Introduction to Business Management

11th edition

Ancillary material
ISBN 978 019 07 4576 9
P O Box 12119, N1 City, 7463, Cape Town, Republic of South Africa
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, without the prior permission in writing of Oxford
University Press Southern Africa (Pty) Ltd, or as expressly permitted by law, or under terms agreed
with the appropriate designated reprographics rights organization. Enquiries concerning reproduction
outside the scope of the above should be sent to the Rights Department, Oxford University Press
Southern Africa (Pty) Ltd, at the address above.
Chapter 2
Entrepreneurship
Learning Outcomes
• Define the term entrepreneur
• Discuss the concept of entrepreneurship and the entrepreneurial process
• Describe the roles of entrepreneurs and small businesses in the economy
• Explain how to become an entrepreneur
• Comment on the skills and resources required to become an entrepreneur
• Identify and describe the different ways of entering the business world
• Present recommendations regarding the choice of a business opportunity
• Elaborate on what a feasibility study is and its value to the entrepreneur.
Chapter Outline

• Introduction
• Different concepts of what an entrepreneur is
• The renaissance of entrepreneurship
• Entrepreneurship in South Africa
• The role of entrepreneurs and small business owners in society
• Why do entrepreneurs do what they do?
• The entrepreneurial process
• Entrepreneurship and the Fourth Industrial Revolution
• The small business
• Summary
Introduction

• Entrepreneurship is the process of creating and building something

that is of value to consumers.
• An entrepreneur is someone who decides what, how, by whom and
for whom products and services should be produced.
• Someone who starts a business with intention of making profit and
assumes the risk of losing resources if the business fails
• Mobilises land, labour and capital.
Different concepts of what an entrepreneur is

• Entrepreneurs have been described as people who:

• Are creative
• Have innovative ideas
• Identify opportunities
• Find resources to pursue opportunities for financial gain
• Take financial risks
• Bring about change, growth and wealth in the economy
• Re-energise economies and create jobs
• Start and manage small businesses
Entrepreneurship in South Africa

• Growth in SA economy has declined over past few decades

• GDP growth rate of 6% needed to improve economic growth
• Contribution of entrepreneurs is relied on for a large part of the
growth of the GDP
• Entrepreneurship is considered a scarce resource in South Africa
• SA’s rate of entrepreneurial activity is lower than would be
expected
The role of entrepreneurs and small business owners in
society
Entrepreneurs Small Business Owners

Entrepreneurs satisfy needs and wants by mobilising Small business owners satisfy needs as a way of earning
natural, human and financial resources. a personal income.

Responsible for the growth and survival of the business. Responsible for the survival and profitability of the
business.

Likely to take risks in order to grow their business. No intention of taking a risk to grow or develop their
business.
Why do entrepreneurs do what they do?

• Entrepreneurial traits and characteristics:

• Achievement motivation
• Internal locus of control
• Innovation and creativity
• Risk-taking
• Other traits (including high levels of energy, confidence and optimism,
desire for feedback, high tolerance for ambiguity, flexibility/adaptability,
passion, commitment and determination, opportunity orientation and
motivation to excel)
Why do entrepreneurs do what they do? (continued)

• Entrepreneurs’ skills and industry experience

• Most significant reasons to become an entrepreneur:
• Skills and knowledge
• Identified opportunities
• Quest for independence
• Two types of entrepreneurs
• Necessity entrepreneur – an individual who was retrenched from his job and starts a business to
support his family.
• Opportunity entrepreneurs – someone who identifies an opportunity in the market
Why do entrepreneurs do what they do? (continued)

• Opportunities arising owing to outsourcing

• Outsourcing occurs when work is done for a company by people outside of
the company’s full time employees who have the necessary skills to
complete specific tasks.
• Outsourcing forms part of a business’s strategic plan.
• For example many South African companies make use of professional
service institutions, such as Deloitte or KPMG, to handle their auditing, tax
and advisory requirements.
The entrepreneurial process
The dynamics of the entrepreneurial process
The entrepreneurial process (continued)

• Skills required for entrepreneurship

• Strategy skills
• Planning skills
• Marketing skills
• Financial skills
• Project management skills
• Human relations skills
The entrepreneurial process (continued)

• Resources needed to start a business

• Financial resources
• Human resources
• Operating resources or physical resources
Business opportunities

• New venture ideas

• Take into consideration:
• Trends
• Life cycle of the industry
• Growth industries
• New venture opportunities
• The fundamental requirements for a good investment opportunity:
• A clearly defined market need for the product
• A sustainable competitive advantage must be attainable
• Growth potential
• Should be rewarding to the investor and/or entrepreneur
• The timing of the opportunity must be right.
Business opportunities (continued)

• Buying an existing business

Business opportunities (continued)

• Franchising
• Acquisition of franchise
• Opportunity to start business that has been proven in market
• Entrepreneur becomes franchisee
• Franchisor gives franchisee the right to operate a business, using the
franchise name, products and systems
• Franchisor as entrepreneur
• View franchisee as intrapreneur who initiates ideas in the franchise system
• For example: Cash Crusaders, King Pie, Mica hardware, Mugg & Bean and
Maxi’s
Business opportunities (continued)

• Corporate entrepreneurship
• Entrepreneurship in existing business
• Person develops a new corporate business within a business though
identifying a new opportunity
• Method by which a corporation introduces new and diversified products or
services
• Done through internal processes and corporation’s resources
• Enables investment and profits through establishment of business within
business
Business opportunities (continued)

• The feasibility of the idea or opportunity

• Not all ideas can be converted into successful ventures
• Entrepreneurs should conduct a feasibility study to determine if a
venture/opportunity will survive
• After feasibility has been established, a business plan can be created
Entrepreneurship and the Fourth Industrial Revolution

• The focus in today’s economy is technology and the automation of

processes. The Fourth Industrial Revolution, which includes
Artificial Intelligence (AI), plays a leading role in these processes.
• Artificial Intelligence (AI) is a field concerned with studying the
nature of intelligence by using computers as a new and
revolutionary tool to produce intelligent behaviour.
The small business

• Quantitative criteria in defining a small business:

• Number of employees
• Sales volume
• Value of assets
• Market share
• Characteristics of SMMEs in South Africa
• Fewer than 200 employees
• Annual turnover of less than R64 million
• Capital assets of less than R23 million
• Direct managerial involvement by owners
The role of small businesses in the economy

• Strategic role of small business:

• Production of products and services
• Innovation
• Aiding of big businesses
• Job creation
Summary

• Entrepreneurship as the driving force behind business organisation

• Role of the entrepreneur in the economy
• Assessment of the entrepreneur's unique abilities and skills, access
to resources, search for opportunities and feasibility study