Idea Transcript
fredericodeigah
OCT 12 2012
INTRODUCTION TO ENTREPRENEURSHIP DEVELOPMENT INTRODUCTION TO ENTREPRENEURSHIP DEVELOPMENTBY MON. FREDERIC ODEIGAH (MPIA) 1.0 INTRODUCTION The concept of an entrepreneur is refined when principles and terms from a business, managerial, and personal perspective are considered. In almost all of the definitions of entrepreneurship, there is agreement that we are talking about a kind of behaviour that includes: initiative taking, the organizing and reorganizing of social and economic mechanisms to turn resources and situations to practical account and acceptance of risk or failure. To an economist, an entrepreneur is one who brings resources, labour, materials, and other assets into combinations that make their value greater than before, and also one who introduces changes, innovations, and a new order. To a psychologist, such a person is typically driven by certain forces; the need to obtain or attain something, to experiment, to accomplish, or perhaps to escape the authority of others. To one businessman, an entrepreneur appears as a threat, an aggressive competitor, whereas to another businessman the same entrepreneur may be an ally, a source of supply, a customer, or someone who creates wealth for others, as well as finds better ways to utilize resources, reduce waste, and produce jobs others are glad to get. In this paper, we shall discus entrepreneurial development and its relationship with economic theories. What is the role of the entrepreneur in the economic development of his society? What are his objectives for setting up the firm? What are the traits he must possess to progress in business? What are those aspects of entrepreneurship that enables businesses to succeed? These issues many more shall be addressed in this paper. Please read on! 1.1 ENTREPRENEURSHIP Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks in terms of equity, time and/or career commitment or provide value for some product or service. The product or service may or may not be new or unique, but value must somehow be infused by the entrepreneur by receiving and locating the necessary skills and resources efficiently and effectively. Entrepreneurship is thus considered as the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence that comes with it. This definition stresses four basic aspects of being an entrepreneur regardless of the field. First, entrepreneurship involves the creation process, creating something new of value. The creation has to have value to the entrepreneur and value to the audience for which it is developed. This audience could be 1. 2. 3. 4.
the market of organizational buyers for business innovation, the hospital’s administration for a new admitting procedure and software, prospective students for a new course or even college of entrepreneurship, or the constituency for a new service provided by a non-profit agency.
Secondly, entrepreneurship requires the devotion of the necessary time and effort. Only those going through the entrepreneurial process appreciate the significant amount of time and effort it takes to create something new and make it operational. For the person who actually starts his or her own business, the experience is filled with enthusiasm, frustration, anxiety, and hard work. There is a high failure rate due to such things as poor sales, intense competition, lack of capital, or lack of managerial ability. The financial and emotional risk can also be very high. What, then, causes a person to make this difficult decision? The question can be best explored by looking at the decision process involved in becoming an entrepreneur. Entrepreneurship is an essential element for economic progress as it manifests its fundamental importance in different ways by: identifying, assessing and exploiting business opportunities; creating new firms and/or renewing existing ones by making them more dynamic; and driving the economy forward through innovation, competence, job creation and by generally improving the wellbeing of society. Entrepreneurship is the active process of recognising an economic demand in an economy, and supplying the factors of production (land, labour and capital) to satisfy that demand, usually to generate a profit. High levels of poverty combined with slow economic growth in the formal sector have forced a large part of the developing world’s population into self-employment and informal activities. But this is not necessarily negative; microenterprises contribute significantly to economic growth, social stability and equity. The sector is one of the most important vehicles through which low-income people can escape poverty. With limited skills and education to compete for formal sector jobs, these men and women find economic opportunities in microenterprises as business owners and employees. If successful, entrepreneurship is likely to result in a small- to medium-enterprise (SME). They include a variety of firms; village handicrafts makers, small machine shops, restaurants, and computer software firms etc. that possess a wide range of sophistication and skills, and operate in very different markets and social environments. 1.2WHO IS AN ENTREPRENEUR? An entrepreneur is an enterprising individual who builds capital through risk and initiative. The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to help launch a new venture or enterprise and accept full responsibility for the outcome. Jean-Baptiste Say, a French economist, is believed to have coined the word “entrepreneur” in the 19th century. He defined an entrepreneur as one who undertakes an enterprise, especially a contractor, acting as intermediary between capital and labour. Pickle & Abrahamson (1990) introduced a compact definition of an entrepreneur: “An entrepreneur is one who organizes and manages a business undertaking, assuming the risk, for the sake of profit. The entrepreneur evaluates perceived opportunities and strives to make the decisions that will enable the firm to realize sustained growth.” The entrepreneur leads the firm or organization and also demonstrates leadership qualities by selecting managerial staff. It is important to note that management skill and strong team building abilities are essential leadership attributes for successful entrepreneurs and the growth of the business. From the viewpoint of growth-oriented innovative companies, one of the best definitions of entrepreneurship is found in Ronstadt (1984): “Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks in terms of equity, time and career commitment to provide value for some product or service. The product or service may or may not be new or unique but value must somehow be infused by the entrepreneur by receiving and allocating the necessary skills and resources.” 1.3 WHAT IS ENTREPRENEURSHIP DEVELOPMENT? Entrepreneurship development is concerned with the study of entrepreneurial behaviour, the dynamics of business set-up, development and expansion of the enterprise. Entrepreneurship development (ED) refers to the process of enhancing entrepreneurial skills and knowledge through structured training and institutionbuilding programmes. It basically aims to enlarge the base of entrepreneurs in order to hasten the pace at which new ventures are created. This accelerates employment generation and economic development. Entrepreneurship development focuses on the individual who wishes to start or expand a business. Small and medium enterprise (SME) development, on the other hand, it also focuses on developing the enterprise, whether or not it employs or is led by individuals who can be considered entrepreneurial. Furthermore, entrepreneurship development concentrates more on growth potential and innovation than SME development does. However, many of the lessons learned from experiences in both types of development are similar. Entrepreneurship is promoted to help alleviate the unemployment problem, to overcome the problem of stagnation and to increase the competitiveness and growth of business and industries. Various attempts have been made to promote and develop entrepreneurship. By giving specific assistance to improve the competence of the entrepreneur and his enterprise so as to enhance his entrepreneurial objectives and accommodate more people to become entrepreneurs as well. 1.4 ACHIEVING SUSTAINABLE ENTREPRENEURSHIP DEVELOPMENT There is a pervasive tendency to equate entrepreneurship development (ED) with self-employment. Many self-employed individuals are indeed entrepreneurs, but the majority are not. Their businesses are simply microenterprises in the informal sector, with little growth potential. The promotion of self-employment is a worthwhile objective, but it should not be confused with ED. Entrepreneurship development programmes that in reality focus only on self-employment are less likely to succeed in creating economic growth. Entrepreneurship development should be about helping people start and grow dynamic businesses that provide high value added. In determining the difference, it is useful to look at potential growth sectors or geographic areas and to explore criteria for selecting beneficiaries who are entrepreneurial. A needs assessment before programme formulation is useful. An analysis of high-growth economic sectors enables more focused support to entrepreneurs in the most promising sectors of the economy. Entrepreneurship development programmes should be formulated to identify risks and determine the likelihood of success, identify the factors that affect the levels of entrepreneurship in a country. These factors include the perception of opportunity, degree of respect accorded to entrepreneurs, acceptance of wide disparities in income and a family environment which is oriented towards business. Entrepreneurship development programmes require a selection process that attempts to identify those target groups that have some of the key prerequisites for entrepreneurial success. While it can be argued that public funds should be spent on those who most need help, a selection process deploys limited resources where they are most effective, to the overall benefit of the community. Beneficiaries may be individuals and/or groups. An entrepreneurship development programme should help aspiring entrepreneurs to recognize and design unique, innovative business opportunities, based on an analysis of local conditions and their own special skills. The programme can help the entrepreneur to diversify based on his/her basic knowledge of a product or skill in a certain sector without distorting the local markets. In a truly entrepreneurial approach, innovative capacity matters more than the size of the market. Diversification can be accomplished by introducing a novelty or new product feature, stressing quality or value added, anticipating a new market or even creating a market. Entrepreneurial development programmes may have to include support for; Entrepreneurship orientation and awareness. Development of the competencies (skills, experience and attitudes) necessary to recognize a market opportunity and organize the resources to meet it. Improvement of business performance for growth and competitiveness. ED training is usually more effective when linked to finance and other services such as marketing, quality assurance and productivity improvement. For example, involving the development banks at an early stage of the support process helps to prepare the entrepreneur for the credit process and facilitates the bank’s appraisal of the business plan. Successful entrepreneurship also depends on supportive and coordinated government policies. Entrepreneurship is conducive to economic growth and the creation of employment. Government programmes and policies have a significant impact on the level of entrepreneurship within a country. While many governments profess support for entrepreneurial businesses, they often lack specific policies and coordinated programmes designed to support entrepreneurial activity. In Nigeria, the major factor impeding the development of entrepreneurship is the lack of adequate electric power which most times result in high cost of running businesses. However, there are other obstacles to successful entrepreneurial development initiatives. Liberalizing imports, ending public monopolies and opening public services to private-sector provision of goods and services enhance the conditions for entrepreneurship growth. Fostering entrepreneurship involves ensuring that markets for capital, labour, goods and services are working well. It also requires that impediments to entrepreneurship be removed and that conditions be established in which innovation and risk-taking can flourish. Government policy-makers also seek to foster entrepreneurship through programmes which, for example, augment the supply of information and enable reliable transportation of goods and services, encourage networking, facilitate the provision of finance, and seek to create positive attitudes towards entrepreneurial activity. Focused policies that facilitate access to finance, professional services and training for start-up companies, that simplify business registration, reporting and taxation, etc. are essential to entrepreneurial venture creation. Seminars and the study of entrepreneurial development abroad can be included in programmes addressing entrepreneurship policy. 1.5 ECONOMIC ROLE OF THE ENTREPRENEUR An entrepreneur is an individual who establishes a firm. Because of their importance in the modern economy, entrepreneurs should be at the heart of microeconomics. Entrepreneurs set up firms in response to economic incentives. In turn, firms create and operate markets that provide mechanisms of exchange for consumers. Firms also create and manage organizations that provide internal coordination and market interactions. The actions of entrepreneurs are the essential force that helps to drive the economy towards equilibrium. Entrepreneurs are endogenous to the economy in the general theory of the firm. The entrepreneur is, before anything, a consumer. The consumer becomes an entrepreneur by choosing to establish a firm. Consumers bring to the task of entrepreneurship their judgment, knowledge, and technology. Consumers decide to become entrepreneurs based on their personal characteristics and their judgment of available market opportunities. Entrepreneurs act rationally and purposefully based on maximizing their net benefits. A firm is defined to be a transaction institution whose objectives are separate from those of its owners. All firms involve some combination of market mechanisms and organizational structures. A market is a transaction mechanism that brings buyers and sellers together. A market can be a store, a web site, a matchmaker, or an auction. An organization is a mechanism for managing nonmarket transactions inside the firm, including those between owners and managers, between managers and employees, and between employees, and for managing the firm’s market transactions. An organization can involve hierarchies, bureaucracies, groups, teams, and networks. Fig. 1.0 Microeconomics with endogenous entrepreneurs, firms, markets and organizations Entrepreneurs establish firms. Firms create and manage markets and organizations. Consumers and firms interact through market mechanisms and organizations. Individual members of the society establish firms to facilitate, formalize, and enhance economic relationships. The social and economic origins of the firm should be reflected in the structure of the economic theory of the firm. Rather than being given exogenously, firms arise endogenously because consumers choose to become entrepreneurs. Consumer characteristics are the givens and firms are the result of consumer decisions. The existence of firms, their purpose, and their organizational structure depend on the decisions of the entrepreneur. 2.0 THE OBJECTIVES and AIMS OF A FIRM When an Entrepreneur sets up a business, they may have some unstated aims or objectives. Other businesses may wish to state exactly what they are aiming to do, such as Amazon, the Internet CD and bookseller, who wants to “make history and have fun” or Global Communications Nigeria (Glo) ‘rule your world’. An aim is where the business wants to go in the future, its goals and aspirations. It is a statement of purpose. Corporate aims express the long-term intentions of an organisation to develop in a certain way. TERM
DEFINITION
EXAMPLE
MISSION
Overall Purpose
To be the best known for name for confectionery
GOAL
General Statement
To be the market leader in confectionery sales
OBJECTIVE
Quantifiable Statement of the goal
To increase sales by 10% per year
A mission statement sets out the business vision and values that enables employees, managers, customers and even suppliers to understand the underlying basis for the actions of the business. Business objectives are the stated, measurable targets of how to achieve business aims. Objectives give the business a clearly defined target. Plans can then be made to achieve these targets. This can motivate the employees. The idea behind setting aims is to ensure that: Everyone in the business has a clear focus of the direction that it is going in. The entrepreneur can see or determine how much he has achieved after a given time. They provide a framework within which business strategies can be drawn up Having set long-term aims of the business, there is a need to communicate them to the stakeholders. This is done through a mission statement. The mission statements will outline the overall reason for the firm’s existence. Aims and mission statements are long-term and therefore lack the detail for day-to-day decisions of running a business. However, this detail will be given in the firm’s objectives, which should set measurable targets. Many businesses set two types of objectives: Although objectives give the business a clearly defined target, plans must then be made to achieve these targets. These plans are therefore created to motivate employees and enable the entrepreneur to measure the progress of business towards its stated aims. 2.1 CHARACTERISTICS OF EFFECTIVE BUSINESS OBJECTIVES The most effective business objectives meet the following criteria: (SMART) ü S – Specific – objectives are aimed at what the business does, e.g. a hotel might have an objective of filling 60% of its beds a night during October, an objective specific to that business. ü M – Measurable – the business can put a value to the objective, e.g. €10,000 in sales in the next half year of trading. ü A – Agreed by all those concerned in trying to achieve the objective. ü R – Realistic – the objective should be challenging, but it should also be able to be achieved by the resources available. ü T- Time specific – they have a time limit of when the objective should be achieved, e.g. by the end of the year. For most start-up businesses, survival is the main target. Although profit maximisation is the major aim of most entrepreneurs, some business may try to increase sales to boost confidence and engage in economies of scale. Nevertheless a business may find that some of their objectives conflict with one and other: Growth versus profit: for example, achieving higher sales in the short term (e.g. by cutting prices) will reduce short-term profit. Short-term versus long-term: for example, a business may decide to accept lower cash flows in the short-term whilst it invests heavily in new products or plant and equipment. In contemporary global economy, not all businesses seek profit or growth. Some organisations have alternative objectives. Examples of other objectives: ü Ethical and socially responsible objectives –Some organizations have objectives which are based on their beliefs on how one should treat the environment and people who are less fortunate. ü Public sector corporations that are established to not only generate a profit but provide a service to the public. This service will need to meet the needs of the less well off in society or help improve the ability of the economy to function: ü Public sector organisations that monitor or control private sector activities have objectives that are to ensure that the business they are monitoring comply with the laws laid down. ü Health care and education establishments that provide reliable and cheap medical and enabling academic environment. Most public schools for instance have charitable status. Their aim is the enhancement of their pupils through education. ü Charities and voluntary organisations – their aims and objectives are led by the beliefs they stand for. However a business may change its objectives over time due to some specific reasons. A business may achieve an objective and will need to move onto another one (e.g. survival in the first year may lead to an objective of increasing profit in the second year). The competitive environment might change, with the launch of new products from competitors. Technology might change product designs, so sales and production targets might need to change. Government policies and regulations may also affect the objectives of running a firm. Therefore a firm or enterprise needs to continue updating itself in order not to be left behind. 3.0 TRAITS OF AN ENTREPRENEUR The entrepreneur has played several fundamental roles in economic development. Nevertheless, this may not have been possible if he did not possess some certain traits to distinguish him from other personalities. Entrepreneurial success depends on the management of your own self. For this you require certain traits, qualities or behavioral competencies. Barreto (1982) presents four groupings of the critical traits of an entrepreneur; coordinator, arbitrage, innovation, and uncertainty-bearing. He further divides the last category into sub-groupings: He further divides the last category into sub-groupings: speculation, ownership, and decision-maker. These characteristics demonstrate the human elements of entrepreneurship. 1. Coordinator: An entrepreneur is a combiner and coordinator of productive resources. He is at the crux of the market system. This implies that the entrepreneur is the link of communication between the various classes of producer and consumer. He directs the business of production and is the center of many bearings and relationships. 2. Arbitrageur: The entrepreneur is someone with the ability to perceive profit opportunities and act upon them. He observes the opportunity to sell something at a price higher than that at which he may be willing to pay for it. 3. Innovator: Innovation is an outcome of new combinations created by the entrepreneur. These new combinations are created by the entrepreneur who develops new goods, quality, new methods of production, new markets or new organizations. 1. 1. Uncertainty-bearer: The entrepreneur conducts all of the exchanges in the market, buying from producers and selling to consumers. By performing this function, he leads the market toward equilibrium. But he is more than a mere arbitrageur (buying low and selling high) because of the presence of uncertainty. This is further divided into sub-groups: I. A speculator: The entrepreneur, in conducting his transactions buys at a certain price and sells at an uncertain price. He is a speculator and the key to the market system because of his willingness to bear risk. II. Owner: The adoption of the entrepreneurial role carries with it the assumption of responsibilities in an uncertain business environment. The entrepreneur motivates production and becomes the responsible owner of the product. III. Decision-maker: In uncertain conditions, someone must decide what to do and be responsible for that decision. The decision-making function forecasts demand and estimates the factors marginal productiveness. Thus the entrepreneur is more than a manager, he is the key in the productive process by deciding, in an uncertain environment what and how to produce. He becomes an entrepreneur by virtue of his willingness to accept the results of a particular endeavor. 3.1 PERSONAL CHARACTERISTICS OF AN ENTREPRENEUR Timmons (1994) describes entrepreneurial mind (which means the attitudes and behaviour of successful entrepreneurs) as those people who are capable of hard work, and are driven by an intense commitment and determined perseverance. They see the cup half full rather than half empty, they strive for integrity, they burn with competitive desire to excel and win. They are dissatisfied with the status quo and seek opportunities to improve almost any situation they encounter. They use failure as a tool for learning and eschew perfection in favour of effectiveness. They believe they can personally make an enormous difference in the final outcome of their ventures and their life. Successful entrepreneurs have many qualities in common with one another. They are confident and optimistic, disciplined self-starters. They are open to any new ideas which cross their path. Here are ten personal traits of a successful entrepreneur: i. Disciplined: They are focused on making their businesses work, and eliminate any hindrances or distractions to their goals. Successful entrepreneurs are disciplined enough to take steps every day toward the achievement of their objectives. ii. Confidence: The entrepreneur does not ask questions about whether they can succeed or worthy of success. They are confidence with the knowledge that they will make their businesses succeed. They exude that confidence in everything they do. iii. Open Minded: Entrepreneurs realize that every event and situation is a business opportunity. Ideas are constantly being generated about workflows and efficiency, people skills and potential new enterprises. They have the ability to look at everything around them and focus it toward their goals. They update their knowledge continuously and seek information form a variety of sources. iv. Self-Starter: Entrepreneurs know that if something needs to be done, they should start it themselves. They set the parameters and make sure that projects follow that path. They are proactive, not waiting for someone to give them permission. v. Competitive: Many companies are formed because of an entrepreneur knows they can do a job better than another. They need to win at the sports they play and need to win at the business that they create. An entrepreneur will always be willing to highlight their own company’s track record of success. The success of the entrepreneur will depend on the quality of their product or service. vi. Creativity: One facet of creativity is being able to make connections between seemingly unrelated events or situations. Entrepreneur often come up with solutions which are the synthesis of other items. They will repurpose products to market them to new industries. vii. Determination: Entrepreneurs are not thwarted by their defeats. They look at defeat as an opportunity for success. They are determined to make all their endeavours succeed, so they will try and try again until it does. Successful entrepreneurs do not believe that something cannot be done. viii. Strong people skills: The entrepreneur has strong communication skills to sell the product and motivate employees. Most successful entrepreneurs know how to motivate their employees so the business grows overall. They are very good at highlighting the benefits of any situation and coaching others to their success. ix. Strong work ethic: The successful entrepreneur will often be the first person to arrive at the office and the last one to leave. They will come in on their days off to make sure that an outcome meets their expectation. Their mind is constantly on their work, whether they are in or out of workplace. x. Passion: Passion is the most important attribute of successful entrepreneur. They genuinely love their work. They are willing to put in extra hours to make the business grow because there is a joy their business gives which goes beyond the money or profit. The successful entrepreneur will always be reading and researching ways to make the business better. 3.2 INTERPERSONAL SKILLS OF AN ENTREPRENEUR These could be referred to as social skills. They are a set of skills that people use when interacting and communicating with one another. These skills show up in countless interactions, from public speaking, group projects and team presentations, to professional writing (work e-mails, contracts etc.) and talking with friends and business associates. Here are a few tips on how to improve your interpersonal skills: ü Be an active listener– Take the time to listen and show others that you’re listening and understand their perspective-even if it is not in line with yours. ü Body language– I don’t know many people who enjoy being around unhappy individuals or those who appear to be unhappy in any given moment. Make sure to smile, stand tall, make eye contact and do your best to give off a good vibe. Your body language introduces you to those around you before you even open your mouth. ü Empathize– Try putting yourself in someone else’s shoes and understand their perspective. This will allow you to better respond to their feelings and it will show them that you care. ü Humour– It is not all about business. After all, we are all human. Be spontaneous and say something at an appropriate time that you think will make the other person smile. If they smile, you know they’re probably working on their interpersonal skills, too. ü Optimism– Be optimistic, open minded and have an overall positive attitude. Positive attitudes are contagious to those around you. Everyone knows someone who has a negative attitude and you definitely do not want to be one of them. ü Think on your feet– It is important to be sharp, pick up on, and react to both verbal and nonverbal cues of others. ü Be patient– Not everyone processes and understand concepts in the same way. Take the time to make sure that whoever you’re talking to understands what you’re saying. ü Practice- The more interactions you have with others, the more progress you’ll make.
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