Entrepreneurship can broadly be defined as the creation or extraction of value. With this definition, entrepreneurship is viewed as change, which may include other values than simply economic ones.
Some more narrow definitions has described entrepreneurship as the process of designing, launching and running a new business, which is often initially a small business, or as the "capacity and willingness to develop, organize and manage a business venture along with any of its risks to make a profit." The people who create these businesses are often referred to as entrepreneurs. While definitions of entrepreneurship typically focus on the launching and running of businesses, due to the high risks involved in launching a start-up, a significant proportion of start-up businesses have to close due to "lack of funding, bad business decisions, an economic crisis, lack of market demand, or a combination of all of these."
A somewhat broader definition of the term is sometimes used, especially in the field of economics. In this usage, an entrepreneur is an entity which has the ability to find and act upon opportunities to translate inventions or technologies into products and services: "The entrepreneur is able to recognize the commercial potential of the invention and organize the capital, talent, and other resources that turn an invention into a commercially viable innovation." In this sense, the term "entrepreneurship" also captures innovative activities on the part of established firms, in addition to similar activities on the part of new businesses. Yet, the definition is still narrow in the sense that it still focus on the creation of economic (commercial) value.
Perspectives on entrepreneurship
As
an academic field, entrepreneruship accommodates many different schools
and perspectives. It has been studies within disciplines such as
economics, sociology and economic history. Some view entrepreneurship as allocated to the entrepreneur.
These scholars tend to focus on what the entrepreneur does and what
traits that an entrepreneur has (see for example the text under the
headings Elements below). This is sometimes been referred to as the
functionalistic approach to entrepreneurship. Others deviate from the individualistic perspective to turn the spotlight on the entrepreneurial process and immerse in the interplay between agency and context. This approach is sometimes referred to as the processual approach, or the contextual turn/approach to entrepreneurship.
Elements
Entrepreneurship is an act of being an entrepreneur, or "the owner or manager of a business enterprise who, by risk and initiative, attempts to make profits".
Entrepreneurs act as managers and oversee the launch and growth of an
enterprise. Entrepreneurship is the process by which either an
individual or a team identifies a business opportunity and acquires and
deploys the necessary resources required for its exploitation.
Early-19th-century French economist Jean-Baptiste Say
provided a broad definition of entrepreneurship, saying that it "shifts
economic resources out of an area of lower and into an area of higher
productivity and greater yield". Entrepreneurs create something new,
something different—they change or transmute values.
Regardless of the firm size, big or small, they can partake in
entrepreneurship opportunities. The opportunity to become an
entrepreneur requires four criteria. First, there must be opportunities
or situations to recombine resources to generate profit. Second,
entrepreneurship requires differences between people, such as
preferential access to certain individuals or the ability to recognize
information about opportunities. Third, taking on risk is a necessity.
Fourth, the entrepreneurial process requires the organization of people
and resources.
The entrepreneur is a factor in and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith
in the late 17th and early 18th centuries. However, entrepreneurship
was largely ignored theoretically until the late 19th and early 20th
centuries and empirically until a profound resurgence in business and
economics since the late 1970s. In the 20th century, the understanding
of entrepreneurship owes much to the work of economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek.
According to Schumpeter, an entrepreneur is a person who is willing and
able to convert a new idea or invention into a successful innovation.
Entrepreneurship employs what Schumpeter called "the gale of creative
destruction" to replace in whole or in part inferior innovations across
markets and industries, simultaneously creating new products including
new business models. In this way, creative destruction is largely
responsible for the dynamism of industries and long-run economic growth.
The supposition that entrepreneurship leads to economic growth is an
interpretation of the residual in endogenous growth theory and as such
is hotly debated in academic economics. An alternative description
posited by Israel Kirzner
suggests that the majority of innovations may be much more incremental
improvements such as the replacement of paper with plastic in the making
of drinking straws.
The exploitation of entrepreneurial opportunities may include:
- Developing a business plan
- Hiring the human resources
- Acquiring financial and material resources
- Providing leadership
- Being responsible for both the venture's success or failure
- Risk aversion
Economist Joseph Schumpeter (1883–1950) saw the role of the entrepreneur in the economy as "creative destruction"
– launching innovations that simultaneously destroy old industries
while ushering in new industries and approaches. For Schumpeter, the
changes and "dynamic disequilibrium brought on by the innovating entrepreneur [were] the norm of a healthy economy".
While entrepreneurship is often associated with new, small, for-profit
start-ups, entrepreneurial behavior can be seen in small-, medium- and
large-sized firms, new and established firms and in for-profit and
not-for-profit organizations, including voluntary-sector groups, charitable organizations and government.
Entrepreneurship may operate within an entrepreneurship ecosystem which often includes:
- Government programs and services that promote entrepreneurship and support entrepreneurs and start-ups
- Non-governmental organizations such as small-business associations and organizations that offer advice and mentoring to entrepreneurs (e.g. through entrepreneurship centers or websites)
- Small-business advocacy organizations that lobby governments for increased support for entrepreneurship programs and more small business-friendly laws and regulations
- Entrepreneurship resources and facilities (e.g. business incubators and seed accelerators)
- Entrepreneurship education and training programs offered by schools, colleges and universities
- Financing (e.g. bank loans, venture capital financing, angel investing and government and private foundation grants)
In the 2000s, usage of the term "entrepreneurship" expanded to
include how and why some individuals (or teams) identify opportunities,
evaluate them as viable, and then decide to exploit them.
The term has also been used to discuss how people might use these
opportunities to develop new products or services, launch new firms or
industries, and create wealth. The entrepreneurial process is uncertain because opportunities can only be identified after they have been exploited.
Entrepreneurs exhibit positive biases
towards finding new possibilities and seeing unmet market needs, and a
tendency towards risk-taking that makes them more likely to exploit business opportunities.
History
Historical usage
17th-century Walloon-Dutch-Swedish businessman Louis De Geer ((1587–1652) was a pioneering entrepreneur and industrialist at the dawn of modern capitalism.
Emil Jellinek-Mercedes
(1853–1918), here at the steering wheel of his Phoenix Double-Phaeton,
was a European entrepreneur who helped design the first modern car
"Entrepreneur" (/ˌɒ̃trəprəˈnɜːr, -ˈnjʊər/ (
listen), UK also /-prɛ-/) is a loanword from French. The word first appeared in the French dictionary entitled Dictionnaire Universel de Commerce compiled by Jacques des Bruslons and published in 1723. Especially in Britain, the term "adventurer" was often used to denote the same meaning. The study of entrepreneurship reaches back to the work in the late 17th and early 18th centuries of Irish-French economist Richard Cantillon, which was foundational to classical economics. Cantillon defined the term first in his Essai sur la Nature du Commerce en Général, or Essay on the Nature of Trade in General, a book William Stanley Jevons considered the "cradle of political economy".
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". Cantillon considered the entrepreneur to be a risk taker
who deliberately allocates resources to exploit opportunities to
maximize the financial return.
Cantillon emphasized the willingness of the entrepreneur to assume the
risk and to deal with uncertainty, thus he drew attention to the
function of the entrepreneur and distinguished between the function of
the entrepreneur and the owner who provided the money.
listen), UK also /-prɛ-/) is a loanword from French. The word first appeared in the French dictionary entitled Dictionnaire Universel de Commerce compiled by Jacques des Bruslons and published in 1723. Especially in Britain, the term "adventurer" was often used to denote the same meaning. The study of entrepreneurship reaches back to the work in the late 17th and early 18th centuries of Irish-French economist Richard Cantillon, which was foundational to classical economics. Cantillon defined the term first in his Essai sur la Nature du Commerce en Général, or Essay on the Nature of Trade in General, a book William Stanley Jevons considered the "cradle of political economy".
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". Cantillon considered the entrepreneur to be a risk taker
who deliberately allocates resources to exploit opportunities to
maximize the financial return.
Cantillon emphasized the willingness of the entrepreneur to assume the
risk and to deal with uncertainty, thus he drew attention to the
function of the entrepreneur and distinguished between the function of
the entrepreneur and the owner who provided the money.
Jean-Baptiste Say also identified entrepreneurs as a driver for
economic development, emphasizing their role as one of the collecting
factors of production allocating resources from less to fields that are
more productive. Both Say and Cantillon belonged to French school of
thought and known as the physiocrats.
Dating back to the time of the medieval guilds in Germany, a craftsperson required special permission to operate as an entrepreneur, the small proof of competence (Kleiner Befähigungsnachweis), which restricted training of apprentices to craftspeople 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, proof of competence was not required to start a business. In
1935 and in 1953, greater proof of competence was reintroduced (Großer Befähigungsnachweis Kuhlenbeck),
which required craftspeople to obtain a Meister apprentice-training
certificate before being permitted to set up a new business.
20th century
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.
While the loan from French of the word "entrepreneur" dates to the
1850, the term "entrepreneurship" was coined around the 1920s. According
to Schumpeter, an entrepreneur is willing and able to convert a new
idea or invention into a successful innovation. 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 and as such continues to be debated in academic economics. An alternative 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 (i.e. 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, the traditional microeconomic
theory did not formally consider the entrepreneur in its theoretical
frameworks (instead of 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 was imperfect.
Schumpeter (1934) demonstrated that the changing environment
continuously provides new information about the optimum allocation of
resources to enhance profitability. Some individuals acquire the new
information before others and 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.
Initially, economists made the first attempt to study the entrepreneurship concept in depth.
Alfred Marshall viewed the entrepreneur as a multi-tasking capitalist
and observed that in the equilibrium of a completely competitive market
there was no spot for "entrepreneurs" as an economic activity creator.
21st century
In 2012, Ambassador-at-Large for Global Women's Issues Melanne Verveer greets participants in an African Women's Entrepreneurship Program at the State Department in Washington, D.C.
In the 2000s, entrepreneurship has been extended from its origins in for-profit businesses to include social entrepreneurship, in which business goals are sought alongside social, environmental or humanitarian goals and even the concept of the political entrepreneur. 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.
Entrepreneurs are leaders willing to take risk and exercise
initiative, taking advantage of market opportunities by planning,
organizing and deploying resources, often by innovating to create new or improving existing products or services. In the 2000s, the term "entrepreneurship" has been extended to include a specific 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". 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
involve a team and which may create many jobs. Many "high value"
entrepreneurial ventures seek venture capital or angel funding (seed money) to raise capital for building and expanding the business. Many organizations exist to support would-be entrepreneurs, including specialized government agencies, business incubators (which may be for-profit, non-profit, or operated by a college or university), science parks and non-governmental organizations, which include a range of organizations including not-for-profits, charities, foundations and business advocacy groups (e.g. Chambers of commerce). 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"
was launched.
Relationship between small business and entrepreneurship
The term "entrepreneur" is often conflated with the term "small business"
or used interchangeably with this term. 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 offer 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. In this way, the term "entrepreneur" may be more closely associated with the term "startup".
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.
Historians' ranking
A 2002 survey of 58 business history professors gave the top spots in American business history to Henry Ford, followed by Bill Gates; John D. Rockefeller; Andrew Carnegie, and Thomas Edison. They were followed by Sam Walton; J. P. Morgan; Alfred P. Sloan; Walt Disney; Ray Kroc; Thomas J. Watson; Alexander Graham Bell; Eli Whitney; James J. Hill; Jack Welch; Cyrus McCormick; David Packard; Bill Hewlett; Cornelius Vanderbilt; and George Westinghouse. A 1977 survey of management scholars reported the top five pioneers in management ideas were: Frederick Winslow Taylor; Chester Barnard; Frank Bunker Gilbreth Sr.; Elton Mayo; and Lillian Moller Gilbreth.
Types of entrepreneurship
Ethnic
The term "ethnic entrepreneurship" refers to self-employed business owners who belong to racial or ethnic minority groups in the United States and Europe.
A long tradition of academic research explores the experiences and
strategies of ethnic entrepreneurs as they strive to integrate
economically into mainstream U.S. or European society. Classic cases
include Jewish merchants and tradespeople in large U.S. cities in the
19th and early 20th centuries as well as Chinese and Japanese small
business owners (restaurants, farmers, shop owners) on the West Coast.
In the 2010s, ethnic entrepreneurship has been studied in the case of
Cuban business owners in Miami, Indian motel owners of the U.S. and
Chinese business owners in Chinatowns
across the United States. While entrepreneurship offers these groups
many opportunities for economic advancement, self-employment and
business ownership in the United States remain unevenly distributed
along racial/ethnic lines.
Despite numerous success stories of Asian entrepreneurs, a recent
statistical analysis of U.S. census data shows that whites are more
likely than Asians, African-Americans and Latinos to be self-employed in
high prestige, lucrative industries.
Institutional
The American-born British economist Edith Penrose
has highlighted the collective nature of entrepreneurship. She mentions
that in modern organizations, human resources need to be combined to
better capture and create business opportunities. 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". The notion has been widely applied.
Cultural
According
to Christopher Rea and Nicolai Volland, cultural entrepreneurship is
"practices of individual and collective agency characterized by mobility
between cultural professions and modes of cultural production", which
refers to creative industry activities and sectors. In their book The Business of Culture
(2015), Rea and Volland identify three types of cultural entrepreneur:
"cultural personalities", defined as "individuals who buil[d] their own
personal brand of creativity as a cultural authority and leverage it to
create and sustain various cultural enterprises"; "tycoons", defined as
"entrepreneurs who buil[d] substantial clout in the cultural sphere by
forging synergies between their industrial, cultural, political, and
philanthropic interests"; and "collective enterprises", organizations
which may engage in cultural production for profit or not-for-profit
purposes.
Feminist
A feminist
entrepreneur is an individual who applies feminist values and
approaches through entrepreneurship, with the goal of improving the
quality of life and well-being of girls and women.
Many are doing so by creating "for women, by women" enterprises.
Feminist entrepreneurs are motivated to enter commercial markets by
desire to create wealth and social change, based on the ethics of
cooperation, equality and mutual respect.
Social
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Student organizers from the Green Club at Newcomb College Institute formed a social entrepreneurship organization in 2010.
Social entrepreneurship is the use of the by start up companies and other entrepreneurs to develop, fund and implement solutions to social, cultural, or environmental issues. This concept may be applied to a variety of organizations with different sizes, aims, and beliefs. For-profit entrepreneurs typically measure performance using business metrics like profit, revenues and increases in stock prices, but social entrepreneurs are either non-profits
or blend for-profit goals with generating a positive "return to
society" and therefore must use different metrics. Social
entrepreneurship typically attempts to further broad social, cultural,
and environmental goals often associated with the voluntary sector in areas such as poverty alleviation, health care and community development. At times, profit-making social enterprises
may be established to support the social or cultural goals of the
organization but not as an end in itself. For example, an organization
that aims to provide housing and employment to the homeless may operate a restaurant, both to raise money and to provide employment for the homeless people.
Nascent
A nascent entrepreneur is someone in the process of establishing a business venture. In this observation, the nascent entrepreneur can be seen as pursuing an opportunity,
i.e. a possibility to introduce new services or products, serve new
markets, or develop more efficient production methods in a profitable
manner. But before such a venture is actually established, the opportunity is just a venture idea.
In other words, the pursued opportunity is perceptual in nature,
propped by the nascent entrepreneur's personal beliefs about the
feasibility of the venturing outcomes the nascent entrepreneur seeks to
achieve.
Its prescience and value cannot be confirmed ex ante but only
gradually, in the context of the actions that the nascent entrepreneur
undertakes towards establishing the venture,
Ultimately, these actions can lead to a path that the nascent
entrepreneur deems no longer attractive or feasible, or result in the
emergence of a (viable) business. In this sense, over time, the nascent
venture can move towards being discontinued or towards emerging
successfully as an operating entity.
The distinction between the novice, serial and portfolio entrepreneurs is an example of behavior-based categorization. Other examples are the (related) studies by,
on start-up event sequences. Nascent entrepreneurship that emphasizes
the series of activities involved in new venture emergence,
rather than the solitary act of exploiting an opportunity. Such
research will help separate entrepreneurial action into its basic
sub-activities and elucidate the inter- relationships between
activities, between an activity (or sequence of activities) and an
individual's motivation to form an opportunity belief, and between an
activity (or sequence of activities) and the knowledge needed to form an
opportunity belief. With this research, scholars will be able to begin
constructing a theory of the micro-foundations of entrepreneurial
action.
Scholars interested in nascent entrepreneurship tend to focus
less on the single act of opportunity exploitation and more on the
series of actions in new venture emergence. Indeed, nascent entrepreneurs undertake numerous entrepreneurial
activities, including actions that make their businesses more concrete
to themselves and others. For instance, nascent entrepreneurs often look
for and purchase facilities and equipment; seek and obtain financial
backing, form legal entities, organize teams; and dedicate all their time and energy to their business
Project-based
Project entrepreneurs are individuals who are engaged in the repeated assembly or creation of temporary organizations.
These are organizations that have limited lifespans which are devoted
to producing a singular objective or goal and get disbanded rapidly when
the project ends. Industries where project-based enterprises are
widespread include: sound recording, film production, software development, television production, new media and construction.
What makes project-entrepreneurs distinctive from a theoretical
standpoint is that they have to "rewire" these temporary ventures and
modify them to suit the needs of new project opportunities that emerge. A
project entrepreneur who used a certain approach and team for one
project may have to modify the business model or team for a subsequent
project.
Project entrepreneurs are exposed repeatedly to problems and tasks typical of the entrepreneurial process.
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. 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. Another type of project entrepreneurship involves
entrepreneurs working with business students to get analytical work done
on their ideas.
Millennial
The
term "millennial entrepreneur" refers to a business owner who is
affiliated with the generation that was brought up using digital
technology and mass media—the products of Baby Boomers, those people born during the 1980s and early 1990s. Also known as Generation Y,
these business owners are well equipped with knowledge of new
technology and new business models and have a strong grasp of its
business applications. There have been many breakthrough businesses that
have come from millennial entrepreneurs such as Mark Zuckerberg, who created Facebook.
Despite the expectation of millennial success, there have been recent
studies that have proven this to not be the case. The comparison
between millennials who are self-employed and those who are not
self-employed shows that the latter is higher. The reason for this is
because they have grown up in a different generation and attitude than
their elders. Some of the barriers to entry for entrepreneurs are the
economy, debt from schooling and the challenges of regulatory
compliance.
Entrepreneurial behaviors
The entrepreneur is commonly seen as an innovator—a designer of new ideas and business processes.
Management skills and strong team building abilities are often
perceived as essential leadership attributes for successful
entrepreneurs. Political economist Robert Reich considers leadership, management ability and team-building to be essential qualities of an entrepreneur.
Uncertainty perception and risk-taking
Theorists Frank Knight 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. However, entrepreneurs often do not believe that
they have taken an enormous amount of risks because they do not perceive
the level of uncertainty to be as high as other people do. 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 five red balls and five white balls)
- Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing five red balls but 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 contents, in terms of numbers of coloured balls, are entirely unknown)
Malala Yousafzai, a Pakistani activist, social entrepreneur and youngest-ever Nobel Peace Prize winner
Entrepreneurship is often associated with true uncertainty,
particularly when it involves the creation of a novel good or service,
for a market that did not previously exist, rather than when a venture
creates an incremental improvement to an existing product or service. A
2014 study at ETH Zürich found that compared with typical managers,
entrepreneurs showed higher decision-making efficiency and a stronger
activation in regions of frontopolar cortex (FPC) previously associated
with explorative choice.
"Coachability" and advice taking
The
ability of entrepreneurs to work closely with and take advice from
early investors and other partners (i.e. their coachability) has long
been considered a critical factor in entrepreneurial success.
At the same time, economists have argued that entrepreneurs should not
simply act on all advice given to them, even when that advice comes from
well-informed sources, because entrepreneurs possess far deeper and
richer local knowledge about their own firm than any outsider. Indeed,
measures of coachability are not actually predictive of entrepreneurial
success (e.g. measured as success in subsequent funding rounds,
acquisitions, pivots and firm survival). This research also shows that
older and larger founding teams, presumably those with more subject
expertise, are less coachable than younger and smaller founding teams.
Strategies
Strategies that entrepreneurs may use include:
- Innovation of new products, services or processes
- Continuous process improvement (CPI)
- Exploration of new business models
- Use of technology
- Use of business intelligence
- Use of economical strategics
- Development of future products and services
- Optimized talent management
Designing individual/opportunity nexus
According
to Shane and Venkataraman, entrepreneurship comprises both
"enterprising individuals" and "entrepreneurial opportunities", so
researchers should study the nature of the individuals who identify
opportunities when others do not, the opportunities themselves and the
nexus between individuals and opportunities. On the other hand, Reynolds et al.
argue that individuals are motivated to engage in entrepreneurial
endeavors driven mainly by necessity or opportunity, that is individuals
pursue entrepreneurship primarily owing to survival needs, or because
they identify business opportunities that satisfy their need for
achievement. For example, higher economic inequality tends to increase necessity-based entrepreneurship rates at the individual level.
Opportunity perception and biases
One study has found that certain genes affecting personality may influence the income of self-employed people. Some people may be able to use "an innate ability" or quasi-statistical sense to gauge public opinion
and market demand for new products or services. Entrepreneurs tend to
have the ability to see unmet market needs and underserved markets.
While some entrepreneurs assume they can sense and figure out what
others are thinking, the mass media plays a crucial role in shaping views and demand.
Ramoglou argues that entrepreneurs are not that distinctive and that it
is essentially poor conceptualizations of "non-entrepreneurs" that
maintain laudatory portraits of "entrepreneurs" as exceptional
innovators or leaders.
Entrepreneurs are often overconfident, exhibit illusion of control,
when they are opening/expanding business or new products/services.
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.
Communication
Entrepreneurs need to practice effective communication
both within their firm and with external partners and investors to
launch and grow a venture and enable it to survive. An entrepreneur
needs a communication system that links the staff of her firm and
connects the firm to outside firms and clients. Entrepreneurs should be charismatic leaders, so they can communicate a vision effectively to their team and help to create a strong team. Communicating a vision to followers may be well the most important act of the transformational leader. Compelling visions provide employees with a sense of purpose and encourage commitment. According to Baum et al. and Kouzes and Posner,
the vision must be communicated through written statements and through
in-person communication. Entrepreneurial leaders must speak and listen
to articulate their vision to others.
Communication is pivotal in the role of entrepreneurship because
it enables leaders to convince potential investors, partners and
employees about the feasibility of a venture. Entrepreneurs need to communicate effectively to shareholders. Nonverbal
elements in speech such as the tone of voice, the look in the sender's
eyes, body language, hand gestures and state of emotions are also
important communication tools. The Communication Accommodation Theory posits that throughout communication people will attempt to accommodate or adjust their method of speaking to others. Face Negotiation Theory describes how people from different cultures manage conflict negotiation to maintain "face".
Hugh Rank's "intensify and downplay" communications model can be used
by entrepreneurs who are developing a new product or service. Rank
argues that entrepreneurs need to be able to intensify the advantages of
their new product or service and downplay the disadvantages to persuade
others to support their venture.
Links to sea piracy
Research from 2014 found links between entrepreneurship and historical sea piracy.
In this context, the claim is made for a non-moral approach to looking
at the history of piracy as a source of inspiration for entrepreneurship
education as well as for research in entrepreneurship and business model generation.
Psychological makeup
Apple co-founder and longtime leader Steve Jobs (pictured in 2010) led the introduction of many innovations in the computer, smartphone and digital music industries
Stanford University economist Edward Lazear found in a 2005 study that variety in education and in work experience was the most important trait that distinguished entrepreneurs from non-entrepreneurs 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 an important
characteristic of students that would go on to become entrepreneurs.
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.
Åsa Hansson, who looked at empirical evidence from Sweden, found that
the probability of becoming self-employed decreases with age for women,
but increases with age for men. She also found that marriage increased the probability of a person becoming an entrepreneur.
Jesper Sørensen wrote in 2010 that significant influences on the
decision to become an entrepreneur include 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.
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."
Entrepreneurs may also be driven to entrepreneurship by past
experiences. If someone has faced multiple work stoppages or has been
unemployed in the past, the probability of becoming an entrepreneur
increases
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. Cattell states that personality is a system that is
related to the environment and 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. Personality is that which informs what an individual will do
when faced with a given situation. A person's response is triggered by
his/her personality and the situation that is faced.
Innovative entrepreneurs may be more likely to experience what psychologist Mihaly Csikszentmihalyi calls "flow".
"Flow" occurs when an individual forgets about the outside world due to
being thoroughly engaged in a process or activity. Csikszentmihalyi
suggested that breakthrough innovations tend to occur at the hands of
individuals in that state. Other research has concluded that a strong internal motivation is a vital ingredient for breakthrough innovation. 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. Csikszentmihalyi acknowledged that Montessori's prepared environment offers children opportunities to achieve flow. Thus quality and type of early education may influence entrepreneurial capability.
Research on high-risk settings such as oil platforms, investment
banking, medical surgery, aircraft piloting and nuclear-power plants has
related distrust to failure avoidance.
When non-routine strategies are needed, distrusting persons perform
better, while when routine strategies are needed trusting persons
perform better. Gudmundsson and Lechner extended this research to
entrepreneurial firms.
They argued that in entrepreneurial firms the threat of failure is
ever-present, resembling non-routine situations in high-risk settings.
They found that the firms of distrusting entrepreneurs were more likely
to survive than the firms of optimistic or overconfident entrepreneurs.
The reasons were that distrusting entrepreneurs would emphasize
failure-avoidance through sensible task selection and more analysis.
Kets de Vries has pointed out that distrusting entrepreneurs are more
alert about their external environment.
He concluded that distrusting entrepreneurs are less likely to discount
negative events and are more likely to engage control mechanisms.
Similarly, Gudmundsson and Lechner found that distrust leads to higher
precaution and therefore increases chances of entrepreneurial-firm
survival.
Researchers Schoon and Duckworth completed a study in 2012 that
could potentially help identify who may become an entrepreneur at an
early age. They determined that the best measures to identify a young
entrepreneur are family and social status, parental role-modeling,
entrepreneurial competencies at age 10, academic attainment at age 10,
generalized self-efficacy, social skills, entrepreneurial intention and
experience of unemployment.
Strategic entrepreneurship
Some
scholars have constructed an operational definition of a more specific
subcategory called "Strategic Entrepreneurship". Closely tied with
principles of strategic management,
this form of entrepreneurship is "concerned about growth, creating
value for customers and subsequently creating wealth for owners".
A 2011 article for the Academy of Management provided a three-step,
"Input-Process-Output" model of strategic entrepreneurship. The model's
three steps entail the collection of different resources, the process of
orchestrating them in the necessary manner and the subsequent creation
of competitive advantage, value for customers, wealth and other
benefits. Through the proper use of strategic management/leadership
techniques and the implementation of risk-bearing entrepreneurial
thinking, the strategic entrepreneur is therefore able to align
resources to create value and wealth.
Leadership
Leadership in entrepreneurship can be defined
as "process of social influence in which one person can enlist the aid
and support of others in the accomplishment of a common task" in "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods".
This refers to not only the act of entrepreneurship as managing or
starting a business, but how one manages to do so by these social
processes, or leadership skills. (Entrepreneurship in itself can be
defined somewhat circularly as "the process by which individuals, teams,
or organizations identify and pursue entrepreneurial opportunities
without being immediately constrained by the resources they currently
control".) An entrepreneur typically has a mindset that seeks out potential opportunities during uncertain times. An entrepreneur must have leadership skills or qualities to see potential opportunities and act upon them. At the core, an entrepreneur is a decision-maker.
Such decisions often affect an organization as a whole, which is
representative of entrepreneurial leadership within the organization.
With the growing global market and increasing technology use
throughout all industries, the core of entrepreneurship and the
decision-making has become an ongoing process rather than isolated
incidents.[citation needed] This becomes knowledge management,
which is "identifying and harnessing intellectual assets" for
organizations to "build on past experiences and create new mechanisms
for exchanging and creating knowledge". This belief
draws upon a leader's past experiences that may prove useful. It is a
common mantra for one to learn from their past mistakes, so leaders
should take advantage of their failures for their benefit. This is how one may take their experiences as a leader for the use in the core of entrepreneurship-decision making.
Global leadership
The majority of scholarly research done on these topics has taken place in North America.
Words like "leadership" and "entrepreneurship" do not always translate
well into other cultures and languages. For example, in North America a
leader is often thought of as charismatic, but German culture frowns on
such charisma due to the charisma of Nazi leader Adolf Hitler (1889-1945). Other cultures, as in some European countries, view the term "leader" negatively, like the French.
The participative leadership style that is encouraged in the United States is considered disrespectful in many other parts of the world due to the differences in power distance.
Many Asian and Middle Eastern countries do not have "open door"
policies for subordinates, who would never informally approach their
managers/bosses. For countries like that, an authoritarian approach to management and leadership is more customary.
Despite cultural differences, the successes and failures of
entrepreneurs can be traced to how leaders adapt to local conditions.
Within the increasingly global business environment a successful leader
must be able to adapt and have insight into other cultures. To respond
to the environment, corporate visions are becoming transnational in
nature, to enable the organization to operate in or provide
services/goods for other cultures.
Entrepreneurship training and education
Michelacci and Schivardi
are a pair of researchers who believe that identifying and comparing
the relationships between an entrepreneur's earnings and education level
would determine the rate and level of success. Their study focused on
two education levels, college degree and post-graduate degree. While
Michelacci and Schivardi do not specifically determine characteristics
or traits for successful entrepreneurs, they do believe that there is a
direct relationship between education and success, noting that having a
college knowledge does contribute to advancement in the workforce.
Michelacci and Schivardi state there has been a rise in the
number of self-employed people with a baccalaureate degree. However,
their findings also show that those who are self-employed and possess a
graduate degree has remained consistent throughout time at about 33
percent. They briefly mention those famous entrepreneurs like Steve Jobs and Mark Zuckerberg
who were college dropouts, but they call these cases all but
exceptional as it is a pattern that many entrepreneurs view formal
education as costly, mainly because of the time that needs to be spent on it.
Michelacci and Schivardi believe that in order for an individual to
reach the full success they need to have education beyond high school.
Their research shows that the higher the education level the greater the
success. The reason is that college gives people additional skills that
can be used within their business and to operate on a higher level than
someone who only "runs" it.
Resources and financing
Entrepreneurial resources
An entrepreneurial resource is any company-owned asset that has economic value
creating capabilities. Economic value creating both tangible and
intangible sources are considered as entrepreneurial resources. Their
economic value is generating activities or services through mobilization
by entrepreneurs. Entrepreneurial resources can be divided into two fundamental categories: tangible and intangible resources.
Tangible resources are material sources such as equipment,
building, furniture, land, vehicle, machinery, stock, cash, bond and
inventory that has a physical form and can be quantified. On the
contrary, intangible resources are nonphysical or more challenging to
identify and evaluate, and they possess more value creating capacity
such as human resources including skills and experience in a particular
field, organizational structure of the company, brand name, reputation,
entrepreneurial networks that contribute to promotion and financial
support, know-how, intellectual property including both copyrights, trademarks and patents.
Bootstrapping
At least early on, entrepreneurs often "bootstrap-finance" their start-up rather than seeking external investors from the start. One of the reasons that some entrepreneurs prefer to "bootstrap" is that obtaining equity financing
requires the entrepreneur to provide ownership shares to the investors.
If the start-up becomes successful later on, these early equity
financing deals could provide a windfall for the investors and a huge
loss for the entrepreneur. If investors have a significant stake in the
company, they may as well be able to exert influence on company
strategy, chief executive officer
(CEO) choice and other important decisions. This is often problematic
since the investor and the founder might have different incentives
regarding the long-term goal of the company. An investor will generally
aim for a profitable exit and therefore promotes a high-valuation sale
of the company or IPO to sell their shares. Whereas the entrepreneur
might have philanthropic intentions as their main driving force. Soft
values like this might not go well with the short-term pressure on
yearly and quarterly profits that publicly traded companies often
experience from their owners.
One consensus definition of bootstrapping sees it as "a
collection of methods used to minimize the amount of outside debt and
equity financing needed from banks and investors". The majority of businesses require less than $10,000 to launch, which means that personal savings are most often used to start. In addition, bootstrapping entrepreneurs often incur personal credit-card
debt, but they also can utilize a wide variety of methods. While
bootstrapping involves increased personal financial risk for
entrepreneurs, the absence of any other stakeholder gives the entrepreneur more freedom to develop the company.
Bootstrapping methods include:
- Owner financing, including savings, personal loans and credit card debt
- Working capital management that minimizes accounts receivable
- Joint utilization, such as reducing overhead by coworking or using independent contractors
- Increasing accounts payable by delaying payment, or leasing rather than buying equipment
- Lean manufacturing strategies such as minimizing inventory and lean startup to reduce product development costs
- Subsidy finance
Additional financing
Many
businesses need more capital than can be provided by the owners
themselves. In this case, a range of options is available including a
wide variety of private and public equity, debt and grants. Private equity options include:
Debt options open to entrepreneurs include:
- Loans from banks, financial technology companies and economic development organizations
- Line of credit also from banks and financial technology companies
- Microcredit also known as microloans
- Merchant cash advance
- Revenue-based financing
Grant options open to entrepreneurs include:
- Equity-free accelerators
- Business plan/business pitch competitions for college entrepreneurs and others
- Small Business Innovation Research grants from the U.S. government
Effect of taxes
Entrepreneurs are faced with liquidity constraints and often lack the necessary credit needed to borrow large amounts of money to finance their venture.
Because of this, many studies have been done on the effects of taxes on
entrepreneurs. The studies fall into two camps: the first camp finds
that taxes help and the second argues that taxes hurt entrepreneurship.
Cesaire Assah Meh found that corporate taxes create an incentive to become an entrepreneur to avoid double taxation.
Donald Bruce and John Deskins found literature suggesting that a higher
corporate tax rate may reduce a state's share of entrepreneurs. They also found that states with an inheritance or estate tax tend to have lower entrepreneurship rates when using a tax-based measure. However, another study found that states with a more progressive personal income tax have a higher percentage of sole proprietors in their workforce.
Ultimately, many studies find that the effect of taxes on the
probability of becoming an entrepreneur is small. Donald Bruce and
Mohammed Mohsin found that it would take a 50 percentage point drop in
the top tax rate to produce a one percent change in entrepreneurial
activity.
Predictors of success
Factors that may predict entrepreneurial success include the following:
- Methods
- Establishing strategies for the firm, including growth and survival strategies
- Maintaining the human resources (recruiting and retaining talented employees and executives)
- Ensuring the availability of required materials (e.g. raw resources used in manufacturing, computer chips, etc.)
- Ensuring that the firm has one or more unique competitive advantages
- Ensuring good organizational design, sound governance and organizational coordination
- Congruency with the culture of the society
- Market
- Business-to-business (B2B) or business-to-consumer (B2C) models can be used
- High growth market
- Target customers or markets that are untapped or missed by others
- Industry
- Growing industry
- High technology impact on the industry
- High capital intensity
- Small average incumbent firm size
- Team
- Large, gender-diverse and racially diverse team with a range of talents, rather than an individual entrepreneur
- Graduate degrees
- Management experience prior to start-up
- Work experience in the start-up industry
- Employed full-time prior to new venture as opposed to unemployed
- Prior entrepreneurial experience
- Full-time involvement in the new venture
- Motivated by a range of goals, not just profit
- Number and diversity of team members' social ties and breadth of their business networks
- Company
- Written business plan
- Focus on a unified, connected product line or service line
- Competition based on a dimension other than price (e.g. quality or service)
- Early, frequent intense and well-targeted marketing
- Tight financial controls
- Sufficient start-up and growth capital
- Corporation model, not sole proprietorship
- Status
- Wealth can enable an entrepreneur to cover start-up costs and deal with cash flow challenges
- Dominant race, ethnicity or gender in a socially stratified culture
