Unit 1: the entrepreneurial mind: an

overview
A. The Macro Economy and the Role of the Entrepreneur
MACROECONOMICS
 "Macro-economic theory is that part of economics which studies the
overall averages and aggregates of the system." - Boulding
 "Macroeconomics deals with the functioning of the economy as a
whole." – Shapiro
 "Macroeconomics concerns with such variables as the aggregate
volume of the output of an economy, with the extent to which its
resources are employed, with the size of national income and with
the general price level". – Ackley

 macroeconomics, the study of the behavior of a national or regional

economy as a whole. It is concerned with understanding
economywide events such as the total amount of goods and
services produced, the level of unemployment, and the general
behavior of prices.
Macroeconomic Factors Influencing
Entrepreneurship
1. Economic Conditions
 Gross Domestic Product (GDP)
 Inflation rates
 Unemployment rates
2. Political Conditions
 Government policies
 Political stability
3. Social Conditions
 Demographics
 Social attitude
4. Technological Conditions
 Innovation and R&D
 Digital Transformation

The Role of the Entrepreneur in the Macro Economy

 • Identifying opportunities
• Adapting to changes
• Driving economic growth
• Mitigating risks

B. The importance and benefits of the entrepreneurial

mindset
The key to successful entrepreneurship is a continuously
expanding and growing mindset (Neck et al., 2016).

Entrepreneurial Mindset - a set of skills that enable people to

identify and
make the most of opportunities, overcome and learn
from
setbacks and succeed in a variety of settings

Top Benefits of having an entrepreneurial Mindset

1. Go-Getter Attitude
2. It provides full understanding of the importance of planning
3. No fear to experiment
4. A Creative Mindset (innovative mind)
5. Importance of Value Creation

C. The influences of the “wordly philosophers” to

entrepreneurship
- a study of the theories of some of the greatest economic thinkers
who have swayed and shaped the world
- their common interest: the human drive for worldly wealth

I. Adam Smith
- Founder/father of economics
- The Wealth of Nations original name: The Nature & Causes of the
Wealth of Nations
- Invisible hand: the unobservable market force that helps the
demand
and supply of goods in a free market to reach
equilibrium
automatically is the invisible hand
: a natural force that self-regulates the market
economy
- Belief in Free Markets
 Essential to prevent societal chaos
 Free markets naturally achieve equilibrium without intervention

- Invisible Hand Argument

  Individual self-interest leads to efficient resource allocation for
society
 Transforms personal gain into societal benefit
- Economic Metaphor
 Invisible hand symbolizes unseen forces in a free market
 Individual self-interest and freedom drive societal welfare
- Wealth Creation in a Country
 Private ownership of land, factories, and businesses
 Right to own property and profit from businesses
- Free-Market Dynamics
 Interaction of self-interested buyers and sellers regulated by
competition
 Encourages innovation and economic growth

II. Thomas Malthus

- Published - "An Essay on the Principle of Population “(Believed
population
growth would outpace food supply)
- Malthusian Doctrine - Population grows exponentially, food supply
grows
linearly; predicted population would double every 25
years
- Population Control Mechanisms
i. Positive Checks: War, disease, famine, poverty
ii. Preventive Checks: Sexual abstinence, late marriages
- Pessimistic View of Population Growth
 Feared increasing population would lead to widespread misery
 Opposed charity and relief projects, believing they would
worsen poverty
- Criticism and Legacy
 Malthus' predictions did not come true due to modern birth
control and agricultural advances
 Despite criticism, his work influenced economic thought,
earning economics the title "the dismal science"

III. Henri de Saint Simon

- Founder of French socialism
- Advocated for a society led by industrial chiefs, with scientists as
the new priests
- Emphasized production of useful goods and universal peace
through association
- Call for a "Science of Society” - Influenced the development of
sociology and economics as scientific disciplines
- Major Work: "Nouveau Christianisme" (1825) - Predicted a global
crisis leading to universal religion and social organization; Aimed at
improving the condition of the poor
- Advocated for state ownership of property
 - Believed history was moving toward peace and industrial
development
- Proposed that society should focus on improving the lives of the
poorest classes

IV. David Ricardo

- Focused on the impact of the Corn Laws, which protected British
grain prices by imposing duties on imports
- Theory of Rent
 Rent Origin: Explained as the difference in productivity
between high-quality and less-productive land
 Land as Monopoly: Viewed land as a monopoly, where
landlords profited at the expense of capitalists and workers
 High grain prices increased landlords' income, squeezing
capitalists' profits
- Iron Law of Wages
 Wages tend to remain at a subsistence level due to population
growth
 Workers' income only allows for basic survival; wage increases
lead to more children, increasing labor supply
- View on Society
 Saw society as a bitter struggle between workers, capitalists,
and landlords
 Predicted a bleak future where workers remained at
subsistence wages and capitalists' profits were consumed by
landlords
- Despite being a landlord himself, Ricardo opposed the Corn Laws
- Became a champion for industrial capitalists, advocating for free
trade and the abolition of the Corn Laws

V. Robert Owen
- Early life mirrors a rags-to-riches story; rose from humble
beginnings in Wales
- Purchased and revolutionized textile mills at New Lanark, Scotland
- New Lanark: A Model Workers' Community
 Improved worker conditions by raising wages, reducing work
hours, and enhancing sanitation
 Provided housing and education for workers' children
 Demonstrated that treating workers humanely could increase
productivity and profits
- Believed that people are shaped by their environment; improving
it could lead to a better society
- Advocated for "Villages of Cooperation" where people lived and
worked together in planned communities
- Proposed communal living arrangements and shared facilities,
promoting cooperation over competition
- Advocated for "Villages of Cooperation" where people lived and
worked together in planned communities
 - Proposed communal living arrangements and shared facilities,
promoting cooperation over competition
- Sold New Lanark to fund New Harmony, a cooperative community
in Indiana (1826)
- The project failed due to poor planning, bad associates, and lack of
support
- Owen lost much of his fortune but remained committed to his
ideals
- Continued to promote cooperative ideas and worker rights upon
returning to England
- Influenced the development of the consumer cooperative
movement, exemplified by the Rochdale Pioneers
- Formed the Grand National Moral Union (1833), an early attempt
at industrial trade unionism
- Advocated for social reforms, including better wages, working
conditions, and the abolition of money

VI. John Stuart Mill

- Authored Principles of Political Economy (1848), recognized as the
greatest economist of his time
- Challenged the concept of laissez-faire, arguing that the
distribution of wealth is based on society's customs and laws, not
economic laws
- Proposed that wealth distribution could be guided by ethics and
morality
- Differed from Malthus and Ricardo by envisioning hope through
education and population control
- Advocated for workers to form cooperatives and unions for higher
wages
- Supported limited government intervention, particularly to protect
women and children in factories
- Called for taxes on inheritance and rent, modifying the laissez-
faire doctrine
- Founder of utilitarianism; significant contributions to political
science and ethics
- Authored On Liberty, a seminal work advocating individualism and
opposing despotism
- Later identified as a socialist, with a philosophy balancing
between capitalism and socialism
- Early advocate for equal rights and education for women,
highlighted in The Subjection of Women

VII. Karl Marx

- Marx's belief in dialectical materialism, derived from Hegelian
dialectics.
- Developed economic interpretation of history: class struggle
drives historical events.
 - Predicted the inevitable revolution of the proletariat and the
downfall of capitalism.
- The Communist Manifesto: Revolutionary aims of communism;
capitalism's self-destruction.
- Das Kapital: Scientific analysis of capitalism's mechanisms and
eventual demise.
- Focus on "surplus value": labor exploitation as the source of
capitalist profit.
- The Laws of Motion in Capitalism
 Falling profits as the economy expands.
 Innovation and competition drive cycles of boom and
depression.
 Large firms dominate, smaller firms perish. ü Predicted
ultimate proletarian revolution.

Key Terms and Concepts

 Marxism - Strict adherence to Marx's theories
 Scientific Socialism - Laws explaining historical and economic
determinism
 Capitalists vs. Proletariat - The exploiters vs. the exploited
 Bourgeoisie - Middle class, owners of private property
 Anarchism - Rejection of all government, extreme left ideology

D. The entrepreneurial ecosystem elements and

entrepreneurship
entrepreneurial ecosystem - a set of social, economic,
cultural, and political
factors that influence the development of
entrepreneurs and small businesses

Key Elements of the Entrepreneurial Ecosystem

1. Policy
 Government support and regulations
 Role of government
2. Finance
 Access to funding
 Financial institutions
3. Culture
 Entrepreneurial mindset
 Societal support
4. Supports
 Infrastructure
 Professional services
5. Human capital
 Education and training
  Talent pool
6. Markets
 Access to customers
 Market dynamics
7. Mentorship and networks
 Mentors and advisors
 Networking opportunities

The Role of the entrepreneur in the ecosystem

1. Leveraging resources
2. Contributing to the ecosystem
3. Navigating challenges

Unit I1: perspective on

entrepreneurship
A. Historical Perspective on Entrepreneurship
Entrepreneurship
 creation of value through fusion of capital, risk taking,
technology and human talent; multidimensional concept
Distinctive Features:
• innovation
• a function of high achievement
• organization building
• group level activities
• managerial skills and leadership
• gap filling activity
• entrepreneurship -an emerging class

Timetable of the Development of

Entrepreneurship Theory
B. The Emergence of Entrepreneurship
Stages in Evolution of Entrepreneurship

ECONOMIST'S VIEW
• Historical Context:
» Entrepreneurship - term introduced by Cantillon, popularized by
Say
» Early terms: Merchant, Adventurer, Employer
» James Stuart Mill popularized in England

• Key Points:
» Economic conditions favoring entrepreneurship
Economic incentives drive entrepreneurial activities
» Advocates: G.F.Papanek and J.R. Harris
 • Market Imperfections:
Lack of entrepreneurship due to market imperfections and
inefficient
policies

SOCIOLOGIST'S VIEW
• Influencing Factors:
>> Social system's impact on entrepreneurship
>> Custom, values, rigidity, and intellectual curiosity

Key Theorists:
 Cochran: Society's model personality; role expectations and
attitudes
 Weber: Religious beliefs and drive for entrepreneurial growth
 Hoselitz: Culturally marginal groups promoting entrepreneurship
 Stokes: Socio-cultural values channeling economic action

PSYCHOLOGIST'S VIEW
Historical Context:
focuses on how different psychologists and economists explained
the
behaviors and motivations behind entrepreneurial success.
These theories developed over time and tried to pinpoint what
drives
people to become entrepreneurs, highlighting different factors such
as
personality traits, social influences, and motivations.

Key Theorists:
 Joseph Schumpeter: Entrepreneursare driven by the desire to
have power, control, and make something new or solve
problems.
 David McClelland: People become entrepreneurs because they
have a
strong need to achieve and succeed, often developed
through
upbringing and support from their family.
 Everett Hagen: People might turn to entrepreneurship if they feel
disrespected or lose social status. They start businesses to
gain back respect or improve their standing.
 Kunkel: Entrepreneurial behavior is shaped by the social and
economic
 environment. People respond to the conditions around
them, and
entrepreneurship can be encouraged through incentives
and
support.

Market Imperfections:
Entrepreneurs notice gaps or opportunities in the market that others
miss. These gaps can be caused by changes in society, economics,
or unmet
needs.

Influencing Factors:
 Social status: A loss of respect or social standing can push
individuals to entrepreneurial activities.
 Psychological traits: Traits like a high need for achievement,
strong vision, and resilience against social pressure can drive
entrepreneurship.
 Economic incentives: Changes in the economy and available
incentives can trigger entrepreneurial behavior.

According to Psychologists, entrepreneurship is most likely to emerge

when a society has sufficient supply of individuals possessing particular
psychological characteristics. The main characteristics are:

• an institutional capacity to see things in new way (vision),

• energy of will and mind to overcome fixed habits of thought,
• an urge to do something,
• to fulfil a dream,
• he capacity to withstand social opposition; and
• the high need for achievement.

C. Theories of Entrepreneurship
1. Innovation Theory of Schumpeter
Schumpeter's Dynamic Theory of Entrepreneurship focuses on how
entrepreneurs drive economic development through innovation.
• Entrepreneurs as Catalysts: Schumpeter saw
entrepreneurs as key players who disrupt the regular flow of
the economy by introducing new ideas, products, and
services. This disruption leads to economic growth and
development.
• Innovation is Central: Schumpeter believed that the most
important role of an entrepreneur is innovation-bringing
something new to the market. This could be a new product, a
new way of producing things, or entering a new market.
• Entrepreneurship as a Creative Activity: He defined
entrepreneurship as a creative activity where entrepreneurs
 take risks, organize resources, and innovate to introduce new
combinations in production

Five Key Functions of Innovation

1. New products: Introducing products that consumers are
not familiar with or improving existing ones.
2. New production methods: Using new ways to produce
goods, even if they're not necessarily based on new
scientific discoveries.
3. New markets: Entering markets that a particular industry
hasn't explored yet.
4. New sources of supply: Finding new sources of raw
materials or resources.
5. New industry organization: Restructuring how an
industry works.

Wilken and Schumpeter' s entrepreneurship theories:

a) Wilken’s Contribution:
Entrepreneurs bring change by:
• Expanding goods and products.
• Improving productivity of resources like labor, finance,
and materials.
• Innovating in production with new technology and
processes, which increases human productiv ity.
• Innovating in marketin g by exploring new markets and
changing market size or composition.

b) Schumpeter’s Entrepreneur:
  Entrepreneurs are motivated by a desire for power and
success.
 They have the ability to:
 Find the right answers.
 Push past old ways of thinking.
 Overcome social resistance.

Schumpeter's Influence:
 Innovative entrepreneurs have been key in driving
modern capitalism.
 Entrepreneurs are the prime movers in economic
development.

2. Need for Achievement Theory of McClelland

Key Points of McClelland's Theory:
1) Two Key Entrepreneurial Traits:
 Doing things in a new and better way (innovation and
improvement).
 Making decisions under uncertainty (handling risks).
2) Achievement Orientation:
 Need for Achievement (N-Ach): McClelland emphasizes that
the most important trait for entrepreneurs is a strong drive for
achievement.
 People with high N-Ach are motivated by the desire to
succeed and excel, not by money or external rewards.
 Profit is just a measure of success for high-achieving
entrepreneurs, not the main motivation.
3) How N-Ach Develops:
• Childhood experiences shape N -Ach through:
 Family practices that encourage excellence.
 Providing emotional support (material warmth).
 Training in self-reliance.
 Low father dominance (allowing independence)

3 Types of Needs
1. Need for Achievement: A drive to excel, advance
and grow.
2. Need for Power: A drive to dominate or influence others
and
situations.
3. Need for Affiliation: A drive for friendly and close inter
personal relationships.
5 major components to the N-ach trait:
(a) responsibility for problem solving
(b) setting goals
(c) reaching goals through one's own effort,
(d) the need for and use of feedback, and
(e) a preference for moderate levels of risk-taking.
 Specific characteristics of a high achiever (entrepreneur)
1. They set moderate realistic and attainable goals for them.
2. They take calculated risks.
3. They prefer situations wherein they can take personal
responsibility for solving problems.
4. They need concrete feedback on how well they are doing.
5. Their need for achievement exists not merely for the sake of
economic rewards or social recognition rather personal
accomplishment is intrinsically more satisfying to them.

3. Leibenstein's X-Efficiency Theory

- explains how inefficiency within a firm arises when resources are
not used to their full potential.
- The difference between actual and maximum output measures
the level of X-efficiency.

Leibenstein identifies two key roles for entrepreneurs:

 Gap-filler: Entrepreneurs fill gaps in the market when factors of
production are not fully utilized or when market imperfections
exist. They step in to ensure the firm functions efficiently.
 Input completer: Entrepreneurs provide necessary inputs that
enhance the efficiency of current production methods or enable
new methods.

2 types of entrepreneurship
1) Routine entrepreneurship
- deals with normal business functions like co ordinating the business
activities.
2) Innovative entrepreneurship
- wherein an entrepreneur is innovative in his approach. It includes the
activities necessary to create an enterprise where not all the markets
are well-established or clearly defined.
4. Risk Bearing Theory of Knight
Some important features:
1. Risk creates Profit: According to the risk-bearing theory, the
entrepreneur earns profits because he undertakes risks.
2. More Risk More Gain: The degree of risk varies in different
industries. Entrepreneurs undertake different degrees of risk
according to their ability ad inclination. The risk theory proposes
that the more risky the nature of business, the greater must be
the profit earned by it.
3. Profit as Reward and Cost: Profit is the reward of
entrepreneur for assuming risks. Hence, it is also treated as a
part of the normal cost of production.
 4. Entrepreneur's Income is Uncertain: He identifies
uncertainty with a situation where the probabilities of alterative
outcomes cannot be determined either by a priori reasoning or
by statistical inference.

5. Max Weber's Theory of Entrepreneurial Growth

- emphasizes that religion plays a significant role in
entrepreneurial development.
- He argues that some religions encourage the pursuit of wealth
and business more than others.
- Weber refers to this mindset as the "spirit of capitalism", where a
society's beliefs and values support the growth of capitalism.
- According to him, religions like Hinduism, Buddhism, and Islam
don't promote entrepreneurship as much. However, this view
has been challenged by other sociologists, who believe that
these religions can also foster entrepreneurial activity.

Flawed assumption basis:

(a) There is a single system of Hindu value,
(b) The Indian community internalized those
values and translated them to day-to-day
behavior, and
(c) These values remained immune to and
insulated against external pressures
and change

6. Hagen's Theory of entrepreneurship

- focuses on the idea of status withdrawal, which he sees as a key
factor in the development of entrepreneurship.
- According to Hagen, when a social group feels that their values
and purpose in life are not respected by others in society, this
feeling of loss of respect can lead to changes in personality and
behavior, sparking entrepreneurship.

4 possible reactions and 4 different personality types:

(a) Retreatist: Entrepreneur who continues to work in society but
remains indifferent to his work or status.
(b) Ritualist: One who works as per the norms in the society hut
with no hope of improvement in the working conditions or his
status.
(c) Reformist: One who is a rebellion and tries to bring in new ways
of working and ne v society.
(d) Innovator: An entrepreneur who is creative and try to achieve
his goals set by himself.
 7. Thomas Cochran's Theory of Cultural Values
Key Components:
 Cultural Values: The beliefs and values of a society shape
entrepreneurship.
 Role Expectations: Society's expectations influence how
entrepreneurs act.
 Social Sanctions: Rewards or punishments from society affect
entrepreneurial behavior.
Entrepreneur as a Model Personality:
 Influences on Performance:
 Personal attitudes towards the job.
 Role expectations from societal groups.
 Operational demands of the job.

 Impact of Societal Changes:

Factors Affecting Role Structure:
o Changes in population, technology, and institutions
create new needs.

 Socio-Economic Background of Entrepreneurs:

Entrepreneurs often come from specific socio-economic
classes.
o Examples:
Western Context: Protestant ethic led to the rise of
industrialists.
Global Examples: Samurai in Japan, family patterns in
France,
Yoruba in Nigeria, Kikuyu in Kenya, Christians in
Lebanon, Halai Memon in Pakistan, and
various
communities in India like Parsees, Marwaris,
and Gujaratis.

8. Theory of Change in Group Level Pattern

Characteristics of Entrepreneurs:
• Group-Level Behavior: Entrepreneurs often develop within
small groups.
• Findings from Thematic Appreciation Test (TAT):
 Problem-Solving
- Entrepreneurs tend to see situations as problems to be solved.
 Pragmatic Effort
- They are aware of the practical efforts needed to solve these
problems.
 Confidence
 - They have confidence in their ability to solve problems.
 Perspective-Taking
- They analyze situations from different viewpoints before suggesting
solutions.
• Reactive Subgroups: Groups become reactive under certain
conditions:
 Lack of Social Networks
- When they are denied access to important networks.
 Low Status Recognition
- When they experience low recognition or status.
 Institutional Resources
- When they have better resources than other groups at the same
social level.

9. Economic Theory of Entrepreneurship

Key Idea:
 Economic Conditions: Entrepreneurship and economic growth
thrive when economic conditions support a favorable business
environment.

Main Advocates:
 Papanek and Harris:
- Economic Incentives: They argue that economic incentives are
crucial for encouraging entrepreneurial activities in any country.

Factors which promote or demote entrepreneurship in a

country
(a) The availability of bank credit
(b) High capital formation with a good flow of savings and
investments
(c) Supply for loanable funds with a lower rate of interest.
(d) Increased demand for consumer goods and services
(e) Availability of productive resources.
(f) Efficient economic policies like fiscal and monetary policies
(g) Communication and transportation facilities

10. Exposure Theory of Entrepreneurship

 exposure to new ideas and opportunities fosters creativity and
leads to the creation of new ventures.
  Tripathi found that both Parsi and Hindu entrepreneurs were
influenced by new ideas and values, which guided them toward
entrepreneurship.
 Additionally, education played a crucial role by introducing
Indian entrepreneurs to Western ideas, further promoting their
entrepreneurial activities.
 The spread of entrepreneurship also depends on how different
social groups respond to opportunities and political support for
industrialization

11. Political System Theory of Entrepreneurial

Growth
 Political system can crate adequate infrastructure, favorable laws,
favorable taxation system and procedures, provide incentives and
subsides, security to entrepreneurs, create promoting policies and
can encourage people towards entrepreneurship.
 Government can also build supporting system for potential
entrepreneurs. Thus, the commitment of political system can
contribute significantly towards entrepreneurial development.

D. Entrepreneurship Globally
Level of Entrepreneurial Activity around the Globe
Top Level Middle Level Lowest Level
Australia Argentina France
Canada Belgium Japan
Korea Brazil
Norway Denmark
United States Finland
Germany
India
Israel
Ireland
 Italy
Singapore
Spain
Sweden
United Kingdom

A variety of social, economic, political, and cultural factors are

stimulating entrepreneurial activity and consequently generating
economic development. These stimulants are as follows:
• An increase focus on capital formation
• The ability to transform scientific and technical developments
through new institutional development
• The supportive government programs
• Availability of required training and inputs
• A collaborative relationship between business and research and
their direct attempts to transfer technology to the market place
will be an opportunity for the entrepreneurs who commercialize
their ideas
• Finally, an endeavor to create an environment conducive to
innovation will provide a much-needed stimulant to
entrepreneurial activities
Unit III: Entrepreneurship and
Economic
Development
Role of Entrepreneurship in Economic Development
 Entrepreneurship
- the process of creating, developing, and managing a business
venture
 Economic Development
- improvement in the quality of life and economic well-being of a
community or nation
 Entrepreneurs play a crucial role in addressing global challenges
and achieving Sustainable Development Goals (SDGs)

1. Poverty Reduction
- It aligns to Sustainable Development Goal (SDG) 1-No Poverty,
which aims to "end poverty in all its forms everywhere."
- It focuses on improving the quality of life for disadvantaged
populations by addressing economic, social, and structural issues
that perpetuate poverty.
 Job creation
- Entrepreneurs generate employment opportunities
 Income generation
- New businesses increase overall economic activity
 Innovation
- Entrepreneurs develop solutions to local challenges

2. Eliminating/Achieving Zero Hunger

- It aligns to Sustainable Development Goal (SDG) 2- Zero Hunger,
which aims to “end hunger, achieve food security and improved
nutrition and promote sustainable agriculture.”
- Entrepreneurs contribute to solving food insecurity, enhancing
nutrition, and promoting sustainable agricultural practices through
innovative business models, technologies, and market solutions.
 Agricultural Innovation
- Improving food production and distribution
 Food-tech startups
- Developing sustainable food solutions
 Microfinance
 - Empowering small-scale farmers and food producers
3. Reducing Inequalities
- It aligns to Sustainable Development Goal (SDG) 10- Reduced
Inequalities, which aims to “reduce inequality within and among
countries.”
- Entrepreneurs drive economic empowerment, foster inclusivity, and
create opportunities for marginalized groups, which directly fens to
bridge the gap between rich and poor populations, as well as
reduce Inequalities across gender, ethnicity, and location.
 Financial Inclusion
- Entrepreneurs develop fintech solutions to provide access to
banking and financial services
 Social entrepreneurship
- Addressing social issues and empowering marginalized
communities
 Digital platforms
- Creating opportunities for skill development and remote work
 Inclusive business models
- Designing products and services for underserved markets
 Diversity in entrepreneurship
- Promoting equal opportunities for women, minorities and
disadvantaged groups

4. Responsible Consumption and Production

- It aligns to Sustainable Development Goal (SDG) 12- Responsible
Consumption and Production, which aims to “ensure sustainable
consumption and production pattern
- Entrepreneurs drive innovation develop new business models, and
create solutions that promote sustainability throughout the
production and consumption cycle. Their efforts help reduce
waste, lower resource consumption, and foster more responsible
production methods.
 Circular economy initiatives
- Entrepreneurs develop business models that minimize waste and
maximize resource efficiency.
 Sustainable product innovation
- Creating eco-friendly alternatives to traditional products
 Supply chain optimization
- Implementing technologies and practices to reduce envi. impact
 Consumer education
- Raising awareness about sustainable consumption habits
 Sharing economy platforms
- Promoting resource sharing and reducing overconsumption
The Profit System
- the process by which entrepreneurs and businesses generate
financial returns from their activities.
 - Profits - serve as the key incentive for entrepreneurs to take risks,
innovate, and invest their resources into business ventures. The
profit system not only rewards success but also drives competition,
efficiency, and market growth.

The Roles of the Entrepreneur in the Profit System

1. Innovation
2. Risk-taking
3. Resource Allocation
4. Value Creation
5. Economic Growth

Market Structures
- organizational and competitive characteristics of a market that
impacts the behavior of firms and the outcome for consumers

Types of Market Structures

1. Perfect Competition. This structure contains large number of
small firms compete against each other. None of the firms can
influence the price of the product, as prices are determined
entirely by supply and demand.
 Many buyers and sellers
 Homogeneous (identical) products
 Free entry and exit in the market
 Perfect information (all market participants have full
knowledge)
 No single firm can influence the market prices (firms are price
takers)

2. Monopolistic Competition. A market structure where many

firms sell products that are similar but not identical. Firms have
some control over their prices due to product differentiation.
 Many buyers and sellers
 Differentiated products (through branding, quality, features)
 Some degree of market power (firms can influence prices
slightly)
 Free entry and exit in the market
 Significant emphasis on advertising and non-price competition

3. Oligopoly. A market structure dominated by a small number of

large firms, which results in significant market power. These firms
may collude (either formally or informally) to control prices and
output.
 Few dominant firms (which can either cooperate or compete
intensely)
 Products can be homogeneous or differentiated
  High barriers to entry (due to economies of scale, patents, or
high capital requirements)
 Firms may engage in strategic behavior like price wars,
collusion, or cartel formation
 Interdependence (actions of one firm can affect the decisions
of others)

4. Monopoly. A market structure in which a single firm dominates

the entire market, facing no direct competition. The firm is the
sole producer of a good or service, and it controls the price and
output.
 Single seller (no competition)
 Unique product with no close substitutes
 High barriers to entry (e.g., government regulation, control of
resources, high startup costs)
 Price maker (the firm sets the price)

5. Monopsony. A market structure where there is only one buyer,

but many sellers. This gives the buyer significant control over
prices.
 Single buyer
 Multiple sellers
 Buyer has significant bargaining power

6. Duopoly. A special case of an oligopoly where only two firms

dominate the market. These firms may either compete or
cooperate.
 Two dominant firms
 Products may be identical or differentiated
 Strategic interdependence between the two firms (actions of
one affects the other)
 Barriers to entry prevent new firms from entering

Market Models
1. Competitive Market Model (Perfect
Competition)
- Assumes that firms maximize profit by producing the quantity
where marginal cost equals marginal revenue (MC = MR). Since
firms are price takers, price equals marginal cost (P = MC).

2. Monopoly Model
- A monopolist maximizes profit by setting the output where
marginal cost equals marginal revenue (MC = MR), but unlike
perfect competition, the monopolist can set a price higher than
the marginal cost (P > MC).
 3. Cournot Model (Oligopoly)
- In this model of duopoly or oligopoly, firms decide on the
quantity of output to produce, assuming the output of their
rivals is fixed. This results in firms sharing market power.

4. Bertrand Model (Oligopoly)

- Firms in this model compete by setting prices rather than
quantities. If firms sell identical products, this can lead to
prices falling to marginal cost, similar to perfect competition.

5. Monopolistic Competition Model

- Firms differentiate their products and maximize profit by
producing at the point where marginal cost equals marginal
revenue. Unlike perfect competition, firms have some pricing
power due to differentiation.

6. Stackelberg Model (Oligopoly)

- This model involves one firm acting as a leader, setting its
output first, while other firms (followers) react to this decision.
The leader typically earns higher profits.

Cost and Profit Analysis

A. Cost analysis
- involves evaluating the various expenses incurred by a business in
producing and selling goods or services

a) Fixed costs - do not vary with the level of production or sales

- these costs remain constant regardless of how much
a
company produces.

b) Variable costs - change directly with the level of production or

sales
- he more a company produces, the higher its
variable
costs

c) Total cost - includes both fixed and variable expenses involved in

producing a certain level of output
 d) Marginal cost - represents the additional cost of producing one
more
unit of a good or service
- it is crucial for pricing decisions and maximizing
profit

e) Opportunity cost - is the cost of forgoing the next best

alternative
when making a decision.

B. Types of Profits
a) Gross profit - represents the difference between the revenue
generated from sales and the direct costs
associated
with producing goods or services (COGS).
 Formula:
Gross Profit = Revenue - Cost of Goods Sold (COGS)

b) Operating profit - also called EBIT, Earnings Before Interest and

Taxes
- the profit generated from regular business
operations,
excluding taxes and interest expenses
- it accounts for operating costs such as salaries,
rent,
utilities, and administrative expenses.
 Formula:
Operating Profit = Gross Profit - Operating Expenses

c) Net profit - is the final profit figure after all expenses, including
interest and taxes, have been deducted
- it shows the true profitability of the business.
 Formula:
Net Profit = Operating Profit - Interest - Taxes

Importance of Profit Cost Analysis

 To make informed decisions
 To control and efficiently use cost
 Ensures the use of the best pricing strategy
 To maximize profits
 For sustainability and growth
Unit IV: the entrepreneur
Types of Entrepreneurs
4 Categories of Entrepreneurs (according to Clarence
Dahof)
1. Innovative - may develop new ideas, concepts, application of new
technology, and find new markets.
2. Imitative (aka adoptive entrepreneurs) - imitate the technology
and methods that are found successful
3. Fabian - imitate other innovations only when they are certain that
failure to do so would be detrimental for their business
4. Drone - They are very keen in retaining their traditional business
and traditional machinery or systems of the business

Classification of Entrepreneurs
1. 0n the Basis of the Kind of Business:
a. industrial entrepreneurs
b. agricultural entrepreneurs
c. trading entrepreneurs
d. corporate entrepreneurs
2. Based on Utilization of Technology:
a. technical entrepreneurs
b. non-technical entrepreneurs
 3. On the Basis of the Level of Motivation:
a. pure entrepreneurs
b. induced entrepreneurs
c. spontaneous entrepreneurs
4. On the Basis of Profession:
a. professional entrepreneurs (venture capitalists)
b. forced entrepreneurs
c. individual entrepreneurs
5. On the Basis of Experience:
a. entrepreneurs by inheritance
b. first generation entrepreneurs

6. Based on Ownership
a. founders or “pure” entrepreneurs
b. second-generation operators of family-owned businesses
c. franchisees
7. Based on the Stages of Development
a. first generation entrepreneur
b. modern generation entrepreneur
c. classical entrepreneur
8. Based on Personality Traits and their Style of Running
Business
a. The achiever
b. The induced entrepreneur
c. Idea generator
d. The real manager
e. The real achiever

9. Other classifications
a. Street entrepreneurs
b. Copreneurs
c. Women entrepreneurs

Entrepreneurial Competencies
The Ten Entrepreneurial Competencies by Management
Systems International

ACHIEVEMENT CLUSTER
1. Opportunity seeking
- the ability to look for, to find, and to seize business
opportunities
2. Persistence
- the ability to keep on doing something even when faced
with difficulties
 3. Commitment to work contract
- the ability to accept responsibility in completing a job for
customers
4. Risk taking
- the ability to calculate the chances of success before taking
a risk
5. High demand for efficiency and quality
- the ability to meet or surpass the existing standards of
excellence in the business
PLANNING CLUSTER
6. Goal setting
- the ability to set clear short-term and long-term goals
7. Information seeking
- the ability to seek and find the right valuable information
for one's business
8. Systematic planning and monitoring
- the ability to develop logical plans in order to reach goals
and to keep necessary data to monitor progress in the
attainment of these goals

POWER CLUSTER
9. Persuasion and networking
- the ability to make others want to work and help in
achieving the goals
10. Self-confidence
- the ability to take charge of things and to take
responsibility of decisions made

The Entrepreneurial Competencies

1. Self-assessment
- Strengths
- Weaknesses
- Interests
- Your Passion
- Assess your knowledge and talents
- Trainings and work experiences

2. Opportunity seeking
- Opportunities: situations which indicate possible advantages
that the entrepreneur can make use of
- Threats: situations that may hinder the attainment of business
objectives

Business Environment
i. Political environment
 - government actions which affect the operations of a
company or business

ii. Economic environment

- the external economic factors that influence buying habits
of consumers and businesses and therefore affect the
performance of a company
iii. Sociocultural environment
- the customs and traditions of the society in which
business is existing
iv. Technological environment
the changes taking place in the method of production, use
of new equipment and machineries to improve, the quality
of product
v. Legal environment
constitutes the laws and various legislations passed in the
parliament
vi. Natural environment
involves the natural, physical surroundings in which
human life takes
Ask for MADs!
MISSING: feature or benefit they want that's not available
ANNOYING: existing feature that they do not like
DISAPPOINTING: unfulfilled promise; great idea, terrible
execution

3. Business Idea Generation

- Ideation: a creative process that encompasses the generation,
development, and communication of new thoughts and concepts,
which became the basis of your innovation strategy

Idea Generation Tecniques

I. SCAMPER
SUBSTITUTE:
Replace a thing, or concept with something else.
COMBINE:
Unite! What? Who? Ideas? Materials?
ADAPT:
Adjust to a new purpose. Re-shape? Tune-up?
MODIFY, MAGNIFY, MINIFY
Change the colour, sound, motion form, size. Make it
larger,
stronger, thicker, higher, longer. Make it smaller, lighter,
slower, less frequent, reduce.
PUT TO ANOTHER USE:
Change when, where, location, time, or how to use it.
ELIMINATE:
 Omit, get rid of, cut out, simplify, weed out
REARRANGE, REVERSE
Change the order, sequence, pattern, layout, plan, scheme,
regroup, redistribute

II. MIND-MAPPING

4. Summary of Creative Ideas

5. Business Idea Selection

 6. Feasibility Study
- evaluates the potential of a business opportunity by studying five
primary areas in depth: the overall business idea, the
product/service, the industry and market, financial projections
(profitability), and the plan for future action. (Katz & Green, 2018)
- Feasible: the extent to which an idea is viable and realistic and
the extent to which you are aware of internal (to your business)
and external (industry, market regulatory environment) forces
that could affect your business
- Possible: involves the availability of skills, technology, hardware
and infrastructure to set up the business
- A feasible business will:
 Generate adequate cash flow and profits
 Withstand risks
 Remain viable in the long-term
 Meet the goals of the founders

7. Business Plan
- A document designed to detail the major characteristics of a firm-
its product or service, its industry, its market, its manner of
operating (production, marketing, management), and its financial
outcomes on the firm's present and future. (Katz & Green, 2018)

9. Other classifications (CONT’D)

d. solo entrepreneur/self-employed entrepreneur; sub-set: lifestyle
entrepreneur
e. opportunistic entrepreneurs
f. acquirers
g. buy-sell artists
h. Speculators
 i. serial entrepreneurs
j. social entrepreneurs; sub-set: eco-preneur
k. e-preneur

The Secret Mindset of a Successful Entrepreneur

Characteristics of a Successful Entrepreneur:
 Drive and energy level
 Self-confidence
 Setting challenging but realistic goals
 Long-term involvement
 Using money as a performance measure
 Persistent problem solving
 Taking moderate risks
 Learning from failure
 Using criticism
 Taking initiative and seeking personal responsibility
 Making good use of resources
 Competing against self-imposed standards
Mindset of Successful Entrepreneurs
1. Does my team have the necessary complementary skills?
2. Do I have a viable idea?
3. Questions Venture Capitalists Ask
 Market Feasibility
 Growth Industry Potential
4. Major Business Plan Considerations
5. Improving your venture’s success odds

Representative Elements of Seven Management

Functions:
1. Marketing and Sales
- Market research and evaluation; Strategic sales and sales
management; Merchandising and direct sales; Customer service
and distribution management
2. Operations
- manufacturing management; inventory and quality control;
purchasing and supplier management
3. Research, Development and Engineering
- Applied research management; development and engineering
management; technical know-how
 4. FinancialManagement
- Raising capital and financial forecasting; money management and
financial controls; cash flow and break-even analysis
5. General Management and Administration
- problem-solving, planning and decision-making; communication
and project management; negotiation and personnel
administration
6. Personnel Management
- listening, helping and conflict resolution; team work and
subordinate development; building a high-performance climate
7. Legal and Tax Aspect
- corporate, contract and patent law; tax law and compliance

Themes/Desirable/Acquirable Entrepreneurial
Attitudes and Behaviors
1. Commitment and Determination
a. The individual acts autonomously
b. Individual behavior
c. Self-regulated
d. The individual acts in self-realizing manner
2. Leadership
Four Phases of Decision Making
a. Orientation stage
b. Conflict stage
c. Emergence Stage
d. Reinforcement stage
3. Opportunity obsession
4. Tolerance of risk, ambiguity and uncertainty
5. Creativity, self-reliance and ability to adapt
6. Motivation to excel

Characteristics of a Successful Entrepreneur

1. Initiated and innovates a new concept
2. Recognizes and utilizes opportunity
3. Arranges and coordinates resources
4. Takes suitable actions
5. Faces risks and uncertainties
6. Establishes a startup company
7. Adds value to the product or service
8. Takes decisions to make the product or service a profitable one
9. Responsible for profits or losses of the company

The Entrepreneurial Process

1. Self-assessment
2. Opportunity Seeking
3. Business Idea Generation
4. Business Idea Screening
5. Business Idea Selection