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Drawbacks Of The Entrepreneurship Commerce Essay

Paper Type: Free Essay Subject: Commerce
Wordcount: 2824 words Published: 1st Jan 2015

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First of all, the assignment describes about what Entrepreneurs are by explaining their roles and responsibilities. Secondly, the benefits and advantages occurred by Entrepreneurship are going to be discussed. Thirdly, the downsides or disadvantages arose should be argued according to the literature reviews. Last but not least, some recommendations would be added to cover up that dark side of Entrepreneurship. At this point, many literature reviews are applied and deliberated in order to evaluate for the difficulties or obstacles of Entrepreneurship.

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What are Entrepreneurs?

Baumol (1990) defines that Entrepreneurs are persons who are creative and imaginative in finding ways and add them to their own wealth, power and prestige. Entrepreneurs innovate and introduce new quality of good which consumers are not familiar yet. Besides, they often launch new method of production and new market which have not been tested and existed before yet. Moreover, they also bring new source of supply of raw material or half manufactured goods. Likewise, they create monopoly position which is the carrying out of the new organisation of any industry.

Baumol (1990) proposes that it is important to differentiate between two primary types of entrepreneurs to understand how economic development occurs. ‘The initiation entrepreneur” is responsible for unprecedented economic growth during 19th and 20th centuries; creating new products, new productive technologies or procedures which has not existed before. Whereas ‘the imitative entrepreneur’ is for economic advancement in developing countries today, where there is a more widespread and occurs after initiating have successfully demonstrated the utility of their innovation product or process.

However, Hannafey (2003) believes that Entrepreneurs take part in economic tasks that increase employment, create new organisation and perform other business activities. Nevertheless, Stanworth and Gray (1991) add that entrepreneurs examine situational or contextual factors such as socio-economic structures and influence the wider economy by enterprising culture in the locality.

Benefits of Entrepreneurship

Wickham (1998: 34) in Kirby (2003: 28) suggested that being the Entrepreneurs is relates to the ‘creating and managing vision and linking those vision to other people, by representing leadership, encouraging people and being effective in getting people to agree the changes. Moreover, it concerns with the profit-making activities and which are to aid five functions such as.

Innovation and change

New venture creation

Business growth

Job generation

Regional development.

The participating of Entrepreneurs to the economy and society encounters the convention and expose the ways of thinking and behaving that were not occurred before.

Advantages of Entrepreneurship

Importantly, the benefits of a business venture that would occur when an owner launches a new business should be considered. Zimmer and Scarborough, 2002 indicate that Entrepreneurs create an opportunity for themselves. Likewise, Entrepreneurship, a perfect opportunity for business owners to contribute to society, creates the benefit for the owner of a particular business to make a difference which happens through opportunities that are crucial to the owner.

Significantly, Entrepreneurs observe the limited natural resources effectively and combine their concerns with social issues. Besides, Entrepreneurs inaugurate a market potential for their innovation and lead customers and sell the venture to investors. Shane, 2000: 448 establish that Entrepreneurs have the ability to recognise new knowledge to exploit new products and technology including knowledge of customer problems and knowledge of technology known as ‘Entrepreneurial opportunity’. Therefore, this opportunity may lead to better understanding of the new knowledge or technology for innovation.

Drawbacks in Entrepreneurship

Even though innovations create the new opportunities, radical or ‘disruptive’ innovations could be occurred the industries into a higher risk (Rae, 2007: 79). Entrepreneurs possess personal traits and behaviours which could harm their roles as managers or workers (Vries, 1985: 160). Thus, Entrepreneurs are often known as risk takers (Wickham, 2004:194). Since, the new product’s demand, the activities of the competitors and government interventions are not overwhelmed by the Entrepreneurs, they sometimes need to manage the risk and make a right decision for the uncertainties (Wickham, 2004: 195). Thus it is crucial for owners to establish a particular business activity although they sometimes create drawbacks in entrepreneurship due to the following reasons.

Life cycle of the business venture

Nieman et. al., 2003 mention that the stages of entrepreneurial development can sometimes fail due to the life cycle of the business venture.

Figure 1: “Stages of Entrepreneurial development”

Entrepreneurs can only harvest in the pre-start up stage, because they have competition with other industry. This competition creates potential threat which they could not resist therefore; they buy the patent to protect their business. In the start-up stage, Entrepreneurs face with an increasing risk and potential for business failure because market demand is not very certain and the profits are less. Nevertheless, most Entrepreneurs are likely to harvest and sell the venture based on the current performance in the growth stage. However, in maturity stage, sales and profits decline and there are many competitive pressures in the distribution elements. Finally, during the decline stage, sales and profit decrease rapidly due to the poor strategic positioning in business prospect of Entrepreneurs.

Since Entrepreneurs cannot classify and distinguish new process opportunities, most of them do not retain chances along with the technology changes. (Kirzner, 1973).

The failure of new small firms

Most entrepreneurs are creative and they process new ventures. Albeit, not all the entrepreneurs create the ventures and they are not managed by the entrepreneurs. However, Scarborough and Zimmerer (2003) in Kirby (2003: 35) stated that the most common reasons of the failure of the new ventures are because of the managerial incompetence, nonexistence of experience, low financial control, absence of strategic management, incorrect or inappropriate place, having not enough inventory control and failure to create the entrepreneurial transitions or changes. Starting up business requires a great deal of dedication and discipline therefore, in order to build a successful business; entrepreneurs might face many various obstacles which become impossible.

Making wrong decisions

A manager could not have detailed knowledge of probabilities of what might happen in the future, thus a decision could become uncertain. Thus, they might accept various rules according to minimise their greatest loss or maximise their least return (Wickham, 2004:196). Moreover, sometimes the decisions could become ambiguity where it sandwiches between uncertainty and risk which has indefinite chance.

Poor quality of the analysis for Business plan

Importantly, meeting a clear business document plays a vital role in organisations. Nowadays, most Entrepreneurs face with some difficulties when setting a business plan for creating poor quality ones. Further, business plans are not describe back even though Entrepreneurs get funding through achievements. Thus, the opportunities become failure while occurring to the business to alter according to its environment. Additionally, there should be not only clear mission statement but also precise objectives in the business. The reasons why Entrepreneurs fail today are not because of unclear business plan but because of uncertain goals and mission statements for their business.

Without the following facts, a business would not meet its mission statement. One reason might be due to the absence of unique sales proposition (USP) that creates consumers to buy from the business and differentiates a business from its competitors. (Kirby, 2003: 237). Additionally, Entrepreneurs create a poor mission statement; long and confused to remember and not setting a clear one which is easy to memorize. That is why; neither customers and the staff nor themselves can recall their memory but fail to meet business’s goals and aims.

A range of Ethical problems

Hannafey (2003) describes that Entrepreneurships encounter ethical problems that are dissimilar from other business men because they introduce new technology and innovate business techniques that they are the first to encounter new ethical dilemmas where the demand of innovations could be complex in Entrepreneurial environments. Powell (1990) thinks that there is an abundance of opportunity for low-order Entrepreneurship because so many basic needs are unsatisfied in developing countries. In addition, the Australian economist Joseph Schumpeter outlines that Entrepreneurship creates and destroys economic structures in the economy.

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Hisrich (1998) suggests that Entrepreneurship demonstrates ‘stronger ethical perceptions’ about their relationship to the businesses in which they were involved. Longnecker et. al (1998; 27) comment that Entrepreneurs are stricter in sometime when they do ethical judgements. Thus, personal characteristics of individual Entrepreneur affect the ethical perspectives and business decision makes a major topic in literature. Chau and Siu (2000; 370) suggest that entrepreneurs both inside and outside of organisation are required to manage others’ viewpoints and to resolve moral conflicts. The competitive market pressures will harm Entrepreneur’s viewpoints on ethics.

Dees and Starr (1992, 89) note that Entrepreneurs usually encounter ‘promoter dilemmas’ because they must win the customers, investors, bankers, suppliers to support the risks and uncertainties of the new enterprise. Promoter dilemmas include uncertainty over how much detailed information to convey about the risks of a venture. Moreover, Entrepreneurs’ great optimism and enthusiasm may limit his/ her ability to distinguish and make judgements about potential ethical problems. Additionally, Entrepreneurial innovations can bring complex negative externalities that may need society to re-examine certain norms and values.

Legal considerations

There are a lot of challenges from different legal and regulatory environments. In order to handle the going international, an Entrepreneur needs to have not only an overall intelligence of legal system of the country but also a legal counsel to handle specifics. If they have lack of understanding of intellectual property, they might be unable to remember and protect the assets such as patents, trademarks and copyrights. Furthermore, they must understand taxes, liability and interest in the particular country and aware any regulations that might affect the new venture (Hirich, 2010).


Kuratko (2009) states that once Entrepreneurs start or buy a new business, they usually face with the greater risks. The researchers note that Entrepreneurs’ risk- taking activity is due to the typology of Entrepreneurial styles. The figure 2 explains about the level of personal financial risk and the level of profit motive which means whether Entrepreneurs try to gain monetary or return from the venture. Simply, they need to consider how to maximise the profit or minimise the risk. In the activity seeking part, Entrepreneurs find out independence or the work of the venture that are known as the Entrepreneurship’s activities.

On the other hand, the theory argues that the relationship between risk and financial return creates Entrepreneurs different from one another. It is noted that Entrepreneurial risk sometimes can be regarded as a complicated issue.

Figure 2: “A Typology of Entrepreneurial Styles”

However, their ego could meet numerous risks- financial risk, career risk, family and social risk and psychic risk which are more than a simple economic risk (Kuratko, 2009: 40).

Financial risk

Entrepreneurs stand significant portion of his/ her savings to other resources at stake. They could meet financial obligations since there is no assurance of a steady income. The money will be lost if the venture fails. Moreover, they need to sign personally on company obligations that exceed his/ her personal net worth. Additionally, there would be personal bankruptcy since they are not enthusiastic to leave their personal belongings and start a new business.

Career Risk

Entrepreneurs have worries on whether they will discover a new job or continue back again their former ones if their ventures fail. This becomes most important worry to those who have a secure organizational job with a high income and good benefit package.

Family and social risk

Entrepreneurs may need to spend their energy and time which may occur incomplete family experience and permanent emotional scars. Dees and Starr (1992: 98) agree that entrepreneurs encounter various relationship dilemmas which may lead to complex ethical problems because roles and relationships change from their pre-venture to their post- venture status. Entrepreneurs might face ‘Relationship dilemmas’ since they could not plan for get- together time to meet up with old friends and which may vanish their social relationships.

Psychic Risk

Most entrepreneurs suffer financial disasters that are difficult to recover immediately. This mental ability could harm to the well- being of the individual.

High level of Stress

When work demands and expectations exceed entrepreneurs’ abilities, they experience stress. That is because they have to take full authority for their business and their decisions have a direct impact on whether the business may be successful or fail (Zimmerer and Scarborough, 2002). Failure of a business may cause financial ruin and create intense levels of stress and anxiety. Among the four causes of entrepreneurs’ stress, Boyd and Gumpert (1983) comment that ‘loneliness’ could happen to entrepreneurs because they spent long hours of work and not participating in social activities. Also, Entrepreneurs are immovable with their numerous works thus; they have no involvement in extra curriculum activities such as spending social gathering party or go out for recreation which is due to the ‘immersion in businesses’.

Additionally, there would be ‘irreconcilable conflicts and people problems’ when Entrepreneurs become exasperate and disappoint not only when they manage the employees’ performance standards but also encounter conflicts with customers and professionals. That is because; Entrepreneurs are enthusiastic to achieve the goals and never satisfied with their work as they are worry that their competitors might come in if they slow down the business.

Hence, in order to recover those stress and tensions, firstly, Entrepreneurs should manage networking with other business owners. Moreover, it is necessary to seek out the satisfaction outside the company. Secondly, they should go for short vacations to have better relaxations. So they could build a better communications not only with their employees and staffs but also with their clients and customers.


To sum up, Entrepreneurs will be gradually important in global economic life. Nowadays, the activities done by Entrepreneurs become crucial to the global economy. Therefore, it is important for Entrepreneurs to have carefully designed and carry out executed research on the ethical dimension. However, ‘new research with a global focus’ is needed to find out more about how Entrepreneurs deal with ethical issues across different cultures. Hisrich (1998) suggests that Entrepreneurship ethical standards on individual Entrepreneurs may overwhelm by the core values of family members, teachers in early life. Business professionals and ethics may seek to develop norms of behaviour for specific kinds of entrepreneurial moral dilemmas. Last but not least, it is vital to study why persons become entrepreneurs and how these motivations affect or influence their relationship to their organisation they create -that will provide a deeper understanding of the moral perspectives and behaviours of entrepreneurs. The total word count is 2420 (excluding cover page, content page and references).


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