Summary 02

Why Entrepreneurs Are Important for the Economy

Entrepreneurs can change the way we live and work. If successful, their innovations may
improve our standard of living. In short, in addition to creating wealth from their
entrepreneurial ventures, they also create jobs and the conditions for a prosperous
society.
1. Entrepreneurs Create New Employment – They create new business and as a
result, new employment is offered.
2. Entrepreneurs Add to National Income – They generate new wealth. This
enables new markets to be developed and new wealth created. Additionally, the
cascading effect of increased employment and higher earnings contribute to
better national income in form of higher tax revenue and higher government
spending.
3. Entrepreneurs Also Create Social Change – Entrepreneurs break away from
tradition and indirectly support freedom by reducing dependence on obsolete
systems and technologies. This will impact their business, productivity, and
income. Imagine an innovative, automatic, low-cost, flow-based pump that can fill
in people's home water containers automatically.
4. Community Development – Entrepreneurs regularly nurture entrepreneurial
ventures by other like-minded individuals. They also invest in community projects
and provide financial support to local charities. This enables further development
beyond their own ventures.
What Characteristics Build Up an Entrepreneur?
The word itself is derived from the French word “entrependre”, which means “to
undertake.” During the middle ages, early entrepreneurs undertook the provision of men
and materials to feudal lords to wage war against their enemies.

The History of Entrepreneurship

Before there were people choosing to launch their own small-scale businesses, the
economies were largely controlled by industrialists. Before World War II, people were
basic consumers. No one dared to venture into their own businesses because it
requires extensive capitalization and resources.
World War II ushered in an era of wealth and higher incomes. Thus, people turned into
passive consumers. The western economies, in particular, grew wealthy and real wages
rose.
Globalization changes the world. It pushed technology to new heights, created new jobs
in the service sectors, opened overseas markets, and provided better quality of life for
many. One of its contributions is the era of “small is beautiful.” These are small, fleet-
footed, and agile enterprises that have competitive advantages compared to giant
corporations. They can create innovative products and services faster to exploit market
opportunities.

The value chain consists of primary and support activities. The primary activities relate
directly to the physical creation, sale, maintenance and support of a product or service.
They consist of the following:
Inbound logistics – receiving, storing, and distributing inputs internally.
Operations – transformation activities that change inputs into outputs that are
sold to customers.
Outbound logistics – delivering your product or service to your customer.
Marketing and sales – processes used to persuade clients to purchase from you
instead of your competitors.
Service – activities related to maintaining the value of your product or
service. The support activities aid the primary functions enumerated. It consists
of the following:
Procurement (purchasing) – getting resources it needs to operation.
Human resource management – recruitment, hiring, training, motivating,
rewarding, and retaining its workers.
Technological development – managing and processing information, as well as
protecting a company's knowledge base.
Infrastructure – company's support systems, and the functions that allow it to
maintain daily operations.
Four (4) Types of Business Organizations
Type of Organization Advantages Disadvantages
 Easily created  Unlimited liability –
Sole Proprietorship – and terminated owner’s personal
initiated, organized  Ownership and assets
and owned and rewards in one person  Limitations in capital
managed by a single  Flexibility to changes  Perils if the owner dies
person  Minimum regulation or becomes ill
and taxation  Limited skills
and capabilities
 Pooling of  Unlimited liability
Partnership – two (2) resources (talents – solitarily liable
or more partners who and assets)  Termination can happen
co- own a business to  Ability to obtain capital  Difficult in
make a profit  Incentive of each partner reconciling business
to make it successful interests
 Limited regulation  Problems in
and taxation share
liquidation
  Limited liability  Legal formality
Corporation – exist in  Legal entity protected and regulations
contemplation of law; by law  Cost and time
life is separate and  Ownership can be in
distinct from the readily transferred incorporation
stockholders  Obtaining capital  Taxation
 Employee benefits  Potential loss of control
by the owners
Cooperative – duly  Open and  Limited interest on shares
registered group of voluntary  Inequality of
persons with a membership profit distribution
common interest to  Democratic control  Pro-poor bias might
voluntarily join by members deviate from the profit
together to achieve a  Education is mandated orientation

lawful social  Cooperation among

and economic fellow cooperatives
end.  Direct benefits to
members and
community
 Tax privileges
  Human resource management – recruitment, hiring, training, motivating, rewarding, and
retaining its workers.
 Technological development – managing and processing information, as well as protecting
a company's knowledge base.
 Infrastructure – company's support systems, and the functions that allow it to maintain
daily operations.
Four (4) Types of Business Organizations
Type of Organization Advantages Disadvantages
 Easily created and  Unlimited liability –
terminated owner’s personal assets
Sole Proprietorship –
 Ownership and rewards in  Limitations in capital
initiated, organized and
one person  Perils if the owner dies or
owned and managed by a
 Flexibility to changes becomes ill
single person
 Minimum regulation and  Limited skills and
taxation capabilities
 Pooling of resources  Unlimited liability –
(talents and assets) solitarily liable
Partnership – two (2) or
 Ability to obtain capital  Termination can happen
more partners who co-
 Incentive of each partner to  Difficult in reconciling
own a business to make a
make it successful business interests
profit
 Limited regulation and  Problems in share
taxation liquidation
 Limited liability  Legal formality and
 Legal entity protected by regulations
Corporation – exist in
law  Cost and time in
contemplation of law; life
 Ownership can be readily incorporation
is separate and distinct
transferred  Taxation
from the stockholders
 Obtaining capital  Potential loss of control by
 Employee benefits the owners
Cooperative – duly  Open and voluntary  Limited interest on shares
registered group of membership  Inequality of profit
persons with a common  Democratic control by distribution
interest to voluntarily join members  Pro-poor bias might deviate
together to achieve a  Education is mandated from the profit orientation
lawful social and  Cooperation among fellow
economic end. cooperatives
 Direct benefits to members
and community
 Tax privileges