the personality of entrepreneurs
TRANSCRIPT
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2007 John Wiley & Sons Australia, Ltd
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Chapter 2
The personality of entrepreneurs
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Chapter outline
Individuals and opportunities
Understanding the profile of an
entrepreneur
The risks of a career in entrepreneurship
Relevant performance measures
Entrepreneurs in a social context
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Learning objectives
Explain the relation between the
entrepreneur and new value creation
Explain why and how entrepreneursdiscover and exploit opportunities
List the roles and characteristics of
entrepreneurs
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Learning objectives
Identify the relevant performance
measures for an entrepreneur
Define the risks of a career inentrepreneurship
Explain entrepreneurial behaviour in a
social context
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Individuals and opportunities
The entrepreneur is the central actor in
the creation of a new venture.
Initially, an opportunity is generallyrecognised by a single individual, who
may decide to pursue it alone or with
others.
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Individuals and opportunities
The opportunity becomes an
entrepreneurial project and a process of
new value creation is initiated.
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The relationship between the
individual and the opportunity
The relationship between the individual
new value creation is a dialogic, or a
system with a circular causality process.
This dialogic means that the individual can
be called an entrepreneuronlybecause
s/he is pursuing a project to commercialise
a new product or service.
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The relationship between the
individual and the opportunity
In turn, this entrepreneurial project exists
onlybecause there is an individual who
has identified this opportunity and ispursuing it.
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Typology of entrepreneurial
outcomes
Source: Adapted from
C. Bruyat & P.A. Julien,
Defining the field of research
in entrepreneurship,
Journal of Business Venturing,
no. 16, 2000, p. 174.
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The discovery and evaluation of
entrepreneurial opportunities
Opportunities rarely present themselves
in neat packages; they have to be
discovered and shaped. Differences between people matter
regarding the discovery and exploitation
of opportunities.
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The discovery and evaluation of
entrepreneurial opportunities
4 main differences have to be considered:
psychological characteristics
information and knowledge availability
creative processing
cognitive heuristics
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The decision to exploit
entrepreneurial opportunities
The exploitation of an opportunity
depends on the joint characteristics of
the individual and the nature of theopportunity:
Individuals are influenced by opportunity
costs, individual risk perception,
optimism, tolerance for ambiguity andneed for achievement.
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The decision to exploit
entrepreneurial opportunities
Exploitation is more common when
expected demand is large, industry
margins are high, the technology life cycleis young and the level of competition in
the industry is low.
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Triggers and barriers to start-ups
Triggers
Material rewards:make more money; keep the proceeds of the
business; reward according to effort
Creativity:use my own talents; a desire to create
something; control from begin to end;
passion about what I am doing
Desire for autonomy:be my own boss; work my own hours; work
with people I like, at a location of my choice
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Triggers and barriers to start-ups
Barriers
Lack of resources:weak management and marketing skills; lack
of information on start-ups; lack of finance
Compliance costs:high taxes and costs associated with
compliance to government legislation
Hard reality:setting up a venture is harder than initially
expected; uncertainty; fear of failure
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Modes of exploitation
2 major institutional arrangements exist:
the creation of new firms (hierarchies)
the sale of opportunities to existing firms(markets)
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Modes of exploitation
Other exploitation modes are
nevertheless possible:
joint-ventures
licensing
buying a franchise ...
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Understanding the profile of an
entrepreneur
Two basic schools of thought shape the
profile of the entrepreneur:
economists who consider theentrepreneur as an agent who specialises
in certain roles
behaviourists who concentrate on the
creative and intuitive character
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The roles of the entrepreneur:
an economic perspective
From the economist point of view,
entrepreneurship is considered as a
function. The status of the entrepreneur can be
analysed in terms of labour division which
explains this function based on certain
roles:
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The roles of the entrepreneur:
an economic perspective
risk bearer
arbitrageur
innovator
co-ordinator of scarce resources
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Early studies in entrepreneurship typically
focused on the psychologicalcharacteristics and the personality of the
individual as determinants of behaviour.
The characteristics of an
entrepreneur: a behaviourist
approach
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Only 3 of the endless list of
entrepreneurial traits have shown a high
level of validity:
the need for achievement
the internal locus of control
the risk-taking propensity
The characteristics of an
entrepreneur: a behaviourist
approach
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The risks of a career in
entrepreneurship
There are 4 types of risks to consider
before embracing a career in
entrepreneurship: financial risks
career risks
social risks health risks
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Financial risks
Large amounts of own money have to be
invested.
After start-up most of the profits areusually reinvested.
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Financial risks
Borrowing funds from bankers, venture
capitalists, or partners can reduce
financial risks. Legal structures can help to minimise
financial risks.
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Career risks
Questions about (re-)employment after an
eventual failure must be considered.
This risk is particularly acute for well-paidspecialists and people close to retirement.
Risks can be minimised by launching a
business on a part-time basis.
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Social risks
Starting a business venture requires
much of the entrepreneurs energy and
time. The decision to set up a venture should
therefore involve the family to reduce
conflict potential.
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Social risks
Another risk is linked to the (negative)
image of failed entrepreneurs like in
Singapore hence the kia siu attitude afraid to lose.
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Health risks
There is evidence that entrepreneurs
experience higher job stress and
psychosomatic health problems thanother people.
Would-be entrepreneurs should make
sure that their health can cope with the
demands and challenges of starting andrunning a business.
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Relevant performance measures
There are many motives for starting a
business, such as achieving social status
or having a new lifestyle However, a business must generate a
profit to stay in the market place.
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Relevant performance measures
Just to break even, profits must cover
compensation for bypassed
alternatives (opportunity cost) the cash, effort and time invested in
the venture (liquidity premium)
a premium for risk
a premium for uncertainty
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Relevant performance measures for
entrepreneurs
Source: Adapted from S. Venkataraman, The distinctive domain of entrepreneurship research, in J. Katz (ed.),Advances in Entrepreneurship, Firm EmergenceandGrowth, vol. 3, Jai Press, Greenwich, Conn., 1997, p. 134.
Figure 2.3
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Entrepreneurs in a social context
3 features of a persons social context are
important to the perception of
entrepreneurial opportunities and thedecision to seize them:
the stage of life
position in social networks
ethnicity
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Stage of life and entrepreneurial
behaviour
There is no general theory indicating the
stage of life that is best for launching a
business venture, but empirical researchhas shown that most of the entrepreneurs
start business with post-secondary
education, between the ages of25 and
44,andwith an establishedcareer record.
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Stage of life and entrepreneurial
behaviour
Recent studies show that a strong team is
critical for new venture growth.
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Social networks and
entrepreneurial behaviour
The networks that entrepreneurs build for
themselves stand out in a number of
respects:
Networks are genuinely personal
Spatial dimension is relevant
Active content of an entrepreneurs
network must vary over time to bedynamic
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Social networks and
entrepreneurial behaviour
Networks are important in both Western
and Eastern cultures. However, they are
central to Eastern cultures andparticularly to the Chinese.
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Ethnicity and entrepreneurship
Ethnic entrepreneurship can be a
response to the lack of opportunities in the
dominant culture In this case, entrepreneurship is very often
triggered by a variety of push factors
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Ethnicity and entrepreneurship
But pull factors can also be important,
such as the presence of entrepreneurs in
the family as role models.
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Summary
Entrepreneurs and opportunities form a
dialogic a system with a circular
causality process.
The existence of an opportunity does not
necessarily lead to its discovery and
exploitation, and is related to personal
differences of the entrepreneurs.
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Summary
2 schools of thought exist on the
entrepreneurial perspective in individuals:
economists and behaviourists. People considering a career in
entrepreneurship should be aware of the
risks and develop strategies to avoid
them, and also have the correctperformance measures in mind.
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