It is interesting to get into some of the feared zones by some of our school leaners and practitioners.
Of course here we simplify the subject matter for our entrepreneurial businesses. Economics as a subject and practice has its critical fundamental role in the structuring and running of our various enterprises, especially our SMEs that are trying to find a perfect and profitable fit in this VUCA environment. In this edition we are starting a new journey from the basic economics up to a level where we develop our own market/business structures.
We will combine all the matters of costs, revenues, demand, supply and profitability to model our own operations. That is the same reason we are going to move in phases from general principles to models that talk our own entrepreneurial businesses. This trajectory is more than a business re-engineering redemption. Since in the previous discussions we were more on revisiting business processes and systems in order to find a contemporary fit in our perfect markets. However, from the perspective of this week’s focus we internalise business structuring through assessing our micro-business economics for entrepreneurship first as we look forward for a bigger picture. Just to inform economics in entrepreneurial business can be divided into two main components that is, micro and macroeconomics. We unpack and go deeper into the specifics as we further discuss.
To start with, it is important to classify the resources that result in effective service delivery and production by your particular type of business. There are basic economic resources that are common to any type of entrepreneurial business which we are to explore in this discussion.
But, however, some of our enterprising require uniquely specific that is from agro-business to tourism, wood manufacturing, engineering, micro-finance and so on.
This then becomes a homework for each one of our entrepreneurial operators to do a further analysis on the specific resources which are above the general/basic as required by that type of your business.
The three main fundamental resources for an entrepreneurial business are land, labour and capital. You will agree with me that even when you are doing a virtual type of buying and selling you will also need a space as an office or another.
Meaning that land will always be part of your entrepreneurial set-up and operationalisation. Our thrust here is not about naming and listing theses resources but making them useful where they are most needed and at the lowest cost. Those in the school of business economics will refer to these as allocative and productive efficiency respectively. Land as a resource should be well calculated and managed in relation to capacity needs of your production.
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Most of our SMEs are either underutilising the land they have acquired or leasing. That is a dangerous way of starting and running a business. This is because costs associated with the land in terms of rentals are fixed and will remain the same whether production is done or not. Capacity underutilisation should be well monitored from time to time so as to adjust production accordingly.
Our entrepreneurs should go further to do simple calculations of the contribution that is being done to the fixed costs from producing a single unit (Average Fixed Cost in production). Most of our fellow entrepreneurs will find that their profits are currently on paper but not for economic viability.
The same in relation to labour as one key resource in both service and production related businesses. There is need to strike a balance between non-human and labour intensive mechanisation. It is not only about Artificial Intelligence (AI) and systems automation that has made successful enterprising. The cost of technical repairs when you decide to use robotics in your processes against being labour intensive should be well approximated too.
Otherwise most of our enterprises will find out that the costs to wages, pension and any other labour related are comparatively low yet they have opted the absolute techno-mechanisation way. Our economics for business growth through re-engineering should be attended to without a copy and paste of what other businesses have done. Since they might not have the same orientation as that of your current enterprising.
That is why it is important not only to own a business idea but to keep it unique and healthier.
Capital is never enough for any business and that is the same reason why we have to keep on re-investing our net profits for a continued business viability. We as thriving entrepreneurs are on record of squandering working capital and over-borrowing. Remember that your sweat benefit is working capital not debt. The latter comes with high interests and even costly lawsuits when you fail to pay back. The question here is at what level is one supposed to finance a business through borrowed capital. Most of our businesses do borrowing from the inception in the form of venture capitalisation. That can be dangerous as you might end up running other people’s business throughout your lifecycle by just paying back debts. More can be said in this area which we will detail in the future.
To close for this edition, know that the aforementioned resources are scarce at any given point in time and that is the same reason they shouldn’t be wasted. The success of a business is then measured by the fourth resource which is a combination of land, labour and capital that is “Entrepreneurship.” As an employed executive to steer a giant organisation what the investors/shareholders look for in your practice is entrepreneurship. I leave you to self-introspect as we discuss further in the coming editions.
- Dr Farai Chigora is a businessman and academic. He is the head of Business Science at the Africa University’s College of Business, Peace, Leadership and Governance. His doctoral research focused on business administration (destination marketing and branding major, Ukzn, SA). He is into agribusiness and consults for many companies in Zimbabwe and Africa. He writes in his personal capacity and can be contacted for feedback and business at fariechigora@gmail.com, WhatsApp mobile: +263772886871, Website www.fachip.co.zw
