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Role of an entrepreneur

An entrepreneur is a person who combines the factors of production together and take risk in producing
goods and services. They are the owners of the business. The return for entrepreneur is profit.

Roles of an entrepreneur

➢ Innovation

New owners should be able to come out with new ideas, to attract customers and differentiate
customers and differentiate businesses from others in the market. Should have the ability to do things
differently and introduce a USP and creating a niche market. This would provide a competitive
advantage over competitors as customers would choose company’s products over its competitors.
Therefore, sales and profits would increase. Innovations can be done by identifying market gaps and
satisfy the underserved customers.

➢ Organizing the other factors of production

This involves the utilization of the right quantity and type of resources such as land, labor and capital to
produce goods and services. This involves allocating the duties, responsibilities to the right people and
introducing the right systems and procedures to produce goods and services.

➢ Taking decisions

The owners need to decide what to produce in what quantity, how to produce for whom to produce,
what price to charge, what promotions to use, recruit employees etc.

➢ Take risks

Entrepreneur take risks by starting the business because when starting up they invest their saving or
finance without even knowing if the business will become successful. If the business fails the owners will
lose the money, they invested but if the business becomes successful then entrepreneurs will be
rewarded with profits.
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Risks and rewards for entrepreneurs

The terms risk and rewards are often used together to emphasize the risk-taking approach. To gain more
rewards, calculated risks must be taken. As Mark Zuckerberg, the founder of Facebook, said:

The biggest risk is not taking any risk. In a world that's changing really quickly, the only strategy that is
guaranteed to fail is not taking risks."

The level of risk associated with starting a business enterprise depends on its scale. If it is a small
enterprise, its operations are likely to be less complicated. The level of decision-making required for its
operations is also potentially simpler. Hence, the level of risk is often at a low level. On the other hand, if
it’s a big enterprise, with many operations proceedings at the same time, the decision-making could be
complex, and the risks are often high.

One of the most famous investment principles is 'the risk-return tradeoff', which states that when there
is a higher risk, there is a higher potential reward.

A lot of factors need to be assessed when turning a business idea into reality. When the market is
uncertain, the one who shows courage and makes the first move could get a head start in the race
(business industry). In marketing, this is known as the first-mover advantage. In such a scenario, the one
who makes the first move could get big rewards.

Financial risk

Starting a business requires capital, be it through investment by the owner themselves, other investors
or borrow money. In either situation, it presents a financial risk. Therefore, it requires comprehensive
financial management to reduce this risk. An owner should have multiple financial plans in store in case
of unpredictable situations. Financial inflows and outflows must be managed effectively to ensure the
business is on track to meet financial objectives. However, even with more than one emergency
financial plan, the risk can only be reduced to a certain extent.

As mentioned before, a business enterprise has financial risks. Even if everything is planned and
executed effectively, there are no guarantees on returns. It all depends on how consumers react to the
business’ goods and services. If it works then huge returns (profits) can be expected; but if it does not
work, then huge losses are incurred and the company may have a lot of debts to pay off.

This leads to an opportunity cost the return form the alternative is the opportunity cost of the current
risk taken. This also creates opportunity cost to the owner because being an entrepreneur involves
giving up on the job. If the business fails the owner will face losses and lose the money, he/she could
have generated from doing a job elsewhere. This motivates entrepreneurs to hold up and continue the
business but in worst cases they may close down the business and do a job to have a stable income.

However, there are people who still want to take this path. The reason is simple: greater risks often give
greater rewards.

Example: In 2006, Google acquired YouTube for $1.65 billion. At the time YouTube had been
around for less than two years. The video hosting platform was already well-known, but nobody
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had expected it to reach such heights. It was a bold move from Google to spend that amount of
money on a relatively fresh company. Many business analysts thought Google had overpaid for
this acquisition. The financial risks associated with this acquisition were enormous.
Google took the risk and now it is safe to say that it was a smart investment. They have got
huge rewards. Now, YouTube has an estimated worth of $170 billion.

How do people get business ideas to become an entrepreneur.

• Previous work / business experience – people may get business ideas from the current
job they do. This will be more effective as they have experience of the industry and will
have some knowledge of the systems and procedures to follow thus higher chances of
success.
Example: An operations manager working for a construction firm may later start their
own construction firm.

• Personal experiences – this is where people use their personal situations faced or
hobbies as a point to start a business. When a hobby is converted to a business chance
of success is very high as they enjoy it due to it being their passion.
Example 1: A oversized person may find it difficult to find clothes fitting their size such
as 4 XL thus motivate the person to start a clothing shop which only sells 4XL clothes
such as the startup of double XL cloth shop in Sri Lanka.

Example 2: a person who enjoys or having a passion for cooking will start up their own
food manufacturing business with innovative food items.

• Skills – some people start-up businesses based on their skills or specialized area. This
would be ideal because the person will have the talent thus provide a superior product
or service to the customer causing customer satisfaction to increase thus increase
customer loyalty.
Example 1: A person who can sew well can start a small garment factory than working
for a garment factory.
Example 2: An electrician who is very good at it can take contracts on his own and do
than working for a company.

• Life style choices – some people before retiring may want to start a small business to
relax and generate income for them to live a good life after the retirement. Example:
starting up a small restaurant or retail outlet etc.
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• Copy competitors – some people have no unique ideas or innovations thus would simply
copy the competitor’s product idea if it is not patented.

Stages in setting up a business

The process of setting up a business involves a lot of systems and procedures thus it should be planned
properly. It includes stages such as:

➢ Idea
In order to start a business, the entrepreneur should have a business idea. The entrepreneur will
have many different business ideas to choose from. Ideas can be obtained through research and
development, competitors, from employees etc.

➢ Research
Entrepreneurs will have to do a lot research into the industry to obtain the right idea. This is
where a lot market research is conducted to determine and help identify the level of
competition and the products offered by the competitors.
➢ Planning
This involves setting the systems and procedures along allocating the right type and quantity of
resources. This involves setting objectives too. (Discussed in detail later)

➢ Location
The right place will have to be selected for the business to operate their business. This depends
on the nature of the product and the market. For example: a retail outlet should locate closer to
their target market to attract more customer an increase demand, sales and profits. A
manufacturer will have to locate closer to the market and suppliers to ensure reliability.

➢ Resources
This is the process of identifying the type and number of resources needed to execute the plan.
The business plan will contain exactly the type and number of resources needed to execute the
plan.

➢ Launch
This is where the entrepreneur first starts its trading activities and the business is open for
consumers. Usually, they will have an opening ceremony where people are invited and meals
provided. This is done to give publicity to the new business started.
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Going through the usual procedures and key stages of starting a business will help the entrepreneur
become successful and reduce risk of failure.

“FAILING TO PLAN IS PLANNING TO FAIL”.

Running and expanding or developing a business

When the business expands its activities will increase thus all activities cannot be handled by
the owner him/herself. Therefore, to improve the quality of work the business will have
specialized function departments. The functional departments are:
➢ Marketing

When the business expand it needs to invest on advertising and promotion such as do
market research to find needs and wants of customers and produce products according
to it to ensure customer satisfaction.
Use above the line promotion such as TV , newspapers etc and below the line promotion
methods to create awareness and attract people to buy products.
Ensure efficient distribution channels.
Increase brand image to ensure its reputation. This can be done by effective advertising
and promotion.
This is a very important function which drives the organization towards success. It helps
to maintain customer loyalty, brand image, market share and remain competitive in the
market.

➢ Purchasing
In large organizations they have a separate department to purchase supplies:
Develop a good relationship with suppliers and obtain quality raw materials.
Obtain raw materials at lower prices to ensure low cost.
Obtain all necessary goods and services to ensure smooth functioning of the
business such as: stationary, janitorial services, accountancy etc.

➢ Finance
This department is responsible to record all financial transactions of the business and
manage the cash of the business wisely to ensure limited cashflow problems.
Preparing budgets
Cashflow forecasting
Preparing income statements and statement of financial position.
Arranging financial solutions such as bank loans hen cash is needed.
Credit control
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➢ Managing people
This refers to the strategic approach taken in order to handle workers and achieve
objectives. This focuses on the functions of HR.
Recruitment and selection of staff
Training and development
Redundancy and dismissal
Motivating staff

➢ Production
This refers to the functions involved in the manufacturing process.
Organize the stages of production to increase efficiency
Ensure product quality
Keep track of stocks of raw materials and ensure the right type and quantity of
stocks are available.
Produce the right quantity to meet demand
Ensure health and safety while producing the products

➢ Administration
Refers to all the paper working and keeping records.
Maintain records of stocks
Recording transactions
Processing legal documents
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Barriers to entrepreneurship

1.Identifying business opportunities / lack of ideas

A young entrepreneur planning to start a business for the first time may lack the skills required for
identifying new opportunities. And therefore, it may take some time for him/her to identify profitable
opportunities. Due to limited funds he/she may not have done sufficient research to identify the
opportunity. Certain markets are matured and saturated or highly competitive which leave less scope
for profits. If its really tough to come up with an idea the entrepreneur can get a franchise or license to
operate under the idea of some other business but there loses independence, and not everyone can
afford it.

2.Sourcing finance/ lack of capital.

May lack sufficient finance and banks may not be willing to provide finance because of the high risk
involved as the company does not have previous trading records, lack of business plan, lack of
information on availability of grants. And difficult to attract investors to invest as they are not
established thus cannot raise capita easily.

3.Determining a location.

It’s difficult to find a location which has all the advantages. Location needs to be found where the costs
are low so that the breakeven output will reduce but it may not be closed to its target market. This
challenge is reduced to some extent if the products are marketed online or online marketing is used.

4. Building a good customer base.

It’s very difficult for a new business to build a good customer base due to lack of consumer awareness
and if there is heavy competition in the market then it will make even more difficult for a new business
to build a strong customer base. Until the customer base is built the company would experience cash
flow problems.

5. lack of entrepreneurial capacity

If the entrepreneur lacks entrepreneurial skills and characteristics such as self-confidence, innovation,
communication skills etc. then they cannot conduct business operations smoothly.

6. legal barriers (red tape)

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7. Fear of failure.

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8. Aversion to risk.

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9.Corrupt and unsupportive environment.

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Intrepreneurship

An intrapreneur is an employee who takes the responsibility for creating innovations and implementing
them within the organization. They are assigned to work on a special project or business idea. They are
given the time and freedom to develop the project just like what an entrepreneur would do.
Intrapreneurs work inside the company to develop the business idea which will help to enhance the
company’s future.

Intrapreneurs are provided the necessary resources by the firm.

An entrepreneur will start with an idea and will aim to create a company from scratch whereas an
intrapreneur has a broader vision for an established company. The role of an intrapreneur involves
making radical changes to the company’s traditions, processes, culture and product. To do this we
should have the necessary skills and experience.

Characteristics of an Intrapreneur

➢ They are highly motivated individuals who have specific skills.

➢ Should have leadership ability and an innovative vision.
➢ In order to transform the company, the intrapreneur should be willing to take certain risk
because some of the steps that they take may not always be successful.
➢ Intrapreneur move the business forward and rise to the top to do this they need to have a deep
understanding of the business from all levels.
➢ Intrapreneur work with other employees when solving problems and during this process ideas
are exchanged between intrapreneur and other employees which will promote the growth of
other talented intrapreneurs.
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Anticipating risk and uncertainty in the business environment

Anticipating risk

Risk refers to the situation that can cause some danger or damage to a business. Example: if the
business is not able to sell the expected quantity it will face the prospect of a huge loss. Its business
ideas might fail and the firm will not be able to recover the capital invested. This is the risk that
businesses have to face.

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Anticipating uncertainty

Uncertainty is defined as unknown future event that cannot be predicted accurately. When there is
uncertainty, it will be difficult to plan business activities. Example: the current pandemic has created an
uncertain future for key sectors such as hotels and airlines.

Risk can be estimated but the consequences of uncertainty cannot be estimated.

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