How Entrepreneurship Skills and Attitudes towards Risk influence Small Business Growth - Assignment Example

? How Entrepreneurship Skills and Attitudes towards Risk influence Small Business Growth and Small Business Growth, Entrepreneur’s Skills and Risks The concept of entrepreneurship was advanced in the 1930s by economists and scholars, notably Joseph Schumpeter (Parks, 2012). However, this should not be construed to mean that people before then were not engaged in entrepreneurship activities, but that the concept had not been formalized. This means there was little research and knowledge on the same. Schumpeter depicted an entrepreneur as not only a businessperson, but also an innovator and a person driven by autonomy to start and grow a business (Van Gelderen and Jansen, 2006). According to Schumpeter, an entrepreneur identifies and seizes business opportunities then converts these opportunities into viable and marketable ideas. Being one of the factors of production, an entrepreneur combines the other factors of production, that is, land, labour and capital. He or she then assumes the risks involved in order to realize a profit. Small businesses have developed into economy drivers over the last two decades. This is the period when most governments have been liberalizing their previously closed market. Before then, the government corporations were the economic growth agents but since the markets are now freer, many small businesses have spruced up. Their massive number has however, stunted their growth because of stiff competition (Hubbard, 2009). This necessitates possession of an array of special skills and characteristics that are possessed by an entrepreneur. Any person can start a business, but the successful ones persevere to see the business navigate tough times and eventually succeed and grow. Some of these skills are tackled in this paper. It is, however, imperative to note that even though the entrepreneurs are painted as the more successful people when it comes to small business growth, they still experience a high failure rates. The studies conducted by Business Growth Index showed that the failure rate stood at 75% (Shiu et al, 2007). A business failure can be defined as the inability of the business to get the required return on investment. Since the business is small, and most of the time funded through personal savings or through debt financing after leveraging individual’s property, starting a small business with such a high failure rate becomes too risky. However, this is one of the major characteristics separating a business person and an entrepreneur; an entrepreneur is alert for opportunities that an ordinary business person ignores or does not see; most importantly, an entrepreneur assumes risks that an ordinary business person is reluctant to assume (Minniti, 2013). Risk according to many people has a negative connotation, and rightly so because many start up businesses have ended up declaring bankruptcy after assuming unnecessary risks. But to entrepreneurs, a risk is a positive force; it is an opportunity in disguise and a challenge that needs to be tackled. Beneath the risk the entrepreneur sees the rewards which are the profits (Lowe and Marriott, 2006). Being a risk taker rather than risk averse like most business persons does not mean being reckless, it only implies taking calculated risks to realize profits. This requires some expertise in combining factors of production, utilizing innovation and creativity wells of the business, entrepreneurial skills and patience. There are millions of small businesses started every year, but their mortality rate is just as high. Most of those that weather the storms are those that were started by entrepreneurs (Gabardi and Tichy, 2013). These businesses do not just seek to be operational but also, as a main objective, to grow. Entrepreneurs, through their skills, are the agent of small business growth (Minniti, 2013). The following are some of the skills possessed by successful entrepreneurs that have helped in growing of their small businesses. The first skill possessed by successful entrepreneurs that has led to their business growth is self-motivation. The current free market has millions of competitors, and it has become increasingly difficult to stay in business if one is not motivated. The ability to stay motivated all the time is a rare skill which is very necessary for business growth. This is the most important skill of the entrepreneur that sees him or her nurture the fledgling business through the loss-making periods during startup (Barnes, Hinton and Suzanne, 2004). During the first days of the business there will be fewer customers and less activity, and consequently, less returns. These factors hardly motivate one to stay in business, and that is why so many small businesses die at startup. An entrepreneur overcomes this by being self-driven and self-motivated (Shiu et al, 2007). These are individuals who do not need a boss to tell them what needs to be done because they already know, and they also have this unique stick-to-it attitude driving them until the business flourishes. The second skill necessary for business growth is time management. The ability to plan your time by coming up with a schedule and then sticking to it is a great advantage to a person managing a small business (Van Praag, 2005). When there are no activities to fill the schedule entrepreneurs do not waste their time doing irrelevant things. They instead research and learn better marketing techniques and determine what they had been doing wrong that has stunted the business’ growth. Time is irrecoverable and successful entrepreneurs are aware of this and manage their time appropriately. Closely associated with time management is a skill known as self-investment. Business environment is dynamic and changes very fast. For instance, the advertising techniques that were employed half decade ago are not the same employed today. Then, the television was the main medium, right now it is through the internet and other social networking sites and blogs. For this reason, in order for a business to stay relevant in the market, it is imperative that it stays abreast in the current unfolding. This can only be achieved when the proprietor is self-investing (Kutzhanova, 2007). These activities include buying and reading various materials on similar types of businesses in the industry, for example, periodicals, journals, websites, magazines and others. This also involves attending trade fairs and exhibitions, shows, workshops, seminars, training courses, business clubs and others. The aim is to understand the business and marketing functions and skills better. An equally important aim is to network with other players in the industry (Parks, 2012). During tough economic times, a small business may find a business angel, who may guide the business through offering support, financial or otherwise, until the business becomes stable. For a small business, cooperation is better than confrontation. Being creative and innovative is a skill many entrepreneurs bring into the business world. There are many competitors, and this means that that business cannot stand out if it conducts its operations the way the multitude does or provides the exact same products to the market as provided by the competitors. A business, however, small, has to generate a comparative advantage and this is where creativity and innovation comes in handy (Yeandie et al, 2013). Inventing new products and better ways of doing business, for example, receiving payments, delivering products and marketing can hugely contribute to the success and growth of a business. The importance of possessing selling and marketing skills for a small business proprietor cannot be understated. Small businesses are relatively known, and this makes the need to market very critical. As a business owner, one should be able to sell products to prospective customers (Lowe and Marriott, 2006). He or she should also be able to sell his or her ideas to the employees and prospective investors. Selling and marketing skill are arguably the most important skills in doing business; this is because customers are not just going to walk into the business premises on their own, the proprietor has to make known the product or services offered to the prospective customer, and this is achieved through marketing and selling. Successful entrepreneurs also harness the strategic skills they possess in order to grow their businesses. A small business does not have a wide customer base; the more opportunistic the proprietor becomes the higher the chances of growth. Strategic skills involve planning and making decisions that are in sync with the business’ goals, visions and mission (Nieuwenhuizen, 2007). A skilled entrepreneur knows when the business needs to be expanded. Small businesses proprietors are eager to grow are quick in expanding, or over-expanding them. If this decision was not carefully made, then the business soon finds itself experiencing negative economies of scale and is soon pushed out of the market, slow and steady growth is always the best. Strategic planning skills hence become essential to small business growth (Van Praag, 2005). Learning is a skill. Entrepreneurs are fast learners and are hungry for knowledge. It is this new unutilized knowledge that enables innovation and eventually business growth. As a small business proprietor, it is essential that one has functional competence in nearly all the areas of operation of the business. Even if one has employees they have to see that the leader has got some expertise and is not just outsourcing labour and other factors of production blindly (Parks, 2012). Successful entrepreneurs have both financial skills and budgeting skills. Financial skills come in handy especially when the business is a sole proprietorship. If the person does not know how to keep books of accounts, to track finances and invoices then a lot of money may be lost and accountable cannot be enforced (Figlewski and Levich, 2013). Budgeting skills are essential for decision making. As a small business craving for growth, there is an increased need to operate at the optimal level. Decision making such as make or buy or outsource decisions have to be right to save on expenses hence maximizing returns, which can then be reinvested to grow the business. Just like in any other business, a small business proprietor requires good people skills. The ability to manage employees in the best way possible or to interact with business partners is essential for business growth. A business cannot operate and exist on its own; it needs to network to grow, and entrepreneurs bring these skills on board to enable growth. Team building is also part of people skills and as today’s business environment has dictated, only those businesses that have the most effective teamwork succeed (Kutzhanova, 2007). The urge to grow the small business might sometimes be too strong that the ethics line becomes blurred. Adherence to ethics and morals of doing business needs discipline which is a skill by itself. This adherence is the foundation of a good entrepreneur and will determine whether the business grows (Lowe and Marriott, 2006). Apart from the legal frameworks instituted by the law which may oblige small businesses to pay trade licensing fee and pay taxes there is no law that governs morality. But for small and large business alike they have to adhere to the legitimacy theory. This theory views businesses as one of the entities in the community, just like an individual person, and hence derives legitimacy from the community where it operates. As a result, the business is expected to adhere to certain implicit and explicit social values and norms as shall be dictated by that particular community (Hubbard, 2009). If the business fails to do so, then the community shuns the business and there is no way the business can grow without the cooperation of the surrounding community. The ability of successful entrepreneurs to adhere to the ethics and morals of doing business has seen them grow their small business more than they had envisaged. There are, however, some scholars who are of the opinion that successful entrepreneurs who have grown their business at a faster than normal rate use exploitative techniques. This debate has been inconclusive; however, the need to use fair methods in business cannot be overlooked. Closely related to the issue of ethics and morals is reputation building. Today’s businesses thrive on reputation. A good reputation is the most intangible yet marketable asset that a business can have. There are a lot of examples of large businesses that have a weathered potential business-ending crisis by banking on the reputation they have built. Some of these companies include Starbucks, Toyota, Johnson and Johnson, Exxon and many others (Gabardi and Tichy, 2013). The image they had built over time and the trust they had cultivated with their customers came in handy when they needed to appeal to their customers who could have fled during the crisis. Successful entrepreneurs know the value and importance of reputation building in growing businesses (Nieuwenhuizen, 2007). Successful entrepreneurs have excellent negotiation skills, which are necessary for business growth. These skills not only get them in a win-win position in deals but also help the business secure goodwill which in turn builds long-term business relationships. A small business needs business partners in order to grow. These partners may allow the proprietor more days to pay their credits, and this increases the cash at hand at any particular moment. The salvaged cash can be reinvested to increase cash flows and consequent growth. This opportunity is not afforded those businesses that do not have deep ties with the creditors (Barnes, Hinton and Suzanne, 2004). Lastly, for a business to grow the proprietor must have public speaking skills. Most of the successful entrepreneurs who have built business empires after starting as small business have this critical skill. This may include the likes of Sir Richard Branson, Donald Trump, Mark Zuckerberg, Steve Jobs just to mention a few. Public speaking skills offer a unique opportunity to sell the business and ideas in a clear and concise manner. In order to sell the business and enable its growth, the proprietor should be able to pick concepts and talk about them in an organized manner with clarity. In a bid to be persuasive, entrepreneurs also tend to be enthusiastic about their ideas; it becomes easier for them to persuade. Furthermore, this enthusiasm may rub off on the employees and business partners, and it is the business that ultimately benefits (Parks, 2012). Conclusion Entrepreneurs are not ordinary business people who just start the business for the sake of it. Entrepreneurs have their own unique characteristics and skills that will not allow them to relent in their efforts to make their businesses grow (Lowe and Marriott, 2006). Most of the success stories of small business can be attributed to people who possess these entrepreneurial skills. The good thing is that entrepreneurs are not born; they are made, and therefore, anyone who can master the aforementioned skills can be a successful entrepreneur growing his or her small business to a business empire. It is also evident that calculated risks have to be taken for growth to be realized. Entrepreneurs have a high affinity for taking calculated risks and are rewarded for the same (Hubbard, 2009). References Barnes, D, Hinton, M., and Suzanne, M., 2004.Avoiding the fate of dotbombs: A lesson from the surviving dotcom start-ups. Journal of Small Business and Enterprise Development, 11, pp. 110-124. Figlewski, S. and Levich, R., 2002. Risk Management: The state of the art. Texas: Springer. Gabardi, S., and Tichy, E., 2013. A guide to implementing and implementing risk evaluation and mitigation strategies. Progress, 23(1), pp. 58-63. Hubbard, D., 2009. The Failure of Risk Management: Why It's Broken and How to Fix It. New York: John Wiley & Sons. Kutzhanova, N., 2007. Entrepreneurial Skill Development and how best to assist Entrepreneurs: Policy Implications for Enterprise Development Practice. London: ProQuest. Lowe, R., and Marriott, S., 2006. Enterprise: Entrepreneurship and Innovation. New York: Routledge. Minniti, M., 2013. The Dynamics of Entrepreneurship: Evidence from Global Entrepreneurship Monitor Data. Oxford: Oxford University Press. Nieuwenhuizen, N., 2007. Entrepreneurial Skills. Claremont, Cape Town: Juta and Company Limited. Parks, S., 2012. How to be an Entrepreneur: The six secrets of self-made entrepreneurs. London: Pearson UK. Shiu, C., Eric, B., Walker, C., and David, C., 2007. New product market visioning in small enterprises: A preliminary. Journal of Small Business and Enterprise Development, 14, pp. 56-70. Van Gelderen, M., Jansen, P., 2006. Autonomy as a start up motive. Journal of Small Business and Enterprise Development, 13, pp. 15-30. Van Praag, M., 2005. Successful Entrepreneurship: Confronting Economic theory with Empirical Practice. Northampton: Edward Elgar Publishing. Yeandie, J., Fawkes, L., Gordon, C. and Challis, E., 2013. Risk Assessment and Management. Financial Management, 2(1), pp.21-25. Read More