The Nature and The Nature and Importance of Importance of EntrepreneursEntrepreneurs

Chapter 1Chapter 1

Nature and Development of Nature and Development of EntrepreneurshipEntrepreneurship

French wordFrench word Means “between-taker” or “go-Means “between-taker” or “go-

between”between” ““Individual who takes risks and starts Individual who takes risks and starts

something new”something new”

To include all types of entrepreneurial To include all types of entrepreneurial behavior the following definition:behavior the following definition:

Entrepreneurship is the process of Entrepreneurship is the process of

creating something new with value by creating something new with value by devoting the necessary time and effort, devoting the necessary time and effort, assuming the accompanying financial, assuming the accompanying financial, psychic, and social risks, and receiving psychic, and social risks, and receiving the resulting rewards IN monetary the resulting rewards IN monetary TERMS, personal satisfaction and TERMS, personal satisfaction and independence.independence.

EntrepreneurshipEntrepreneurship

Process of creating something new & Process of creating something new & assuming the risks & rewardsassuming the risks & rewards

- Creation Process Creation Process (for entrepreneur & audiences)(for entrepreneur & audiences)

- Devotion of time & effortDevotion of time & effort- Assuming Risks Assuming Risks (Financial, Psychological & Social)(Financial, Psychological & Social) - Rewards Rewards (Independence, satisfaction & (Independence, satisfaction &

monetary rewards)monetary rewards)

DEFINITION OF ENTREPRENEUR TODAY

- A concise, universally accepted definition - A concise, universally accepted definition has not yet emergedhas not yet emerged

- Almost all the definitions includes:- Almost all the definitions includes:(1) initiative taking,(2) the organizing and reorganizing of

social and economic mechanisms to turn resources and situations to practical account,

(3) the acceptance of risk or failure.

DEFINITION OF ENTREPRENEUR TODAY

To an economist,

• who brings resources, labor, materials, and other assets into combinations

• makes their value greater than before

• introduces changes, innovations, and a new order.

Who is an EntrepreneurWho is an Entrepreneur

recognise opportunities where others recognise opportunities where others see chaos or confusionsee chaos or confusion

highly highly creative and innovativecreative and innovative

possess business know-how , possess business know-how , networks and networks and general management general management skillsskills

Who is an Entrepreneur …..Who is an Entrepreneur …..

Dictionary in Dictionary in France (1723)France (1723)

“ “One undertaking a project, a One undertaking a project, a manufacturer, a master builder”manufacturer, a master builder”

England (18th Century)England (18th Century)

“ “An adventurer, projector, or An adventurer, projector, or undertaker”undertaker”

Who is an Entrepreneur …..Who is an Entrepreneur …..

T

The entrepreneur

The opportunity-spotter The project championThe inventor

The person who realizes the opportunity and is determined to engage it

The person who makes things happen

The originator of the product or concept

The ideaIdentifying

the opportunity

Matching the idea to the

opportunity

Exploiting the

opportunity to build

somethingof value

Source: Bolton & ThompsonEntrepreneurs: Talent, Temperament, Technique

Development of Entrepreneurship Development of Entrepreneurship Theory and the Term EntrepreneurTheory and the Term Entrepreneur

Earliest Period: a passive risk taker.

Middle Ages: actor and person in charge of large scale production projects.17th century: person bearing risks of profit (loss) in a fixed price contract with Government.1725: Richard Cantillon – person bearing risks is different from one supplying capital.1803: Jean Baptise Say - separated profits of entrepreneur from profits of capital.1876: Francis Walker – distinguished between those who supplied funds and received interest and those who received profits from managerial capabilities.1934: Joseph Schumpeter – entrepreneur is an innovator and develops untried technology.1961: David McClellend – entrepreneur is an energetic, moderate risk taker.1964: Peter Drucker – entrepreneur maximizes opportunities.

Development of Entrepreneurship Development of Entrepreneurship Theory and the Term EntrepreneurTheory and the Term Entrepreneur

1975: Albert Shapero – entrepreneur takes initiative, organizes some social and economic mechanisms and accepts risks of failure.1980: Karl Vesper – entrepreneur seen differently by economists, psychologists, business persons and politicians.1983: Gifford Pinchot – intrapreneur is an entrepreneur in an already established organization.1985: Robert Hisrich – entrepreneurship is the process of creating something different with value by devoting the necessary time and effort; assuming the accompanying financial, psychological and social risks; and receiving the resulting rewards of monetary and personal satisfaction.

Earliest Period:Earliest Period:The Capitalist: a passive risk bearerThe Capitalist: a passive risk bearer– The Merchant-adventurer: took the active The Merchant-adventurer: took the active

role in trading, bearing all the physical and role in trading, bearing all the physical and emotional risks.emotional risks.

– Marco Polo: a merchant-adventure who Marco Polo: a merchant-adventure who traveled China.traveled China.

– As a go-between Marco Polo would sign a As a go-between Marco Polo would sign a contract with the money person to sell his contract with the money person to sell his goods.goods.

– When the merchant-adventurer When the merchant-adventurer successfully sold the goods and completed successfully sold the goods and completed the trip, the profits were divided.the trip, the profits were divided.

Middle Ages:Middle Ages:

–Entrepreneur: Entrepreneur: an ACTOR & an ACTOR &

a MANAGER a MANAGER –did not take any risksdid not take any risks–who managed large production projectswho managed large production projects

using the resources provided, usually by using the resources provided, usually by the GOVERNMENT OF THE COUNTRYthe GOVERNMENT OF THE COUNTRY

1717thth Century: Century:– Entrepreneur: Entrepreneur:

a contractual arrangement with government a contractual arrangement with government to provide goods or servicesto provide goods or services

– The CONTRACT PRICE was fixed. The CONTRACT PRICE was fixed. – Resulting profit or losses were of the Resulting profit or losses were of the

entrepreneur’s.entrepreneur’s.– John Law, a Frenchman established a John Law, a Frenchman established a

ROYAL BANK (later on developed as ROYAL BANK (later on developed as franchise)franchise)

– Richard Cantillon: RISK-TAKER Richard Cantillon: RISK-TAKER (a noted economist of 1700’s & founder of the term (a noted economist of 1700’s & founder of the term entrepreneurship.)entrepreneurship.)

1818thth Century: Century:

– Distinguished ENTREPRENEUR from Distinguished ENTREPRENEUR from VENTURE CAPITALISTVENTURE CAPITALIST

– Venture Capitalist: a professional Venture Capitalist: a professional money managermoney managerReasonsReasons for differentiation: for differentiation:

Industrialization occurring Industrialization occurring throughout throughout the worldthe world

Many inventions developed during Many inventions developed during this timethis time

–Inventor Tomas Edison: was unable Inventor Tomas Edison: was unable to finance invention himselfto finance invention himself

1919thth and 20 and 20thth Centuries: Centuries:

Late 19Late 19thth & earlier 20 & earlier 20thth century century– Viewed from an ECONOMIST’S PERSPECTIVEViewed from an ECONOMIST’S PERSPECTIVE– Entrepreneurs were not distinguished from Entrepreneurs were not distinguished from

managersmanagers

Middle of 20Middle of 20thth Century Century– Entrepreneur as an INNOVATOREntrepreneur as an INNOVATOR- Andrew Carnegie is one of the best examples of this - Andrew Carnegie is one of the best examples of this

definitiondefinition– He made the American steel industry one of the He made the American steel industry one of the

wonders of the industrial world, preliminary through his wonders of the industrial world, preliminary through his unremitting competitiveness rather than his unremitting competitiveness rather than his inventiveness or creativityinventiveness or creativity

Entrepreneur as an innovator:Entrepreneur as an innovator:

– an integral part of entrepreneurshipan integral part of entrepreneurship– the act of introducing something newthe act of introducing something new– the ability to create and conceptualizethe ability to create and conceptualize– to understand all the forces at work in the to understand all the forces at work in the

environmentenvironment– the history from Egyptians who designed and the history from Egyptians who designed and

built great pyramids out of stones blocks built great pyramids out of stones blocks weighing many tons each to the Apollo Lunar weighing many tons each to the Apollo Lunar module to laser beamsmodule to laser beams

– Tools have changed with advances in science Tools have changed with advances in science and technology but the ability to innovate has and technology but the ability to innovate has been present in every civilizationbeen present in every civilization

Decisions for a potential Decisions for a potential EntrepreneurEntrepreneur

Form New EnterpriseDesirable1. Cultural2. Sub-cultural3. Family4. Teachers5. PeersPossible1. Government2. Background3. Marketing 4. Financing5. Role models

Change from present lifestyleWork environment

Disruption

Desirability of new venture Desirability of new venture formation:formation:

The perception that starting a new The perception that starting a new company is desirable results from company is desirable results from an individual’s culture, subculture, an individual’s culture, subculture, family, peers and teachers.family, peers and teachers.

Possibility of new venture Possibility of new venture formationformation::

Several factors contribute to the Several factors contribute to the creation of a new venture.creation of a new venture.

1.1. The Government The Government

2.2. Formal education Formal education

3.3. Previous business experience Previous business experience

4.4. Marketing know howMarketing know how

5.5. A role modelA role model

6.6. Financial resourcesFinancial resources

Types of start - upsTypes of start - ups

Three categoriesThree categories

1.1. Life style firmLife style firm

2.2. Foundation firmFoundation firm

3.3. High – potential ventureHigh – potential venture

1.1. Lifestyle Firm:Lifestyle Firm:

Privately heldPrivately held Modest growthModest growth Limited money devoted to R&DLimited money devoted to R&D Grow after several years to 30 or 40 Grow after several years to 30 or 40

employeesemployees Annual revenues of about $2 millionAnnual revenues of about $2 million Exists primarily to support ownersExists primarily to support owners Little opportunity for significant Little opportunity for significant

growth and expansiongrowth and expansion

2.2. Foundation Company:Foundation Company:

Created for R&DCreated for R&D Grows in 5 to 10 years from 40 to Grows in 5 to 10 years from 40 to

400 employees400 employees $10 million to $20 million in yearly $10 million to $20 million in yearly

revenuesrevenues Rarely goes publicRarely goes public Draws the interest of private Draws the interest of private

investors onlyinvestors only

3.3. High Potential Venture:High Potential Venture:

Receives the greatest investment, interest and publicity

Rapid growth After 5 to 10 years could employ

about 500 employees Revenues are $20 million to $30 Revenues are $20 million to $30

millionmillion Also called Gazelles Also called Gazelles

Role of entrepreneurship in Role of entrepreneurship in Economic DevelopmentEconomic Development

It involves initiating and constituting It involves initiating and constituting change in the structure if business and change in the structure if business and society (i-e innovation).society (i-e innovation).

Innovation Innovation

Developing new stimulating investment products (& services) interest in the new

venturefor the market

Expanding the capacity Utilizing new capacityExpanding the capacity Utilizing new capacityfor growth and outputfor growth and output

(supply side) (demand side) (supply side) (demand side)

Product – Evaluation process:The process through which innovation

develops and commercializes through entrepreneurial activity, which in turn stimulates economic growth.

Iterative (Repeating)synthesis:The critical point in the product-evaluation

process is the intersection of knowledge and a recognized social need, which begins the product development phase. This point is called iterative synthesis.

Ordinary innovations:New products having little uniqueness and

technology

Technological innovations:Technological innovations:

New products with significant technological New products with significant technological advancementadvancement

Regardless of its level of technology, each Regardless of its level of technology, each innovation evolves into and develops into innovation evolves into and develops into commercialization through one of the commercialization through one of the three mechanisms:three mechanisms:

1.1. The governmentThe government

2.2. Intrapreneurship orIntrapreneurship or

3.3. EntrepreneurshipEntrepreneurship

Government as an innovatorGovernment as an innovator

Govt. is one conduit for commercializing Govt. is one conduit for commercializing the results of the synthesis of social need the results of the synthesis of social need and technology. This is frequently called and technology. This is frequently called technology transfer.

Though the govt. has the financial resources to transfer technology but it faces the following problems:– It lacks business skills– Bureaucracy and red tape

Intrapreneurship Intrapreneurship

Entrepreneurship with in an existing Entrepreneurship with in an existing organizationorganization

It bridges the gap between science and It bridges the gap between science and the marketplace.the marketplace.

Problems:-Problems:-– Bureaucratic structureBureaucratic structure– Emphasis on short term profitsEmphasis on short term profits– Highly structured org inhibit creativity Highly structured org inhibit creativity

In the present era of hyper competition In the present era of hyper competition organizations need to develop the organizations need to develop the intrapreneurial spirit.intrapreneurial spirit.

Overall objectives for a Course Overall objectives for a Course in Entrepreneurshipin Entrepreneurship

Understand the role of new and smaller Understand the role of new and smaller firms in the economy.firms in the economy.

Understand the relative strengths and Understand the relative strengths and weaknesses of different types of enterprises.weaknesses of different types of enterprises.

Know the general characteristics of an Know the general characteristics of an entrepreneurial process.entrepreneurial process.

Assess the student’s own entrepreneurial Assess the student’s own entrepreneurial skills.skills.

Understand the entrepreneurial process and Understand the entrepreneurial process and the product planning and development the product planning and development processprocess

Know alternative methods for identifying Know alternative methods for identifying and evaluating business opportunities and and evaluating business opportunities and the factors that support and inhibit creativitythe factors that support and inhibit creativity

Develop an ability to form, organize and Develop an ability to form, organize and work in interdisciplinary teams.work in interdisciplinary teams.

Know the general correlates of success and Know the general correlates of success and failure in innovation and new venture failure in innovation and new venture creation.creation.

Know the generic entry strategies for new Know the generic entry strategies for new venture creation.venture creation.

Understand the aspects of creating and Understand the aspects of creating and presenting a new venture business plan.presenting a new venture business plan.

Know how to identify, evaluate and obtain Know how to identify, evaluate and obtain resources.resources.

Know the essentials of :Know the essentials of :– Marketing planningMarketing planning– Financial planningFinancial planning– Operations planningOperations planning– Organization planningOrganization planning– Venture launch planningVenture launch planning

Know how to manage and grow a new Know how to manage and grow a new venture.venture.

Know the managerial challenges and Know the managerial challenges and demands of a new venture launch.demands of a new venture launch.

Understand the role of entrepreneurship in Understand the role of entrepreneurship in existing organizations. existing organizations.

Types of Skills required in Types of Skills required in EntrepreneurshipEntrepreneurship

Technical skillsTechnical skills– WritingWriting– Oral communicationOral communication– Monitoring environmentMonitoring environment– Technical business managementTechnical business management– Technology Technology – InterpersonalInterpersonal– ListeningListening– Ability to organizeAbility to organize– Network buildingNetwork building– Management styleManagement style– CoachingCoaching– Being a team playerBeing a team player

Business management skillsBusiness management skills– Planning and goal settingPlanning and goal setting– Decision makingDecision making– Human relationsHuman relations– MarketingMarketing– FinanceFinance– AccountingAccounting– ManagementManagement– ControlControl– NegotiationNegotiation– Venture launchVenture launch– Managing growthManaging growth

Personal entrepreneurial skillsPersonal entrepreneurial skills– Inner controlInner control– Risk takerRisk taker

– InnovativeInnovative– Chang orientedChang oriented– PersistentPersistent– Visionary leaderVisionary leader– Ability to manage changeAbility to manage change

The Future of EntrepreneurshipThe Future of Entrepreneurship The term entrepreneurship means different The term entrepreneurship means different

things to different peoplethings to different people In spite of differences, there are some In spite of differences, there are some

common aspects:common aspects:– Risk takingRisk taking– CreativityCreativity– Independence andIndependence and– RewardsRewards

Theses commonalities will continue to be the Theses commonalities will continue to be the driving force behind the notion of driving force behind the notion of entrepreneurship in the futureentrepreneurship in the future

We are living in the age of entrepreneur, We are living in the age of entrepreneur,

with entrepreneurship endorsed by with entrepreneurship endorsed by educational institutions, governmental educational institutions, governmental units, society and corporations.units, society and corporations.

Entrepreneurship education has never Entrepreneurship education has never been so important in terms of courses and been so important in terms of courses and academic research.academic research.

This increase in course offering has been This increase in course offering has been accompanied by an increase in academic accompanied by an increase in academic research, endowed chairs in the area, research, endowed chairs in the area, entrepreneurship concentrations and entrepreneurship concentrations and majors and centers of entrepreneurial majors and centers of entrepreneurial activity.activity.

Various governments are taking an Various governments are taking an increased interest in promoting the growth increased interest in promoting the growth of entrepreneurship.of entrepreneurship.

Encouragement by the Federal and Local Encouragement by the Federal and Local governments should continue in the future governments should continue in the future as more lawmakers understand that new as more lawmakers understand that new enterprises create jobs and increase enterprises create jobs and increase economic output in the area.economic output in the area.

Society’s support is critical in providing both Society’s support is critical in providing both motivation and public support.motivation and public support.

The media has played and will continue to The media has played and will continue to play, a powerful constructive role by play, a powerful constructive role by reporting on the general entrepreneurial reporting on the general entrepreneurial spirit.spirit.

This media coverage uplifts the image of This media coverage uplifts the image of the entrepreneur and growth companies, the entrepreneur and growth companies, and focuses on their contribution to society.and focuses on their contribution to society.

Large companies will continue to have an Large companies will continue to have an interest in their special form of interest in their special form of entrepreneurship – intrapreneurship – in entrepreneurship – intrapreneurship – in the future.the future.

These companies will be increasingly These companies will be increasingly interested in capitalizing on their research interested in capitalizing on their research and development (R&D) in the hyper and development (R&D) in the hyper competitive business environment today.competitive business environment today.