Midterm

Entrepreneurial Behaviour and

Competencies
UNIT 1: Entrepreneurship Theories and Concepts
LESSON 1: INTRODUCTION TO ENTREPRENEURSHIP

THEORIES that explain economic growth:

Theory 1: Mercantilism (16th–18th Century)
 First major economic theory, advocating government control over trade to
maximize national wealth.
 Restricted imports to boost exports, leading to a stagnant global economy
over time.

Theory 2: Adam Smith’s Free Market (18th Century)

 Advocated for minimal government intervention in markets (laissez-faire).
 Introduced the concept of the “invisible hand”, where individual self-interest
naturally benefits society.

Theory 3: Karl Marx’s Socialist Economy (19th Century)

 Opposed capitalism, viewing history as a class struggle between workers and
employers.
 Advocated for government ownership of resources, distributing wealth
equally among people (socialism).

Theory 4: Joseph Schumpeter’s Entrepreneurship Theory (1934)

 Believed economic growth is driven by entrepreneurs, who innovate for both
personal profit and societal benefit.
 Entrepreneurs are the backbone of the economy, sparking progress and
development.

History of Entrepreneurship
Early Exchange of Goods
 has been practiced for a long time ago
 Bartering
 Widespread as early as 10,000 B.C.
Then money was invented…

• Richard Cantillon (18th century) defined entrepreneurs as risk-takers willing

to buy products without knowing their selling price, similar to modern
speculators and investors.

• Joseph Schumpeter (1950) viewed entrepreneurs as innovators who combine

resources in new ways, leading to economic growth through creative destruction.
He distinguished invention (new idea) from innovation (profit-making
application of an idea).
• The Austrian School emphasized entrepreneurs as opportunity seekers,
identifying gaps between buying and selling prices.

• Startups now dominate business, replacing traditional brick-and-mortar stores

with digital platforms.

• Economic shifts (1950–1980), including mass production, rising wages, and

affordable goods, encouraged people to pursue entrepreneurship.

• Consumer expectations have changed—customers seek customization, better

performance, and lower costs, driving companies to become more flexible and
adaptable.

• The debate over small vs. big businesses continues, with many large companies
adopting nimble, startup-like strategies.

❑ENTREPRENEURSHIP is a key factor in assuring improvements

-personal life of the entrepreneur
-lives of other people (family, community and the country)

❑ENTREPRENEURSHIP helps provide the following:

-products and necessities of life
-freedom from servitude, ignorance, social deprivation and misery
-self-esteem for the entrepreneur (self-worth and self-respect and service to
the community)
Trends: Social Entrepreneurship
Business is not just about taking and taking. It must give back to the society
it takes from, in order to sustain itself.
 Social entrepreneurship is a way of solving social problems using the
entrepreneurial genius.
 Social entrepreneurs set up a company not only “for profit”, but with “social
benefit” in mind. Social problems can range from poor quality of education to
lack of health care. “Social Entrepreneurship” is not new. It has been
practiced for a long time. But of late, the term itself has gained popularity
along with “corporate social responsibility
Pros and Cons of Entrepreneurship
Cons
1. Financial Uncertainty – No regular paycheck; may need to rely on savings.
2. Low Initial Salary & Benefits – Earnings may be minimal in the beginning.
3. Long & Unpredictable Work Hours – Requires commitment, problem-solving
at odd hours.
4. Full Responsibility for Mistakes – No one else to blame for business failures.
5. Multiple Roles – Entrepreneurs often juggle various responsibilities, from
CEO to delivery person.
6. No Established Systems – Start-ups may need to create their own procedures
and manuals.

Pros
1. Exciting & Rewarding Journey – Every step is an adventure, making it
fulfilling.
2. Quick Decision-Making – No bureaucratic delays; things get done efficiently.
3. Encourages Creativity & Innovation – Provides opportunities to offer unique
goods and services.
4. Competitive Drive – Competing with others fuels ambition and motivation.
5. Independence & Control – Entrepreneurs enjoy the freedom of being their
own boss.
6. Higher Earning Potential – Business owners keep the profits instead of
earning a fixed salary.
7. Flexible Work Environment – Choose when, where, and how to work.
LESSON 2: THE ENTREPRENEUR

Entrepreneurship in the Philippines

The most common enterprises in the Philippines are micro-and small-scale
enterprises. These were capitalized by a single owner who produces single or
very few products (or services) and sells to small, limited, domestic markets.
Micro and small scale enterprises make up the bulk of enterprises in the
Philippines.

Who is an Entrepreneur?
 There is no consistent definition of the term “entrepreneur” and what
entrepreneurship is all about (Kuratko & Hodgetts, 2001).
 Entrepreneur can be defined from a functional approach based on what an
entrepreneur does or an indicative approach based on his characteristics and
attributes.
 Depending on how an entrepreneur is defined, he can be different persons
wearing different hats.

Entrepreneurs: Definition from Research Literatures

 Richard Cantillon (1755) – Introduced “entreprende” (French for to
undertake), defining entrepreneurs as risk-takers in new ventures.
 Blaug (2000) – Entrepreneurs act as middlemen, buying low and selling high.
 Adam Smith (1776) – Expanded entrepreneurship to include forming
organizations for business.
 Jean-Baptiste Say (1803) – Entrepreneurs influence and are influenced by
society, using skills to fulfill needs.
 Frank Knight (1921) – Entrepreneurs differ by their willingness to bear
uncertainty.
 Von Mises (1949) – Entrepreneurship is human action under uncertainty,
always speculative.
 Kirzner (1973) – Entrepreneurs recognize and act on unorganized
opportunities.
 David McClelland (1971) – Identified three key needs in entrepreneurs:
achievement, power, and affiliation.
 Peter Drucker (1964) – Defined entrepreneurship as “maximization of
opportunities.”
 Howard Stevenson (1983) – Saw it as the “pursuit of opportunity without
regard to current resources.”
 Brockhaus (1982) – Linked entrepreneurial behavior to three traits: need for
achievement, internal locus of control, and risk-taking.
5 Common Myths of Entrepreneurs
 Entrepreneurs are Born not Made
 Entrepreneurs are Gamblers
• Actually entrepreneurs are moderate risk takers
 Entrepreneurs are Motivated Primarily by Money
 Entrepreneurs should be Young and Energetic
• Average age is 35-45 with 10+ years of work experience
• Investors look at experience, maturity, reputation, and track record
 Entrepreneurs Love the Spotlight
• Often their work involves proprietary products/services
Types of Entrepreneurs
 Self-Employed
•These individuals perform all the work and keep all the profit.
 Opportunistic Entrepreneurs
•These entrepreneurs start a business and expand as fast as possible in order
to be able to hire other employees.
 Innovators
•Those with particular inventive abilities who design a better product and
then create companies to develop, produce, and sell the item.
 Acquirers
•They take over a business started by somebody else and use their own
ideas to make it successful.
 Buy-sell Artists
•These entrepreneurs buy a company to improve it so that they can sell it
again for a profit.
 Speculators
•They purchase a commodity and resell it for a profit.
 Franchisee
•An individual who starts a business for which a widely known product
image has already been established.

Famous Entrepreneurs
 Bill Gates left Harvard in his second year.
 Neither Steve Jobs nor Steve Woznaik of Apple Computer finished college.
 Michael Dell quit in his first year at the University of Texas to start Dell
Computer.
 Mark Zuckerberg of Facebook.com dropped out of Harvard in 2004 while
studying psychiatry. With his two dorm mates, he programmed a college
network site that expanded beyond Harvard and eventually grew to include
other colleges in the area. Now that website is Facebook.
 The popular Google website began when Sergey Brin and Larry Page were
graduate students at Stanford University.
 YouTube was born when Chad Hurley and Steve Chen found it hard to share
a video they took at a party in Steve‟s apartment in San Francisco with their
friend Jawed Karim, who thought the party didn‟t really happen. The three
were all employees at Paypal.
 Anita Roddick who founded The Body Shop, well known for being a socially-
concerned enterprise.
 Oprah Winfrey, the famous talk show host, used her talents to create a media
empire.
 Robert Kiyosaki, of Rich Dad, Poor Dad fame, has built a company and a pop
culture from his best-selling book.
Top 10 Best Rags-To-Riches Filipino Entrepreneurs
Tycoon #10: Mariano Que Business: Mercury Drug
Tycoon #9: Maria Socorro Ramos Business: National Book Store
Tycoon #8: Diosdado Banatao Business: Monstroni, Chips and
Tycoon #7: Corazon D. Ong Business: Meat Processing CDO Food
sphere, Technologies
Tycoon #6: Julie Gandiongco Business: Julie’s Bakeshop
Tycoon #5: Alfredo Yao Business: Zest-O
Tycoon #4: Tony Tan Caktiong Business: Jollibee Foods Corporation
Tycoon #3: John Gokongwei Business: Universal Robina,
Tycoon #2: Lucio Tan Business: PAL, Fortune Tobacco
Tycoon #1: Henry Sy Business: SM Prime Holdings, Cebu
Pacific, Robinsons, BDO, China Bank
Roles, Responsibilities and Functions of Entrepreneurs
 Initiating Ideas - Entrepreneurs come up with new ideas. This is an important
area for an entrepreneur as it determines her rate of expansion in business, e.g.
new designs and use of products.
 Taking Risks - Entrepreneurs take risks in business, e.g. starting businesses,
which have an equal chance of success or failure.
 Planning - Entrepreneurs are aware of the importance of planning and of the
limitations of planning in the context of the above roles.
 Controlling - Entrepreneurs are leaders rather than followers; they make the
final decisions and control all aspects of business operations.
 Coordinating - Entrepreneurs must coordinate all the production factors
needed in the business, i.e., capital, labor, and land.

Entrepreneurial Functions of Entrepreneurs

 Identifies gaps in the market and turns these gaps into business opportunities.
 The entrepreneur finances the business.
 Manages the business. It is a function that cannot be delegated to other
people.
The ultimate responsibility for management remains with the entrepreneur.
 Bears uncertainties or the risks of the business.
 Entrepreneurs also encourage competition, which is critical in sustaining free
enterprise and support a market economy system.

REWARDS OF ENTREPRENEURSHIP
 Self-fulfillment
 Personal Independence
 Financial Reward
 Social Rewards

RISKS FACED BY THE ENTREPRENEUR

 Risk of Failure
 Risk to Health and Well-being
 Social Risk
 Limited Access to Specialists and Consultants
 Hard and Demanding Work
LESSON 3: QUALITIES OF AN ENTREPRENEUR
Entrepreneurs are special. They have qualities that allow them to see
opportunities, where others see only difficulties. Because of these qualities, they
create businesses where they can grow.

Every entrepreneur is unique. But the goal that consumes entrepreneurs the
world over is the same: to make dreams come true in the form of their business,
whether big or small, whether in technology, food or any other industry. Not
even successes or failures can stop serious entrepreneurs from moving forward,
constantly improving, modifying, and living their dreams.
Characteristics, skills, and talents of entrepreneurs
 Leadership – Ability to inspire, motivate, and lead a team toward a common
goal despite challenges. Strong ethical standards and problem-solving skills.
 Need for Achievement – Personal responsibility, high self-imposed standards,
goal-oriented mindset, and openness to feedback.
 Opportunity-Seeking – Constantly looking for growth opportunities, filtering
useful information from the noise.
 Risk-Taking – Willing to embrace uncertainty and step into the unknown.
 Internal Locus of Control – Belief that success or failure is determined by
personal effort rather than external factors like luck or fate.
 Self-Confidence – Strong belief in one’s abilities despite doubts from others,
inspiring confidence in investors and customers.
 Tolerance for Ambiguity – Comfort in uncertain or evolving situations,
essential for navigating startup challenges.
 Openness to Ideas – Willingness to explore unconventional and innovative
ideas, often leading brainstorming sessions.
 Motivation ("Fire Inside") – Driven by both intrinsic (passion, personal goals)
and extrinsic (rewards, recognition) motivators.

Personal Entrepreneurial Competencies

 Personal entrepreneurial competencies (PEC)
 David Clarence McClelland conducted studies on entrepreneurial
competencies in the 1970s and 1980s.
 He is known for the Achievement Motivation Theory, which links
personal motivation to entrepreneurial success.
 Key Insight: Competencies are shaped by self-image, values, traits, and
motives.
 In 1985, McClelland, with McBer & Co., developed a Personal
Entrepreneurial Competencies (PEC) measuring instrument to assess traits
of successful entrepreneurs.
These competencies are clustered into three:
1. The Need for Achievement (N-Ach) Cluster
-The achievement motive, is the drive to do well, to strive for excellence
and to overcome challenges and obstacles in the pursuit of a goal
-Within the N-Ach cluster, the following competencies have been
identified:
 Opportunity-seeking Behavior
• able to find business opportunities where other people do not.
 Moderate risk-taking
• a moderate risk-taker.
• calculates the chances of success before taking a risk and
examines his strengths and weaknesses that will affect his
decision.
 High demand for efficiency and quality
• the ability to meet or surpass the existing standards of
excellence in the business.
• Commitment to work contract
• exhibits the ability to accept responsibility in completing a job.
 Persistence
• This is the ability to keep on doing something even when faced
with difficulties.
2. The Need for Power Cluster
-The power of motive, is the drive to control, influence and have an impact
on other.
-Individuals with high N-Pow normally seeks positions pf leadership. The
competencies under the Need for Power are the following:
 Information-seeking
▪ the ability to seek and find the right and valuable information
needed by the business.
 Goal-setting
▪ The ability to set short-term and long-term goals which are
clearer, realistic and attainable.
 Systematic Planning and Monitoring
▪ As the entrepreneur set goals, he also plans on how to ensure
the achievement of these goals.
3. The Need for Affiliation
 -The drive to establish, maintain or renew personal relationships with
others. It represents the desire to interact with people socially. The
competencies are as follows:
 Persuasion and networking
• Persuasion means being able to convince people that what you
are doing is right and useful.
• convincing other people that the business is good and that it is
worthwhile to do business with the entrepreneur.
 Self-confidence
• believing in oneself and in one’s ability to get things done.
The Importance of Passion
 Passion has been mentioned many times by authors and entrepreneurs as a
distinctive trait of successful entrepreneurs.
 It makes the entrepreneur leave the comfort of a paying job, scrape some
money together, and venture into entrepreneurship. Deep in their hearts,
entrepreneurs believe that they will make a difference in the world and in
people’s lives.
LESSON 4: BUSINESS OWNERSHIP AND STRUCTURE

Types of Ownership
 SOLE PROPRIETORSHIP
This is the simplest form of structure to set up. It is the oldest and most
common form of business in the world. If you choose this structure, all the
profits belong to you as the owner of the business. But businesses that fall under
this category have no legal existence separate from its owner.

Typical examples are grocery stores, barbershops and bakeries.

Cons of Sole Proprietorship Structure:
1. Hard to obtain financing
2. If the business can’t pay its debts, those you borrowed from, can go after
what you own!
3. Big burden on your shoulders
4. Salary is low. Minimal benefits.
5. You manage all the different aspects of the business
Pros of Sole Proprietorship Structure:
1. You control the business
2. Easy and cheaper to set up
3. You own all profits
4. Few administrative duties
5. You can decide matters quickly
6. Profits are taxed as personal income.

 PARTNERSHIP
Partnerships are formed to add technical competence and as a way to raise
money. They can also protect the business in the event that one partner becomes
ill or dies. Often, partnerships created from friendship, destroy the friendship as
well as the business.
General partners are personally liable for all transactions of the business
and run the same unlimited liability risk as proprietors in the event of business
failure. Also, acts of one person are inherited by every partner.

Pros of General Partnership Structure:

1. Raises capital for the business
2. Relatively easy to set up
3. Partners can pool their knowledge
4. Partners share the liability
5. Few administrative duties
Cons of General Partnership Structure:
 1. You are not protected from the bad financial decisions of your partner.
2. Limited tax savings – only direct, out of pocket expenses can be deducted
3. Disagreements among partners can be unpleasant
4. Can be difficult to dissolve

 CORPORATION
A corporation is a legal entity that exists separately from the people who
created it. The corporation is owned by its shareholders. It is run by a board of
directors elected by the shareholders. Corporations have four characteristics:
limited liability to the extent of assets, continuity of life, centralization of
management, and free transferability of ownership assets.

Pros of Corporate Structure:

1. Limited liability
2. Easy to raise capital by selling stocks or bonds
3. Easy to transfer ownership by selling shares of stock
4. Unlimited life
5. You can retain earnings for expansion

Cons of Corporate Structure:

1. Costly to form
2. Significant administrative requirements
3. Founder may lose control if he does not own majority of the shares
anymore

Importance of business and legal structures.

 Starting a business is simple: Develop an idea, find a location, and launch.
 Laws provide protection: They are crucial when things go wrong.
 Understanding legal structures: Business laws vary by country and can be
used strategically.
 Leveraging laws and financial systems: Entrepreneurs can use legal
knowledge to gain a competitive advantage.

Types of Businesses
 Startups.
- Start small to develop the market.
- Avoid the pressure of showing immediate profits to investors.
 Buy an existing business
- Offers an already functioning operation.
- Allows for evaluation through past financial data, customer feedback, and
supplier relations.
 Franchise.
- Higher success rate compared to independent businesses.
- Franchisee markets a trademarked product/service in exchange for
fees/royalties.
LESSON 5: THE BUSINESS PLAN
The business plan is a written document, explaining what your business is
hoping to achieve. You might ask yourself why do entrepreneurs need one? Who
will read it and how to go about writing the plan?
Why is a business plan important?
A well-crafted business plan demonstrates an entrepreneur's seriousness
and commitment to turning an idea into a workable venture.
 While some businesses start without a plan, formal documentation is
necessary when seeking funding from banks, venture capitalists, or private
investors.
 Investors expect a business plan to clearly outline the company’s goals,
success factors, competition, marketing strategy, and management team.

Beyond attracting investors, a business plan benefits the entrepreneur by:

 Clarifying assumptions, allowing others to challenge unrealistic
expectations.
 Providing a baseline for evaluating actual operations against initial
projections.
 Ensuring all key business elements are addressed.
 Revealing gaps in knowledge—what is written reflects known factors,
while missing details highlight areas requiring further research.

What Is A Business Plan?

The business plan is your means of communicating your vision to the world
to help you attract talent and money to the business. It is a detailed statement of
what your business is going to do in the future.
 Investors expect a business plan as an introduction to the company’s
prospects.
 A strong plan demonstrates discipline and professionalism, helping
investors evaluate the entrepreneur and their team.
 It should outline the company’s goals, markets, resources, competitors,
and funding needs for the first five years.
 If any critical details are missing, investors may request more information
or disregard the proposal.

How To Write The Business Plan

 Writing a business plan requires commitment and effort, often taking weeks
to complete. Entrepreneurs must decide firmly to write one thoroughly and
professionally. Key points include:
 A well-written business plan demonstrates professionalism and
convinces investors of the entrepreneur’s capabilities.
 It serves as a reflection of the entrepreneur’s thinking and abilities.
 A hastily prepared plan signals a lack of attention to detail.
 An incomplete plan suggests an inability to follow through.
 For a business plan to be effective, it must be carefully written,
complete, and professionally presented.
Writing Style for A Business Plan
A business plan should focus on substance over style, emphasizing the
company's potential for success through clear, concise, and fact-based writing.
To achieve this:
 Use straightforward language with short, declarative sentences.
 Avoid exaggeration or unrealistic claims, as they make the writer seem
inexperienced.
 Focus on presenting facts rather than using overly persuasive or dramatic
language.
 A good writing model is The Wall Street Journal, which maintains clarity and
accessibility for a broad audience.
A well-written business plan should impress investors with its content, not its
eloquence.

Characteristics of A Good Plan

• short and simple
• interesting
• easy to understand
• contains no
• typing errors
• contains visuals and graphs
LESSON 6: HIGHLIGHTS OF BUSINESS PLANNING
Contents of The Plan
1. Cover letter, Title Page, Table of Contents
2. Executive Summary
3. Company Summary
4. Market Analysis
5. Marketing Plan
6. Operations Plan
7. Business Model and Financial Forecasts
8. Management Profile
9. Risk-and-reward profile
10.Appendix
Executive Summary
The executive summary covers the highlights of your business plan. The
purpose of the summary is to convince readers that your business has merit. It
encourages them to read the remaining sections. It is what the investor will read
first.

The executive summary should include:

1. Purpose: Describe the intent of your business plan.Define your business idea
briefly, clearly, and convincingly.
2. Opportunity: Describe the market potential of the business.
3. Benefits: Describe what makes your product or service unique and qualified to
compete.
4. Financial requirements: State how much is needed to put your business plan
into action.
5. Growth: Outline how your company will grow in the next few years.

Company Summary
This section assumes that the reader knows nothing about you or your
company. The company summary tells the readers what the company is, who is
behind it, and where it is going.

The company summary should include:

 Names: The name of the business, the owner‟s name and the names of key
people.
 Background: brief background & description of the people involved.
 History: short history of the industry showing the trends, the emerging
opportunities. Indicate how your company has spotted a niche.
 Goals: Business goals and objectives: how to exploit an opportunity.
 The company summary provides an account of your business operations,
any history, purpose, and organization.
Management Profile
The management profile is a crucial component of a business plan, often
valued more by investors than the product itself or financial projections.
Investors prioritize management capability, which is demonstrated through:
 The entrepreneur’s skills, knowledge, and personality
 Market knowledge, persistence, and a track record of success

Common mistakes in business plans include:

 Overemphasizing the product details rather than focusing on management
capability
 Providing overly detailed or optimistic financial projections, which
experienced investors view as unrealistic

Even if a product is strong and financial prospects are promising, investors

assess whether the management team can effectively run the business. Since the
1980s, venture capitalists have taken an active role in replacing ineffective senior
management when necessary.

Components of the Management Profile are:

 Organization: an organizational chart, showing who reports to whom;
what functions they perform.
 Resumes: Educational background, professional history, work experience;
references, respected people who can speak well of the manager.
 Professionals: mention the attorneys, accountants, business advisors or
industry experts you plan to consult.
Marketing Plan
The marketing plan lays down the road map or plan of action that is going
to get your customers to buy your product or service.
It is vital to the success of your product, and by extension, the success of
your business.
Market analysis is the careful study of your customer and the players in the
industry. It leads to a strong external and custom er focus that will serve you well
in developing the policies and decisions that will go into the marketing plan.

The plan itself will follow a well-established framework called the 4 P’s of the
marketing mix:
Product – What is your product and how will it stand out against
competition?
 Price – How will you price the product and why is it priced so?
Place – Where can your customers find your product?
Promotion – How will you advertise or promote your product?

Operating Plan
Operations convert inputs into outputs. Inputs are the resources used by
your business such as materials, labor, and machines. Outputs are the goods you
produce or the services you provide. The main activities that do the conversion
may be called your operations process. Managing operations consists of
developing, coordinating, and controlling the operations process.
The Components of The Operating Plan
Production activities. Production activities are the business activities that are
directly related to making goods or providing services. Without any one of the
production activities, your business would not be able to come up with the goods
for sale.

For example, a supermarket chain may have the following production activities:
- keep items in a warehouse
- deliver items to the supermarket branches
- repackage items into retail sizes or stock-keeping units
- display items on the shelves
- accept payment
- bag the sold items

Support activities. There are other activities in business outside of production (or
marketing). They do not produce the goods themselves; instead, they help
operations by ensuring that the production activities function the way they
should.

Capacity planning. The next step is to work out the physical things that your
process needs to produce outputs at the quantity and quality expected by your
market.

Financial Plan
The financial plan tells the business's future in monetary terms,
summarizing key aspects like start-up costs, operating expenses, and working
capital. It helps estimate financial needs, prepare a cash budget, and determine
external funding. Additionally, it highlights potential investment returns while
allowing for possible forecasting errors.