1.5.2 Entrepreneurial Motives and Characteristics

Entrepreneurial Motives and Characteristics

Key Definitions

Entrepreneur: Someone who looks at business opportunities that currently exist and then turns the idea into something of a reality, but they are not affiliated with a business.

Entrepreneurial Motives: Things that motivate an entrepreneur to work hard to create something new, often rooted in the psychology of the entrepreneur.

Entrepreneurial Characteristics: The traits that mark an entrepreneur and make them unique from others, including determination to succeed and the ability to anticipate and cope with risk.

Crowdfunding: A way of externally sourcing finance from many small investments given by individuals, often through a web-based platform such as GoFundMe.com. 

Profit Maximisation: When a business focuses on making as much profit as possible from their goods or services.

Profit Satisficing: When a business focuses on earning the 'right' amount of profit from their goods or services. 

Home-Working: When an employee is able to work from home, often on a laptop connected to the main office.

Social Entrepreneurship: When a business is set up by an individual with the aim to solve a community problem, willing to take on the risk and effort needed to make a positive difference in the community.

Piece Rate: Paying workers a wage per product produced by the employee, such as £3 per pair of jeans made.

What does a Successful Entrepreneur Need?

An entrepreneur sees opportunities that other people see, but they have the courage and initiative to take advantage of the opportunity. A successful entrepreneur needs to have the following characteristics:

• Understanding of the market
  To know what the customers want and to see how well or badly current companies are serving them
• Determination
  To see things through even if there are difficulties on the way to success
• Passion
  Not just to make money, but to achieve something else, such as to design something truly iconic, or to make an impressive transformation
• Resilience
  The ability to bounce back continuously when things do not go in your favour
• The ability to cope with risk

Risk Taking

Business decisions are always about the future so they always involve the element of uncertainty. A good entrepreneur will not only consider what they think will happen, but also what could potentially happen differently. An entrepreneur will look at the risk, compare the risk with the possible rewards and will make a considered decision about whether to move forward with the venture or whether it is too risky. 

Skills Required to be a Successful Entrepreneur

The characteristics are what we are born with, the skills are what we learn in life. They range from skills with finance to skills with people. These include:

• Financial skills
  The ability to read and understand key documents, such as a cash flow forecast.
• Persuasive abilities
  Entrepreneurs need to be able to persuade others to do things for them, such as provide planning permission, supply goods on credit or to work harder/faster to get things finished quicker.
• Problem-solving skills
  Based on the ability to investigate possible causes of of problems, and then to be able to work out the best solution. 
• Networking skills
  To be able to turn acquaintances into business friends, and therefore benefit from network-based crowdfunding or social media endorsement. 

Motives for Becoming an Entrepreneur

Even though 20% of entrepreneurs have money as their main motivation for being an entrepreneur, most are actually looking for more than just financial gain. They are typically looking for a 'challenge', or to 'prove themselves' to the world - meaning they are looking for more satisfaction than they could get from a regular job. 

In some cases, starting a business can be hugely challenging, satisfying and rewarding. Yet some people deceive themselves about enterprise and starting a business. They assume it is more satisfying, glamorous and profitable than it often is. Many work more hours and have less-than-ideal interactions with customers, suppliers and employees. 

Those who Aren’t Entrepreneurs	Bad Entrepreneurs	Good Entrepreneurs
Are very cautious – they never want to take risks.	Ignore risks – assume that their own charisma/skill will guarantee their success	Take calculated risks, weighing up the potential risks and rewards
Assume that things are the way they have to be.	Rush to bring in something new or make changes	Launch new ideas in response to changing consumer tastes or attitudes
Like to be sure of next month’s pay cheque – and the one after, until retirement	Trust that things will go as planned, spend freely at the start as they are sure the cash will start flowing tomorrow	Accept that the early days of a new business may be very tough, so try to spend as little as possible

Financial Motives for Becoming an Entrepreneur

Profit Maximisation

As mentioned previously 20% of those starting a business are motivated by the potential profit they could get. It is fair to assume that most of those people would be thinking of how to maximise that profit. This would make the business sense if the market conditions force the entrepreneur to focus on the short term. 

In these situations the only logical approach would be short term profit maximisation, which is often used  by business scams, and those who want to make quick profits from their customers. The 'business-model' in this case is to use the customer as a one-off opportunity to earn money, leaving no thought for repeat purchases, customer loyalty or long-term branding. 

For businesses that are thinking about the long term, the best way to maximise their profit is to decide on finding a balance in the 'right' amount of short term profit. This means that the business would be willing to take lower profits in the short term and allowing these profits to build over time to make higher profits in the future through the use of repeat purchases and the building up of customer loyalty. 

Profit Satisficing

This involves finding the right balance of profit to take, which often involves taking less than the maximum amount of profit. New, smaller businesses should always try and adopt this method if they want to become successful in the long term, as it makes a lot more sense to do this than to focus on short-term maximisation. 

Non-Financial Motives for Becoming an Entrepreneur

Independence

Some young people crave independence from the beginning of their working lives, and it can make them desperate to create their own business instead of working for others. However the reality is that, only after a long career working for a large experienced employer and they have the need, confidence and capital, people will not set up their own business until they are middle-aged. 

The issue of independence tends to be mostly with immigrants in the UK. For immigrants there is the tendency to mistrust fair career prospects working in large companies, which encourages the drive for independence - making this drive for independence seemingly a psychological need, or a practical response to actual or perceived discrimination. 

Home-Working

Independence can also be required by someone who needs to be at home as a parent or carer as they need to have flexible working hours that home-working can provide because they cannot physically go to work. As many employers see home-working as an opportunity to get more work done at less-than-market rates, which includes having people work for less than the minimum wage. This means they often have to accept piece-rate working terms that give no security of income and can work out as a low hourly income. 

This is why some who need to work from home try to set up their own business from home, as it gives them more control over their working hours and allows them to be more flexible. This would be more successful if the entrepreneur has strong IT skills and knows their way around a computer as it would reduce the need for a third party to get involved and for the owner of the business to have to pay them. 

Ethical Stance

Some entrepreneurs find it hard to accept the ethical environment within a large organisation, so they set up their own business, but in a more ethical fashion with the ethics of the company being in sole control of the individual. Recent scandals involving banks and insurance firms show that whilst some large firms talk about being ethical, in reality they are not so good. Running their own business gives the individual the freedom to practice their own ethical approaches, and to refuse repressive governments if they wish to place an order. However this may come to the individual being pushed to trade their ethical stance off against profits and family income. 

Social Entrepreneurship

Where ethics has a clear meaning, social entrepreneurship does not. Many businesses claim to be doing good for the world, which would make them all social enterprises - many of these companies being food manufacturers claiming that their products offer health benefits. A true social entrepreneurship has the needs of the community in their core values, and they will do whatever they can to help the community. The concept of social entrepreneurship is in the eye of the business owner.