The Nature & Importance of Entrepreneurs

Chapter One

(American Entrepreneur)

(English entrepreneur)

Do the profile of these people fit your perception of the career of an entrepreneur?

What does it takes to start and operate a successful business

To understand this better, learn about

ENTREPRENEUREntrepreneur is derived from the French

words entre, meaning, between, and prendre, meaning “to take”.

Originally to describe people who “take on the risk” between buyers and sellers or who undertake a task such as starting a new venture.

An entrepreneur assembles and then integrates all the resources needed – to transform the invention into a viable business

WHO IS THE ENTREPRENEUR?

Inventor Entrepreneur

Manager,Administrator

Promoter

Creativity

and

Innovation

Low

High

High

General management skills, business know-how, and networks

Timmons

ENTREPRENEURSHIP

• Is the process by which individuals pursue opportunities without regard to resources they currently control.

• The essence of entrepreneurial behavior is identifying and putting useful ideas into practice.

• The task typically requires creativity, drive and willingness to take risks that can be accomplished by either an individual or a group

Historical Evolution Of Entrepreneurship

Earliest Period Middle Ages 17th Century 18th Century 19th & 20th Century

EARLIEST PERIOD

the earliest definition of entrepreneur may be related to the person (merchant – adventurer) who attempted to establish trade routes to the far east

they would sign a contract with money person to sell his goods.

the capitalist was a passive risk bearer. merchant adventurer took the active role in trading

bearing all the physical and emotional risks while the capitalist was a passive risk bearer.

when he completes the trip, the profits divided (capitalist – 75% , adventurer – remaining 25%)

MIDDLE AGES

• the term was used to describe both an actor and a person who managed large production projects

• did not take any risks but merely managed using the resources provided usually by the government of the country

• a typical entrepreneur in the middle ages was cleric – the person in charge of great architectural works, such as castles and fortifications, public buildings, abbeys and cathedrals

17TH CENTURY

– Re emergent connection of risk with entrepreneurship– entrepreneur being a person who entered into contractual

agreement with government to perform a service or supply stipulated products. since the contract price was fixed, any resulting profit or losses were entrepreneur’s

– during this period, one entrepreneur John Law,– established a royal bank then evolved as a trading company unfortunately led to downfall when he attempted to push the company’s stock price higher than the value of assets, leading to collapse.

– this led to the first definition given by Richard Cantillon, an economist and author

18TH CENTURY

• Finally , the person with capital was differentiated from one who needed capital (in other words the entrepreneur was distinguished from the capital provider )

• Many inventions developed during this time and changed the world

• Inventors like Eli Whitney and Thomas Edison developed new technologies, both raise capital from private sources to develop and experiment (capital users not providers)

• a venture capitalist who makes risk investments from a pool of equity capital to obtain a high rate of return on investments

19TH CENTURY

Entrepreneurs not distinguished from managers and were viewed from an economical perspective.

an entrepreneur organizes and operates for personal gain.

For eg., Andrew Carniege, descended from poor Scottish family made the American steel industry one of the wonders– invented nothing but adapted new tech in the creation of products to achieve economic vitality

20TH CENTURY

• the notion of an entrepreneur as an innovator was established

• The concept of innovation and newness is an integral part of entrepreneurship.

• The newness can consist of anything from a new product to a new distributions system to a method for developing a new organizational structures

CONTRIBUTORS TO THE ENTREPRENEURSHIP THEORY

• 18th Century:– 1725: RICHARD CANTILLION ( person

bearing risks is different from one supplying capital)

• 19th Century:– 1803: JEAN BAPTISTE SAY (separated profits

of entrepreneur from profits of capital)– 1876: FRANCIS WALKER (distinguished

between those who supplied funds and received interest and those who received profit from managerial capabilities)

CONTRIBUTORS TO THE ENTREPRENEURSHIP THEORY

• 20th Century:– 1934: JOSEPH SCHUMPETER (entrepreneur

is an innovator and develops untried technology)

– 1961: DAVID McCLELLAND (entrepreneur is an energetic, moderate risk taker)

– 1964: PETER DRUCKER (maximizes opportunities)

CONTRIBUTORS TO THE ENTREPRENEURSHIP THEORY

– 1975: ALBERT SHAPERO (takes initiative, organizes some social and economic mechanisms, and accepts risks of failure)

– 1980: KARL VESPER (entrepreneur seen differently by economists, psychologists, business persons and politicians)

– 1983: GIFFORD PINCHOT (intrapreneur is an entrepreneur within an already established organization)

DEFINITIONS

Richard Cantillon

One of the early theorist, founder of the term entrepreneurship

He viewed the entrepreneur as a risk taker by observing merchants, farmers, craftsmen…

“Buy at a certain price and sell at an uncertain price , therefore operating at a risk”

DEFINITIONS

Jean Baptiste Say

Entrepreneurs shift economic resources out of areas of lower and into areas of higher productivity and yield

Joseph Schumpeter

The function is to reform or revolutionize the pattern of production by exploiting an invitation or more generally an untried technological method of producing a new commodity or producing an old one in a new way , opening a new source of supply or new outlet for products, by organizing a anew industry

Peter Drucker

The entrepreneur always searches for change, responds to it, and exploits it as an opportunity

Howard Stevenson

Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled

DEFINITIONS

DEFINITIONSRobert C. Ronstadt 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.

Robert HisrichEntrepreneurship is the process of creating something new with value by devoting their necessary time and effort assuming the accompanying financial, psychic and social risks and receiving the resulting rewards of monetary and personal satisfaction and independence

AN INTEGRATED DEFINITION

Entrepreneurship is a dynamic process of vision, change, and creation. It requires an application of energy and passion towards the creation and implementation of new ideas and creative solutions.

All definitions of entrepreneurship includes

• Newness, organizing, creating, wealth and risk taking

• Entrepreneurs are found in all professions

• Individuals have difficulty bringing their ideas to the market & creating a new venture

• Yet entrepreneurial decisions have resulted in several new businesses through out the world

• Despite recession- inflation- high interests rate, lack of infrastructure-economic uncertainty & high probability of failure

Deciding to become an entrepreneur by leaving present activity

Changing from present life style

Work Environment

Disruption

Types of Start-Ups

• Lifestyle firm-a small venture that supports the owners and usually does not grow

• Foundation Company-is created from research and development that usually does not go public.

• High-potential venture-has high growth potential and receives the greatest investment interest and publicity.

• Gazelles-very high growth ventures.

ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

• More than per capita and income, it involves change in business and society. This change is accompanied by growth and increased output, which allows more wealth to be divided among the various participants

• What facilitates needed change and development?

• One theory of economic growth depicts innovation as the key not only in developing new products but also stimulating investment interest in the new ventures being created. The new capital created expands the capacity for growth

• It is the process through which innovation develops and commercializes through entrepreneurial activity which in turn stimulates economic growth

Economic Impact of Entrepreneurial Firms

• Innovation– Is the process of creating something new, which is central to

the entrepreneurial process.

– Small firms are twice as innovative per employee as large firms.

• Job Creation– In the past two decades, economic activity has moved in the

direction of smaller entrepreneurial firms, which may be due to their unique ability to innovate and focus on specialized tasks.

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Entrepreneurial Firms’ Impact on Society and Larger Firms

• Impact on Society– The innovations of entrepreneurial firms have a dramatic

impact on society.

– Think of all the new products and services that make our lives easier, enhance our productivity at work, improve our health, and entertain us in new ways.

• Impact on Larger Firms– Many entrepreneurial firms have built their entire business

models around producing products and services that help larger firms become more efficient and effective.

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Role of Entrepreneurship in Economic Development

• Product evolution process-process for developing and commercializing an innovation

• Iterative Synthesis-the intersection of knowledge and social need that starts the product development process

• Ordinary innovations-new products with little technological change

• Technological innovations- new products with significant technological innovation

• Breakthrough innovation- extremely unique innovations that sets the basis for further innovation.

The future of Entrepreneurship

• In spite of the difference conceptual perspectives, there are common aspects: risk taking, creativity, independence & rewards

• The future– we are living in the age of entrepreneurship!