CHAPTER 1

A Perspective on Entrepreneurship.
Prepared by:

Kyle Paulino
 Entrepreneurship is a very important
component of capitalist economy like
Philippines. When entrepreneurs become
successful, the nation is immensely
benefited.
ENTREPRENEURSHIP
AND ECONOMIC
DEVELOPMENT
Economic Development is a
scheme aimed at improving the living standards of
the nation’s citizenry. To achieve economic
development goals, proper management of the
following elements is necessary:

1. Human Resources (labor supply, education, discipline,

motivation)
2. Natural resources (land, minerals, fuel, climate)
3. Capital formation (machines, factories, roads)
4. Technology (science, engineering, management
entrepreneurship)
 The effective and efficient utilization of the
various resource elements contribute to the
ECONOMIC GROWTH.
 The abundance of natural resources like fertile
land, minerals, fuels and good climate are plus
factors but are not guarantees for positive
economic development.
 The performance of the entrepreneur,
however, will depend much on the support
provided by the government .
WHAT IS
ENTREPRENEURSHIP?
 Entrepreneurship refers to the economic activity of the
person who starts, manages, and assumes the risk of
business enterprise.
 The person who undertakes entrepreneurial activities is
called ENTREPRENEUR.
 The entrepreneur identifies an economic need, considers
offering a business solution, proceeds to assemble the
resources required, and assumes the risk of either
succeeding or failing.
AN EXAMPLE OF
ENTREPRENEURSHIP
ACTIVITY
Entrepreneur’s Concern Problem at Hand Entrepreneurs Action
1. Identifying an economic 1. High income families are 1. Establish a high school
need not satisfied with the education with higher
services provided by the standard than the current
high schools in their area. high schools are providing.

2. Assembling resources 2. Resources must be made 2. Acquire funds, hire

required available people, construct buildings,
and the like.

3. Assuming risk 3.Venture must be made 3. Prepare project study,

advertise, maintain good
relationship with employees
and customers, among
others.
THE ENTREPRENEUR’S TASK
 If all the requirements in a capitalist economy are in place, the
entrepreneur can assume his assigned role in the development of the
economy.
 A review of the contribution of entrepreneur will reveal that no business,
big or small, started without the hand of the entrepreneur. Even if many
of these business failed to survive, still a sizable number developed and
proceed to make the capitalist economy a viable concern.
 This made possible because the surviving enterprises are responsible for
providing the following:
1. Products and services for customer and producer;
2. Employment;
3. Taxes;
4. Demand for suppliers’ product and services and
5. Training facilities for future entrepreneur.
 Land Labor Capital
(Natural Resources) (Human Resources) (Financial Resources)

Entrepreneur

Production
Process

Finished Goods
and Services

Figure 1. The Entrepreneur’s Task

IN THE ATTEMPT TO MAKE PROFITS, THE
ENTREPRENEUR PERFORMS THE
FOLLOWING SPECIFIC FUNCTIONS:
1. To supply the necessary capital
- In any case, there will be a need to hire the services of employees,
laborers, and managers. Equipment, furniture, and machinery must be
acquired. All of these will need funds which the entrepreneur must
produce, in addition to whatever fund reserves are required.
2. To organize the production by buying and
combining inputs like materials and labor.
- The function of the entrepreneur is to assemble a production unit
complete with man power and equipment, the quality and quantity of
which have been predetermined by him.
IN THE ATTEMPT TO MAKE PROFITS,
THE ENTREPRENEUR PERFORMS THE
FOLLOWING SPECIFIC FUNCTIONS:
3. To decide on the rate of output, in the
light of his expectation about demand
- The entrepreneur will also determine and make decisions on the
rate of output the firm must produce. This will have to be tied up
with demand.
4. To bear the risk inherent to the
venture.
- Finally, whatever risk is involved in the entrepreneurial activity, he
must suffer the consequence of losses if he fails, but he will enjoy
the profits as a reward if he succeeds.
ENTREPRENEU
RSHIP AND
INNOVATION
Innovation may be defined as the introduction of a
new method, procedure, custom, device, among others.

Innovation could be any of the following:

1. New product;
2. New process of production;
3. Substitution of a cheaper material in an unaltered
product;
4. Reorganization of production, internal function, or
distribution arrangement leading to increased efficiency,
better support for a given product, or lower cost; or
5. 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 – which refer to the discovery or
devising of new products and processes;
b. Development – which refers to the process by
which the ideas and principles generated from the
stage of invention are embodied in concrete
products and techniques; and
c. Innovation – which refers to the actual
introduction of a new product or processes.
EXAMPLES OF SUCCESSFUL INNOVATIONS
ARE THE FOLLOWING:

1. Cordless microphone;
2. Cellular phone;
3. Karaoke music appliance;
4. Use of Laser in the treatment of eye conditions;
and
5. Use of computers by engineers and 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 tale advantage
of the opportunities presented by a mature business.
 The transition from a new venture to a successful long-term
enterprise consists of at least four major stages. The stages
are as follows:
1. Prestart-up stage;
2. Start-up stage;
3. Early growth stage; and
4. Late growth stage.
The PRESTART-UP STAGE happens when
the entrepreneur starts to question the
feasibility of an idea, product, or service.
He seeks answers to questions regarding
potential markets, production, and
financing. This is a very important stage
that the entrepreneur must consider. If he
errs in his evaluation, he will fail before
considerable growth is attained.
 In the START-UP STAGE, the following
activities are undertaken:
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.
 No full-scale activity must be undertaken at this
stage for the simple reason that feasibility must
be established and verified
The EARLY GROWTH STAGE follows after
establishing feasibility. Activities will be on a
small scale, i.e., selling to limited markets with
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.
The LATE GROWTH STAGE is 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.
REWARDS FOR
SUCCESSFUL
ENTREPRENEURSHIP
 The use of any of the factors of production deserves to receive
some form of compensation. The factor referred to as “things
required for making a commodity” consist of land, labor and
capital. To make them work, however, a fourth factor becomes
necessary and this is the ENTREPRENEUR.
 When land is used in production activities, the owners of land are
paid a compensation called rent. The term “rent” refers specially
to the price paid per unit of time for the services of a durable
good, which, most often, refers to land or buildings.
 For the effort of laborers, they are paid wages or salaries. Wages
may be determined on a piece-rate basis, while salary is based
on time-rate.
 Interest is the compensation paid to owners of invested capital.
 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.
 As the landowner earns rent for allowing use of
his property, the owner of capital earns
interest for allowing use of his capital. The
laborer on duty earns wages for his effort,
while the entrepreneur earns profits for
deciding how the business shall be run. If he
succeeds, he is compensated for his vision,
originality, and bold undertaking . (Table 2).
 Factors of Production Economic Reward Limiting Factor for
Rewards Received

Land Rent Supply and demand

Capital Interest Industry rates/government

mandated rates

Labor Wages/salary Supply and demand

legislation

Entrepreneur Profits Skill of entrepreneur

Table 2. The Factors of Production and Their

Rewards
THE
ENTREPRENEU
R’S
PREDICAMENT
 In the race for winning the all-important consumers
pesos, the business will have to offer products or
services that have certain advantages over the
competition’s wares.
 In the creation of a 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 competitors. This situation may be temporary
because the competitor may attempt to improve his
position by making moves to outplace the entrepreneur
in the race. The competitor may either imitate or offer
better innovations. If the competitor is successful, the
profits of the entrepreneur will decline (Table 3).
 To be ahead again, the entrepreneur will consider
offering newer and better innovations. The cycle
 Entrepreneur 1 Entrepreneur 2 Entrepreneur 3
Year 1 introductive Inactive Inactive
innovative
product
Year 2 reap Introductive Inactive
moderateprofits innovative
Product
Year 3 maximize Reap Introductive
profits Moderate Innovative
profits product
Year 4 profits Maximize Reap
decline Profits Moderate
Profits
Year 5 introductive Profits Maximize
innovative Declined profits
product

Table 3. Innovation and Its Possible Effects on Competing

Firms
ENTREPRENEU
RSHIP AND
BUSINESS SIZE
 To many people, the entrepreneurship means running a
small business. New business ventures, however, can also
be undertaken on a large scale. Both small and large
businesses are confronted by problems that are
entrepreneurial in nature.
 To effectively complete, business of whatever size must
adapt innovative approaches to its activities. Examples of
innovations are the following:
1. Offering business services during Sundays and
holidays;
2. Manufacture and sale of new products; and
3. Selling on a deferred payment scheme.
 Small business have advantage of switching to another

business concept whenever necessary.

 Large business cannot do the same without spending

much. To offset the disadvantage, however, large

business have started to engage in “entrepreneurship”
where a person with entrepreneurial skills and is
employed by the corporation is tasked to launch new
products. This person is responsible for creating
innovation of any kind in the organization.
SUMMARY
 Entrepreneurship is an activity that assures the viability and
growth of the economy. Through entrepreneurship, goods and
services are produced, employment is provided to many people,
taxes are paid to the government, the products and services of
suppliers are bought, and future entrepreneurs are provided
with venues for training.
 The entrepreneur’s task consist of assembling the resources
consisting of land, labor, and capital for the purpose of
producing goods and services. The entrepreneur is also
responsible for deciding on the rate of output his venture must
produce. He also bears the risk inherit to the venture. If the
entrepreneur’s task appears to be a great burden, the prospect
of profits make it bearable.
 Innovation is an important aspect of entrepreneurship. It is
defined as the introduction of a new method, procedure,
 New ventures must develop into small business or grow into a
mature and bigger company. This is because the entrepreneur
must recover the cost of opening the venture.
 The transition from a new venture to a long-term enterprise
consist of the prestart-up stage, start-up stage, early growth
stage, and late growth stage.
 The factors of production are rewarded accordingly and if the
entrepreneur is successful, he receives profits.
 The entrepreneur cannot feel secure of continuous success in
his new venture. There are many competitors he must
contend.
 Although entrepreneurship is generally regarded as a useful
means of running a small business, it is also conducting to
maintaining the growth of large corporations.