defenition - process and methods for implementation

2. Chapter 1: Entrepreneurship defined

3. Learning outcomes
• Define the concept of ‘entrepreneurship’
• Differentiate between innovation and entrepreneurship
• Explain the importance of entrepreneurship in the South African economy
• Explain the entrepreneurial process
• Evaluate the impact of the environment on entrepreneurship.

4. 1.1 Innovation and entrepreneurship
• 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

5. 1.2 The importance of entrepreneurship
• 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

6. 1.3 Types of entrepreneurs
• 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.

7. 1.3 Types of entrepreneurs (continued)
• 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

8. 1.4 Ubuntu and entrepreneurship
• 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

9. 1.5 The entrepreneurial process
• 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

10. 1.5.1 Step 1: Idea generation
• 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

11. 1.5.2 Step 2: Opportunity evaluation
• 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

12. 1.5.3 Step 3: Business plan development
• 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

13. 1.5.4 Step 4: Determine the resources
required
• 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

14. 1.5.5 Step 5: Formation and management of
business enterprise
• 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

15. 1.5.6 Step 6: Growth and harvesting
• 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

16. 1.6 The impact of the environment on
entrepreneur
• 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

17. The micro-environment
• 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

18. The market environment
• 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

19. The macro-environment
• 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