Entrepreneurship & Small Business

Management

A PERSPECTIVE ON
ENTREPRENEURSHIP

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 Entrepreneurship

⚫ The economic activity of a person who

starts, manages and assumes the risk
of a business enterprise

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 Entrepreneur

⚫ The person who undertakes entrepreneurial

activities.
⚫ He identifies an economic need, considers
offering a business solution, proceeds to
assemble the resources required, and
assumes the risk of whether succeeding or
failing.

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 Major Activities of the Entrepreneur
Entrepreneur’s Problem at Hand Entrepreneur’s Action
Concern

1) Identifying an 1) High income 1) Establish a high standard

economic need families are not school for high school
satisfied with the students.
services provided
by high school in
the area
2) Assembling 2) Resources must 2) Acquire funds, hire
resources required be made available people, construct buildings,
and the like

3) Assuming risk 2) Venture must be 3) Prepare project study,

made advertise, maintain good
relationship with employees
and customers, among
4 others.
 The Entrepreneur’s Tasks

⚫ Surviving enterprises are responsible for

providing the following:
– Products and services for customers and
producers
– Employment
– Taxes
– Demand for suppliers’ products and services; and
– Training facilities for future entrepreneurs

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 The Entrepreneur’s Task (Fig. 1)
Land Labor Capital
(Natural Resources) (Human Resources) (Financial Resources)

Entrepreneur

Production
Process

Finished Goods
6 and Services
 Functions to be performed by
entrepreneur (to make profits)

⚫ To supply the necessary capital

⚫ To organize production by buying and
combining inputs like materials and labor;
⚫ To decide on the rate of output, in the light of
his expectation about demand;
⚫ To bear the risk inherent to the venture
(undertaking).

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 Kinds of Innovation (5)

1) A new product;
2) A new process of production;
3) The substitution of a cheaper material in an
unaltered product;
4) The reorganization of production, internal
function, or distribution arrangement
leading to increased efficiency, better
support for a given product, or lower costs;
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 Kinds of Innovation (cont.)
5) An improvement in instruments or methods
of doing innovation.
Innovation may also be viewed as the last
stage in an important process consisting of
the following:
a) invention – the discovery or devising of new
products and processes.
b) development – the process by which the
ideas and principles generated from the stage of
invention are embodied in concrete products and
techniques; and
c) innovation – the actual introduction of a new
9 product or process.
 Examples of Successful
Innovations
⚫ Cordless microphone;
⚫ Microwave oven;
⚫ The cellular phone;
⚫ The kung fu fight scenes developed by Bruce
Lee in the movies;
⚫ The karaoke music appliance;
⚫ The use of laser in the treatment of eye
conditions; and
⚫ The use of computers by engineers and
10 architects in the design of buildings.
 New Ventures and Long-Term
Enterprises

⚫ A new venture cannot remain as such

forever.
– The entrepreneur must develop it into a small
business or make it grow into a mature and bigger
company if he is to recoup the cost of opening a
new venture and take advantage of the
opportunities presented by a mature business.

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 4 Major Stages of Transition of New
Venture to a successful long-term
Enterprise

1) The prestart-up stage

2) The start-up stage
3) The early growth stage
4) The late growth stage

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 Pre-start up Stage

⚫ Entrepreneur starts to question the feasibility

of an idea, product, or service.
⚫ He seeks answers to questions regarding
potential markets, production, and financing.
⚫ The most important stage that the
entrepreneur must consider.
⚫ If he errs (make a mistake) in his evaluation,
he will fail before considerable growth is
attained.
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 Activities in the Start-up Stage

1) Formation of the business;

2) Generation of necessary capital;
3) Purchase of facilities and
equipment;
4) Constructing prototype products;
and
5) Testing the market.
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 Start-up Stage

⚫ Nofull-scale activity must be

undertaken in the start-up
stage for the simple reason that
feasibility must be established
and verified.

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 Early Growth Stage

⚫ this stage follows after establishing feasibility

– Activities will be on a small scale, i.e. selling to
limited markets with limited resources.
– If losses occur, it will naturally be limited also.
– If the enterprise is successful at this stage, the
option to move to the next stage can be
exercised.

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 ⚫ The Late Growth Stage - the final
stage before the new venture matures
into a stable enterprise.
– This is when management is
structured, long term financing is
established, and facilities planning
are undertaken.
– This is also the stage where the skills
of the entrepreneur are less needed.
Instead, the skilled manager begins
to take over.
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 4 Differences between Conducting Feasibility
Study and Writing a Business Plan
1. A feasibility study is carried out with the aim
of finding out the workability and profitability
of a business venture. Before anything is
invested in a new business venture, a feasibility
study is carried out to know if the business
venture is worth the time, effort and resources.
Business plan is developed only after it has been
established that a business opportunity exist
and the venture is about to commence. This
simply means that a business plan is prepared
after a feasibility study has been conducted.
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 Rewards for Successful
Entrepreneurship
⚫ The use of the factors of production deserves
to receive some form of compensation.
⚫ The factors of production are called “ things
required for making a commodity” consist of
land, labor, capital.

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 Rewards for Successful
Entrepreneurship (cont)

⚫ LAND - owners of land are paid a

compensation called rent.
– Rent is the price paid per unit of time for the
services of a durable good, which, most often,
refers to land or buildings.

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 Rewards for Successful
Entrepreneurship (cont)

⚫ CAPITAL – Interest is the compensation

paid to owners of invested capital.
⚫ LABOR – for the efforts of laborers, they are
paid wages or salaries.
– Wages may be determined on a piece-rate basis,
while salary is based on time-rate.

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 Rewards for Successful
Entrepreneurship (cont)

⚫ When all the factors of production are

properly compensated, whatever is left as
profits are regarded as income and they
accrue to the account of the entrepreneur.
⚫ The rates of compensation provided to the
factors are limited to the large extent by
either industry norms or market forces.
Legislations, however, have modified the
rates like the minimum wage rates and
22 mandated interest rates on capital.
 Rewards for Successful
Entrepreneurship (cont)

⚫ The profits accruing to the entrepreneur, on

the other hand, are limited only by his skill
and industry. He may reap huge amounts of
profits, but he may also lose large amounts
in the exercise.
⚫ Entrepreneur earns profit for deciding how
the business shall be run.
– If he succeeds, he is compensated for his vision,
originally, any bold undertaking.
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 Rewards for Successful
Entrepreneurship (cont)
Factors of Economic Limiting Factor for
Production Reward Rewards Received
Land Rent Supply and demand
Capital Interest Industry rates/
government mandated
rates
Labor Wages/ Supply and demand
salary legislation
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Entrepreneur Profits Skill of entrepreneur
 The Entrepreneur’s Predicament

⚫ In the race of winning the all-important

consumers’ pesos, the business will have to
offer products or services that have certain
advantages over the competition’s wares
(goods)

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 The Entrepreneur’s Predicament
(cont)

⚫ In the creation of new venture, the

entrepreneur may be successful in offering
innovative products or services.
⚫ At this stage, he will reap the profits for being
ahead of the competition.

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 Innovations and Its Possible
Effects on Competing Firms
Entrepreneur 1 Entrepreneur 2 Entrepreneur 3
Year 1: Introduce In active Inactive
innovative product
Year 2: Reap Introduce innovative Inactive
moderate profits product
Year 3: Maximize Reap moderate Introduce innovative
profits profits product
Year 4: Profits Maximize profits Reap moderate
decline profits
Year 5: Introduce Profits decline Maximize profits
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innovative product
 Entrepreneurship and Business
Size

⚫ Entrepreneurship means running a small

business.
⚫ Business can be undertaken on a large
scale.
⚫ Both small and large scale businesses are
confronted by problems that are
entrepreneurial in nature.

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 Examples of Innovation (innovative
approaches to effectively compete)

⚫ Offering business services during Sundays

and holidays;
⚫ Manufacture and sales of new products;
⚫ Selling on a deferred payment scheme.

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 4 Differences between Conducting Feasibility
Study and Writing a Business Plan (cont’d)

2. A feasibility report is filled with

calculations, analysis and estimated
projections of a business opportunity.
Business plan is made up of mostly
tactics and strategies to be implemented
in order to start and grow the business.

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 4 Differences between Conducting Feasibility
Study and Writing a Business Plan (cont’d)

3. A feasibility study is all about business

idea viability while a business plan deals with
business growth plan and sustainability.

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 4 Differences between Conducting Feasibility
Study and Writing a Business Plan (cont’d)

4. A feasibility study report reveals the profit

potential of a business idea or opportunity to
the entrepreneur, while a business plan
helps the entrepreneur raise the needed
startup capital from investors.

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