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Entrepreneurship Introduction to Entrepreneurship and Small firms

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1 Entrepreneurship Introduction to Entrepreneurship and Small firms

2 Topics Introduction of Entrepreneurship
Definitions of Entrepreneurship History of Entrepreneurship Importance of Entrepreneurship Characteristics of Entrepreneurship Defining small firms why these firms are different?

3 Learning objectives To give the introduction of Entrepreneurship.
To understand the term Entrepreneurship through definitions. To understand the difference between an entrepreneur and traditional businessman To give an overview on entrepreneurial process To explain the history of Entrepreneurship. To give brief importance of Entrepreneurship. To explain the different characteristics of successful Entrepreneurs. To give overview of small firms and why small firms Fails.

4 Your Thoughts Who are they? Are they born or made?
What is their link to the process of innovation? Can entrepreneurs manage large firms or do they have to change as business grows Are entrepreneurs any different than managers? Are they any different from owner manager? Can entrepreneurship be engendered in large companies or other sorts of organizations

5 Definitions of Entrepreneurship
Entrepreneurship is a process in which an individual organize, operates and takes on the risks of business. OR Process of creating something new value by devoting the necessary time assuming the accompanying financial psychic and social risks and receiving the resulting rewards of monetary and personal satisfaction and independence. (Hisrich et al., 2009)

6 Definitions of Entrepreneurship
Entrepreneurship as a type of behaviour that concentrates on opportunities rather than resources and essentially a behavioural characteristic of persons, although taking place in a organisational context (Wennekers and Thurik, 1999) Entrepreneurship as defined, essentially consists in doing things that are not generally done in the ordinary course of business routine. (Holt, 1991)

7 Entrepreneurs The Entrepreneur is one who is willing to bear the risk of a new venture if there is a significant chance for profit. An Entrepreneur is being called so when he initiates, conceptualize and materialize a business process which is entirely unique. An Entrepreneur is someone who starts a business from a fresh idea and makes it work. Entrepreneurs use innovation to exploit or create change and opportunity for the purpose of making profit. They do this by shifting economic resources from an area of lower productivity into an area of higher productivity and greater yield, accepting a high degree of risk and uncertainty in doing so. The individual entrepreneur is a person who perceives opportunity, finds the pursuit of opportunity desirable in the context of his or her life situation, and believes that success is possible, and these three elements distinguish the individual entrepreneur from the vast majority of the population.” (Stevenson, 2000)

8 Difference between Entrepreneurs and Traditional Businessmen
Entrepreneurs Bring uniqueness in their product/services and/or activities of business Businessmen operates without bringing uniqueness in their product/service and/or processes. The growth rate of entrepreneurs success is high/exponential/fast The growth rate of businessmen’s success is low/steady/slow Entrepreneurs take moderate/calculated risk and accommodate 3 types of risk; Financial, physical and social Businessmen take low risk and accommodate only one risk i-e financial risk Entrepreneurs identify and explore an opportunity before taking a decision of business start up Businessmen are generally not concerned with identifying opportunities. Uniqueness Growth Risk Opportunity

9 History of Entrepreneurship
The word Entrepreneurship is derived from the French verb “ENTERPRENDRE”- to undertake . The French men who organized and led military expeditions in the early 16th Century were referred to as Entrepreneurs. 17th Century Developed in 17th century Being a person who entered into contractual arrangement with the Government to perform a service or to supply stipulated products Contract prices was fixed, any resulting profits or losses were entrepreneur’s 18th Century Person with capital was differentiated from who needed capital Industrialization occurring throughout the world Eg. Thomas Edison (Electronics) Whitney (Ginning) (http://goarticles.com/article/History-of-entrepreneurship/ /)

10 Entrepreneur organizes and operates an enterprise for personal gain
19th and 20th Century In late 19th & early 20th centuries entrepreneurs were frequently not distinguished from managers and were reviewed mostly from an economic perspective Entrepreneur organizes and operates an enterprise for personal gain He pays current price for the material consumed in the business He contributes his own initiative, skills and ingenuity in planning, organizing and administering the enterprise He also assumes the chances of loss and gain consequent to unforeseen and uncontrollable circumstances (http://goarticles.com/article/History-of-entrepreneurship/ /)

11 Importance of Entrepreneurship
Economic Importance Economic growth of a country is guaged by the number of entities in a country. Entrepreneurial ventures create employment, reduce the imports and reduce trade deficit, contribute in GDP etc.) Social Importance Businesses generate employment which enable the society towards betterment in terms of literacy rate and population, Poverty reduction etc.

12 Importance of Entrepreneurship cont..
Community based importance Entrepreneurial ventures are created to serve the society which builds the capacity of people through trainings, community based services, disaster management etc. (NGO’s) Individual Level importance Entrepreneurial ventures provide independence to entrepreneurs, self respect, recognition, monetary rewards, and most importantly the freedom of decisions.

13 Entrepreneurship Theories
Economic Entrepreneurship Theories Psychological Entrepreneurship Theories Sociological Entrepreneurship Theory Anthropological Entrepreneurship Theory Opportunity–Based Entrepreneurship Theory Resource- Based Entrepreneurship Theories

14 Entrepreneurship Theories Cont..
Economic Entrepreneurship Theories These theories explore the economic factors that enhance the entrepreneurial behaviour. These theories include; Classical Theory: This theory described the directing role of the entrepreneur in context of production and distribution of goods in competitive market place (Say, 1803). Neo Classical Theory: This theory indicated that economic phenomena could be referred to instances of pure exchange, reflect an optimal ratio and transpire in an economic system that was basically closed (Murphy, Liao and Welsch, 2006).

15 Entrepreneurship Theories Cont..
Australian Market Process: Australian market process model concentrated on human actions in the context of an economy of knowledge. Schumpeter (1934) described entrepreneurship as a driver of market based systems. This model conceptualized the concept on three bases. Arbitraging market in which opportunities emerge for given market actors as others overlook certain opportunities or undertake sub-optimal activity. Alertness of profit making opportunities Ownership is distinct from entrepreneurship.

16 Entrepreneurship Theories Cont..
Psychological entrepreneurship theories: The level of analysis in psychological theories is the individual (Landstrom, 1998). These theories emphasize on personal attributes which defines entrepreneurship and includes; Personality traits theory: Coon (2004) defines personality traits as stable qualities that a person shows in most situations. Some of the characteristics associated with entrepreneurs are; opportunity driven, high level of creativity and innovation, high level of management skills, optimism, emotional resilience, mental energy, hard working, intense commitment, competitive desire to excel, dissatisfaction with status quo, transformational in nature, lifelong learner, can make a difference, take failure as tool of success, individual of integrity and above all visionary.

17 Entrepreneurship Theories Cont..
Locus of control: It can be internal locus of control or external locus of control. In internal locus of control entrepreneur’s success comes from his/her own abilities while in external locus of control emphasize on the factors from external environment. Internal locus of control is found to be positively associated with the desire to become an entrepreneur (Bonnett and Furnham, 1991). Need for Achievement theory: McClelland (1961) explained that human beings have a need to succeed, accomplish, excel or achieve. Entrepreneurs are driven by this need to achieve and excel.

18 Entrepreneurship Theories Cont..
Sociological Entrepreneurship theory: In sociological theories the level of analysis is traditionally the society (Landstrom, 1998). Social networks, life course stage, ethnic identification and population ecology are the social contexts that relates to entrepreneurial opportunity (Reynolds, 1991). Anthropological Entrepreneurship Theory: It is the study of origin, development, customs and beliefs of the community. This theory says that new venture is created by the influence of one’s culture. Opportunity based entrepreneurship theory: Entrepreneurs do not cause change but exploit the opportunities that create change (Drucker, 1985). He further described that entrepreneurs always search for change, respond to it and exploit it as an opportunity.

19 Entrepreneurship Theories Cont..
Resource based entrepreneurship theories: These theories stress the importance of financial, social and human resources (Aldrich, 1999). Thus access to resources enhances the individual’s ability to detect and act upon discovered opportunities and includes; Financial Capital/Liquidity Theory: People with financial capital are more able to acquire resources to effectively exploit entrepreneurial opportunities and set up a firm to do so (Clausen, 2006).

20 Entrepreneurship Theories Cont..
Social capital/network theory: Stronger social ties to resource providers facilitate the acquisition of resources and enhance the probability of opportunity exploitation (Aldrich and Zimmers, 1986). Human capital entrepreneurship theory: Human capital factors are positively related to becoming an entrepreneur, increase opportunity recognition and even entrepreneurial success (Anderson and Miller, 2003; Davidson and honing, 2003)

21 The Entrepreneurial Process
Identify and evaluate the opportunities Develop business plan Resources required Manage the venture (Hisrich et al., 2009)

22 Types of Entrepreneurs
Serial Entrepreneurs The person who is engaged in multiple businesses is called serial entrepreneur. Like Mian Amir (Punjab group, duniya TV), Mian Mansha (nishat textile, MCB, Adamjee insurance), Zoraiz Lashari (sozo water park, solo evento, solo world) etc. (www.businessdictionary.com) Opportunity Entrepreneurs A person who after identifying a particular opportunity and availing it becomes a successful entrepreneur is called opportunity entrepreneur. Like Steve jobs (DNA testing device) (Block and Wagner, 2007) Necessity Entrepreneurs A person who has no other option except to start his/her own venture because there is no job. These types of entrepreneurs are where there is a natural disaster; like flood, earth quack etc.

23 Types of Entrepreneurs Cont..
Social Entrepreneurs A person who is engaged in business but with the primary objective of serving the society is called the social entrepreneur. They earn revenues to meet the expenses. Like Imran Khan(Shokat Khanam), Abdul sattar Edhi (Edhi foundation) (www.investopedia.com) Intrapreneur A person within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through assertive risk taking and innovation. Intrepreneur One who sets up, maintains and assumes the financial risks of an Internet business venture not to be confused with intrapreneur or the more traditional entrepreneur. (Burns, 2007) (Burns, 2007)

24 Entrepreneur ,owner manager and manager
Entrepreneur who starts the business from scratch. for example, initiating the plan , materializing and implementing and also creating brand for his products and services. in simple words entrepreneur who run the business in a unique form Owner-manager who follow up the market trying to capture the existing customers by doing some additional or value added services in the existing products and services category. Managers of firms do not own or control the firm they are employed by. The firm is controlled by its larger, parent company. (Burns, 2007)

25 Entrepreneur ,owner manager and manager Cont…
Managers are different people from owner-managers, but both can be entrepreneurs. Figure below shows these relationships. Managers are different people from owner-managers, but both can be entrepreneurs Owner-managers Managers Entrepreneurs (Burns, 2007)

26 Characteristics of successful Entrepreneurs
Mental Ability – Entrepreneur must have creative thinking and must be able to analyze problems and situations. He should be able to anticipate changes. Business Secrecy – He should guard his business secrets from his competitors. Clear Objectives – He must have clear objectives as to the exact nature of business or the nature of goods to be produced. Human Relations – He must maintain good relation with his customers, employees, etc. To maintain good relationship he should have emotional stability, personal relations, tactfulness and consideration. Communication Ability – He should have good communication skills means both the sender and the receiver should understand each others message. Technical Knowledge – He should have sufficient technical knowledge. (Hisrich et al., 2009) (Burns, 2007)

27 Characteristics of successful Entrepreneurs Cont….
Long term involvement – An entrepreneur must be committed to the project. Motivator Moderate risk taker Initiative High energy level – He should be able to work for long hours, for which his energy level should be high. Goal setter Self confidence (Hisrich et al., 2009) (Burns, 2007)

28 How to become a Successful Entrepreneur?
Find a simple solution to a big problem Take your hobby as a business Always find a cheaper way to do something Have a personal blog to bran yourself and your business. (Burns, 2007)

29 Motivation Factors for Business Startups
Push factors Unemployment Disagreement with management Does not ‘fit in’ to company No other alternative Pull factors Independence Achievement/recognition Personal development Personal wealth (Burns, 2007)

30 Barriers in Business Startups
Funding Manpower Strong backing Branding/Marketing Fear (Hisrich et al., 2009) (Burns, 2007)

31 SMALL FIRMS

32 Defining small firms in Pakistan
Firm Type/Condition Manufacturing Trading/ Retailing/ Services No of Employees Upto 250 Upto 50 Assets excluding land and building Upto Rs. 100 Million Upto Rs. 50 Million Annual Turnover/Sales Upto Rs. 300 Million Source: SME Bank

33 Soft Definitions A small firms is not just about size, its in simple statistical terms. These firms have some important characteristics: Market influence Limited because of small market share Independence Sense of being on their own Personal influence Depends on size and nature of business but this is still the predominant feature (Burns, 2007)

34 Important Statistics In Italy 79% of employment in generated by small firms (ec.europa.eu/enterprise/policies/sme/facts-figures.../italy_en.pdf) In France 63% (ec.europa.eu/enterprise/policies/sme/facts-figures.../france_en.pdf) In USA 80% (http://www.smeadvisor.com/2010/12/helping-hand/) In UK 62% (ec.europa.eu/enterprise/policies/sme/facts-figures.../uk_en.pdf) In Germany 60% (ec.europa.eu/enterprise/policies/sme/facts-figures.../germany_en.pdf) SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%, approximately. (www.smeda.org.pk)

35 Potential Contributions of Small Business to Economic Development
Employment Providers Vehicles for individual independence Originators of innovation Niche market providers Support infrastructure for large companies Social fabric of local communities Source of new industry Source of “Entrepreneurship”

36 Types of Small Firms The small firms are distinguish between two categories: Life style firms These are not set up to grow and therefore once a level of activity that provides the adequate income is reached, management becomes routine and tactical. Growth firms These businesses are established with the intension to growth. (Burns, 2007)

37 Eight reasons why many small businesses fail
(Burns, 2007)

38 Thank You


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