Chapter 1: Entrepreneurship defined
Learning outcomes
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Define the concept of ‘entrepreneurship’
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Differentiate between innovation and entrepreneurship
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Explain the importance of entrepreneurship in the South African economy
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Explain the entrepreneurial process
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Evaluate the impact of the environment on entrepreneurship.
1.1 Innovation and entrepreneurship
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The two terms are interlinked, but are not synonyms
Innovation: A specific tool of entrepreneurship used to exploit change as opportunity for
different business or service
Entrepreneurship: The process of creating something new through committing resources
and enduring risks to achieve rewards
1.2 The importance of entrepreneurship
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Changing ideas into products creates sustainable competitive advantage for
economies, organisations and individuals
Leads to higher quality of life and economic opportunities
Commercialising innovation bridges the gap between market needs and innovators’
inventions, but is a challenge
SMMEs play a critical role in South Africa’s entrepreneurial activities
It is a struggle to move from nascent entrepreneurship the establishment of a new
businesses
1.3 Types of entrepreneurs
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Nieman and Nieuwenhuizen (2009) identify five types:
• Basic survivalist: Operates as an entrepreneur to survive until he or she obtains a
formal-sector job or entrepreneurial opportunity
• Pre-entrepreneur: Is involved in welfare-based entrepreneurship where profit
maximisation is less important than the collective
• Subsistence entrepreneur: Is involved in independent income-generating activities,
operating as a small-scale vendor
• Micro-entrepreneur: A formal-sector entrepreneur with zero to 10 employees
• Small-scale entrepreneur: A formal-sector entrepreneur with 11 to 49 employees.
1.3 Types of entrepreneurs (continued)
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In addition to these:
• Necessity entrepreneur: Starts a business because he or she has no other choice
• Lifestyle entrepreneur: Places a lifestyle above all else in a choice of business
• Tenderpreneur: Has access to government tenders to build a platform for their
businesses to grow
• Social entrepreneur: Motivated by a desire to change socio-economic, educational,
health or environmental conditions
• Serial entrepreneur: Conceptualises and executes business models to sell to
shareholders, investors or other businesses
• Solopreneur: Operates alone in managing and running the business
1.4 Ubuntu and entrepreneurship
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Social entrepreneurs act as change agents for society, coming up with solutions to
social problems
This is in line with principles of ubuntu
Not only social entrepreneurs should apply ubuntu principles: all entrepreneurs should
do so
Applied to business, ubuntu may establish progressive business partnerships, and
organisational strategies that encourage economic growth of communities in Africa
This is in line with corporate social responsibility
1.5 The entrepreneurial process
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Step 1: Idea generation
Step 2: Opportunity evaluation
Step 3: Business plan development (planning the venture)
Step 4: Determination of required resources
Step 5: Formation and management of business enterprise
Step 6: Growth and harvest
1.5.1 Step 1: Idea generation
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Idea: Concept of a product/service that does not exist or is not available within a market
niche
Opportunity: Idea for a new product/service with a market that is willing to pay for that
product/service
Innovation: The process of making changes to something that can add value for
customers
Best source of new ideas: Consumers
Other sources: Business associates, channel members, technical people
Each opportunity must be carefuly screened and evaluated
1.5.2 Step 2: Opportunity evaluation
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Five basic questions to ask to determine whether an opportunity is worth investing in:
1. Is there a sufficiently attractive market opportunity?
2. Is your proposed solution feasible?
3. Can we compete (is there sustainable competitive advantage)?
4. Do we have a team that can capitalise on the opportunity
5. What is the risk/reward profile, and does it justify investment of time and
money?
This is the first step towards convincing others (prospective customers, employees or
investors) of the potential of the venture
1.5.3 Step 3: Business plan development
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Planning of the venture takes place in this step
Starts with the development of the strategy of the venture
Who are target customers and how you will reach them?
Vision is an element of strategy: How the venture wants to be known or thought of
A good business plan is essential for developing and exploiting an opportunity
This is a time-consuming phase
1.5.4 Step 4: Determine the resources
required
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Starts with an appraisal of the entrepreneur’s present resources
Distinguish between critical and helpful resources
Do not underestimate the amount or variety of resources the business needs
Consider the downside risks of insufficient or inappropriate resources
Focus on acquiring the required resources in time while giving up as little control as
possible – maintain a large ownership position
Identify alternative suppliers of resources
Understand resource supplier needs
1.5.5 Step 5: Formation and management of
business enterprise
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Starts with an appraisal of the entrepreneur’s present resources
Distinguish between critical and helpful resources
Do not underestimate the amount or variety of resources the business needs
Consider the downside risks of insufficient or inappropriate resources
Focus on acquiring the required resources in time while giving up as little control as
possible – maintain a large ownership position
Identify alternative suppliers of resources
Understand resource supplier needs
1.5.6 Step 6: Growth and harvesting
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Ensure that the business is running efficiently
Do not neglect existing customer base when choosing growth strategy
Timing is critical to success of growth strategy
Evaluate the present position of the business to make sure that consolidation efforts
will be effective
Harvesting strategy: Use profits from mature brands to increase funding for more
promising businesses
1.6 The impact of the environment on
entrepreneur
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Entrepreneurs cannot succeed if they are not aware of the impact of the greater
environment (macro- and micro-environment) on their businesses
Environments impose Strengths, Weaknesses, Opportunities and Threats (SWOT) on
the entrepreneur
It is in the entrepreneur’s control to reduce the weaknesses in the venture and build on
its strengths
Strengths and weaknesses: Micro-environment
Opportunities and threats: Macro- and market environments
The micro-environment
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Represents:
• The entrepreneurial venture itself
• The technology or machinery needed
• The team you will employ and their necessary skills
• All relevant input materials
Strengths and weaknesses are found here as they are internal and can be controlled
Reduce weaknesses in the venture as competitors will exploit them
Build strengths in the venture to combat the impact of competitors
The market environment
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Encompasses the specific industry in which your venture will function
Consists of:
• Customers
• Competitors
• Suppliers
• Distributors
• Labour force
Each of these impacts directly on the micro-environment
The macro-environment
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Encompasses South Africa as a whole – regardless of a venture’s industry, all ventures
are subject to the same laws and economic situation
Factors in the macro-environment:
• Economic factors: Influence the amount of money that entrepreneurs have
available (interest rates, petrol price, inflation)
• Technological factors: Changes in technology influence how businesses operate
• Political-legal factors: Influence every business in South Africa (e.g. laws governing
minimum wage, BEE, pollution)
• International factors: Importing and exporting
• Demographic factors: The constitution of the nation’s people
• Ecological factors: Responsibility towards the environment