MODULE 2

ENTREPRENEURSHIP

Entrepreneurs organize, manage, and assume responsibility for new business ventures. Their goal is to earn a profit by providing products and services everyone needs. If entrepreneurs are successful in carrying out this task, they can build rewarding careers for themselves.

Many opportunities exist to start new business ventures. But before you decide to become an entrepreneur, you should find out what is involved. This module examines entrepreneurship as a career. You will see if, and how, entrepreneurship fits into your future.

OBJECTIVES:

After studying this module, the student should be able to:

1.      Discuss the advantages and disadvantages of working for oneself.

2.      Describe eight types of entrepreneurs.

3.      Identify the characteristics common to successful entrepreneurs.

4.      Estimate your personal financial needs.

WORKING FOR ONE’S SELF COMPARED 

TO WORKING FOR OTHERS

Thousands of Filipinos are interested in starting their own business. However, many think only of the rewards and give little thought to the risks. In this section, you will look at both the advantages and the disadvantages of being an entrepreneur.

Advantages of Working for Yourself

Those who choose entrepreneurship as a career usually do so for five appealing reasons: (1) personal satisfaction, (2) independence, (3) profit, (4) job security, and (5) status.

Personal Satisfaction. To some persons, the chief reward of working for yourself is personal satisfaction. Personal satisfaction means doing what you want with you life. As an entrepreneur, you will be able to spend each workday in a job you enjoy. For example, if you like photography, you may start your own studio. Each time a customer is pleased with a portrait, you will receive personal satisfaction.

You may have personal satisfaction from aiding the community in which you live. Entrepreneurs supply goods and services and create jobs for residents. They also buy goods and services from other local enterprises, borrow money from local banks, and pay taxes.

Independence. Another advantage of entrepreneurship is independence. Independence is freedom from the control of others. As an entrepreneur, you decide how you will use your knowledge, skills, and abilities. Compared to those who work for others, entrepreneurs have more freedom of action. They are in charge and can make decision without first getting the approval of someone else.

If you choose to become an entrepreneur, you can develop any creative ideas you have—assuming, of course, that the business is legal and that you have money to invest.

Profit. One of the major rewards expected when starting a new business is profit. Profit is the amount of sales income left after all expenses have been paid. Profits go to the owner of a business. Being self-employed, you would receive all the profits. Very often, increased time and effort put into the enterprise result in increased income. This is not often the case when you work for someone else.

Job Security. Many enterprises are created by persons who are seeking job security not available elsewhere. Job security is the assurance of continuing employment and income. Entrepreneurs cannot be laid off, fired, or transferred to another city, nor can they be forced to retire at a certain age because of company policy.

Status. Self-employed people often enjoy personal benefits, such as status. Status is a person’s social rank or position. Entrepreneurs receive attention and recognition through customer contact and public exposure. As a result, they may enjoy status above that of many blue-collar and white-collar workers.

Closely related to socials status is pride in ownership. Most people enjoy, at least for a while, seeing their names on buildings, on stationery and business cards, and in advertisements.

Disadvantages of Working for Yourself

In addition to knowing the advantages of working for yourself, you should also be familiar with the disadvantages: (1) possible loss of invested capital, (2) uncertain or low income, (3) long hours, and (4) routing chores.

Possible Loss of Invested Capital. A risk of entrepreneurship is the possibility of losing invested capital. Invested capital refers to the entrepreneur’s money used in starting the enterprise. As a general rule, the riskier the business, the greater the profit potential. If the enterprise succeeds, profits may be high; if not, invested capital may be lost. The entrepreneur risks losing personal and family savings. It may take years to repay banks, suppliers, or individuals who made loans to get the business started.

Uncertain or Low Income. Another disadvantage of owning your own business is the possibility of uncertain or low income. Unlike paychecks of salaried workers, profits usually vary from month to month. This is true even in well-established enterprises. When income is available, there may not be enough to meet personal and family needs. This is often the case during the first six to twelve months of operation. The level of sales and income tends to be low in these early months when the business is not known to many people.

Long Hours. Entrepreneurs are not 8-5 persons; they do not punch time cards. Many entrepreneurs work fourteen and fifteen hours a day, six or seven days a week. The owner is often the first to arrive in the morning and the last to leave at night. Business hours are set at the convenience of customers, not the desire of the owner. For example, many mall stores are open from 10 am to 9 pm. Likewise, many restaurants open before noon and do not close until after midnight. Not only are the hours long, but also the time between vacations. Some entrepreneurs feel than cannot leave their businesses for more than one or two days at a time.

Routine Chores. Running your own business may involve chores you d on not like. For example, new business owners expect to do some paperwork. However, many do not realize how much is required until the business is started. By that time, some feel they are buried under a mound of paper. One of the surprises is the extent of record keeping for items such as billing, payroll, and taxes. Maintenance and cleaning are other chores that must be performed each day. While it is possible to hire employees to perform these routine duties, a shortage of cash may prevent owners from doing so.

IDENTIFYING TYPES AND CHARACTERISTICS OF

ENTREPRENEURS

An entrepreneur is a person who attempts to earn a profit by taking the risk of operating a business enterprise. While all entrepreneurs may have certain characteristics in common, no two entrepreneurs are exactly alike.

Types of Entrepreneurs

Entrepreneurial characteristics combined in different people result in different types of entrepreneurs. Entrepreneurs are classified into the following types: (1) solo self-employed individuals, (2) team builders, (3) independent innovators, (4) pattern multipliers, (5) economy-of-large-scale exploiters, (6) capital aggregators, (7) acquirers, and (8) buy-sell artists.

Solo Self-Employed Individuals. Entrepreneurs who work alone or with only a few employees are known as solo self-employed individuals. They generally perform the work themselves rather than assigning it to other people. Solo self-employed individuals are perhaps the most numerous of all entrepreneurs. Their ranks include small store and repair shop owners, independent sales representatives, attorneys, and physicians.

Team Builders. Entrepreneurs who expand small, usually one-person businesses into larger companies are team builders. An example is a self-employed electrician who gradually hires additional employees until a full-scale electrical contracting firm is established.

Independent Innovators. Individuals who create companies to manufacture and sell products they have invented are independent innovators.

Franchisers. Entrepreneurs who build several units of an effective business are known as franchisers. The entrepreneurs may have designed and built the original business, or they may have purchased a business started by someone else. Once this type of entrepreneur is successful with a business, the entrepreneur establishes for profit similar units elsewhere. Perhaps the best example of this type of entrepreneur is one who perfects a method of doing business and sells it to others.

Economy-of-Large-Scale Exploiters. When a firm has lower average costs due to its large sales volume, economies of large scale are involved. Entrepreneurs who can sell a large volume of goods at reduced prices are economy-of-large-scale exploiters. Discount store operators are one example of this type of entrepreneur. Because of the larger scale of their establishments, the may be able to afford advanced and specialized equipment such as the scanners built into the checkout counters at some larger supermarkets. This equipment enables one cashier to handle more customers in less time, thus lowering the store’s payroll expense because fewer cashiers are needed. Economy-of-large-scale exploiters often obtain merchandise at a price discount because they buy in such large quantities.

Capital Aggregators. Entrepreneurs who take the lead in establishing financial institutions that require a large amount of start-up capital are capital aggregators. Those who start banks and insurance companies are examples of this type of entrepreneur.

Acquirers. People who become entrepreneurs by buying an existing business are acquirers. Finding a business that someone is ready to sell is not usually difficult. Check the classified section of your local newspaper. You may be surprised at the number and variety of businesses for sale in your community.

Buy-Sell Artists. Rather than making their money from the day-to-day operations of a business, buy-sell artists turn profit by buying a business and then selling it at a higher price. Buy-sell artists usually buy companies with problems that they solve before they sell the company. Typical actions include reducing costs and payrolls and eliminating unprofitable products. IN most cases, buy-sell artists do not wish to own a particular company for more than a few years.

Characteristics of Successful Entrepreneurs

Whatever type of entrepreneur, successful entrepreneurs are often described as being persons who (1) take moderate risks, (2) have self-confidence, (3) work hard, (4) set goals, (5) are responsible, (6) are innovative, (7) have technical knowledge, and (8) have business knowledge.

Moderate In Taking Risks. Persons who quit secure jobs and invest money in a new enterprise have much at stake. They are taking a risk. Their businesses may succeed and provide profits for years to come. On the other hand, the business may fail and cause financial ruin. Entrepreneurs are willing to take middle-of-the-road or moderate risks. Moderate risks means the chances of winning are neither too small nor too great. That is, results are not left purely to chance, nor are they sure to happen. Instead, they depend on a person’s abilities and actions.

Entrepreneurs like challenges suited to their skills. They want to make things happen rather than let them happen by chance.

Self-Confident. Successful entrepreneurs have self-confidence. Self-confidence means believing you can achieve what you set out to do. You are not afraid to take chances. You know you can get the job done. This strong inner feeling about oneself is important for the owner of a small business. It can often spell the difference between success and failure. Self-confidence sustains the owner during the difficult times in the growth of the new business.

Having self-confidence also means you are realistic and you know the limits of your abilities. You know what you can and cannot do. Entrepreneurs are not afraid to ask for help with difficult tasks.

Hardworking. Creating a new enterprise is hard work. Helping customers, keeping accounting records, and cleaning are just a few duties you may have to perform on a given day. You may also have to make deliveries, order supplies, and repair equipment. Much work must be done with few, if any, employees to help. Therefore, good health and physical stamina are important.

Only when their businesses are firmly established do entrepreneurs feel the freedom to put in fewer hours. Even then, however, they are ready to work when a job must be done.

Goal-Oriented. Do you know what you want to achieve in life? Successful entrepreneurs know where they are going by setting goals. A goal is an objective, something you plane to achieve. Your chances of becoming a business owner are slim unless you first decide you want to own your own business.

An example of a goal could be to get a summer job in a fast-food restaurant. Another example could be to have your own fast-food restaurant within five years.

You should learn to focus on one goal at a time. Direct all your energy toward this goal. When you have attained it, go to the next goal. If you try to pursue several goals at once, you can become confused and lose sight of your target.

Responsible. When you are responsible, you answer or account for what happens. You accept blame for failure, and you accept credit for success. An as entrepreneur, you will be responsible for the success or failure of your business. You will set goals and hold only yourself responsible if they are not met.

Entrepreneurs have many responsibilities. They must pay debts and wages. They must keep promises to employees or customers. They must also be willing to make personal sacrifices. For example, during busy seasons, the owner may not be able to take vacations with the family.

Innovative. Successful entrepreneurs are innovative because they introduce new ideas or methods. They try to improve existing products and services or create new products and services. Entrepreneurs invented fiberglass snow skis, video games, ballpoint pens, zippers, and automatic transmissions. They also introduced fast-food restaurants, quick oil change shops and computer shops.

Perhaps you have a new idea for a gift shop, a landscaping service, or a day-care center. Of course, not all ideas can be turned into profitable businesses. If you find one that can, you may build a satisfying career for yourself.

Knowledgeable About Technical Factors. You must have technical knowledge to succeed as an entrepreneur. Technical knowledge is what you know about a product or service. For example, a photographer must know how cameras operate. A pet shop owner must learn about the care of animals. A printer must have knowledge of different printing presses, inks, and papers.

One way to gain technical knowledge is by taking classes in school. You may also gain technical knowledge from a hobby or from a job in your area of interest. Make sure you have technical knowledge before you start a new enterprise.

Knowledgeable About Business Factors. You will also need business knowledge. Business knowledge is knowing how to operate the enterprise. Entrepreneurs must see that all tasks are performed appropriately. Examples are helping customers, setting prices for products and services, paying bills, planning advertising, and keeping accounting records.

ESTIMATING YOUR PERSONAL FINANCIAL NEEDS

It may be months or even years before the enterprise can provide you with enough money for living expenses. Every year, promising new enterprises are closed before they really get a chance to prove themselves. The owners simply run out of money and must obtain salaried jobs to support themselves and their families.

It is important, therefore, to estimate your personal financial needs. Do this for a period of three to six months. Then make sure your will have the money to cover that time period. If the money will not be available, you would be wise to delay the starting of the enterprise.

Questions to Answer:

Part I.

Kindly answer the following questions.

1.      What are the advantages and disadvantages of working for yourself?

2.      Enumerate the eight types of entrepreneurs. Explain each.

3.      List the characteristics of successful entrepreneurs. Explain each.

4.      What are the five factors you should study before getting into franchising? Elaborate.

5.      Compare the three ways of going into business by writing the advantages and disadvantages of each.

Part II.

Analyze the following case and answer the questions.

OLD STATION RESTAURANT

          Twenty years ago, when the bus company decided to close the station near the edge of town, Carolyn and Jeffrey Milano leased the property. They remodeled the building and opened the new business, the Old Station Restaurant. The menu consisted of lunch, dinner and an assortment of desserts.

          Carolyn and Jeffrey’s ideas about the type of restaurant that would be successful in town must have been correct. The Old Station Restaurant has been both popular in town and profitable to the Milano family.

          Within the last few years, the dessert items on Old Station’s menu have gained a reputation of their own. Many people buy a whole cake or pastries to take home with them. Even those who have eaten dinner at home or in another restaurant will have their dessert at the Old Station.

          Katherine Milano, Carolyn and Jeffrey’s daughter, is now managing the restaurant. In studying the various items on the menu, she found that desserts are the highest profit items. Following a discussion with her parents, she has decided to package dessert items, particularly cakes and pastries, and distribute them for sale through supermarkets in the area. The brand name that has been chosen is “Old Station Dessert Goodies.”

          The business, which will be reorganized and called Milano Foods Company, will consist of two divisions: Old Station Restaurant Division and Old Station Dessert Goodies Division. Katherine will be president of Milano Foods and will continue to manage the restaurant. She is in the process of hiring a manager for the dessert division. Several people applied for the job by sending their personal data sheets to Katherine. She has narrowed the choice to two people: Ralph Adamos and Michelle Sison. However, Katherine is having rouble making the final selection. Both Ralph and Michelle appear to be qualified for the job, and they each made good impressions in their interviews. When she asked them to describe briefly how they would operat the dessert division, Ralph answered, “As the manager, I would oversee the day-to-day operations of the business.” Michelle said, “I would run the dessert division just as an entrepreneur would.”

Questions:

1.      Which of the two people should Katherine hire? Why?

2.      Would a person who has the characteristics of and entrepreneur be happy working for someone else? Give details.

3.      Assume that Katherine wants to hire Michelle, but Michelle will accept the job only if she is allowed, in most cases, to run the business as an entrepreneur. Is there anything Katherine could do that would satisfy Michelle’s request? Explain.