1.2: Advantages & Disadvantages of Entrepreneurship

Advantages of entrepreneurship

The advantages for the entrepreneur who successfully creates value are numerous.

Independence

The freedom originating from ownership and management of one’s own business allows entrepreneurs to follow what they personally regard as important. Entrepreneurs are able to integrate personal preferences more effectively in the development of their own business than in the corporate environment. The environmentally conscious (aware) entrepreneur for example, is able to apply environmentally sound management principles in his own business. Entrepreneurship gives entrepreneurs a feeling of being self-supportive.

The opportunity to realize your full potential

Entrepreneurship is an instrument for self-actualization. The personal skills, creative abilities and drive of the entrepreneur are used in full during the establishment and development process.

The opportunity to realize a big profit

Within the capitalistic system (investing money in a business) the reward for successfully satisfying market needs is of a financial nature. Although the profit motive is not indicated as the most important motivation for entrepreneurship, the financial advantage enjoyed by the successful entrepreneur is still a crucial consideration.

The opportunity to contribute (add) to society

By satisfying needs, the entrepreneur contributes to the development of the society in which he functions. Apart from financial success, successful entrepreneurs often enjoy status in society and are accepted with hero-worship, power and authority.

Disadvantages of entrepreneurship

Research indicates that 24 per cent of all new businesses fail within the first two years, 51 per cent during the first four years and 63 per cent within the first six years Entrepreneurship subjects the entrepreneur to the following personal and financial risks.

Reputation and self-confidence

A business failure implies personal failure. A business failure harms the entrepreneur’s standing in society. As much as society on ours successful entrepreneurs, they also criticize unsuccessful ones. Loss of status and criticism may damage the entrepreneur’s self-confidence and discourages further- development of entrepreneurial abilities.

Uncertain income

Entrepreneurship does not guarantee a comfortable monthly income for the entrepreneur. Cost may exceed income during the development phase of the new business. Entrepreneurs come last in the compensation (reward) of production factors.

Risk of losing all capital

Entrepreneurs are forced to invest personal capital in the new business. If the business fails, personal capital is lost. It influences the personal security of the entrepreneur and his family. If other investors also lose capital in the process, the entrepreneur’s guilt is increased.

Decreased quality of life

The majority of entrepreneurs enter the market between the age of 25 and 39 years. The long hours and hard work required of the entrepreneur create tension in the family and socially. Friendships are often sacrificed (given up) at the cost of business success. The situation might improve when the business is well established and then the entrepreneur may have more time for his family and friends.

Total responsibility

Entrepreneurs are forced to decide about matters with which they are not properly acquainted. This and the realization that the success or failure of the business may depend on such a decision, may be stressful for certain individuals.