FAMILY & SMALL

ENTREPRENEURS
Chapter Two
Dr Nur Kamarul Hafiz bin Jamil
Faculty of Business and Accountancy
Lincoln University College
  Outline:
 The economics of entrepreneurship
Topics:  Entrepreneurship and economic growth
 Invention, innovation, and creativity
 The link between innovation and business growth
The  The link between innovation and firm size
 The influence of industry structure
Economics of  The influence of industry age and stability
Entrepreneurs  Innovation, location, and network effects
 Social enterprise and social innovation
hip and public  Public policy towards SMEs
policy 

Policy intervention
The effectiveness of policy intervention
 Social enterprise policy
Definition of
Entrepreneurship
Entrepreneurship refers to the
process of identifying, creating, and
pursuing opportunities to generate
value through innovative ideas,
products, or services.

Entrepreneurs are individuals who

take risks, organize resources, and
innovate to bring about change in
the economic landscape.
  It fosters innovation, creates jobs, promotes competition, and
Importance of enhances productivity.
Entrepreneurship in
 Entrepreneurial ventures contribute to wealth creation and overall
the economy prosperity in society
 Classical theory Austrian school Innovation theory

• Originated by • Emphasized by • Built by

Adam Smith and Joseph Schumpeter’s
Jean-Baptiste Say Schumpeter ideas
• Entrepreneurship • Emphasize the • Focuses on the
as a factor of role of central role of
Economic production entrepreneurs in innovation
Theories of alongside
labour,
land,
and
the process of
creative
entrepreneurship.
• Entrepreneurs
Entrepreneurship capital. destruction. They innovate to
introduce exploit market
innovations that opportunities and
disrupt existing gain competitive
industries, leading advantage.
to economic
progress
 Economic Socio-
environment cultural
Factors Influencing
Entrepreneurship

Technology
  Invention – the creation of a new product, process, or idea that has
never existed before.
Invention,  Innovation – the process of transforming inventions into
Innovation, marketable products, services, or processes that create value for
customers and society.
and Creativity  Creativity – the ability to generate novel ideas, concepts, or
solutions that are both original and useful.
Interplay  Invention is the starting point of the entrepreneurial journey,
where new ideas are conceived and developed.
between  Innovation involves taking inventions and turning them into
Invention, practical and commercially viable solutions.

Innovation,  Creativity fuels both invention and innovation, driving the

generation of novel ideas and the ability to envision new
and Creativity possibilities.
 • Creativity is the lifeblood of entrepreneurship, driving the process
of identifying opportunities, solving problems, and generating
Importance of innovative solutions.
creativity in
• Entrepreneurs need to think creatively to differentiate their
Entrepreneurship ventures, adapt to changing market conditions, and stay ahead of
competitors.
 • Brainstorming: A group creativity technique where participants
generate ideas freely without criticism, often leading to
unexpected and innovative solutions.
• Mind Mapping: A visual technique for organizing and representing
ideas and concepts in a nonlinear format, fostering creative
Creativity thinking and idea generation.
techniques for • Design Thinking: A human-centered approach to innovation that
emphasizes empathy, ideation, prototyping, and testing to solve
Entrepreneurs complex problems and create innovative solutions.
• SCAMPER Technique: An acronym for Substitute, Combine, Adapt,
Modify, Put to Another Use, Eliminate, and Reverse, which prompts
entrepreneurs to explore different ways to innovate and improve
existing ideas or products.
 • Opportunity Identification: Entrepreneurs identify unmet needs,
market gaps, or inefficiencies that represent opportunities for
innovation.
• Idea Generation: Creativity techniques are employed to generate a
wide range of ideas and potential solutions.

The Innovation • Evaluation and Selection: Ideas are evaluated based on feasibility,
market potential, and alignment with strategic objectives.
Process • Development and Implementation: Selected ideas are developed
into tangible products, services, or processes through iterative
design, prototyping, and testing.
• Commercialization: Innovative solutions are brought to market,
and strategies are implemented to promote adoption and generate
value for customers and stakeholders.
 • Apple Inc.: Known for its innovative products such as the iPhone,
iPad, and MacBook, Apple exemplifies the importance of creativity
in driving entrepreneurial success.
Examples of • Airbnb: By creatively leveraging underutilized resources (e.g., spare
rooms and apartments), Airbnb disrupted the hospitality industry
Creative and created a new sharing economy platform.
Entrepreneurship • SpaceX: Founded by Elon Musk, SpaceX revolutionized the space
industry through creative engineering solutions, including reusable
rocket technology and ambitious plans for interplanetary
exploration.
  In today's dynamic business environment, innovation is essential
for staying competitive, adapting to change, and sustaining long-
term growth.
 Types of Innovation
The importance of  Product innovation – introduce new product to meet customer needs
Innovation in and preferences
Entrepreneurship  Process innovation – enhancing operational efficiency and quality
 Business model innovation – reinventing the way value is created to
lead the change in industry
 Marketing innovation – develop innovative marketing strategies to
reach better customer engagement.
 • Market Differentiation: Innovative products, services, or business
models differentiate entrepreneurial ventures from competitors,
attracting customers and driving revenue growth.
• Competitive Advantage: Continuous innovation allows ventures to
maintain a competitive edge by offering unique value propositions,
Innovation and superior quality, or enhanced customer experiences.
Business • Expansion Opportunities: Successful innovation opens up new
market opportunities, facilitates geographic expansion, and
Growth enables diversification into related or complementary product
lines.
• Revenue Generation: Innovative solutions command premium
prices, increase customer loyalty, and drive revenue growth
through higher sales volumes and market share.
 • Cultivate a Culture of Innovation: Encourage creativity,
experimentation, and risk-taking within the organization to foster a
conducive environment for innovation.
• Invest in Research and Development (R&D): Allocate resources to
R&D efforts to drive continuous product and process
Strategies For improvements, as well as breakthrough innovations.
Fostering • Collaboration and Partnerships: Collaborate with external partners,
including suppliers, customers, research institutions, and startups,
Innovation to access complementary expertise, resources, and networks.
• Embrace Emerging Technologies: Stay abreast of technological
trends and leverage emerging technologies such as artificial
intelligence, blockchain, and IoT to fuel innovation and business
growth.
 • Uncertainty: Innovation initiatives are inherently risky, with no
guarantee of success. Entrepreneurs must navigate uncertainty and
manage risk effectively.
Challenges • Resource Constraints: Investing in innovation requires significant
and Risks of resources, including financial capital, human capital, and time.
Limited resources may constrain innovation efforts.
Innovation • Resistance to Change: Innovation often disrupts existing processes,
systems, and stakeholders, leading to resistance and inertia within
the organization or industry.
 • Startups are often characterized by their agility, flexibility, and
ability to innovate.
Innovation and
• Innovation allows startups to disrupt established markets,
Start-ups introduce novel solutions, and gain a competitive edge despite
limited resources and market presence.
 • Small and medium-sized enterprises (SMEs) can leverage
innovation to drive growth, penetrate new markets, and enhance
Innovation and competitiveness.

SMEs • Innovation enables SMEs to differentiate themselves, meet

evolving customer needs, and overcome resource constraints to
achieve sustainable growth.
 • Scaling up requires entrepreneurs to innovate across various
dimensions, including products, processes, business models, and
Innovation and organizational capabilities.

Scaling Up • Innovation is essential for scaling up operations, increasing

production capacity, and expanding into new geographic markets
or customer segments.
 • Large enterprises leverage innovation to maintain competitiveness,
Innovation and sustain growth, and drive corporate success.
Large • Innovation enables large enterprises to diversify product portfolios,
enter new markets, and adapt to changing customer preferences
Entreprises and market dynamics.
 • Google exemplifies the link between innovation and firm size in
entrepreneurship.
• Through continuous innovation in search algorithms, advertising
Case Study: technologies, and diverse product offerings (e.g., Google Maps,
Gmail, Android), Google has evolved from a startup into a
Google multinational technology giant.
• Innovation-driven growth has enabled Google to expand its market
reach, diversify revenue streams, and maintain a dominant
position in the global tech industry.
 • Industry structure refers to the characteristics and dynamics of the
market in which firms operate.
Industry • Key components of industry structure include market
concentration, entry barriers, product differentiation, and
Structure competitive rivalry.
 • Market Concentration: Highly concentrated industries dominated
by a few large firms may present challenges for new entrants but
also opportunities for niche players to differentiate themselves.
• Entry Barriers: High entry barriers, such as regulatory
requirements, capital intensity, and economies of scale, may deter
Influence of new entrants, while low entry barriers foster entrepreneurial
Industry Structure activity and competition.
on • Product Differentiation: Industries with high levels of product
Entrepreneurship differentiation offer opportunities for entrepreneurs to innovate
and create unique value propositions, attracting customers and
gaining market share.
• Competitive Rivalry: Intense competition in mature industries may
require entrepreneurs to develop innovative strategies to
differentiate their ventures and achieve sustainable growth.
 • Industry age refers to the stage of development or maturity of an
industry, ranging from emerging to mature or declining stages.
Industry Age • Industry age influences market dynamics, growth prospects, and
entrepreneurial opportunities within an industry.
 • Emerging Industries: Emerging industries offer opportunities for
entrepreneurial ventures to pioneer new markets, disrupt
traditional industries, and capitalize on early-mover advantages.
• Growth Industries: Growth industries are characterized by rapid
expansion, increasing demand, and technological innovation,
providing fertile ground for entrepreneurial ventures to thrive and
Influence of scale up.
Industry Age on • Mature Industries: Mature industries exhibit stable growth, intense
Entrepreneurship competition, and established market players, requiring
entrepreneurs to innovate, differentiate, or target niche markets to
succeed.
• Declining Industries: Declining industries face challenges such as
market saturation, declining demand, and obsolescence, but may
still offer opportunities for entrepreneurs through restructuring,
consolidation, or diversification strategies.
 • Industry stability refers to the degree of volatility, uncertainty, and
disruption within an industry over time.
Industry
• Stable industries provide a conducive environment for long-term
Stability planning, investment, and growth, while unstable industries
present challenges and opportunities for entrepreneurs.
 • Stable Industries: Stable industries offer predictability, steady
demand, and established market norms, allowing entrepreneurs to
focus on innovation, efficiency, and customer service to gain
competitive advantage.
Influence of • Dynamic Industries: Dynamic industries are characterized by rapid
Industry Stability technological change, shifting consumer preferences, and market
turbulence, requiring entrepreneurs to be agile, adaptable, and
on responsive to change to survive and thrive.
Entrepreneurship • Disruptive Industries: Disruptive industries are undergoing radical
transformation due to technological innovation, regulatory
changes, or shifting business models, creating opportunities for
entrepreneurs to disrupt incumbents, create new markets, and
redefine industry norms.
 • Social enterprise refers to organizations that apply business
principles and strategies to achieve social or environmental
objectives.
Social • Social enterprises generate revenue through the sale of goods or
services, but reinvest profits to further their social mission rather
Enterprise and than maximizing shareholder returns.

Social • Social innovation involves developing novel solutions to address

social and environmental challenges, often through collaborative
Innovation approaches and systemic change.
• Social innovation encompasses new ideas, products, services,
business models, policies, or practices that create positive social
impact and contribute to sustainable development.
 1. Dual Mission: Social enterprises pursue both social or
environmental goals and financial sustainability, balancing social
impact with economic viability.
2. Innovation: Social enterprises often innovate in their business
models, products, or services to address social needs or tackle
Characteristics environmental issues.

of Social 3. Stakeholder Orientation: Social enterprises prioritize the

interests of multiple stakeholders, including customers,
Enterprise employees, communities, and the environment, rather than
solely focusing on shareholders.
4. Accountability and Transparency: Social enterprises
demonstrate accountability and transparency in their
operations, governance, and impact measurement practices to
build trust with stakeholders.
 • Nonprofit Social Enterprises: Nonprofit organizations that operate
social enterprises as revenue-generating ventures to support their
mission-driven activities and create sustainable funding sources.
• For-Profit Social Enterprises: Businesses that integrate social or
Types of Social environmental objectives into their core mission and business
model, pursuing both profit and purpose.
Enterprise
• Hybrid Models: Organizations that combine elements of both
nonprofit and for-profit structures to achieve social impact while
generating revenue, such as benefit corporations (B Corps) and
social purpose corporations.
 1. Human-Centered: Social innovation begins with a deep
understanding of the needs, aspirations, and experiences of
people affected by social and environmental issues.
2. Collaboration: Social innovation often involves collaboration
Characteristics across sectors, disciplines, and stakeholders to leverage diverse
perspectives, resources, and expertise.
of Social 3. Systems Thinking: Social innovation takes a holistic approach,
Innovation considering the interconnectedness of social, environmental,
economic, and cultural factors in addressing complex challenges.
4. Scalability and Sustainability: Social innovations aim to achieve
scale and long-term impact by designing solutions that are
scalable, replicable, and financially sustainable.
 1. Addressing Social Needs: Social enterprises and social
innovation initiatives directly address pressing social and
environmental challenges, such as poverty, inequality, climate
change, and access to healthcare and education.

Benefits of 2. Economic Empowerment: Social enterprises create economic

opportunities, empower marginalized communities, and
Social contribute to sustainable development by fostering
entrepreneurship, employment, and income generation.
Enterprise and 3. Catalyzing Systemic Change: Social enterprises and social
Social innovation initiatives drive systemic change by challenging
conventional approaches, advocating for policy reforms, and
Innovation fostering collaboration among stakeholders.
4. Building Resilient Communities: Social enterprises and social
innovation strengthen the resilience of communities by
promoting social cohesion, inclusive growth, and environmental
sustainability.
 Importance of SMEs
• Small and Medium-sized Enterprises (SMEs) are the backbone of
Public Policy economies worldwide, contributing significantly to employment
generation, innovation, and economic development.
Towards SMEs • SMEs play a crucial role in driving entrepreneurship, fostering
innovation, and enhancing competitiveness in various industries
and sectors.
 1. Stimulating Entrepreneurship: Public policies aim to create an
enabling environment for entrepreneurship by reducing barriers
to entry, providing support services, and fostering a culture of
innovation and risk-taking.
2. Promoting Growth and Competitiveness: Public policies support
SME growth by providing access to finance, enhancing market
Objectives of access, improving business infrastructure, and facilitating skills
development and capacity building.
Public Policy 3. Enhancing Access to Resources: Public policies aim to improve
Towards SMEs SME access to critical resources such as finance, technology,
markets, and skilled labor through targeted interventions and
support programs.
4. Ensuring Regulatory Environment: Public policies seek to
streamline regulatory frameworks, reduce bureaucratic burdens,
and create a level playing field for SMEs to operate and compete
effectively in the market.
 • Financial Support: Government-backed loans, grants, subsidies, and
venture capital schemes provide SMEs with access to finance for
startup capital, working capital, and investment in growth and
expansion.
• Business Development Services: Public agencies offer training,
mentoring, consultancy, and technical assistance to help SMEs improve
management skills, enhance productivity, and adopt best practices.
Policy • Market Access and Export Promotion: Public policies facilitate SME
access to domestic and international markets through trade fairs,
Instruments to export promotion programs, market intelligence, and networking
opportunities.
Support SMEs • Innovation and Technology Support: Governments invest in research
and development (R&D) funding, technology transfer programs, and
innovation hubs to support SMEs in developing and commercializing
innovative products, processes, and services.
• Regulatory Reform and Simplification: Governments undertake
regulatory reforms to reduce bureaucratic red tape, streamline
business registration procedures, and create a conducive regulatory
environment for SMEs to operate and grow.
 • Small Business Administration (SBA) in the United States: The SBA
provides a range of services, including access to capital,
entrepreneurial development programs, government contracting
opportunities, and advocacy for small businesses.
Examples of • Small Business Act in the European Union: The Small Business Act
Public Policy for Europe sets out a comprehensive framework for EU policy
towards SMEs, focusing on access to finance, market access,
Initiatives for entrepreneurship education, and regulatory simplification.

SMEs • National SME Development Plans: Many countries develop

national SME development plans or strategies to coordinate public
interventions, set policy priorities, and promote SME growth and
competitiveness through targeted initiatives and support
measures.
 1. Access to Finance: SMEs often face challenges in accessing
affordable finance, particularly in the early stages of development
or during periods of expansion. Public policies aim to address these
financing gaps through targeted financial instruments and
incentives.
2. Regulatory Burden: Complex regulatory requirements,
administrative burdens, and compliance costs can impede SME
growth and innovation. Public policies focus on regulatory
Challenges in simplification, administrative reforms, and business-friendly
regulations to alleviate these burdens.
Public Policy 3. Skills and Capacity Building: SMEs may lack the necessary skills,
knowledge, and capabilities to compete effectively in the market.
Towards SMEs Public policies support skills development, vocational training, and
capacity-building initiatives to enhance SME competitiveness and
sustainability.
4. Market Access and Globalization: SMEs face challenges in accessing
domestic and international markets due to barriers such as trade
barriers, market entry costs, and competition from larger firms.
Public policies promote market access, export promotion, and
internationalization strategies to help SMEs overcome these
barriers and expand their market reach.
 • Policy intervention refers to deliberate actions taken by
governments or regulatory authorities to influence the
entrepreneurial environment, address market failures, and
Policy promote desired outcomes.
Intervention • Effective policy intervention can create an enabling environment
for entrepreneurship, stimulate innovation, and drive economic
growth and job creation.
 • Stimulating Entrepreneurship: Policy intervention aims to
encourage entrepreneurial activities by reducing barriers to entry,
providing access to finance, supporting skills development, and
fostering a culture of entrepreneurship.
• Fostering Innovation: Policies support innovation by investing in
research and development (R&D), providing incentives for
Objectives of technology transfer and commercialization, and promoting
collaboration between industry and academia.
Policy • Enhancing Access to Resources: Policy intervention seeks to
Intervention improve SME access to critical resources such as finance,
technology, markets, and skilled labor through targeted initiatives
and support programs.
• Promoting Inclusive Growth: Policies aim to promote inclusive
growth by fostering entrepreneurship among underrepresented
groups, including women, minorities, and rural entrepreneurs, and
addressing disparities in access to resources and opportunities.
 1. Financial Support: Governments provide grants, loans, loan
guarantees, venture capital, and tax incentives to support
entrepreneurship and innovation, particularly for startups and
SMEs.
2. Regulatory Reform: Policy interventions focus on streamlining
business registration procedures, reducing bureaucratic red tape,
and creating a favorable regulatory environment for entrepreneurs
and small businesses.

Types of Policy 3. Education and Training: Policies invest in entrepreneurship

education, vocational training, mentorship programs, and business
development services to enhance entrepreneurial skills, knowledge,
Intervention and capabilities.
4. Infrastructure Development: Governments invest in physical
infrastructure (e.g., transportation, utilities) and digital
infrastructure (e.g., broadband connectivity, digital platforms) to
support entrepreneurship and facilitate business operations.
5. Market Access and Trade Promotion: Policies promote market
access, export promotion, and internationalization strategies to
help entrepreneurs expand their market reach and compete
globally.
 • Evaluation Framework: Assessing the effectiveness of policy
intervention requires a comprehensive evaluation framework that
considers various dimensions, including policy design,
implementation, and impact on entrepreneurial outcomes and
economic development.
Effectiveness • Key Success Factors: Effective policy intervention is characterized
by clear objectives, targeted measures, stakeholder engagement,
of Policy monitoring and evaluation mechanisms, and flexibility to adapt to
Intervention changing circumstances.
• Challenges and Limitations: Policy intervention may face challenges
such as bureaucratic inefficiencies, lack of coordination among
stakeholders, unintended consequences, and resistance from
vested interests. Overreliance on government intervention may
also crowd out private sector initiatives and innovation.
 • Stimulating Social Innovation: Social enterprise policies aim to
encourage the development of innovative solutions to pressing
social and environmental issues, fostering creativity and
entrepreneurship.
• Promoting Social Impact: Policies seek to support social enterprises
Objectives of in achieving their social or environmental missions, whether
through access to funding, capacity-building programs, or market
Social opportunities.

Enterprise • Fostering Ecosystem Development: Policy interventions aim to

strengthen the social enterprise ecosystem by providing
Policy infrastructure, networks, and support organizations to facilitate
collaboration, learning, and growth.
• Ensuring Legal and Regulatory Frameworks: Governments develop
legal structures and regulatory frameworks that recognize and
support social enterprises, clarifying their legal status, rights, and
responsibilities.
 • Access to Finance: Policies provide financial support through
grants, loans, or investment funds tailored to the needs of social
enterprises, enabling them to start up, scale, and sustain their
operations.
• Capacity Building: Governments offer training, mentoring, and
Components advisory services to enhance the management, governance, and
operational capacity of social enterprises, improving their
of Social effectiveness and sustainability.

Enterprise • Market Access and Procurement: Policies promote market

opportunities for social enterprises through public procurement
Policy initiatives, preferential treatment in government contracts, and
access to supply chains of large corporations.
• Impact Measurement and Reporting: Governments support the
development of standardized frameworks and tools for measuring,
assessing, and reporting social impact, enhancing transparency and
accountability in the sector.
 • Social Investment Tax Relief (SITR) in the United Kingdom: SITR
offers tax incentives to investors who support social enterprises,
encouraging investment in socially impactful ventures.
Examples of • Social Impact Bond (SIB) Programs: SIBs are innovative financing
Social mechanisms where private investors fund social programs, and
government pays returns based on the program's success in
Enterprise achieving predefined social outcomes.

Policies • Social Enterprise Development Funds: Many governments establish

dedicated funds or investment vehicles to provide financial support
and investment capital to social enterprises, facilitating their
growth and expansion.
 • Defining Social Enterprise: Defining social enterprise and
distinguishing it from traditional businesses or nonprofit
organizations can be challenging, leading to ambiguity and
inconsistency in policy implementation.
• Access to Funding: Despite policy interventions, social enterprises
Challenges in may still face difficulties in accessing affordable finance,
particularly in the early stages of development or during periods of
Social growth.

Enterprise • Measurement of Social Impact: Measuring social impact accurately

and consistently remains a challenge, as social outcomes are often
Policy complex, multifaceted, and context-specific, requiring robust
methodologies and data collection mechanisms.
• Regulatory Environment: Inadequate legal frameworks or
regulatory barriers may hinder the growth and sustainability of
social enterprises, requiring reforms to create an enabling
environment for social entrepreneurship.