Entrepreneurship

Nature & Importance of Entrepreneurs

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 & social responsibility of

entrepreneurs.

Entrepreneur - origin

Comes from French word meaning between-taker or go-between

Entrepreneur – 17th Century

A person bearing risks of profit (loss) in a fixed-

price contract with government

Entrepreneur – 1725

• Richard Cantillon - (1680s – May 1734) was an Irish-French economist and author of Essai sur la Nature du Commerce en Général (Essay on the Nature of Trade in General).

• A person bearing risks is different from one supplying capital.

Entrepreneur - 1803

• Jean Baptiste Say - January 1767 – November 1832) was a French economist and businessman. He had classically liberal views and argued in favor of competition, free trade, and lifting restraints on business.

• Separated profits of Entrepreneur from profits of capital.

Entrepreneur - 1876

• Francis Amasa Walker (July 2, 1840 – January 5, 1897) was an American economist, statistician, journalist, educator, academic administrator.

• He distinguished between those who supplied funds and received interests and those who received profits from managerial capabilities.

Entrepreneur - 1934

• Joseph Schumpeter – (February 8, 1883 – January 8, 1950) was an economist from Austria and a giant in the history of economic thought.

• Entrepreneur is an innovator and develops untried technology.

Entrepreneur - 1961• David Clarence McClelland

(May 20, 1917 – March 27, 1998) was an American psychological theorist, noted for his work on Need Theory, publishing a number of works in the 1950s-1990s. McClelland is credited with developing the Achievement Motivation Theory commonly referred to as need achievement or n-achievement theory.

Entrepreneur - 1964• Peter Ferdinand Drucker

November 19, 1909 – November 11, 2005) was an Austrian-born American management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of the modern business corporation. He was also a leader in the development of management education, and he invented the concept known as management by objectives.

Entrepreneur - 1975

• Albert Shapero (1925 – 1986) – Entrepreneur takes initiative, organizes some social and economic mechanisms, and accepts risks of failure.

Entrepreneur - 1980

• Karl H. Vesper is a professor of Business Administration at the University of Washington in Seattle. He is a nationally recognized chronicler of the growth of entrepreneurship education in U.S. higher education and a national expert on entrepreneurship programs.

Entrepreneur - 1983

• Gifford Pinchot (August 11, 1865 – October 4, 1946) was an American forester and politician.

• Intrapreneur is an Entrepreneur within an already established organization.

Entrepreneur - 1985

• Robert Hisrich – Entrepreneurship is the process of creating something different with value by devoting the necessary time & effort, assuming the accompanying risks and receiving the resulting rewards.

Entrepreneurship

The Process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychological, & social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.

Development of Entrepreneurship Theory

• 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 Baptiste 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 profit from managerial capabilities.

• 1934 – Joseph Schumpeter – entrepreneur is an innovator and develops untried technology.

Development of Entrepreneurship Theory• 1961 – David McClelland – entrepreneur is an energetic,

moderate risk taker.• 1964 – Peter Drucker – entrepreneur maximizes opportunities.• 1975 – Albert Shapero – entrepreneur takes initiative,

organizes some social & economic mechanisms, and accepts risk of failure.

• 1980 – Karl Vesper – entrepreneur seen differently by economists, psychologists, businesspersons, and politicians.

• 1983 – Gifford Pinchot – intrapreneur is an entrepreneur within an already established organization.

• 1985 – Robert Hisrich – Entrepreneurship is the process of creating something different with value by devoting the necessary time & effort; assuming the accompanying financial; psychological, and social risks; and receiving the resulting rewards of monetary and personal satisfaction.

The Entrepreneurial Decision Process

• Deciding to become an entrepreneur by leaving present activity.

• Major decision involves changing from present lifestyle to forming a new enterprise.

• A change in work environment takes place.• Disruption in present lifestyle.

Desirability of a New Venture Formation

• Aspects of a situation that make it desirable to start a new company. Usually involves the following:

• Cultural• Sub cultural• Family• Teachers• Peers

Enablers – New Venture FormationFactors making it possible to create a new venture include:

• Government (Provides infrastructure & economic stability).

• Background (Formal education & previous business experience.)

• Marketing (Existence of market & marketing know-how to arrive at a best package of product, price, distribution & promotion needed for successful product launch.)

• Financing (Resources available from personal savings, credit, friends & relatives, & risk capital.)

• Role Models can have powerful influences and provide ample motivation.

Types of Start Ups

• Lifestyle firm: A small venture that supports the owners and usually does not grow.

• Foundation Company: A type of company formed from Research & Development that usually does not go public.

• High Potential Venture: A venture that has high growth potential and therefore receives great investor interest. They are also called Gazelles (very high growth ventures).

Role of Entrepreneurship in Economic Development

• Improvement in Per Capita output & income + Initiating and constituting change in the structure of business and society.

• Understanding of the Product Evolution Process. Five phase process comprising of:

- Recognition of social need- Institution of Technological Innovation- Iterative synthesis leading to invention (Intersection of knowledge & social need.)- Development phase- Industrial phase

• Government as an Innovator – Assists in commercializing the results of the synthesis of social need and technology (technology transfer).

• Intrapreneurship.• Entrepreneurship.

Intrapreneurship & Entrepreneurship

• IntrapreneurshipEntrepreneurship within an existing organization is called Intrapreneurship.

• Entrepreneurship The Process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychological, & social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.

Skill Requirements - Entrepreneurship• Technical Skills

Writing, Oral Communication, Monitoring Environment, Technical Business Management, Technology, Interpersonal, Listening, Organizing, Network building, Coaching

• Business Management Skills Planning & Goal Setting, Decision making, Human Relations, Marketing, Finance, Accounting, Management, Control, Negotiation, Venture launching, managing growth

• Personal Entrepreneurial Skills Inner Control/ disciplined, Risk taker, Innovative,

Change oriented, Persistent, Visionary leader, Ability to manage change.

Ethics and Social Responsibility of Entrepreneurs• Risk taking with capital is inevitable.• Corporate responsibility practiced by Managers depends upon

the organizational climate – whether supportive of laws and professional codes.

• Entrepreneurs with relatively new companies usually develop internal ethical code and depend more on their personal value system than that of other Managers.

• Ethics refers to the study of whatever is right and good for humans, while Business Ethics concerns itself with the investigation of business practices in light of human values.

• Four broad areas of Business Ethics include: 1) An inquiry into theory and empirical studies, 2) Theory building without empirical testing, 3) Empirical Research based on ethical beliefs of students & faculty, 4) Empirical Research within business environments.

The Future of Entrepreneurship

• Different perceptions of Entrepreneurship.• Common aspects include Risk taking, Creativity,

Independence, and Rewards.• Gradual increase in the number of new Entrepreneurship

related courses being offered at Universities.• Government encouragement for innovation &

Entrepreneurial processes and organizations.• Society’s support for Entrepreneurship is gradually

increasing.• Large companies continue to explore ‘Intrapreneurship’

within their organizations.