CHAPTER 2
Entrepreneurship: An Evolving Concept
CHAPTER OBJECTIVES
1. To examine the historical development of entrepreneurship
2. To explore and debunk the myths of entrepreneurship
3. To define and explore the major schools of entrepreneurial thought
4. To explain the process approaches to the study of entrepreneurship
5. To set forth a comprehensive definition of entrepreneurship
Most of what you hear about entrepreneurship, says America's leading management thinker, is all
wrong. It's not magic; it's not mysterious; and it has nothing to do with genes. It's a discipline and, like
any discipline, it can be learned.
Peter F. Drucker
Innovation and Entrepreneurship
THE EVOLUTION OF ENTREPRENEURSHIP
The word entrepreneur is derived from the French entreprendre, meaning "to
undertake." The entrepreneur is one who undertakes to organize, manage, and
assume the risks of a business. In recent years entrepreneurs have been doing so many
things that it is necessary to broaden this definition. Today, an entrepreneur is an
innovator or developer who recognizes and seizes opportunities; converts those
opportunities into workable/marketable ideas; adds value through time, effort,
money, or skills; assumes the risks of the competitive marketplace to implement these
ideas; and realizes the rewards from these efforts. 1
The entrepreneur is the aggressive catalyst for change in the world of business.
He or she is an independent thinker who dares to be different in a background of
common events. The literature of entrepreneurial research reveals some
similarities, as well as a great many differences, in the characteristics of
entrepreneurs. Chief among these characteristics are personal initiative, the ability to
consolidate resources, management skills, a desire for autonomy, and risk taking.
Other characteristics include aggressiveness, competitiveness, goal-oriented
behavior, confidence, opportunistic behavior, intuitive-ness, reality-based actions,
the ability to learn from mistakes, and the ability to employ human relations skills. 2
Although no single definition of entrepreneur exists and no one profile can
represent today's entrepreneur, research is providing an increasingly sharper focus on
the subject. A brief review of the history of entrepreneurship illustrates this.
America currently is in the midst of a new wave of business and economic
development, and entrepreneurship is its catalyst. Yet the social and economic forces of
entrepreneurial activity existed long before the 1990s. In fact, as noted in Chapter 1, the
entrepreneurial spirit has driven many of humanity's achievements.
Humanity's progress from caves to campuses has been explained in numerous ways. But central to
virtually ad of these theories has been the role of the "agent of change," the force that initiates and
implements material progress. Today we recognize that the agent of change in human history has
been and most likely will continue to be the entrepreneur. 3
The recognition of entrepreneurs dates back to eighteenth-century France when
economist Richard Cantillon associated the "risk-bearing" activity in the economy
with the entrepreneur. In England during the same period, the Industrial Revolution
was evolving, with the entrepreneur playing a visible role in risk taking and the
transformation of resources .4
The association of entrepreneurship and economics has long been the accepted
norm. In fact, until the 1950s the majority of definitions and references to
entrepreneurship had come from economists. For example, Cantillon (1725), just
mentioned; Jean Baptiste Say (1803), the renowned French economist; and Joseph
Schumpeter (1934), a twentieth-century economic genius, all wrote about
entrepreneurship and its impact on economic development. 5 Over the decades
writers have continued to try to describe or define what entrepreneurship is all about.
Here are some examples:
Entrepreneurship . . . consists in doing things that are not generally done in the ordinary course of
business routine; it is essentially a phenomenon that comes under the wider aspect of leadership. 6
Entrepreneurship, at least in all nonauthoritarian societies, constitutes a bridge between society as
a whole, especially the noneconomic aspects of that society, and the profit-oriented institutions
established to take advantage of its economic endowments and to satisfy, as best they can, its
economic desires. 7
In . . . entrepreneurship, there is agreement that we are talking about a kind of behavior that
includes: (1) initiative taking, (2) the organizing or reorganizing of social economic mechanisms
to turn resources and situations to practical account, and (3) the acceptance of risk of failure. 8
After reviewing the evolution of entrepreneurship and examining its varying
definitions, Robert C. Ronstadt put together a summary description:
Entrepreneurship is the dynamic process of creating incremental wealth. This wealth is created by
individuals who assume the major risks in terms of equity, time, and/or career commitment of
providing value for some product or service. The product or service itself may or may not be new
or unique but value must somehow be infused by the entrepreneur by securing and allocating the
necessary skills and resources. 9
Entrepreneurship as a topic for discussion and analysis was introduced by the
economists of the eighteenth century, and it continued to attract the interest of
economists in the nineteenth century. In the present century, the word has become
synonymous or at least closely linked with free enterprise and capitalism. Also, it is
generally recognized that entrepreneurs serve as agents of change; provide creative,
innovative ideas for business enterprises; and help businesses grow and become
profitable.
Whatever the specific activity they engage in, entrepreneurs today are considered
the heroes of free enterprise. Many of them have used innovation and creativity to
build multimillion-dollar enterprises from fledgling businesses—some in less than
a decade! These individuals have created new products and services and have assumed
the risks associated with these ventures. Many people now regard entrepreneurship as
"pioneership" on the frontier of business.
Entrepreneurship is the ability to create and build a vision from practically nothing: fundamentally it
is a human, creative act. It is the application of energy to initiating and building an enterprise or
organization, rather than just watching or analyzing. This vision requires a willingness to take
calculated risks—both personal and financial—and then to do everything possible to reduce the
chances of failure. Entrepreneurship also includes the ability to build an entrepreneurial or venture
team to complement your own skills and talents. It is the knack for sensing an opportunity where
others see chaos, contradiction, and confusion. It is possessing the know-how to find, marshal, and
control resources (often owned by others). 10
THE MYTHS OF ENTREPRENEURSHIP
Throughout the years many myths have arisen about entrepreneurship. These myths
are the result of a lack of research on entrepreneurship, As many researchers in the
field have noted, the study of entrepreneurship is still emerging, and thus "folklore"
will tend to prevail until it is dispelled with contemporary research findings. Ten of
the most notable myths with an explanation to dispel each myth appear next.
Myth 1: Entrepreneurs Are Doers, Not
Thinkers
Although it is true entrepreneurs tend toward action, they are also thinkers. Indeed,
they are often very methodical people who plan their moves carefully. The emphasis
today on the creation of clear and complete business plans (see Part 2) is an indication
that "thinking" entrepreneurs are as important as "doing" entrepreneurs.
Myth 2: Entrepreneurs Are Born, Not Made
The idea that the characteristics of entrepreneurs cannot be taught or learned, that they
are innate traits one must be born with, has long been prevalent. These traits include
aggressiveness, initiative, drive, a willingness to take risks, analytical ability, and skill
in human relations. Today, however, the recognition of entrepreneurship as a
discipline is helping to dispel this myth. Like all disciplines, entrepreneurship has
models, processes, and case studies that allow the topic to be studied and the
knowledge to be acquired.
Myth 3: Entrepreneurs Are Always Inventors
The idea that entrepreneurs are inventors is a result of misunderstanding and tunnel
vision. Although many inventors are also entrepreneurs, numerous entrepreneurs
encompass all sorts of innovative activity.'' For example, Ray Kroc did not invent the
fast-food franchise, but his innovative ideas made McDonald's the largest fast-food
enterprise in the world. A contemporary understanding of entrepreneurship covers
more than just invention. It requires a complete understanding of innovative behavior
in all forms.
Myth 4; Entrepreneurs Are Academic and Social Misfits
The belief that entrepreneurs are academically and socially ineffective is a result of
some business owners having started successful enterprises after dropping out of
school or quitting a job. In many cases such an event has been blown out of
proportion in an attempt to "profile" the typical entrepreneur. Historically, in fact,
educational and social organizations did not recognize the entrepreneur. They
abandoned him or her as a misfit in a world of corporate giants. Business education,
for example, was aimed primarily at the study of corporate activity. Today the
entrepreneur is considered a hero—socially, economically, and academically. No
longer a misfit, the entrepreneur is now viewed as a professional.
Myth 5: Entrepreneurs Must Fit the "Profile"
Many books and articles have presented checklists of characteristics of the successful
entrepreneur. These lists were neither validated nor complete; they were based on case
studies and on research findings among achievement-oriented people. Today we
realize that a standard entrepreneurial profile is hard to compile. The environment,
the venture itself, and the entrepreneur have interactive effects, which result in many
different types of profiles. Contemporary studies conducted at universities across the
United States will, in the future, provide more accurate insights into the various
profiles of successful entrepreneurs. As we will show in Chapter 4, an
"Entrepreneurial Perspective" within individuals is more understandable than a
particular profile.
Myth 6: All Entrepreneurs Need Is Money
It is true that a venture needs capital to survive; it is also true that a large number of
business failures occur because of a lack of adequate financing. Yet having money is
not the only bulwark against failure. Failure due to a lack of proper financing often is
an indicator of other problems: managerial incompetence, lack of financial
understanding, poor investments, poor planning, and the like. Many successful
entrepreneurs have overcome the lack of money while establishing their ventures.
To those entrepreneurs, money is a resource but never an end in itself.
Myth 7: All Entrepreneurs Need Is Luck
Being at "the right place at the right time" is always an advantage. But "luck
happens when preparation meets opportunity" is an equally appropriate adage.
Prepared entrepreneurs who seize the opportunity when it arises often seem "lucky."
They are, in fact, simply better prepared to deal with situations and turn them into
successes. What appears to be luck really is preparation, determination, desire,
knowledge, and innovativeness.
Myth 8: Ignorance Is Bliss for Entrepreneurs
The myth that too much planning and evaluation lead to constant problems—that
over-analysis leads to paralysis—does not hold up in today's competitive markets,
which demand detailed planning and preparation. Identifying a venture's strengths and
weaknesses, setting up clear timetables with contingencies for handling problems, and
minimizing these problems through careful strategy formulation are all key factors
for successful entrepreneurship. Thus careful planning—not ignorance of it—is the
mark of an accomplished entrepreneur.
Myth 9: Entrepreneurs Seek Success but Experience High Failure Rates
It is true that many entrepreneurs suffer a number of failures before they are
successful. They follow the adage "If at first you don't succeed, try, try, again." In
fact, failure can teach many lessons to those willing to learn and often leads to
future successes. This is clearly shown by the corridor principle, which states that
with every venture launched, new and unintended opportunities often arise. The 3M
Corporation invented Post-it notes using a glue that had not been strong enough for its
intended use. Rather than throw away the glue, the company focused on finding
another use for it and, in the process, developed a multimillion-dollar product. Yet,
the statistics of entrepreneurial failure rates have been misleading over the years. In
fact, one researcher, Bruce A. Kirchoff, has reported that the "high failure rate" most
commonly accepted may be misleading. Tracing 814,000 businesses started in 1977,
Kirchoff found that more than 50 percent were still surviving under their original
owners or new owners. Additionally, 28 percent voluntarily closed down, and only 18
percent actually "failed" in the sense of leaving behind outstanding liabilities. 12
Myth 10: Entrepreneurs Are Extreme Risk Takers (Gamblers)
As we will show in Chapter 4, the concept of risk is a major element in the
entrepreneurial process. However, the public's perception of the risk most
entrepreneurs assume is distorted. Although it may appear that an entrepreneur is
"gambling" on a wild chance, the fact is the entrepreneur is usually working on a
moderate or "calculated" risk. Most successful entrepreneurs work hard through
planning and preparation to minimize the risk involved in order to better control the
destiny of their vision.
These ten myths have been presented to provide a background for today's current
thinking on entrepreneurship. By sidestepping the "folklore," we can build a
foundation for critically researching the contemporary theories and processes of
entrepreneurship.
APPROACHES TO ENTREPRENEURSHIP
To understand the nature of entrepreneurship, it is important to consider some of the
theory development so as to better recognize the emerging importance of
entrepreneurship. The research on entrepreneurship has grown dramatically over the
years. As the field has developed, research methodology has progressed from
empirical surveys of entrepreneurs to more contextual and process-oriented research.
As yet, no comprehensive theory base has emerged, however.
A theory of entrepreneurship is defined as a verifiable and logically coherent
formulation of relationships, or underlying principles that either explain
entrepreneurship, predict entrepreneurial activity (for example, by characterizing
conditions that are likely to lead to new profit opportunities to the formation of new
enterprises), or provide normative guidance (that is, prescribe the right action in
particular circumstances).13 As we are now in the new millennium, it has become
increasingly apparent that we need to have some cohesive theories or classifications
to better understand this emerging field.
In the study of contemporary entrepreneurs hip, one concept recurs: Entrepreneurship
is interdisciplinary. As such it contains various approaches that can increase one's
understanding of the field. l4 Thus we need to recognize the diversity of theories as
an emergence of entrepreneurial understanding. One way to examine these
theories is with a "schools of thought" approach that divides entrepreneurship into
specific activities. These activities may be within a "macro" view or a "micro" view,
yet all address the conceptual nature of entrepreneur ship.
The Schools of Entrepreneurial Thought
In this section we will highlight the ideas emanating from the macro and micro
views of entrepreneurial thought, and we will further break down these two major
views into six distinct schools of thought, three within each entrepreneurial view
(sec Figure 2.1). Although this presentation does not purport to be all-inclusive,
neither does it claim to limit the schools to these six, for a movement may develop for
unification or expansion. Whatever the future holds, however, it is important to
become familiar with these conceptual ideas on entrepreneurship to avoid the
semantic warfare that has plagued general management thought for so many years. 15
THE MACRO VIEW The macro view of entrepreneurship presents a broad
array of factors that relate To success or failure in contemporary entrepreneurial
ventures. This array includes external processes that are sometimes beyond the
control of the individual entrepreneur, for they exhibit a strong external locus of
control point of view.
Three schools of entrepreneurial thought represent a breakdown of the macro
view: (1) the environmental school of thought, (2) the financial/capital school of
thought, and (3) the displacement school of thought. The first of these is the
broadest and the most pervasive school.
The Environmental School of Though! This school of thought deals with the external
factors that affect a potential entrepreneur's lifestyle. These can be either positive or
negative forces in the molding of entrepreneurial desires. The focus is on
institutions, values, and mores that, grouped together, form a sociopolitical
environmental framework that strongly influences the development of
entrepreneurs. 16 For example, if a middle manager experiences the freedom and
support to develop ideas, initiate contracts, or create and institute new methods,
the work environment will serve to promote mat person's desire to pursue an
entrepreneurial career. Another environmental factor that often affects the potential
development of entrepreneurs is their social group. The atmosphere of friends and
relatives can influence the desire to become an entrepreneur.
The Financial/Capitol School of Thought This school of thought is based on the
capital-seeking process. The search for seed and growth capital is the entire focus
of this entrepreneurial emphasis. Certain literature is devoted specifically to this
process, whereas other sources tend to treat it as but one segment of the
entrepreneurial process. 17 In any case, the venture capital process is vital to an
entrepreneur's development. Business-planning guides and texts for
entrepreneurs emphasize this phase, and development seminars focusing on the
funds application process are offered throughout the country on a continuous
basis. This school of thought views the entire entrepreneurial venture from a
financial management standpoint. As is apparent from Table 2.1, decisions
involving finances occur at every major point in the venture process.
The Displacement School of Thought This school of thought focuses on group
phenomena. It holds that the group affects or eliminates certain factors that project
the individual into an entrepreneurial venture. As Ronstadt has noted, individuals
will not pursue a venture unless they arc prevented or displaced from doing
other activities. 18 Three major types of displacement illustrate this school of
thought:
1. Political displacement. This is caused by factors ranging from an entire political
regime that rejects free enterprise (international environment) to governmental
regulations and policies that limit or redirect certain industries.
2. Cultural displacement. This deals with social groups precluded from
professional fields. Ethnic background, religion, race, and sex arc all examples
of factors that figure in the minority experience. Increasingly, this experience
will turn various individuals from standard business professions and
toward entrepreneurial ventures. According to the U.S. government, the
number of minority businesses grew by nearly half a million during the last
ten years and represents one-tenth of all the nation's businesses. 19
3. Economic, displacement. This is concerned with the economic variations of
recession and depression. Job loss, capital shrinkage, or simply "bad
limes" can create the foundation for entrepreneurial! pursuits, just as it can
affect venture development and reduction.
These examples of displacement illustrate the external forces that can influence
the development of entrepreneurship. Cultural awareness, knowledge of political
and public policy, and economic indoctrination will aid and improve
entrepreneurial understanding under the displacement school of thought. The
broader the educational base in economics and political science, (lie stronger the
entrepreneurial understanding.
THE MICRO VIEW The micro view of entrepreneurship examines the factors
that are specific to entrepreneurship and are part of the internal locus of control.
The potential entrepreneur has the ability, or control, to direct or adjust the
outcome of each major influence in this view. Although some researchers have
developed this approach into various definitions and segments, as shown in Table
2.2, our approach presents the entrepreneurial trait theory (sometimes referred to as
the "people school of thought"), the venture opportunity theory, and the strategic
formulation theory. Unlike the macro approach, which focuses on events from
the outside looking in, the micro approach concentrates on specifics from the
inside looking out. The first of these schools of thought is the most widely
recognized.
The Entrepreneurial Trait School of Thought Many researchers and writers have
been interested in identifying traits common to successful entrepreneurs. 20
this approach is grounded in the study of successful people who tend to
exhibit similar characteristics that, if copied, would increase success
opportunities for the emulators. For example, achievement, creativity,
determination, and technical knowledge are four factors that usually are
exhibited by successful entrepreneurs. Family development and educational
incubation are also examined. Certain researchers have argued against
educational development of entrepreneurs because they believe it inhibits the
creative and challenging nature of entrepreneurship. 21 Other authors, however,
contend that new programs and new educational developments are on the
increase because they have been found to aid in entrepreneurial development .22
The family development idea focuses on the nurturing and support that exist
within the home atmosphere of an entrepreneurial family. This reasoning
promotes the belief that certain traits established and supported early in life
will lead eventually to entrepreneurial success.
The Venture Opportunity School of Thought This school of thought focuses on the
opportunity aspect of venture development. The search for idea sources, the
development of concepts, and the implementation of venture opportunities are the
important interest areas for this school. Creativity and market awareness are viewed
as essential. Additionally, according to this school of thought, developing the
right idea at the right time for the right market niche is the key to entrepreneurial
success.
Another development from this school of thought is the previously described
corridor principle. New pathways or opportunities will arise that lead
entrepreneurs in different directions. The ability to recognize these opportunities
when they arise and to implement the necessary steps for action are key factors.
The maxim that preparation meeting opportunity equals "luck" underlies this
corridor principle. Proponents of this school of thought believe that proper
preparation in the interdisciplinary business segments will enhance the ability to
recognize venture opportunities.
The Strategic Formulation School of Thought George Steiner has stated that
"Strategic planning is inextricably interwoven into the entire fabric of
management; it is not something separate and distinct from the process of
management." 23 The strategic formulation approach to entrepreneurial theory
emphasizes the planning process in successful venture development. 24
Ronstadt views strategic formulation as a leveraging of unique elements. 25
Unique markets, unique people, unique products, or unique resources are
identified, used, or constructed into effective venture formations. The
interdisciplinary aspects of strategic adaptation become apparent in the
characteristic elements listed here with their corresponding strategies:
• Unique markets: Mountain versus mountain gap strategies, which refers to
identifying major market segments as well as interstice (in-between) markets that
arise from larger markets.
• Unique people: Great chef strategies, which refers to the skills or special
talents of one or more individuals around whom the venture is built.
• Unique products: Better widget strategies, which refers to innovations that
encompass new or existing markets.
• Unique resources: Water well strategies, which refers to the ability to gather
or harness special resources (land, labor, capital, raw materials) over the long term.
Without question, the strategic formulation school encompasses a breadth of
managerial capability that requires an interdisciplinary approach. 26
SCHOOLS OF ENTREPRENEURIAL THOUGHT: A SUMMARY Although
the knowledge and research available in entrepreneur ship are in an emerging
stage, it is still possible to piece together and describe current schools of thought
in the field. From this point we can begin to develop an appreciation for the
schools and view them as a foundation for entrepreneurial theory. However, just as
the field of management has used a "jungle" of theories as a basis for understanding
the field and its capabilities, so too must the field of entrepreneurship use a number of
theories in its growth and development.
PROCESS APPROACHES
Another way to examine the activities involved in entrepreneurship is through a
process approach. Although numerous methods and models attempt to structure the
entrepreneurial process and its various factors, we shall examine three of the more
traditional process approaches here. 27 First, we will discuss the "entrepreneurial
events" approach, as described by William D. Bygrave. 28 Bygrave's model
incorporates theoretical and practical concepts as they affect entrepreneurs hip
activity. The second approach is an assessment process based on an entrepreneurial
perspective developed by Robert C. Ronstadt. The third process approach, developed
by William B. Gartner, is multidimensional and weaves together the concepts of
individual, environment, organization, and process. All of these methods attempt to
describe the entrepreneurial process as a consolidation of diverse factors, which is the
thrust of this book.
Entrepreneurial Events Approach
Entrepreneurship is not a series of isolated activities or undertakings. Rather, it is a
process by which individuals plan, implement, and control their entrepreneurial
activities. In addition, a number of elements affect each event in the entrepreneurial
process. The entrepreneurial events approach focuses on the process of
entrepreneurial activity and includes the following factors:
• Initiative: An individual or group takes the initiative.
•Organization: Resources are brought together in organizational form to
accomplish some objective (or the resources in an existing organization are
reorganized).
• Administration: Those who look the initiative take over management of ihe organization.
• Relative autonomy: The initiators assume relative freedom to dispose of and
distribute resources.
• Risk taking: The organization's success or failure is shared by the initiator's
supervisors and employees.
V Environment: This milieu includes the opportunities, resources, competitors, and
so forth that affect the entrepreneurial events at different stages,*
Bygrave has outlined a model that mixes theoretical concepts from basic social
sciences with practical concepts from applied sciences. Figure 2.2 illustrates the four
distinct events: innovation -> triggering event -•» implementation —» growth. The
diagram depicts some of the numerous elements that affect each event in the process.
Entrepreneurial Assessment Approach
Another model, developed by Robert C. Ronstadt, stresses making assessments
qualitatively, quantitatively, strategically, and ethically in regard to the entrepreneur,
the venture, and the environment .29 (Figure 2.3 depicts this model.) To examine
entrepreneurship, the results of these assessments must be compared to the stage of the
entrepreneurial career— early, midcareer, or late. Ronstadt termed this process "the
entrepreneurial perspective." We focus on this term in Chapter 4 when we examine
the individual characteristics of entrepreneurship.
Multidimensional Approach
A more detailed process approach to entrepreneur ship is the multidimensional
approach. 30 In this view entrepreneurship is a complex, multidimensional framework
that, emphasizes the individual, the environment, the organization, and the venture
process. £ Specific factors that relate to each of these dimensions follow.
THE INDIVIDUAL
1. Need for achievement 5. Previous work experience
2. Locus of control 6. Entrepreneurial parents
3. Risk-taking propensity 7. Age
4. Job satisfaction 8. Education
THE ENVIRONMENT
1. Venture capital availability 7. Proximity of universities
2. Presence of experienced entrepreneurs
8. Availability of land or facilities
3. Technically skilled labor force
9. Accessibility of transportation
4. Accessibility of suppliers
10. Attitude of the area population
5. Accessibility of customers or new markets
11. Availability of supporting
services
6. Governmental influences
12. Living conditions
THE ORGANIZATION
1. Type of firm 4 Strategic variables
2 Entrepreneurial environment a) Cost b) Differentiations c) Focus
3 Partners 5 Competitive entry wedges
THE PROCESS
1. Locating a business opportunity
2. Accumulating resources
3. Marketing products and services
4. Producing the product
5. Building an organization
6. Responding to government and society 31
Figure 2.4 depicts the interaction of the four major dimensions of this
entrepreneurial, or new-venture, process and lists more variables. This type of
process moves entrepreneurship from a segmented school of thought to a dynamic,
interactive process approach.
INTRAPRENEURSHIP
Recently the term intrapreneurship has become popular in the business
community, though very few executives thoroughly understand the concept. Gifford
Pincliot has denned an intrapreneur as "any of the dreamers who do...”. However,
he goes on to say, "... take hands-on responsibility for creating innovation of any kind
within an organization. The intrapreneur may be the creator or the inventor but is
always the dreamer who figures out how to turn an idea into a profitable reality." 52
This definition has definite similarities to entrepreneurship except that
intrapreneurship takes place within an organization. The major thrust of
intrapreneuring, then, is to create or develop the entrepreneurial spirit within
corporate boundaries, thereby allowing an atmosphere of innovation to prosper. 33
More about this specific application of entrepreneurs hip is presented in Chapter 3.
KEY CONCEPTS
Before concluding our discussion of the nature of entrepreneurship, we need to
put into three perspective three key concepts: entrepreneurship, entrepreneur,
and entrepreneurial management.
Entrepreneurship
Entrepreneurship is a process of innovation and new-venture creation through four
majors dimensions—individual, organizational, environmental, process—that is aided
by collaborative networks in government, education, and institutions.. All of the
macro and micro positions of entrepreneurial thought must he considered while
recognizing and seizing opportunities that can be converted into marketable ideas
capable of competing for implementation in today's economy.
Entrepreneur
The entrepreneur is a catalyst for economic change who uses purposeful searching,
careful planning, and sound judgment when carrying out the entrepreneurial process.
Uniquely optimistic and committed, the entrepreneur works creatively to establish
new resources or endow old ones with a new capacity, all for the purpose of creating
wealth.
Entrepreneurial Management
The underlying theme of this book is the discipline of entrepreneurial
management, a concept that has been delineated as follows:
Entrepreneurship is based upon the same principles, whether the
entrepreneur is on existing large institution or an individual starting his or
her new venture single-handed. It makes little or no difference whether
the entrepreneur is a business or a nonbusiness public-service
organization, nor even whether the entrepreneur is a governmental or
nongovernmental institution. The rules are pretty much the same, the
things that work and those that don't are pretty much the same, and so are
the kinds of innovation and where to look for them. In every case there is
a discipline we might call Entrepreneurial Management. 34
The techniques and principles of this emerging discipline will drive the
entrepreneurial economy of our time.
SUMMARY
This chapter examined the evolution of entrepreneurship, providing a foundation for
further study of this dynamic and developing discipline. Exploring the early
economic definitions as well as selected contemporary ones, the chapter presented a
historical picture of how entrepreneurship has been viewed. In addition, the ten
major myths of entrepreneur-ship were discussed to permit a better understanding of
the folklore surrounding this newly developing field of study. Contemporary
research is broadening the horizon for studying entrepreneurship and is providing a
better focus on the what, how, and why behind this discipline.
The approaches to entrepreneurship were examined from two different perspectives:
schools of thought and process. Six selected schools of thought were presented, and
three approaches for understanding contemporary entrepreneurs!]ip as a process were
discussed. The chapter concluded with definitions of entrepreneurship, entrepreneur,
and entrepreneurial management.
KEY TERMS AND CONCEPTS
better widget strategies financial/capital school of though!
corridor principle great chef strategies
displacement school of thought internal locus of control
entrepreneur intrapreneurship
entrepreneurial assessment approach macro view of entrepreneurship
entrepreneurial events approach micro view of entrepreneurs hip
entrepreneurial management mountain gap strategies
entrepreneurial trait school of thought multidimensional approach
entrepreneurship strategic formulation school of thought
environmental school of thought venture opportunity school of thought
external locus of control water well strategies
REVIEW AND DISCUSSION QUESTIONS
1. Briefly describe the evolution of the term entrepreneurship.
2. What are the ten myths associated with entrepreneurship? Debunk each.
3. What is the macro view of entrepreneurship?
4. What are the schools of thought that use the macro view of entrepreneurship?
5. What is the micro view of entrepreneurship?
6. What are the schools of thought that use the micro view of entrepreneurship?
7. What are the three specific types of displacement?
8. In the strategic formulation school of thought, what are the four types of strategies
involved with unique elements? Give an illustration of each.
9. What is the process approach to entrepreneurship'.' In your answer describe the
entrepreneurial assessment approach.
10. What are the major elements in the framework for entrepreneurship presented in
Figure 2.4? Give an example of each.
EXPERIENTIAL EXERCISE
Understanding Your Beliefs about Successful Entrepreneurs
Read each of the following ten statements, and to the left of each indicate your
agreement or disagreement. If you fully agree with the statement, put a 10 on the
line at the left. If you totally disagree, put a 1. If you tend to agree more than you
disagree, give a response between 6 and depending on how much you agree. If you
tend to disagree, give a response between 2 and 5.
____1. Successful entrepreneurs are often methodical and analytical individuals
who carefully plan out what they are going to do and then do it.
____2. The most successful entrepreneurs are born with special characteristics such
as high achievement drive and a winning personality, and these traits serve them
well in their entrepreneurial endeavors.
____3. Many of the characteristics needed for successful entrepreneur ship can be
learned through study and experience.
____4. The most successful entrepreneurs are those who invent a unique product
or service.
____5. Highly successful entrepreneurs tend to have very little formal schooling.
____6. Most successful entrepreneurs admit that dropping out of school was the
best thing they ever did.
____7. Because they are unique and individualistic in their approach to business,
most successful entrepreneurs find it hard to socialize with others; they just do not fit in.
____8. Research shows that although it is important to have adequate financing
before beginning an entrepreneurial venture, it is often more important to have man-
agerial competence and proper planning.
____9. Successful entrepreneurship is more a matter of preparation and desire than
it is of luck.
____10. Most successful entrepreneurs do well in their first venture, which
encourages them to continue; failures tend to come later on as the enterprise grows.
Put your answers on the following list in this way: (a) Enter answers to numbers 1,
3, 8, and 9 just as they appeal; and then ft) subtract the answers to 2,4,5,6,7, and 10
from 11 before entering them here. Thus, if you gave an answer of S to number 1, put an
8 before number 1 here. However, if you gave an answer of 7 to number 2 here, place a
4 before number 2 here. Then add both columns of answers and enter your total on the
appropriate line.
____ 1 ____ 6*
____ 2* ____ 7*
____ 3 ____ 8
____ 4* ____ 9
____ 5* ____10*
____ Total
Interpretation: This exercise measures how much you believe the myths of
entrepreneurship. The lower your total, the stronger your beliefs; the higher your
total, the less strong your beliefs. Numbers 1, 3, 8, and 9 are accurate statements;
numbers 2, 4, 5, 6, 7, and 10 are inaccurate statements. Here is the scoring key:
80-100 Excellent. You know the facts about entrepreneurs.
61-79 Good, but you still believe in a couple of myths.
41-60 Fair. You need to review the chapter material on the myths of
entrepreneurship.
0-40 Poor. You need to reread the chapter material on the myths of entrepre-
neurship and study these findings.
VIDEO CASE 2.1
DREW PEARSON COMPANIES: SUPER BOWL CHAMP PUTS A CAP ON
SUCCESS
When Drew Pearson, a wide receiver for the Dallas Cowboys, played in his
third Super Bowl, he had no idea he'd become the CEO of one of the nation's top
designers and manufacturers of sports caps. "When 1 left professional football, it
was hard to imagine that my earning power off the field would ever eclipse my
earning power on the field," Pear-son reveals. But in the megabuck business of
logo-licensed headwear, Drew Pearson Companies (DPC) has racked up some
impressive statistics since it was formed in 1985. Sales have skyrocketed from $3
million in 1985 to $10 million in 1989 to $77.5 million in 1993. DPC is one of
only six companies to have scored licenses with the National Football League
(NFL), National Basketball Association, Major League Baseball, and the National
Hockey League. Equally impressive is the fact that DPC is the only company to
have exclusive worldwide rights with the Walt Disney Company.
Nicknamed "The Clutch" during his Cowboy days, Pearson was accustomed to
making spectacular plays. But DPC's superstar rise in die headwear industry hasn't
been without a few fumbles along the way. "Of course, being a former NFL
player, I thought the natural thing would be to approach the NFL first," Pearson
says. "Roger Staubach, who was an initial investor, and I went to New York to
meet with NFL Properties. The meeting lasted maybe 35 minutes. They just told
us no."
In time, Pearson proved that DPC had the financial resources and capabilities to
produce quality products, and it became me first minority-owned business to
secure a licensing agreement with the NFL. But more important, DPC discovered
its competitive edge. "What's really set us apart from our competitors is our
innovative designs," Pearson admits. Colorful, intricately stitched hats with
names like "The Jagged Edge" are DPC's trademark. Early on, DPC embraced
technology to create its fashion-forward caps. "We were able to bring together in
our creative services area the first computer that generated art that could show
three-dimensional variations in designs—forward looks, backward looks—
things that our competition had no clue as to how we were generating. While they
were trying to figure out the technology, we were gaining market share," DPC
president Ken Shead explains.
In 1995, DPC shipped 30 million trendsetting caps to 7,500 retailers
throughout the United States, making it the industry's fastest-growing headwear
company. The company's aggressive growth has been the payoff for Pearson's
winning vision. "We knew that the spoils licensing industry, especially in the
headwear category, is very competitive. We had to do something to set ourselves
apart." DPC began courting the entertainment industry and was rewarded with
lucrative licensing rights to feature Mickey Mouse, Looney Tunes characters, the
Flinlstones, Barney, Garfield, and other pop-culture icons on DPC head-wear.
"Our number-one-selling hat is Mickey Mouse," Pearson says. "It outsells the
NFL; it outsells Major League Baseball; it even outsold the Chicago Bulls with
Michael Jordan."
Impressive sales in the domestic market have served as a catalyst for DPC's
expansion worldwide. "DPC is a global company. We made that decision to
focus on the international market worldwide approximately three years ago,"
Mike Russell, executive vice president of marketing, says. "From the standpoint
of developing products to sell internationally, we're somewhat unique in our
industry since Mickey Mouse doesn't change whether he's sold in the Far East
or Central America. We have a definitive line of products that transcend
international markets, and the demand for American logo products is continually
growing internationally."
With new products and new markets on the horizon, Drew Pearson Companies is
poised to extend its winning streak well into the next century. But the former NFL
star-turned-CEO knows his team can't rest on its laurels. "When you win a Super
Bowl, you're not necessarily satisfied with winning one Super Bowl. You want to go
back and win it again. You like the adulation and the accolades that come along with
success. We try to implement that same feeling, that same strategy at the Drew
Pearson Companies, No matter what level of success we reach, we know there's
more to attain. There's more to garner. We're not the number one headwear
company in the world, and that's a goal of ours."
Questions
1. What myths in entrepreneurship do DPC and Drew Pearson seem to debunk?
2. Describe the schools of entrepreneurial thought that may apply to Drew
Pearson and his venture.
3. Using Figure 2.3, explain how Pearson's venture fits into the entrepreneurial
assessment approach.
Case 2.2
PAUL'S FOUR SHORT COMINGS
Paul Enden has always been very reliable and a hard worker. For the past eight
years Paul has been working in a large auto service garage. During this lime he
has made a number of recommendations to the owner regarding new services that
could be provided to customers. One of these is called the "'fast lube." With this
service people who want to have their oil changed and their car lubricated do not
have to leave the auto and come back later in the day. Three service racks handle
this job. It generally takes less than 10 minutes lo take care of a car, and most
people can have the job completed within 25 minutes of the time they arrive. The
service, which has become extremely popular with customers, resulted in an
increase in overall profits of 5 percent last year.
Paul's wife believes he has a large number of ideas that could prove profitable.
"You ought to break away and open your own shop," she has told him, Paul would
like to do so, but he believes four things help account for entrepreneurial
success and he has none of them. Here is how he explained it to his wife:
"To be a successful entrepreneur, you have lo be a thinker, not a doer. I'm a doer.
Thinking bores me. I wouldn't like being an entrepreneur. Second, those guys
who do best as entrepreneurs tend to he inventors. I'm not an inventor. If
anything, I think of new approaches to old ways of doing business. I 'm more of
a tinkerer than an inventor. Third, you've got to be lucky to be a successful
entrepreneur. I'm hard working; I'm not lucky. Fourth, you have to have a lot of
money to do well as an entrepreneur. I don't have much money. 1 doubt whether
$50,000 would get me started as an entrepreneur."
Questions
1. Does Paul need to be an inventor to be an effective entrepreneur? Explain
your answer.
2. How important is it that Paul have a lot of money if he hopes to be an
entrepreneur? Explain your answer.
3. What is wrong with Paul's overall thinking? Be sure to include a
discussion of the myths of entrepreneurs hip in your answer.
The "Entrepreneurs are Gamblers" MythBy
Jeff Cornwallon November 24, 2003 2:05 PM | Permalink | Comments (0) | TrackBacks (2)
"I could never start my own business. I cannot tolerate that kind of risk. After all, entrepreneurs are nothing more than gamblers who are willing to bet it all on a hunch of a business idea." Many people view entrepreneurship this way. To them entrepreneurship is as nothing more than a crap shoot. However, when we study financially successful entrepreneurs a very different picture emerges.
This primary cause of this myth about entrepreneurs comes from a misunderstanding of risk. Risk is erroneously defined only in terms of the downside potential of the business. This can be thought of as "Sinking the Boat Risk". Ultimately, this could be the failure of the business. We read over and over that 80% of business start-ups fail. While this is may be true to a point, this risk can actually be drastically reduced with proper training and preparation as discussed in a previous posting on this site.
In our writing about the "Good Entrepreneur", Mike Naughton and I talk about the virtue of prudence as playing such an important role in managing this type of risk. If entrepreneurs view their role as one of being a steward of the resources at their disposal, they begin to take a much more careful and thoughtful approach to business formation. The true act of entrepreneurial courage from this perspective is not blindly forging into a new venture, but rather become one of a willingness to only move ahead when "Sinking the Boat" risk is minimized.
The view of entrepreneurs as gamblers obscures another key aspect of risk. "Missing the Boat" risk refers to what economists call the opportunity cost of not acting on a viable business idea. That is, there is a risk that is associated with not acting on an opportunity just as there is a risk associated with acting, but failing. In fact, failure to act on a business opportunity that has real potential for success can be seen as being equally imprudent and shows poor stewardship of the resources at your disposal (and ultimately the gifts you have been given). Succumbing to fear and not moving ahead can be viewed as the vice that corresponds to virtue of the courageous act of starting a new venture.
The successful entrepreneurs I have been associated with are rarely gamblers. In fact, they are careful, thoughtful business people who understand the risk of moving ahead, and approach that risk with a sober understanding of their responsibilities.
Five Myths About Entrepreneurs
May 19, 2008 by Rich Whittle | 0 Comments
Donald F. Kuratko at IndyStar.com:
Many myths have arisen about entrepreneurs. These ideas are the result of a lack of research and understanding. As many researchers in the field have noted, the study of entrepreneurship is still emerging, and thus “folklore” will tend to prevail until it is dispelled with contemporary research findings.
Myth 1: Entrepreneurs are doers, not thinkersAlthough it is true entrepreneurs tend toward action, they are also thinkers. Indeed, they are often very methodical people who plan their moves carefully. The emphasis today on the creation of clear and complete business plans is an indication that “thinking” entrepreneurs are as important as “doing” entrepreneurs.
Myth 2: Entrepreneurs are born, not madeAs a professor of entrepreneurship, I hear this one all the time. The idea that the characteristics of entrepreneurs cannot be taught or learned, that they are innate traits one must be born with, has long been prevalent. These traits include aggressiveness, initiative, drive, a willingness to take risks, analytical ability, and skill in human relations.
Today, however, the recognition of entrepreneurship as a discipline is helping to dispel this myth. Like all disciplines, entrepreneurship has models, processes, and case studies that allow the topic to be studied and the knowledge to be acquired.
We are all born with different traits, however, no special trait exists that will make you an entrepreneur.
Myth 3: All entrepreneurs need is moneyIt is true that a venture needs capital to survive; it is also true that a large number of business failures occur because of a lack of adequate financing. Yet having money is not the only bulwark against failure.
Failure due to lack of proper financing often is an indicator of other problems: managerial incompetence, lack of financial understanding, poor investments, poor planning, and the like.
Many successful entrepreneurs have overcome the lack of money while establishing their ventures. To those entrepreneurs, money is a resource but never an end in itself.
If money was the sole answer then every professional athlete and every “rock star” would be an entrepreneur. Unfortunately they squander their money and never use it to develop an entrepreneurial venture because that is not where their passion lies.
Read more.
Photo by viryboss.
Nirma Ent. Myths — Presentation Transcript
THE MYTHS OF ENTREPRENEURSHIP Introduction: Throughout the years many myths have been arisen about
entrepreneurship. These myths are the result of a lack of adequate research on entrepreneurship. As many
researchers in the field have noted, the study of entrepreneurship is still emerging, and thus “folklore” will tend to prevail
until it is dispelled with contemporary research findings. Ten of the most notable myths are explained as under: Myth 1:
Entrepreneurs Are Doers, Not Thinkers Although entrepreneurs tend to act, they are also thinkers. They are often very
methodical who plan their actions carefully. The emphasis to-day on the creation of clear and complete business plans
is an indication that entrepreneurs take action systematically after proper thinking. They are calculated “risk takers” i.e.
they do risk analysis which is again a thinking process.
Myth 2: Entrepreneurs Are Borne, Not Made The idea that characteristics of entrepreneurs cannot be taught or learned,
that they are innate traits one must be born with, has been long prevalent. These traits include aggressiveness,
initiative, drive, a willingness to take risk, analytical ability, and skill in human relations. To-day, however, the
recognition of entrepreneurship as a discipline is helping to dispel this myth. Like all disciplines, entrepreneurship has
models, processes, and case studies that allow the topic to be studied and the knowledge to be acquired. Myth 3:
Entrepreneurs Are Always Inventors The idea that entrepreneurs are inventors is a result of misunderstanding and
tunnel vision. Although many inventors are also entrepreneurs, large number of entrepreneurs have undertaken
innovative activity. This innovation may be the result of inventions. Invention is an incident, entrepreneurship is a
innovation process.
A contemporary understanding of entrepreneurship covers more than just invention. It requires a complete
understanding of innovative behavior in all forms. Myth 4: Entrepreneurs Are Academic and Social Misfits The belief
that entrepreneurs are academically and socially ineffective is a result of some business owners having started
successful enterprises after dropping out of a school or quitting a job. Historically, in fact, educational and social
organizations did not recognize the entrepreneur. To-day the entrepreneur is considered a winner- socially,
economically, and academically. No longer a misfit, the entrepreneur is now viewed as a professional and
entrepreneurship plays is very important role for economic development. Myth 5: Entrepreneurs Must Fit the “Profile”
They are many publications listing characteristics of the successful entrepreneur. The list is neither validated nor
complete; they are based on case studies and on research
findings among achievement-oriented people. To-day we realize that a standard entrepreneurial profile is hard to
compile. The environment, the venture itself, and the entrepreneur have interactive effects, which result in many
different types of profiles. Contemporary studied conducted at universities across the United States will, in the future,
provide more accurate insights into various profiles of successful entrepreneurs. “Entrepreneurial Perspective” within
individuals is more understandable than a particular profile. Myth 6 : All Entrepreneurs Need is Money It is true that a
venture needs capital to survive; it is fact that a large number of business failures occur because of a lack of adequate
financing. Yet having money is not the only bulwark against failure. Failure due to a lack of proper financing often is an
indicator of other problems: managerial incompetence, lack of financial understanding, poor investments, poor
planning, and the like.
Many successful entrepreneurs have overcome the lack of money while establishing their ventures. To those
entrepreneurs, money is a source but never an end in itself. Myth 7: All entrepreneurs Need Is Luck Being at “the right
place at the right time” is always an advantage. But “luck happens when preparation meets opportunity” is an equally
appropriate adage. They are, in fact, simply better prepared to deal with situations and turn them into success.What
appears to be luck really is preparation, determination, desire, knowledge, and innovativeness. Myth 8: Ignorance Is
Bliss for Entrepreneurs The myth that too much planning and evaluation lead to constant problems – that over-analysis
leads to paralysis – does no hold up in to-day’s competitive markets, which demand detailed planning and preparation.
Identifying a venture’s strengths and weaknesses, setting up clear timetables with contingencies for handling problems,
and
minimizing these problems through careful strategy formulation are all key factors for successful entrepreneurship.
Thus careful planning – not ignorance of it – is the mark of an accomplished entrepreneur. Myth 9: Entrepreneurs Seek
Success But Experience High Failure Rates Many entrepreneurs suffer a number of failures before they are successful.
They follow the adage “If at first you don’t succeed, try, try, again.” In fact, failure can teach many lessons to those
willing to learn and often leads to future successes. This is clearly shown by the corridor principle, which states that with
every venture launched, new and unintended opportunities often arise. Myth 10: Entrepreneurs Are Extreme Risk
Takers (Gamblers) The concept of risk is a major element in the entrepreneurial process. However, the public’s
perception of the risk most entrepreneurs assume is distorted. Although it may appear that an entrepreneur is
“gambling”
on a wild chance, the fact is the entrepreneur is usually working on a moderate or “calculated” risk. Most successful
entrepreneurs work hard through planning and preparation to minimize the risk involves in order to better control the
destiny of their vision. These ten myths have been presented to provide a background for today’s thinking on
entrepreneurship. By sidestepping “folklore” we can build a foundation for critically researching the contemporary
theories and processes of entrepreneurship. Exercise Read carefully :THE E-MYTH (page no.31) and explain the
following observation: “ The owners must begin working on the business, in addition to working in it.”
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