A strong Partner for Sustainable Development

Entrepreneurship
1st Quarter, 2nd semester AY: 2021-2022

College of Education
Agricultural Science High School
SENIOR HIGH SCHOOL
The Entrepreneurial Mindset
Learning Competencies:
The Learning Competencies that you are to learn in this Chapter are the following:
 Identify the different types of entrepreneurs
 Describe the entrepreneurial process
 Describe the typical characteristics of Filipino entrepreneurs
 Explain the factors that influence individuals to pursue entrepreneurial outcomes
 Explain how entrepreneurs think and how they make decisions
 Explain the role of risk and failure in the entrepreneurial process
Introduction
Some people make a big deal out of the fact that there are many successful businesses founded by
entrepreneurs who do not have a college degree. Often cited are Apple founder Steve Jobs, Microsoft
founder Bill Gates, Facebook co-founder Mark Zuckerberg, and Uber co-founder Travis Kalanick. In the
Philippines, we have Philippine Airlines and Asia Brewery owner Lucio Tan, National Bookstore owner
Socorro Ramos, Zest-O Corporation President Alfredo Yao, and Mang Inasal founder Edgar Sia II. Some
of these individuals actually went to college, but decided to drop out after spotting a business opportunity.
The others came from poor families, and could not afford a college education, but succeeded in growing
their businesses nevertheless.
However, we must not lose sight of the fact that other equally successful businesses were founded by
individuals who earned their college degrees. Examples are Jollibee founder Tony Tan Caktiong,
Lamoiyan Corporation founder Cecilio Pedro,and ECHOstore co-founder Pacita Juan. Clearly,
educational background, while important, is not the defining element for entrepreneurial success. There
are other factors that come into play.
In this chapter, we identify the different types of entrepreneurs. We also describe the various stages
that entrepreneurs undergo in implementing their business plans, which usually start as mental constructs
or intentions. In this light, we identify the factors that influence entrepreneurial intentions. After this, we
discuss how entrepreneurs formulate their decisions based on three types of mental processes. Finally, we
examine the role of cognitive adaptability in managing risks brought about by an uncertain and dynamic
business environment.
WHAT IS AN ENTREPRENEUR?
The term “entrepreneur” comes from the French word entreprendre which means “to undertake.” It is a
reference to individuals who have initiated the establishment of a business enterprise. In his classic work The
Theory of Economic Development, Joseph Schumpeter emphasized the role of entrepreneurs in the process of
economic transformation. Through their business ventures, entrepreneurs introduce to the market, innovations
in the form of new products, new processes, new markets, and new organizations.
The entrepreneurs described by Schumpeter, however, are individuals who have generated substantial
value and profits from innovations in a very short period of time. These individuals are also willing to absorb
huge risks using enormous amounts of capital in their business ventures (Quickmba. com).We call these
people mega entrepreneurs. Because of the speed by which they create a big amount of value-added. these
entrepreneurs were cited by Schumpeter as having contributed much to the economic progress of the
developed countries in the West. In addition, the enormous profits they have gained have attracted
competitors and imitators, and brought dynamism to the industries they operate in and ultimately prosperity to
the entire economy.
 However, another type of entrepreneur can be found in developing countries. Although they also
initiate business enterprises, the 'value-added' and profits they make are limited. Some introduce
innovations in the form of changes in their production and distribution processes, but their contributions
are minimal and attract few competitors and imitators. Because they are short in funds and inadequate in
skills, they cannot undertake projects that involve huge capital, sophisticated technology, and extensive
risks. We call them micro entrepreneurs. Unlike mega entrepreneurs, they engage in micro and small
businesses as an alternative to formal employment. Although they are not crucial in bringing rapid
economic prosperity to a country, they nevertheless contribute to inclusive growth.
While there are distinct differences between mega entrepreneurs and microentrepreneurs, they have
something in common. They both start businesses from opportunities facing them. Given this, Peter
Drucker (1985) in his book Innovation and Entrepreneurship, emphasized the “discipline” in the process
of starting and managing a business.' Even if the contributions of entrepreneurship can vary (ie., being an
agent of rapid economic progress or being an avenue for inclusive growth), what is important is the
system entrepreneurs follow to achieve their goals. In seizing opportunities and converting them into
business ventures, there are several steps to follow.
ENTREPRENEURIAL PROCESS
Although Drucker acknowledged how personal traits and elements of the external environment could
influence the outcomes of an enterprise, what he emphasized is the importance of how these personal
traits and external factors are managed to achieve the goals of the enterprise. Thus, it is important to
formulate a strategy, which should include an articulation of a plan and how this is going to be
implemented. This entrepreneurial discipline is often referred to as the entrepreneurial process, which
involves several stages from the awareness of an opportunity to the realization of a business idea. The
steps include the following: (a) discovery,(b) development of concept, (c) organizing resources,(d)
implementation, and (e) reaping the returns.
Discovery refers to the recognition of a business idea or the detection of opportunities that could
make money for the entrepreneur. Mega entrepreneurs draw their ideas from current inventions and other
technological developments that can bring about huge profits for them. For example, the developers of a
social network like Facebook used the developments in Information and Communication Technology
(ICT) to connect people across the globe instantly. Similarly, those who introduced smart phones saw the
market value of combining the capabilities of a telephone, camera, television, computer, and the other
applications of electronic gadgets. On the other hand, microentrepreneurs typically get their business
ideas from the limitations of existing products as well as from simple businesses where markets are easy
to enter. For example, the popularity of lechon baboy among Filipinos encouraged other local
entrepreneurs to introduce lechon manok in the market.
 The business idea is then transformed into a business concept. The development of a business concept
gives more details on how the general business idea can be realized. It suggests the preparation of a business
plan, which must spell out the various activities that must be done from production to the distribution of the
product or service. The business plan must also describe how the enterprise is going to be organized and
managed, and how the business is going to be financed, among others.
Organizing resources, on the other hand, describes the process of identifying, sourcing, and financing
human, nonhuman, and other resources needed for the conduct of business. Mega entrepreneurs usually
require highly educated, technologically savvy, and creative employees, who are sourced from the best
universities and training institutions nationally or globally. Since they are engaged in sophisticated business
activities that entail huge capital, they source their funds from the capital market or from venture capitalists.
In contrast, microentrepreneurs draw their resources, including labor, from what is available in their locality.
This may include family members, neighbors, and other workers, who might not necessarily have the desired
skills. Aside from being readily available, these resources are relatively inexpensive. Funds for their business
operations are usually sourced from family savings, loans from informal lenders, and remittances of relatives
working abroad.
 Implementation is the process of carrying out the business plan. It covers a number of activities,
including the management of human, physical, technological, and financial resources of the business.
Implementation also includes mechanisms for confronting actual and potential rivals as well as for
responding to the various opportunities, challenges, and developments being posed by external
environments. Measures on responding to competitors and the bargaining powers of suppliers and
buyers can define the competitive edge of a business enterprise. In addition, major changes in the local
economy and the global market present both opportunities for growth and threats to the survival of a
business in an industry.
Finally, reaping the returns pertains to strategies related to the expansion of the business firm. It
also covers mechanisms for addressing conditions in the business environment that may affect the future
of the firm. Entrepreneurial ventures, after all, are very dynamic. They usually start as small ventures
and eventually transform over time in terms of the quantity and quality of products they produce as well
as the resources they require in the production process. As these small enterprises change, their
governance structures and financing mechanisms may also change.
CHARACTERISTICS OF AN ENTREPRENEUR
While the entrepreneurial process is important in the success of business ventures, many
entrepreneurship scholars have argued and presented evidence that entrepreneurial traits are likewise
important in the performance of a business venture. In this section, we present the effects of these
personality characteristics on entrepreneurial performance based on two criteria. The first pertains to how
personal traits connect with the way entrepreneurs create 'value-added' and the second involves the link
between these personal qualities and the formation of entrepreneurial intentions.
Entrepreneurial Traits and Creation of Value-added
The characteristics of an entrepreneur will vary depending on whether they are in the developed
countries pursuing Schumpeterian entrepreneurship or in developing countries operating small
enterprises. The level of education, employment status, wealth, and risk appetite of entrepreneurs differ
depending on the amount of value added or profit created by their enterprises. As discussed previously,
there are differences between mega entrepreneurs and microentrepreneurs.
Level of education
Studies have shown that entrepreneurs need some formal education to be able to seize the
opportunities presented by inventions, innovations, and other technological developments. This may be
true for mega entrepreneurs since they need some degree of technological know-how to understand the
commercial potentials of modern inventions and innovations. In developed countries, like the United
States, some of the more successful entrepreneurs are engineers who are able to recognize business
opportunities being offered by the latest developments in Information and Communication
Technology(ICT).Many of these billionaires amassed their wealth from ICT innovations. Business
ventures that came about from modern technological innovations are usually initiated by educated mega
entrepreneurs.
On the other hand, since entrepreneurship in developing countries is more often being used as an
alternative to formal employment, many microentrepreneurs usually have limited educational
qualifications. In addition, engaging in small enterprises does not require high levels of schooling. These
small enterprises use simple technology, and do not require technical sophistication from workers. For
example, one does not need a college degree or a high school diploma to introduce binalot na adobong
manok to be sold in “Jolyjeeps" in Makati.
 Thus, the degree of human resource qualifications will depend on the type of business ventures that
are being established by entrepreneurs. For microenterprises, which are meant for employment and
economic survival, formal schooling is probably not required. For bigger and more sophisticated
businesses, however, more education and training is required from the entrepreneur. Although, we know
that some successful entrepreneurs like Bill Gates and Steve Jobs are college dropouts, they nevertheless
have formal schooling and have sophisticated ICT technical know-how.
Employment status
Individuals who become entrepreneurs in developed countries are usually former employees of
companies in the formal sector. The choice of pursuing entrepreneurship can be viewed as a step in the
entrepreneur's professional development. These entrepreneurs usually get their business ideas and
concepts from the operations of companies they formerly worked for. Knowing the ins and outs of a
company's operations, including flaws and weaknesses, they become aware of business opportunities. This
is the reason why many fresh college graduates seek employment first in established companies before
starting their own businesses. Once they discover business opportunities, they convert their business ideas
into business ventures. In addition, experience in business is important to the success of mega
entrepreneurs, who are also exposed to various management practices.
 On the other hand, microentrepreneurs are usually drawn from the pool of the unemployed or
underemployed. They see their small business ventures as an option for making a living, In fact, many
microentrepreneurs in developing countries are involved in several activities at the same time. For
example, someone who is manning the store is also doing carpentry or doing repair's of consumer
durables. These entrepreneurs have to do this because the value. added created in these micro and small
enterprises are very limited. Thus, to augment their income, they engage in other income-generating
enterprises.
Entrepreneur's wealth
The wealth of the entrepreneur is also an important factor. Usually mega entrepreneurs source their
funds from their own wealth and from their families. Some generate capital for their business from the
wealth they have accumulated from their past employment. They can also borrow money from their
wealthy parents. Since they have existing wealth at their disposal, they can use some of these assets as
collaterals in securing credit from banks. This is not the case for microentrepreneurs, who have very
limited funds. Many of them are too poor to have substantial savings to finance a big business venture. In
addition, because of their limited human and nonhuman resources they cannot avail of credit from
financial institutions.
Risk appetite
Risk is also an important factor in undertaking any business venture. Risks are associated with
uncertainties in business operation. These uncertainties can threaten the survival and stability of a
business enterprise. Usually, entrepreneurs are risk-takers. Otherwise they will not engage in business and
will just be comfortable with the certainties of being formally employed.
Conceivably, mega entrepreneurs are more willing to take risks compared to microentrepreneurs.
Their educational qualifications, as well as their work experience, give them an edge in preparing for, and
managing these risks. In addition, their wealth can provide some security to absorb losses in case the
business does not do too well. Because of these insurances that serve s potential shields for risks, mega
entrepreneurs can pursue business ventures that are riskier but that can generate higher returns.
On the other hand, microentrepreneurs take risks by default if they want to survive and escape the
consequences of unemployment. But their appetite for risk is not as much. Since microentrepreneurs have
limited wealth and have difficulties in getting credit, they have weak defenses against the impact of
uncertainties. As a result, they engage in ventures that are relatively safe but with limited returns.
Entrepreneurial Traits and Entrepreneurial Intentions
Every individual who sets up a business venture started out by intending to do so. Thus, we examine
entrepreneurial intentions, which are planned actions formulated in the mind of individuals which are
geared toward the objective of establishing a business venture from potential business opportunities.' The
question is “how are these intentions formulated?" Based on studies, there are two broad set of factors
that may influence the formation of entrepreneurial intentions: internal and external factors.
Internal factors include mainly the qualities of individuals such as demographics, personal traits,
psychological characteristics, individual skills, prior knowledge, and social ties.
Demographics refer to gender, marital status, age, and employment status of individuals who are
likely to form entrepreneurial intentions. For example, entrepreneurial activities generally increase with
age, but decrease beyond a certain age level. Also, married individuals are more likely to entertain
entrepreneurial intentions than single individuals.
For personal traits, there are theoretical bases for the contributions of self-confidence, determination,
and enthusiasm and other positive human qualities in influencing entrepreneurial intentions. However,
studies have shown that these personal traits are weak predictors of entrepreneurial intentions.
 Psychological traits include a host of qualities, including need for achievement, risk appetite,
acceptance for vagueness, self-efficacy, and goal setting. There are also theoretical bases for these
psychological traits in influencing entrepreneurial intentions, but only appetite for risk and self-efficacy or
belief in one's strength have been empirically verified.
As discussed earlier, knowledge and skills learned from prior employment are valuable in setting up a
business. Thus, vocational know-how,supervisory and managerial skills acquired from work experience
can also predict entrepreneurial intentions and behavior.
Since a business enterprise is a socioeconomic institution, its operation will require the entrepreneur
to deal with a lot of people. Thus,having social ties might be an important consideration for setting up a
business or not. These social connections are also important in building networks that can complement the
productivity of human and nonhuman resources of business. Aside from influencing entrepreneurial
intentions, these dimensions of social capital can also contribute to enhancing entrepreneurial
performance. 
 Besides the effects of the previously mentioned internal factors in the formation of intentions,
external factors are also significant determinants among the external factors are environmental support
and environmental influence.
For environmental support, many studies have at firmed the positive effects of government,
financial institutions and training institutions in setting up businesses. An individual will be in inclined to
pursue entrepreneurship if support from various government agencies are forthcoming
For example, the availability of credit provided by financial institutions can encourage individuals
to pursue business. Potential entrepreneurs might also be motivated to pursue their intent if technically
adept workers and other human resources produced by schools and other training institutions are readily
available.
Environmental influence, on the other hand, includes regulatory structure, patents, protection of
property rights, and competitive environment. Government regulations are important particularly in
promoting public interest like addressing information asymmetry (labelling and proper disclosure),
limiting negative externalities (taxing business enterprises polluting the environment), and others.
However, overregulation and heavy taxation from the government can discourage potential
entrepreneurs. In addition, protection of intellectual property rights, respect for contracts, promotion of
rule of law, and presence of an even playing field can create a positive competitive environment, which
can also influence entrepreneurial intentions.
CHARACTERISTICS DF FILIPINO ENTREPRENEURS
Following the discussion on entrepreneurial traits identified in many studies across the globe, this
section will enumerate the key characteristics of Filipino entrepreneurs. We will draw these features from
the 2014 Entrepreneurship Report of the Philippines.' The report is part of the Global Entrepreneurship
Monitor (GEM), which covers the intentions, perceptions. activities, and aspirations of entrepreneurs all
over the globe.
Like other entrepreneurs in developing countries, a number of Filipinos go into entrepreneurship
because they see it as an opportunity for income creation and employment. Likewise, they get into
business enterprises because of their apparent capabilities to undertake entrepreneurial activities, the
prestige associated with entrepreneurship, and the positive exposure given by various forms of media to
successful entrepreneurs. However, this attitude is tempered by a fear of business failure.
It is interesting to note that there are more females than males that are engaged in the early stage
entrepreneurial activities in the Philippines. However, in the more advanced stages of entrepreneurial
activity, the gender proportion of entrepreneurs and managers become more even. This implies that males
tend to be more resilient in staying in business, as females withdraw at the intermediate stage.
 In terms of age, entrepreneurship in the country attracts more young individuals. Given the extent of
youth unemployment in the country, entrepreneurship becomes a viable employment option for the
young. This result is consistent with the conclusion of entrepreneurship in other developing countries.
In terms of educational attainment, almost half of entrepreneurs in the early stage development have
finished secondary schools. However, entrepreneurs that own firms at the mature stage of
entrepreneurship have higher levels of education. This is aligned with empirical results in other countries
showing that mature firms and those that create higher 'value-added' have more educated managers and
entrepreneurs.
Majority of those engaged in early stage entrepreneurial activities in the Philippines are in consumer
services including retail, food, personal beauty care, appliance and electronic repair, cleaning services,
and laundry services. According to the report, many of these establishments are operated within the
households, implying a limited scale of operation. A number of Filipino entrepreneurs are also engaged in
manufacturing, extractive enterprises, and business services. Business services include advertising,
architecture, consultancy, microfinance, and others.
As mentioned earlier Filipino entrepreneurs are fearful of business failure. This is a legitimate
concern since a number of enterprises close down at various stages in the life of an enterprise. The report
has enumerated a number of reasons for business failure including unprofitable business, personal reasons
(e.g, illnesses, death in the family, maternal responsibilities), financing problems, and shift to formal
employment.
ENTREPRENEURAL DECISION-MAKING
In previous sections, we discussed how some individuals are more inclined to set up businesses. But
entrepreneurship is not only confirmed with the forming of intentions and the crafting of business plans.
The core entrepreneurship is aimed at the actualization of intentions and is directly toward the
implementation of business plans, As intentions are translated into actions and as plans are implemented,
the entrepreneur has to mate decisions. These decisions are influenced and produced by mental process
referred to as thinking.
In this section, we will discuss the various types of thinking that influence. entrepreneurial decision-
making The types of mental processes that we win cover include critical thinking, creative thinking, and
strategic thinking.
Critical thinking refers to the systematic and rational way of providing an answer to a question. It is
systematic since it follows steps in responding to an inquiry. Just like a scientific inquiry, an answer to a
question is preceded by an understanding of the problem, providing possible answers, and reflecting on the
validity of these tentative answers. It is rational because it adheres to the rules of logic in connecting the
relationships of variables and in making conclusions.
 Aside from providing an answer, critical thinking also explains what is going on. In businesses,
critical thinking is useful in explaining how a firm can survive and remain stable. Many tools in business
analysis make use of analytical thinking. For example, SWOT(strengths, weaknesses, opportunities,
threats) analysis may be used to show how businesses can use their strengths to take advantage of
opportunities, how they can improve on their weaknesses, and how they can guard themselves against
threats. Similarly, an analysis of Porter's competitive forces uses critical thinking in determining the
impacts of various forms of competition brought about by bargaining power of buyers, suppliers, existing
competitors, potential rivals, and new products. In the same light, environmental scanning is another
systematic analysis of effects of various environments on the viability of a firm.
Creative thinking, on the other hand, refers to thought processes that bring about discovery of new
ideas. Unlike critical thinking, it does not follow a systematic or analytical process since it looks at things
from different perspectives. Sometimes, creative ideas start from a dream, an insight, or from mere
observation. The intent of creative thinking is not to provide an answer but to ask questions that can lead
to discovery and change. Since creative thinking stresses growth, it encourages discontinuity rather than
stability Thus, it is useful in developing new products and new systems in business operations.
 The Blue Ocean Strategy by W. Chan Kim and Renee Maubourgne, for example, provides examples
of enterprises that use creative thinking. They cited companies that utilized creative mechanisms to
eliminate competition by differentiating their products and by substantially reducing costs. For example,
new products can arise from a creative complementation of products and services (e.g, Cirque du Soleil,
which combined circus and opera). Similarly new products and services can surface from differentiating a
buyer from a user or by looking for functional and emotional appeal among buyers.’
Strategic thinking involves thought processes that assess a current situation, which can be useful in
the formulation of plans for the future. It is similar to critical thinking since it uses an orderly and logical
system in its assessment. But it also resembles creative thinking in its growth and future orientation.
Porter's five forces of competition, trend analysis, and scenario building, for example, are utilized to
provide an intelligent forecast of future events that can assist the entrepreneur in formulating strategic
plans that can enhance the growth of an enterprise.
RISKS,COGNITIVE ADAPTABILITY,AND ENTREPRENEURIAL DECISIONS
In the process of implementing a business plan, an entrepreneur will be faced with numerous
situations, challenges, and opportunities that will require flexibility in decision-making. One of these
challenges is managing risks.
Risks can be described as uncertain situations and developments that can increase the probability of
loss or business failure. Since these hazards can originate from a variety of sources, business risks can be
generally categorized into those emanating from internal and external factors. Internal risks pertain to
dangers coming from the management of resources of a business enterprise that may imperil its
operations. For example, liquidity and financial risks (borrowing at high interest rate or excessive credit
exposure), failure to hire the best talents (compensation package is unattractive), damage to reputation
(roaches in coffee or worms in food served in restaurants), and failure to innovate (using the business
models of twentieth century vintage) can be considered as internal risks.
On the other hand external risks are threats coming from various environments outside the business
firm. These can endanger the operations and profitability of a firm. Some examples of external risks are a
lethargic economy(slowdown in economic growth), increased competition (introduction of better products
or substitute goods), commodity price risks (decline in the price of exportable goods), regulatory risks
(environmental requirements to address climate change),business interruptions (natural calamities, power
outages), and political risks (wars and civil disturbances).
 The process of identifying assessing, and responding to these risks is called risk management. For
internal risks, the company may adopt controls on the use of physical and financial resources to ensure
efficient resource utilization. It can also install mechanisms to maintain the quality of its products and
services. It can prepare a long-term plan on human resource development pertaining to recruitment and
retaining best talents. It can also devote resources for research and development that can support the
innovation projects of the company.
For external rishis the company can hold periodic reviews of their strategic plans in preparation for the
impacts of global and national socioeconomic and political developments on the company. It can also
prepare for contingency plans in case of emergencies, natural calamities, and other events that can
interrupt the business operations.
Entrepreneurs must respond to these various risks. In this light, they need to develop what we call
cognitive adaptability. Cognitive adaptability refers to the ability of individuals to be involved in the
process of producing several ways of decision-making based on the identification and management of
changes in their environment. It requires qualities of flexibility, dynamism, and self-control on the part of
the entrepreneur.
 Although we discuss cognitive adaptability in the context of managing risks, it should not only be
confined to risk management. It can be applied by an entrepreneur to various decision-making processes in
all aspects of business operations. Cognitive adaptability demands that an entrepreneur be flexible and
open to various decision processes. With this flexibility, the entrepreneur can shift from using critical
thinking to creative thinking (or from strategic thinking to short-term thinking) in making decisions,
depending on the objective being pursued. In solving problems, critical thinking may be helpful. If the
concern is the development of a new product or service to respond to potential rivals, creative thinking
may be effective. If the entrepreneur is mapping the future of the company, strategic thinking will be
needed.
Besides flexibility in shifting to various processes of thinking, cognitive adaptability requires an
entrepreneur to be dynamic. The dynamism of an entrepreneur is needed in the light of the variety of
changes, situations, problems, and issues that he has to confront. This implies that there is no uniform
response to these developments. A dynamic entrepreneur should be aware of what is going on outside his
company and should be receptive in providing appropriate responses to the changes in the environment.
Dynamism may require him to combine various processes of thinking for the needed decision-making.
 Cognitive adaptability also expects that an entrepreneur should have self-control in making
decisions. Although decisions should be made to respond to the changes in the environment, these
should not be made in undue haste. The decision of an entrepreneur should be formulated after careful
analysis, deep reflection, or even intuitive thought.