Topic 1: Entrepreneurship and

Small Business
Zainon Che Mat
 Entrepreneur
• Definition
– French word ‘entreprendre’ – to undertake or take
in one’s own hands
– Individual who had formulated a venture idea,
developed it, assembled resources and created a
new business venture
– One who creates a new business in the face of risk
and uncertainty for the purpose of achieving
profit and growth by identifying significant
opportunities and assembling the necessary
resources to capitalise on them. (Scarborough,
2014).
 Successful Entrepreneur
1. Desire for responsibility
2. Preference for moderate risk
3. Confidence in their ability to succeed.
4. Determination
5. Desire for immediate feedback
6. High level of energy
7. Future orientation
8. Skill at organizing
9. Value of achievement over money
 Richard Branson
• Richard Branson, founder of Virgin Group, a diverse collection
of more than 300 global companies, admits that most people
believe that he has “an unusually high tolerance for risk”.
However, Branson says,
• “Our actions spring from another principle: Always protect the
downside. It should be a guideline for every entrepreneur.”
• Before Branson launched airline carrier Virgin Atlantic
Airways, he created a contract with Boeing, the plane’s maker,
that minimized his risk.
• “We could hand the plane back at the end of the first year if
people didn’t like our business. If it didn’t work out, it wasn’t
going to bring everything else crashing down.”
• Virgin Atlantic Airways now generates profits of more than
€45 million.
 3 types of entrepreneurs
• Opportunity entrepreneur
– Entrepreneurs who start business because they
spot an opportunity in the marketplace
• Necessity entrepreneur
– Entrepreneurs who start business because they
cannot find work any other way
• Serial entrepreneur
– Entrepreneurs who repeatedly start businesses
and grow them to a sustainable size before
striking out again
 Characteristics of entrepreneurs
1. High degree of commitment
2. Tolerance for ambiguity
3. Flexibility
4. Willingness to work hard
5. Tenacity (persistence)
 Entrepreneurship
• Definition
– The process, brought about by individuals, of
identifying new opportunities and converting
them into a marketable products or services.
The Key Elements of Entrepreneurship
1. Entrepreneur – active search of opportunity,
entrepreneurial alertness, prior knowledge,
social networks
2. Opportunity
3. Resources
4. Organisation
5. Environment
 Benefits of entrepreneurship
1. Opportunity to create your own destiny
2. Opportunity to make a difference
3. Opportunity to reach your full potential
4. Opportunity to reap impressive profits
5. Opportunity to contribute to society and be
recognized for your efforts
6. Opportunity to do what you enjoy and have fun at it
 Potential Drawbacks of
Entrepreneurship
1. Uncertainty of income
2. Risk of losing your entire investment
3. Long hours and hard work
4. Lower quality of life until the business gets
established
5. High levels of stress
6. Complete responsibility
7. Discouragement
 The Process of New Venture Creation
• Recognition of Opportunities
– Environment: community, political, economic, sociocultural
– Opportunity
– Individuals: alertness, knowledge, social network,
aspirations
• Evaluation of Opportunities
– Intention – concentrate steps to evaluate and shape the
opportunity: market research, gather resources and
business plan
• Exploitation of Opportunities
– Decision found (triggers > barriers) or Abandon (triggers <
barriers)
Role of entrepreneurship in economic
growth and development
• Macro- level: a process of creative destruction
• The new destroys the old
• Entrepreneurs are central to the process of
creative destruction; they identify
opportunities and bring the new technologies
and new concepts into active commercial use.
 Values, politics and economic
institutions
• Values
– Readiness for change, or willingness to live with it,
essential if a society to get richer.
• Politics
– Types of government
• Economic institutions
– Tools used by entrepreneurs to capitalise on
opportunities and convert those opportunities into
marketable products or services
– Part of the framework conditions influencing
entrepreneurship
 The Power of “Small” Business
• One that employs fewer than 100 people
• Gazellas:
– Small companies that are growing at 20 percent or
more per year with at least $100,000 in annual
sales; they create 70 percent of net new jobs in
the economy.
 Small Business:
What You Need to Know

• The Small Business Administration (SBA)

defines a small business as an
independently owned business that
usually has the owner as its manager.
• They are the principal source of new
jobs.
 Advantages of Small Business

Some of the advantages of owning a small

business are:
• Being the boss
• Offering services large companies
cannot offer
• Ease of formation
 Disadvantages of Small Business

When you’re a small business owner,

you’re responsible for decisions.
You often work long hours and have great
financial responsibility.
About four out of five small businesses fail
in their first five years.
Cont/..

Small business owners may mistake the

freedom of being in business for oneself
for the liberty of working or not.
A small business may underprice or
overprice goods or services.
Going into business with little or no
experience may result in the business
closing.
 Disadvantages of Small Business

The following are three specific reasons

why a small business might not work:

1) Effect of Change
Consumers’ tastes change. If flexibility
and change are not part of the
business, then it’s likely to fail.
Cont/..
2) Managerial Skills Needed
A small business owner must have
multiple skills including:
** Financing
** Employess Relations (Management)
3) Indequate Financing Plannig
Starting with little money, spending
carelessly, borrowing money without
planning, and forgetting about taxes and
insurance may result in a failure.
Cont/..
2) Managerial Skills Needed
A small business owner must have
multiple skills including:
** Financing
** Employess Relations (Management)
3) Indequate Financing Plannig
Starting with little money, spending
carelessly, borrowing money without
planning, and forgetting about taxes and
insurance may result in a failure.
 How to Avoid the Pitfalls?
1. Know your business in depth
2. Develop a solid business plan
3. Manage financial resources
4. Understand financial statements
5. Learn to manage people effectively
6. Set your business apart from the competition
7. Maintain a positive attitude
 Table 1: Definition of SMEs in Malaysia
Category Microenterprise Small Medium
enterprises Enterprises
Manufacturing, Sales turnover of less Sales turnover Between Sales turnover between
Manufacturing than RM250,000 OR RM250,000 and RM10 RM10 million and RM25
Related services and Full – time employees million OR full-time million OR full-time
Agro-based Industries less than 5 employees between 5- 50. employees between 51-150.
Services, Primary Sales turnover of Sales turnover Sales turnover between
Agriculture and less than RM200,000 Between RM200,000 RM1 million and RM 5
Information and OR Full - time and RM1 million OR million OR full-time
Communication employees less than 5 full-time Employees employees between
Technology (ICT) between 5 and 19 20 and 50
(Source: http://www.smidec.gov.my/node/33
 Review Questions
• What are the key elements of
entrepreneurship?
• What are the critical stages in the process of
new venture formation?
• What are the central factors necessary for
entrepreneurship to thrive in a country?
• Can entrepreurship be taught and learned?
 Source
• Scarborough, N.M. (2014). Essentials of
Entrepreneurship and Small Business
Management, Pearson, Global Edition.
• Schaper, M., and Volery, T. (2007),
Entrepreneurship and Small Business, 2nd
Pacific Rim Edition, John Wiley & Sons
Australia, Ltd.