Module 1 Notes Summary

The Nature and Growth of Entrepreneurship

Evolution:

Richard Cantillon (1697-1734)

The term entrepreneur, which most people recognize as meaning someone who organizes and

assumes the risk of a business in return for the profits, appears to have been introduced by

Richard Cantillon (1697-1734), an Irish economist of French descent. The term came into much

wider use after John Stuart Mill popularized it in his 1848 classic, Principles of Political

Economy, but then all but disappeared from the economics literature by the end of the nineteenth

century.

The reason is simple. In their mathematical models of economic activity and behavior,

economists began to use the simplifying assumption that all people in an economy have perfect

information. That leaves no role for the entrepreneur. Although different economists have

emphasized different facets of entrepreneurship, all economists who have written about it agree

that at its core entrepreneurship involves judgment. But if people have perfect information, there

is no need for judgment. Fortunately, economists have increasingly dropped the assumption of

perfect information in recent years. As this trend continues, economists are likely to allow in

their models for the role of the entrepreneur. When they do, they can learn from past economists,

who took entrepreneurship more seriously.

According to Cantillon's original formulation, the entrepreneur is a specialist in taking on risk.

He "insures" workers by buying their products (or their labor services) for resale before

consumers have indicated how much they are willing to pay for them. The workers receives an
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assured income (in the short run, at least), while the entrepreneur bears the risk caused by price

fluctuations in consumer markets.

Joseph Schumpeter (8 February 1883 – 8 January 1950)

(One of the 20th century's great economic and political thinkers)

Joseph Schumpeter is well known for his theory explaining the activities that lead to economic

growth in capitalist economies. His theory centers on entrepreneurial innovations and their role

as the key driver of economic growth. Schumpeter argues that competition among market

participants leads to a desire to seek out new ways to improve technology, new ways to do

business and other types of advantages that would increase profit margins and directly impact the

entrepreneur's standard of living.

Schumpeter describes the act of new innovations replacing old innovations as "creative

destruction." This process is driven by the inevitable copying of new innovations, which causes

profit margins to become low and creates a new incentive to seek out new innovations. This is

the essential idea behind capitalism as Schumpeter describes it.

Creative Destruction

A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and

Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the

economic structure from within, incessantly destroying the old one, incessantly creating a new

one."
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Creative destruction occurs when something new kills something older. A great example of this

is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe

computer companies, but in doing so, entrepreneurs created one of the most important inventions

of this century.

Schumpeter goes so far as to say that the "process of creative destruction is the essential fact

about capitalism." Unfortunately, while a great concept, this became one of the most overused

buzzwords of the dotcom boom (and bust), with nearly every technology CEO talking about how

creative destruction would replace the old economy with the new.

Peter Drucker (November 19, 1909 – November 11, 2005)

Peter Ferdinand Drucker was an Austrian-born American management consultant, educator, and

author, whose writings contributed to the philosophical and practical foundations of the modern

business corporation. He was also a leader in the development of management education, he

invented the concept known as management by objectives, and he has been described as "the

founder of modern management".

Management by Objectives - MBO

This is a management model that aims to improve performance of an organization by clearly

defining objectives that are agreed to by both management and employees. According to the

theory, having a say in goal setting and action plans should ensure better participation and

commitment among employees, as well as alignment of objectives across the organization. The
 Module 1 Notes Summary

term was first outlined by management guru Peter Drucker in 1954 in his book "The Practice of

Management."

A key tenet of management by objectives is the establishment of a management information

system to measure actual performance and achievements against the defined objectives. The

major benefits of MBO are that it improves employee motivation and commitment, and ensures

better communication between management and employees. However, an oft-cited weakness is

that MBO unduly emphasizes the setting of goals to attain objectives, rather than working on a

systematic plan to do so.

Chronologically

 1734: Richard Cantillon - Non-fixed income earners who pay known costs of production

but earn uncertain incomes.

 1803: Jean-Baptiste Say - an economic agent who unites all means of production- land,

labor and capital to produce a product or service. Product sales pay rent, wages, interest

and what remains are profit. He shifts economic resources from an area of lower to an

area of higher productivity.

 1934: Joseph Schumpeter - Innovators who change the status quo to set up new products

and new services.

 1961: David McClelland - A person with a high need for achievement [N-Ach] who is

energetic and a moderate risk taker.

 1964: Peter Drucker – one, who searches for change, responds to it and exploits

opportunities. Innovation is a specific tool of an entrepreneur hence an effective

entrepreneur converts a source into a resource.

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 1971: Peter Kilby—Imitative entrepreneurs do not innovate, but bring technologies

innovated by others into another context.

 1975: Howard H. Stevenson—the pursuit of opportunity without regard to resources

currently controlled.

 1975: Albert Shapero—those who take initiative, accept risk of failure and have an

internal locus of control.

Culture, Tradition

Poverty

This is a state or condition in which a person or community lacks the financial resources and

essentials to enjoy a minimum standard of life and well-being that's considered acceptable in

society. Poverty status in the United States is assigned to people that do not meet a certain

threshold level set by the Department of Health and Human Services.

Poverty rates in the United Sates, the percentage of U.S. population with poverty status, are

calculated by the U.S. Bureau of Census, and preclude institutionalized people, people living in

military quarters, those living in college dormitories and individuals under the age of 15. Poverty

rates are an important statistic to follow as a global investor, as a high poverty rate is often

indicative of larger scale issues within the country in question.

Desire for Wealth

Drivers of Contemporary Entrepreneurship

1. Globalization
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Globalization is the process of international integration arising from the interchange of world

views, products, ideas and other aspects of culture.

2. Changing Demand

This is the situation where individuals are now demanding more modern products which are

more technologically advanced, healthy, longer lasting, and miniaturized just to name a few of

their characteristics.

3. Changing Demographics

This is statistical data relating to the population and particular groups within it. Demographic

factors include socioeconomic characteristics of a population expressed statistically such as:

1. Age
2. Sex
3. Education level
4. Income level
5. Marital status
6. Occupation
7. Religion
8. Birth rate
9. Death rate
10. Average size of a family
11. Average age at marriage

A Census is a collection of the demographic factors associated with every member of a

population. In the Caribbean, incomes are rising, literacy rates are increasing, more women are

entering the workforce and the population is generally getting older. Therefore there are

increasing opportunities for entrepreneurs in the areas of education, women-related businesses,

childcare and child support services, health and health care services – especially for older

patients – and health and lifestyle services based on the growth in fitness and nutritional needs.
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4. Unemployment

Unemployment occurs when a person who is actively searching for employment is unable to find

work.

Types of Unemployment

A. Voluntary unemployment- unemployment due to people willingly leaving previous jobs

and now looking for new ones

B. Involuntary unemployment - unemployment due to people getting laid off or fired from

their previous jobs and needing to find work elsewhere.

C. Frictional unemployment - is unemployment that comes from people moving between

jobs, careers, and locations. Frictional unemployment can also occur when students move

into the work force for the first time, when an individual moves to a new city and needs

to find work, and when women re-enter the work force after having children.

D. Cyclical Unemployment - is when workers lose their jobs during downturns in the

business cycle. Cyclical unemployment occurs when the unemployment rate moves in the

opposite direction as the GDP growth rate. So when GDP growth is small (or negative)

unemployment is high.

E. Structural unemployment - is an unemployment that comes from there being an

absence of demand for the workers that are available.

F. Seasonal unemployment - is unemployment that occurs because the demand for some

workers varies widely over the course of the year.

5. Institutional Support
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These are Government Institutions established and mandated to deliver a wide range of key

services, including both financial and non-financial support services, to small enterprises.

6. Ease of Entry

This means that there are zero barriers to entry in and out of a market or that these barriers are

low. Barriers To Entry - the existence of high start-up costs or other obstacles that prevent new

competitors from easily entering an industry or area of business. Barriers to entry benefit existing

companies already operating in an industry because they protect an established company's

revenues and profits from being whittled away by new competitors.

7. Cultural Diversity

The cultural variety and cultural differences that exist in the world, a society, or an institution

Emerging areas for enterprise development

Includes:

1. Creative Industries

The creative industries refer to a range of economic activities which are concerned with the

generation or exploitation of knowledge and information.

2. Cultural industries

cultural industries combine the creation, production, and distribution of goods and services that

are cultural in nature and usually protected by intellectual property rights.

3. Renewable energy

Renewable energy is generally defined as energy that comes from resources which are naturally

replenished on a human timescale such as sunlight, wind, rain, tides, waves and geothermal heat.
 Module 1 Notes Summary

This is the industry which provides renewable energy as a source of power or electricity.

4. Agro-preneurship

Agriculture is the cultivation of plants, animals, and products used to sustain life. Agro-

preneurship is simply entrepreneurship in the agriculture sector.

5. ICT

ICT (information and communications technology - or technologies) is an umbrella term that

includes any communication device or application, encompassing: radio, television, cellular

phones, computer and network hardware and software, satellite systems and so on, as well as the

various services and applications associated with them, such as videoconferencing and distance

learning. ICTs are often spoken of in a particular context such as: ICTs in education, health care,

or libraries.

Institutional Support

Microfinance

This is a type of banking service that is provided to unemployed or low-income individuals or

groups who would otherwise have no other means of gaining financial services. Ultimately, the

goal of microfinance is to give low income people an opportunity to become self-sufficient by

providing a means of saving money, borrowing money and insurance.

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Some Micro financing companies in Jamaica

1. Nation Growth Microfinance Limited

2. Scotia Jamaica Micro Finance Company Limited

3. Kris An Charles Investment Ltd

4. Progressive Microfinance Group (PMG)

5. First Union Financial Company Limited

6. Micro Credit Limited (MCL)

Loan Guarantee Facilities

An organization usually government owned which acts as a third party in the event that a

borrower defaults (fails to pay) which will purchase the debt from the lending financial

institutional and take on the responsibility for the loan.

In Jamaica the Credit Enhancement Facility (CEF) is a dedicated pool of funds set aside by the

Development Bank of Jamaica (DBJ) through which is helping small and medium-sized

enterprises that have sound projects but inadequate collateral to access loans from banks and

other DBJ-approved lenders.

Success Story - Jamaica Broilers Group

The DBJ assisted the Jamaica Broilers Group (JBL) with a loan for the construction
of an ethanol plant, an alternative energy project. The loan was channeled through
National Commercial Bank Limited (NCB), Pan Caribbean Financial Services, and
First Caribbean International Bank (FCIB).
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Cultural Diversity

The cultural variety and cultural differences that exist in the world, a society, or an institution

Groups of Cultural Diversity Includes:

1. Youth

A youth is a young person who has not yet reached adulthood and refers to the time period

before you become an adult.

2. Family Businesses

A family business is a commercial organization in which decision-making is influenced by

multiple generations of a family—related by blood or marriage—who are closely identified with

the firm through leadership or ownership.

3. Minorities and Immigrants

This is the smaller part of the population which includes people who go into a foreign country to

live.

4. Ethnicity

An ethnicity, or ethnic group, is a socially-defined category of people who identify with each

other based on common ancestral, social, cultural, or national experiences.

5. Gender (especially female-owned businesses)

This is the state of being male or female. A woman owned business enterprise (WBE) is an

American term that is defined as a business that is at least 51% owned, operated and controlled
 Module 1 Notes Summary

on a daily basis by one or more (in combination) female American citizens. WBEs can be self-

identified but are typically certified by a city, state or federal agency.

6. Religious Based Businesses

These are businesses set up surrounding a set of beliefs concerning the cause, nature, and

purpose of the universe, especially when considered as the creation of a superhuman agency or

agencies, usually involving devotional and ritual observances, and often containing a moral code

governing the conduct of human affairs. For example pilgrimage businesses and Hindu Jewellery

Shops.

Types of Entrepreneur

1. Nascent

These are entrepreneurs who are engaged in preparations to launch a business venture.

2. Novice

These are entrepreneurs who is embarking on his first business venture

3. Habitual – Serial and Portfolio

These are entrepreneurs who have started a business venture and are involved either as a

minority proprietorship in one or more enterprises.

Serial – these are entrepreneurs who launch a number of business ventures, manage and place

them on a successful path and then sell them.

Portfolio – these are entrepreneurs who own and operate several businesses at the same time.

4. Opportunity-based Entrepreneur
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This is a person who spots and seizes an opportunity to achieve profit.

5. Necessity Entrepreneur/Self-Employed Entrepreneur

This is an individual who is left with no viable option to earn a living and there is no choice but

to seek the entrepreneurial route.

Types of Entrepreneurship

1. Survival

This type of entrepreneur is characterized by a simple business structure and minimal planning,

focused on generating small, constant surplus that provides for personal subsistence.

2. Lifestyle

These entrepreneurs are based on the entrepreneur building a business to provide the freedom

and independence that is desired.

3. Dynamic Growth

This is the type of entrepreneurship where the business is intended to generate significant sales

and rapid growth. The entrepreneur’s vision is to build a large business or even an empire.

4. Speculative
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These are entrepreneurs who speculate the demand for a good or service in the future and wait

until such demand has been created and opens business to supply for the demand created.

Difference between Entrepreneurship and Intrapreneurship

Entrepreneurship involves the establishment of a business enterprise whilst Intrapreneurship

is the practice of applying entrepreneurial skills and approaches within an established

company.

Intrapreneurship is different in that it takes place within the context of an existing enterprise.

Factors that contribute to enterprises becoming more entrepreneurial

1. Openness

They should have a tendency to accept new ideas, methods, or changes.

2. Flexibility

They should be willing to change or compromise.

3. Innovation

The act or process of introducing new ideas, devices, or methods

4. Proactivity

Proactive behavior involves acting in advance of a future situation, rather than just reacting. It

means taking control and making things happen rather than just adjusting to a situation or

waiting for something to happen.

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Entrepreneurship and Small Business Management

Innovation as the main difference between entrepreneurship and small business management

1. An entrepreneur is a person who recognizes business opportunities, combines the necessary

resources and takes the risk to start a business whilst small business manager keeps it

running.

2. The main difference between the entrepreneurial small-business owner ant the small business

manager is the willingness to engage in strategic, sometimes very risky innovative practices

whereas the managers of small-business ventures do not engage in such innovative practices.

3. Entrepreneurial business owners are characterized by his/her objectives to always achieve,

make high profits and business grow rapidly while the small business managers’ objectives

on the other hand, are the further personal goals and to operate in a structural controlled

manner while expecting sales, profit and growth rapidly.

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Characteristics of Small Business

1. Flexible

They are willing to change or compromise.

2. Collaborative

They conduct business by two or more parties working together.

3. Proactive

Proactive behavior involves acting in advance of a future situation, rather than just reacting. It

means taking control and making things happen rather than just adjusting to a situation or

waiting for something to happen.

4. Technically Aware

They know all the technicalities of the business and the relationship between them and other

factors and how they work.

5. Self-Reliant

They are reliant on their own powers and resources rather than those of others.

6. Accessible

They are strategically located very close to consumers are easily entered.

7. Energetic

They show great activity or vitality in their daily operations.

8. Daring

They are adventurous or audaciously bold to new products and services which the market

demands.
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Characteristics of Entrepreneurs

1. Innovative

2. Creative

3. Calculated Risk Taker

4. Systematic Planner

5. Visionary

6. Achievement Orientation

7. Persistent

8. Dynamic

9. Hardworking

10. Self-Confident

11. Aggressive

12. Egotistic

13. Emotional intelligence

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Noted Regional Entrepreneurs

Including but not limited to:

Chris Blackwell, Marley Family, Eddie Grant, Arthur Lok Jack, Thalia Lyn, Vincent Hosang,

Audrey Marks, Joan Duncan, Aleem Mohammed, Anthony Sabga, Richard Branson, Bill Gates,

Mark Zuckerberg, Reno Gajadhar, Jay Z, Oprah Winfrey, Steve Jobs, Hubert and Helen

Bhagwansingh, James Husbands, Allen Chastanet, Adrian Augier, Ronald Ramjattan, Edward

Beharry, Sir Charles Williams and Yesu Persaud.

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Mistakes of Entrepreneurs

Including but not limited to:

1. Human Resource (HR) or Management failures: lack of leadership, judgment and

knowledge, lack of experience, no management structure and conflicts in relationship.

2. Operation failures: poor inventory management, poor planning, high operational cost,

lack of infrastructural support and little or no control system.

3. Marketing failures: weak marketing strategy – misjudging the size of the market,

uncontrolled growth; poor location; incorrect pricing, underestimating competition, not

maintaining quality standards, logistical difficulties.

4. Financial Failures: poor financial control; inadequate record keeping, rising

uncontrollable costs (start-up, operational, capital, and debt).

5. Failure as a natural part of the entrepreneurial process.

6. Other Internal Factors – Negligence, Nepotism, Personal Problems and Non-Acceptance

of Failure.
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7. External Factors – economic, political (legislation), industry-associated problems and

Other Societal Issues.

Factors that Contribute to the Success of Entrepreneurs

Including but not limited to:

1. Know your business in depth.

2. Develop a solid business plan.

3. Manage financial resources.

4. Understand financial statements.

5. Manage people effectively.

6. Know your strengths and weaknesses.

7. Having a strong marketing strategy.

8. Continuing research and development.

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Myths of Entrepreneurship

Including but not limited to:

1. Entrepreneurship ventures and small businesses are the same thing;

2. All entrepreneurs are rich;

3. Entrepreneurs are born not made;

4. Entrepreneurship is easy;

5. All you need is money to start;

6. Successful entrepreneurship needs only a great idea;

7. Entrepreneurs always generate new ideas;

8. All you need is luck;

9. Entrepreneurs are extreme risk takers;

10. Entrepreneurs take wild and speculative forays into business ventures

11. Anyone can start a business

12. Successful Entrepreneurs needs only a great idea;

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13. Entrepreneurs are independent and totally in charge of the venture.