Entrepreneurship is the process of bringing together factors of production, and organizing profit oriented activities, or the process of distributing economic goods and services for profit.
Definition of an Entrepreneur
This is a risk taker who possesses skills, such as knowledge and self-confidence. This individual bears the risk of starting a business venture, in the face of uncertainty about future conditions. Most successful entrepreneurs are self-motivated. Entrepreneurs start their own businesses because they do not like to work for others, but prefer to be their own boss and be responsible for the decisions they make. Entrepreneurs have the ability to spot a business opportunity and utilize it, with the hope of succeeding, rather than failing.
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Entrepreneurship is a creative activity, as it tries new methods, rather than following routine methods. Entrepreneurship is closely related to innovation, as the success of entrepreneurship, largely, depends on the ability to respond to innovation. It has its objective of economic success, based on the utilization of new means of production. Entrepreneurship is a result-oriented activity, since it emphasizes high levels of achievement and performance. The qualities of an entrepreneur are acquired; thus, an entrepreneur need not be born as one, but can become one through progressive learning.
When selecting the type and size of a business venture, an entrepreneur should consider and conduct analyses on the factors below.
- Raising capital – most entrepreneurial activities, normally, depend on the availability of capital.
- Market research – it is the systematic collection of data regarding the consumer levels of demand for the product and cost.
- Determination of the objectives of the business – these should be spelt out, clearly, and should, also, be realistic.
- Recruitment and selection of competent and qualified employees – this is required of an entrepreneur. Making the plant operational is the specific act starting the business venture.
Micro2 Business Venture
This is the establishment of a business, or industrial unit, by an individual, who organizes and manages it for profit making. Micro2 venture has the following merits and demerits.
Merits of Micro2 business venture
- There is no sharing of profit. Micro2 business is a one-man venture, thus, an individual need not share his profits.
- The owner of the business is his own boss.
- It increases self-confidence.
- If the venture is successful, it gives the owner immense satisfaction.
Demerits of Micro2 business venture
- The owner has long working hours.
- Lack of success will affect self-esteem. If the business fails, the owner will develop low confidence levels and, thus, low self-esteem.
- Pressures of the business will affect one’s social and family life.
- In case of a loss, the owner will bear it alone.
- All decisions are in the hands of the owner.
In the social context, Micro2 business is a way of employment creation among citizens. This comes as a benefit, since it has reduced idleness among the jobless, which has, also, significantly reduced cases of drug abuse. The micro2 venture provides financial satisfaction, in terms of meeting basic needs, thereby, improving the living standards of individuals. Micro2 ventures have reduced crime rates, as people are able to fend for themselves.
Macro2 businesses should use modern computer technology, and view similar products to enhance quality by a comparison with international standards. It is important, also, to observe the operations of SMEs at the national and international levels.
A small banker plays a major role in the financial support of a micro2 business. The reason why small bankers are suitable for micro2 businesses is that their cost of capital is, slightly, lower compared to huge financial institutions. Their demands, in terms of collateral, are also lower. Small banking institutions provide free financial advice to customers on project viability and financial management strategies.
Community-based advisors play a major role in understanding the business environment. Business environments are external and internal, and can have a positive or a negative impact on the organization. They play a significant role in the establishment of commodity markets.
A venture capitalist is a financer of a business opportunity and will be of help to the micro2 business, if there is room for expansion, or a shortage of capital. A venture capitalist finances businesses found to have finance as their main growth constraint. For a business owner, it is necessary to partner with a venture capitalist, than to take debt financing, as debt exposes investments to risk.
Professional services are important to every business, as they are used in preparing reports on the performance of the firm. These reports are used, by financial institutions, to evaluate the credit worthiness of the business. Consultant services provide the firm with information, on various options it can undertake, to maximize profits.
Micro Business Venture
A micro business has less than five employees, including the owner, who is responsible for making every decision and financing the entire enterprise. The owner may use personal assets to raise finances to start the business; meaning, if the business fails, the owner is negatively impacted. If, however, the business is successful, the owner will reap all benefits.
Merits of a micro business venture
- It requires less capital – a micro business requires less capital, which may be easily obtained, through soft loans, or savings, reducing exposure to risks associated with borrowed capital.
- The owner enjoys profits alone – the owner of the micro business reaps all the benefits from the investment, if a profit is generated.
- The owner of the business is responsible for making all the decisions – decisions of the owner are, usually, sound and ensure growth of the enterprise.
- Creation of employment – the Micro venture has created employment for a majority of citizens in developing countries.
Demerits of the Micro Business Venture
- If a loss is incurred, the owner will bear the burden alone.
- Lack of capital – micro business ventures are challenged by lack of capital, or cash flow. This is because their financial statements cannot be relied on, by financial institutions, as the bases for providing finance; therefore, the owners have to use their personal assets.
- Unfavorable policies by the government – a major blow to the micro business venture are unfavorable government policies, which impose a lot of requirements for starting up a business.
In the social context, micro businesses have created employment for a large number of people, thereby, improving their living standards. Micro businesses engage community charities working within the location they operate. Social contributions may include cleanup activities, within their location.
Changes in technology should be incorporated into every business, to match international standards and modern business practices. The use of computers will reduce operational and communications costs to a significant degree.
In the corporate world context, micro business have brought healthy competition in the eyes of consumers, as the quality of goods and services has improved, significantly, with different investors trying to win more customers. Micro businesses have, also, seen the government impose unfriendly policies, in an effort to regulate their activities.
In the technological context, a micro business has to adapt to the fast evolution of technology, to remain relevant in the modern world. Modern technology has dealt a huge blow to micro businesses, as technology keeps on changing and within a short period a business may be outdated, requiring the adoption of new technology.
The primary role of a small banker, in a micro business venture, is the provision of capital. Small bankers are friendly to approach, as they do not have many requirements, and their cost of capital and payment terms are more affordable, than other sources. The limitation of small bankers is that they may not be able to provide all the capital required.
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Community based advisors play a major role in advising entrepreneurs of micro-based businesses, on tastes and preferences of different products, made by different producers. This will assist the entrepreneur, when producing his brand, to make it unique. Community based advisors will, also, assist the entrepreneur in the evaluation and understanding of the business environment. They, also, help the entrepreneurs in assessing demand.
A venture capitalist provides capital to a business, hopeful that the company will go public and sell its shares at a higher price, than the amount invested in the business. Venture capitalists, also, provide managerial skills to the firm. One of the reasons why most firms do not qualify for venture capital, is that they focus on low risk ventures, investing in low growth sectors, which do not attract venture capitalists. In addition, most micro businesses are family owned, thereby, excluding venture capitalists.
Professional services are a requirement in every business. They provide useful recommendations on how the firm should be run. Consultant service providers are, also, important to every firm, since they provide information on how to reduce expenditure, thereby, increasing profits. Professional services enable analysis by independent parties, such as financial institutions, on the determination of credit worthiness, or the Court of law in monitoring fraud complaints.
Small Business Venture
This business organization operates within a specific location, and does not, significantly, influence the business competition, within its area of operation.
Merits of Small Business Ventures
- Small business ventures are a source of jobs for many individuals.
- They improve living standards of people through employment creation.
- They are well distributed throughout the country; reason being they are easy to start and operate, since they do not require much capital.
- They discourage monopolistic market structure – a monopoly market does not adhere to the rule of demand and supply; therefore, the prices are controlled by the owner of the business, leading to the exploitation of customers.
Demerits of Small Business Ventures
- Lack of financial resources – a majority of small business persons lack access to financing, because they are unable to prove themselves credit worthy, to the satisfaction of the financial institutions.
- Inadequate entrepreneurship skills and knowledge – lack of entrepreneurship skills is a huge problem for small investors, as they are unable to prepare for the future, and to adjust to uncertainty.
- Unfavorable policies of the government – the government imposes unfavorable policies in terms of duties and licenses, which are unaffordable to small business operators.
- Health and safety at work place – a small business venture is unable to afford a safe and secure health facility for its workers.
- Lack of market and inadequate information on marketing.
In the social context, small businesses have improved the livelihood of individuals by employment creation. Employment creation creates self-reliance, increasing the self-esteem of individuals. Small businesses engage in charitable environmental programs, such as the planting of trees within their area of operation.
Small businesses should, progressively, train their employees to improve their technological skills. They should, also, redesign their existing products, once they are modified, to enable them to fit in the current technology. They should, additionally, use technology to venture into the international market via E-commerce.
Small banking institutions provide financing to small business ventures, at an affordable cost. They provide advice on the best venture for the investor, and the ideal timing and size of business expansion.
Community based advisors provide information on customer preferences, thus, helping the small businesses in the evaluation of costs. They play a major role in demand evaluation.
A professional consultant service plays a major role in small businesses. It ensures conformity with the legal requirements, such as the accounting act. It safeguards the interests of the shareholders, who are not part of the management. Professional services are used in the creation of reports showing the true and fair picture of the business.
Venture capitalists raise a pool of capital, which they use to invest in small businesses that have potential to become publicly traded. They do this in return for an ownership interest. In instances where finance is a constraint to development, venture capitalists are of great benefit to the small business venture.
Growth ventures are groups of investors, who provide working capital. Small businesses are required to establish business relationships with a pool of investors, to acquire capital to increase their growth rate. Growth ventures convert small businesses to big investments. Growth ventures lead to an increase in production and profits of the business. Growth ventures are done, mainly, through direct purchase of shares. They involve long periods to make huge profits. They may, also, provide managerial skills to the new firm.
Before adopting a growth venture, it is important to evaluate why the funding is required. Generally, it is preferable that the life of a project matches the period and the requirements of its investor. The firm should, also, consider the need for immediate growth. Other factors being constant, the firm should consider the worthiness of joining a growth venture, rather than obtaining financing on its own. Funds obtained from growth ventures affect, to a great degree, control of the firm, by increasing the stakeholders and the existing shareholders’ desire to retain control. Growth ventures, however, increase the profits, thus having a positive impact on the earnings per share. A growth venture, also, enables the firm to be well established, have access to the capital market and be able to raise capital or debentures.
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