Entrepreneurship

Chapter 2
Learning outcomes
On completion of this chapter, you should be able to:
• 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.
 An individual with a unique personality

Introduction and the ability to create new

businesses and enjoy the rewards

Someone who sets up a business, takes

Entrepreneur
on financial risks and hopes for profits

Entrepreneurship is identifying what

the consumer wants and delivering it
to the consumer with the best
possible value

The entrepreneur is seen as the individual who becomes aware of a need and then decides what, how, by
whom and for whom products and services should be produced.
 Entrepreneurship is a continuous
process in dynamic environments
and entails creating and building
something of value from resources
amidst risks and uncertainty, with
a sustained effort to succeed.
Different concepts of entrepreneurship
Common denominators when considering the scope of
entrepreneurial activities:
• Job creation
• Stimulating economic development
• Generating income
• Making a positive contribution to national economies and local
communities
• Evident in the formal and informal sectors.
• While there are many views, we choose to define entrepreneurs and
entrepreneurial activity in accordance with general business
management terms.
• Some of the common associations with entrepreneurs are:

Opportunity-
Creative Innovative
seeking

Open to
Risk-tolerant
change
The contributions of entrepreneurship
Entrepreneurs establish new businesses and create employment, but they also
strengthen market competition and increase productivity.
Entrepreneurs create businesses that create jobs and grow into larger businesses that
create even more jobs.
Through stimulating and supporting entrepreneurial activity, the small business sector
has become a valuable source of opportunity.
Entrepreneurship also contributes to increases in productivity and strengthening
market competition.
Entrepreneurs create new businesses, new investments and potentially improve
existing businesses.
Entrepreneurship in South Africa
• The contributions of entrepreneurship, entrepreneurial activity and small businesses
towards the growth and development of South Africa should not be
underestimated.
• According to the GEM report 2021/2022:
➢There is a significant increase in the total early-stage entrepreneurial activity
amongst South Africans.
➢There are a number of factors that shape entrepreneurship in South Africa:
▪ Societal attitude towards entrepreneurship
▪ The Established Business Ownership (EBO)
▪ The Entrepreneurial Employee Activity (EEA
▪ The Business Exit rate.
The role of entrepreneurs and small business
owners in society
• People with entrepreneurial talents and skills and an entrepreneurial
orientation are able to achieve more than others in mobilising
productive resources by starting enterprises that will grow.
• Entrepreneurs constitute a resource that greatly contributes to, if not
causes, the production of products and services.
• Entrepreneurs set in motion the creation of employment opportunities.
Why do entrepreneurs do what they do?
Entrepreneurs’
traits and
Achievement motivation
characteristics
An internal locus of control
Innovation and creativity
Risk tolerance
Propensity to pay-it-forward
Entrepreneurs’ skills and industry experience
Necessity-based early-stage entrepreneurial activity:
• This is defined as the percentage of those involved in early-stage
entrepreneurial activity who claim to be driven by necessity as opposed
to opportunity. This is also described as survivalist-driven motivation.
Opportunity-based early-stage entrepreneurial activity:
• This is the percentage of those involved in early-stage entrepreneurial
activity driven purely or partly by opportunity, as opposed to finding no
other option for work. This includes taking advantage of a business
opportunity or having a job, but seeking a better opportunity.
Opportunities arising from outsourcing

Outsourcing is seen as part of a

Outsourcing occurs when work is company’s strategic plan. The
done for a company by people reason for outsourcing services is
other than the company’s full- to acquire specialty skills that are
time employees. unavailable in-house or are not
cost-efficient to handle in-house.
The
entrepreneurial
process

Figure 2.1 The entrepreneurial

process: A framework for
decision-making about new
ventures
Skills required for entrepreneurship

Communication
Strategy skills Planning skills Marketing skills
skills

Project
Human
Financial skills management
relations skills
skills
Resources needed to start a business

Financial resources
Human resources
Operating resources
Educational resources
Business opportunities
• Finding a good idea is therefore the first step in converting an
entrepreneur’s creativity into a business opportunity.
• With the move towards more use of online platforms, there is the
opportunity to grow, enhance and promote the application in wider
contexts.
• The scientific way to search for ideas involves a thorough search of the
business environment for ideas and patterns that emerge from various
environmental trends.
Figure 2.2 The industry lifecycle
New venture ideas – growth industries

Education Healthcare Tourism

Privatisation of
government and
semi-government
services
New venture opportunities
The following are some of the fundamental requirements for a good investment
opportunity:
• There must be a clearly defined market need for the product or service.
• The opportunity must be scalable – this means that there is sufficient opportunity to
present the product or service to exponentially more people without incurring high
operating costs.
• The opportunity must solve a problem – and preferably in a better and more efficient
manner than other products or services.
• The opportunity must have the potential to grow.
• The opportunity must be rewarding to the investor and/or the entrepreneur.
• The timing of the opportunity must be right. There must be a window of opportunity.
 Buying
an
existing
business

Table 2.1 Advantages and

disadvantages of buying
an existing business
Franchising
The franchise concept gives an entrepreneur the opportunity of starting a
business that has been proven in the marketplace.

The entrepreneur then becomes a franchisee.

The franchisor gives the franchisee the right to operate a business, using the
franchise company’s name, products and systems.

The franchisee pays the franchise company for this right on an ongoing basis.
Corporate entrepreneurship
Corporate entrepreneurship is a method by which a corporation or large business
introduces new and diversified products or services to an existing business.

This is done through internal processes and by using the corporation’s resources.

It creates opportunities for a corporation to diversify, as well as for the creation of

new industries

It enables investment and profits through the establishment of new businesses

within a business.
The feasibility of the idea or opportunity

An idea must be subjected to a feasibility test to prove that it has value.

A feasibility study is the collection of data that helps forecast whether an idea,
opportunity or venture will survive and may result in a decision to move forward, or to
abandon the idea.

Once the feasibility of an idea has been assessed, the entrepreneur can commit to
implementing the idea or abandon the idea altogether, depending on the outcome.
Entrepreneurship and the 4IR

Industrial Revolution

Artificial intelligence

Machine learning
The small business
Key characteristics:
• Independently owned, financed
• Managed and operated with flat management structures
• Small market share
• Operates independently from a larger corporation.
SME and SMME
• 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
• The strategic role of small business in any economy revolves around the
production of products and services, innovation, the aiding of big
business and job creation
• The production of products and services
• Small businesses have been responsible for most of the innovation
worldwide
• The aiding of big business
• Job creation
Summary
• This chapter addressed the concept of entrepreneurship and that the
entrepreneur is the driving force behind the business organisation. The role of
entrepreneurs in the economy was examined, as were the reasons for people
becoming entrepreneurs.
• The chapter offered many examples of entrepreneurs and described some of
the stumbling blocks and enablers in the entrepreneurial efforts.
• Following this, the various aspects and phases of the entrepreneurial process
were explored, including an assessment of the entrepreneur’s unique abilities
and skills, access to resources, the search for opportunities and the feasibility
study.
• It also examined the role that rapidly-advancing technology can play in
entrepreneurship.