Entrepreneurship

A number of definitions of
entrepreneurship
&
entrepreneur
have
been
proposed by different economists
and management specialists.
Evolution
of
some
current
definitions has taken time to be
in their present form.
Some next slides illustrate this.

Defining the Entrepreneur

In the early nineteenth century, the
French
economist
J.B.
Say,
defined
entrepreneurship (i.e. practice of the
entrepreneur) as a process involving the
shifting of economic resources from an area of
low productivity into an area of higher
productivity and greater yield/production.
What is productivity?
Is it production? Its link to Quality?

Defining the Entrepreneur

One of the first British Economists to use

the term J.S. Mill perceived
entrepreneurs
as
individuals
engaged
in
giving
direction,
supervising, controlling and risk
taking.

As most of Mills identified activities can

also be attributed to most managers, he
concluded that the key difference was
that entrepreneurs were prepared to
take greater risks.

Defining the Entrepreneur

Another economist, the Austrian Joseph

Schumpeter (1934) also concerned
himself with the role of entrepreneur.

He perceived entrepreneurship to be a
meta-economic (pertaining to economics)
event such as the introduction of new
technology which causes a major
market change.

Defining the Entrepreneur

In the Schumpeterian model of

economics, managers in large firms
typically continue to use traditional,
conventional approaches where
demand is stable and they remain
confident of having an accurate
understanding of quality and
customer needs.

Defining the Entrepreneur

Schumpeter took the position that

entrepreneurship is the process most
likely
to
prevail
in
those
circumstances where market is in
disequilibrium and customers have
needs which are not being fulfilled.
An example would be the impact of
the aero plane on the worlds oceangoing passenger carrying industry.

Defining the Entrepreneur

Schumpeter
considered
the
distinguishing attribute of the
entrepreneur was not that of risk
taking
but the willingness to
exploit innovation as a path
through which to succeed when
competing with existing firms.

Defining the Entrepreneur

Schumpeter proposed that innovation
could cover a range of possible
alternative actions. These include:
1. Developing a new product or service
2. Creating a new production process
3. Identifying new markets
4. Discovering new sources of supply, &
5. Creating new organizational forms

Defining the Entrepreneur

Since the Second World War, a somewhat

broader view of entrepreneurship
has
emerged among management theorists.
Entrepreneurship has been redefined as
The process of creating something
different by devoting the necessary time
and effort, assuming the accompanying
financial and other risks and receiving the
resulting rewards of monetary and
personal satisfaction: Hisrich & Peters,
1992

Defining the Entrepreneur

Miller (1983) proposed that the

entrepreneurial orientation of a
firm is demonstrated by the
extent to which top managers
take risks, favor (and manage
change) and exploit innovation to
achieve a competitive advantage.

Defining the Entrepreneur

Millers definition is echoed by Hills and

LaForge (1992) who, on the basis of a
review of research published concluded
that Being a successful entrepreneur
requires the presence of certain attributes,
namely an ability to
create a new
organization which exploits innovation and
develops a unique operation that supports
business growth.

Entrepreneurs V.
Intrapreneurs

Entrepreneurs are people that notice

opportunities and take the initiative and
risk to mobilize resources to make new
goods and services.

Intrapreneurs also notice opportunities

and take initiative to mobilize resources,
however they work in large companies
and contribute to the innovation of the
firm.

Questions to answer
1.

2.

Over the next five years after

graduation, would you like to work in
the large firm sector, SME sector/(be
entrepreneur yourself) or the public
sector?
Support your answer with
arguments.
What personal traits do you think an
individual should have to be an
entrepreneur?

Intrapreneurship

Learning
organizations
intrapreneurship.
Organizations want to form:

encourage

Product Champions: people who take ownership of a

product from concept to market.
Skunkworks: a group of intrapreneurs kept separate
from the rest of the organization/islands of
intrapreneural activity within an organization.
New Venture Division: allows a division to act as its
own smaller company.
Rewards for Innovation: link innovation by workers
to valued rewards.

Post World War II Scenario

After World War II, in the face of declining

productivity and rising costs, the number of jobs
within Western manufacturers began to decline
as firms lost market share to newly emerging
lower cost producers within the Pacific rim such
as Japan and Taiwan.
Further, pressure on employment levels was
created by some major Western corporations in
an attempt to stabilize operating costs,
relocating their manufacturing locations to lower
wage rate nations elsewhere around the globe.

Post World War II Scenario

By the 1980s, the combined act of

these adverse economic trends
was that the Small and Mediumsize Enterprise (SME) sector in
both USA and Western Europe had
become an increasingly important
source of employment and a
significant contributor to GDP.

Small Business

Within the EU, since 1996, the SME sector

has been defined as being constituted of
organizations employing less than 250
people
The definition is then disaggregated into
micro enterprises employing up to 9
individuals, small business employees
between 10 and 49 individuals and
medium
businesses
which
employ
between 50 and 249 staff.

SMEs

However the definition of SMEs varies

in a way other than the above set of
definitions
as
per
different
sources/authors.
In 1997 there were 22.56 million small
business in the United States, and
47% of people were employed by small
businesses.

Small Firm Growth

Some researchers working on Small

Business focused on the factors
influencing the growth rate of small
firms and realized that the most
important factor is not the size
of the firm but the motivation
of the owner/manager.

Employee Satisfaction

In companies with less than 50

employees, 44% were satisfied.
In companies with 50-999 employees,
31% are satisfied.
Business with more than 1000, only
28% are satisfied.

Employee Satisfaction
Satisfaction Percentage

Employee Satisfaction
50

44

40

31

30

28

less than
50
50-999

20
1000+

10
0
less than 50

50-999

Number of Employees

1000+

Advantages of a Small
Business

Greater
Opportunity to get
rich through stock
options

All feel more

important

All feel more secure

Disadvantages of a Small
Business

Lower guaranteed pay

Fewer benefits
Expected to have many skills
Too much cohesion
Hard to move to a big company
Large fluctuations in income
possible

Who are entrepreneurs?

Common traits

Original thinkers
Risk takers
Take responsibility
for own actions
Feel competent
and capable
Set high goals and
enjoy working
toward them

Common traits

Usually have selfemployed parents

Often firstborns
Between 30-50 years
old
Well educated 80%
have college degree
and 1/3 have a
graduate level degree

Answer the following

questions
1.

2.

Which necessary personal traits

do you think you possess to be a
successful
entrepreneur?
How
would you develop the traits in
which you think you are lacking?
What do you think may be the
causes
of variations in growth
rates of small firms?

Successful and
Unsuccessful
Successful
Unsuccessful
Entrepreneurs
Creative and

Innovative
Position themselves
in shifting or new
markets
Create new products
Create new
processes
Create new delivery

Poor Managers
Low work ethics
Inefficient
Failure to plan and
prepare
Poor money
managers

Characteristics of
Entrepreneurs
Key Personal
Attributes
Strong Managerial
Competencies
Good Technical
Skills

Successful
Entrepreneurs

Key Personal Attributes

Entrepreneurs are Made, Not Born!

Many of these key attributes are developed

early in life, with the family environment
playing an important role
Entrepreneurs tend to have had self employed
parents who tend to support and encourage
independence, achievement, and responsibility
Firstborns tend to have more entrepreneurial
attributes
because
they
receive
more
attention, have to forge their own way, thus
creating higher self-confidence

Key Personal Attributes

(cont.)

Entrepreneurial Careers

The idea that entrepreneurial success leads to

more entrepreneurial activity may explain why
many entrepreneurs start multiple companies
over the course of their career
Corridor Principle- Using one business to start
or acquire others and then repeating the
process
Serial Entrepreneurs- A person who finds and
operates multiple companies during one career

Key Personal Attributes

(cont.)

Need for Achievement

A persons desire either for excellence or to

succeed in competitive situations
High achievers take responsibility for
attaining their goals, set moderately difficult
goals, and want immediate feedback on
their performance
Success is measured in terms of what those
efforts have accomplished

Key Personal Attributes

(cont.)

Desire for Independence

1.
2.
3.

Entrepreneurs often seek independence from

others
As a result, they generally arent motivated to
perform
well
in
large,
bureaucratic
organizations
Entrepreneurs have
internal drive,
are confident in their own abilities, and
possess a great deal of self-respect

Key Personal Attributes

(cont.)

Self-Confidence

Because of the high risks involved in running

an entrepreneurial organization, having an
upbeat and self-confident attitude is
essential
A successful track record leads to improved
self-confidence and self-esteem
Self-confidence enables that person to be
optimistic in representing the firm to
employees and customers alike

Key Personal Attributes

(cont.)

Self-Sacrifice

Essential
Nothing worth having is free
Success has a high price, and entrepreneurs
have to be willing to sacrifice certain things

Technical Proficiency

Many entrepreneurs demonstrate strong

technical skills, typically bringing some related
experience to their business ventures
For example, successful car dealers usually
have lots of technical knowledge about selling
and servicing automobiles before opening their
dealerships
Especially important in the computer industry
NOT ALWAYS NECESSARY

Planning

Business Plan A step-by-step

outline of how an entrepreneur or
the owner of an enterprise expects
to turn ideas into reality.

Questions To Keep In Mind

What are my motivations for owning a business?

Should I start or buy a business?

What and where is the market for what I want to

sell?

How much will all this cost me?

Should my company be domestic or global?

Motivations

1.
2.
3.

Deciding what your motivations

are will direct you toward what
type of business fits you best.
Types:
Lifestyle Venture
Smaller Profit Venture
High Growth Venture

1. Lifestyle Venture

Small company that provides its

owner independence, autonomy, and
control.

Provides flexibility (hours, meeting

places, attire(get-up))
2. Aligns your personal interests and
hobbies with your desire to make a
profit.
1.

2. Smaller Profit Venture

Small company not concentrated on

growing inordinately (extremely)
large.

Making millions of dollars not

important.

Content with making a decent living.

3. High Growth Ventures

Goal is maximum profit and

growth.
Concentrated on pushing envelope
and growing as large as possible.
Focus on innovation

Start or Buy?

Start cheapest, but very difficult

-requires most planning/research
Buy expensive may be out of reach
-requires less planning and research
Franchise (middle ground) a business
run by an individual (the franchisee)
to whom a franchiser grants the right
to market a certain good or service.

The Market???

Planning & Research essential

Extensive market surveys
Magazines and Polls offer some
information on the market

What about the cost?

Plan realistically, not optimistically

Dont overestimate your profits

Dont underestimate your costs

Sources of Funds

Banks
Venture Capitalists filthy (very) rich, high risk
investors looking for a many-times-over yield
Angels seem to have altruistic (selfless) motives
and less stringent demands than venture capitalists

Sector Importance After 2nd World

War

American industry exploited mass production

as the basis on which to stimulate a
consumer-led economic recovery.
Western Europe used the Marshal Plan
The Marshal Plan (the European Recovery
Plan, ERP) was an American initiative to aid
(monetarily) Western Europe to rebuild the
Western European economies after the end
of World War.

Sector Importance After 2nd World

War

Govt.s biased towards large firm sector

Poor performance by large firm sector
by 1970sdue to many reasons
like
OPEC Oil crisis, inflation, Myopic (shortsighted) behavior of managers, etc.
See slide 15 & 16 regarding declining
productivity and 1980s scenario (Ch.1)

Job Creation

Since 1980s, Govts. invested heavily in small

business creation.
UK Govt. focused support
to
young
unemployed people to become self-employed.
In 1990s UK Govt. focused their attention on
providing support to existing growth oriented
small firms.
This resulted in job creation in the SME sector
& was a more successful strategy than the
previous one of 1980s.

Job Creation

It is interesting to note that an analysis of

245,000 American companies stated in 1985
that 75% of employment gains generated by
1988, occurred in those firms that had more than
hundred employees at the time of launch.
Yet this group of firms only represented 1% of the
total firms in the example.
The issue of limited capability of small firms to
be an important source of new jobs has recently
been further validated across a large number of
other countries.

Job Creation

Job creation debate was made by Van Prag

and Versloot (2007) who analyzed the
results from 87 different studies.
They concluded that these studies prove
that creation of new permanent jobs due to
small businesses is an ambiguous issue.
Audretsch (2002) supported the view that
only a select few small firms will generate
new permanent jobs

Small Firm Definitions

Study the relevant portion of notes

and slide #17
Defining the entrepreneur: Study
notes and see slides #11 & 12