Topic 1 - Overview

Introducing Business Entrepreneurship

Topic’s Learning Objectives

1. Examine the importance and role of Entrepreneurship and SMEs in
the economic environment.
2. Assess the trends of the market can determine success or failure.
3. Distinguish between the dream and vision of the Entrepreneur.
4. Analyse the personality profile of the Entrepreneur.
5. Critically evaluate the market opportunities for new venture creation
and innovation within existing organizations.

Introduction

Do businesses fail?
Startup businesses have a very high failure rate in
most countries with as many as 1 in 3 failing in
their first three years. The reverse side of the coin
is that around two thirds survive and some go on to
prosper and expand. Key reasons for business
failure include:
• Poor planning
• Lack of experience
• Lack of finance
• Cash flow problems
• Failure to embrace new technologies
and new developments
• Poor choice of location
• Poor management
• Poor human resource relations
• Lack of clear objectives
 Quote
"Success is often achieved by those who don't know that failure is
inevitable" - Coco Chanel

Did you know ...?

Every year, some 150 000 corporate insolvencies wipe out around 1.5
million jobs.
Source: Insolvencies in Europe 2006/07, survey by Creditreform
(figures for EU plus Switzerland and Norway, 2002-06)
People who start a new business risk their reputations as well as
their money and property. Entrepreneurs worry most about how their
families would cope if they went with bankrupt.
Source: Attitudes to Bankruptcy. The Insolvency Service, London
To support high-growth entrepreneurship, we need to be more
accepting of firm failure and bankruptcy, and reducing the economic and
social costs that go with them (refers to start-ups creating 20 or more jobs
within five years)
Source: The Global Entrepreneurship Monitor, High Growth Report 2007
A study on the performance of Europe's fastest-growing companies
shows that companies founded by re-starters have higher turnover and
employment growth than companies run by entrepreneurs who have never
failed
Source: Setting the Phoenix Free. Boston Consulting Group, 2002
Business failure does not mean losing the entrepreneurial spirit.
Research shows that a large majority of people whose businesses had
failed still had plans for new business projects.
Source: Starting anew: Entrepreneurial intentions and realizations subsequent to
business closure. Stam E., Schutjens V., 2006
The risk of bankruptcy is what Europeans fear most about setting up
a new business.
Flash Eurobarometer "Entrepreneurship" No 192, European Commission, 2007
 48% of Europeans agree with the statement "You should not start a
business if it might fail", compared with just 19% in the United States
Flash Eurobarometer "Entrepreneurship" No 192, European Commission, 2007.
Source: http://ec.europa.eu/enterprise/policies/sme/business-
environment/failure-new-
beginning/policy_structure/support_for_policy_development/statistics_en.htm
(Accessed, 15/03/2013).

Challenges SMEs in Europe are facing today

Micro, small and medium-sized enterprises face particular problems due to their small
size and limited resources. Starting up a new business and getting the required capital is
a challenge, as is finding the right kind of finance to expand an established business.
Due to their limited resources, they suffer more from red tape and administrative
burdens than larger enterprises. They often struggle to keep on top of new
developments in information and communication technologies, and encounter difficulties
finding qualified staff as well as providing them with adequate training and education.
Moreover, finding successors for retiring business owners can also be problematic.
These challenges are not new. However, broad economic trends such as globalization of
the economy, technological progress and the trend towards a more knowledge-based
economy as well as the enlargement of the EU and the completion of the internal market
have considerably changed the challenges that SMEs face today. SMEs in the EU
observe that competition in their markets has increased over the past two years.
According to the 2007 European SME Observatory Survey, 60% of managers stated that
competition has recently intensified. In response to tighter competition, the primary
strategy of SMEs is to put more effort into the quality of products and marketing as the
SME Observatory Survey illustrates: 64% would improve their product (or service)
quality, 62% would increase product differentiation, and 61% would increase marketing
efforts in response to increased competition. Interestingly, cutting costs is only the fourth
most popular strategy adopted by SMEs in an effort to keep up with tighter competition.
Source: http://www.enterprise-
europemalta.com/Portals/0/documents/FINAL_REPORT_(2)[1].pdf (Accessed:
10/03/2013).
At this point, please access YouTube and watch this very interesting video on the
importance of SMEs in the digital economy:
(http://www.youtube.com/watch?v=haGaRF_SB2k)

Main Analysis

The importance and role of Entrepreneurship and SMEs in the

economic environment
Do you know that more than 99% of enterprises in the European
Union are SMEs?

The position of SMEs in the European economy

Micro, small and medium-sized enterprises

constitute the dominant form of business
organization in all countries of the European
Union: with a total of some 23 million
enterprises, more than 99% of enterprises in the
European Union are SMEs.
SMEs greatlycontribute to employment and wealth in Europe:SMEs account for nearly
70% of European privateservice jobs, and in Europe‘s industries, thenumber of those
employed by SMEs is high, inparticular sectors such as construction, metalproducts and
the wood and furniture relatedindustries. Finally, SMEs generate large portionsof the
wealth in the EU: in real estate, recyclingand construction activities it is greater than
80%,and in the whole private economy their share inwealth creation is estimated
between 55% and60%.

Micro enterprises, many of them craftenterprises, are the real pillars of the
Europeaneconomy. The vast majority (over 90%) aremicro enterprises with fewer than
ten persons.They alone employ more than one third of the European workforce and
produce morethan 20% of economic value added.

Self-employment, i.e. an enterprise with only one employee, accounts for 16% of
totalemployment in the EU.

The second largest SME group is made up of small enterprises defined as

companiesthat employ 10 to 49 persons. In 2005, this group consisted of about 1.3
millionenterprises (excluding agriculture, financial services and public services)
employing a workforce of around 26 million throughout Europe, i.e. around 7% of all
European enterprises and around one fifth of their workforce. Finally, only slightly more
than 1% of all companies are medium-sized enterprises defined as having 50-249
employees.

Medium-sized enterprises employ about 21 million people, i.e. nearly 17% of the private
European workforce.

What is an SME?
Companies classified as small and medium-sized enterprises (SMEs) are defined
officially by the EU as those with fewer than 250 employees. Furthermore, their
annual turnover may not exceed €50 million, or their annual balance sheet
exceed €43 million. SMEs may be divided into three categories according to
their size: micro-enterprises having fewer than 10 employees, small enterprises
have between 10 and 49 employees, and medium-sized enterprises having
between 50 and 249 employees.

Who is an entrepreneur?

Over time, scholars have defined the term in different ways. Here are some
prominent definitions.
 1803: Jean-Baptiste Say: An entrepreneur is an economic agent who
unites all means of production- land of one, the labour of another and the
capital of yet another and thus produces a product. By selling the product in
the market he pays rent of land, wages to labour, interest on capital and what
remains is his profit. He shifts economic resources out of an area of lower
and into an area of higher productivity and greater yield.
1934: Schumpeter: Entrepreneurs are innovators who use a process of
shattering the status quo of the existing products and services, to set up new
products, new services.
1961: David McClelland: An entrepreneur is a person with a high need for
achievement [N-Ach]. He is energetic and a moderate risk taker.
1964: Peter Drucker: An entrepreneur searches for change, responds to it
and exploits opportunities. Innovation is a specific tool of an entrepreneur
hence an effective entrepreneur converts a source into a resource.
1971: Kilby: Emphasizes the role of an imitator entrepreneur who does not
innovate but imitates technologies innovated by others. Are very important in
developing economies.
1975: Albert Shapero: Entrepreneurs take initiative, accept risk of failure
and have an internal locus of control.
1975: Howard Stevenson: Entrepreneurship is "the pursuit of opportunity
without regard to resources currently controlled."
1983: G. Pinchot: Intrapreneur is an entrepreneur within an already
established organization.
1985: W.B. Gartner: Entrepreneur is a person who started a new business
where there was none before.

Assess the trends of the market can determine success or

failure
Moreover, what follows below, is an interesting article by ‗The Economist‘. This will help
to grasp the importance of business leadership:

Global trends for 2013

A top ten for business leaders Nov 26th 2012, 11:01 by J.A.

10 trends business leaders need to watch in 2013

Thomas W. Malnight and Tracey S. Keys, IMD business school in Lausanne and his
colleague Tracey Keys of Strategy Dynamics Global.

The great global redistribution of economic and social power will continue over the next
12 months. Power will flow away from traditional institutions that have failed to deliver
progress – especially governments and banks. It will flow towards communities and
individuals, and also to businesses whose leaders understand and act on the big trends
shaping our future.

This future looks uncertain and unstable. Hurricane Sandy was a deadly reminder of
shifting climate patterns, emphasizing the need for new ways to manage the world‘s
resources and environment. There are growing levels of social unrest over rising
inequality, austerity, unemployment, political ineptitude, institutional failure and more.
And companies will continue to fail because they misread the future - like Kodak, which
invented the digital camera but filed for bankruptcy after focusing on its core film
business instead.

In our new Global Trends Report for 2013, we highlight 10 trends that business leaders
need to focus on today. These are:

1. Social everything: New generations and their digital world stepping

forward
Social technologies are now a central part of everyday life and work. The social
generations are reshaping companies from the inside, helping them to build
broader, more agile networks to create and deliver value to customers. Mobility
and connectedness will be at the heart of the future business environment:
communications and marketing are moving from a focus on one-to-one
relationships, to many-to-many.

2. Redefining value: The consumer is winning the fight to own the new
consumer
 The notion of value is being redefined for the 21st century. Consumers have
choice. They want personalization, and to participate in value creation, shifting
the mindset to ―made with me.‖ Value will also be about ―shared with me‖ as the
ownerless economy expands. This will be driven particularly by younger
generations who value experiences they can share – and that also deliver
benefits to society - over possessions.

3. Distributed everything: Mobility in production and consumption

Mobility is entering a new stage. Not only does consumption occur anywhere,
anytime, but the tools and resources to create and capture value are more
broadly distributed too. Work is becoming increasingly distributed. Small-scale
manufacturing, including 3D printing, will reshape production. Renewable
technologies are distributing energy production, while mass teaching platforms
are revolutionizing education. Ask what can‘t be distributed, not what can.

4. The next “industrial” revolution: Robots and smart machines reshaping

work
Smart machines and robots will redefine society. Robots are now being deployed
as receptionists, banking assistants and even prison guards, while technology
allows amateurs to do what professionals once did. The upside: addressing
issues such as caring for ageing populations. The downside: huge job losses.
Yet the next wave of smart machines will also create new kinds of jobs. The
challenge will be to ensure a workforce that is ready and skilled for them.

5. The new space race: Pushing the frontiers of technology once again?
Scientific advances from national space programs have had a significant impact
on how we live and work, from advanced materials to global telecommunications.
Now, commercial space travel and exploration is a reality, even as a new space
race hots up, particularly between the US, China and Europe. New advances will
surely result, as will questions over the ownership of space ―assets,‖ and whether
advances will be shared for public benefit.

6. Geopolitical wars: The fight to control the future

The BRICS and Beyond (other rapidly growing economies) will be where the fight
to control future economic growth and social development will take place. It‘s a
multipolar market landscape, based on dramatically different economic, social
and political systems. Politicians, along with companies, are still trying to find and
control their place in the new world order, even as trust in governments falls,
nationalism rises, and power shifts towards the people. The potential for radical
political shifts at home and between nations is rising.

7. Resource wars escalating: From a world of abundance to shortage

As the world‘s population moves towards 9 billion by 2050, resources are under
pressure, exacerbated by climate change. By 2030 we will demand twice as
many resources as the planet can supply – risking social unrest and conflicts as
people and nations compete for ever scarcer resources. Scarcity is already
driving resource price volatility and cross-border investments. New technologies
and rethinking consumption will be critical in future – with businesses rather than
governments likely to lead the way.

8. Business stepping up: From profit to purpose

 Many businesses are stepping up to a new role, often with partners, to tackle
social and economic challenges. Corporations are seeking to build legitimacy –
and the license to operate – in the eyes of demanding consumers, employees
and stakeholders who care about the impact and motivations of companies with
whom they associate. But it‘s also good business as companies realize mutual
benefits with society. Look for more businesses redefining their corporate
purpose in this way.

9. Information is power: The security challenge

Cyberspace is the new frontline for security. Knowledge and information is a
source of competitive advantage for organizations, nations and individuals. But
it‘s a growing challenge to retain control as mobility and the democratization of
everything (commerce, politics and societies) increases – along with cybercrime
and cyber war. Look for a rising tide of litigation, policies and regulation. Digital
freedom or a ―big brother‖ society?

10. Who needs banks anyway? Reshaping the financial system

The financial system is broken. Regulators want change, businesses want new
means of financing and consumers want alternatives. The ―banks‖ of the future
will include state-owned entities, and firms that simply don‘t use cash: think
bartering and community currencies. Digital wallets and mobile banking are
opening the door for telcos and software players, while trust is the entry point for
retailers and crowdfunding communities. In an increasingly crowded and
cashless financial system, banks may no longer be key players.

Like any big shift, the dispersion of economic power presents challenges and
opportunities. Are you and your business ready to take advantage of these 10
trends?

Source: http://www.economist.com/blogs/theworldin2013/2012/11/global-trends-
2013 Accessed: 15/04/20213).

Think Theory 1

The current economic crisis especially in European countries and

USA is an interesting issue how will change the SMEs’ business
environment and the overall market.
(Take a pen and write down your answer. As soon as you finish
thinking and writing, check at the end of the topic overview for
feedback)
 Distinguish between the dream and vision of the
Entrepreneur

Dream vs. Vision: A Mind-Shift For Visionary Leaders by: Michael Skye
Editor's Note: Whenever one talks about leadership or strategic planning, there's
always lively discussion about what a vision (or vision statement) is, and how it
differs from other related topics. This article examines the difference between a
vision and a dream.

What is the difference between a dream and a vision?

The dreams you see while asleep at night are a metaphor for the kind of thinking
that happens when you fantasize while awake. We often call this "day dreaming"
or creative imagination.

The vision you see when you are awake and looking at reality with your eyes is a
metaphor for the kind of thinking that happens when you look to your future with
your mind's eye. The inner world (past, present and future) you see is built from
your own assumptions or metaphorical constructs. With this kind of vision, you
can "look" down different paths, and "see" what would happen.

When we speak of dreams and vision in this article, we're referring to the dreams
and vision you see inside your mind while awake. We all have such dreams and
vision; and both are an integral function of human consciousness.

For visionaries, vision is a major source of power and conscious guidance - and
it's something they consciously control. For others, vision is a major source of
fear and default guidance - and it's something to which they unconsciously react.
To be a visionary, and thus have a higher level of inner power to change and
create the world around you, one must learn to live at the level of vision.

ORIENTATION:
Dream - What you see when you are imagining a hypothetical scenario.
Vision - What you see when you look to the future without hypothesizing, wishing
or imagining.

EXAMPLE #1:
Imagine that you're on vacation at the Grand Canyon, and you're standing on the
edge of the cliff with your binoculars, looking far off into the distance. Suddenly,
on the other side of the Grand Canyon, you see what looks like a jet, and a man
in a suit standing by the jet. Then all of a sudden, the man's hair just kind of flips
sideways up into the air. And you think to yourself "Wait a minute, is that Donald
Trump?"

Just then you remember he's doing a new reality TV show called "Who Wants My
Money," where he goes to an obscure public location and holds up a sign that
says, "Who wants my money?" and then gives one million dollars to the first
person to reach him. "No, can't be The Donald," you're telling yourself, when it
happens - the sign goes up - it's him!

In that instant, you realize "I could win the money!" and you turn to bolt for your
car just in time to see everyone else heading for their cars. In that moment, you
remember you came on the bus. You turn back and look over at Donald there
with his sign, and you dream about winning that money. It's an exciting dream,
but it's not very real. You won't win the money.

Then you hear it. That sound... behind you... it's... your helicopter. You turn
around and see your pilot, who will take you anywhere you want to go. Then, in
that instant, you turn back around with a smile, you look at Donald Trump and
you know that money is yours. You're already spending it in your mind.
So, there's a big difference between a dream and a vision. A vision has a power
that a dream doesn't have.

EXAMPLE #2:
Let's say you have a personal dream of being a public speaker one day. Every
time you get the opportunity to speak in public, whether it's among friends, in
classrooms or at events, you feel a little too nervous to speak. It doesn't seem
like you're ready yet, and you turn away. After several months of this, you look to
your future and what do you see? You don't really see yourself speaking
powerfully in the world. You can dream about it all you want, but you can't really
see it happening.

Now let's say you come to a point, where you realize your dream is dying and it
becomes very painful. You become very clear how much the dream means to
you, and you take a hard look at the fears and the challenges of becoming a
public speaker. You realize that there are values worth standing for to face those
fears and walk that path. You take a stand for the lives of the people you want to
reach with your speaking. The next time you are presented with an opportunity to
speak, you are terrified, but you stand up and you speak. And the next time, you
are scared once more, but you stand and you speak. Soon, you look to your
future and you see it--you're speaking around the world. It's not a dream
anymore, it's your future. A public speaker is who you are.

So a vision has a totally different quality than a dream. A dream is hypothetical,

like "Wouldn't it be nice?" A vision is just what you see. So consider that all of us
have a vision of some kind for our life or for our future. It‘s simply what we fully
expect as we look to tomorrow, to next week, to next year, to our future.

VISION = DREAM + PLAN

A KEY POINT:
Consider that the "inner" vision we see guides us as much as, if not more than,
the "outer vision," or what we see with our eyes. What we see internally gives us
our interpretation of the world out there. Whether we walk down one path in life
or another is often determined by what we "see" when we "look" down those
different paths--and what we then "feel" as a result.

Based on what we see and feel, our logical, we then makes our choices--
supported with seemingly rational justifications. What we often fail to realize is
how the context for our choices are already given to us by our vision.
To the extent that we can take control of our vision - or live at the level of vision -
we can have much more power to lead our lives and create what we want in life
and with others - as visionaries.

VISIONARY ADVANTAGE:
A skilled visionary, the kind of person who thrives in an ever-changing
environment, operates fluidly and openly with the world around her. She doesn't
cling to any static or prepackaged view of reality, because she operates on the
level of vision. She is a leader, who leads from the power of her own vision.

VISIONARY DYNAMICS:
The more you understand the dynamics of vision, the more you can consciously
choose to function at the level of vision--beyond positions, beyond reactions,
beyond fear.

The more you practice visionary thinking, the more you naturally operate at the
level of vision.

VISIONARY CHALLANGE:
Honestly reflect on your life to see in which areas you are not living powerfully
and passionately from a bold vision. In such areas, dramatic positive change
seems impossible, impractical or not worth the effort. With a vision, dramatic
positive change occurs not only as possible, practical and worth incredible effort--
but as "all there is to do." A powerful vision calls you naturally into heroic action.
About Author: As founder of the Vision Force Academy, Michael Skye works with
a new breed of impassioned change agents around the world, who are giving
their lives to stand for all of humanity. Michael is best known for his
transformational leadership trainings, based on his proprietary iStand technology.
He authored the the <i><a href="http://www.visionforce.com/course/"> Visionary
Mind Shifts</a></i> for <a
href="http://www.visionforce.com">VisionForce.com</a>.
Article Source: http://www.articlesalley.com/

Vision is the corporate purpose

The corporate purpose refers to the larger goals of the organization. Going far beyond
market share or profitability objectives, corporate purpose refers to that unifying vision
which gives meaning to the business that the company is involved in. At its heart it
consists of a core ideology and a set of fundamental values that do not change with
time. Indeed these values define clearly what the company will do and will not. The truly
great companies not only have a clearly articulated corporate purpose but they are also
remarkably effective in conveying it in such a way that even frontline employees are able
to relate to it. The corporate purpose helps in defining the company‘s economic
goals,from which, strategy emerges.

Vision examples
 IBM focuses on two overarching goals –helping clients
succeed in delivering business value by becoming more
efficient and competitive through the use of business insight
and information technology solutions and providing long term
value to shareholders.
Microsoft‘s mission is to help people and businesses
throughout the world realize their full potential.

Our vision is for Tesco to be most highly valued by the

customers we serve, the communities in which we operate,
our loyal and committed staff and our shareholders; to be a
growth company; a modern and innovative company and
winning locally, applying our skills globally.

Wal Mart has a simple but powerful corporate purpose. ―We

save people money so they can live better.‖

Merck believes in developing superior products and services

―by developing innovations and solutions that improve the
quality of life and satisfy customer needs, and to provide
employees with meaningful work and advancement
opportunities and investors with a superior rate of return.‖

Analyse the personality profile of the Entrepreneur.

The following essay have been written by students for you to use to help you with your
studies. There are interesting discussions regarding the applicability of the western
theories in the Tanzanian cultural context. The main subjects of the discussions are the
following:

Influence of the demographic characteristics on the growth of SMEs

Influence of the personality traits on the growth of SMEs
Influence of the cognitive characteristics on the growth of SMEs
The indirect effects of the personality traits on the growth of SMEs

Discussion of hypotheses
Hypothesis 1: Demographic characteristics

The first hypothesis tested the positive influence of the demographic

characteristics on the growth of SMEs. As stated in Chapter Six, four
characteristics (owner-manager‘s age, education, experience, and family
background) were used to represent demographic characteristics. It should also
be recalled that the owner-manager‘s education and experience were measured
in various aspects. For example, three aspects were used to measure education,
namely, the level of education, carpentry education and workshops. Likewise,
three types of experience were used to measure experience: entrepreneurial,
managerial and industrial. The growth of SMEs was measured by sales, asset
and employment growth. From the findings, it becomes clear that the owner-
manager‘s education, previous experience and family background all influence
the growth of SMEs.

Specifically, among the variables used to measure education it is only

´workshops attended´ that was found to have a significant influence on the
growth of SMEs. This positive relationship between workshop and the growth of
SMEs is consistent across all the five approaches used in this study. This result
suggests that workshops attended by owner-managers equip them with the
knowledge and skills which are needed in order to run a firm successfully. In
spite of the importance of workshops on the SMEs growth, the finding shows that
most of the owner-managers have never attended workshops since starting their
business. In fact, the data suggest that only 43% of the respondents have
attended various workshops since starting their current business. This is
consistent with the observation of (Webster, Walker, and Brown 2005) that SMEs
tend to focus on the informal transfer of skills rather than on formal training.
However, those who had attended workshops were more likely to own firms that
had experienced business growth in terms of sales, asset, and employment. This
is also consistent with the contention of (Brush, Greene, and Hart 2001;
Jayawarna, Macpherson, and Wilson 2007) that workshops and training are an
important source of skills and technical knowledge for successful
entrepreneurship.

Furthermore, we did find that the carpentry education has positive implications
for SMEs growth in terms of both sales and asset. This finding suggests that
carpentry education obtained from various vocational training colleges in
Tanzania has an impact on the formation and growth of SMEs. For this reason,
we can also conclude that the right things are taught in the program offered by
various vocational training colleges. Thus, our results are consistent with
previous research, which has documented that vocational training education
influence the formation and growth of SMEs(Pankhurst 2010). This study is also
consistent with an African study conducted by (McPherson 1992) in which was
found that entrepreneurs with vocational training had firms that grew 9.0 percent
faster than firms run by entrepreneurs without such training.

Previous research indicates that the owner-manager’s level of education is

a significant determinant of the growth of SMEs (Unger et al. 2009). In this
study, although the level of education of the owner-manager is positively related
to the growth of SMEs, the strength of this relationship is not statistically
significant. This suggests, therefore that the level of education does not matter in
explaining the growth of SMEs in Tanzania. Although this result is also found in
another African study (McPherson and Liedholm 1996), we do not have a clear
explanation of this. In fact, this is surprising and raises an important question
regarding the value of the education acquired by these entrepreneurs. It could be
possible that the wrong things were taught in the education programme offered to
these entrepreneurs. However, this result should be read with some caution,
because the lack of significance could be due to the fact that the majority of the
owner-managers in this sample have low levels of education. Indeed, in our
study 71% were found to have either attained only primary school education or
never to have attended school. Alternatively, this finding might in part be due to
the fact that only the level, and not the type (that is the subject matter), of the
education is considered in this analysis. In fact, this study suggests that in order
for the owner-managers to manage the firm successfully they need some
business skills. It could be possible that while two owner-managers may have the
same level of education, one may have much more relevant business education
than the other.

Another interesting finding was the significance influence of previous

experience on the growth of SMEs. In particular, this study suggests that
owner-managers who had previous experience in the industry in which the
current business is in were more likely to see their business growing in terms of
sales, asset, and employment. These results support the findings from previous
studies in which working experience in the same sector seems to create
knowledge and skills which are needed in order to run a firm successfully (Lee
and Tsang 2001; Unger, Rauch, Frese, and Rosenbusch 2009a). Moreover,
several scholars have pointed out the importance of owner-managers‘ previous
managerial experience as a predictor of the growth of SMEs (Unger et al. 2009).
These scholars argue that the knowledge acquired through business
management enhances the entrepreneurs‘ ability to manage business
successfully. The empirical results in this study show a partial support for these
arguments. Consistent with our initial assumption, the results show a positive and
significant relationship between managerial experience and the growth of SMEs
in terms of sales and assets. This finding is fully consistent with the findings from
previous studies discussed in Chapter Three. For example, several studies
(Stuart and Abetti 1990; Shane and Khurana 2003; Colombo and Grilli 2005;
Unger et al. 2009) have concluded that there is a general positive association
between previous managerial experience and the growth of SMEs. One
explanation for this result is that those owner-managers who previously managed
the business would have gained valuable knowledge in the management of that
business. This knowledge would enable them to overcome more easily the
problems which are experienced when the business grows (Storey 1994).

Furthermore, there was no evidence to support the significant influence of the

entrepreneurial experience on the growth of SMEs. Although this finding may be
surprising considering previous research as discussed in Chapter Three, our
finding suggests that the growth of SMEs may not primarily be due to the owner-
manager‘s entrepreneurial experience. This is, however not surprising, because
some of the previous studies have also found the same results. Indeed, (Brush,
Greene, and Hart 2001) have pointed out that, entrepreneurial experience is
often a criterion that influences start-up funding success, rather than something
that predicts firm performance. An alternative explanation for the non-significant
relationship may be that only knowing whether or not one was involved
previously in venture creation does not provide us with accurate information as to
whether these start up experiences have yielded the necessary skills that are
suggested to influence the growth of SMEs. Therefore, when trying to link the
impact of the entrepreneurial experience on the growth of SMEs, it may be
plausible to include also the measures that capture the quality of these previous
events as well as reasons for leaving the former business. For instance, it is
possible that low tolerance for ambiguity influences the start-up experience. In
other words it means that when owner-managers face ambiguous situations in a
particular business they are more likely to quit that business and look for another
business. This finding may also be due to the fact that over half (60%) of the
owner-managers in our sample had no prior entrepreneurial experience and the
current business was their first venture.

The variable family background is one of the great interests in the research
literature. It is suggested that individuals whose parents or close relatives
were/are self-employed are not only likely to operate a business, but also to
outperform others (Stanworth et al. 1989; Papadaki and Chami 2002). In this
study, we also found that the majority of the owner-managers in our sample
came from an entrepreneurial family. Furthermore, we found that owner-
managers who came from entrepreneurial family backgrounds are more likely to
experience growth in their businesses than people without such a background.
This is consistent with the contention that children of entrepreneurs are more
likely to form successful businesses than children of other people (Storey 1994;
Papadaki and Chami 2002; Shane 2007). These owner-managers are more likely
to be successful in their business because they had been raised in an
environment that facilitates a process of human capital accumulation. Indeed,
entrepreneurs raised in the entrepreneurial family background are aware of the
challenges they will have to face and are better prepared to seek and give
solutions to the problems that will arise (Meccheri et al 2005). Apart from the
knowledge accumulation, they may have easier access to informal and formal
networks of suppliers, clients and venture capitalists, of which they can take
advantage. For instance, we found that the majority of the owner-managers
raised in an entrepreneurial family claimed to be involved in various informal
networks (See appended Table 0 -4 and Table 0 -5).

Contrary to what was expected, the age of an owner-manager was not

significantly related to the majority of SMEs growth measures used in this study.
This is, however, not surprising, because some of the previous studies have also
found the same results. For instance, Stuart and Abetti (1990b) have found that
the age of the entrepreneur has no relationship either to performance or
experience. In this study, the non-significant result may be attributed to the fact
that the majority of the owner-managers in our sample are in the same age
category. Actually, almost half of the respondents were between 30 and 40 years
of age at the time of the interview (as seen in descriptive statistic table).

The findings that carpentry education and managerial experience are not related
to employment growth were unexpectedly given a prominent role played by the
aforementioned factors on SMEs growth. With respect to the carpentry education
it is possible that most of the owner-manages who have received carpentry
education feel reluctant to employ an additional worker. Since these owner-
managers have carpentry skills, then it could be possible that they don‘t need an
extra carpentry skill through hiring employees who contribute their skills. Perhaps
these owner-managers employ an additional worker after a long period of
accumulating assets and revenues, which increase operations of enterprise and
therefore, demand for more workers. Furthermore, it is difficult to explain why
managerial experience was not significant related to the employment growth. The
possible reason for this result could be largely attributed to the methodological
approaches used. This might be an indication that the factors affecting sales or
assets do not necessary affect employment growth. For example, Delmar (1997)
examined both growth in sales and in the number of employees and found out
that the factors affecting sales were not always the same as those affecting the
number of employees. Jansen (2009) and Shepherd (2009) also shared a similar
view by suggesting that sales and employment measures are not
interchangeable criteria for measuring the growth of SMEs. Alternatively, with
respect to the carpentry education it is possible that most of the owner-manages
who have received carpentry education feel reluctant to employ an additional
worker.

Hypothesis 2: Personality traits

Our study also examined the relationship between personality traits and
the growth of SMEs. Personality traits are comprised of characteristics
such as the need for achievement, locus of control, risk taking propensity,
innovativeness, ambiguity tolerance and self-efficacy. The findings of this
study suggest that certain personality traits such as the need for achievement,
locus of control, risk taking propensity, innovative behavior and self-efficacy exert
an influence on the growth of SMEs. This finding is consistent with the findings
from previous studies (Frese 2000; Rauch and Frese 2007b; Rauch and Frese
2007a; Shane 2007) that put an emphasis on the importance of the personality
traits. Indeed, the more emphatic the owner-manager was on the need for
achievement, internal locus of control, innovativeness and self-efficacy
(persistence) the better the reported growth in sales, assets, and employment.
The need for achievement, locus of control, innovativeness and self-efficacy are,
therefore, the personality traits that influence the growth of SMEs. This finding
also justifies the recent suggestion by (Ardichvili, Cardozo, and Ray 2003; Rauch
and Frese 2007b) that personality traits should be included in the studies that
aim at understanding the process of how success develops. These findings also
mean that the scales used to measure each of these characteristics seem to
have great generality and validity across different national contexts.

Furthermore, we did find that the tendency of taking risks has positive
implications on business growth in terms of both sales and assets.
However, we did not find any significant association between the tendency of
taking risks and employment growth. This suggests that owner-managers in our
sample may have a higher tendency to take risks in other business outcomes
such as sales or asset growth rather than on promoting employment growth.
Alternatively, it could be concluded that the factors which affect sales or assets
do not necessary affect employment growth.

Contrary to the findings from previous studies, our empirical findings show that
tolerance for ambiguity has a negative effect on sales growth. The finding
suggests that those owner-managers who scored low on this trait were
performing well. On the other hand, those owner-mangers who scored a little bit
high on this trait were doing badly. However, this result should be read with some
caution, because the negative significance could mean serious consequences to
the high number of individuals who, in our sample, had a low level of tolerance.
Indeed, the majority of the owner-mangers in our sample scored below the mid-
point 3 in this trait. Alternatively, the possible reason for this result could be
attributed to the fact that the scale which used to measure ambiguity tolerance
lacks face validity. Actually, the measurement scale for tolerance for ambiguity
had a low reliability coefficient (Cronbach‘s alpha 0.6). On the other hand, it could
be that these measures do not capture the tolerance that is conceptualised by
the owner-managers of the growing firm. Other explanations for this
inconsistency could be that ambiguity tolerance may affect how individuals
respond to uncertainty situations, but it may not positively affect the growth of
SMEs.

Hypothesis 3: Cognitive characteristics

The third objective of this study was to examine the association between
cognitive characteristics and the growth of SMEs. As mentioned in Chapter Six,
four characteristics were examined in relation to the owner-manager‘s cognitive
characteristics. These include: entrepreneurial alertness, attitude towards
entrepreneurship, cognitive styles and entrepreneurial motivation. The
overall pattern of the results provides general support for the four hypotheses
developed with regard to the above-mentioned relationship. Furthermore, these
findings also mean that the scales used to measure each of these characteristics
seem to have great generality and validity across different national contexts. The
findings regarding each of these hypotheses are now discussed.

The first sub hypothesis with regard to cognitive characteristics dealt with the
owner-manager entrepreneurial alertness. In research and literature it is often
argued that a high level of entrepreneurial alertness provides entrepreneurs with
that increased ability to recognize successful opportunities that leads to business
growth (Gaglio and Katz 2001). The results in this study seem to support this
argument as we found that high levels of entrepreneurial alertness are related to
the growth of SMEs. Our empirical findings also suggest that low levels of
entrepreneurial alertness hamper the growth of SMEs. This result also supports
previous findings that pointed out that individuals with low alertness are more
likely to be unaware of the opportunities that may lead to future profits (Olomi
2001).
The next sub-hypothesis dealt with the attitude towards entrepreneurship. Two
factors were used to measure owner-manager's attitudes towards
entrepreneurship. These include: a positive attitude towards venture creation and
growth and a positive attitude towards risk taking and uncertain situations. In
general, our results suggest that attitude towards entrepreneurship has a
significant positive effect on a firm‘s growth. Specifically, the hypothesis results
regarding positive attitudes towards venture creation and growth are supported
by all growth measures used in this study. In other words, the majority of the
successful owner-managers strongly support the view regarding continued
search for growth. This result supports earlier findings that point out that owner-
managers‘ attitudes towards business growth are the key factors for successful
business (Davidsson 1989; Delmar, Davidsson, and Gartner 2003). Further,
positive attitudes towards risk taking and uncertain situations were only related to
sales and asset growth. This finding suggests that successful owner-managers in
our sample are inclined to involve their business in situations that may consider
risks. In general, this finding suggests that attitude towards entrepreneurship is
not only a good predictor for business creation (as already mentioned by
previous studies), but also a good predictor for firm's growth. In fact, this finding
adds to the growing body of research that focuses on understanding the
relationship between attitudes towards entrepreneurship and firm performance
(Baume, Locke and Smith 2001; Baum and Locke 2004; Rauch and Frese
2007b)

Furthermore, we found a significant association between the cognitive styles'

constructs (knowing, planning, and creating) and the growth of SMEs. More
specifically, our results suggest that a creating style is positively related to sales
and assets growth while a knowing style is negatively related to these measures.
This result suggests that higher levels of creating style influence the growth of
SMEs. On the other hand, higher levels of knowing styles hamper the growth of
SMEs. Indeed, the knowing style is characterized by a focus on facts and figures,
a high level of rationality and avoidance of risks (Cools and van den Broeck
2007). These characteristics might imply that people with these styles see more
risks in business and experience a higher level of uncertainty which limits their
eagerness to search for growth. Our findings also suggest that the owner-
managers of the firms that grew prefer to think in a creative way when making
business decisions. These findings may also be viewed in the light of previous
research. For example, Allinson et al. (2000) observed that a creating style
showed a significant positive relationship with business growth. Different
cognitive styles, therefore, do appear to be the relevant factors in explaining the
growth of SMEs.
The last hypothesis regarding cognitive characteristics dealt with entrepreneurial
motivations. Two factors of entrepreneurial motives that may influence the growth
of SMEs were distinguished in this study. These include: start up motives and
current motives. With regard to start-up motives, our results support the notions
that pull motives have positive implications on business growth in terms of both
sales and assets. This is also consistent with other previous studies (Davidson
1989; Kolvereid 1992; Fitzroy and Nolan 2002; Cassar 2007) which showed that
owner-managers who are strongly motivated by pull factors perform better in
their businesses, since they devote more time and energy to the business. In
contrast, push factors appeared to have a negative effect on business growth.
This implies that entrepreneurs who start a business because of push factors
perform poorly compared to those who start a business for other reasons. An
explanation for this could be that owner-managers who enter into business
motivated by push factors are less well equipped or less committed to engage in
business. Additionally, since their primary goals are only to survive, growth
motivations might well as be of little importance to them. Accordingly, they may
have a desire to discontinue with their entrepreneurial activity once well-paid
employment is available to them. Among the current motives studied, a positive
effect is still found between owner-managers‘ pull motives and a firm‘s growth.
This finding suggests that the owner-manager‘s primary reasons for continuing
doing business do affect the growth of their firms. In fact, those people who are
positively motivated are more likely to see their businesses grow. We did not find
any significant association between current push motive and the growth of SMEs.
However, this finding should be treated with caution, given the fact that a current
push factor contained one pull item.

Furthermore, it was found that push factors (or negative motivators) were not
very important when starting one‘s own firm in Tanzania. This finding suggests
that most entrepreneurs in Tanzania are generally motivated by pull factors. This
is consistent with other previous studies, which suggest that most of the
entrepreneurs are motivated by positive reasons (Mitchell 2004; Kirkwood 2009).
However, it contradicts earlier findings that claim that push motives are more
important than pull motives in developing countries (Chu et al. 2007; Benzing et
al. 2009).

Hypothesis 4: Indirect effect of the personality

traits
The fourth hypothesis examined the indirect effect of the personality traits in
explaining SMEs growth. Entrepreneurship researchers have pointed to the
likelihood that traits work in conjunction with other factors in explaining the
growth of a firm (Shane et al 2004; Rauch and Frese 2007c; Chell 2008; Rauch
et al 2009). Alternatively, other factors mediate the relationship between the
personality traits and the growth of SMEs. This thesis takes into consideration
the fact that personality traits will work through cognitive factors in explaining the
growth of SMEs. The finding of this study provides a strong support for the
hypothesized relationship. In fact, we found that at the structural level the direct
relationship between personality traits and SMEs growth is very weak. On the
other hand, we found that personality traits have a significant influence on SMEs
growth through cognitive characteristics. This finding implies that cognitive
characteristics are necessary mediator of the link between personality traits and
SMEs growth. That is, without cognitive characteristics, personality traits may
have a minimal or no effect on the growth of SMEs. This finding suggests that the
personality traits influence the way an owner-manager behaves and makes
decisions about the business. For example, higher need for achievement might
lead to positive attitude towards venture creation and growth. This finding is
consistent with the previous findings and suggestions that some of the factors
such as personality traits affect SME growth through other variables such as
cognitive characteristics (Krauss et al. 2005; Rauch and Frese 2007b; Shane
2007; Rauch and Frese 2007a; Chell 2008; Rauch et al. 2009). This result offers
an explanation as to why other previous researchers have failed to find a
significant relationship between personality traits and SMEs growth. The inability
to find any significant relationship between personality traits and the growth of
SMEs might be attributed to the fact that most of these studies only tested for a
direct relationship. This result also offers an explanation as to why other scholars
continue to point out the importance of the characteristics of an entrepreneur on
the growth of the firms (Rauch and Frese 2007b).

Furthermore, when characteristics of the owner-managers are examined

simultaneously in the regression model it becomes clear that most of the
personality traits are not directly related to sales and asset growth (see
appended Table 0 -6). In fact, the findings suggest that only one personality trait
(internal locus of control) has a significant influence on the growth of SMEs.
Furthermore, two demographic characteristics (workshops attended, previous
experience in the sector which current firm is in) and three cognitive
characteristics (entrepreneurial motivations, higher levels of alertness and
cognitive styles) are the best predictors of sales and assets growth. These
findings continue to suggest that the direct influence of the personality traits on
SMEs growth is minimal. On the other hand, the direct influence of the
demographic and cognitive characteristics on the growth of SMEs is substantial.
The findings showed further that the personality traits and cognitive
characteristics are related, suggesting that owner-manager traits are
determinants of cognition and behavior (Baum, Locke and Smith 2001). From
this observation, it becomes clear that personality traits are important predictors
of SMEs growth, but they work primarily through cognitive characteristics.

Different indicators of growth

Comparing the results for both growth measures used in this study, we see that
sales and asset growth are affected by the same variable. Furthermore, the
results suggest that among the factors studied only few factors can explain
employment growth. Apparently, employment on the one hand and sales and
asset on the other are not interchangeable criteria for measuring firm growth
(Delmar 1997; Jansen 2009). This finding may also be based on the argument
that in measuring the growth of SMEs the number of employees changes slowly
compared to other indicators like sales generated or assets accumulated. In fact,
it has been argued that sales growth is chronologically the first form of growth
followed by other indicators such as employment or assets (Jansen 2009). A
possible explanation could be that Tanzanian owner-managers employ an
additional worker after a long period of accumulating assets and sales, which
increase business operations and therefore, demand for more workers.
Additionally, owing to the nature of the businesses studied (furniture industry)
another alternative explanation might be that these firms are more likely to bring
in more machinery (working tools) than to employ more people, and thus grow
without increasing the number of employees. Other factors may also play a role
when it comes to hiring additional people: it could be that people are hired
because they are relatives or friends. Rather than giving them food for nothing
they are given the opportunity to work for the company and thereby have money
to buy food. In this respect, employment is not a good indicator of a SMEs growth
in Tanzania. Our study also supports the argument posed by Jansen (2009) that
employment, sales and assets cannot be considered as interchangeable
conceptualizations of the same phenomenon.

http://www.lawteacher.net/family-law/essays/entrepreneurship-and-the-growth-of-the-
smes-in-the-manufacturing-family-law-essay.php

Critically evaluate the market opportunities for new venture

creation and innovation within existing organizations.
Successful entrepreneurs have an uncanny ability to separate market opportunities
from the chaotic sea of ideas. Real opportunities exist when the new venture is
based on a product or service which creates value for an identifiable market
segment. The entrepreneur needs to structure the venture in such a way as to
maximize the creation of customer value.

The means by which an entrepreneur adds value is through innovation in the

marketplace. The successful entrepreneur uses product, process or service
innovation as the tool to exploit change. Innovation is the instrument which
empowers resources to new ends, thus creating value. The enduring strength of an
entrepreneurial-driven economy is the continuous creation of value. Thus, in
evaluating an idea, the individual must determine if the idea will represent a
significant innovation in the marketplace, or is it simply a different way of doing the
same thing.

Implicit in these discussions is the assumption that the new venture has a well-
focused target market segment. Analyses of the opportunity thus become dependent
upon the specific behaviors of a well-defined market segment. The viability of the
new opportunity will involve an in-depth analysis of the demographics of the
marketplace, the nature and behavior of the competition, the envisioned competitive
advantage of the proposed venture, and the identification of the competitive vacuum
which will create the opportunity.
 In evaluating an idea for its potential value as a business opportunity, it is important
to identify all the relevant risks and to evaluate these risks in terms of: (1) the
possibility that some risks may be eliminated through proactive strategies, (2)
spreading the risk where possible, and (3) managing risks that are considered worth
incurring. Risks include market or competitive risks, financial risks, and technical
risks. Risk analysis is conducted to answer the overriding question: Can the
entrepreneur and the entrepreneurial team make it happen?

Think Theory 2

Innovation might be the most critical factor for an SME (new or

existing one) in order to survive and succeed! Can you think 3
critical success factors that will help an SME innovate productively?
(Take a pen and write down your answer. As soon as you finish
thinking and writing, check at the end of the topic overview for
feedback)
 Summary

In this topic we examine the importance and role of Entrepreneurship and

SMEs in the economic environment. We assess the trends of the market can
determine success or failure. We have distinguished between the dream and
vision of the Entrepreneur. We analyse the personality profile of the
Entrepreneur. And finally, we presented innovation as the most critical factor
for successfor new and existing SMEs.

Feedback to think theory boxes:

Think theory 1

Some of the main factors will be influenced by the economic crisis are the
following:

Consumers – will become more demanding searching for alternatives will give
them higher value for money.

Competition – will become more intensive, will struggle for survival. Price wars
will be difficult to avoid.

Human resource market – will offer greater opportunities for talents which will
look for challenging roles and work harder for achievement.

Suppliers – will offer more strict credit terms.

Financial institutions – will be less willing to finance SMEs.

Entrepreneurs – will be less willing to risk.

Labor unions – will influence less. Some may disappeared!

Government – more strict regarding compliance with taxation.

Think theory 2

Your organization won't innovate productively unless some underlying factors are
in good shape. If "10" is outstanding and "1" is poor, how do you rate your
organization on each of these?

1. A compelling case for innovation. Unless people understand why innovation

is necessary, it always loses to core business or the performance engine in the
battle for resources. The performance engine is bigger, is the center of power,
and can justify resources based on short term financial results. So the case for
innovation has to be made, and it better be compelling.

2. An inspiring, shared vision of the future. Most companies anticipate the

future based upon the past. Not surprisingly, the company always looks relevant
in that future. However, if the past is suspended and a holistic view of the future
is envisioned, then it's easier to recognize tidal forces of change and (surprise!)
the company may not look so relevant in that future. For this process, it is best to
take a 10-20-year perspective. It is not about predicting the future. It is about
developing hypotheses about the future.

3. A fully aligned strategic innovation agenda. As the Cheshire Cat said

to Alice, "If you don't know where you're going, any road will get you there."
Innovation is a journey into the unknown and there are many paths open to the
innovator. Before starting it is essential to know things like: 1) What business are
we in now and want to be in going forward? 2) What is our risk tolerance for
pursuing big, game-changing ideas? In our experience, the #1 reason why game-
changing innovation fails is because time is not invested up front to align the
organization behind one strategic innovation agenda.

4. Visible senior management involvement. Incremental innovation can be

pushed down into the organization where the strategy is clear, decision metrics
are understood, and management models like Stage-Gate create a level playing
field. However, for game-changing innovation it's the opposite. The strategy is
fuzzy, and traditional metrics can't be applied early in the process, because that
which is truly new has no frame of reference nor benchmark. So Stage-Gate
models can unintentionally kill potentially big ideas. The pursuit of game-
changing innovation only works when the person who can say yes to big
spending visibly sponsors and participates in the work and provides air cover to
the work team.

5. A decision-making model that fosters teamwork in support of passionate

champions.Breakthroughs cannot survive without a decision-making model that
is different from the one used for incremental innovation. It's not about metrics;
it's about "the educated gut." Old models don't work. Autocratic decision-making
fails to engage all of the critical stakeholders, while consensus sinks every
decision to its lowest possible common denominator. It doesn't work without a
passionate champion who can make decisions and engage the team to support
those decisions.

6. A creatively resourced, multi-functional dedicated team. The best teams

have three ingredients: project champions who can make decisions during
working sessions and advocate for them with executive sponsors, relevant
capabilities and expertise, and naïve, seemingly irrelevant diversity. Most often a
breakthrough starts with the naïve and then the experts determine how to do it.

7. Open-minded exploration of the marketplace drivers of

innovation. Organizational change is driven by marketplace factors: customers,
competition, government regulation, and science and technology. Only by
exploring these drivers of change can a company begin to recognize what it must
do to be relevant in its envisioned future.

8. Willingness to take risk and see value in absurdity. Albert Einstein once
said, "If at first an idea doesn't seem totally absurd there's no hope for it."
Innovators understand that you have no choice; you must take risks, often big
ones, by moving toward the absurd, the "seemingly" irrelevant, in order to create
pre-emptive competitive advantage while competitors move in the "obvious"
direction.

9. A well-defined yet flexible execution process. Companies that have been in

business for a while are good at executing on small, incremental changes. And
that's challenging enough. What they don't know how to do is nurture, support,
and modify potentially big new ideas with a more flexible execution process.
There are three elements to innovation execution. First, build a dedicated team
for innovation. Breakthroughs cannot happen inside the performance engine — it
is built for efficiency, not for innovation. Second, link the dedicated team to the
performance engine so that it can leverage key assets of the core business.
Third, evaluate the innovation leader for managing disciplined experiments, not
for hitting short-term profit goals.

HBR Blog Network - Innovation's Nine Critical Success Factors

by Vijay Govindarajan | 3:47 PM July 5, 2011
http://blogs.hbr.org/govindarajan/2011/07/innovations-9-critical-success.html