Entrepreneurial motives and characteristics 1.5.2 Flashcards
What are the characteristics needed for an entrepreneur?
- Understanding of the market:
- To know what the customers want and to see how well or badly current companies are serving them.
- Determination:
- To see things through even if there are difficulties on the way to success.
- Passion:
- Not just to make money, but to achieve something else, such as designing something truly iconic, or making an impressive transformation.
- Resilience:
- The ability to bounce back continuously when things do not go in your favour.
- The ability to cope with the risk.
- Able to innovate
What are the skills needed for an entrepreneur?
- Financial skills:
- The ability to read and understand key documents, such as a cash flow forecast.
- Persuasive abilities:
- Entrepreneurs need to be able to persuade others to do things for them, such as provide planning permission, supply goods on credit or work harder/faster to get things finished quicker.
- Problem-solving skills:
- Based on the ability to investigate possible causes of problems, and then to be able to work out the best solution.
- Networking skills:
- To be able to turn acquaintances into business friends, and therefore benefit from network-based crowdfunding or social media endorsement.
What is piece rate?
Paying workers a wage per product produced by the employee, such as £3 per pair of jeans made.
What are the two financial motives for setting up a business?
- Profit maximisation
- Profit satisficing
What is profit maximisation?
To generate as much wealth as possible.
What are key features of profit maximisation?
- Long-term profit maximisation consistent with building valuable business.
- Initially, the entrepreneur may need to accept losses as a business is established
- In these situations, the only logical approach would be short-term profit maximisation, which is often used by business scams, and those who want to make quick profits from their customers. In this case, the ‘business model’ is to use the customer as a one-off opportunity to earn money, leaving no thought for repeat purchases, customer loyalty or long-term branding.
- For businesses that are thinking about the long term, the best way to maximise their profit is to decide on finding a balance in the ‘right’ amount of short-term profit. This means that the business would be willing to take lower profits in the short term and allow these profits to build over time to make higher profits in the future through repeat purchases and the building up of customer loyalty.
How can profit maximisation be achieved?
Reducing costs to their minimum and increasing sales revenue to its maximum.
What is profit satisficing?
Where a business focuses on making enough profit so that the owner has a desirable quality of life, or that the shareholders are paid satisfactory dividends and not on maximising profit level.
(to generate enough income to live a comfortable life)
What are key features of profit satisficing?
- Entrepreneurs will take fewer risks.
- Trade-off is lower returns.
- Associated with “lifestyle’ businesses.
This involves finding the right balance of profit to take, which often involves taking less than the maximum amount of profit. New, smaller businesses should always try and adopt this method if they want to become successful in the long term, as it makes a lot more sense to do this than to focus on short-term maximisation.
What are financial motives?
The monetary incentives for an entrepreneur to be willing to take risks to set up a new business venture.
What are four non financial motives?
- Ethical stance
- Social entrepreneurship (social enterprise)
- Independence
- Home working
What is ethical stance?
- Running a business to support their ethical principles e.g climate change, reusable plastic.
- Some entrepreneurs find it hard to accept the ethical environment within a large organisation, so they set up their own business, but in a more ethical fashion with the ethics of the company being in sole control of the individual. Recent scandals involving banks and insurance firms show that whilst some large firms talk about being ethical, in reality, they are not so good. Running their own business gives the individual the freedom to practice their own ethical approaches, and to refuse repressive governments if they wish to place an order. However, this may come to the individual being pushed to trade their ethical stance against profits and family income.
What is social entrepreneurship?
- When a business is set up by an individual with the aim to solve a community problem, willing to take on the risk and effort needed to make a positive difference in the community.
- Where ethics has a clear meaning, social entrepreneurship does not. Many businesses claim to be doing good for the world, which would make them all social enterprises - many of these companies being food manufacturers claiming that their products offer health benefits. True social entrepreneurship has the needs of the community in its core values, and it will do whatever it can to help the community. The concept of social entrepreneurship is in the eye of the business owner.
What is independence?
Some young people crave independence from the beginning of their working lives, and it can make them desperate to create their own businesses instead of working for others. However, the reality is that only after a long career working for a large experienced employer and they have the need, confidence and capital, people will not set up their own business until they are middle-aged.
The issue of independence tends to be mostly with immigrants in the UK. For immigrants, there is the tendency to mistrust fair career prospects working in large companies, which encourages the drive for independence - making this drive for independence seemingly a psychological need, or a practical response to actual or perceived discrimination.
What is home working?
- When an employee is able to work from home, often on a laptop connected to the main office.
- Independence can also be required by someone who needs to be at home as a parent or carer as they need to have flexible working hours that home-working can provide because they cannot physically go to work. As many employers see home-working as an opportunity to get more work done at less-than-market rates, which includes having people work for less than the minimum wage. This means they often have to accept piece-rate working terms that give no security of income and can work out as a low hourly income.
- This is why some who need to work from home try to set up their own business from home, as it gives them more control over their working hours and allows them to be more flexible. This would be more successful if the entrepreneur has strong IT skills and knows their way around a computer as it would reduce the need for a third party to get involved and for the owner of the business to have to pay them.
