Friday, August 7, 2015

Entrepreneurship

 

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"Co-founder" redirects here. For someone who cultivates a startup, see Startup company § Co-founders.
Entrepreneurship is the process of starting a business, typically a startup company, based around an innovative product, process or service. The term "entrepreneur" is often conflated with the term "small business." While most entrepreneurial ventures start out as a small business, not all small businesses are entrepreneurial in the strict sense of the term. Many small businesses are sole proprietor operations consisting solely of the owner, or they have a small number of employees, and many of these small businesses offer an existing product, process or service, and they do not aim at growth. In contrast, entrepreneurial ventures are based around an innovative product, process or service, and the entrepreneur typically aims to scale up the company by adding employees, seeking international sales, and so on, a process which is financed by venture capital and angel investments. The entrepreneur develops a business plan, acquires the human, financial and other required resources, and is responsible for its success or failure.[1] Entrepreneurship operates within an entrepreneurship ecosystem which includes government programs and services that support entrepreneurs, not-for-profit entrepreneurship resources (e.g., incubators and accelerators), entrepreneurship education and training and financing (e.g., loans, venture capital, and grants).
Left to right, Eric Schmidt, Sergey Brin and Larry Page of Google, which is cited as an example of entrepreneurship and disruptive innovation. [2]As of the 2010s, Google is a huge corporation, but in the late 1990s, it started out as an entrepreneurial venture in a garage.

Background

In 2012, Ambassador-at-Large for Global Women's Issues Melanne Verveer greeted participants in an African Women's Entrepreneurship Program at the State Department in Washington, D.C.
In recent years, "entrepreneurship" has been extended from its origins in for-profit businesses to include social entrepreneurship and the concept of the political entrepreneur.[according to whom?] Entrepreneurship within an existing firm or large organization has been referred to as intrapreneurship and may include corporate ventures where large entities spin off subsidiary organizations.[3] Entrepreneurs are leaders willing to take risk and exercise initiative, taking advantage of market opportunities by planning, organizing, and employing resources,[4] often by innovating new or improving existing products.[5] More recently, the term entrepreneurship has been extended to include a specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives, e.g. in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship.
According to Paul Reynolds, founder of the Global Entrepreneurship Monitor, "by the time they reach their retirement years, half of all working men in the United States probably have a period of self-employment of one or more years; one in four may have engaged in self-employment for six or more years. Participating in a new business creation is a common activity among U.S. workers over the course of their careers."[6] In recent years, entrepreneurship has been claimed as a major driver of economic growth in both the United States and Western Europe.
Entrepreneurial activities differ substantially depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo, part-time projects to large-scale undertakings that create many jobs. Many "high value" entrepreneurial ventures seek venture capital or angel funding (seed money) in order to raise capital for building the business.[7] Many organizations exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs.
Beginning in 2008, an annual "Global Entrepreneurship Week" event aimed at "exposing people to the benefits of entrepreneurship" and getting them to "participate in entrepreneurial-related activities".[who?]

History

Etymology and historical usage

First used in 1723, today the term entrepreneur implies qualities of leadership, initiative and innovation in business. Economist Robert Reich has called team-building, leadership, and management ability essential qualities for the entrepreneur.[8][9]
An entrepreneur is a factor in microeconomics, and the study of entrepreneurship reaches back to the work in the late 17th and early 18th centuries of Richard Cantillon and Adam Smith, which was foundational to classical economics.
In the 20th century, entrepreneurship was studied by Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. The term "entrepreneurship" was coined around the 1920s, while the loan from French of the word entrepreneur dates to the 1850s.
Initially, economists made the first attempt to study the entrepreneurship concept in depth[10] Richard Cantillon (1680-1734) considered the entrepreneur to be a risk taker who deliberately allocates resources to exploit opportunities in order to maximize the financial return.[11][12] Cantillon emphasized the willingness of the entrepreneur to assume risk and to deal with uncertainty. Thus, he draws attention to the function of the entrepreneur, and distinguishes clearly between the function of the entrepreneur and the owner who provides the money.[11][13] Alfred Marshall viewed the entrepreneur as a multi-tasking capitalist. He observed that in the equilibrium of a completely competitive market, there was no spot for "entrepreneurs" as an economic activity creator.[14]

Historical barriers to entrepreneurship

Dating back to the time of the medieval Guild in Germany, a craftsman required special permission to operate as an entrepreneur was the small proof of competence (Kleiner Befähigungsnachweis), which restricted training of apprentices to craftsmen who held a Meister certificate. This institution was introduced in 1908 after a period of so-called freedom of trade (Gewerbefreiheit, introduced in 1871) in the German Reich. However, the small proof of competence was not required to start a business. In 1935 and in 1953, the greater proof of competence was reintroduced (Großer Befähigungsnachweis Kuhlenbeck) and required that craftsmen obtain a Meister certificate to train apprentices and before being permitted to set up a new business.[15]

Definition

Entrepreneur (Listeni/ˌɒntrəprəˈnɜr/), is a loanword from French.[16] It is defined as an individual who organizes or operates a business or businesses. Credit for coining the term entrepreneur generally goes to the French economist Jean-Baptiste Say, but in fact the Irish-French economist Richard Cantillon defined it first[17] in his Essai sur la Nature du Commerce en Général, or Essay on theNature of Trade in General, a book William Stanley Jevons considered the "cradle of political economy"[18] Cantillon used the term differently. Biographer Anthony Breer noted that Cantillon saw the entrepreneur as a risk-taker while Say considered the entrepreneur a "planner".
Cantillon defined the term as a person who pays a certain price for a product and resells it at an uncertain price: "making decisions about obtaining and using the resources while consequently admitting the risk of enterprise." The word first appeared in the French dictionary entitled "Dictionnaire Universel de Commerce" compiled by Jacques des Bruslons and published in 1723.[19]
Successful entrepreneurs have the ability to lead a business in a positive direction by proper planning, to adapt to changing environments and understand their own strengths and weakness.[20]

Skill set

British entrepreneur Karren Brady has an estimated net worth of $123 million[21]
The entrepreneur is commonly seen as an innovator — a generator of new ideas and business processes.[22] Management skill and strong team building abilities are often perceived as essential leadership attributes for successful entrepreneurs.[23] Political economist Robert Reich considers leadership, management ability, and team-building to be essential qualities of an entrepreneur.[24][25]

Joseph Schumpeter

According to Schumpeter, an entrepreneur is willing and able to convert a new idea or invention into a successful innovation.[26] Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to replace in whole or in part inferior offerings across markets and industries, simultaneously creating new products and new business models. Thus, creative destruction is largely responsible for long-term economic growth. The idea that entrepreneurship leads to economic growth is an interpretation of the residual in endogenous growth theory[clarification needed] and as such continues to be debated in academic economics. An alternate description by Israel Kirzner suggests that the majority of innovations may be incremental improvements such as the replacement of paper with plastic in the construction of a drinking straw that require no special qualities.
For Schumpeter, entrepreneurship resulted in new industries and in new combinations of currently existing inputs. Schumpeter's initial example of this was the combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case the innovation, the car, was transformational, but did not require the development of dramatic new technology. It did not immediately replace the horse-drawn carriage, but in time, incremental improvements reduced the cost and improved the technology, leading to the modern auto industry.
Despite Schumpeter's early 20th-century contributions, traditional microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks (instead assuming that resources would find each other through a price system). In this treatment the entrepreneur was an implied but unspecified actor, consistent with the concept of the entrepreneur being the agent of x-efficiency.
For Schumpeter, the entrepreneur did not bear risk: the capitalist did. Schumpeter believed that the equilibrium ideal was imperfect Schumpeter (1934) demonstrated that changing environment continuously provides new information about the optimum allocation of resources to enhance profitability some individuals acquire the new information before others, recombine the resources to gain an entrepreneurial profit. Schumpeter was of the opinion that entrepreneurs shift the Production Possibility Curve to a higher level using innovations.[27]

Risk-taking

Dell Women's Entrepreneur Network event in New York City, May 2013
Theorists Frank Knight[28] and Peter Drucker defined entrepreneurship in terms of risk-taking. The entrepreneur is willing to put his or her career and financial security on the line and take risks in the name of an idea, spending time as well as capital on an uncertain venture. Knight classified three types of uncertainty:
  • Risk, which is measurable statistically (such as the probability of drawing a red color ball from a jar containing 5 red balls and 5 white balls).
  • Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing 5 red balls but with an unknown number of white balls).
  • True uncertainty or Knightian uncertainty, which is impossible to estimate or predict statistically, such as the probability of drawing a red ball from a jar whose number of red balls is unknown as well as the number of other colored balls.
Entrepreneurship is often associated with true uncertainty, particularly when it involves something truly novel, such as a market that did not previously exist.
Traditional economic theory did not factor in the concept of entrepreneurship, a gap remedied by the work of William Baumol and others.[29]

Institutional entrepreneur

The USA-born British economist Edith Penrose has highlighted the collective nature of entrepreneurship. She mentions that in modern organizations, human resources need to be combined in order to better capture and create business opportunities.[30] The sociologist Paul DiMaggio (1988:14) has expanded this view to say that "new institutions arise when organized actors with sufficient resources [institutional entrepreneurs] see in them an opportunity to realize interests that they value highly".[31] The notion has been widely appllied.[32][33][34][35]

Individual/opportunity nexus

According to Shane and Venkataraman, entrepreneurship comprises both "enterprising individuals" and "entrepreneurial opportunities", and researchers should study the nature of the individuals who respond to these opportunities when others do not, the opportunities themselves and the nexus between individuals and opportunities.[36]

Entrepreneurship and piracy

Recent research ventures embarked on striking links between entrepreneurship and piracy. In this context, the claim is made for a nonmoral approach to piracy as a source of inspiration for entrepreneurship education[37] as well as for research in entrepreneurship[38] and business model generation.[39]

Psychological make-up

Stanford University economist Edward Lazear found in a 2005 study that variety in education and work experience was the most important trait that distinguished entrepreneurs from non-entrepreneurs[40] A 2013 study by Uschi Backes-Gellner of the University of Zurich and Petra Moog of the University of Siegen in Germany found that a diverse social network was also important in distinguishing students who would go on to become entrepreneurs[41][42]
Studies show that the psychological propensities for male and female entrepreneurs are more similar than different. Empirical studies suggest that female entrepreneurs possess strong negotiating skills and consensus-forming abilities.[8]
Jesper Sørensen wrote that significant influences on the decision to become an entrepreneur are workplace peers and social composition. Sørensen discovered a correlation between working with former entrepreneurs and how often these individuals become entrepreneurs themselves, compared to those who did not work with entrepreneurs.[43] Social composition can influence entrepreneurialism in peers by demonstrating the possibility for success, stimulating a "He can do it, why can't I?" attitude. As Sørensen stated, "When you meet others who have gone out on their own, it doesn't seem that crazy."[44]
As per Cattell's personality framework, both personality traits and attitudes are thoroughly investigated by psychologists. However, in case of entrepreneurship research, these notions are employed by academics too, but vaguely. According to Cattell, personality is a system that is related to the environment. He further adds that the system seeks explanation to the complex transactions conducted by both - traits and attitudes. This is because both of them bring about change and growth in a person.
So, personality is that which informs what an individual will do when faced with a given situation. Simply put, a person's response is triggered by his/her personality and the situation faced.[45]
Innovative entrepreneurs may be more likely to experience what psychologist, Mihaly Csikszentmihalyi calls flow. Flow occurs when an individual forgets about the outside world given a powerful insight. Csikszentmihalyi suggested that breakthrough innovations occur at the hands of individuals in that state.[46] Other research has concluded that a strong internal motivation is a vital ingredient for breakthrough innovation.[47] Flow can be compared to Maria Montessori's concept of normalization, a state that includes a child's capacity for joyful and lengthy periods of intense concentration.[48] Csikszentmihalyi acknowledged that Montessori's prepared environment offers children opportunities to achieve flow.[49] Thus quality and type of early education may influence entrepreneurial capability.

Project entrepreneurship

Project entrepreneurs are individuals who are engaged in the repeated assembly of temporary organizations.[50] These are organizations that have limited lives devoted to producing a singular objective or goal and get disbanded very rapidly when the project ends. Industries where project-based enterprises are widespread include: music, movies, software, television, construction, and new media.[51] What makes project-entrepreneurs distinctive from a theoretical standpoint is that they have to rewire these temporary ventures whenever new project opportunities emerge. As a result, they are exposed repeatedly to problems and tasks typical of the entrepreneurial process.[52] Indeed, project-entrepreneurs face two critical challenges that invariably characterize the creation of a new venture: locating the right opportunity to launch the project venture and assembling the most appropriate team to exploit that opportunity effectively. Resolving the first challenge requires project-entrepreneurs to access an extensive range of information needed to seize new investment opportunities. Resolving the second challenge requires assembling a collaborative team that has to fit well with the particular challenges of the project and has to function almost immediately to reduce the risk that performance might be adversely affected.

Innate ability vs. public perception

Individuals use what is described[weasel words] as "an innate ability" or quasi-statistical sense to gauge public opinion.[53] People assume they can sense and figure out what others are thinking.[54][page needed]
The Mass media play a large part in determining what the dominant opinion is, since our direct observation is limited to a small percentage of the population. The mass media have an enormous impact on how public opinion is portrayed, and can dramatically impact an individual's perception about where public opinion lies, whether or not that portrayal is factual.[55]
The ability of entrepreneurs to innovate relates to innate traits, including extroversion and a proclivity for risk-taking.[citation needed] According to Joseph Schumpeter, the capabilities of innovating, introducing new technologies, increasing efficiency and productivity, or generating new products or services, are characteristic qualities of entrepreneurs.[citation needed] Also, many scholars maintain that entrepreneurship is a matter of genes, and that it is not everyone who can be an entrepreneur.[56]
It has, however, been argued that entrepreneurs are not that distinctive; and that it is essentially poor conceptualizations of "non-entrepreneurs" that maintain laudatory portraits of "entrepreneurs." [57][58]

Entrepreneurial styles

Differences in entrepreneurial organizations often partially reflect their founders' heterogenous identities. Fauchart and Gruber have classified entrepreneurs into three main types: Darwinians, Communitarians and Missionaries. These types of entrepreneurs diverge in fundamental ways in their self-views, social motivations, and patterns of new firm creation.[59]

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