Understanding the

Concept of
Entrepreneurship
• Entrepreneurship is a very important component of a capitalist economy like the Philippines. It thrives in economic
systems that support innovation and hard work. When entrepreneur become successful, the nation is immensely
benefited.

• This introductory lesson shall provide you with knowledge on the concept of entrepreneurship and its great
importance in economic development. Entrepreneurs play a very important role in keeping the flow of goods and
services in the economy and their continued existence is needed to answer the needs and wants of the nation.

• Due to its inherent importance in the economy, entrepreneurship requires those individuals practicing it to possess a
certain personality that fits the demand of the role and responsibility of an entrepreneur. It is important that you
understand these traits very well so that you can identify with them and consequently appreciate the entrepreneurial
tasks. This course eventually aspires that you will be inspired to become an entrepreneur someday.
 Entrepreneurship is a very important component of a capitalist
economy like the Philippines. It is the process of creating something
new with value by devoting the necessary time and effort,
assuming the accompanying financial, psychic, and social risks and
receiving the resulting rewards of monetary and personal
satisfaction and independence. Moreover, entrepreneurship is an
economic activity of a person who starts, manages, and assumes
the risk of a business enterprise. The person who undertakes
entrepreneurial activities is called an entrepreneur.
Value
“The regard that something is held to deserve; the importance, worth, or usefulness of something.”

• Functional value: This type of value is what an offer does, it's the solution an offer provides to the
customer.

• Monetary value: This is where the function of the price paid is relative to an offerings perceived
worth. This value invites a trade-off between other values and monetary costs.

• Social value: The extent to which owning a product or engaging in a service allows the consumer to
connect with others.

• Psychological value: The extent to which a product allows consumers to express themselves or feel
better.
Entrepreneur Google Definition

An entrepreneur is an individual who creates a new

business, bearing most of the risks and enjoying most of
the rewards. The process of setting up a business is known
as entrepreneurship. The entrepreneur is commonly seen
as an innovator, a source of new ideas, goods, services,
and business/or procedures.
• Entrepreneurship and Economic Development
Economic development is a scheme aimed at improving the living standards of
the nation’s citizenry. To achieve economic development goals, proper
management of the following elements is necessary:
1. Human Resources (labor, supply, education, discipline, motivation);
2. Natural Resources (land, minerals, fuel, climate);
3. Capital Formation (machines, factories, roads); and
4. Technology (science, engineering, management, entrepreneurship).
• The effective and efficient utilization of the various resource elements
contribute to the economic growth. This happens when the element of
entrepreneurship is performed well by the individuals. The abundance of natural
resources like fertile land, minerals, fuels and good climate are plus factors but
they are not guarantees for positive economic development. There is a need for
entrepreneur but it will depend much on the support provided by the government.
Four Basic Aspects of Being an Entrepreneur
1. Creation of something of value. This means that entrepreneurs create products or services that can be
offered for a price.

2. Devotion of necessary time and effort. Entrepreneurs devote their time and effort towards the attainment
of their goals such as, among others, to earn profits, to make products or services available in the community,
and to provide employment and income for their family.

3. Assumption of necessary risks. Entrepreneurs assume risks on the possibility of losing whatever they put
in. But the possibility of earning big is even greater.

4. Getting rewards. Many entrepreneurs reap the rewards of their efforts through the generation of profits and
business expansion. Moreover, the prestige of being a business owner provides intrinsic satisfaction.
Who is an Entrepreneur?
An entrepreneur is a person who starts and or operates a business. An entrepreneur is creative and innovative.
He is a person who starts something new. An entrepreneur may be male or female, young or old, professional,
college graduate or school dropout, comes from A, B, C, D or E economic group. He is an owner-manager and
willing to take risks. Usually he is someone not willing to work for others. Instead he wants others to work for him.
Usually, also his kind of business is single proprietorship because he does everything from production to selling.
Role of Entrepreneurs in the Economy

Entrepreneurs are vital in the economic development of the country. As shown in the cycle of
development below, they provide investment which results to economic development as
more people are employed and enjoy an income. The government also benefits in the
process because entrepreneurs, as businessmen, pay taxes, hence, the government has the
funds to provide services to the people.
 ENTREPRENEURS’ INVESTMENT EMPLOYMENT AND INCOME SAVINGS AND TAXES

Figure 1-1. Cycle of Development

 Figure 1-1 also shows that entrepreneurs are:
1. Mobilizers of capital. Entrepreneurs sometimes use their own savings as capital for their business venture. If they
do not have the capital, money can be borrowed from banks to finance their intended business.
2. Service providers. Business ventures of entrepreneurs could be along the line of service like salon, spas or coffee
shops.
3. Employers. Usually, entrepreneurs hire people to help them in their business. A restaurant owner, for example, will
hire cooks and kitchen helpers while he, the owner, does the purchasing and attending to the customers.
4. Tax payers. Business establishment pay taxes to the government. Thus, more business would mean more taxes
and better government services.
5. Suppliers of products. Products and service are available through the efforts of the entrepreneurs. Without them,
scarcity of certain products and service will be felt.
Entrepreneurship and Innovation
The freedom of competition afforded by the capitalist economy serves to drive the entrepreneur to
innovate and get ahead of his competitors lest he is driven out of the market. Buyers of commodities
have a tendency to patronize innovative offerings of any kind and if one wants patronage, he must
remember this motivation.
Ascertaining the
Entrepreneurial
Activities
Concept Notes
After considering the concept of Entrepreneurship and its economic impact to the economy and society as well as the roles,
responsibilities and traits of the entrepreneurs, we will now zero in on the different activities that businesspeople undertake.
These classifications of business activities and its corresponding qualities will help you analyse the type of business that
you might undertake someday.

Entrepreneurs engage in three business activities. Their activities could be the following:
1. trading;
2. manufacturing; or
3. Service business.

They are supported by either the family members or members of the community as employees. Entrepreneurs are found not
only in big cities but in small towns as well, catering to the needs of the people.
• Trading or merchandising is the process of buying of goods and selling the same without change
in form. When goods are sold in small quantities, it is called retailing. When goods are sold in big
quantities or in volume, it is called wholesaling. A common example of retailing is the “sari-sari”
store.

• The number one reason for doing business is to make profit. Profit is what is left after
subtracting cost and expenses from the selling price. Profit is the excess of revenues over costs
and expenses. However, when costs and expenses are higher than selling price, the result is loss.
Consider the following computations:

Computation 1: Computation 2:

Selling Price/Revenue Php 1,000 Selling Price/Revenue Php 1,000

Less: Cost of Sales 300 Less: Cost of Sales 400

Expenses 400 Expenses 700

Total Cost of Sales and Expenses Php 700 Total Cost of Sales and Expenses Php 1,100

Profit Php 300 Loss Php (100)

Different Types of Trading Business

The different types of trading business are store trading and non-store trading.

Store trading is classified as to:

a. amount of service (e.g., self-service, limited service, and full service)

b. product line (e.g., specialty store, department store, supermarket, convenience store, superstore, combination store, and hypermarket)
c. retail prices (e.g., discount store, off-price retailer, factory outlet, independent off-price retailer, warehouse club, and catalogue showroom)
d. control outlets (e.g., chain store, retailer cooperative, franchise, and merchandising conglomerate)
e. type of store cluster (e.g., central business district, and shopping center)

• On the other hand, non-store trading is classified as to:

Direct Marketing (e.g., door-to-door retailing, automatic vending, direct mail marketing, catalogue marketing, telemarketing, television marketing,
and electronic marketing)
Effects of Trading in Business

Trading cannot be avoided. Wherever you go, even in rich countries, people buy in retail. In retail business
turnover of goods is fast, thus, money inflow is also fast. Imagine products on the shelves that have been
standing there for about a week. Such products are occupying space and if your establishment is air-conditioned,
you are, in effect, spending for the cooling of such products. Compare these with those products that stood only
for a couple of hours on the shelves and then will need replenishment. It means shelf cost is very limited and
your cash drawer has plenty of cash.
What is the Impact of Trading to Business?
Trading is the path whereby inflow of cash from the buyers to the company passes. Consider the diagram below:

Products produced are sold either on retail or wholesale. From the sales revenue, the entrepreneur buys raw
materials again for his next production and buys tools and equipment for the expansion. Thus, more products are
produced and sold. If the products could not be absorbed by one store only, the entrepreneur can offer them to
other entrepreneurs which results to operation expansion and growth.
 The raw materials, which refer to all materials that form part of the finished products, are bought by the entrepreneurs to
serve as inputs in production. These will then be transformed or processed by applying direct labor and factory
overhead. Direct labor is the effort used in manufacturing a product such as wages paid to workers while factory
overhead refers to indirect elements of cost such as marketing expenses (e.g., advertisement and promotions) and
administrative expenses (e.g., rental and utility.) When the finished goods are sold to the customers, their feedbacks
about the products will serve as additional input in the procurement of materials for the next batch of production.
The Role of Manufacturing in Economic Development

Manufacturing is the other dimension in economic development. No product will be sold without producing it.
Manufacturers of products are important because of the following reasons:

a. considering their receipts (sales) and expenses, they contribute in the movement of the economy;
b. they provide the employment and income to the households; and
c. they pay taxes to the government which are used by the government to finance its projects and pay for the
salaries of the government employees.
Choosing the Products to Manufacture or Service to Offer

• Manufacturing is an easy venture. Many of the products in the market, big or small, are manufactured from big
or small factories whose operations are either simple or complex. You too, can be a successful manufacturer
by considering the following:

a. your personal interest; f. capital;

b. your competence; g. personal exposure;
c. competition; h. market demand; and
d. available resources; i. ethics in business.
e. season;
What is a service business?

Service business is doing work for others. It is a kind of business that sells services. The service offered could
be the service of a single individual, like the one who fixes your leaking faucet, or the sophisticated services of
hotels and banks.
Below are examples of businesses under the service sector:

1. Small business

- pension houses - restaurants or snack bars - collection (bayad) centers

- barber shops - bake shops - water stations

- daycare centers - dress shops - flower shops

• 2. Large corporations

- banking and finance - hospitals - bus companies

- hotel and restaurant services - call centers - airlines

- schools - transportation services - theme parks

3. Professional services

- medical/dental services by doctors - engineering services

- legal services by lawyers - tutoring services by teachers

- accounting services - services by architects

What are the Advantages of Establishing a Service Business?
Setting up a service business has many advantages. Some of these are:

a. Easy to establish. A service business is easy to establish. Documentation is simple. Some are not even registered
with any government agency, like food catering and the street food operators, hence the term “underground
economy”.
b. It requires minimum capital. The capital requirement in establishing a service business is very minimal. For
example, to start a beauty parlor, all you need is a small space with mirror, chair and tools for hair trimming. As your
business grows, additional tools can be purchased.
c. Services are non-perishable. Products and services unlike fruits and vegetables are not perishables. Therefore,
you do not need a space to store them and there is no risk of spoilages.
d. Mobility. Service is a very mobile business. You offer your business anywhere using a minimum of equipment or
tools or machines. For example, your business is coordinating events. The tools and equipment needed are only
communication gadgets and probably a video camera. The added advantage is you get to enjoy the party.
Scanning the
Enterprise
Environment
The Search for Business Opportunity

In selecting a business, option should not be based on luck and immature thinking,
but on a thorough and systematic process. Start by developing long and short lists of
potential business opportunities. Likewise, the resources, skills, and technology
available in the community are to be evaluated if there are not fully efficiently utilized.
In discovering business opportunities, the following factors on resources have to be evaluated:

1. Markets. This refers to the number of prospective buyers, competitors, the price and the quality of goods and services that have to be
analyzed. Business opportunities exist in areas where customer satisfaction is weak or incomplete.
2. Individual Interests. Business interest of individuals should match business opportunities. For example, if one is a good cook, he could
venture in the food business.
3. Capital. This serves as the fuel that keeps the business operating. The availability of funds should fit the type of business to organize.
4. Skills. The entrepreneur should have the proper skills in the business he is going to undertake.
5. Suppliers of Inputs. It is important that there are steady supplies of raw materials and other inputs to the business.

6. Manpower. The success of any business also depends on the efficiency of its employees.

7. Technology. Entrepreneurs should beware of the presence of technology to improve their products or services, or introduce new innovation
in the market.
Identifying Business Opportunities in the Environment

Entrepreneurs usually start from scratch. The term start-up means creating a new business from scratch or from
zero. Start-ups could be a business that provides customers with products that do not exist or a business that
provides customers with improvements on existing products.
The following are some of the sources for product ideas:

a. chance happening; h. research and development;

b. personal interest or hobby; i. creative problem solving (the product to introduce and the
form of business organization);
c. friends and relatives;
j. focus group discussion;
d. family business;
k. brainstorming; and
e. suggestions;
l. problem inventory analysis.
f. education or courses;
g. prior work experience;
Procedure in Determining the Best Business Idea

Business ideas may be generated by anyone connected with the

firm, but it is very important that the most applicable idea to the
firm’s objectives and resources is chosen. As such, the following
procedure must be adapted:
Environmental Scanning

• The SWOT Analysis.

In developing realistic strategies, the entrepreneur can make use of the most popular tool, that is, the SWOT
Analysis.

SWOT Analysis is an organized method of assessing a firm’s internal characteristics, that is, strengths and
weaknesses; and its external characteristics, that is, the opportunities and threats.

The purpose of SWOT analysis is to match the firm’s strengthens and weaknesses with external opportunities
and threats to determine what strategy to adopt. A strategy is the way by which goals are attained.
The firm’s strength refers to a skill, a competence, a valuable organizational resource or competitive capability,
or an achievement that gives the firm a market advantage.

• Examples of strengths are as follows:

a. a recording firm’s unique line-up of contract singers;

b. a company’s ownership of the land that is the source of high grade material required for producing its
products;
c. the strategic location of the firm’s sales offices; and
d. the firm’s exclusive supply contract with a reliable manufacturer.
The firm’s weakness refers to something a company lacks or does poorly (compared with others) or a condition
that puts it at a disadvantage.

• Examples of weaknesses are as follows:

a. lack of qualified managers;

b. poor design of the firm’s products;
c. low employee morale; and
d. poor location of the firm’s sales offices.
Opportunity refers to the chance offered by the external environment to improve the firm’s situation significantly.

• Examples of opportunities are the following:

a. For a motorcycle trading firm: the escalating cost of fuel;

b. For a small restaurant: the withdrawal from business of a major competitive;
c. For a tailor residing in a provincial city; the absence of a reliable tailoring shop; and
d. For a newspaper dealer: an exclusive supply contract for the entire province offered by a major national
publisher.
Threats refer to a challenge posed by an unfavorable trend or development in the external environment that
would lead to, in the absence of purposeful entrepreneurial action, the erosion of the entrepreneurship’s position.

• Examples of threats are the following:

a. To the grocery store: the proposed opening of a mall in the vicinity;

b. To the restaurant located along the highway: the proposed construction of a diversion road by passing the
highway and the restaurant;
c. To the local dealer of skin-whitening soap and cream: the proposed dissolution of the company supplying the
product; and
d. To the local operator of 20 units of public utility tricycles: the proposed city ordinance banning tricycles from
plying the major streets of the city.
Entrepreneurial Creativity

Creativity and entrepreneurs are inseparable. Creativity is an essential part of innovativeness, the starting point
of a process, which is skillfully managed, and brings an idea into innovation. It is considered as a characteristic
that is innate or inherent to every individual, but the social environment can influence both the level and
frequencies of creative behavior. It is particularly important to understand the role the environment can play.
Environmental Stimulants to Creativity

a. Freedom - a sense of control over one’s work ideas;

b. Good project management - a manager serves as a good role model;
c. Sufficient resources - access to necessary resources;
d. Encouragement - management enthusiasm for new ideas;
e. Various organizational characteristics - a mechanism for considering new ideas;
f. Recognition - a general sense that creative work will receive appropriate feedback, recognition, and reward
g. Sufficient time - time to think creatively about problem;
h. Challenge - a sense of challenge arising from intriguing nature of the problem itself;
i. Pressure - a sense of urgency that is internally generated from competition as a personal sense of challenge;
j. Outside organization - from a general desire to accomplish something important.
Opportunities for Business

In the Philippine free enterprise system, any person is free to do into business. In every comer within the country,
there are opportunities for doing business. You start small with the hope of making it big soon.

Entrepreneurs are called energizers of small business. They speak economic growth. They provide jobs. They
introduce products. They provide goods and services. In a broad sense, services are also called products.
Ethics and Corporate Social Responsibilities

Ethics is a set of moral principles or values. Ethics may be general or professional. General ethics guides the
individual on proper personal conduct that is imposed by society and moral duties. Professional ethics is one self-
imposed by professionals even above the requirements of the law.

Corporate Social Responsibilities

Corporate social responsibilities have become buzzwords in our Philippine setting. Corporate social responsibility
(CSR), also known as corporate citizenship, is a business principle stating that the long-term interests of business are
best served when its profitability and growth are accomplished alongside the development of communities, the
protection and sustainability of the environment, and the improvement of people’s quality of life. Social responsibilities
are ethical obligations to customers, employees and the public.
CSR is manifested by:

a. a working environment characterized by programs on health and safety, family welfare, equal opportunity, rewards and legal reasonable working hours;

b. harmonious relationship between the business and the community;

c. business concern for sustainable environment; and

d. contributions to programs that address social needs beyond the immediate community. The business becomes a good citizen, not only of the community where it is located, but also of
the country and of the world.

The practice of corporate social responsibility provides the following benefits:

a. promotes goodwill and enhances the business reputation;

b. enhances customer loyalty;

c. improves employee commitment and productivity;

d. provides tax benefits;

e. provides continuing harmonious relationship with community officials and leaders;

f. promotes corporate name awareness; and

g. promote product recognition.

• Socially desirable and ethical practices that may not entail additional cost or money include:

a. honesty in advertising or truth in advertising;

b. production and distribution of organically growth fruits and vegetables and other food products;
c. volunteering in the promotion of waste management like recycling and preservation of the environment;
d. boycotting business products, TV stations and other media that promote advertisements that are
objectionable;
e. rendering an honest day’s work among the employees; and
f. formulation of and compliance with the business code of ethics.

• An organization’s code of ethics is a formal document that states and organization’s primary values and
the ethical rules it expects employees to follow.
Exam Pointers

• Value
• Economic Development
• 3 types of business activities
• Factors on resources in business opportunities
• Swot Analysis