Entrepreneurship is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities. Entrepreneurship is often a difficult undertaking, as a vast majority of new businesses fail. Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high-profile" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Angel investors generally seek returns of 20-30% and more extensive involvement in the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs.
History of Entrepreneurship
The understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter and the Austrian economists such as Ludwig von Mises and von Hayek. In Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship forces "creative destruction" across markets and industries, simultaneously creating new products and business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Despite Schumpeter's early 20th-century contributions, the traditional microeconomic theory of economics has had little room for entrepreneurs in its theoretical frameworks (instead assuming that resources would find each other through a price system).
For Frank H. Knight (1967) and Peter Drucker (1970) entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much 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 colour ball from a jar containing 5 red balls and 5 white balls).
- Ambiguity, which is hard to measure statistically (such as the probablity 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 coloured balls).
The acts of entrepreneurship is often associated with true uncertainty, particularly when it involves bringing something really novel to the world, whose market never exists. Before Internet, nobody knew the market for Internet related businesses such as Amazon, Google, YouTube, Yahoo etc. Only after the Internet emerged did people begin to see opportunities and market in that technology. However, even if a market already exists, let's say the market for cola drinks (which has been created by Coca Cola), there is no guarantee that a market exists for a particular new player in the cola category. The question is: whether a market exists and if it exists for you.
The place of the disharmony-creating and idiosyncratic entrepreneur in traditional economic theory (which describes many efficiency-based ratios assuming uniform outputs) presents theoretic quandaries. William Baumol has added greatly to this area of economic theory and was recently honored for it at the 2006 annual meeting of the American Economic Association.
Entrepreneurship is widely regarded as an integral player in the business culture of American life, and particularly as an engine for job creation and economic growth. Robert Sobel published The Entrepreneurs: Explorations Within the American Business Tradition in 1974.
Entrepreneurs have many of the same character traits as leaders. Similarly to the early great man theories of leadership; however trait-based theories of entrepreneurship are increasingly being called into question. Entrepreneurs are often contrasted with managers and administrators who are said to be more methodical and less prone to risk-taking. Such person-centric models of entrepreneurship have shown to be of questionable validity, not least as many real-life entrepreneurs operate in teams rather than as single individuals. Still, a vast but now clearly dated literature studying the entrepreneurial personality found that certain traits seem to be associated with entrepreneurs:
- David McClelland (1961) described the entrepreneur as primarily motivated by an overwhelming need for achievement and strong urge to build.
- Collins and Moore (1970) studied 150 entrepreneurs and concluded that they are tough, pragmatic people driven by needs of independence and achievement. They seldom are willing to submit to authority.
- Bird (1992) sees entrepreneurs as mercurial, that is, prone to insights, brainstorms, deceptions, ingeniousness and resourcefulness. they are cunning, opportunistic, creative, and unsentimental.
- Cooper, Woo, & Dusenberg (1988) argue that entrepreneurs exhibit extreme optimism in their decision-making processes. In a study of 2994 entrepreneurs they report that 81% indicate their personal odds of success as greater than 70% and a remarkable 33% seeing odds of success of 10 out of 10.
- Busenitz and Barney (1997) claim entrepreneurs are prone to overconfidence and over generalisations.
- Cole (1959) found there are four types of entrepreneur: the innovator, the calculating inventor, the over-optimistic promoter, and the organization builder. These types are not related to the personality but to the type of opportunity the entrepreneur faces.
Characteristics of entrepreneurship
- The entrepreneur has an enthusiastic vision, the driving force of an enterprise.
- The entrepreneur's vision is usually supported by an interlocked collection of specific ideas not available to the marketplace.
- The overall blueprint to realize the vision is clear, however details may be incomplete, flexible, and evolving.
- The entrepreneur promotes the vision with enthusiastic passion.
- With persistence and determination, the entrepreneur develops strategies to change the vision into reality.
- The entrepreneur takes the initial responsibility to cause a vision to become a success.
- Entrepreneurs take prudent risks. They excess
costs, market/customer needs and persuade others to join and help.
- An entrepreneur is usually a positive thinker and a decision maker.
Contributions of Entrepreneurs
- Develop new markets. Under the modern concept of marketing, markets are people who are willing and able to satisfy their needs. In Economics, this is called effective demand. Entrepreneurs are resourceful and creative. They can create customers or buyers. This makes entrepreneurs different from ordinary businessmen who only perform traditional functions of management like planning, organization, and coordination.
- Discover new sources of materials. Entrepreneurs are never satisfied with traditional or existing sources of materials. Due to their innovative nature, they persist on discovering new sources of materials to improve their enterprises. In business, those who can develop new sources of materials enjoy a comparative advantage in terms of supply, cost and quality.
- Mobilize capital resources. Entrepreneurs are the organizers and coordinators of the major factors of production, such as land labor and capital. They properly mix these factors of production to create goods and service. Capital resources, from a layman's view, refer to money. However, in economics, capital resources represent machines, buildings, and other physical productive resources. Entrepreneurs have initiative and self-confidence in accumulating and mobilizing capital resources for new business or business expansion.
- Introduce new technologies, new industries and new products. Aside from being innovators and reasonable risk-takers, entrepreneurs take advantage of business opportunities, and transform these into profits. So, they introduce something new or something different. Such entrepreneurial spirit has greatly contributed to the modernization of our economy. Every year, there are new technologies and new products. All of these are intended to satisfy human needs in more convenient and pleasant way.
- Create employment. The biggest employer is the private business sector. Millions of jobs are provided by the factories, service industries, agricultural enterprises, and the numerous small-scale businesses. For instance, the super department stores like SM, Uniwide, Robinson and others employ thousands of workers. Likewise giant corporations like SMC, Ayala and Soriano group of companies are great job creators. Such massive employment has multiplier and accelerator effects in the whole economy. More jobs mean more incomes. This increases demand for goods and services. This stimulates production. Again, more production requires more employment.
Advantages of Entrepreneurship
Every successful entrepreneur brings about benefits not only for himself/ herself but for the municipality, region or country as a whole. The benefits that can be derived from entrepreneurial activities are as follows:
- Enormous personal financial gain
- Self-employment, offering more job satisfaction and flexibility of the work force
- Employment for others, often in better jobs
- Development of more industries, especially in rural areas or regions disadvantaged by economic changes, for example due to globalisation effects
- Encouragement of the processing of local materials into finished goods for domestic consumption as well as for export
- Income generation and increased economic growth
- Healthy competition thus encourages higher quality products
- More goods and services available
- Development of new markets
- Promotion of the use of modern technology in small-scale manufacturing to enhance higher productivity
- Encouragement of more researches/ studies and development of modern machines and equipment for domestic consumption
- Development of entrepreneurial qualities and attitudes among potential entrepreneurs to bring about significancant changes in the rural areas
- Freedom from the dependency on the jobs offered by others
- The ability to have great accomplishments
- Reduction of the informal economy
- Emigration of talent may be stopped by a better domestic entrepreneurship climate
- Entrepreneur, Entrepreneurial Economics, Political entrepreneur, Knowledge entrepreneurship, Social entrepreneurship, Internet Entrepreneur, Entrepreneurship education, Cooperative Entrepreneurship, Digital Entrepreneurship
- Business incubators, Business opportunity, Junior enterprise, KaosPilots
- List of management topics, List of social entrepreneurs
- Bootstrap funding
References and external articles
- Books and publications
- William J. Baumol, Litan, R. E., Schramm, C. J. (2007) Good Capitalism, Bad Capitalism, Yale University Press
- Bird, B. (1992)"The Roman God Mercury: An Entrepreneurial Archetype", Journal of Management Enquiry, vol 1, no 3, September, 1992.
- Busenitz, L. and Barney, J. (1997) "Differences between entrepreneurs and managers in large organizations", Journal of Business Venturing, vol 12, 1997.
- Richard Cantillon, Essai sur la Nature du Commerce in Général. 1759 
- Casson, M. (1982) The Entrepreneur: An Economic Theory Reprint. 1991.
- Casson, M. (2003) The Entrepreneur: An Economic Theory, second edition", Edward Elgar Publishing 2003.
- Cole, A. (1959) Business Enterprise in its Social Setting, Harvard University Press, Boston, 1959.
- Collins, J. and Moore, D. (1970) The Organization Makers, Appleton-Century-Crofts, New York, 1970.
- Peter Drucker, (1970) "Entrepreneurship in Business Enterprise", Journal of Business Policy, vol 1, 1970.
- Folsom Jr., Burton W. (1987) The Myth of the Robber Barons, Young America.
- Gold, Steven K (2005) "Entrepreneur's Notebook" Learning Ventures Press, 2005.
- Hebert, R.F. and Link, A.N. (1988) The Entrepreneur: Mainstream Views and Radical Critiques. New York: Praeger, 2nd edition.
- Knight, K. (1967) "A descriptive model of the intra-firm innovation process", Journal of Business of the University of Chicago, vol 40, 1967.
- Israel Kirzner, (1997) 'Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach', Journal of Economic Literature 35: 60-85
- Lumpkin, GT and Dess, GG (1996) 'Clarifying the Entrepreneurial Orientation Construct and Linking it to Performance', Academy of Management Review 21(1): 135-172
- McClelland, D. The Achieving Society, Van Nostrand, Princeton NJ, 1961.
- Pinchot, G. (1985) Intrapreneuring, Harper and Row, New York, 1985.
- Joseph Schumpeter, (1950) Capitalism, Socialism, and Democracy, 3rd edition, Harper and Row, New York, 1950.
- Shane S., (2003) A general theory of entrepreneurship : the individual-opportunity nexus in New Horizons in Entrepreneurship series, Edward Elgar Publishing.
- Shane, S and Venkataraman, S (2000), 'The Promise of Entrepreneurship as a Field of Research', Academy of Management Review 25(1): 217-226
- Stevenson, HH and Jarillo, JC (1990) 'A Paradigm of Entrepreneurship: Entrepreneurial Management', Strategic Management Journal 11: 17-27
- The Foundation of Entrepreneurship The online resource for building entrepreneurial economies.
- Joint OECD / Eurostat Programme on Entrepreneurship Indicators International effort on a harmonization of entrepreneurship indicators and determinants
- ENTREPRENEURSHIP-PHD ENTREPRENEURSHIP-PHD is an international mailing list for PhD-students and junior researchers in the field of entrepreneurship
- U.S. Small Business Administration
- Starting a Business - from U.S. Internal Revenue Service
- The Center for Ethics and Entrepreneurship at Rockford College
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