Chapter 9

Entrepreneurs
and opportunities
By group 6, class EIM-T122WSB-1
Learning Objective 1

BUSINESS AND
THE PRIVATE
ENTERPRISE
SYSTEM
Define business and the private enterprise
system
What is a
business?
BUSINESS PROFIT NOT-FOR-PROFIT
All profit-seeking Rewards earned by ORGANISATIONS
activities and enterprises businesspeople who take Businesslike
that provide goods and the risks involved in establishments that have
services necessary to an blending people, primary objectives other
economic system technology and than returning profits to
information to create and their owners
market want
 Competition regulates much of economic life

The private
enterprise
system
Private an economic system that rewards firms
Enterprise for their ability to identify and serve the
needs and demands of customers
System

the unique combination of

organizational abilities, products and
Competitive approaches that sets a company apart
Differentiation from comapetitors in the minds of
customers
Basic rights
within a private
enterprise system
Private property: Every participant has the right to own,
use, buy, sell and bequeath most forms of property

Profit: Business owners have the right to all profits —

after taxes — they earn through their activities.

Freedom of Choice: A private enterprise system

relies on the potential for citizens to choose their own
employment, purchases and investmen

Competition: The private enterprise system also

permits fair competition by allowing the public to set
rules for competitive activity.
 An entrepreneur is a risk taker in the private
enterprise system

The Individuals who recognize marketplace

opportunities are free to use their capital,

entrepreneurship time and talents to pursue those

opportunities for profit

alternative The willingness of individuals to start new

ventures drives economic growth
and keeps pressure on existing companies
to continue to satisfy customers
Learning Objective 2

Who are
entrepreneurs?
Entrepreneurship is a term used to describe dynamic,
creative, risk-taking behavior that results in the creation
of new opportunities for individuals and/or organization

An entrepreneur creates a new enterprise, opportunity

ỏ business venture, in the business context an
entrepreneur starts new ventures that bring to life new
products or services
 Many different terms are increasingly being
used to describe particular types of
entrepreneur:

Who are involved in high-technology

Technopreneur industries (such as Facebook's Mark
Zuckerberg)

Social Who run social enterprises that are driven

Entrepreneur by community needs rather than profit

Who innovate for change from within large

Intrapreneurs organizations
Learning Objective 3

Understanding
the profile of an
entrapreneur
The roles of entrepreneurs:
an economic perspective
- From an economic point of view, entrepreneurship is
considered as a function, so entrepreneurs have been all
but banished from the theory of the firm and the market

- The status of the entrepreneur can be analyzed in

terms of a division of labor that explains this function
based on certain roles such as:

+ Risk bearer
+ Arbitrageur
+ Innovator
+ Coordinator of scarce resources
The characteristics of entrepreneurs: a behavioris
approach

Early studies in entrepreneurship typically focused on the psychological

characteristics and personality of the individual as determinants of
entrepreneurial behavior
 Among the almost endless
list of entrepreneurial traits
suggested, only three
received wide attention in
the literature and show a
high level of validity

The need for achievement

Internal locus of control - events result mainly

from their own behaviors and actions

Risk-taking propensity - taking calculated risks

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Learning Objective 4

How entrepreneurial
opportunities are formed
2 theories of how opportunities are formed
Discovery theory & Creation theory
Discovery Theory
Externally formed

advocates the idea that opportunities are formed by the

insufficiencies throughout the allocation of resources or
competitive imperfections in a market or industry

For example: There is a new office open nearby. A food

vendor, which normally serve breakfast, recognizes the
opportunity for gaining customers and sales revenue by
providing lunch for office workers. They decided to purchase
more diverse ingredients so as to vary their lunch time menu.
Discovery Perspective usually follows a casual approach
 Physical
Opposite to discovery Emotional
perspective, Creation theory claims that opportunities are
form by proactive attitudes of entrepreneurs to delve into innovative ways of
producing new products and services
- act first, and then examine how consumers respond to their actions

Creation Perspective reflects an effectuation process

Creation
Theory
 The bird-in-hand principle
emphasize creating something
new with existing means rather
than discovering new ways to
achieve given goals The lemonade principle
acknowledging and
The affordable-loss principle appropriating contingency
by leveraging surprises rather
Calculate the possible loss than trying to avoid them,
rather than calculate expected overcome them, or adapt to the
return

The crazy-quilt principle The pilot-in-the-plane principle

involves negotiating with all relying on and working with
stakeholders who are willing to human agency as the prime
make actual commitments to the driver of opportunity rather than
project, without worrying about limiting entrepreneurial efforts
opportunity costs. Who comes
on board determines the goals
of the enterprise, not vice versa
Key
Differences

Sometimes, though opportunities are discovered, entrepreneurs refuse to exploit

because expected value does not outweigh necessary investment, opportunity
cost is too high or perceived risks are great
Techniques used to decide whether or not
to pursue the opportunity
calculate the net present value (NPV) of
Risk-return future risk-adjusted returns while taking
into account their opportunity costs in
analysis relation to the job market value

concerns classes of investments in real

Real assets that are similar to financial options
options in structure

encourages individuals to pursue an

Affordable opportunity based on a loss that is known
loss to be affordable
 Health risks: Entrepreneurship is a demanding work
Financial risks: Entrepreneurship usually involves
Learning objective 5 environment that can cause mental and physical
large amounts of money. The entrepreneur has to
stress.
commit part or all of his savings to the venture. most
of the profits are used to expand the operation. They
risk losing all investments if going bankrupt.

4
Ways to reduce financial risk:
Borrowing money from a
bank or a venture capitalist
Place personal assets in the
spouse’s name.

1
Involve in a legal business
structure Risks of a career
in
Entrepreneurship
3
Career risks: The question that
most entrepreneurs ask is whether
they would be able to find a job or if
they would be forced to go back to
their previous job if their venture

2
doesn't succeed.

Social risks: family and social commitments To reduce career risks: launch a
may suffer . Moreover, theh image of the business on a part-time basis while
failed entreprenuer may harm their mental still retaining the current job as a
health fall-back position and income
Learning objective 5

Relevant performance measures

The absolute level of economic

The social contribution of the
performance that provides a
individual effort
return for enterprising effort
Learning objective 5
Relevant performance
measures
Opportunity cost: what is given when a
certain course of action is chosen

Liquidity premium: entrpreneurship requires

substantial investments, time and effort

Risk premium: risk is present when future events occur

with measurable probability. Risk premium depends on the
outcome probability of the business venture

Uncertainty premium: uncertainty is not measurable. It is

particularly high if the entrepreneur has no previous
experience of the industry
Learning objective 6

Explain entrepreneurial
behaviour in a social context
The social context is crucial to understanding the
situations in which entrepreneurial opportunities
will emerge and be pursued. Three features of a
person’s social context are important to the
perception of entrepreneurial opportunities and the
decision to seize them:

The stage of life

Position in social networks

Ethnicity
1: Stage of life and entrepreneurial behaviour

Empirical research has shown that those people most likely to pursue
entrepreneurial opportunities are men (women’s participation rate being
about half that of men across all countries in the Global Entrepreneurship
Monitor) with post-secondary education, aged between the ages of 25
and 44, and with an established career record.

Although not everyone with these characteristics starts new firms, this
set of features is to some extent unique and predictable.
 Humans are social animals, which
means that we relate to others; we all
have a social network.
A person’s self-image determines
what connections are made, and a
person’s identity is shaped by his or
her network. Every tie is unique
2: Social networks
and entrepreneurial
behaviour
The networks that entrepreneurs build for themselves and their ventures
stand out in a number of respects:
The networks are genuinely personal, intertwining business concerns
and social commitments in individual ties. By way of personal
networking, entrepreneurs make their planned venturing career into
a way of life.
The spatial dimension is relevant. For historical, practical and
symbolic reasons, many entrepreneurs and their firms are attached
to a place.
Although networks are important in both Western and Eastern cultures,
they are central to many Eastern cultures and particularly to the Chinese.
Ethnic and religious affiliations have historically
played an important role in entrepreneurship

3: Ethnicity and entrepreneurship

The main explanation of
ethnic entrepreneurship is
that it is a response to the
lack of opportunities in the
dominant culture. In this
situation, entrepreneurship is
very often a necessity
triggered by a variety of
push factors, such as ethnic
discrimination in the host
society; lack of recognition of
qualifications; poor use of
local language; and limited
opportunities
However, entrepreneurship can
also be a first choice between
different career alternatives,
and this might result from
different pull factors, such as
the presence in the family of
entrepreneurs who act as role
models; high social status given
to the entrepreneur in the
culture of the immigrant;
perception of good
entrepreneurial opportunities in
the family and ethnic network;
and availability of resources in
the ethnic network.
Thank you for From Group 6
your time! Class EIM-T122WSB-1