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Introduction to Entrepreneurship & Small Business Management MNE2601 2015 NotesSTUDY UNIT 1: Entrepreneurship and entrepreneurs (pages 3-22) Nieman, G. & Nieuwenhuizen, C. 2014. Entrepreneurship: A South African Perspective. 3rd Edition. Pretoria: Van Schaik. The Nature and development of entrepreneurshipThe Economic Impetus of EntrepreneurshipThe state of economy is determined by the type of business (small, micro etc).GDP (Real gross domestic product) is the value of all production within a country’s geographical boundaries, it is used to measure the state of the economy (growing or declining)GDP determines the economic growth rate.Entrepreneurship has a higher stake in the employment industry than meets the eye. Best employment opportunity that exists in South Africa.No growth in the economy equals less job opportunities.The Development of Entrepreneurship Theory The authors define the economic and behaviourist perspectives of entrepreneurship as follows:Economic perspective:Detectors of opportunitiesVenture creationRisk takingProfitInnovationTolerance for ambiguityBehaviourist perspective:WeberMcClellandPeriodTopicsAuthors and researchers1.What entrepreneurs do 1700 – (1950)From an economic perspectiveCantillon, Say, Schumpeter.2.Who entrepreneurs are 1960 – (1980)From an behaviourist perspectiveWeber, McClelland, Rotter. De Vries.3. What entrepreneurs do 1980-From a mgmt. science perspectiveDrucker, Mintzberg.4. What support is needed by entrepreneurs 1985-From a social perspective, including economistsGartner, Welsh, Bygrave, Reynold.5.What entrepreneurial activities are, and what competencies are requires to perform them 1990-From an entrepreneurship perspectiveTimmons, Vesper, Brockhaus. Defining the Concepts of Entrepreneurship, the Entrepreneur, Small Businesses and Entrepreneurial VenturesEntrepreneurship is the emergence and growth of new businesses.Cause changes in the economic system through innovations of individuals who respond to opportunities in the market. Create value for themselves and the society.Rewarded with profit if it succeeds. Entrepreneur is an individual who establishes and manages a business for the main purpose of profit and growth. IS A PERSON WHO SEES AN OPPURTUNITY IN THE MARKER, GATHERS RESOURCES, AND CREATES AND GROWS A BUSINESS VENTURE TO MEET THESE NEEDS. HE OR SHE BEARS THE RISK OF VENTURE AND IS REWARDED WITH PROFIT IF IT SUCCEEDS. Innovative behavior and employs strategic management practices in the business.Characteristics: Innovation, opportunity recognition and growth in a business.Important aspects of entrepreneurship and the entrepreneur:Step 1: Identifying an opportunity. Step 2: Innovation and creativity.Step 3: Getting resources.Step 4: Creating and growing a venture.Step 5: Taking risk. Step 6: Being rewarded.Step 7: Managing the business.Small business is any business that is independently owned and operated, but is not dominant in its field and does not engage in any new marketing or innovative practices.A small business is defined in qualitative and quantitative terms.In terms of the qualitative criteria, which relate to the ownership structure of the business, it must: be a separate and distinct business entitynot be part of a group of companiesinclude any subsidiaries and branches when measuring the sizebe managed by its ownersBe a natural person, sole proprietorship, partnership or a legal person, such as a close corporation or company. The quantitative criteria classify businesses into micro, very small and medium, using the following guidelines in respect of different sectors of the economy:Total full-time paid employeesTotal annual turnoverTotal gross asset values (excluding fixed property)Entrepreneurial Ventures are businesses in which the principal objectives are profitability and growth.Three characteristics distinguish the entrepreneurial venture from the small business:Innovation. Entrepreneurial ventures thrive on innovation, be it technological innovation, a new product, or organizational structures.Small business is usually involved in delivering an established product or service.Potential for Growth.Entrepreneurial venture is in a position to create its own market.The small business operates in an established industry , is unique only in terms of locality, and operates within a given market.Strategic objectivesEntrepreneurial ventures set objectives in relation to:-market targets -market development-market share -market positionSmall business objectives seldom go beyond survival, sales and profit. A Model for Entrepreneurial development This model demonstrates how variables affect entrepreneurship. Entrepreneurial Orientation:It is critical to the survival and growth of firms, as well as the economic prosperity of nations. Factors influencing entrepreneurial orientation:Family and role modelsEducationCultureWork experiencePersonal orientation based on creativity and innovation, autonomy, risk taking, pro-activeness and competitive aggressiveness.Supportive environment:The external environment should create a climate favorable to the entry of entrepreneurs. The infrastructure such as roads, electricity and water is an external environment. Factors influencing the supportive environment:FinancingTraining and developmentCooperative environment:Factors influencing the cooperative environment:InfrastructureSuccess Factors of Entrepreneurs Entrepreneurial FactorsManagerial FactorsCreativity and InnovationPlanning – systematic approachRisk orientationKnowledge of competitionLeadershipMainly market orientatedGood human relations Client servicePositive attitudeHigh-quality work PerseveranceFinancial insight and managementCommitmentBusiness knowledge and skillsUse of experts The Entrepreneurial ProcessStep 1: Identifying and evaluating the opportunityAn opportunity is a gap left in the market by those who currently serve it. Good ideas are not necessarily good opportunities.A good opportunity is attractive, durable and timely, and is anchored in a product or service that creates or adds value for its buyer or end user. Identifying an opportunity is difficult Entrepreneur must deliberately use creative ideas that can be converted into a business opportunity.A number of ideas can be used to generate ideas from: The entrepreneur’s skills, expertise or aptitudeCommon needsExisting unsolved problemsEveryday activitiesOther reference sourcesConverting ideas into opportunities requires one to evaluate each idea thoroughly. Feasibility study (general examination of potential idea)Viability study (in-depth investigation into the potential of the idea to be converted into a new business venture)Step 2: Developing the business planA good business plan must be developed to exploit the opportunity identified. It is not only important in developing the opportunity, but also in determining the resources required, obtaining those resources successfully and managing the resulting venture. A business plan is essential if one needs funding from any financial institution or venture capitalist. Business plan reduces the risk of the venture.Step 3: Determining the resources requiredResources comprise the capital available for investment in the venture, people who need to be employed, and physical assets such as equipment, machinery, buildings and vehicles. Intangible assets such as trademarks and patents will also require an outlay of capital.This process starts with determining one’s own resources and how much investment or loans one will need to attract or obtain to start operating. Resources need a cash flow projection. Step 4: Starting and managing the enterpriseAfter the minimum capital for start-up has been acquired, the entrepreneur must use it by implementing the business plan. Initially, the business might be small with only one or two employees besides the entrepreneur. Once the business starts to grow, the management style and key variable for success will need to be determined. ................
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