BMSH2009

Introduction to Entrepreneurship

Understanding Entrepreneurship
Entrepreneurship is the concept of developing and managing an enterprise in the hope of gaining a
profit, accompanied by certain risks (Entrepreneur Handbook, 2020). The business idea usually involves a
new product or service than an existing business model (Seth, 2019).

An individual who participates in a new business venture is called an entrepreneur. The word
"entrepreneur" originates from a French verb, entreprendre, which means "to undertake" (Sobel, 2019).
An entrepreneur possesses the following characteristics (Miller, 2020):
 Creative. Successful entrepreneurs have a curiosity that allows them to continuously seek new
ideas and opportunities that often become feasible business ventures.
 Willingness to undergo further market study. In every opportunity that arises, an entrepreneur
must run tests to determine if the venture is worthwhile to pursue.
 Adaptable. The nature of business is ever-changing. New opportunities and challenges present
themselves at every turn. Therefore, entrepreneurs are expected to be responsive to change.
 Decisive. Entrepreneurs often make difficult decisions, such as funding, strategy, and resource
allocation. They should be confident in making decisions and can take responsibility when
outcomes turn out to be unfavorable.
 Collaborative. Great entrepreneurs do not let their shortcomings hold them. Instead, they build
well-rounded teams that complement their abilities.
 Risk-taker. Entrepreneurs already have an idea of the risks associated with entrepreneurship.
Successful entrepreneurs take steps to minimize these risks.
 Persistent. Failure can be very discomforting for some. A great entrepreneur is comfortable with
failure and does not easily give up. Entrepreneurs look for motivation and see failures as
opportunities to learn and grow.
 Innovative. Almost everything is already on the market. An entrepreneur can improve or
develop existing products or services to meet the market's changing needs.

Role and Significance of Entrepreneurs

Entrepreneurs can change the way people live and work. If successful, their innovations may improve
people's standards of living. In addition to creating wealth from their entrepreneurial ventures, they also
create jobs and the conditions for a prosperous society. The following are some reasons why
entrepreneurs are essential to the economy.
1. Entrepreneurs Create New Employment – They create new businesses, and as a result, new
employment is offered.
2. Entrepreneurs Add to National Income – They generate new wealth. This enables new markets
to be developed and new wealth created. Additionally, the cascading effect of increased
employment and higher earnings contributes to better national income through higher tax
revenue and higher government spending. The government can use this revenue to invest in
other struggling sectors and human capital.
3. Entrepreneurs Also Create Social Change – Entrepreneurs break away from tradition and
indirectly support freedom by reducing dependence on obsolete systems and technologies. This
results in an improved quality of life, greater morale, and economic freedom. For example, the
water supply in a water-scarce region will sometimes force people to stop working to collect
water. This will

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impact their business, productivity, and income. Imagine an innovative, automatic, low-cost,
flow- based pump that automatically fills people's home water containers.
4. Community Development – Entrepreneurs regularly nurture entrepreneurial ventures with other
like-minded individuals. They also invest in community projects and provide financial support to
local charities. This enables further development beyond their own ventures.
The interesting interaction of entrepreneurship and economic development has vital inputs and
inferences for policymakers, development institutes, business owners, change agents, and charitable
donors. If benefits and drawbacks are understood, a balanced approach to nurturing entrepreneurship
will positively impact the economy and society.

(Small, Medium, and Micro-sized Enterprises) SMME

SMMEs are any business activity or enterprise engaged in industry, agribusiness, and/or services,
whether single proprietorship, cooperative, partnership, or corporation whose total assets are inclusive
of those arising from a loan, but exclusive of the land on which the business is situated, under the
following capitalization:
TYPES CAPITALIZATION
Micro Less than P50,000
Cottage P50,001 to P500,000
Small P500,001 to P5,000,000
Medium P5,000,001 to P20,000,000

Basic Concepts, Principles, and Processes in Entrepreneurship

An entrepreneur is sometimes mistaken to be synonymous with a manager, but the two (2) are different
in many ways. The table below compares entrepreneurs and managers (Surbhi, 2017).
Basis for Comparison Entrepreneur Manager
Meaning A person who creates an An individual who takes the
enterprise and takes a financial responsibility of controlling and
risk to get a profit administering the organization
Focus Business startup Ongoing operations
Primary motivation Achievement Power
Approach to task Informal Formal
Status Owner Employee
Reward Profit Salary
Decision-making Intuitive Calculative
Driving force Creativity and Innovation Preserving the status quo
Risk orientation Risk-taker Risk-averse
One of the few misconceptions about entrepreneurs is that they are driven solely by monetary rewards.
Real entrepreneurs are motivated more than money, although money is a means to achieve their goals.
What drives entrepreneurs is the success of creating new things, adding value to society, and producing
achievements beyond their expectations.
One of the benefits of an entrepreneur is the opportunity to make a difference, which is not afforded to
everyone. Social entrepreneurs seek innovative solutions to solve society's most perplexing problems.
They use their skills and talents not only to create profitable businesses but to achieve the society's
social, environmental, and economic goals.

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Entrepreneurship in the Philippines

Enterprise is a crucial engine of economic growth. Without enterprise and entrepreneurs, there would
be little innovation, productivity growth, and few new jobs. Entrepreneurs exist in the context of their
particular geography –their local, national, or even supranational economy and society.
This mix of attitudes, resources, and infrastructure is known as the entrepreneurship' ecosystem'. The
Global Entrepreneurship Development Index (GEDI) is an annual index that measures the health of
entrepreneurship ecosystems in 137 countries. It then ranks the performance of these against each
other. It provides a picture of how each country performs in domestic and international contexts.
The GEDI methodology collects data on the entrepreneurial attitudes, abilities, and aspirations of the
local population and then weights these against the prevailing social and economic 'infrastructure' – this
includes aspects such as broadband connectivity and transport links to external markets.
With an International GDP per capita of USD 8,057 and a GEDI score of 24.1, the Philippines ranks 84th
(out of 137 participating countries) in the world, 12 (out of 20 participating countries) in the Asia-Pacific
Region, and fifth in Southeast Asia (GEDI, 2019).

The History of Entrepreneurship

Before people chose to launch their own small-scale businesses, industrialists largely controlled the
economies. Before World War II, people were basic consumers. No one dared to venture into their own
businesses because it requires extensive capitalization and resources.
World War II ushered in an era of wealth and higher incomes. Thus, people turned into passive
consumers. The western economies, in particular, grew wealthy and real wages rose.
Globalization changes the world. It pushed technology to new heights, created new jobs in the service
sectors, opened overseas markets, and provided a much better quality of life. One of its contributions is
the era of "small is beautiful." These are small, fleet-footed, and agile enterprises with competitive
advantages compared to giant corporations. They can create innovative products and services faster to
exploit market opportunities.

The Value Chain Model

Businesses create value by acquiring raw materials and using them to produce something useful. The
value created and captured by a company is the profit margin, which is the value created minus the cost
of creating that value. A value chain is a set of activities that an organization carries out to create value
for its customers. One of the most famous value chain models is Michael Porter's Value Chain.
The value chain consists of primary and support activities. The primary activities relate directly to the
physical creation, sale, maintenance, and support of a product or service. They consist of the following:
 Inbound logistics – receiving, storing, and distributing inputs internally.
 Operations – transformation activities that change inputs into outputs sold to customers.
 Outbound logistics – delivering your product or service to your customer.
 Marketing and sales – processes used to persuade clients to purchase from you instead of your
competitors.
 Service – activities related to maintaining the value of your product or service.
The support activities aid the primary functions enumerated. It consists of the following:
 Procurement (purchasing) – getting resources it needs to operate.
 Human resource management – recruitment, hiring, training, motivating, rewarding, and
retaining workers.

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 Technological development – managing and processing information and protecting a company's

knowledge base.
 Infrastructure – company's support systems and the functions that allow it to maintain daily
operations.
For example, the realty conglomerate Ayala Land, Inc. (ALI) has been into property development, malls,
high-end residential and commercial centers. ALI has created superior economic value in its value chain
by reconfiguring its strategic growth from urban into community-based development with the rise of
town malls, such as UP Town Center and The District. The second example is Mang Inasal, which first
introduced eat-all-you-can rice in the fast-food industry at comparable prices with competitors. In a
sense, entrepreneurs look at the value chain model as an instrument to create more economic value for
a segment of customers (Tardi, 2020).

Four (4) Types of Business Organizations

Type of Organization Advantages
 Easily created and terminated
Sole Proprietorship –  Ownership and rewards in
initiated, organized, owned, one person
and managed by a single  Flexibility to changes
person  Minimum regulation and
taxation
 Pooling of resources (talents
and assets)
Partnership – two (2) or  Ability to obtain capital
more partners who co-own  Incentive of each partner to
a business to make a profit make it successful
 Limited regulation and
taxation
 Limited liability
Corporation – exist in  Legal entity protected by law
contemplation of law; life is  Ownership can be readily
separate and distinct from transferred
the stockholders  Obtaining capital
 Employee benefits
 Open and voluntary
membership
Cooperative – a duly  Democratic control by
registered group of persons members
with a common interest to  Education is mandated
voluntarily join to achieve a  Cooperation among fellow
lawful social and economic cooperatives
end.  Direct benefits to members
and community
 Tax privileges
Disadvantages
 Unlimited liability – owner's
personal assets
 Limitations in capital
 Perils if the owner dies or
becomes ill
 Limited skills and capabilities
 Unlimited liability – solitarily
liable
 Termination can happen
 Difficult in reconciling business
interests
 Problems in share liquidation
 Legal formality and regulations
 Cost and time in the
incorporation
 Taxation
 Potential loss of control by the
owners
 Limited interest in shares
 Inequality of profit distribution
 Pro-poor bias might deviate
from the profit orientation

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References
Difference between Entrepreneur and Manager. (2017) In Key differences.
https://keydifferences.com/difference-between-entrepreneur-and-manager.html
Global Entrepreneurship Index. (2019). In Gedi. https://thegedi.org/global-entrepreneurship-and-
development-index/
Miller, K. (2020, July 7). 10 characteristics of successful entrepreneurs. Harvard business school online.
https://online.hbs.edu/blog/post/characteristics-of-successful-entrepreneurs
Scarborough, N. & Cornwall, J. (2016). Essentials of entrepreneurship and small business management.
Pearson Education.
Seth, S. (2019, July 6). Entrepreneurs and entrepreneurship defined. In Investopedia. Retrieved January
13, 2021 https://www.investopedia.com/articles/investing/092514/entrepreneur-vs-small-
business-owner-defined.asp
Seth, S. (2021, January 4). Why entrepreneurship is important to the economy. In Investopedia.
Retrieved January 13, 2021 http://www.investopedia.com/articles/personal-
finance/101414/why-entrepreneurs-are-important-economy.asp
Tardi, C. (2020, July 5). Value chain. Investopedia. Retrieved January 13, 2021
https://www.investopedia.com/terms/v/valuechain.asp
Sobel, R. (2019). Entrepreneurship. The library of economics and liberty.
https://www.econlib.org/library/Enc/Entrepreneurship.html
What is entrepreneurship? (2020, September 3). Entrepreneur handbook. Retrieved January 13, 2021
https://entrepreneurhandbook.co.uk/entrepreneurship/

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