is an enterprise that has a registered form of enterprise and is registered for tax purposes. Examples of formal enterprises are private companies and close corporations.

The Business Environment • A management system describes the organization and the set of

significant interacting institutions and forces in the organization's complex and rapidly changing environment that affect its ability to serve its customers.

• The firm must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell profound threats or new opportunities for the firm.

• The successful firm will identify, appraise, and respond to the various opportunities and threats in its environment. The business environment is made up of all the factors that can affect the business enterprise in any way.

• The business enterprise is affected by both the internal and the external environment. Unfortunately, we have no control over some of these factors. An entrepreneur or his manager should be skilled in knowing how to analyse and improve the ability of an organization to survive and grow in a complex and changing world.

The internal environment

• The management system can be conceptualised on two levels. The first level involves the organization's internal environment. Internally, an organization can be viewed as a resource conversion machine that takes inputs (labour, money, materials and equipment) from the external environment (i.e., the outside world), converts them into useful products, goods, and services, and makes them available to customers as outputs. The internal environment is called the micro environment.

The external environment

• The second level of the management system involves the organization's external environment. The external environment is part of the business environment outside the environment.

• It consists of all the outside institutions and forces that have an actual or potential interest or impact the organization's ability to achieve its objectives.

• These include competitors, suppliers, economic conditions, technological changes, political and legal variables, social and cultural forces, physical variables and international forces. Environmental forces create challenges and opportunities for the organization.

Conclusion

• The factors of production are land, labour, capital and entrepreneurship. The primary sector involves the exploitation of natural resources in their unprocessed form.

• The secondary sector involves the processing of natural resources into their final product. In the tertiary sector the foods the finished goods are transported to the consumer.

• Although the objectives of entrepreneurs vary, the profit motive deserves special attention because profit sustains the business.

• Enterprises can be formal or informal. The business environment is made up of all the factors that can affect the business enterprise in any way.