UU-MAN-4008-MW - ENTREPRENEURSHIP

Week 2 – Topic Overview

Motivation for starting a business and assessment of the business environment

Learning Objectives
1. To know and understand the motives for starting a business
2. To assess the business environment

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Table of Contents

1. Introduction ............................................................................................................................................... 3
2. Motivation for starting a business ............................................................................................................. 3
2.1 Monetary.............................................................................................................................................. 3
2.2 Social ................................................................................................................................................... 3
2.3 Service ................................................................................................................................................. 4
2.4 Self-employment ................................................................................................................................. 4
2.5 Family .................................................................................................................................................. 5
3. Assessment of the business environment .................................................................................................. 5
4. Micro-environmental factors ..................................................................................................................... 6
4.1 The market environment...................................................................................................................... 7
4.1.1 Suppliers ....................................................................................................................................... 7
4.1.2 Intermediaries ............................................................................................................................... 7
4.2 Macro-environmental factors .............................................................................................................. 8
4.2.1 Natural environment ..................................................................................................................... 8
4.2.2 Social environment ....................................................................................................................... 8
4.2.3 Political environment .................................................................................................................... 9
4.2.4 Economic environment ................................................................................................................. 9
4.2.5 International environment ............................................................................................................. 9
4.2.6 Technological environment .......................................................................................................... 9
References ................................................................................................................................................... 11

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1. Introduction
Individuals are motivated by a number of factors to become entrepreneurs (Shane et al., 1991; Marlow &
Strange, 1994; Kirkwood & Walton, 2010). Many scholars (e.g., McClelland et al., 2005; Segal et al., 2005)
have used the push and pull factors to classify entrepreneurial motivation. According to Kirkwood and
Walton (2010), push factors often have negative connotations and are characterized by personal or external
factors (e.g., a marriage break-up, or being passed over for promotion), while pull factors are those that
draw people to start a business (such as seeing an opportunity).

2. Motivation for starting a business

Although push and pull factors continue to dominate as a key means of classifying motivations, some
scholars have started using other categorisations. Therefore, a number of elements are regularly identified
in the entrepreneurship motivation literature:

2.1 Monetary
Despite the fact that people are not always motivated by money to start a business (Fischer et al., 1993;
DeMartino & Barbato, 2003; Rosa & Dawson 2006), monetary motivations have been found to be pivotal
in a study of potential entrepreneurs (Kirkwood, 2009). Monetary motivations are usually classed as a pull
factor (Alstete, 2003). Alton (2015) argues that any dedicated entrepreneur with a good idea and great
timing has the potential to a lot more money than they ever could when they were employed. Nevertheless,
Alton (2015) warns that if acquiring wealth is the only motivation to start a business, one risks being
frustrated if profits are not realized in the first few years.

2.2 Social
As discussed, not all entrepreneurs are motivated by only a profit motive to start a business. Some have a
strong wish to better the lives of people living in their locality and local communities (Starbird, 2016). For
example, some people may have an objective to address child malnutrition in a community. Through
becoming social entrepreneurs they start a business that enable needy children to get nutritional foods.
Thus, the need to transform society drives such entrepreneurs to make a difference (Reddy, 2020). Such
entrepreneurs are known as social entrepreneurs as they are motivated by ‘altruism’ or philanthropy
(Ghalwash et al., 2017). Santos (2012), posits that the rationale to create benefits for society, rather than
gain profit, is the central distinction between social and commercial entrepreneurs. Thus, the difference of
social entrepreneurs is that they are economic agents who, due to their stimulation, create value without
concern for profits. Zahra et al. (2009) regard social entrepreneurs as visionaries who have strong values,
are independent and able to take risks while their reason is to solve social or environmental needs. There
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are various classifications of social entrepreneurs (e.g., ecopreneurs, social constructionists, social
engineers and social Bricoleurs).

2.3 Service
The need for positive social changes drives entrepreneurship. It drives innovation, and technical change
and converts new knowledge into products and services. This includes individuals that found a demand for
that particular service or product that they felt they could satisfy, most often they had hands-on experiences
in that area already (Yumamu, 2018).

2.4 Self-employment
Many entrepreneurs start businesses as a way of getting self-employed, thus entrepreneurship is sometimes
referred to as self-employment (Kirkwood, 2009). Theoretically, there are two grounds why people would
prefer self-employment: (a) the first instance assumes that one who, prior to becoming self-employed, had
a high income, enjoyed job security and career advancement opportunities and became self-employed in
order to be his/her own boss. Such people are the most suitable illustration of entrepreneurs able to
recognize good business opportunities and have all the essential knowledge and skill; (b) the second case
assumes that one who, prior to becoming self-employed, had limited job opportunities and self-employment
is the only option to participate in the economy and society. Such people do not have the required
knowledge and skill; they are often discriminated against and have little chance to succeed in the paid
sector. For such reasons, they choose low-paying jobs without advancement opportunities. Self-employed
people in this category start new businesses primarily in industries with low entry barriers and strong
competition that leads to low profits and a high probability of failure (Skalamera-Alilovic, Blecich &
Blazekovic, 2017). Borooah et al. (1997) state that the need for independence and autonomy is often the
most important motivating factor for many people to become self-employed. The self-employed work on
their own, for their own account, and they also can employ. Thus, the desire to be self-employed often
occurs as a response to unfavourable circumstances in the labour market (Skalamera-Alilovic, et al., 2017).
This desire for independence is primarily classified as a pull factor. Skalamera-Alilovic et al. (2017), assert
that there are different understandings of self-employment and identified five basic categories of self-
employed: (1) entrepreneurs - who run their enterprises with the assistance of their workers; (2) traditional
freelancers - who need to meet some requirements, regulations and mandatory rules of the profession and
often take an exam in order to be listed in public registers and carry out their activities independently or in
cooperation with other professionals or limited number of employees; (3) craft workers, traders and farmers
– which are traditional forms of self-employment where the self-employed assist family members and may

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have a small number of employees; (4) self-employed workers in skilled but unregulated occupations; and
(5) self-employed in occupations that require low qualifications - they operate enterprises without the
assistance of employees, but sometimes family members assist them. There are various reasons why
someone wants to be self-employed.

2.5 Family
Family-related desires for being an entrepreneur are usually regarded as push factors and have been
described as key to entrepreneurs of both genders throughout the world (Verheul et al., 2006). Various
family-related aspects are key for one to start a business. These reasons include combining waged and
domestic labour (Still & Soutar, 2001), family policies and family obligations (DeMartino and Barbato,
2003), fit with domestic commitments (Greenfield & Nayak, 1992), and a desire for work-family balance
(Jennings & McDougald, 2007; Kirkwood & Tootell, 2008). Stephan et al. (2015) that family circumstances
such as relocating with a family may lead someone to make a decision to be self-employed rather than find
another job.

3. Assessment of the business environment

Since a business is an open system (as it consists of inputs, processes and outputs), it is affected by factors
both inside and outside of it. Therefore, an entrepreneur has to know how such components affect the
enterprise in order to control their consequences (Kiley, 2015). The business environment refers to the
world outside the business as well as what goes on inside the business. These affect the success of the
business and have three parts: (1) the micro-environment that is inside the business that entails the different
business functions and the way they are managed; (2) the market environment that is immediately outside
the business; and (3) the macro-environment (Cohen et al., 2011; Kiley, 2015).

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 Macro-environment Natural environment

Technological environment

Economic environment
Market environment
Suppliers
Intermediaries
International
environment
Micro-environment
Business functions
Management functions

Customers Competition

Political environment

Social environment

Figure 1: The business environment (Source: Kiley, 2015)

4. Micro-environmental factors
The micro-environment comprises the internal environment of the business with three sets of variables: (a)
the vision statement which answers the question: what do we want to become? mission statement which
answers the question: what is our business? It serves as the foundation for the development of long-term
objectives, which are the specific results an organization seeks to achieve; (b) its functional management
such as marketing management or financial management; and (c) its resources (i.e., tangible such as
production facilities, raw materials, financial resources, property and computers and intangible such as
brand names, patents and trademarks, the company reputation, technical knowledge, organizational morale
and accumulated experience, organizational capabilities, which refer to the ability to combine resource,
people and processes in particular ways) (Cohen et al., 2011).
These variables are responsible for the outputs of the business, and they are under the direct control of
management. An analysis of these variables allows managers to determine the capabilities, and the strengths
and weaknesses, of the organization. Knowing the organisation’s strengths and weaknesses allows
management to utilize opportunities and counter threats in the external environment (Cohen et al., 2011).
If the micro-environment does not perform effectively, the products of the enterprise will not be in the right
place at the right time, at the right price, and the enterprise will lose customers will definitely fail (Kiley,

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2015).

4.1 The market environment

The term ‘market’ can mean several things, but in this context, it refers to people who have the financial
means to buy a product/service. In other words, the market, as a variable in the market environment, consists
of people with particular demands who manifest certain forms of behaviour in satisfying those demands
(Cohen et al., 2011). It is also known as the ‘task environment’ and is immediately outside the micro-
environment (Cohen et al., 2015; Kiley, 2015). The market environment is where the organization conducts
its business and is influenced by management (i.e., the decisions of management on advertising and pricing
may attract customers to the business). However, there are many things that management has little or no
control over, such as the availability of goods and all skilled labour. It is here that the organization gets the
inputs into the business from its suppliers and their intermediaries, sells its goods and services to the
customers and competes for these customers with competitors who sell the same or similar products (Kiley,
2015). Therefore, this environment has four variables (see Figure 1):

4.1.1 Suppliers
The suppliers are other businesses that give the business its raw materials if it is a manufacturer, and its
goods, if it is a retailer. A business organization depends not only on suppliers of raw materials but also on
suppliers of capital. Banks and shareholders are such suppliers. Businesses also need a supply of human
resources, thus many first turn to labour brokers such as employment agencies to fill this need. It is essential
that businesses have suppliers that can provide raw materials or goods of the right quality, in the right
quantity, at the right price, and at the right time. If any of these requirements are absent, it will affect the
functioning of the business, and eventually its profits. Some of the consequences of the absence of these
requirements include poor quality, not the right quantity, not being at the right place, too expensive (Kiley,
2015).

4.1.2 Intermediaries
Intermediaries are the wholesalers and other businesses (i.e., retailers, agents, brokers, bankers, asset
managers, insurance brokers) that act as ‘middlemen’ between the manufacturer and the consumer. They
bridge the gap between the manufacturer and the customer. Each of these intermediaries adds their markup
to the product. This is the percentage that each adds to the price that they pay for the product, which is
passed on to the next person in the supply chain. The more people in the supply chain, the more expensive
the end product becomes. If any of the intermediaries are not functioning effectively, there will be a ripple
effect, with the same consequences being experienced (Cohen et al., 2011; Kiley, 2015).
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Competition- Competitors are other businesses that sell the same or similar products or services. They create
competition for a business because they are rivals for the same customer; they may attract potential
customers or tempt existing customers away. The results could be lost profits for the business owing to: (a)
reduced sales; (b) reduced prices (to stay competitive); (c) possible increases in advertising costs (both to
keep existing customers and to attract new customers) (Cohen et al., 2011; Kiley, 2015).
Customers - The customers of a business are the patrons who buy the business’s goods or services and
have a particular buying power and behaviour. These can be members of the public, other businesses, non-
governmental organisations, or government departments. If a business does not have customers, it will have
no one to buy its products and will not make a profit (Cohen et al., 2011; Kiley, 2015).

4.2 Macro-environmental factors

The macro-environment consists of all the factors on the national and international levels that affect the
success of the business. The management of an organization has very little control or no control of these
factors (Kiley, 2015). Thus, the best that management can do is to try to predict these factors and deal with
their consequences, which can be either positive or negative for the business. According to Cohen et al.
(2011) and Kiley (2015), the macro-environment has six distinct ‘sub-environments’ which are:

4.2.1 Natural environment

This is also known as the physical environment and consists of natural resources (which are raw materials),
which are needed by manufacturing industries such as mineral wealth, flora and fauna, and manufactured
improvements such as roads and bridges which are key for a business. The natural environment also
includes matters such as the climate, water, air, weather patterns, and natural disasters that people and
businesses need to support life and development. Enterprises must respond to the vulnerability of the
physical environment by taking timeous steps to limit any harmful effects on the community. Failure by
managers to use the environment sustainably may threaten the survival of the business. Thus, various
industries have taken steps to limit the damage to the physical environment. For example, the fast-food
industry is developing containers to reduce litter.

4.2.2 Social environment

This is comprised of the characteristics of the society in which the business is located. This mostly refers
to the society’s demographics (i.e., the average age, religion, culture, language, educational levels, degree
of urbanization, or any other relevant characteristics). It is in the social environment where consumer
lifestyles, habits and values (culture) make certain demands on the business, particularly through
consumerism.
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4.2.3 Political environment
Is the competition for power within a society and influences how society functions. A stable democratic
environment where political parties compete peacefully is helpful to conducting business. Another issue of
particular concern in the political environment is the laws made by the government, and whether they make
business easier or harder. Laws are made by the ruling party and are based on their policies. Some examples
of legislation include: (1) laws giving the tax rate for business; (2) laws that allow subsidies and tax breaks
for new business; and (3) labour laws to protect employees, but which can also cost money and trouble for
the business. It is also known as the institutional environment, with the government and its political and
legislative involvement as the main components. Management decisions are continually affected by the
course of politics, especially the political pressures exerted by the ruling administration and its institutions.

4.2.4 Economic environment

Is a complex sub-environment with many factors (i.e., inflation, exchange rates, recession, monetary and
fiscal policy) that affect a business in different ways, thus, the manager needs to be able to predict and deal
with it as it is directly linked to the profit and survival of the business. A country’s economic growth rate
influences consumers’ purchasing power which can, in turn, give rise to changes both in spending behaviour
and in the type of products or services purchased.

4.2.5 International environment

Refers to the events that happen in other countries that affect the business. The term globalization which
means the development of business activities on an international level, which includes competition,
markets, and the increasing interdependence of global economies has been widely used. Globalisation and
the trend towards a borderless world continually affect businesses in new ways. However, globalization
does not only present opportunities – it also poses threats. Management must therefore constantly assess
possible global threats to its markets and products. Components in the international environment vary from
policy decisions in other countries to natural disasters, wars, and terrorist attacks.

4.2.6 Technological environment

Technology involves making tools and machines to influence and understand the physical world. It has
allowed computers and machinery to become smaller, faster, and cheaper, and this is occurring at an ever-
increasing rate. Goods at till points are now scanned when previously they were entered by hand. Production
lines that had dozens of employees are now mechanized and controlled by computers. The key concepts
here are invention, which is the discovery or creation of a new product or process, and innovation, the
process through which new ideas and inventions become a reality. A business that does not embrace
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developments in the technological environment cannot remain competitive and will be overtaken by its
competitors. Technological innovation results not only in new machinery or products, but also in new
processes, methods, services and, even, approaches to management, which bring about change in the
environment. Technology can also make products obsolete. Every new facet of technology and every
innovation creates opportunities and threats in the environment. For example, television was a threat to
films and newspapers, but at the same time, it presented opportunities for satellite communications and
advertising. Continued assessment of the technological environment should include: (a) identifying key
technological trends; (b) analysing potential changes in major current and future technology; (c) analysing
the influence of key technologies on competition; (d) an analysis of the organisation’s technological
strengths and weaknesses; and (f) a list of priorities that should be included in a technology strategy for the
organization. Technological advancement impacts a business as a whole, including its products, its life
cycle, its supply of materials, its production process and, even, its approach to management. These impacts
all need management to be increasingly on the alert regarding technological change. Management has to
deal with these effects, thus, a SWOT analysis forms an important part of the manager’s job description.

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