Lesson: Twenty

Topic: The concept of entrepreneurship

What is entrepreneurship?

Entrepreneurship is the activity of setting up a business or businesses and taking on financial

risks in the hope of profit.

Who is an entrepreneur?

An entrepreneur is someone who sets up a business, or businesses, taking on financial risks in

the hope of profit.

Type of entrepreneur Example

Opportunity-based entrepreneurs: A farmer creates a new livestock feed for beef
• create a business from an idea fattening that reduces greenhouse gas
• find there is a gap in the marketplace for emissions.
their idea
• develop a solution to a problem and
generate profit from it.
Necessity-based entrepreneurs: A farm turns the bottom of one field into a
• need to find a solution to a problem, for campsite and advertises on the internet for
example, a lack of profit in the main farm overseas visitors.
business
• business is new to them, but they are not
necessarily innovative
• are able to make the new business
profitable.

Reasons to become an entrepreneur

There are a number of reasons why people would want to start their own businesses and become
entrepreneurs.

 Many people enjoy the freedom of managing their own time and setting their own
deadlines, as well as the flexibility to work the required hours when it suits them.
 There is a lot of satisfaction gained from creating something from nothing and making
your own dreams come true.

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  It is extremely self-fulfilling to be able to devote yourself to making money from your
own idea, which you have brought to market.
 Starting your own business is a good way to achieve financial independence. You are
paid for the work that you do and are able to set your own salary.
 While there are financial risks to setting up your own business, there can be large
financial benefits from your work, which, as the business owner, you will receive.
 Starting your own business can be self-actualizing. There will be opportunities to
become the expert in your own area and to explain concepts that you have created to
others, even solving global problems with your ideas.
 There may be opportunities to recruit and employ your own team to help grow your
business, as well as share your expertise by mentoring others.

Personality traits needed for entrepreneurship

 Entrepreneurs need to be innovative, and must be able to present a clear vision that they
believe can be turned into a viable business.
 Entrepreneurs are risk-takers and are not afraid to make mistakes. Many more businesses
fail than succeed.
 Entrepreneurs need to believe in what they are creating, and know when to keep trying.
They need to be able to make sensible, economic judgements and know when to abandon
an idea that will not make a profit.
 Entrepreneurs are people who understand other people and what they want and need. It
would be difficult to build a business without understanding the customer who will be
buying the product.
 Entrepreneurs need to have a sense of fairness, especially with the people they deal with.
 Entrepreneurs need to be dynamic, work very hard and work well with others. Even if
they work on their own (sole trader), they will need to be able to work with clients and
network effectively within their industry.
 Entrepreneurs need to understand their abilities and limitations, and know how to find
others to learn from or get the required skills from employees.

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  A new business will have many problems before it becomes profitable and enjoys
growth. To make a business successful, an entrepreneur needs to be achievement-
oriented and able to focus on both short- and longer-term goals.

Forms of Business organizations

BUSINESS / DESCRIPTION
ORGANIZATION
SOLE TRADER This is a person who exclusively owns a business. They are entitled to keep all
profits after tax has been paid, but they are also liable for all losses.
PARTNERSHIP This is a legal form of business operation between two or more people who
share the management and profits
COOPERATIVE A cooperative is a private business organization that is owned and controlled by
the people who use its products, supplies or services.
LIMITED COMPANY This is a private company where the owners are legally responsible for
company debts only to the extent of the amount of capital they have invested.
FRANCHISE A franchise business is a business in which the owners, or ‘franchisors’, sell the
rights to their business logo, name and model to third-party retail outlets, which
are owned by independent third-party operators called ‘franchisees’.
STATE-OWNED A state-owned enterprise is where the government or state has significant
ENTERPRISE (SOE) control in a company through owning most of the shares. These are set up so
that the state or government can embark on commercial activities.
NON-GOVERNMENTAL A non-governmental organization (NGO) is any non-profit, voluntary citizens’
ORGANIZATION (NGO) group that is organized on a local, national or international level. NGOs perform
a variety of services and humanitarian functions. They bring citizen concerns to
governments, advocate and monitor policies and encourage political
participation. Many NGOs are organized around specific issues such as human
rights, the environment or healthcare.

Each type of business has advantages and disadvantages for the entrepreneur.

BUSINESS ORGANIZATION ADVANTAGES DISADVANTAGES

SOLE TRADER • The trader keeps all the profits.
• The start-up costs are low.
• Establishing and operating a sole
trading business is simple.
PARTNERSHIP • Two people may be able to solve
problems more effectively than one
person.
• More capital (and borrowing) is
available for the business.
• Good-quality employees can be
made partners.
The sole trader has to pay all the
business debts personally.
• The ability to raise capital is
limited.
• All the responsibility for making
day-to-day business decisions is the
sole trader’s.
Each partner has to help pay the all
the partnership’s debts.
• There is a risk of disagreements
and friction among partners and
management.
• If partners join or leave, it is likely
that all of the partnership assets will

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 • There is opportunity for income
splitting. This is where earnings
and profits are paid to each partner,
not necessarily in equal amounts,
based on an agreement. Sometimes
this can help the partnership to pay
less tax.
COOPERATIVE Cooperatives that are incorporated
are not normally taxed on surplus
earnings (or patronage dividends)
refunded to members. Incorporation
means creating a legal identity for
an organisation that is distinct from
its members. This is often called a
‘corporate body’.
• Cooperatives can more easily
obtain discounts on supplies and
other materials and services, using
their size.
• The democratic structure of a
cooperative ensures that it serves its
members’ needs.
LIMITED COMPANY • The business owners will not be
held personally responsible
(personal liability), as all their
actions are done as agents for the
business.
• The owner of a limited company
will benefit from using his or her
personal vehicle for business. The
owner can charge the mileage made
on business travel to the business.
• The business name is protected by
law once it has been successfully
registered.
FRANCHISE An entrepreneur does not
necessarily need business
experience to run a franchise.
Franchisors usually provide the
training needed to operate their
business model.
• Franchises have a higher rate of
success than start-up businesses.
• It is potentially easier to secure
finance for a franchise. It may cost
less to buy a franchise than to start
a business of the same type.
STATE-OWNED ENTERPRISE They receive financial support from
(SOE) the government.
• They often have access to
favourable policies, e.g. tax
advantages on certain products.
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have to be valued and this can be
costly.
• Cooperatives may suffer from
slower cash flow since a member’s
willingness to contribute depends
on how much he or she uses the
cooperative’s services and products.
• While the ‘one member-one vote’
principle is appealing to small
investors, larger investors may
choose to invest their money
elsewhere.
• If members do not fully
participate and perform their duties,
whether it involves voting or
carrying out daily operations, the
business cannot operate at its best.
The business will need to pay
corporation tax, which is a tax on
the profits of the business.
• As a limited company, there is
administration that must be
attended to regularly. This includes
working on tax returns, expense
details and business accounts.
These usually need to be completed
every month.
• The business must publish its
accounts, including the details of
corporation tax and also give a
business address. This means that
all annual accounts and financial
reports will be available for the
public to read.
• Buying a franchise means entering
into a formal agreement with the
franchisor.
• Franchise agreements dictate how
the business is run, so there may be
little room for creativity.
• Bad performances by other
franchisees may affect the
franchise’s reputation.
• Buying a franchise means
ongoing sharing of profit with the
franchisor.
There are strict government
controls and restrictions around
general operations and decision-
making.
• There is usually a strong corporate
 • They have access to a large and
stable potential customer base.
NON-GOVERNMENTAL • They have the ability to
ORGANIZATION (NGO) experiment freely with innovative
approaches and, if necessary, to
take risks.
• They are flexible in adapting to
local situations and responding to
local needs. They are therefore able
to develop integrated projects, as
well as sectoral projects.
• They enjoy good rapport with
people and can render micro
assistance to very poor people, as
they can identify those who are
most in need and tailor assistance to
their needs.
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and management focus, which does
not involve and include ideas from
employees.
• There is a strong political
influence as political objectives are
important to SOEs.
Paternalistic attitudes may restrict
the degree of participation in
programme or project design.
• There may be restricted /
constrained ways of approach to a
problem or area.
• There may be reduced
replicability of an idea, due to no
representativeness of the project or
selected area, relatively small
project coverage, and dependence
on financial resources from outside
the business.
• ‘Territorial possessiveness’ of an
area or project reduces cooperation
between agencies, seen as
threatening or competitive.