The entrepreneur is a human factor of production whose main functions are to organise the other factors of production and bear risks.
The entrepreneur consciously moves resources from an area of lower productivity and lower yield to an area of higher productivity and higher yields.
The entrepreneur may also be seen as one who creates a new business in the face of risk and uncertainty, for the purpose of achieving profits, by identifying opportunities and assembling the necessary resources to capitalise on them.
Entrepreneurship is the process or the act of organising resources and acceptance of risk and uncertainty for the purpose of capitalising on opportunities with the aim of achieving profit.
Role of the entrepreneur
1. Conceptualising: The entrepreneur must formulate ideas regarding the type of business and the type of product that can be put on the market. He must also think of the size of the production in order to make a profit.
2. Planning: This means that the entrepreneur will consider the future and what is to be done in the future with regard to what has been conceptualised. The entrepreneur will make short-term as well as long-term plans. Overall, policies and organisational structure will have to be worked out. Planning also includes outlining the duties of managers and setting targets to be met, for example, production and sales targets.3. Accessing funds: The entrepreneur is responsible for raising funds or finances before production begins and whenever the business needs additional capital for expansion. This does not mean that the funds must come from the entrepreneur’s own pocket. Apart from savings, the entrepreneur can use other sources of finance, including:
- Borrowing from friends and relatives
- Attracting foreign investors
- Acquiring partners
- Financial institutions.
4. Organising: This involves bringing together the other factors of production in order to ensure efficiency, maximum output and maximum profits.
5. Operating: Once the entrepreneur has chosen the right form of ownership, made short-term and long-term plans and organised resources, including time and money, he may begin to operate or run the business. Operating the business will involve the functional areas of production, marketing, finance and personnel. Operation of the business results in the production and sale of a good or service with the view to making a profit.
6. Evaluating the performance of a business: One of the functions of managers is evaluating. This is done at the end of the production process to see if the entire process has been successful and to see if the goals of the organisation have been met. Problems and failures are reviewed and suggestions are made and put in place to avoid these in the future.
7. Bearing risks: A risk is a chance. There are two types of risks: a) insurable and b) non-insurable risks. It is the responsibility of the entrepreneur to take out policies against those risks which can be insured, for example, the threat of theft, fire, flooding, etc. Those risks which cannot be insured against must be borne on the shoulders of the entrepreneur. Such risks are referred to as uncertainties, for example, a sudden change in the demand for the product. Entrepreneurs must be willing to take risks or chances in order to make profits.
8. Reaping profits or the bearing of losses: The entrepreneur’s reward for organising the factors of production and bearing risks is profit. To gain profit, the entrepreneur must sell the good or service for more than it costs him to produce. That is, average revenue must be greater than average cost. If he sells for less than it costs him to produce, he will make losses. In the long run, he will leave the industry and go into one where he can, at least, make normal profit.
In some forms of operations by entrepreneurs, profits and losses are shared, for example, partnerships. In other forms, for example, the sole trader, profits and losses belong to the owner of the business.
Your task for this week is to do some research on what should be the characteristics of the typical entrepreneur. Write a few sentences on each characteristic.
The entrepreneur and entrepreneurship (part 2)
Yvonne Harvey, Contributor
Last week I left you with the task of reading and making notes on the characteristics of the typical entrepreneur. What did you come up with? Compare your notes with what I have provided in this lesson and bear in mind that these characteristics help to make a successful entrepreneur.
An entrepreneur should be:
1. Creative. This means being able to use the imagination to invent something different or original.
2. Innovative. In other words, be able to find new methods or ways of doing things and to make changes where necessary. It also involves bringing in new ideas.
3. Flexible. This means to be easily adaptable. In this rapidly changing world, the entrepreneur must adapt to changes in technology and changes in demand. Rigidity often results in failure.
4. Goal-oriented. Whatever the entrepreneur does should be towards achieving the goals or objectives of the business. He or she should not be sidetracked into doing things that have no bearing on the aims and objectives of the business.
5. Persistent. The entrepreneur should be able to continue firmly in a certain course of action despite difficulties. This does not mean, however, that there should not be changes where necessary. Remember, we have already said that the entrepreneur should be flexible. However, being persistent means not giving up on an idea or project at the first sight of problems. Efforts should be made to ‘iron out’ the problems and continue the projects, resulting in the achievement of the goals and objectives of the business.
6. Highly committed. If the entrepreneur has a high degree of commitment, then hard work and perseverance should pay off.
7. Able to take calculated risks. This means that the entrepreneur should be someone who has a sense of searching for opportunities and is willing to take chances based on the fact that the person has studied what is involved and feels that there can be success and achievement of the well-defined goals of the business. Thus, the entrepreneur will spot and capitalise on opportunities.
8. Able to handle uncertainties. The risks that cannot be insured against are referred to as uncertainties. These risks must be dealt with by the entrepreneur.
Entrepreneurs often have the desire to start up a business. What are some of the reasons that he will want to do so? This question brings us to our next subheading: Reasons for wanting to start a business. Let us begin by defining a business.
A business refers to an individual or a group of individuals involved in some commercial activity, such as producing or selling goods and services, with the aim of making a profit. Where persons are engaged in such activities but not with the aim of making a profit, then they cannot be regarded as a business.
There are two main reasons for wanting to set up or start a business:
(i) Desire for financial independence
Let us now expand on these two reasons.
Desire for financial independence
Some people set up businesses in order to gain money so that they will not have to rely on others for money for food, clothing and shelter. Financial independence, in this case, is realised through making a profit. Where an entrepreneur sees that a product can be sold for more than what it costs to produce, there will be motivation to set up business, so as to not have to depend on others.
Often, businesses are set up because of the need to realise one’s potential because of the need to express creativity, because of the need to achieve and to be able to recognise one’s limitations or shortcomings and to be able to make improvements.
Business owners are able to achieve what is important to them. Entrepreneurs want to be their ‘own bosses’, and they set up businesses to bring their desires to life. Businesses allow for self-expression, an opportunity to do what you enjoy.
Some persons see businesses as an opportunity to contribute to society and be recognised for their efforts. They gain trust and recognition from customers who have served them faithfully over the years.
Now, revise the last two weeks’ lessons in order to attempt this question.
(a) Define the terms entrepreneur and entrepreneurship. (4 marks)
(b) Discuss THREE roles of the entrepreneur. (6 marks)
(c) Outline THREE vital characteristics of the typical entrepreneur. (6 marks)
(d) As an entrepreneur, you are thinking of establishing a business in your community.
Explain TWO reasons you may wish to do so. (4 marks)
Total marks: 20
Well, that’s it for now. Next week I hope to look into the steps to be taken when establishing a business and the functional areas of a business. Keep safe. Bye-bye.