Unit 1:

Origin and Nature of Entrepreneurship

Introduction

An entrepreneur is an individual who creates a new business, bearing most of the risks and
enjoying most of the rewards. The entrepreneur is commonly seen as an innovator, a source of
new ideas, goods, services, and business or procedures.
Another way to describe entrepreneurs are, they are individuals who recognize opportunities
where others see chaos, contradiction, and confusion. They are aggressive catalysts for change
within the marketplace. They have been compared to Olympic athletes challenging themselves to
break new barriers, to long-distance runners dealing with the agony of the miles, to symphony
orchestra conductors balancing different skills and sounds into a cohesive whole, and to top-gun
pilots continually pushing the envelope of speed and daring. Whatever their passion,
entrepreneurs are the heroes of today’s marketplace. They start companies and create jobs at a
breathtaking pace. The global economy has been revitalized because of their efforts, and the
world now embraces free enterprise as the most significant force for economic development. The
passion and drive of entrepreneurs moves the world of business forward. They challenge the
unknown and continuously create breakthroughs for the future.
One anonymous quote sums up the realities for entrepreneurs: “Anyone (can be an entrepreneur)
who wants to experience the deep, dark canyons of uncertainty and ambiguity; and who wants to
walk the breathtaking highlands of success. But I caution, do not plan to walk the latter, until you
have experienced the former.
Entrepreneurs play a key role in any economy, using the skills and initiative necessary to
anticipate needs and bring good new ideas to the market. Entrepreneurs who prove to be
successful in taking on the risks of a startup are rewarded with profits, fame, and continued
growth opportunities. Those who fail, suffer losses and become less prevalent in the markets.

Topic 1: Entrepreneurship

The concept of entrepreneurship is understood in different manners by different scholars and

authors. There is no one consensual definition of the term among the experts. Different
dimensions have been used to explain the term. The definitions also vary with the passes of time.
Therefore, a chronological description of the movement path of the definitional changes of the
entrepreneurship would make the understanding clear to the readers.
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Entrepreneurship entails
bearing the risk of buying at a
certain price and selling at
uncertain prices.
Entrepreneurship is any kind of Joseph A. Schumpter
innovative function that could
have a bearing on the welfare of
an entrepreneur.
Entrepreneurship is that form of
social decision making
performed by economic
innovators.
Entrepreneurship is the
purposeful activity of an
individual or a group of
associated individuals,
undertaken to initiate, maintain
or aggrandize profit by
production or distribution of
economic goods and services.
Entrepreneurship is the
dynamic process of creating
incremental wealth
Entrepreneurship is the process
of creating something new with
value 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.
Ricardo Cantillon The concept focuses on the
trading of goods and bearing of
its associated risk as to the act of
entrepreneurship
Schumpter recognizes
(1934) entrepreneurship as a rewarding
activity that involves any form of
innovation. Innovation is doing
things in a new and better way. It
adds utility to existing operations
or products.
Robert K. Lamb Lamb describes entrepreneurship
as an act of economic activity
engaged in innovation. He also
points out the social orientation of
entrepreneurship as it is involved
with social good and welfare
A.H. Cole (1959) The definition recognizes
entrepreneurship as a deliberate
human activity for earning profit
through economic activities of
production and or distribution of
goods and services.
Robert C. Ronstadt Ronstadt explains that wealth is
(1984) created by individuals who
assume the major risks in terms
of quality, time and/or career
commitment or provide value for
some product or service.
Robert D. Hisrich and The writers conceive
Michael P. Peters entrepreneurship a the devoted
(1998) efforts of individuals for creating
something of value to the people
of society. They also believe that
entrepreneurship is a rewarding
activity. It gives not only
financial rewards but also
freedom and personal satisfaction
that are of immense
reinforcement for the furtherance
of entrepreneurial action.
Entrepreneurship, in their view is
a risk hearing activity.
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Evolution of Entrepreneurship
The word entrepreneur is derived from the French entreprendre, meaning “to undertake”. The
entrepreneur is one who undertakes to organize, manage, and assume the risks of a business. In
recent years, entrepreneurs have been doing so many things that is now necessary to broaden this
definition. Today, an entrepreneur is an innovator or developer who recognizes and seizes
opportunities; converts those opportunities into workable/ marketable ideas; adds value through
time, effort, money, or skills; assumes the risk of the competitive marketplace to implement
these ideas; and realizes the rewards from these efforts.
Brief History of Entrepreneurship
17th century Walloon-Dutch-Swedish businessman, Louis de Geer was a pioneering entrepreneur
and industrialist at the dawn of modern capitalism
Emil Jellinek- Mercedes (1853-1918), here at the steering whell of his Phoenix Double-
Phaeton, was a European entrepreneur who helped design the first modern car
The word entrepreneur first appeared in the French dictionary entitled Dictionnaire Universel de
Commerce compiled by Jacques des Bruslons and published in 1723. Especially in Britain, the
term “adventurer” was often used to denote the same meaning. The study of entrepreneurship
reaches back to the work in the late 17th and early 18th centuries of Irish-French economist
Richard Cantillon, which was foundational to classical economics. Cantillon defined the term
first in his Essai sur la Nature du commerce en General, or Essay on the Nature trade in General,
a book William Stanley Jevons considered the “cradle of political economy”. Cantillon defined
the term as a person who pays a certain price for a product and resells it at an uncertain price,
“making decisions about obtaining and using the resources while consequently admitting the risk
of enterprise”. Cantillon considered the entrepreneur to be a risk taker who deliberately allocates
resources to exploit opportunities in order to maximize the financial return. Cantillon
emphasized the willingness of the entrepreneur to assume the risk and to deal with uncertainty,
thus he drew attention to the function of the entrepreneur and distinguished between the function
of the entrepreneur and the owner who provided the money.
Jean-Baptiste Say also identified entrepreneurs as a driver for economic development,
emphasizing their role as one of the collecting factors of production allocating resources from
less to fields that are more productive. Both Say and Cantillon belonged to French school of
thought and known as the physiocrats.
Dating back to the time of the medieval guilds in Germany, a craftsperson required special
permission to operate as an entrepreneur, the small proof of competence, which restricted
training of apprentices to craftspeople who held a Meister certificate. This institution was
introduced in 1908 after a period of so-called freedom of trade in the German Reich. However,
proof of competence was not required to start a business. In 1935 and 1953, a greated proof of
competence was reintroduced which required craftspeople to obtain Meister apprentice-training
certificate before being permitted to set up a new business.
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20th century
In the 20th century, entrepreneurship was studied by Joseph Schumpeter in the 1930s and other
Austrian economists. While the loan from French of the word “entrepreneur” dates to the 1850,
the term “entrepreneurship” was coined around the 1920s. according to Schumpeter, an
entrepreneur is willing and able to convert a new idea or invention into a successful innovation.
Entrepreneurship employs what Schumpeter called the “gale of creative destruction” to replace
in whole or in part inferior offerings across markets and industries, simultaneously creating new
products and new business models, thus creative destruction is largely responsible for long-term
economic growth. The idea that entrepreneurship leads to economic growth is an interpretation
of the residual in endogenous growth theory and as such continues to be debated in academic
economics. An alternative description by Israel Kirzner suggests that the majority of innovations
may be incremental improvements such as the replacement of paper with plastic in the
construction of a drinking straw that require no special qualities.
For Schumpeter, entrepreneurship resulted in new industries and in new combinations of
currently existing inputs. Schumpeter’s initial example of this was the combination of a steam
engine and then current wagon making technologies to produce the horseless carriage. In this
case, the innovation (i.e the car) was transformational, but did not require the development of
dramatic new technology. It did not immediately replace the horse-drawn carriage, but in time
incremental improvements reduced the cost and improved the technology, leading to the modern
auto industry. Despite Schumpeter’s early 20th century contributions, the traditional
microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks
(instead of assuming that resources would find each other through a price system). In this
treatment, the entrepreneur was an implied but unspecified actor, consistent with the concept of
the entrepreneur being the agent of x-efficiency.
For Schumpeter, the entrepreneur, the entrepreneur did not bear risk: the capitalist did.
Schumpeter believed that the equilibrium was imperfect. Schumpeter (1934) demonstrated that
the changing environment continuously provides new information about the optimum allocation
of resources to enhance profitability. Some individuals acquire the new information before others
and recombine the resources to gain an entrepreneurial profit. Schumpeter was of the opinion
that entrepreneurs shift the production possibility curve to a higher-level using innovations.
21st century
In the 2000s, entrepreneurship has been extended from its origins in for profit businesses to
include social entrepreneurship, in which business goals are sought alongside social,
environmental or humanitarian goals and even the concept of the political entrepreneur.
Entrepreneurship within an existing firm or large organization has been referred to as
intrapreneurship and may include corporate ventures where large entities “spin-off” subsidiary
organizations.
Entrepreneurs are leaders willing to take risk and exercise initiative, taking advantage of market
opportunities by planning, organizing and deploying resources, often by innovating to create new
or improving existing products or services. In the 2000s, the term “entrepreneurship” has been
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extended to include a specific mindset resulting in entrepreneurial initiatives e.g. in the form of
social entrepreneurship, political entrepreneurship or knowledge entrepreneurship.
Entrepreneurial activities differ substantially depending on the type of organization and
creativity involved.
Entrepreneurship rangers in scale from solo, part-time projects to large scale undertakings that
involve a team and which may create jobs. Many “high value” entrepreneurial ventures seek
venture capital or angel funding in order to raise capital for building and expanding business.
Many organizations exist to support would be entrepreneurs, including specialized government
agencies, business incubators, science parks and non-governmental organizations, which include
a range of organization’s including not-for- profits, charities, foundations and business advocacy
groups. Beginning in 2008, an annual “Globe Entrepreneurship Week” event aimed at “exposing
people to the benefits of entrepreneurship” and getting them to “participate in entrepreneurial
related activities” was launched.

Philippine Culture, Entrepreneurship and Development

Entrepreneurship in the Philippines
In the Philippines, entrepreneurship is viewed as important to empowering the poor, enhancing
production, and as an impetus to innovation. The 1987 Philippine Constitution recognizes
entrepreneurship as an engine of economic growth. Article XII Section 1 highlights the role of
private enterprises in supporting equitable distribution of income and wealth, sustaining
production of goods and services and expanding productivity, therefore raising the quality of life.
The Philippine development Plan (PDP) further reinforces the thrust on entrepreneurship through
trade and investment to achieve the government’s goal of economic development and job
creating. Based on the plan, measures for macro-economic stability, employment, trade and
investment, agribusiness, power sector reforms, infrastructure, competition, science and
technology, and anti-corruption are being pursued to strengthen Philippine’s competitiveness and
contribute to job creation.
In 2011, there were approximately 830,000 business enterprises in the Philippines. Of these,
99.6% are classified a micro, small and medium sized enterprises (MSME) which are responsible
for 38% of total job growth.

Enterprise development and competitiveness

Enterprise development in the context of competitiveness not only entails the ability to produce
products that can be accepted globally but also the level of support given to enterprises to help
them produce, innovate, and gain market access.
While relatively mature and free, enterprise development in the Philippines is beset with critical
challenges. These challenges are found within the context of pillars identified by the United
Nations Development Programme in its report Unleashing Entrepreneurship: rule of law,

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physical and social infrastructure, domestic macro environment, and global macro environment;
a level playing field, access to financing, and access to skill development and knowledge.
If the challenges remain unsolved, gaps in enterprise development have the potential to thwart
the country’s competitiveness and ability to effectively function within global production
networks.

Benefits of becoming an Entrepreneur

Entrepreneurs are the only people who will work 80 hours a week to avoid working 40 hours a
week- Shark Tank investor, Lori Greiner.
While this may be tongue-in-cheek, it is true that entrepreneurs have built a reputation for
breaking out of the mold and working hard to live a certain kind of life.
This is because, for many ambitious professionals, the benefits of entrepreneurship are incredibly
rewarding. The following are some perks/advantages of becoming an entrepreneur.
 Flexible schedule
So many people begrudge the office routine that is called the 8-5 grind. As an
entrepreneur, you have the opportunity to break out of that cycle and create your own
schedule. Start your day early if you’re a morning person, wake later in the day if you
prefer evenings.
This scheduling power isn’t just feeling, it also may be healthier as well. One study
conducted by the National Center for Biotechnology Information found that a results-
based work atmosphere (where the focus is on results rather than working a certain
number of hours) leads to greater mental and physical wellness.
 Autonomy
Digital news outlet, Quartz reported on the multiple studies that have demonstrated
the link between autonomy and job satisfaction. It turns out that employees who have
more control over their work tend to be more engaged and less emotionally
exhausted.
 Creating a career that aligns with your values
Aligning your personal values with career values is an intensely gratifying
experience. Someone who believes in respecting the environment for instance would
probably find a career in renewable energy incredibly fulfilling.
 Constant growth and development
Starting a company forces you to constantly improve your skillset, from marketing to
closing deals to creating Excel reports. There is always more to learn and apply to
your business, which can prevent complacency and encourage constant professional
growth.
 Meeting like-minded people
By becoming an entrepreneur, you will join a group of ambitious and helpful people
who believe in bettering themselves and the world. It isn’t hard to imagine that these
connections will push you to become a better person along the way.

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 In addition, there are plenty of opportunities to connect with mentors, brainstorm
with fellow professionals, and reach out for help during tough times. No one
succeeds alone, but with a supportive network of likeminded people, entrepreneurs
don’t need to.
 Unexpected and thrilling experiences
If you are considering an entrepreneur, you probably appreciate the value of the
unexpected. Not knowing exactly how the day is going to play out when you wake up
is exiting, especially when compared to the predictable and monotonous schedule of
a traditional office job. Another related benefit: responding to unexpected situations
teaches you to live in the moment and be more present.
 Choosing who to work with
Entrepreneurs can choose which clients to work with, employees to hire and partners
to pursue. If having control over business relationships appeals to you, the
entrepreneur life may be the perfect fit.
 Greater self-confidence
Nothing boosts your confidence more than battling self-doubt and coming out on top.
Many entrepreneurs become more confident in their self- sufficiency as time goes on
and they see what they are truly capable of.
 Leadership experience
Self-discipline, communication skills, passion, optimism, patience, and unrelenting
work ethic. Building a company from the ground up hones these leadership traits
which means that entrepreneurship can transform you into an inspiring leader both
professionally and personally.
 The best offices
Digital nomads are becoming increasingly common. These types of entrepreneurs
often combine fun travel with online business, and work from home cafes, hotels and
co-working spaces in the coolest cities around the globe, which can make for some
neat offices. Even if you are not trekking the world, the ability to work from a local
park, a beautiful café, or even home is incredibly tempting.

Young Filipino Entrepreneurs and their Common Mistakes

A young entrepreneur building his own business can be both enjoyable and very challenging.
Business requires a lot of decision making as well as pressure. Most of the time, because of
pressure, entrepreneurs make poor decision-making process. Remember, poor decision making
can easily hurt the potential success of your own business especially if you are just starting.
1. Skipping the Planning Phase
Sometimes, we feel too excited with our business idea and want to start with it right
away without doing any plans. In business, the lat thing you want to do is to be very
impulsive with your decision. Planning is very important as it will serve as your guide
on how to start and operate your business. Mainly you will be needing three major plans
for your start-up business, these are: Business Plan, Financial Plan, and Marketing Plan.

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2. Not Knowing your Target Market
Most of the time young entrepreneurs think of a great product without knowing who to
market it to. People have different taste and preferences that is why no matter how good
your product is, not all individuals would buy it.
When you come up with a product, it is important to know who will love and but it and
entrepreneurs should know who their customers are; their behavior spending habits and
preferences and after which, evaluate what value your product can bring to them. By
knowing who your customers are, you will have an idea on ‘how’ and ‘where’ to market
your product.
3. Lack of Financial Discipline
Compared to more developed Asian countries like Singapore and Japan, Philippines has
a very low financial literacy rate. There are very few Filipinos who have savings
accounts in Banks and most of us do not know how to handle our financials. If you are
venturing a business, it is important not only to be financially literate but also have solid
discipline in terms of handling your money. If the profit of your business is running and
growing steadily but you are overspending or living beyond your means, your business
will most likely be stagnated or even go bankrupt.
4. People Management Skills
If you are staring your own business, you are already a leader. You cannot afford to have
a ‘do-it-alone’ mentality. Instead, as entrepreneurs, you have to be efficient in terms of
delegation and managing the people under you especially your front liners. It will be an
advantage for your business if you already have experience in handling and managing
people.
Your leadership will affect your staff’s productivity and motivation towards work. On a
daily basis, you have to ensure that your staff is productive all the time and one of the
key factors in productivity is your staff’s motivation.
5. Neglecting your Customers
Most small businesses have poor customer service simply because owners are more
focused on operations and earning profit from your business. Yes, we create businesses
for profit but most successful businesses are focused on giving value to their customers
not only through their products but also with the overall customer experience.
Aside from providing the best customer experience, you can also build and create a
loyalty program for your customer. Through loyalty programs, you are able to ensure
that they are happy with your brand as well as encouraging repeat purchase. In this way,
you don’t need to spend much on advertising your business because your loyal
customers are doing business with you consistently.

You don’t need to have a very huge capital or investment to start a business. Instead,
your biggest capital to start a business is you skill, dedication, people skills and patience.
Along the road, you will encounter a lot of challenges and mistakes. It is not important
how many mistakes you will make, but the important thing is you learn and correct your
mistakes. By being aware of your mistakes, you will grow as an individual and an
effective entrepreneur. There is no easy way to success but being smart, tough and
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 staying dedicated can help you get there and having a growth mindset and motivated
team will help you stay on top.

Famous Successful Filipino Entrepreneurs

There are many successful Filipino entrepreneurs in our country. Among many reasons, they
became famous because of their big contributions to the growth of the Philippine economy.
These Filipino entrepreneurs possess different characteristics which are essential to becoming
successful. They can serve as inspiration for us Filipinos that someday we become like them.
 Socorro Ramos (National Bookstore, Inc)
Ms. Socorro Ramos started working as a salesgirl when she was 18 years old
in Goodwill Bookstore in Escolta. She was good in selling, that’s why she
became in charge of the store. When she was married to Jose Ramos, they put
up The National Book Store. Her vision was to extend the National Bookstore
not only in Luzon but also in Visayas and Mindanao for cheaper access to
books and school supplies. Before, The National Book Store was a general
merchandise store. Until later on, it was selling books, greeting cards, and
school supplies. Today, more than 230 branches of National Book Store can
be found nationwide.
 Tony Tan Caktiong (Jollibee)
Jollibee was formally selling Magnolia Ice Cream, then it was recognized as
selling chicken and burgers. Tony Tan Caktiong, the president and CEO of
Jollibee, was a name to remember, not only here in the Philippines but also in
other parts of the world, like in US, Hongkong, China, Indonesia and Japan.
He had received several awards in the business and the likes. The success of
Jollibee according to Mr. Caktiong is sharing to people what they had
achieved. Jollibee has been known to be a happy and hardworking insect.
 Lucio Tan (Philippine Airlines)
Lucio Tan’s story is a from rags to riches tale. Before working in the tobacco
industry, his business was a scrap. His dream was to become a scientist but
his fortune was bound to become an entrepreneur. His hard work made him
successful and became famous. Now he owns Asia Brewery, Tanduay,
Fortune Tobacco, Philippine Airlines, Allied Bank and many more to
mention.
 Atty. Felipe Gozon (GMA NETWORK)
Atty Felipe Gozon is the chairman, president, and CEO of GMA Network. He
was credited for the success of GMA Network in radio and TV broadcasting,
filmmaking, and music recording. He was Master Entrepreneur in 2004.
Because of the leadership of Atty Gozon, he made GMA as on of the top
networks in the country today. Currently, GMA had via-satellite broadcasting
in Asia and in other parts of the world.
 Henry SY (SM)

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 Henry Sy was born in Xiamen, China. In his early twenties, he used to sell
American shoes. Then after three years, he was able to have his shoe mart
store. SM group of companies was one of the biggest companies in our
country and the man behind it was Henry Sy. His elf-discipline, perseverance,
and hard work made him what he is today. In almost every part of the
country, there is SM Mall. According to Henry Sy, success will not last if you
do not care for it. That’s the secret of their success.
 Jaime Zobel de Ayala (Ayala Corporation)
Jamie Zobel de Ayala was before president and chairman of Ayala
Corporation. He was considered as one of the rischest persons tied with Henry
Sy in 2007. He had received many awards and the latest was Entrepreneur of
the year 2012. His strategy for being successful in this business was getting
partners with those who are in need in the community. He believes that
gaining profits was not really the concern of every businessman, but to help
the poor people.
 Mariano Que
Mariano Que first worked in a drugstore. When he was given the opportunity,
he invested his 100 pesos in the sulfathiazole tablets. He sold his products to
help the people by making use of the wooden pushcart. After saving a lot of
money, he was able to build Mercury Drug. It was well known to the people
as selling safe medicines and opened 24/7. Mercury Drug, like any other
leading drugstores, had many stores nationwide. That was because of the
innovations he made in his products.

Topic 2: MSME

The 2021 List of Establishments (LE) of the Philippine Statistics Authority (PSA) recorded a
total of 1,080,810 business enterprises operating in the country. Of these, 1,076,279 (99.58%) are
MSMEs and 4,531 (0.42%) are large enterprises. Micro enterprises constitute 90.54% (978,612)
of total establishments, followed by small enterprises at 8.63% (93,230) and medium enterprises
at 0.41% (4,437).

As the backbone of societies everywhere they contribute to local and national economies and to
sustaining livelihoods, in particular among the working poor, women, youth, and groups in vulnerable
situations.

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In the Philippines, SMEs are defined as any enterprise with 10-199 employees and/or assets
valued from P3 million to P100 million. SMEs and micro enterprises combined make up 99.6%
of establishments in the country.
Filipinos SMEs are the Instagram entrepreneurs, the tech startups, the grocery store owners; your
nosey neighbor, your high school classmate, your cousin running the family business. It is
anyone and everyone who’s had the initiative to start their own business.
Fortunately for Filipinos, running a small or medium enterprise is easier these days, thanks to
technology. Because of the internet, there are now more opportunities for SMEs to thrive, grow
and even compete against larger, longer-established giants.

Challenges MSMEs Face

Challenges for Small-Medium sized enterprises can be numerous, as they often face challenges
that bigger companies are largely immune to.
 Funding
Access to funding is possibly the largest challenge faced by MSMEs. According to Alex
Chesterman, CEO and founder of real estate business, Zoopia, “the last few years have
been relatively tough from an investment standpoint.” Funding can be very difficult for
MSMEs, since mainstream lenders are often reluctant to fully engage with them and
hesitant to invest a productive amount of capital.
Despite this, the rise of challenger banks, peer-to-peer lending and alternative lenders is
beginning to make funding more accessible to MSMEs, and this may become useful
avenue for small businesses in the coming years. A lack of funding can have huge knock
on effects for your business, and in particular it can be a huge factor affecting inventory
management. If funding is down, businesses will struggle to keep up with demand and
may lose out on sales.
 Increased Competition
Over the years, the marketplace, the marketplace has become increasingly crowded and
competitive. In order to gain exposure, MSMEs really need to hone in on their
individuality and present their product or service as unique. To stand out from the
crowd, businesses need to be very special in terms of idea, people, product and delivery.
MSMEs need to identify or devise their own competitive advantage in order to stand out
from the multitude of small businesses crowding the marketplace. Managers need to
move faster and act smarter, to keep up with the proliferation of competition that appears
to be increasing rapidly.
 Regulations

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 These days, businesses cannot be said to be completely autonomous because there is
simply so many regulations and policies that companies must consider. This includes
things like complying with the national living wage and pensions auto enrollment,
among many other policies.
This excludes industry specific regulations that will apply depending on the industry you
are in. The food industry, for example, has a myriad of policies that the company must
contend with before it even considers setting up shop. Inventory management software
can help food manufacturing businesses comply with safety and health requirements.
While larger businesses are often able to include the cost of running through these
procedures as part and parcel of the cost to the customer, it may not be that simple for a
small enterprise. Keeping up with ever-changing regulations is a time consuming and
costly affair, and this posses a big risk for MSMEs who may be struggling with funding
already.
These regulations can become a significant factor affecting inventory management, and
may disturb your ability to manage inventory as well as you would like. Food industry
regulations can be particularly stifling in terms of your inventory management processes.
 Leadership
MSMEs are often lead by a small team of individuals with little to no real management
experience. For example, a recent survey found that 71% of employees felt their
employer could do better at providing first line management training, or did not offer
any training at all. This is troublesome because bad leadership can have far-reaching
effects in small businesses. For this reason, sourcing employees with adequate training
in management and refined leadership abilities is key to success of MSMEs.
 Recruitment
Employing skilled staff can be difficult for small businesses, considering the competitive
advantage larger firms have in terms of higher salaries and better employee benefits. A
successful business can be built on employing the right people with the right skill set,
but the challenge for MSMEs is first attracting and then retaining them.
An inability to source an adequate amount of staff can also be a significant factor
affecting inventory management. For small businesses, this may mean that a small
number of staff must look after all inventory management processes, and when demand
increases this can translate to overworked, tired and error-prone employees.

Building a Business
Being an entrepreneur is not an easy task. It is a very big decision and one has to make efforts,
has to be patient, and should work hard. Before starting an enterprise, some factors should be
considered and reviewed in order to increase the probability of profitability.

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The meaning of small business, however changes in different countries according to their
respective laws. The criteria depends on the number of employees, turnover, asset of the
company, etc.
Before starting an enterprise, some factors which should be taken care of are:
 Identification of business opportunity
 Preparation of project
 Selecting a business opportunity
 Accessing the viability (technical, financial marketing) of the project
Starting a business includes planning of business before launching it is not restricted to be
preparing a business plan. Preparing a business plan is an important exercise. Bachenheimer
recommends the following three methods for a business plan-
 The Apprentice Model- earning from direct work experience in the industry.
 The Hired-Gun Approach- partnering or sharing with experts who are more
knowledgeable and have more experience
 The Ultra Lean School of Hard Knocks Tactic- finding out a way to frequently test and
refine the model at a very reasonable cost
While documenting a business plan is precisely helpful, the real value is not in having the
finished good in hand, but instead in the process of researching and thinking in a systematic
approach. It assists in thinking things through in depth, to study and research if the facts provided
are completely accurate. Starting a new business without the commitment of thorough
preparation, can be a very expensive lesson in the value of planning.

Test your Idea

It is recorded that approximately sixty percent of new businesses fail within the first three years,
as mostly young entrepreneurs rush into business without carefully checking out their idea and
all other aspects to conclude if it will work.
Know the Market
It is crucial to understand the critical metrics of the market, even if it is as simple as sales per
square foot and inventory turnover, or an esoteric measure in a highly specialized upmarket.
Questioning others, conducting research or gaining experience by assisting others to learn the
inside of the market, engaging with the main suppliers, distributors, competitors and customers is
a must.
Understand your Future Customer
In most business plans, a description of potential customers and how they make purchasing
decisions, receives mush less attention than operational details such as financing, sourcing and
technology. In the end, customers determine the success of failure of an enterprise.

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It is important to understand the customers’ demands, what affects their purchase decisions, what
can be done to differentiate the offering from that of competitors and how to convince them that
the value offer is genuine. Acknowledging and understanding the needs of the future customers
is a crucial and important step in launching a business.
Establish Cash Resources
Necessary measures and steps are to be taken to frequently capitalize the business and secure
ready sources of capital for growth. While some startups rely on owners’ capital, others look for
investors.
To determine the total amount of cash required, develop a cash-flow statement that evaluates
complete expenses and income of the company. Accurate stages of expenses are marked by
researching costs of actual business. Minimizing long-term commitments, like long-term leases
help in limiting the need of cash unless it is important. A noticeable amount of ambiguity can be
seen within initial years, to avoid this one needs to be conservative in making commitments for
utilizing resources that might not be required yet.
Choose the right Business Structure
Starting from the initial stages, it is very important to identify the appropriate corporate layout
required for the business. This should include tax and legal implementation. The chosen layout
assures the success of decisions to be make in future, like raising capital or exiting from the
business.

Benefits of Owning a Small Business

Being a small business can be tough. Long days, demanding clients, huge responsibilities.
However, there are some great benefits for small business owners with advantages compared to
the bigger businesses. These are not always obvious but they are highly effective tools you can
use to give yourself a competitive edge.
o Flexibility
Smaller businesses are more flexible and able to make the changes necessary to survive
than bigger ones. Sometimes, the big companies seem to have all the advantages when it
comes to getting favorable credit and terms, but you can take outshine them every time
when it comes to thinking on your feet and responding to events.
You don’t have to go to head office to consult when you realize you can take advantage
of a new trend, or want to explore an interesting project. You can make your own
decisions, rather than filling in forms and waiting weeks for someone to get round to
responding.
o Expertise
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 Because you are a small business, you are likely focused on a pretty compact skill set.
This offers two main advantages- people who need your services will know that you are
the go-to person for this particular offering and that you understand your own specialism
perfectly.
The level of confidence in your own ability is something that big businesses often cannot
equal. A surprising number of big organizations have little idea what expertise they
actually have, and often miss out on opportunities because they simply don’t know what
their employees can do.
o Uniqueness
You will garner a lot of credibility with today’s customers if you produce something
individual and distinctive.
People crave goods and services that stand out from the mass-produced. People hate
impersonal hard sells that turn out to offer something very bland and ordinary.
You, on the other hand, have the ability to be extraordinary. While big business ha to
almost by definition produce something uniform and safe, you can thrive by producing
exceptional and distinctive products and services.
You have complete freedom to innovate within your market parameters, and whatever
you niche, you can ensure that your product or service is a perfect fit for both of you and
your customers.
o Satisfaction
There is nothing like the buzz of producing something that a customer is really pleased
with- and that is a feeling you’ll only get as a small business. That sort of feedback is
vanishingly rare in big companies, where the bosses are almost completely insulated from
the people using their products or services.
Yes, you are also on the sharp end of any complaints, but you are also well placed to
understand what’s gone wrong, how to rectify it quickly, and learn from the experience.
Because you have such focus on your work, you are also able to examine far more deeply
into issues, and tailor’s best-fit solutions.
There is no feeling quite like making something from start to end, and seeing it succeed.
The enormous pride you can take in a job well done is hard to beat- it is one of the main
reasons we get up in the morning.
o Personal Service
People crave to be able to connect with a human being, rather than a vast, impersonal
blob with a call center on the far side of the world. You can connect with your customers
in a far more meaningful way.
Because your service is personal, what you offer will be far more closely aligned with the
needs and aspirations of your target customer group than those of big businesses. They
are trying to appeal to a huge and diverse range of potential buyers, of whom you may be
the least important.
Knowing who your target customers give you an enormous advantage. You understand
what they want, and know when their tastes are changing so you can quickly tailor your
offering to match. Because you are closer to your customers, you can forge lasting
relationships that create genuine loyalty and keep people coming back.
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o Focus
Your focus is likely relatively narrow, and this is a good thing. While big businesses have
to search far and wide for opportunities, you know exactly where yours are most likely to
be.
And if your sector situation changes, you will notice it more quickly than big businesses
would because you concentrate on the developments in your own field.
Because you have a keen focus, you are also likely to be a lean business- you have fewer
layers, fewer employees, more efficient operations and you have much better
understanding of how your company works.
o A Great Boss
You have the best boss in the world. You! You don’t have vast layers of bureaucracy and
management or investors- people who don’t want exiting; just safe.
In a large business, there may be dozens of people who need to be consulted to get a
complete picture of what’s going on before any decision can be made. But since you are
the boss, you get to decide which opportunities are worthwhile. And as you know your
own business and the risks inside out, you are perfectly placed to make the right
decisions.
You are also able to offer employees great opportunities. Because you are small, you are
far more in touch with everyone who works for or with you. You know their ambitions,
and you can help them achieve them. In a big business, they would be a name or number,
and very little else.

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