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INTREPRENEURSHIP DEVELOPMENT
ENTREPRENEURSHIP DEFINED
LEARNING OBJECTIVES
- To introduce the concept of entrepreneurship and its historical development.
- To explain the entrepreneurial decision process.
- To identify the basic types of start-up ventures.
- To explain the role of entrepreneurship in economic development.
- To discuss the ethics and racial responsibility of entrepreneurs. NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP
The term entrepreneur comes from the French and translates "between-taker" or "go- between."
Earliest Period In this period the money person (forerunner of the capitalist) entered into a contract with the go-between to sell his goods. While the capitalist was a passive risk bearer, the merchant bore all the physical and emotional risks.
Middle Ages In this age the term entrepreneur was used to describe both an actor and a person who managed large production projects. In such large production projects, this person did not take any risks, managing the project with the resources provided. A typical entrepreneur was the cleric who managed architectural projects.
17th Century In the 17th century the entrepreneur was a person who entered into a contract with the government to perform a service Richard Cantillon, a noted economist of the 1700s, developed theories of the entrepreneur and is regarded as the founder of the term. He viewed the entrepreneur as a risk taker who "buy[s] at certain price and sell[s] at an uncertain price, therefore operating at a risk."
18th Century In the 18th century the person with capital was differentiated from the one who needed capital. In other words, entrepreneur was distinguished from the capital provider. Many of the inventions developed during this time as was the case with the inventions of Eli Whitney and Thomas Edison were unable to finance invention themselves. Both were capital users (entrepreneurs), not capital providers (venture capitalists.) Whitney used expropriated crown property. Edison raised capital from private sources.
A venture capitalist is a professional money manager who makes risk investments from a pool of equity capital to obtain a high rate of return on investments.
19th and 20th Centuries In the late 19th and early 20th centuries, entrepreneurs were viewed mostly from an economic perspective. The entrepreneur "contributes his own initiative, skill and ingenuity in planning, organizing and administering the enterprise, assuming the chance of loss and gain." Andrew Carnegie is one of the best examples of this definition, building the American steel industry on of the wonders of industrial world, primarily through his competitiveness rather than creativity. In the middle of the 20th century, the notion of an entrepreneur as an innovator was established. Innovation, the act of introducing something new, is one of the most difficult tasks for the entrepreneur. Edward Harriman and John Pierpont Morgan are examples of this type of entrepreneur. Edward reorganized the Ontario and southern railroad through the northern pacific trust and john developed his large banking house by reorganizing and financing the nation’s industries. This ability to innovate is an instinct that distinguishes human beings from other creatures and can be observed throughout history.
Entrepreneurs act on what they believe is an opportunity. Because opportunities exist in (or create and/or generate) high uncertainty, entrepreneurs must use their judgment about whether or not to act. However, doubt can undermine entrepreneurial action. Therefore, a key to understanding entrepreneurial action is being able to assess the amount of uncertainty perceived to surround a potential opportunity and the individual’s willingness to bear that uncertainty. The individual’s prior knowledge can decrease the amount of uncertainty, and his or her motivation indicates a willingness to bear uncertainty.
DEFINITION OF ENTREPRENEUR The concept of entrepreneur from a personal perspective has been explored in this century the allocators of scarce resources, but they also represent a resource that is itself being allocated. As a term derived from the French, entrepreneur refers generally to a businessperson who both founds and then operates a company. Joseph Schumpeter is regarded as one of the main scholars who studied entrepreneurship in the early twentieth century. He defined entrepreneurs as those who use creative approaches or new methods to do things that are already being done in other ways. William Baumol pointed out that while entrepreneurs have a twofold role in innovation (both the allocators of scarce resources and a resource that is itself being allocated). This exploration is reflected in the following three definitions of an entrepreneur: In almost all definitions of entrepreneurship, there is agreement that we are talking about a kind of behavior that includes:
- Initiative taking.
- The organizing and reorganizing or social/economic mechanisms to turn resources and situations to practical account.
- The acceptance of risk or failure. To an economist, an entrepreneur is one who brings resources, labor, materials, and other assets into combinations that make their value greater than before, and one who introduces changes, innovations, and a new order. To a psychologist, such a person is typically driven by certain forces- the need to obtain something, to experiment, to accomplish or perhaps to escape the authority of others.
Entrepreneurship is the dynamic process of creating incremental wealth. Our definition of entrepreneurship involves four aspects:
- Entrepreneurship involves the creation process.
- It requires the devotion of the necessary time and effort.
- It involves assuming the necessary risks.
- The rewards of being an entrepreneur are independence, personal satisfaction, and monetary reward. For the person who actually starts his or her own business there is a high failure rate due to poor sales, intense competition, lack of capital or lack of managerial ability. THE ENTREPRENEURIAL DECISION PROCESS (Deciding to become an entrepreneur by leaving present activity) Many individuals have difficulty bringing their ideas to the market and creating new venture. Yet entrepreneurship and the actual entrepreneurial decisions have resulted in several million new businesses being started throughout the world. Indeed, millions of ventures are formed despite recession, inflation, high interest rates, and lack of infrastructure, economic uncertainty and the high probability of failure The entrepreneurial decision process entails a movement from something to something— a movement from a present life style to forming a new enterprise. To leave a present life-style to create something new comes from a negative force-- disruption. Many companies are formed by people who have retired, moved, or been fired. The decision to start a new company occurs when an individual perceives that forming a new enterprise is both desirable and possible.
Desirability of New Venture Formation (Aspects of a situation that make it desirable to start a new company) The perception that starting a new company is desirable results from an individual’s culture, subculture, family, teachers and peers. American culture places a high value on being your own boss, being a success and making money therefore, it is not surprising to find a high rate of company formation in
ENTREPRENEURIAL PROCESS/START UPS
TYPES OF START-UPS
Life-Style Firms A life-style firm exists primarily to support the owners and usually has little growth opportunity. This type of firm may grow after several years to 30 or 40 employees. Foundation Companies A type of company formed from research and development that usually does not go public. This firm can grow in five to ten years from 40 to 400 employees. High-Potential Venture A venture has high growth potential and therefore receives great investor interest. The company may start out like a foundation company, but its growth is far more rapid. After five to ten years the company could employ around 500 employees. These firms are also called gazelles and are most important for the economic development of an area.
ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT The role of entrepreneurship in economic development involves initiating change in the structure of business and society. One theory of economic growth depicts innovation as the key, not only in developing new products, but also in stimulating investment interest. The new capital created expands the capacity for growth (supply side), and new spending utilizes the new capacity and output (demand side.) In spite of the importance of investment and innovation in the economic development of an area, there is still a lack of understanding of few factors which are as follows:
The product-evolution process is the process through which innovation develops and commercializes through entrepreneurial activity, which in turn stimulates economic growth. It begins with knowledge in the base technology and ends with products or services available in the marketplace.
The critical point in the process is the intersection of knowledge and a recognized social need, called the iterative synthesis. This point often fails to evolve into a marketable innovation. Most innovations introduced in the market are ordinary innovations , with little uniqueness. Technological innovations refer to new products with significant technological advancements. Breakthrough innovations mean the development of new products with some technological change. Regardless of the level of uniqueness or technology, each innovation evolves into and develops towards commercialization through one of three mechanisms: the government, entrepreneurship, or entrepreneurship. Entrepreneurship has assisted in revitalizing areas of the inner city. Individuals in inner-city areas can relate to the concept and see it as a possibility for changing their present situation.
GOVERNMENT AS AN INNOVATOR A government active in commercializing technology is known as an innovative government. Commercializing technology is frequently called technology transfer. However, few inventions resulting from government-sponsored research have reached the commercial market. Most of the by-products from scientific research have little application to any social need. The government lacks the business skills needed for successful commercialization. Government bureaucracy and red tape also often inhibit the timely formation of the business. Recently, federal labs have been required to commercialize some of their technology each year and some are providing entrepreneurial training.
Entrepreneurship Entrepreneurship refers to entrepreneurship within an existing organization or business structure.
- The individual’s current perspective
- The current family situation Although there exist a common perception that entrepreneur are less educated than the general population however studies have found entrepreneurs overall and female entrepreneurs in particular, are far more educated than the general population. However, this education sometimes does not develop the specific skills needed in the venture, especially for women entrepreneurs.
The traits most frequently researched are the need for achievement, locus of control, risk- taking , and gender identity.. The research on the childhood family environment of the entrepreneur has had more definite results. Entrepreneurs tend to have self-employed fathers, and many also have entrepreneurial mothers. The family plays an important role in establishing the desirability of entrepreneurship as a career. Employment history also has an impact on entrepreneur careers in both positive and a negative sense. Entrepreneurs tend to have a higher probability of success when the venture created is in their field of experience. Negative displacement (such as dissatisfaction with various aspects of ones job) also encourages entrepreneurship. Although no definite research has been done on the adult development history of entrepreneurs, it appears to also affect entrepreneur’s careers. One’s development history has somewhat more of an impact on women, since they tend to start businesses at a later stage in life. There is a lack of data on adult family/non-work history and the available data adds little understanding towards entrepreneurial career development. Entrepreneurs are known for their strong work values, their long workdays, and their dominant management style. They tend to fall in love with the organization and will sacrifice almost anything in order for it to survive.
While in college, few future entrepreneurs realize that they will pursue entrepreneurship as their major life goal. Relatively few individuals will start a business immediately after graduation. Entrepreneurship education is a fast growing area in colleges and universities. While the courses vary by university, there is a great commonality, especially in the initial few courses.
The skills required by entrepreneurs can be classified in to three main areas:
- Technical skills involve such things as writing, listening, oral presentations, coaching, and technical know-how.
- Business management skills include those areas involved in starting, developing and managing any enterprise.
- Personal entrepreneurial skills differentiate an entrepreneur from a manager and include inner control (discipline), risk taking, innovativeness, persistence, visionary leadership, and being change oriented. These skills and objectives form the basis of the modular approach to an entrepreneurship curriculum. Today entrepreneurs are recognizing the need to learn some of the "science" of management in an MBA program in order to grow their businesses effectively in the global environment.
ETHICS AND SOCIAL RESPONSIBILITY OF ENTREPRENEURS The entrepreneur must establish a balance between ethical exigencies, economic expediency, and social responsibility. A managers attitudes concerning corporate responsibility tend to be supportive of laws and professional codes of ethics. Entrepreneurs have few reference persons, role models, and developed internal ethics codes. Entrepreneurs are sensitive to peers pressure and social norms in the community as well as pressures from their companies. While ethics refers to the "study of whatever is right and good for humans," business ethics concerns itself with the investigation of business practices in light of human values. The word "ethics" stems from the Greek êthos , meaning custom and usage.
coverage uplifts the image of the entrepreneur and growth companies. Articles have appeared in newspapers such as New York Times , The Wall Street Journal, and the Washington Post. Business magazines such as Barrons, Business Week, Forbes, and Fortune have provided coverage. Magazines such as Black Enterprise, Entrepreneur, Inc., and Venture focus on issues of the entrepreneurial process. Television on both a national and local level has highlighted entrepreneurship. Large companies will continue to have a special interest in Entrepreneurship in the future.
