A strong Partner for Sustainable Development

Entrepreneurship
1st Quarter, 2nd semester AY: 2021-2022

College of Education
Agricultural Science High School
SENIOR HIGH SCHOOL
The Entrepreneurial Mindset
Learning Competencies:
The Learning Competencies that you are to learn in this Chapter are the following:
 Identify the different types of entrepreneurs
 Describe the entrepreneurial process
 Describe the typical characteristics of Filipino entrepreneurs
 Explain the factors that influence individuals to pursue entrepreneurial outcomes
 Explain how entrepreneurs think and how they make decisions
 Explain the role of risk and failure in the entrepreneurial process
Introduction
Some people make a big deal out of the fact that there are many successful
businesses founded by entrepreneurs who do not have a college degree. Often cited
are Apple founder Steve Jobs, Microsoft founder Bill Gates, Facebook co-founder Mark
Zuckerberg, and Uber co-founder Travis Kalanick. In the Philippines, we have Philippine
Airlines and Asia Brewery owner Lucio Tan, National Bookstore owner Socorro Ramos,
Zest-O Corporation President Alfredo Yao, and Mang Inasal founder Edgar Sia II. Some
of these individuals actually went to college, but decided to drop out after spotting a
business opportunity. The others came from poor families, and could not afford a
college education, but succeeded in growing their businesses nevertheless.
However, we must not lose sight of the fact that other equally successful businesses
were founded by individuals who earned their college degrees. Examples are Jollibee
founder Tony Tan Caktiong, Lamoiyan Corporation founder Cecilio Pedro,and
ECHOstore co-founder Pacita Juan. Clearly, educational background, while important,
is not the defining element for entrepreneurial success. There are other factors that
come into play.
In this chapter, we identify the different types of entrepreneurs. We also describe
the various stages that entrepreneurs undergo in implementing their business plans,
which usually start as mental constructs or intentions. In this light, we identify the factors
that influence entrepreneurial intentions. After this, we discuss how entrepreneurs
formulate their decisions based on three types of mental processes. Finally, we examine
the role of cognitive adaptability in managing risks brought about by an uncertain and
dynamic business environment.
WHAT IS AN ENTREPRENEUR?
The term “entrepreneur” comes from the French word entreprendre which means “to
undertake.” It is a reference to individuals who have initiated the establishment of a
business enterprise. In his classic work The Theory of Economic Development, Joseph
Schumpeter emphasized the role of entrepreneurs in the process of economic
transformation. Through their business ventures, entrepreneurs introduce to the market,
innovations in the form of new products, new processes, new markets, and new
organizations.
The entrepreneurs described by Schumpeter, however, are individuals who have
generated substantial value and profits from innovations in a very short period of time.
These individuals are also willing to absorb huge risks using enormous amounts of capital in
their business ventures (Quickmba. com).We call these people mega entrepreneurs.
Because of the speed by which they create a big amount of value-added. these
entrepreneurs were cited by Schumpeter as having contributed much to the economic
progress of the developed countries in the West. In addition, the enormous profits they
have gained have attracted competitors and imitators, and brought dynamism to the
industries they operate in and ultimately prosperity to the entire economy.
 However, another type of entrepreneur can be found in developing countries.
Although they also initiate business enterprises, the 'value-added' and profits they make
are limited. Some introduce innovations in the form of changes in their production and
distribution processes, but their contributions are minimal and attract few competitors
and imitators. Because they are short in funds and inadequate in skills, they cannot
undertake projects that involve huge capital, sophisticated technology, and extensive
risks. We call them micro entrepreneurs. Unlike mega entrepreneurs, they engage in
micro and small businesses as an alternative to formal employment. Although they are
not crucial in bringing rapid economic prosperity to a country, they nevertheless
contribute to inclusive growth.
While there are distinct differences between mega entrepreneurs and
microentrepreneurs, they have something in common. They both start businesses from
opportunities facing them. Given this, Peter Drucker (1985) in his book Innovation and
Entrepreneurship, emphasized the “discipline” in the process of starting and managing
a business.' Even if the contributions of entrepreneurship can vary (ie., being an agent
of rapid economic progress or being an avenue for inclusive growth), what is important
is the system entrepreneurs follow to achieve their goals. In seizing opportunities and
converting them into business ventures, there are several steps to follow.
ENTREPRENEURIAL PROCESS
Although Drucker acknowledged how personal traits and elements of the external
environment could influence the outcomes of an enterprise, what he emphasized is the
importance of how these personal traits and external factors are managed to achieve
the goals of the enterprise. Thus, it is important to formulate a strategy, which should
include an articulation of a plan and how this is going to be implemented. This
entrepreneurial discipline is often referred to as the entrepreneurial process, which
involves several stages from the awareness of an opportunity to the realization of a
business idea. The steps include the following: (a) discovery,(b) development of
concept, (c) organizing resources,(d) implementation, and (e) reaping the returns.
Discovery refers to the recognition of a business idea or the detection of
opportunities that could make money for the entrepreneur. Mega entrepreneurs draw
their ideas from current inventions and other technological developments that can
bring about huge profits for them. For example, the developers of a social network like
Facebook used the developments in Information and Communication Technology (ICT)
to connect people across the globe instantly. Similarly, those who introduced smart
phones saw the market value of combining the capabilities of a telephone, camera,
television, computer, and the other applications of electronic gadgets. On the other
hand, microentrepreneurs typically get their business ideas from the limitations of
existing products as well as from simple businesses where markets are easy to enter. For
example, the popularity of lechon baboy among Filipinos encouraged other local
entrepreneurs to introduce lechon manok in the market.
 The business idea is then transformed into a business concept. The development of a
business concept gives more details on how the general business idea can be realized. It
suggests the preparation of a business plan, which must spell out the various activities that
must be done from production to the distribution of the product or service. The business
plan must also describe how the enterprise is going to be organized and managed, and
how the business is going to be financed, among others.
Organizing resources, on the other hand, describes the process of identifying,
sourcing, and financing human, nonhuman, and other resources needed for the conduct
of business. Mega entrepreneurs usually require highly educated, technologically savvy,
and creative employees, who are sourced from the best universities and training
institutions nationally or globally. Since they are engaged in sophisticated business
activities that entail huge capital, they source their funds from the capital market or from
venture capitalists. In contrast, microentrepreneurs draw their resources, including labor,
from what is available in their locality. This may include family members, neighbors, and
other workers, who might not necessarily have the desired skills. Aside from being readily
available, these resources are relatively inexpensive. Funds for their business operations
are usually sourced from family savings, loans from informal lenders, and remittances of
relatives working abroad.
 Implementation is the process of carrying out the business plan. It covers a number
of activities, including the management of human, physical, technological, and
financial resources of the business. Implementation also includes mechanisms for
confronting actual and potential rivals as well as for responding to the various
opportunities, challenges, and developments being posed by external environments.
Measures on responding to competitors and the bargaining powers of suppliers and
buyers can define the competitive edge of a business enterprise. In addition, major
changes in the local economy and the global market present both opportunities for
growth and threats to the survival of a business in an industry.
Finally, reaping the returns pertains to strategies related to the expansion of the
business firm. It also covers mechanisms for addressing conditions in the business
environment that may affect the future of the firm. Entrepreneurial ventures, after all,
are very dynamic. They usually start as small ventures and eventually transform over
time in terms of the quantity and quality of products they produce as well as the
resources they require in the production process. As these small enterprises change,
their governance structures and financing mechanisms may also change.
CHARACTERISTICS OF AN ENTREPRENEUR
While the entrepreneurial process is important in the success of business ventures,
many entrepreneurship scholars have argued and presented evidence that
entrepreneurial traits are likewise important in the performance of a business venture. In
this section, we present the effects of these personality characteristics on
entrepreneurial performance based on two criteria. The first pertains to how personal
traits connect with the way entrepreneurs create 'value-added' and the second
involves the link between these personal qualities and the formation of entrepreneurial
intentions.
Entrepreneurial Traits and Creation of Value-added
The characteristics of an entrepreneur will vary depending on whether they are in
the developed countries pursuing Schumpeterian entrepreneurship or in developing
countries operating small enterprises. The level of education, employment status,
wealth, and risk appetite of entrepreneurs differ depending on the amount of value
added or profit created by their enterprises. As discussed previously, there are
differences between mega entrepreneurs and microentrepreneurs.
Level of education
Studies have shown that entrepreneurs need some formal education to be able to
seize the opportunities presented by inventions, innovations, and other technological
developments. This may be true for mega entrepreneurs since they need some degree
of technological know-how to understand the commercial potentials of modern
inventions and innovations. In developed countries, like the United States, some of the
more successful entrepreneurs are engineers who are able to recognize business
opportunities being offered by the latest developments in Information and
Communication Technology(ICT).Many of these billionaires amassed their wealth from
ICT innovations. Business ventures that came about from modern technological
innovations are usually initiated by educated mega entrepreneurs.
On the other hand, since entrepreneurship in developing countries is more often
being used as an alternative to formal employment, many microentrepreneurs usually
have limited educational qualifications. In addition, engaging in small enterprises does
not require high levels of schooling. These small enterprises use simple technology, and
do not require technical sophistication from workers. For example, one does not need
a college degree or a high school diploma to introduce binalot na adobong manok to
be sold in “Jolyjeeps" in Makati.
 Thus, the degree of human resource qualifications will depend on the type of
business ventures that are being established by entrepreneurs. For microenterprises,
which are meant for employment and economic survival, formal schooling is probably
not required. For bigger and more sophisticated businesses, however, more education
and training is required from the entrepreneur. Although, we know that some successful
entrepreneurs like Bill Gates and Steve Jobs are college dropouts, they nevertheless
have formal schooling and have sophisticated ICT technical know-how.
Employment status
Individuals who become entrepreneurs in developed countries are usually former
employees of companies in the formal sector. The choice of pursuing entrepreneurship
can be viewed as a step in the entrepreneur's professional development. These
entrepreneurs usually get their business ideas and concepts from the operations of
companies they formerly worked for. Knowing the ins and outs of a company's
operations, including flaws and weaknesses, they become aware of business
opportunities. This is the reason why many fresh college graduates seek employment first
in established companies before starting their own businesses. Once they discover
business opportunities, they convert their business ideas into business ventures. In
addition, experience in business is important to the success of mega entrepreneurs, who
are also exposed to various management practices.
 On the other hand, microentrepreneurs are usually drawn from the pool of the
unemployed or underemployed. They see their small business ventures as an option for
making a living, In fact, many microentrepreneurs in developing countries are involved
in several activities at the same time. For example, someone who is manning the store is
also doing carpentry or doing repair's of consumer durables. These entrepreneurs have
to do this because the value. added created in these micro and small enterprises are
very limited. Thus, to augment their income, they engage in other income-generating
enterprises.
Entrepreneur's wealth
The wealth of the entrepreneur is also an important factor. Usually mega
entrepreneurs source their funds from their own wealth and from their families. Some
generate capital for their business from the wealth they have accumulated from their
past employment. They can also borrow money from their wealthy parents. Since they
have existing wealth at their disposal, they can use some of these assets as collaterals in
securing credit from banks. This is not the case for microentrepreneurs, who have very
limited funds. Many of them are too poor to have substantial savings to finance a big
business venture. In addition, because of their limited human and nonhuman resources
they cannot avail of credit from financial institutions.
Risk appetite
Risk is also an important factor in undertaking any business venture. Risks are
associated with uncertainties in business operation. These uncertainties can threaten
the survival and stability of a business enterprise. Usually, entrepreneurs are risk-takers.
Otherwise they will not engage in business and will just be comfortable with the
certainties of being formally employed.
Conceivably, mega entrepreneurs are more willing to take risks compared to
microentrepreneurs. Their educational qualifications, as well as their work experience,
give them an edge in preparing for, and managing these risks. In addition, their wealth
can provide some security to absorb losses in case the business does not do too well.
Because of these insurances that serve s potential shields for risks, mega entrepreneurs
can pursue business ventures that are riskier but that can generate higher returns.
On the other hand, microentrepreneurs take risks by default if they want to survive
and escape the consequences of unemployment. But their appetite for risk is not as
much. Since microentrepreneurs have limited wealth and have difficulties in getting
credit, they have weak defenses against the impact of uncertainties. As a result, they
engage in ventures that are relatively safe but with limited returns.
Entrepreneurial Traits and Entrepreneurial Intentions
Every individual who sets up a business venture started out by intending to do so.
Thus, we examine entrepreneurial intentions, which are planned actions formulated in
the mind of individuals which are geared toward the objective of establishing a
business venture from potential business opportunities.' The question is “how are these
intentions formulated?" Based on studies, there are two broad set of factors that may
influence the formation of entrepreneurial intentions: internal and external factors.
Internal factors include mainly the qualities of individuals such as demographics,
personal traits, psychological characteristics, individual skills, prior knowledge, and
social ties.
Demographics refer to gender, marital status, age, and employment status of
individuals who are likely to form entrepreneurial intentions. For example,
entrepreneurial activities generally increase with age, but decrease beyond a certain
age level. Also, married individuals are more likely to entertain entrepreneurial intentions
than single individuals.
For personal traits, there are theoretical bases for the contributions of self-
confidence, determination, and enthusiasm and other positive human qualities in
influencing entrepreneurial intentions. However, studies have shown that these personal
traits are weak predictors of entrepreneurial intentions.
 Psychological traits include a host of qualities, including need for achievement, risk
appetite, acceptance for vagueness, self-efficacy, and goal setting. There are also
theoretical bases for these psychological traits in influencing entrepreneurial intentions,
but only appetite for risk and self-efficacy or belief in one's strength have been
empirically verified.
As discussed earlier, knowledge and skills learned from prior employment are
valuable in setting up a business. Thus, vocational know-how,supervisory and managerial
skills acquired from work experience can also predict entrepreneurial intentions and
behavior.
Since a business enterprise is a socioeconomic institution, its operation will require
the entrepreneur to deal with a lot of people. Thus,having social ties might be an
important consideration for setting up a business or not. These social connections are
also important in building networks that can complement the productivity of human and
nonhuman resources of business. Aside from influencing entrepreneurial intentions, these
dimensions of social capital can also contribute to enhancing entrepreneurial
performance.
 Besides the effects of the previously mentioned internal factors in the formation of
intentions, external factors are also significant determinants among the external factors
are environmental support and environmental influence.
For environmental support, many studies have at firmed the positive effects of
government, financial institutions and training institutions in setting up businesses. An
individual will be in inclined to pursue entrepreneurship if support from various
government agencies are forthcoming
For example, the availability of credit provided by financial institutions can
encourage individuals to pursue business. Potential entrepreneurs might also be
motivated to pursue their intent if technically adept workers and other human
resources produced by schools and other training institutions are readily available.
Environmental influence, on the other hand, includes regulatory structure, patents,
protection of property rights, and competitive environment. Government regulations
are important particularly in promoting public interest like addressing information
asymmetry (labelling and proper disclosure), limiting negative externalities (taxing
business enterprises polluting the environment), and others. However, overregulation
and heavy taxation from the government can discourage potential entrepreneurs. In
addition, protection of intellectual property rights, respect for contracts, promotion of
rule of law, and presence of an even playing field can create a positive competitive
environment, which can also influence entrepreneurial intentions.
CHARACTERISTICS DF FILIPINO ENTREPRENEURS
Following the discussion on entrepreneurial traits identified in many studies across
the globe, this section will enumerate the key characteristics of Filipino entrepreneurs.
We will draw these features from the 2014 Entrepreneurship Report of the Philippines.'
The report is part of the Global Entrepreneurship Monitor (GEM), which covers the
intentions, perceptions. activities, and aspirations of entrepreneurs all over the globe.
Like other entrepreneurs in developing countries, a number of Filipinos go into
entrepreneurship because they see it as an opportunity for income creation and
employment. Likewise, they get into business enterprises because of their apparent
capabilities to undertake entrepreneurial activities, the prestige associated with
entrepreneurship, and the positive exposure given by various forms of media to
successful entrepreneurs. However, this attitude is tempered by a fear of business failure.
It is interesting to note that there are more females than males that are engaged in
the early stage entrepreneurial activities in the Philippines. However, in the more
advanced stages of entrepreneurial activity, the gender proportion of entrepreneurs
and managers become more even. This implies that males tend to be more resilient in
staying in business, as females withdraw at the intermediate stage.
 In terms of age, entrepreneurship in the country attracts more young individuals.
Given the extent of youth unemployment in the country, entrepreneurship becomes a
viable employment option for the young. This result is consistent with the conclusion of
entrepreneurship in other developing countries.
In terms of educational attainment, almost half of entrepreneurs in the early stage
development have finished secondary schools. However, entrepreneurs that own firms
at the mature stage of entrepreneurship have higher levels of education. This is aligned
with empirical results in other countries showing that mature firms and those that create
higher 'value-added' have more educated managers and entrepreneurs.
Majority of those engaged in early stage entrepreneurial activities in the Philippines
are in consumer services including retail, food, personal beauty care, appliance and
electronic repair, cleaning services, and laundry services. According to the report,
many of these establishments are operated within the households, implying a limited
scale of operation. A number of Filipino entrepreneurs are also engaged in
manufacturing, extractive enterprises, and business services. Business services include
advertising, architecture, consultancy, microfinance, and others.
As mentioned earlier Filipino entrepreneurs are fearful of business failure. This is a
legitimate concern since a number of enterprises close down at various stages in the
life of an enterprise. The report has enumerated a number of reasons for business failure
including unprofitable business, personal reasons (e.g, illnesses, death in the family,
maternal responsibilities), financing problems, and shift to formal employment.
ENTREPRENEURAL DECISION-MAKING
In previous sections, we discussed how some individuals are more inclined to set up
businesses. But entrepreneurship is not only confirmed with the forming of intentions and
the crafting of business plans. The core entrepreneurship is aimed at the actualization of
intentions and is directly toward the implementation of business plans, As intentions are
translated into actions and as plans are implemented, the entrepreneur has to mate
decisions. These decisions are influenced and produced by mental process referred to as
thinking.
In this section, we will discuss the various types of thinking that influence.
entrepreneurial decision-making The types of mental processes that we win cover
include critical thinking, creative thinking, and strategic thinking.
Critical thinking refers to the systematic and rational way of providing an answer to a
question. It is systematic since it follows steps in responding to an inquiry. Just like a
scientific inquiry, an answer to a question is preceded by an understanding of the
problem, providing possible answers, and reflecting on the validity of these tentative
answers. It is rational because it adheres to the rules of logic in connecting the
relationships of variables and in making conclusions.
 Aside from providing an answer, critical thinking also explains what is going on. In
businesses, critical thinking is useful in explaining how a firm can survive and remain
stable. Many tools in business analysis make use of analytical thinking. For example,
SWOT(strengths, weaknesses, opportunities, threats) analysis may be used to show how
businesses can use their strengths to take advantage of opportunities, how they can
improve on their weaknesses, and how they can guard themselves against threats.
Similarly, an analysis of Porter's competitive forces uses critical thinking in determining
the impacts of various forms of competition brought about by bargaining power of
buyers, suppliers, existing competitors, potential rivals, and new products. In the same
light, environmental scanning is another systematic analysis of effects of various
environments on the viability of a firm.
Creative thinking, on the other hand, refers to thought processes that bring about
discovery of new ideas. Unlike critical thinking, it does not follow a systematic or
analytical process since it looks at things from different perspectives. Sometimes,
creative ideas start from a dream, an insight, or from mere observation. The intent of
creative thinking is not to provide an answer but to ask questions that can lead to
discovery and change. Since creative thinking stresses growth, it encourages
discontinuity rather than stability Thus, it is useful in developing new products and new
systems in business operations.
 The Blue Ocean Strategy by W. Chan Kim and Renee Maubourgne, for example,
provides examples of enterprises that use creative thinking. They cited companies that
utilized creative mechanisms to eliminate competition by differentiating their products
and by substantially reducing costs. For example, new products can arise from a
creative complementation of products and services (e.g, Cirque du Soleil, which
combined circus and opera). Similarly new products and services can surface from
differentiating a buyer from a user or by looking for functional and emotional appeal
among buyers.’
Strategic thinking involves thought processes that assess a current situation, which
can be useful in the formulation of plans for the future. It is similar to critical thinking since
it uses an orderly and logical system in its assessment. But it also resembles creative
thinking in its growth and future orientation. Porter's five forces of competition, trend
analysis, and scenario building, for example, are utilized to provide an intelligent
forecast of future events that can assist the entrepreneur in formulating strategic plans
that can enhance the growth of an enterprise.
RISKS,COGNITIVE ADAPTABILITY,AND ENTREPRENEURIAL DECISIONS
In the process of implementing a business plan, an entrepreneur will be faced with
numerous situations, challenges, and opportunities that will require flexibility in decision-
making. One of these challenges is managing risks.
Risks can be described as uncertain situations and developments that can increase
the probability of loss or business failure. Since these hazards can originate from a variety
of sources, business risks can be generally categorized into those emanating from
internal and external factors. Internal risks pertain to dangers coming from the
management of resources of a business enterprise that may imperil its operations. For
example, liquidity and financial risks (borrowing at high interest rate or excessive credit
exposure), failure to hire the best talents (compensation package is unattractive),
damage to reputation (roaches in coffee or worms in food served in restaurants), and
failure to innovate (using the business models of twentieth century vintage) can be
considered as internal risks.
On the other hand external risks are threats coming from various environments
outside the business firm. These can endanger the operations and profitability of a firm.
Some examples of external risks are a lethargic economy(slowdown in economic
growth), increased competition (introduction of better products or substitute goods),
commodity price risks (decline in the price of exportable goods), regulatory risks
(environmental requirements to address climate change),business interruptions (natural
calamities, power outages), and political risks (wars and civil disturbances).
 The process of identifying assessing, and responding to these risks is called risk
management. For internal risks, the company may adopt controls on the use of physical
and financial resources to ensure efficient resource utilization. It can also install
mechanisms to maintain the quality of its products and services. It can prepare a long-
term plan on human resource development pertaining to recruitment and retaining
best talents. It can also devote resources for research and development that can
support the innovation projects of the company.
For external rishis the company can hold periodic reviews of their strategic plans in
preparation for the impacts of global and national socioeconomic and political
developments on the company. It can also prepare for contingency plans in case of
emergencies, natural calamities, and other events that can interrupt the business
operations.
Entrepreneurs must respond to these various risks. In this light, they need to develop
what we call cognitive adaptability. Cognitive adaptability refers to the ability of
individuals to be involved in the process of producing several ways of decision-making
based on the identification and management of changes in their environment. It
requires qualities of flexibility, dynamism, and self-control on the part of the
entrepreneur.
 Although we discuss cognitive adaptability in the context of managing risks, it should
not only be confined to risk management. It can be applied by an entrepreneur to
various decision-making processes in all aspects of business operations. Cognitive
adaptability demands that an entrepreneur be flexible and open to various decision
processes. With this flexibility, the entrepreneur can shift from using critical thinking to
creative thinking (or from strategic thinking to short-term thinking) in making decisions,
depending on the objective being pursued. In solving problems, critical thinking may be
helpful. If the concern is the development of a new product or service to respond to
potential rivals, creative thinking may be effective. If the entrepreneur is mapping the
future of the company, strategic thinking will be needed.
Besides flexibility in shifting to various processes of thinking, cognitive adaptability
requires an entrepreneur to be dynamic. The dynamism of an entrepreneur is needed in
the light of the variety of changes, situations, problems, and issues that he has to
confront. This implies that there is no uniform response to these developments. A
dynamic entrepreneur should be aware of what is going on outside his company and
should be receptive in providing appropriate responses to the changes in the
environment. Dynamism may require him to combine various processes of thinking for
the needed decision-making.
 Cognitive adaptability also expects that an entrepreneur should have self-
control in making decisions. Although decisions should be made to respond to the
changes in the environment, these should not be made in undue haste. The decision
of an entrepreneur should be formulated after careful analysis, deep reflection, or
even intuitive thought.