THE FUNDAMENTALS OF ENTREPRENEURSHIP AND SMALL, MEDIUM AND MICRO ENTERPRISES (SMME’s)
« It’s not the critic who counts, nor the observer who watches Fom a safe distance. Wealth is created only by doers in the arena who are marred ‘with dirt, dust, blood and sweat. «
(Joseph R. Mancuso)
There used to be a phrase. common in the 1960’s, that « What’s good for General Motors is good for the United States ». It may be the case today in many countries that the small business sector regards what is good for small business as being good for that country. Even the casual newspaper reader knows about the key role which small firms play in employment creation, their overall importance in the economy, their role in innovation and also the importance in which governments attaches to small enterprises (Storey, 1998: 1).
To provide guidance for public policy makers means that, as the small business sector grows in importance. it is even more necessary than in the past to examine its role in an economic, social and political framework. The role of small businesses in creating employment should not only be seen as part of employment policy, but also as part of urban and social policy. One central question always is whether efforts should be made to encourage the unemployed, many of whom may lack business skills, to create their own jobs by becoming self-employed.
The question now arises if it is reasonable to provide public funds to an individual living in a deprived inner-city area to start their own business as a way of creating employment for themselves. Also given that the risk if the business fails may be that they are saddled with a burden of debt which they are unable to service (Storey, 1998: 2).
Whether to encourage the maximum development of small business or not, still remains to be argued, but one cannot forget that whilst the small firm sector exhibits very high rates of churning – births and deaths – a key element in small firm policy making is the extent to which small firms ultimately grow into medium and large-sized firms. This could also then lead to an important strategic location decision for the small enterprise.
- the various definitions of entrepreneurs as initiators of small enterprises;
- the distinction between entrepreneurship and small, medium and micro enterprises (SMME’ s) and the focus of each, and
- the role of SMME’s in the economy;
DEFINITIONS OF ENTREPRENEURSHIP
In a detailed study of this issue, the American entrepreneurship researcher William Gartner (1990) asked fellow academics and business leaders for their definitions of entrepreneurship. From 44 different definitions obtained, some 90 different attributes of entrepreneurship were identified. The definitions obtained were not just variations on a theme; in fact many shared no common attributes at all. This indicates that the quest for a universal definition has not moved on much since 1971 when Peter Kilby commented that the entrepreneur had a lot in common with the « Heffalump », a character in A.A. Milne’s Winnie-the-Pooh, noting that he is also:
« a rather large and important animal. He has been hunted by many individuals using various trapping devices, but no one so far has succeeded in capturing him. All who claimed to have caught sight of him report that he is enormous, but disagree on his particularities. «
The word entrepreneur and the concepts derived from it such as entrepreneurial, entrepreneurship and entrepreneurial process are frequently encountered in discussions of the management of new, fast growing, innovative small business ventures. These concepts are easily related. Entrepreneurship is what an entrepreneur actually does. Entrepreneurial refers to the approach they take. The entrepreneurial process is what the entrepreneur engages in (Wickham, 1998: 4).
This might seem very mediocre, but offering a proper definition of the entrepreneur or entrepreneurship presents an immediate problem. Not because a definition is not available, but rather that there seem to be too many definitions. Even though the economic and management literature is full of possible definitions, the problem is there does not seem to be much agreement on what are the essential features of an entrepreneur (Wickham, 1998: 4).
Even though there are usually a failure to pm down the rich and complex phenomenon of entrepreneurship in a universal definition, it is the very variety of entrepreneurship and the endless possibilities that it presents that makes it so challenging. Entrepreneurship is a social and economic phenomenon. The entrepreneur is, first and foremost, an individual who lives and functions within society. Entrepreneurs are characterised not by every action they take, but by a particular set of actions aimed at the creation of new wealth. Entrepreneurship is about value generation (Wickham, 1998: 6).
Entrepreneurship IS a particular approach to wealth-generating activity. Entrepreneurs are characterised by the way they go about creating new value. The recognition of this fact gives us three angles of approach to the entrepreneur in that they might be considered as:
- a manager undertaking an activity – i.e. by means of the particular tasks they perform and the way they undertake them;
- an agent of economic change – i.e. by the effects they have and the type of changes they create; or as
- an individual – i.e. by means of their psychology, personality and personal characteristics.
Each of these three aspects is reflected in the variety of definitions that are offered for the entrepreneur. The function of each of these definitions is not just to characterise the entrepreneur but also to distinguish them from other types of people involved in the generation of wealth (such as investors or « ordinary » managers) (Wickham, 1998: 6).
Timmons (1994: 6) further defines entrepreneurship as a human creative act. It involves finding personal energy by initiating and building an enterprise or organisation, rather than by just watching, analysing, or describing one.
Entrepreneurship usually requires a vision and the passion, commitment and motivation to transmit this vision to other stakeholders, such as partners, customers, suppliers, employees and financial brokers. It also requires a willingness to take calculated risks – both personal and financial – and then doing everything possible to influence the odds. Entrepreneurship involves building a team of people with complementary skills and talents; of sensing an opportunity where others see chaos, contradiction and confusion; and of finding, marshalling and controlling resources (often owned by others) to pursue the opportunity (Timmons, 1994: 7).
Kuratko & Hodgetts (1998: 5) mention that the characteristics of seeking opportunities, taking risks beyond security and having the tenacity to push an idea through to reality combine into a special perspective that permeates entrepreneurs ..
Timmons (1994: 3) furthermore sums up the realities for entrepreneurs: « Anyone (can be a entreprenew) vl’ho wants to experience the deep, dark canyons of uncertainty and ambiguity: and who wants to walk the breathtaking highland’) of success. But I caution, do not plan to walk the latter, until you have experienced the former. «
A DISTINCTION BETWEEN ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT
This approach is problematic, because the entrepreneur is not distinguished by a distinct personality type and there is no independent test that can be performed to identify an entrepreneur. The question is consequently a matter of personal opinion. Some people may regard themselves as true entrepreneurs while others may judge themselves to be « just » small business managers. This can be an emotive issue and it is not clear what benefits are to be gained by placing people into different conceptual bags in this way (Wickham, 1998: 18).
Therefore, rather than trying to draw a distinction between managers, it is more valuable to draw a distinction relating to what they manage, that is between the small business and the entrepreneurial venture. There are three characteristics which distinguish the entrepreneurial venture from the small business, namely innovation, potential for growth and strategic objectives (Wickham, 1998: 18).
Entrepreneurship as further seen by Timmons (1994), McClelland (1964) and Carland, Hoy and Boulton (1984) is seen as the starting of a business (utilising of an opportunity) and/or the growth and development of that specific business. Small business management is seen as the starting of the business, growth and development up to a certain stage, then losing its entrepreneurial flair (Figure 2.2).
Potential for growth
The size of a business is a poor guide as to whether it is entrepreneurial or not. The actual definition of what constitutes a small business is a matter of judgement depending on the industry sector, for example a firm with one hundred employees would be a very small shipbuilder, but a very large firm of solicitors. However, an entrepreneurial venture usually has a great deal more potential for growth than does a small business. This results from the fact that it is usually based on a significant innovation. The market potential for that innovation will be more than enough to support a small firm. It may even be more than enough to support a large firm and signal the start of an entire new industry.
Objectives are a common feature of managerial life. They take a variety of forms, for example they may be formal or informal, and they may be directed towards individuals or apply to the venture as a whole. Most businesses have at least some objectives. Even the smallest firm should have sales target if not more detailed financial objectives. Objectives may be set for the benefit of external investors as well as for consumption by the internal management. The entrepreneurial venture will usually go beyond the small business in the objectives it sets itself in that it will have strategic objectives. Strategic objectives relate to:
The distinction between an entrepreneurial venture and a small business is not clear-cut. Generally it can be said that the entrepreneurial venture is distinguished from the small business by its innovation, growth potential and strategic objectives. However, not all entrepreneurial ventures will necessarily show an obvious innovation, clear growth potential or formally articulated strategic objectives and some small businesses may demonstrate these characteristics.