COLLEGE OF BUSINESS MANAGEMENT

LEARNING MATERIAL IN GE ELEC EM (The Entrepreneurial Mind)

PRELIM COVERAGE
LESSON 1. A PERSPECTIVE ON ENTREPRENEURSHIP

LEARNING OUTCOMES:
At the end of the lesson, you should be able to:

 Appreciate how entrepreneurship contributes to the national economy.

 Explain the nature and importance of entrepreneurship.
 Describe the nature of small business.
 Summarize the importance and benefits of small businesses today.

Role of Entrepreneurship in Economic Development

Entrepreneurship plays other roles in economic development other than increasing per capita output and
income, involves initiating and constituting change in the structure of business and society. This exchange is
accompanied with growth and increased output which allows more growth and increased output, which allows
more wealth to be divided by the various participants. The theory of economic growth depicts innovation as
these not only in developing of new products or services for the market but also in stimulating investment
interest in the new ventures being created. The new investment work on both the demand and the supply side
and the resultant new spending utilities the new capacity and output demand side.

What is entrepreneurship?

Entrepreneurship refers to the economic activity of a person who starts, manages, and assumes the risk of a
business enterprise. The person who undertakes entrepreneurial activities is called an entrepreneur. An
entrepreneur identifies an economic need, considers offering a business solution, proceeds to assemble the
resources required, and assumes the risk of either succeeding or failing.

The Entrepreneur’s Task

If all the requirements in a capitalist economy are in place, the entrepreneur can assume his assigned role in
the development of the economy. A review of the contributions of entrepreneurs will reveal that no business,
big or small, started without the hand of the entrepreneur. Even if many of these businesses failed to survive,
still a sizable number developed and proceeded to make the capitalist economy a viable concern. This is made
possible because the surviving enterprises are responsible for providing the following:

1. Products and services for customers and producers,

2. Employment,
3. Taxes,
4. Demand for suppliers’ products and services, and
5. Training facilities for future entrepreneurs.

New Ventures and Long-term Enterprises

A new venture cannot remain as such forever. The entrepreneur must develop it into a small business or make
it grow into a mature and bigger company if he is to recoup the cost of opening a new venture and take
advantage of the opportunities presented by a mature business. The transition from a new venture to a
successful long-term enterprise consists of at least four major stages.

The stages are as follows:

1. prestart-up stage,
2. start-up stage,
3. early growth stage, and
4. late growth stage.

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The prestart-up stage happens when the entrepreneur starts to question the feasibility of an idea, product,
or service. He seeks answers to questions regarding potential markets, production, and financing. This is a
very important stage that the entrepreneur must consider. If he errs in his evaluation, he will fail before
considerable growth is attained.

In the start-up stage, the following activities are undertaken:

1. formation of the business,
2. generation of necessary capital,
3. purchase of facilities and equipment,
4. constructing prototype products, and
5. testing the market.

No full-scale activity must be undertaken at this stage for the simple reason that feasibility must be established
and verified.

The early-growth stage follows establishing feasibility. Activities will be on a small scale, i.e., selling to
limited markets with limited resources. If losses occur, it will naturally be limited also. If the enterprise is
successful at this stage, the option to move to the next stage can be exercised.

The late growth stage is the final stage before the new venture matures into a stable enterprise. This is
when management is structured, long-term financing is established, and facilities planning are undertaken.
This is also the stage where the skills of the entrepreneur are less needed. Instead, the skilled manager begins
to take over.

What is a Small Business?

Small businesses may be defined by using any of the two approaches: market share or total assets.

a. Under the market share approach, small business may be defined as one which is independently owned
and operated, and which is not dominant in its field of operation. The term “independently owned” means
ownership is by a private individual, a partnership, or a corporation. The term “not dominant” indicates that a
small business does not control a sizable share of its market. When the total sales of a business firm are less
than one percent of the total demand for its products, the firm may be considered small business.

b. A small business may be defined under the total assets approach as one having total assets that fall
within a certain bracket. For example, the Magna Carta for Small Enterprises (R.A. 6977) indicates that the
firm must have a total asset valued at above P1.5 million to P15 million to be considered small business. The
government prefers this approach because it simplifies formulation and implementation of policy.

With the assets value bracket assigned to small business, it is inevitable that all enterprises having total assets
valued at P1.5 million and below will be classified as “microenterprises.”

One of the disadvantages of the total assets approach is that asset values are affected by inflation. After so
many years, inflation alters the nominal value of business assets and what may be previously considered small
business may no longer be classified as such.

From the point of view of business management, the market share approach in defining small business is more
appropriate. This is so because the target market share is an objective more basic than other objectives.

Types of Small Business

Small business may be classified into five types: (1) manufacturing, (2) service, (3) wholesaling, (4) retailing,
and (5) general construction firms.

a. Manufacturing. This one involved in the conversion of raw materials into products needed by society.
Examples of small business engaged in manufacturing are bakeries, tricycle sidecar assembly shops, bagoong
manufacturers, restaurants, and others.

b. Service. These are those that provide service in one way or another. They may be further classified into
the following:
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 1. Business services – provide service to other business. Examples are accounting firms,
janitorial service firms, security service firms, collection agencies, and the like
2. Personal services – provide service to the person. Examples are tutoring services, massage
parlors, voice lessons, among others
3. Repair services – provide repair services to owners of various machinery and appliances.
Examples are auto repair shops, plumbing services, and others
4. Entertainment and recreation – include movie houses, resorts, billiard pool centers, and the
like
5. Hotels and motels, and
6. Education services – include Montessori schools for children, high school, correspondence
schools, among others.

c. Wholesaling. This refers to the activities of persons or establishments which sell to retailers and other
merchants, and/or to industrial, institutional, and commercial users, but who do not sell in large amounts to
final consumers. Examples are soft drink wholesalers in local are, deals of supplies and office equipment,
grains wholesalers, and the like. A big number of these wholesale businesses are owned by small business
operators.

d. Retailing. Covers all activities involved in the sale of goods and/or services to the final consumers. The
bulk of retailing activities are performed by small businesses. Examples are retail drugstores, fast food shops,
appliance stores, and others.

e. General Construction Firms. Are those engaged in the construction of buildings whether for private
individuals or firms, or for the government. Many of them perform subcontracting jobs for the bigger
contractors such as installing electrical facilities and sewerage. General construction firms employ hundreds of
thousands of people and they operate mostly in the countryside.

Characteristics of Small Business. Small businesses have their own distinctive characteristics. They are the
following:

1. Independent management – The owner is also the manager.

2. Small capital requirement – Small business requires only small capital, and this can be supplied by
a single or a few individuals.
3. Mostly local operation – Small business usually operates in a certain locality although there are
cases when the market is not confined to a local area.

Economic Importance of Small Business

Small businesses play an important role in the development of our economy. They assume the following
functions:

1. Providers of economic opportunities for entrepreneurs – People who do not feel comfortable as
employees have the option of engaging in small business operation.
2. Providers of products and service for consumers – The production of many products and services is
oftentimes not feasible with big and medium business operation. These limited opportunities are
naturally fitted for small businesses.
3. Suppliers of products and services of other businesses – Some businesses require raw materials, semi-
finished parts, finished components, or even labor, which they cannot economically produce. The small
businesses per-form this task for them.
4. Distributors of products and services of other businesses – Some manufacturers do not have the ability
to distribute their products and services. Many small businesses assume this role for them.
5. Supporters of government – Small businesses support the government with the taxes they pay, as well
as performing other functions.
6. Providers of employment – A large proportion of the force are employed by small businesses.

Advantages of Operating a Small Business

An individual has various options to improve his economic lot. They are the following:
1. Be an employee;
2. Be a professional;
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 3. Be a small business operator (SBO).
An employee enjoys a fixed working schedule like 8:00 A.M. to 5:00 P.M. The pay he receives, however, is
limited and dependent to a large extent on industry norms and the financial capability of the company. In
some firms, the employee’s pay depends on the whims of the owner.

A professional may generate higher income through the effective practice of his profession. A physician, for
example, may set his clinic in a certain are and proceed to treat patients for a fee. His income, however, is
limited by the number of patients he attends to everyday as he cannot delegate his skill to others. In addition,
although he is useful to the community, his desire to provide employment to more people is severely limited
by the nature of his work. At most, he can employ four persons as assistants.

The first two options, however, can only be considered depending on certain conditions. Finding a job is not
an easy task. The rate of rejection for job applicants, especially in the Philippines, is just too high. There are
too many people who cannot exercise this option.

Entering a certain profession is also not an easy task. First, one must undergo long years of study, and
second, one must pass a rigorous entrance requirement like passing the board examination. There are also too
many people who cannot exercise this option.

The last option is Small Business Operator. Although entrance requirements are not as difficult as the first
two option, it does not mean this option is easier to put into practice. A small business operator keeps long
working hours and absorbs whatever damages that happen because of his faulty decision-making. However,
he is afforded the following benefits:

1. opportunity to gain control over his own destiny;

2. opportunity to reach his full potential;
3. opportunity to real unlimited profits;
4. opportunity to contribute to society and receive recognition for his efforts.

Disadvantages of Operating a Small Business

Although certain advantages accrue to the small business operator, there are certain disadvantages that must
be considered. These are the following:

1. Uncertainty of income
2. Risk of losing your entire capital investment
3. Lower quality of life until the business gets established
4. Complete responsibility
5. Having to serve undesirable customers
6. Paperwork and other chores
7. Long hours and demanding work condition

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