Entrepreneurship and Small Business Management – Entrepreneur Ventures

UNIT 9 Entrepreneurship and Small Business Management Assessment 1 – Entrepreneur Ventures Author’s Name: Imran Imtiaz Butt 5/11/2016 Table of Content……………………………………………………………………………..…….…………………….……02 Introduction………………………….………………………………………………….…..…..………………..... 03 Innovative Entrepreneurship.………………………………………..…..…..…………………….……….. 04 Imitative or Adoptive Entrepreneurship……….…….…………….……………………….............. 05 Fabian Entrepreneurship……………………………….…………………………..…..………………………. 06 Drone Entrepreneurship…………………………………………………………...……………….……...….. 06 Lifestyle vs. Growth Firms………………………………………………………………………………………… 07 Lifestyle Entrepreneurship………………………………………………………………………………………. 07 Growth Entrepreneurship……………………………………………………………………………………….. 08 Difference between Profit-oriented and Social Entrepreneurs….……..…………………….. 09 Role of Small Businesses in UK.……………………………………….………………………………….….. 10 Positive impact of SMEs in economy…………………………………………………………………….. 11 Conclusion……………………………………………………..………………..………………….……………….. 13 References…………………………………….………………………………………………………………….….. 14 Introduction: With the advent of industrialization, many distinguished personalities took steps by putting forward new ideas that revolutionized the world. They are known as famous entrepreneurs of their time such as Thomas Edition, John D. Rockefeller and Henry Ford who gave birth to huge companies that were designed to create enormous value and better opportunities to the communities. Since 1980, the term “Entrepreneurship” has become an interested topic among many social scientists and scholars related to management. In modern times, the interest has taken more strength after the emergence of many business ventures which have grown in a short span of time through the technological advancements (Gartner and Carter, 2005). According to the definition of entrepreneurs suggested by Joseph Schumpeter in 1934, that entrepreneurs are the persons who are driven by the strong sense of innovation that can bring change in the market. This entrepreneurial change can be demonstrated in the form of introducing novel products, introducing new production methods, discovering a new market, exploiting new or improved supply source and re-defining the traditional business model with unique management prospect (Schumpeter, 1934). However, Schumpeter correlate entrepreneurship with innovation but many other authors have put different characteristics of entrepreneurs with many other traits. The definition of entrepreneurs and entrepreneurial activity is defined by business dictionary are as follows: “Entrepreneurs are considered to be those individuals who look forward to produce value through creation and development of economic activity by highlighting and identifying novel products, processes or market segments (Business Dictionary, 2017)”. “Entrepreneurial activity is the enterprising human action in pursuit of the generation of value, through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets (Business Dictionary, 2017). There are many types of entrepreneurship according to the business type, technological aspect and their motivational aspect. In this report we will discuss the entrepreneurship according to the Clarence Danhof classification. According to the researchers who have closely examined the behavior involved in the entrepreneurship propose that entrepreneurship ventures are classified into different types with respect to their entrepreneurs. Many researchers have explained entrepreneurs’ categories on the basis of economic development, type of business, use of technology, motivation, growth, entrepreneurial activities and many more (Paul, 2002). We will examine the entrepreneur category on the basis on economics development put forward by Clarence H. Denhof. Innovative Entrepreneurship: This type of entrepreneurship is described as the introduction of novel idea of business by the entrepreneur through the gathering of valuable information of the market along with its proper analysis in aggressive attitude. These types of ventures implement innovative ideas and techniques to introduce a unique product or alter any existing product in a way that the importance of the product becomes prominent to the market. The innovative entrepreneurs performed a fundamental role in the growth of modern capitalism by their ability to sniff opportunities and enterprising spirit. In the modern times, the SpaceX (Space Exploration Technologies) is considered to be the most successful example of innovative entrepreneurship venture which introduced a magnificent and unique method of launching and landing the same rocket on ground by reusing it. This method drastically lowered the expenditures in rocket launchings that revolutionized the commercial space industry (Sean, 2017). Elon Musk, the founder of SpaceX have started this company in 2002 with the idea on his mind that he will reduce the cost incur in space transportation and initiating the step to make Mars colonization possible (Tim, 2015). Picture 1: SpaceX facility at Cape Canaveral, Florida, USA (Courtesy: Teslarati) Imitative or Adoptive Entrepreneurship: The second type of entrepreneurship is known as adoptive or imitative entrepreneurship. This type is usually found in underdeveloped or developing countries which the imitative entrepreneurs copy or adopt technique or product from any other innovative entrepreneurship ventures in developed countries and implement it in their own countries (David, 2004). Al-Baik is considered to be the finest and most successful example of imitative entrepreneurship which is headquartered in Saudi Arabian peninsula. It is a home-grown fast food chain which is very similar to KFC in serving fried chickens. Al-Baik was founded in 1974 by late Shakour AbuGhazalah who observed the need of fast food chain similar to KFC in Saudi Arabia which can serve the similar fried chickens in an appealing and clean environment. Picture 2: People standing in queue inside Al-Baik Restaurant, Saudi Arabia (Courtesy: My Salaam) Now Al-Baik has grown tremendously that it is considered to be most successful fast food chain in the Middle East as around 20 million Saudis prefer dining at fast food chain as their major source of entertainment in their leisure time (My Salaam, 2017). Fabian Entrepreneurship: This is the third type of entrepreneurship venture of Dehnof classification. These types of ventures are very much restrictive, traditional and unlikely to adopt changes within the business. The entrepreneurs running such organizations are sometimes considered as shy and lazy who never appreciate new innovative methods to be introduced in the day to day business as well as unable to take risks. They usually follow customs, old procedures, traditions and religions. Many of the Fabian ventures are family businesses and run by second generations and so on. In UK, the R. Durtner and Sons is the best example of Fabian entrepreneurship venture. It is listed in the UK’s oldest companies existed till date. The company was founded in 1591 by John Durtnell as a house building firm used to build wooden houses at that time. At present, the company is run by the family members of John Durtner and still has not much expanded and changed (Bloom, 2012). Picture 3: Logo of R. Durtner and Sons Drone Entrepreneurship: The fourth and last type of entrepreneurship venture is drone entrepreneurship. It is the type of venture who refuses to adopt or utilize new opportunities with respect to the changing dynamics of the market. These types of ventures stick to their traditional operations, business model, production methods and products. With this type of approach, most drone entrepreneurship ventures vanish from the market or lose their market footprint. The best example of drone entrepreneurship venture is Blockbuster LLC which was a movies and video games provider on rental basis through their rental outlets, DVD through courier services and cinema theaters. Blockbuster lost its market presence after the arrival of online movies streaming services like Netflix, iTunes or Hulu, and after sometime it totally disappeared from the market. Blockbuster rejected to mould its company in accordance with the market trends and chose to run its business on its traditional method. In 2002, Netflix’s founder Reed Hastings approached Blockbuster and offered them for a merger but denied. After the widespread use of internet, Blockbuster soon declared its bankruptcy in 2010 due to its total wipeout (Melissa, 2014). Picture 4: Closed Blockbuster outlet Lifestyle vs. Growth Firms: After discussing denhof’s classification for entrepreneurship ventures, we come to know that the entrepreneurs are more likely to be motivated either for more growth or to just sustain the existing structure of their businesses. In this scenario, many authors have presented the concept of push-pull method of motivation regarding the behavior of entrepreneurship which can also be termed as necessity type or opportunity type entrepreneurship. After analyzing the terms of “Proprietorships” and “Genuine Entrepreneurs” in more depth, it has been observed that proprietors start their businesses to produce income for the sustainability of theirs and their families’ lifestyle with limited options in hand. However, the genuine entrepreneurs initiate their businesses with only one goal in mind that they should generate income and again invest the portion of that income in their businesses to acquire more growth of the firms (Scase, 1997). Lifestyle Entrepreneurship: There are many researches available upon the characteristics of lifestyle firms which clearly indicate that lifestyle firms are quite dissimilar to their counterparts “Growth-oriented firms” also known as Schumpeterian entrepreneurship ventures. These lifestyle firms are set up chiefly either to carry out the activity which an owner of the company enjoys or to secure a stage of activities that constantly generates revenue at a same pace (Burns, 2001). These lifestyle firms are mainly found in tourism and hospitality sectors, where the owners only constrained to provide hospitality service to the customers with less motivated to the growth. Examples of the firms are bed & Breakfast hotels, guesthouses, two star inns or local restaurants fit under the category of lifestyle firms. These firms share common characteristics such as motivated by quality of life rather than expansion, underutilization of capital investments and resources, non return-on-investment decision making, irrational management, limited marketing and limited or no research and development (Williams et al., 1989). Picture 5: A typical example of Lifestyle firm (Courtesy: Chris’s Motel) Growth Entrepreneurship: The opposite of lifestyle firms are growth firms that are created by the genuine entrepreneurs just similar to the Schumpeterian model which has the aim to grow further and multiply profit by selling the product and providing services through novel ideas and aggressive marketing tactics. These growth firms concentrate on marketplace having potential to provide opportunities in the form of product selling and services acquiring. These firms are familiar with the concept of innovation that spawns fast development of new products which can fulfill the changing requirements of customers over time (Delmar, 2003). These growth firms are more eye-catching to potential investors, such as investors eager to invest in their businesses venture capital investments, potential mergers and acquisitions, private equity transactions or initial public offerings. However, it is quite confirmed that lifestyle businesses are more in quantity than the growth firms, although growth firms are also considered to be the economic engines of the society as they not only grow within themselves but they seed creation of many other products or services which is beneficial for other industries and firms also. Below picture shows the vision statement of one of the fastest growing firms in UK (Real Business, 2015). Clipper Contracting company provide its services to recruiting agencies and their temporary workers by delivering high level customer services to assist staff with financial matters and management. Picture 6: Vision statement of Clipper Contracting Group Ltd This company was founded in 2008, and now achieved 81% three-year compound growth rate. This company’s latest turnover is around £69millions. In this report, we will further discuss the SMEs market share in UK’s economy, which will clearly indicate that major market share will be ruled by these types of administrative and professional services providers. Difference between Profit-oriented and Social Entrepreneurs: Entrepreneurs are sketched as those persons who envision the world differently and only be optimistic about their visualization. They grab opportunities which are ignored by many other people. This type of exceptional mindset is used to maximize profit and create economic advantages to others. However, some entrepreneurs not just only maximize profit but they are also triggered to improve the societal well-being. These entrepreneurs are known as social entrepreneurs. Social entrepreneurs run social enterprises that are private entities used to conduct activities in public interest whose sole mission not just to maximize profit but attainment of various social and economic goals as well as having capabilities of implementing innovative ideas for the issues of unemployment and social exclusion (OECD, 1999). Figure 1: Characteristics of Profit-oriented and Social Entrepreneurs Role of Small businesses in UK’s Economy: The small business can be categorized by its size, its total budget and number of employees working in it. It is generally fall under the scope of independent entities and mostly not dominant in its operational field. Common term used to describe the small businesses are SME (Small or Medium-sized Enterprises). According to European Commission (2003), any such enterprise which comprises of employees fewer than 250 is considered to be an SME. SMEs or MSMEs consist of micro, small and medium-sized enterprises. According to the statistics of Office of National Statistics, the contribution of SMEs in UK’s economy in terms of numbers is around 99% which consist of around 5.4 million SMEs working in UK alone. The Table shows the exact data of SMEs and Large enterprises: Table 1: Market share of SMEs and Large enterprises in UK’s economy (ONS, 2016) In UK, small enterprises outnumbered the medium and large enterprises far behind with no comparison with the 99.3% in terms of numbers. On the other hand, Medium enterprises are only 0.6% and large enterprises are only 0.1% in the UK (ONS, 2016), (FSB, 2016). However, this share in the market will increase in the future. It is forecasted in study from Hamshire Trust Bank that SMEs’ participation in the UK economy in top 10 cities will be raised to £217 billion by the end of 2020. The major contribution will be provided by sector related to administrative and professional services in the form of SMEs. These enterprises are related to accountancy and legal firms (Gough, 2016). However, at present, the SME’s sectors are mentioned in below figure by their quantities in percentage. Real estate business, renting business and other related activities are the most prominent SMEs with 27% presence in the UK’s economy presently (Statista, 2016). Figure 2: SME sectors and their market share in UK’s economy (Statista, 2016) Positive impact of SMEs in economy: SMEs are the backbone of any country’s economy. These enterprises represent a vital source of economical development and the major source of job creations. Some of the positive impacts are as follows: Job Creation: There are many researches available which prove that SMEs are the top source of job creation. These small enterprises are labor intensive instead of capital intensive. SMEs are responsible for 60-70% job creation in the market (OECD, 2016). However, with the substantial amount of job creation, there is also a substantial amount of job destruction in SMEs. In fact, the birth rate of businesses is greater than the death rate of businesses. In UK, there were around more than 380,000 business births happened as compared to the 131,000+ business deaths in 2015. Hence the birth rate clearly outnumbered the death rate of business. Figure 3: Comparison between birth rate and death rate of SMEs in UK (ONS, 2015) Form the above graph, it has been observed that the deaths of enterprise was higher than births of the enterprises. That period was during the great recession which was ended in 2009. At that period, the birth rate was around 10% while the death rate was around 12%. But soon after the recession, the births were increasing from 2010 and it has reached an unprecedented level at present. Employment Practices: SMEs can somehow hire less experienced workers and employees. This practice helps the economy in many ways, such as the individual can more likely be securing job with less or no experience and with minimum conditions. On the other side, these small enterprises can also work as grooming individuals in the form of on job training and work experiences. Contribution to innovation: Some researchers emphasized that innovative ideas are more likely to develop within SMEs rather than large enterprises. The small or very small firms are likely to produce most innovative solution in order to get prominence in the market and launch new products and services. Especially in service sector, the demands from the clients are non-uniform and vary with the conditions and requirements. So, in this sector, the SMEs have a great opportunity to thrive. Mostly, SMEs are the key innovators in this sector (Abernathy and Utterback, 1978). Product Competiveness: SMEs are the major players of promoting product competiveness in the market through their cost effective solutions and low cost products due to their less overhead expenses and less complex administration. Their products require less time to be manufactured due to less complications and simpler process management (Khrystyna et. al, 2010). Conclusion: In this report, we have discussed the various types of entrepreneurship ventures and the contribution of SMEs in UK economy. However, it has been found evident that innovative entrepreneurs are the pioneers in creating great opportunities for the people. The highly innovative enterprises weather they are small or medium are more likely to create more jobs than non-innovative firms. This is due to the introduction of novel product to the market. Soon the novel product becomes the major requirement of the market; then the firm has to increase its production capacity in order to meet the requirement, as a result of more job vacancies. The overall importance of small enterprises is evident in UK’s economy. Simultaneously, many economists have agreed to the point that the healthy SME sector is essential for any country’s economic growth. But the growth of every enterprise lies beneath the concept of innovation and creativity. After discussing examples of those firms that rejected to embrace innovation clearly shows that continuous innovative methods should be implemented in products and services in order to survive in the market. References: Abernathy, W. and Utterback, J. 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