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PRINICPLES OF BUSINESS

TOPIC: ENTREPRENEUR & ESTABLISHING A BUSINESS

LESSON NOTES
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Define the term ‘Entrepreneur’

Definition 1
Entrepreneur: Is someone who shows vision and creativity, taking the financial risk of starting
and managing a new business venture.

Definition 2
An entrepreneur is a person who identifies a successful business opportunity, risks time and
money to start and operate a business, bringing resources together with the intention of creating
wealth.

Definition 3
Entrepreneurs are those who organize and coordinate the other factors of production. They are
owners of business enterprises, who, by taking risks and making decisions enable production to
be carried out in anticipation of demand.

What is entrepreneurship?

Entrepreneurship: This is the process of searching out opportunities in the market place and
arranging resources required to exploit these opportunities for long term gains.

Roles of an entrepreneur

 Generate new ideas and create products and/or take old products and improve them to
meet current market needs.
 Keep his/her ears to the ground in the marketplace so that there is a constant flow of
information on what goods and services are needed and how to respond creatively to such
needs.
 Plan and manage the use of resources of a business enterprise to provide goods and
services for the consumer or targeted customers.
 Acquire the necessary tools such as machinery and equipment, where necessary, to
enhance business operations.
 Be innovative in coming up with the best product or service for the market.
 Be a visionary that is, to be able to project beyond the present, and provide and follow
through on a vision of what the business could be in the future.

Characteristics of an entrepreneur

Visionaries

Highly motivated Risk takers

Characteristics of
Entrepreneurs Passionate about their business
Not afraid of failure idea

Innovative/creative
Hardworking
Self-confidence

a) Creative: entrepreneurs have vision, imagination and originality.

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b) Innovative: entrepreneurs are likely to think and develop new ideas, They spot a niche in the
market readily recognize an opportunity to create a new idea or product or service, or ways to
improve one that already exists.
c) Flexible: a good entrepreneur tends to be able to adapt to new challenges and changes and
adapts their original business plan as circumstances require. They recognize technological
and other developments and adapts to embrace such changes.
d) Goal-oriented: Entrepreneurs work towards clear, realistic and measurable targets that they
have set for the business and all of its employees. These goals may be adjusted with time
and experience – but they will always be clear and measurable.
e) Persistent: A successful entrepreneur is persistent and resilient and will not be put off by
setbacks. If something does not work out they will question what went wrong, learn
something from their mistakes and strive to do better. All entrepreneurs suffer setbacks at
times but they have to have the perseverance to fight back.
f) Persevering: A good entrepreneur is committed and self-motivated. Consequently, they are
inspired to work for long hours to achieve success and will not blame others when things
goes wrong. They will recognize the cause of failure and accept the responsibility, to do
something about it possible rethinking the goals they haves set or making them clearer to
others.
g) Risk-takers: An entrepreneur risks their own money, and sometimes the money of others, set
up and run a business. Making decisions to manufacture products or services that people
might buy is potentially uncertain. A successful entrepreneur has a flair for spotting business
opportunities and takes calculated risks when necessary, usually after analyzing the factors
which can enhance or impede success.

Leadership qualities of entrepreneurs

A successful entrepreneur requires leadership qualities that inspire others to work hard and
support their drive achieve the desire success.

 They have good communication skills and are able to make their plans and goals clearly
understood by others.
 They have a clear vision of where they want to go and how to get there.
 They are supportive of their team, which they rely on heavily to achieve their goals.
 They have self-belief and confidence, but they also recognize their own strengths and
weaknesses.
 They share success; they want the whole team to know it is their success as well as the
entrepreneur’s.
 They are involved in what is taking place around the business rather than staying in their
office.
 They create an atmosphere that encourages business growth by seeking opinions, ideas and
solutions to problems from employees.
 They are honest with employees, encouraging a two-way feedback of both positive and
negative opinions.
 They demonstrate their perseverance to all personnel, encouraging others to remain
committed in order to achieve success.
 They invest in learning new techniques and skills themselves and for their employees,
encouraging all to ‘think outside the box’

Functions of the entrepreneur

1. Conceptualizing – forming a new idea; this new idea can take different forms. It may be a
new product, service or improvements to an existing one, or ways to fill a need. The
entrepreneur has the special quality of identifying profitable opportunities. There are many
sources of business ideas: comments or complaints from family, friends, talk shows,
observations of people and the things they spend money on.
2. Planning – the entrepreneur can identify targets, goals and objectives and also ways of
accomplishing them. For example, developmental design of the product or service. Assessing
marketing potential, choice of premises, machinery and labour require, plus assessing the
degree of profit possible.
3. Accessing funds or financing – the entrepreneur will find ways to finance the business.
Some funds may already be available (for example, existing savings, life insurance policies
and so on) or need to be sourced from others as a loans (for example, from a bank of family
friends, credit, the government) or as an investment (for example partners or shareholders,
other investors).
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4. Organizing the business – keeping records and documentation, creating a formal structure
with activities and authority assigned to different persons (hierarchy). Organizing also
involves acquiring labour, natural resources, machinery, equipment and premises, and
organizing these efficiently; and making decisions on location and prices.
5. Operating the business – operating the successfully through the start-up stages and looking
for ways to improve the products or services that the business markets, and making any
changes necessary in the interest of the growth and development of the business, as well as
always seeking new business opportunities. In operating the business the entrepreneur has to
ensure that the day-to-day activities are carried out in the different functional areas
(production, marketing, finance).
6. Evaluating the performance of the business – ensuring that effective controls are in place
(employees do their assigned tasks, money is not stolen, accounting is accurate, resources are
not wasted); also conducting through analysis on the efficiency of use of resources, for
example, the percentage of profits each year. The entrepreneur will consider if the aims and
objectives of the business formerly decided need to change in light of current experience.
7. Risk-bearing – a risk is any situation that has more than one possible outcome which is
unknown; the entrepreneur will make decisions that are risky, in the hope that the profits will
be great; the entrepreneur carefully assesses the probability or likelihood of the success. By
bearing the risks of the business, the entrepreneur is entitled to the profits gained; he or she
also suffers the losses. Those business ventures that yield the greatest profits carry the
greatest degree of risk. It is generally accepted that some risks such as lost shipments, fire,
theft and so on can be insured against, while there are others which are more incalculable and
therefore uninsurable.

8. Making a profit and loss, which relates to whether or not the entrepreneur’s risks pays off.
The venture nets a profit when it earns more than was invested. That means that the average
selling cost per unit is greater than the average production cost per unit. On the other hand, a
loss is realized when the inverse occurs; that is, the entrepreneur sells each unit for less than
the cost of production.

Role of the entrepreneur in the decision making process in establishing a

business
The entrepreneur is instrumental to the decision-making process and has to pay attention to all
elements of the enterprise in order to make the most informed decisions each time. The following
functions of the entrepreneur will be closely examined as they relate to the decision making
which can either realize a profit or a loss for the venture

1. Conceptualizing – the entrepreneur must have an idea, skill or service that others want, one
that can provide a competitive price, and in the process, achieve a profit. The entrepreneur is
required to make the decision if their research is indicating that their idea is marketable for
profit.

In many ways a firm’s success is largely defined by the decision of its customers (those who
buy their goods or services), in particular their decision to buy or not. Customers will not
buy just because the business has a good advertising campaign. They will be interested in the
uniqueness and the quality of the good or the service being offered. And even this will be
shunned if the price is not competitive. In other words, the business must show some
competitive advantage that others cannot match.

2. Planning – In order to achieve its objectives, a business needs a plan. Sound planning
greatly improves a firm survival prospects. Of course, it is easy enough for an entrepreneur to
say they are planning to do something, but it is a different matter to actually prove that what
is planned can or will be done. A feasibility study provides an investigation, backed by data,
to demonstrate that what is planned is really possible. Such planning needs to take into
account both short-term and long term factors.

a) Short-term planning generally refers to any developments likely to come into effect
within the next three years. A business plan is a typical example of short-term
planning.

b) Long term-planning requires considerable skill as it incorporates developments that

are expected within a period of up to ten years ahead. Many business developments
an take several years to complete, and even longer before they show any return on the
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investment. For this reason, long-term planning is often about what the business plans
to do rather than what it is currently doing.

Accessing financing – The entrepreneur needs to assess whether or not the new venture
will be financially viable. What are the capital requirements? How much money required
to ‘start up’ the business. Capital refers to the wealth, in the form of money or other
assets, used to start and operate a business. The entrepreneur needs to give a lot of
thought to the money they will need to get the business started. One of the major
difficulties faced by a new business is start-up crisis, which is usually caused by trying to
operate without enough funds. To avoid this, the business plan should include:
 A clear statement of what the entrepreneur needs to start the business (for example,
plant, machinery, stocks)
 An estimate of the costs involved in obtaining these items
 An estimate of the extra funds needed in the first six months (at least) for original
costs (for example, rent of premises, further purchase of stock, payment of wages and
interest on any loans).
The business plan should demonstrate that the estimates are realistic and also where the
money will come from.
- Sources of capital
There are two basic sources of start-up for the new entrepreneur: their own money or
someone else’s. The entrepreneur may use their savings or use other personal securities
(for example, property, life insurance policies etc.) to attract finances from more
conventional sources (for example, a bank loan). Or they may take on a partner or
shareholders to inject further cash or to attract investors.

4. Organizing the factors of production

The factors of production are the various elements needed to produce goods or services.
There are four factors of production: land, labour, capital and enterprise. Each of these
factors receives payments or reward in return for their contribution to production. Land
receives rent, labour receives wages, capital receives interest and enterprise receives profit.
The entrepreneur has to manage all these factors well in order to be successful.

The factors of production

 Land: all natural resources, including land that is farmed, and the natural resources in the
land and sea.
 Labour: all human resources, including mental effort
 Capital: all man-made resources, including financial capital and also man-made physical
resources such as buildings and machinery.
 Enterprise: the managerial factor that co-ordinates the resources of land, labour and
capital to create consumer products and services and distributes them to individuals and
other businesses in the economy.

5. Operating the business

Having created a business an entrepreneur needs to keep it going according to the plan they
created. The following are important elements they will incorporate into their operations.

 Operating an effective accounting system (or employing an accountant) is important

in order to be able to regularly analyze how the business is doing.
 Increasing sales is an ongoing process. Consideration will be given to marketing
techniques and advertising.
 Reducing costs can be as effective as increasing sales.
 Getting paid on time is important to cash flow. If the business does not collect the
money it is owed, it cannot pay debts that itself owes. Chasing up slow payers
systematically and offering discounts to prompt payers’ aids cash flow.
 Maintaining records is an ongoing operational activity. Financial records enables
the entrepreneur to analyze businesses performance regularly.
 Looking ahead involves asking certain questions such as: are competitors offering a
better deal? How can the products or service of the business be further developed?
Are there new profitable opportunities for future business? Is there a case for setting
new goals or amending current operational practices?

6. Evaluating
In order to extend the life of the business it is necessary to evaluate what has been the
outcome of events once it has been established. Having a healthy revenue and making a
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profit is obviously an easy measure of the success of the business, but what if the business
has not made a profit, or has not benefit or has even made a loss? This does not mean that
there are not successful outcomes. Entrepreneur success is also as much about learning
outcomes as making a profit, getting feedback, understanding the influence of the business in
the marketplace and knowing why something is working and why something is not effective.
In short evaluating business success is as much about what the entrepreneur has learnt as
about how much profit has been achieved.

7. Risk-bearing
Risk and uncertainty are aspects of all businesses, especially new ones. Most of the risks that
businesses faced are financial risks, and it is entrepreneurs that bear this risks in the hope of
making a profit. If they did not accept this risk, new businesses would not be started and
innovation opportunities would be missed and there would be a reduced contribution to
general economic development for individuals and the country.

The role of the entrepreneur in economic development– (within a country)

Entrepreneurs collaborate when they create new businesses that provide goods and services to
satisfy citizens. They also create jobs and continue to nation building.

 Provide goods and services that satisfy the needs of citizens: entrepreneurs find out
what consumers want (for example, via market research) them aim to satisfy consumers’
requirements by supplying what they want at a price that they will find acceptable, and
hopefully make a profit in the process.

 Create new business: entrepreneurs see profitable opportunities and launch new
businesses, investing in products and services to satisfy peoples’ needs. New businesses
increase market competition and this has the effect of keeping prices competitive,
therefore, contributing to increased demand and productivity. Their business activities
create a demand for supplies from other traders, thus forming collaborative relationships.
Such collaborating with others promote economic growth in the region where they are
located as well as the wider economy.
 Provide employment opportunities/create jobs: New businesses employ people to fill
the jobs that they have created, and as the business grows more workers are needed.
These employees Pay taxes to the government and spend their wages, most locally. The
increased welfare of the population strengthens the economy and promotes improved
well-being of the whole population. Economies that trade, whether locally, regionally,
nationally or internationally, almost always benefit.
 Increase overall total value of goods produced in a country each year (gross domestic
product, a measurement used by governments to help in the planning for the country)
 Utilize local raw materials that might otherwise have been wasted
 Help earn foreign exchange which is needed for business activity in a country.
 Contributing to nation building: Nation building refers to creating a strong sense of
national identity – a feeling of belonging and being a part of a nation. This requires
economic, social and political development. Sound economic development and increased
national growth and wealth it creates are a keystone of national identity. People embrace
national identity more readily if they have a good standard of living and recognize their
nation as becoming more prosperous; satisfaction and pride increase. Business activity
plays a significant role in economic growth and development in many ways:
a) It provides employment: the more people earn, the more taxes they pay
and this contributes to personal, regional and national wealth.
b) It creates a wider, competitive range of goods and services – satisfying
demands for an improved standard of living at an economic cost.
c) It contributes to supporting and improving community life – because much
of the income of employees is spent locally, and businesses also contribute
locally, regionally and nationally in a variety of ways.
d) It promotes national growth – economic development spreads prosperity
in a free economy. When entrepreneurs are successful they indirectly
share the wealth by expanding opportunities and creating further
employment.

Reference Textbooks
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1. Essentials Principles of Business for CSEC by Dr. Allan Whitcombe – (Chapter 6, pages 67-73)
2. CSEC Principles of Business 2nd Edition by Robert Dransfield, Sandra Butcher, Jacqueline Peters-Richardson
and Conrad Valentine (Chapter 3, pages 78-88)
3. Caribbean Examination Council ® Principles of Business for CSEC for self-study and distance learning. Chapter
3, pages 85 – 97. Publisher: Nelson Thornes Ltd 2011