THE BASIC OF ENTREPRENEURSHIP AND

BUSINESS

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After studying this chapter you should be ready to describe:

The Basic of Entrepreneurship and It’s Risks

Types of Business Organizations

Types Of Entrepreneur Types Of Entrepreneur According To Business ActivityAccording To Business Activity

Identifying, Analyzing, Evaluating and Choosing Business Opportunity.

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THE DEFINITION OF ENTREPRENEUR THE DEFINITION OF ENTREPRENEUR The word ‘entrepreneur’ was originated from

a French word ‘entreprende’ which means “willing to take responsibility or willing to try something new”.

In Bahasa Malaysia, the root word for usahawan (entrepreneur) is usaha which means effort or willingness to do or complete a task.

According to the Oxford Dictionary; entrepreneur is defined as someone who is handling a business and taking business risk.

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THE DEFINITION OF ENTREPRENEURSHIPTHE DEFINITION OF ENTREPRENEURSHIP Entrepreneurship is the process by which

individuals pursue opportunities without regard to resources they currently control (Barringer:2008).

According to Robert C. Ronstadt:◦Entrepreneurship is the dynamic process of

creating incremental wealth. This wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment of providing value for some product or service. The product or service itself may or may not be new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources.

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Be Their Own Boss

Pursue Their Own Ideas

Pursue Financial Rewards

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The Characteristic of an The Characteristic of an EntrepreneurEntrepreneur

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o Realise the importance of his/her Realise the importance of his/her contribution to the society and countrycontribution to the society and country

o Avoid selfishnessAvoid selfishnesso Commited to his/her workCommited to his/her worko Always strive for excellence, focus on Always strive for excellence, focus on

his/her work, confident, punctual and his/her work, confident, punctual and disciplineddisciplined

o Innovative and creativeInnovative and creativeo Able to lead and manageAble to lead and manageo Responsible and trustworthyResponsible and trustworthyo Has a visionHas a visiono Dare to take risk and never give upDare to take risk and never give up

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SUCCESSFULENTREPRENE

UR

Passion for thebusiness

Passion for thebusiness

Execution intelligentExecution intelligent

Product/customer

focus

Product/customer

focus

Tenacity despitefailure

Tenacity despitefailure

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Myths 1: Entrepreneurs Are Doers, Not Thinkers. Myths 2: Entrepreneurs Are Born, Not Made. Myths 3: Entrepreneurs Are Always Inventors. Myths 4: Entrepreneurs Are Academic and Social Misfits. Myths 5: Entrepreneurs Must Fit the Profile. Myths 6: All Entrepreneurs Need Is Money. Myths 7: All Entrepreneurs Need Is Luck. Myths 8: Entrepreneurship Is Unstructured and Chaotic. Myths 9: Most Entrepreneurial Initiatives Fail. Myths 10: Entrepreneurs Are Extreme Risk Takers……. The Gamblers.

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1. Uncertainty of Income2. Risk of Losing Entire Investment3. Long Hours and Hard Work4. High Stress Level5. Difficulty in Obtaining Customers6. Complete Responsibility7. Difficulty in Obtaining Loans8. Discouragement

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There are three popular forms of business ownerships which are:

1.Sole proprietorship2.Partnership3.Company

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A sole proprietorship is an attractive form of legal status for a new business.

It is formed under the Business Registration Act 1956(Amendment 1978) and the Procedures of Business Registration 1957.

Solely owned and operated by an individual

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i. Willing to accept sole responsibility for the firm’s performance(success or failure).

ii. Willing to work long hours.iii. Has strong organizational skills,

leadership skills and communication skills

iv. Has previous experience working in the industry in which he is competing in at present.

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A partnership is formed under the Business Registration Act 1956 (Amendment 1978) and the Procedures of Business Registration 1957.

It is a business owned by at least two or more individuals but not exceeding 20 peoples.

Types of Partnershipi. General Partnership

All partners have unlimited liabilities. They are personally liable for all obligations of the firm.

ii. Limited Partnership Some of the partners have limited liabilities, that is,

they share the firm’s profit or losses but do not take an active role in managing the business.

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All companies in Malaysia are governed by the Companies Act 1965.

There are two types of companies which are:

a)Private limited companies.◦ Is a company limited by shares and owned by

a group of people with at least two or more individuals but not exceeding 50 people.

◦ The members’ personal liabilities are limited to the par value of their shares.

◦ The name of a private limited company ends with the word ‘Sendirian Berhad’.

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Is a company limited by shares with at least seven or more individuals and there is no maximum limit in terms of membership.

The company shows its status by using the word ‘Berhad’ or ‘Bhd’ after the company name.

The term ‘public’ means publicly held. The shares of stock can be easily purchased or sold by investors. The public can also buy and sell the shares of the company.

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1. Self-Employed- Manage own business- Has a few workers

Examples: retailer, lawyer and doctor who owns a small law firm/small private clinic

• Team Building- They will always look forward to improve or

expand their business- Their business expansion depends on the number of workers- In order to achive their goals, they work effectively in a team

Ex: A tailor shop which is expands and becomes a famous and fancy boutique.

TYPES OF ENTREPRENEUR ACCORDING TO TYPES OF ENTREPRENEUR ACCORDING TO BUSINESS ACTIVITYBUSINESS ACTIVITY

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2. Free MoverThey set up a company, then produce and sell their own products. In some cases, they use their name on the products as their business marketing strategy.

Ex: Ramly Burger, Tamin Soy Sauce, Aminah Hassan’s Sauce, Hanafi Bin Ramli (HBR) and others.

3. Franchiser- a company or manufacturer that grants franchises - they develop effective business using branches in different location

Ex: Kentucky Fried Chicken, Pizza Hut, Mc Donalds, Ayamas, Sen Heng, Restoran Nasi Kandar Kayu, Radix Fried Chicken

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4. Large Enterprise

Ex: Makro, Carrefour, Giant, IKEA, The Store.

• Entrepreneur with Large Economy of Scale

“The production costs will become lower if the quantity produced becomes higher; in other words; the economy of scale can be enjoyed”

Explanation: The increase in output causes a decrease in the average cost of each unit. Products can be sold at lower price, and at the same time the volume of sales can be increased.

This type of entrepreneur will explore a large scale of business which involves big capital and a lot of employees.

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5. Capital Accumulator

They start-up a banking/financial institution. This kind of business need a large amount of financial capital and assets as well as multi level of mangement staff.

Ex: Maybank, AmBank, RHB, Hong Leong, Affin Bank, Public Bank and insurance companies.

6. Business BuyerThey buy an ongoing business. They have to have a large amount of financial capital. Information on ‘business to sell’ can be obtained from the newspapers and electronic media. 20

7. Buy n Sell EntrepreneurThey buy problematic business entity (for example: those businesses that are involved in bancruptcy), then try to overcome/solve the problems (ex: by injecting funds) and sell the business with higher price.

8. A Techno/Cyber EntrepreneurAn entrepereneur who is interested in creating new ideas, normally apply the technology advancement in creating, developing and marketing his new products.

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The process of identifying, analyzing, and choosing the business The process of identifying, analyzing, and choosing the business opportunity is not an easy task. These processes are crucial in opportunity is not an easy task. These processes are crucial in setting up a business.setting up a business.

Four (4) major steps for an entrepreneur, before starting a Four (4) major steps for an entrepreneur, before starting a business.business.

Step 1: Identifying the Consumers’ Needs and Step 1: Identifying the Consumers’ Needs and Wants.Wants.

Step 2: Analyzing the environmental factors, self Step 2: Analyzing the environmental factors, self

evaluation and values practised in the society.evaluation and values practised in the society.

Step 3: Evaluating Business Opportunities.Step 3: Evaluating Business Opportunities.

Step 4: Choose a business opportunity and write Step 4: Choose a business opportunity and write the business plan.the business plan.

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Step 1: Step 1: Identifying the Consumers’ Needs and WantsIdentifying the Consumers’ Needs and Wants

Entrepreneurs create goods and services even before the Entrepreneurs create goods and services even before the consumers realize that they need/want the specific goods and consumers realize that they need/want the specific goods and services. services. What are the human needs? What are the human needs? Each of us has three primary/basic needs: food, clothing Each of us has three primary/basic needs: food, clothing and shelter, and shelter, Instead of that, there are also nine basic human needs Instead of that, there are also nine basic human needs which are important to human. which are important to human.

The 9 Needs:The 9 Needs:Security, Adventure, Freedom Security, Adventure, Freedom Exchange, Power , Expansion Exchange, Power , Expansion Acceptance, Community, ExpressionAcceptance, Community, Expression

On the other hand, human wants can be influenced by On the other hand, human wants can be influenced by culture, level of education, affordability, and personality traits. culture, level of education, affordability, and personality traits.

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Maslow's Hierarchy of NeedsMaslow's Hierarchy of Needs

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Examples:

NEEDSNEEDS WANTSWANTS

Having lunch at Having lunch at homehome

Having lunch at Having lunch at luxurious luxurious restaurant, hotel etcrestaurant, hotel etc

Own a terrace houseOwn a terrace house Own a bungalowOwn a bungalow

Own an ordinary carOwn an ordinary car Own a BMW, Own a BMW, Mercedes Benz, Mercedes Benz, Rolls RoyceRolls Royce

Human needs and wants are variety and Human needs and wants are variety and unlimited. This phenomenon creates many unlimited. This phenomenon creates many business opportunities in offering goods and business opportunities in offering goods and services.services.

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Step 2: Analysing the environment, self evaluation and Step 2: Analysing the environment, self evaluation and values practised in the societyvalues practised in the society

In searching for the business opportunities, In searching for the business opportunities, entrepreneurs will have to consider 3 major entrepreneurs will have to consider 3 major aspects: the environmental factor, self aspects: the environmental factor, self evaluation, values practised in the society.evaluation, values practised in the society. Environmental FactorsEnvironmental Factors

1.1. Population structure, level of income, & tastePopulation structure, level of income, & taste2.2. Survey on import & export dataSurvey on import & export data3.3. Survey on local/domestic resourcesSurvey on local/domestic resources4.4. Industrial NetworkingIndustrial Networking5.5. Development Plans by the Government & Development Plans by the Government &

Private sectorsPrivate sectors6.6. Identifying business opportunities through Identifying business opportunities through

local and overseas/foreign media local and overseas/foreign media 7.7. Research on local social problemsResearch on local social problems8.8. Get information on rules and regulations.Get information on rules and regulations.

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Self EvaluationSelf Evaluation

1.1. ExperienceExperience2.2. Knowledge and SkillsKnowledge and Skills3.3. Financial CapitalFinancial Capital4.4. InterestInterest5.5. NetworkingNetworking

Values in the SocietyValues in the Society

The business that is going to be set up is not The business that is going to be set up is not against the against the

values held in the society.values held in the society.-Drugs, child labour-Drugs, child labour

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Step 3: Evaluating Business Opportunities.Step 3: Evaluating Business Opportunities.

The process of evaluating business opportunities can help entrepreneurs to choose the BEST and the RIGHT one.

With the right choice, entrepreneurs can give all their attention, commitment and effort just to concentrate on the BEST business opportunity (at one time).

The FOUR aspects to be considered before choosing the right business opportunity:

1) The Business is Legal 2) Level of monopoly power and competition 3) Capital and Financial Requirements 4) The Risks

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Step 4: Choose a business opportunity and start writing Step 4: Choose a business opportunity and start writing the business plan.the business plan.

After deciding what type of business you want to begin, then prepare a Business Plan which covers the:

Organizational Plan

Management Plan

Operation Plan

Financial Plan

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