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Chapter III

AN INITIATION INTO SELF-EMPLOYMENT

Mª Luisa Sánchez Almagro, Juan A. Moriano León and Gerardo Águeda Martín

1. INTRODUCTION

The interest in entrepreneurship or enterprise emergency has grown in European countries due to a boom in the local development policies. These policies are based on the development of resources of the area in which they are applied. Therefore, there is now a special necessity to have enterprising people able to risk their own enterprise projects, and also capable of stirring into action the economic activity using all the resources.

What does “entrepreneur” mean?, Are they born to be entrepreneurs, or do they have to learn how to become one?, What are the personal characteristics of an entrepreneur? Which are the advantages and disadvantages of being self-employed? Would I be successful if I set up my own company?. Many people ask themselves these very questions when they think about starting up a company and being self-employed.

In this chapter we try to answer these questions by exploring the main characteristics around setting up companies, and their actors: the entrepreneurs.

1.1 OBJECTIVES

• To identify the main aspects of the entrepreneurial work.
• To transmit the importance of being an entrepreneur.
• To eradicate stereotypes about entrepreneurs.

2. ANALYSIS OF EMPLOYMENT

Work is the conscious activity of the man in which he intelligently uses his physical and mental strength to reach his own interests, and those of his community. The person contributes to this process with resources (technical, energy, knowledge...) and gets some material, psychological, and/or social compensation. From this definition, you can deduce that there are some jobs without remuneration, like unpaid voluntary work, or the traditional work many women have carried out at home. Therefore, the way we distinguish the paid jobs from the others is calling the former employment.

Working population (Figure 1) is made up by the occupied ones plus those who want to work but are not able to (unemployed). The economically inactive population is made up of students, housewives, retirees, and those people who do not work simply because they do not want to or do not need to.

Diagram 1. Economic structure of the population.

Let us list the types of job people around you have:

The State in the developed economies has a regulating role. It is in charge of improving the collective goods (roads, hydroelectric power stations, parks, etc.), the public order and army resources, so as to improve social security and people’s standard of living. These services have been an important source of jobs during many years, although now, it is just playing a supporting role.

The European Union is a free-market economy. The economies based on this system present a high degree of decentralization. The market is free, and the competition that exists between the companies and the differences between consumers directly influence prices. That is to say that the law of supply and demand¹ rules the economy. Although big companies have mass production, they are reducing at the same time the number of workers because of new technologies. In addition, big companies have problems to adapt to market changes. Small and medium-sized companies have greater flexibility.

For the moment, governments and big companies do not seem to be able to revitalize the economy alone. Therefore, we cannot believe that they will provide most of the new jobs that will have to be created. We, the individuals, will be mainly responsible for the economic development that will be transformed into social welfare.

On the other hand, many people have difficulties to find a job, but there is a great diversity of jobs. Work does not only means employment; it is much more than that.

You will find next, a description of different kinds of jobs:

• Dependent work: a working activity. It is private, if you work for a company, and public if you work as a civil servant.
• Self-employment: you are self-employed.
• Voluntary work: an activity for which you do not get money, really interesting for society.
• Personal and familiar work: housework, artistic activity...

Let us detail activities carried out in those four kinds of work:

On the other hand, it is interesting to compare the characteristics of the different employment sectors.

We have analysed the different types of jobs and working sectors. Next we are going to focus on one type of job: self-employment.

3. MYTHS AND BARRIERS FOR SELF-EMPLOYMENT

The metaphors are descriptors of behaviour games, more useful than literal expressions in that case to show us what people think about the entrepreneurial relationship and the entrepreneurs. In that way, Koiranen (1995) studied the expressions² used by people to qualify an entrepreneur.

As a self-reflection exercise, read the following metaphors and if you agree with those words that identify an entrepreneur, tick the box. In addition, write down the reason why you chose it.

In the process of setting up companies, entrepreneurship is, according to Drucker (1986), something like being a doctor or an engineer. It demands knowledge, abilities, attitudes, aptitudes, attributes, etc., but specially work in order to manage the training and development required by the process. Nevertheless, like in any other field of human action there are several false clichés about the entrepreneur, which have become barriers to set up a new business. Ronstadt (1984), Lee-Gosselin and Grisé (1987), Gasse and D' Amours (1993), Ripollés (1994) and Nueno (1997), Varela (1998) and Colomer et al. (2000) have done research on this matter. These barriers can be: principal, psychological and cultural barriers:

Think about it: why don’t you have already set up your company? What were the impediments?

Next, review what kind of barriers are restraining you, and write down solutions to overcome them. This activity can be made in small groups.

4. ADVANTAGES AND DISADVANTAGES OF SELF-EMPLOYMENT

Now it would be advisable to decide what are the goals you would like to reach in your company. Once you find them, you will be able to start seeking them to get them.

Each person has a different view on life and different expectations of what the company is going to provide them after its creation.

You may answer the following questions so as to identify the objectives you are looking for and understand better the reasons why you want be the owner of a company.

• Would an entrepreneurial career help me to reach these aims?
• Am I going to enjoy this work?
• Do I like to make deals, to be the manager or to develop new products?
• Can I do it by myself against the other people’s opinion?
• Do I like to control everything and to take full responsibility for what could happen?

Write a brief story, taking into account the previous aspects or others you would like to add, on the problems and advantages you foresee could happen when you become a businessperson.

If you do not already know the managerial world enough and cannot answer the previous exercise, ask some businessmen questions like: what problems did you have? What problems do you have now? How did you manage to set up your business? What do you like and dislike about being a manager? In what way did the setting-up affect you and your family?. With these questions, you can know the advantages and disadvantages related to the creation of a new business. With them as well, you can decide if you have enough will to set up the company and to keep it operating.

Interview an entrepreneur classifying his commentaries about his managerial career and divide them into advantages and disadvantages.

Angel Andrés member of the SECOT³ summarizes the advantages and disadvantages of being a businessman as follows:

In a group, think about the aspects in which you agree with businessmen and the SECOT. A Phillips 6:6 group dynamics could be useful.

Lambing & Kuehl (1997) think that every self-employed person must be aware of the future advantages and disadvantages before initiating a business. (Figure 2).

Diagram 2. Advantages and disadvantages of the self-employed (Lambing and Kuehl, 1997, p. 16).

1. Advantages:
   • Autonomy: Some people need independence and freedom to decide their own alternatives. The feeling of being their own boss is very satisfactory for them.
   • The challenge of setting up a business / Need of achievement: For many self-employed people the challenge of setting up a business stimulates them. The opportunity to develop their idea and then to turn it into a successful business gives them a feeling of achievement. The self-employed person knows that he or she is the main person in charge of the success of the business.
   • Financial control: Some businessmen do not search for big benefits with their company; what they really want is to have control on their financial situation. They do not like to have a boss that tells them that they are dismissed without previous notice and after having devoted some years to work in the company.
2. Disadvantages:

   Self-employment is one of the most difficult careers that exist. This is one of the great disadvantages, but there are others:

   • Personal Sacrifices: Especially at the beginning of the managerial activity. The self-employed person can even devote the whole week to work, without any leisure time or personal life. That usually generates tense family relationships.
   • Responsibility: The self-employed person is the highest person in charge of the company’s progress, unlike the workers. Staff in companies is usually surrounded with people of the same status and with the same worries and they share information. Thus they share fellowship feelings as well. However, the boss is always alone.

   On the other hand, whereas the staff are specialized in a few certain areas, for example in trade, in finances, in personnel..., the self-employed people must handle all the functions until the business really works.

   • Small Benefit Margin: These small businesses usually introduce new products that are generally not accepted or go through non-profit periods. As the profit margin is not usually immediate and a certain period of time is necessary to obtain some benefits they may close down.

5. SORTS OF SELF-EMPLOYMENT

There are reasons to set up our own business but also barriers, but if we decide to start up one, it is essential to be entrepreneurial to look for opportunities and have will to face the problems. You can start up an individual business or a partnership. We can classify the different types self-employment into: freelance, teleworking, associated work, autonomous work and franchises.

Look for information in magazines, at fairs … for entrepreneurs. Make a list with the forms of self-employment you would direct your enterprising career to.

6. CHARACTERISTICS OF THE ENTREPRENEUR

One of the basic questions, although difficult to answer, is what is an entrepreneur? In the literature on this term, it seems to be no agreement on its definition. Thus, Palmer (1971), Drucker (1991), Ginsberg and Buchholtz, (1989), and Chell, Haworth and Brearley (1991) only agree on one aspect: from the moment someone decides to become an entrepreneur, he or she has to put his or her imagination in motion, make an effort to discover any opportunity and transform it into his or her business.

Kilby (1971,18) establishes a comparison between the search of the definition of “entrepreneur” and the hunting of a fictitious animal, named Heffalump. In this children’s story of Winnie Puh of A.A. Milne the heffalump is said to be “quite a big animal. Many hunters who had previously used traps chase this animal, but none succeeds in capturing it. Those who have seen it say it is enormous, but they differ on its particular features. Some hunters, although they have not explored its habitat sufficiently, try to convince people that they have caught it with their better baits. Nevertheless, very few hunters are convinced that it was a Heffalump and the search continues”.

The definition of “entrepreneur” resents the same problem as that of the story. The entrepreneur’s characteristics are many-sided. For its classification, we will use the structure of Sánchez Almagro (2003) (Chart 3).

People decide to become self-employed for several reasons: to make or sell a certain product or service, because their family members are entrepreneurs, to be independent, to be his or her own boss, to earn more money than being an employee, to try something new, to set up their own business, and get out of unemployment.

What are your reasons to set up your own company?

According to Moriano & Palací (2003) it is possible to classify the entrepreneurs into two groups depending on the motivations that lead them to set up their own business or to work independently:

1. "Vocational" entrepreneurs: those people who feel the impulse, the illusion and the dream of setting up their own company. They have a high achievement motivation that induces them to take risks, and to set increasingly challenging aims.
2. "Situational" entrepreneurs: those who set up their own company to escape from a precarious job or forced by the circumstances. Self-employment would be for them a shelter that allows them to have a job to earn an honest living.

Generally, both his or her personal characteristics and his or her environment determine the characteristics of the entrepreneur. Among the social aspects related to self-employment, the role played by both the family and friends stands out since they provide the support needed by the entrepreneur. Besides, if some members of the family or friends have their own business or have set up their own company, the entrepreneur can imitate these models. The characteristics of the entrepreneur, at a personal level, are that they are convinced they have control on their own destiny (locus of internal control), that they are able to take risks, and that they can recognize opportunities.

At the beginning of any new managerial adventure, the entrepreneur needs to make quick decisions, to have a suitable level of self-control and self-confidence. However, in order that his or her company prospers and grows, he or she has to be enthusiastic about what she or he is doing, invest more energy, and improve constantly his or her abilities.

Entrepreneurs usually admit that training is essential for the success of a new company. Nevertheless, the advisers of the SECOT recommend the new entrepreneurs to have training and “get experience as an employee before starting a business".

Taking into account your characteristics as an entrepreneur, write down the advantages and disadvantages (personal, professional and economic) to carry out the chosen activity.

Definitively, it is important to analyse all these aspects to establish the necessary strategies in order to adapt our personal profile to the activity of our managerial career.

7. SORTS OF ENTREPRENEURS

According to Gerber (1997), comparing entrepreneurs with managers and technicians working for a company, he appreciates the following basic differences (Chart 4):

Entrepreneurs orientate their thoughts towards the future, since they are capable of imagining whether a certain opportunity or idea will turn into a successful business. The need of control stems from the same orientation towards the future, since they need to control the resources to make their dreams come true.

On the other hand, entrepreneurs do not worry about changes. On the contrary, they are catalysts for change. As Schumpeter (1951) indicates, the entrepreneur acts to distort a situation of existing balance. He is located as an initiator of the change and a generator of new opportunities. The entrepreneur appears on the market as a force that breaks the balance, though every entrepreneurial activity generates a new situation of balance.

The executive, agent or manager is characterized by his pragmatism. His managerial conduct focuses on planning, order and predictability. His temporary orientation is located in the past, because the work of the executive is aimed to support the stability of the company. The executive tends to be more reactive than proactive. He does not want to change things, but to manage the company effectively in order to achieve the biggest benefit. Therefore, innovation would not exist without entrepreneurs, whereas business would not exist without executives.

Technicians focus on performing any specific task. For this reason, their temporary orientation is the present. Technicians consider great ideas must be reduced to methodology in order to have a real value. Technicians desire is to focus on their own work and to be able to have control on how to do it. Their favourite motto would be " if you want something done, do it yourself ". Moriano, Palací & Trejo (2001) gather (Chart 5) the main differences between the entrepreneur and the technician, following the directives of Gerber (1997).

According to Gerber (1997), every businessperson has something of an entrepreneur, of an executive, and of a technician. If these parts are perfectly balanced, we would have a competent person who would take his or her company to the highest possible position. Nevertheless, this author affirms that the "common owner of a small business has only 10 % of entrepreneur, 20 % of executive and 70 % of technician". (Gerber, 1997, 38).

Read the following statements carefully and tick those that match with the way you would like to organize your own company and with your motivations. I am a person:

1. ( ) with a high need of achievement. I plan and set goals on my own initiative, I think I will acquire a strong commitment to my organization. I am sure the success of my company will depend on me and I think that the strategy of my company must be guided depending on my personal goals and not on goals others suggested.
2. ( ) that I understand other people and I can make myself understood. I want to help others. I am sure that the social processes are very important. I have positive relations with my environment and I base the strategy of my company on the force of the sales.
3. ( ) that I want to be the corporate leader, I support a positive relation with the authorities. I think that the strategy of the company must be guided by means of a strong desire for competing and to stand out on the others.
4. ( ) that I have a strong desire of innovation, I accept moderated risks to compensate the enthusiasm of my ideas, and I think that a company’s strategy is based on the development of a new product.

Miner (1996a, b) thinks that the entrepreneur must combine several of the dimensions of his or her capacity of organization (executive, strategic, leadership and innovation) with the motivations that lead him to creation (achievement, power, affiliation). This combination will be the cause of his or her success or failure when he or she set up his or her own company.

Look for the type of businessperson you want to be.

8. CONCLUSION

There are as many reasons to consider seriously the alternative of setting up a company, as to consider the contrary situation. Everything depends on the person’s will and motivation. In any case, being your own boss allow you to have a job in the activity that you really want, to work with the people you need, and it can also be a way of earning your living and be successful. Actually, you have more responsibilities and your office hours do not have any limit, but you are also more satisfied. The essential thing is to have initiative to look for opportunities and face the problems.

Therefore, any person can set up a new company or start a business. What is difficult is to keep this company operating and obtain profit. Therefore, it is important not to be afraid of being your own boss nor consider it an easy task.

We think that the key steps are to have a good business idea, to plan your business, and to carry it out. It is important that every person chooses the form of self-employment that better matches his or her personal and professional interests. You will need some of the abilities given along this chapter to succeed. For example, aptitude to take risks, recognition of opportunities, resilience to adversity and self-confidence.

9. BIBLIOGRAPHY

Ballesteros, B., Guillamón, J.R., Manzano, N., Moriano, J.A., y Palací, F.J. (2001). Técnica de inserción laboral: guía universitaria para la búsqueda de empleo. Madrid: UNED.

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Castillo, A.H. (1999). Estado del arte en la enseñanza del emprendimiento, [en línea]. Chile: Intec. Disponible en: http://www.portalincubacion.cl/upload/Estado_del_arte.doc

Chell, E.; Haworth, J.y Brearley, S. (1991). The entrepreneurial personality. London. Routledge. Pp. 16.

Colomer, J. et al. (2000). Programa emprende! Para no-iniciados en economía. Www.centro-emprende.com.

Drucker, P.F. (1986). La gerencia en tiempos difíciles. Barcelona. Orbis.

Drucker, P.F. (1991). La innovación y el empresario innovador. Barcelona. Edhasa. Traducido del innovation and entrepreneurship. New york:

Gasse,Y. and D'amours,a.(1993). Profession: entrepreneur. Québec: Transcontinentales.

Gerber, M.E. (1997). El mito del emprendedor. Por qué no funcionan las pequeñas empresas y qué hacer para que funcionen. Barcelona: Piados.

Ginsberg, A. y Buchholtz, A. (1989). “Are entrepreneurs a breed apart? A look at the evidence” Journal of General Management, 15, (2), 32-40.

Kilby, P. M. (ed.) (1971): Entrepreneurship and economic development, New York, MacMillan.

Koiranen, M. (1995): "North European metaphors of 'entrepreneurship' and 'an entrepreneur' in Frontiers of Entrepreneurship Research [on ligne] http://www.babson.de/entrep/fer/papers95

Lambing, P. y Kuelh, Ch. (1997). Entrepreneurship. London. Prentice-Hall International (UK) limited.

Lee-Gosselin, H. y Grisé, J. (1987). "Les femmes propriétaires dirigeantes de la région de Québec (03): mythes et réalités" Présenté au colloque "une journée pour vous". Québec.

Miner, J.B. (1996a). "Evidence for the existence of a set of personality types, defined by psychological tests, that predict entrepreneurial success". Frontiers of Entrepreneurship Reserach.[on line] .http://www.babson.edu/entrep/fer/papers96/miner.htm

Miner, J.B. (1996b). The 4 routes to entrepreneurial success. San Francisco, ca. Berrett-Loehler Publishers, inc.

Moriano, J.A., Trejo, E. y Palací, F.J. (2001). El perfil psicosocial del emprendedor: un estudio desde la perspectiva de los valores. Revista de Psicología Social, 16(2), 229-242.

Nueno, P. (1997). "El emprendedor. Definiciones y mitos" en Iniciativa Emprendedora. 2. (enero-febrero), 21-24.

Palmer, M. (1971). "The application of psychological testing to entrepreneurial potential" in California Management Review, xiii (3), 8-38.

Ripollés, M. (1994). Pymes, entrepreneur y dirección estratégica. Un estudio de la importancia de la dirección estratégica para el crecimiento empresarial. Tesis doctoral. Universidad de Valencia.

Ronstdat, R.C (1984). Entrepreneurship: text, cases and mites. Dover, Massachusetts. Lord publishing. 27-28.

Sánchez Almagro, M.L (2003). El perfil psicológico del autoempleado. Tesis doctoral. Fac.Psicología. Univ. Complutense de Madrid.

Schumpeter, J.A. (1951). “Change and the entrepreneur”. Essays of J.A. Schumpeter, reading, Massachussetts. Addison-Weslay Press; quoted by Pedro Nueno, El emprendedor, iniciativa emprendedora 1996, (2), 21.

Varela, R. (1998). Innovación empresarial. Un nuevo enfoque de desarrollo. Calí. Colombia. Icesi. 5ª ed.

1 Demand refers to the different quantities of a product or service that the companies will want and will be able to purchase, depending on the price and during a given period of time.
Supply refers:

• to the different quantities of a product or service that the companies (manufacturers) want and are able to offer the community (consumers) depending on the different prices during a given period of time.

• The rule of supply and demand indicates that the market balances between the interests of the producers and the consumers.

2 The metaphors may serve to carry out multi-cultural studies so that they let us know what the different cultures mean for entrepreneur (Anglo-Saxon, European, Latin, Japanese...).

3 Spanish seniors for the Technical Cooperation (SECOT) is a Spanish association that gives free advice to entrepreneurs http: // www.secot.org. The conclusions belong to the interview held in this institution in February 2002, during the first cross-national meeting of Luces project.

4 These conclusions stem from the interview with the parent company Yves Rocher held in Spain on March 2003.

5 In the entrepreneurs' typology the English terms have been translated into Spanish as follows: Personal Achiever Type for Conquistador personal, Real Manager Type for Gerente real, Expert Idea Generator Type for Innovador and Empathic Supersalesperson Type for Comerciante.

An initiation into self-employment