We already mentioned it in a previous article, “Entrepreneurship is fashionable”. Not only at the level of people, but at the institutional and economic level. Knowledge about the growth and development of countries has focused on entrepreneurship. That is why today we will talk about entrepreneurship for the development of countries.
Some studies show that SMEs generate between 80% and 90% of employment in the world.
In Chile, for example, micro, small and medium-sized enterprises generate 98% of employment and 65% of formal employment. This tells us about the potential of stimulating and developing SMEs.
Entrepreneurship is the seed and germ of companies. Sometimes even before they are companies, startups lay the groundwork and serve as an experiment. Later an entrepreneurship can become a company.
Start-ups are forms of entrepreneurship focused on technology sectors. As we see the focus of the economy is on the creation of new companies, because they are the ones that can guarantee the absorption of the labor force.
In addition, entrepreneurship is the way to maintain a flow of constant business creation.
Studies show that 50% of small businesses disappear before the age of 5. Additionally, more than 80% of SMEs do not reach 10 years of life.
With this in mind, governments and countries must nurture and stimulate the creation of new businesses. On the other hand, a healthy economy requires competition. If new companies do not emerge, competition will be diminished, and a healthy market will not be possible.
But let’s learn more about what is known as entrepreneurship.
What is considered and what is not considered an entrepreneurship?
As we mentioned in our article on “Entrepreneurship and New Business“, not every company is a entrepreneurship and not all entrepreneurship are companies.
The first thing we should know is that for an economic venture to become a company it must achieve some success. That does not mean that it will not disappear after a few years.
On the other hand, not all entrepreneurships are economic ventures. We also have other categories such as social enterprises. This implies that the characteristics of entrepreneurship go beyond simply making money.
Additionally, not every business is an entrepreneurship. One of the key characteristics of a entrepreneurship is innovation. Innovation in a venture becomes a source of differentiation, which strengthens the chances of success.
This innovation is usually accompanied by technical progress. And when we talk about technical progress, we don’t mean computing, systems or apps. The assembly line was a technical breakthrough that gave Ford the ability to compete above the rest. And it’s not about new technology, it’s about a new way of doing things.
To this is added that entrepreneurship is a process of learning and trial and error. Therefore, it could be considered that Startups are ventures in the technological area. Start-ups are a new way of doing the things you try to get a suitable business model to finance the introduction of this innovation.
For these peculiarities we can say that entrepreneurship is not synonymous with business. Many startups have failed to find a way to monetize their innovation.
For all the above, below, we will talk about those things that make an economic activity considered an entrepreneurship.
Elements that make an economic activity considered an entrepreneurship.
Next, we will tell you some of the things that characterize a entrepreneurship. Additionally, we will tell you what environmental conditions are necessary for the ventures to be successful.
Let’s start by knowing what are those things that differentiate a venture from other initiatives or businesses.
It is an indispensable condition that there is technical progress in a business or commercial activity to consider it an entrepreneurship or a venture.
Sometimes it is tried to call any incipient business in its launch process as an entrepreneurship. A hamburger or hot dog sale may be a entrepreneurship, but it must have some element of technical progress.
Selling coffee on a street corner is a precarious business or informal self-employment, not an entrepreneurship. Now if we start innovating in the way we provide service, in the product or in some way, this could have some elements to consider it an entrepreneurship.
The problem is that, in the eagerness of the economic programs of the countries to promote the creation of companies, it has ended up being called entrepreneurship to all business in the process of start-up. A bombastic name used to attract those seeking better economic opportunities than an underpaid job.
It is entirely reasonable to seek better income through self-employment, but we must not delude ourselves. If we really want to make that a sustainable activity, we should not stop at offering a commodity in the same way that everyone does.
Choosing a different path is the way to differentiate ourselves from the competition. This can be the difference between failure and success of a business. In the same way, technical progress is the difference between an entrepreneurship and a normal business.
Investment and financing for entrepreneurship and development
One of the things that characterizes an entrepreneurship is its limited access to conventional financing sources. As it is not a consolidated company, alternative forms of financing are often used, focused on the capacity of the entrepreneur. In addition, these forms give the entrepreneur greater flexibility and control over his venture.
If an entrepreneur gives shares to his financiers or goes into a lot of debt, he will have ballast when it comes to managing his company.
On the other hand, if you are looking for alternative sources of financing, you can have greater freedom and flexibility in acting. This set of techniques to finance themselves that entrepreneurs use is called Bootstraping.
Bootstraping is the way for entrepreneurs to finance themselves through their own means. In this way, the external indebtedness of the company is limited. Some of the methodologies to finance used by entrepreneurs are:
- Financing by the resources of the entrepreneur: Savings or income of the entrepreneur are used to invest in the venture.
- Invest energy and effort without salary or return: This is a way to invest the entrepreneur’s time without remuneration until the venture takes off.
- Minimize bill payments: Investment and expenses are minimized. In this way, the critical activities are chosen and based on them it is invested.
- Minimize inventory: You have only the inventory required to keep the venture running.
- Debt of the entrepreneur: It is chosen to take personal loans or loans from family or friends to finance the venture.
Capital accumulation (infrastructure, machinery, technology, knowledge, intellectual property, and human capital)
To become an entrepreneur to be require the accumulation of capital just like to start a business. But the composition of the capital accumulated in a venture and in a common business are usually different.
Capital accumulation in entrepreneurship is more about knowledge, intellectual property, and human capital.
On the other hand, common businesses require more infrastructure and machinery.
In the accumulation of capital is one of the keys to business success. This is because capital means resources invested in elements that boost productivity and add differentiation.
In this way, the knowledge acquired and the innovative way of doing things, technical progress are keys to entrepreneurship.
Some people believe that money is the most important thing to start a business. However, the accumulation of technique and knowledge can be more important elements for the success of a business than liquid capital, machinery or infrastructure.
Currently, some business models are based on services and have minimal infrastructure.
In any case, depending on the type of entrepreneurship we should not rule out infrastructure as a fundamental part.
For example, at present, airlines have fewer and fewer planes, and on the other hand, there are companies that are dedicated to managing aircraft as efficiently as possible. In this way the specialization of the strengths to each. While one manages the service layer, the other company efficiently manages the infrastructure and machinery. Innovation in capital management is in the DNA of entrepreneurship.
How does entrepreneurship affect the development of countries?
Entrepreneurship has a positive effect on the development of countries. This is because the core of entrepreneurship is innovation, passion and commitment. An entrepreneur is a person with an innovative idea with the passion and commitment necessary to implement it.
It is true that not all ventures are successful, but learning and innovative capacity is something that produces value.
Many ventures started without generating money. But with time and dedication of the entrepreneur they managed to monetize that added value. Facebook is an example of an idea that started generating only costs and over time managed to monetize and become a major advertising company.
Innovation does not always generate immediate returns. But with the necessary perseverance it can become a new business model or a differentiator for an existing business.
This innovation becomes a social value for countries. This differentiation can make the country competitively stronger.
Thanks to innovation, human beings are more efficient in everything we do and with this we can generate more wealth and more well-being for all.
Entrepreneurship is key to the development of countries because it is key to the promotion of innovation, as we will see below.
Innovation for the development and growth of countries.
More developed countries invest much more in research and development than underdeveloped countries. Investment in research and development is the biggest factor that differentiates development from one country to another.
The truth is that research and development affects technical progress fundamentally. Entrepreneurship is a source of innovation in this aspect, but it is also in many others.
Focusing on innovation can be key to a country’s development. Perhaps this is the reason why developed countries are increasingly investing in research and development and in promoting entrepreneurship and the formation of new companies.
Strengthening the business fabric and technology to boost the economy are two key tasks that contribute to a country leaving underdevelopment.
That is why we invite countries that want to develop to:
- Encourage entrepreneurship, not as the formation of existing businesses, but as innovative ideas that are configured into businesses.
- Invest in education and Research and Development.
These will be the pillars for a true transformation.
Entrepreneurship for the development of countries.
Undoubtedly, entrepreneurship is fundamental for the development of countries. It affects general employment, formal employment and the competitiveness and competition of companies.
The basis of entrepreneurship is innovation. In addition, innovation is the key to improving the efficiency, effectiveness, and competitiveness of companies.
Innovation adds value in the following aspects of business and country development:
- Innovation is able to improve current processes and automate them, making processes simpler, faster and more efficient.
- Thanks to innovation and technical progress, we have production processes and tools that improve the efficiency and competitiveness of countries and companies. Let’s reflect a little on how computing has revolutionized the way we do things.
- Innovation creates differentiators for companies and countries. In this way they can develop it as a competitive advantage that will make them more resilient.
- Constant innovation can also help create new businesses. In this way, increasing competition strengthens the market.
This is how entrepreneurship is a sure source of a healthy market