Various organizations and writers define "entrepreneurship" and "entrepreneur" in different ways. Nevertheless, these definitions of "entrepreneurship" tend to have some common features and suggest that entrepreneurship involves planning and starting a business, taking advantage of a business opportunity, assuming the risks of a business venture, and providing some kind of innovation. These characteristics are commonly associated with entrepreneurs—the people who engage in entrepreneurship—and their business ventures. While early discussion of entrepreneurs depicted them as business mavericks who started their own businesses for self-satisfaction and self-sufficiency, contemporary discussion views them as businesspeople who launch an innovative business to establish a major company that will earn profits for them and for investors. Moreover, entrepreneurship has became professionalized after business schools began offering many a course on entrepreneurship and entrepreneurial skills.
Entrepreneurship is generally a source of more entrepreneurship, as one entrepreneur's innovations pave the way for another's. The U.S. economy has always been fueled by the innovations and new products entrepreneurs bring to the market. Big businesses started out small, usually as one man or woman with a good idea and the willingness to work hard and risk everything. While it is true that about half of all new businesses fail, the ones that succeed contribute a great deal to the creation of other new ventures which leads, in turn, to a dynamic national economy.
Successful entrepreneurship depends on many factors, including the characteristics of the entrepreneur and the entrepreneur's economic environment. Of primary importance is a dedicated, talented, creative entrepreneur. The person who has the ideas, the energy, and the vision to create a new business is the cornerstone of any start-up. But the individual must have ready access to a variety of important resources in order to make the new venture more than just a good idea. He or she needs to develop a plan of action, a road map that will take the venture from the idea stage to a state of growth and institutionalization. He or she needs to put together a team of talented, experienced individuals to help manage the new venture's operations. Entrepreneurship also depends on access to capital, whether it be human, technological, or financial and on a liberal business environment that enables innovative people to implement their ideas. In short, entrepreneurship is a process that involves planning, implementation, and management as well as the cooperation of others in order to exploit an opportunity for profit.
One of the biggest problems among those who are interested in entrepreneurship is defining it. The multiplicity of the entrepreneur's motivations and goals leads to questions aimed at distilling the essence of entrepreneurship. To what or to whom does one refer when one uses the word? Is there any difference between a person who opens yet another dry cleaning establishment, sandwich shop, or bookstore and an entrepreneur? If so, what is it that separates the two? What characteristics define an entrepreneur and entrepreneurship itself? Historians and business writers have struggled with providing the answers. Even today, there is no widely accepted definition, but the variety of possibilities provides important clues as to what makes entrepreneurship special.
One of the first American writers to investigate the work of the entrepreneur in the national economy was Joseph Schumpeter. The famed Harvard economist argued that the defining characteristic of entrepreneurial ventures was innovation. By finding a new "production function" in an existing resource, a previously unknown means through which a resource could produce value, the entrepreneur was innovating. Innovation was broadly conceived; an innovation could take place in product design, organization of the firm, marketing devices, or process design. Nevertheless, innovation was what separated the entrepreneur from others who undertook closely related endeavors.
Arthur Cole, another Harvard professor, defined entrepreneurship as purposeful activity to initiate, maintain, and develop a profit-oriented business. The important part of this definition is that creating a new business organization is considered entrepreneurial. Cole's entrepreneur was a builder of profit-minded organizations and sought financial gain.' Whereas Cole's definition was concerned primarily with the monetary profits of the business world, Schumpeter made room for all organizational activities by broadly defining profits. That is, according to Schumpeter, profits do not have to come in dollars and cents.
Shapero and Sokol (1982) argued that all organizations and individuals have the potential to be entrepreneurial. They are at odds with those who try to describe entrepreneurship in terms of what makes an entrepreneurial organization different than others. Rather than focusing on the nature of an entrepreneurial organization, the object of Shapero and Sokol's study was the range of entrepreneurial activities themselves. They focused on what happens when an individual or an organization acts like an entrepreneur. Shapero and Sokol contend entrepreneurship is characterized by an individual or group's initiative taking, resource gathering, autonomy, and risk taking. Their definition could theoretically include all types and sizes of organizations with a wide variety of functions and goals. By defining an "entrepreneurial event" instead of entrepreneurship itself, Shapero and Sokol avoid the pitfalls inherent in trying to delineate what types of organizations can or cannot be entrepreneurial.
In his book Innovation and Entrepreneurship, Peter F. Drucker took the ideas set forth by Schumpeter one step further. He argued that Schumpeter's type of innovation can be systematically undertaken by managers to revitalize business as well as nonbusiness organizations. By combining managerial practices with the acts of innovation, Drucker argued, business can create a methodology of entrepreneurship that will institutionalize entrepreneurial values and practice. Drucker's definition of entrepreneurship—a systematic, professional discipline available to anyone in an organization—brings our understanding of the topic to a new level. He demystified the topic, contending that entrepreneurship is something that can be strategically employed by any organization at any point in its existence, whether it be a startup or a 200-year-old business. Drucker understood entrepreneurship as a tool to be implemented by managers and organizational leaders as a means of growing a business.
Following Shapero and Sokol, and Drucker, a variety of business scholars in the late 1990s expanded on these ideas, viewing entrepreneurship no longer as an individual enterprise alone and acknowledging the potential collaborative nature of entrepreneurship. That is, entrepreneurship has begun to be viewed as a team effort and many new, innovative businesses are launched by teams of entrepreneurs. In addition, innovative workers within existing companies are often thought of as entrepreneurs and are sometimes called "intrapreneurs."
As mentioned at the outset, most conceptions of entrepreneurship ascribe one or more of the following attributes to it: creating a new business, introducing innovations, and taking risks. While launching a new business is commonly held to be a central element of entrepreneurship, it is not an indispensable characteristic. While many entrepreneurs start new businesses, many others have acquired existing companies and thereby undertaken entrepreneurial enterprises by introducing innovations and taking risks. Ray Kroc, for example, obtained exclusive franchising rights from the McDonald brothers and went on to build the McDonald's franchise empire. Kroc expanded the fast-food chain by the innovative method of franchising, or granting the rights to independent business owners to use the McDonald's name and trademark and offer the company's products in exchange for fees and royalties. This method enabled Kroc to expand the company without investing a lot of his company's money or workers, since the franchise owners provided them.
Furthermore, Kroc applied other innovations to his hamburger restaurants. He standardized production and training, and focused on high quality and consistency in his products. Because of Kroc's innovations, none of his competitors were able to completely match McDonald's prices and quality. He introduced a new way of doing business that laid the groundwork for vast expansion and growth for his company. In addition, he provided an example of a new way of doing an old business, opening up opportunities for competitors interested in trying to match his success.
Entrepreneurs also face risks with their business ventures—whether they start a business from scratch or buy an existing one. Entrepreneurs assume the risks because they make significant investments in their ventures; hence, they experience gains or losses depending on the outcome of their endeavors. The risks stem from the unpredictability or variability of running a business. These risks include market uncertainties (whether customers will actually buy a new product or service), production uncertainties, and resource uncertainties. Entrepreneurs make assumptions about the business environment or market, usually based on market research and other market evidence, and they must make decisions based on these assumptions. For example, Kroc made assumptions about customer demand for standardized fast-food restaurants, which paid off, but they might not have.
In addition, entrepreneurship depends on an economic and business structure that allows businesspeople to launch start-up ventures and to be creative and innovative with these ventures. Furthermore, entrepreneurship needs positive economic conditions in order for entrepreneurial ventures to grow and produce profits. As Marc J. Dollinger points out in Entrepreneurship: Strategies and Resources, restrictive economies inhibit entrepreneurship, because businesspeople must negotiate layers of bureaucracy and red tape in order to launch a business.
Entrepreneurship is a catalyst for economic growth. Drucker suggested that the work of entrepreneurs drives free-market economies. Yet economists have been slow to recognize the central role played by entrepreneurs in driving growth. As creators of new organizations, entrepreneurs are giving others jobs and a chance to become part of growing organizations. With major companies restructuring and downsizing their organizations and with governments reducing their staffs to cut spending, entrepreneurship represents a growing source of new jobs and a method for absorbing displaced workers. The government has recognized the value of entrepreneurship and has fostered it in part by creating Empowerment Zones, a practice that helps fund entrepreneurial enterprises in certain areas needing additional develop.
In addition, to appreciate the enormous contributions made by entrepreneurs and their companies to national growth, one must look at how entrepreneurship and innovation positively influence the economy. Entrepreneurs drive the economy because they create wealth through innovation. Drucker argued that, "innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth." An entrepreneur adds wealth (or at least the potential for gain) to the economy when he or she presents the economy with new ways to use the resource as a means of gaining some kind of value. By discovering and exploiting a resource's previously hidden capacity for wealth creation, entrepreneurs are catalysts for economic growth. In addition to natural resources such as plants, animals, and minerals, the resource could be a physical thing, such as a new polymer or a piece of computer hardware. A resource could also be an intellectual concept such as a technological breakthrough, a patent for a drug, a trademark, or special expertise in a certain area such as marketing or advertising. Furthermore, the resources that can be leveraged in an entrepreneurial endeavor may include selling processes, distribution networks, or manufacturing techniques.
Entrepreneurship benefits the economy by facilitating the spread of innovation so that it benefits not only the original entrepreneurs but also their competitors. As suggested in the example above, McDonald's innovation acted as a catalyst for the explosive growth of the fast-food industry, which has become a significant part of the American economy. Kroc's innovation led to more innovations and more profit opportunities. The drive-through window, value meals, and a slew of new food products were introduced in the wake of his initial innovations. After seeing that Kroc and McDonald's profited from their innovations, competitors spent money trying to copy his techniques. The first improvement, the first creative step led to more profits and growth not only for his organization but also for a host of imitators.
Jeffry Timmons, one of the most respected commentators on the topic of entrepreneurship, has defined the term in his book The Entrepreneurial Mind as "the ability to create and build something from practically nothing." His definition captures the spirit of the word, the sense that entrepreneurs are like magicians, creating thriving organizations out of good ideas and a lot of sweat. Timmons's words hint at the myths inherent in the common understanding of entrepreneurship. They bring to mind the great entrepreneurs who have become American icons, national celebrities because of their ability to almost magically create their business success. Men and women of popular lore such as King Gillette, Mrs. Fields, Colonel Sanders, Ray Kroc, Steven Jobs, Mary Kay, Ben and Jerry, and Bill Gates have taken a place in the spotlight of American business mythology.
Many businesspeople believe that entrepreneurs have a personality that is different than everyone else's. Entrepreneurs have "the right stuff." But what does that consist of? While it is hard to generalize about what it takes to be a successful entrepreneur, some personality traits seem to be more important than others. Entrepreneurs generally are characterized as being assertive, self-motivated, efficient, diligent, capable of planning and following plans, perceptive, willing to take risks, and committed to their businesses and to their employees, clients, and customers.
But there are other, less obvious, personality characteristics that an entrepreneur should develop as a means of further ensuring their success. In his book Entrepreneurship: Texts, Cases, Notes, Robert C. Ronstadt indicated some of the traits that help entrepreneurs build thriving organizations. Chief among these, Ronstadt numbered creativity and the ability to tolerate ambiguous situations.
Creative solutions to difficult problems may make or break the young and growing business; the ability of an entrepreneur to find unique solutions could be the key to his or her success. One of the most vexing situations entrepreneurs face is the allocation of scarce resources. For instance, owners of new ventures need to be able to decide how to best use a small advertising budget or how best to use the computer available to them. Furthermore, they must be creative in their ability to find capital, team members, or markets. Entrepreneurs bank their businesses on their ability to make do with the limited resources available to them.
In addition to being creative, an entrepreneur must be able to tolerate the ambiguity and uncertainty that characterize the first years of a new organization. Inevitably, business or market conditions are going to change, causing uncertainty for the venture and for the entrepreneur. Being creative enables entrepreneurs to more successfully manage businesses in new and ambiguous situations, but without the ability to handle the pressure that uncertainty brings upon an organization, the entrepreneur may lose sight of his or her purpose.
Often, personal or work history has led individuals to be more open to taking the risks involved with undertaking a new venture. For instance, individuals who know successful entrepreneurs may be stimulated to try their hand at running their own business. The successful entrepreneurs act as role models for those thinking about undertaking a new venture, providing proof that entrepreneurship does not always end in bankruptcy. Furthermore, Robert H. Brockhaus Sr. pointed out that dissatisfaction with previous employment often is related to a person's interest in entrepreneuring. Those who have been dissatisfied with working for others or who have had negative work experiences are more likely to be willing to tolerate the ambiguity that characterizes new ventures. Personal experience and work history work in conjunction with personality traits to bring out the entrepreneurial spirit in individuals, pushing them towards the process of entrepreneurship.
Sometimes, the myths that have grown up around the great entrepreneurs in America have focused more on the personality of the individual than on the work that he or she did to create a prosperous organization. What sticks in our memories are the qualities of a great entrepreneur, those personality traits that "make" a great businessperson. Successful entrepreneurs, however, work hard to build their organizations, starting from little and undertaking a process that results in a thriving business. Even the best ideas were profitable only because the entrepreneur went through the steps necessary to build a company from scratch. Successful new ventures do not appear magically out of the swirl of the market—they are planned, created, and managed.
It is important to understand some of the stages a businessperson must go through in order to create a successful entrepreneurial venture. All entrepreneurs go through three very general stages, each of which may involve several substages, in the process of creating their ventures:
The three stages can overlap and there may be times when an entrepreneur may be doing all three stages at one time. Moreover, the stages do not necessarily follow sequentially. Nevertheless, the decisions made in the first stage tend to lay the framework for the rest of the organizational activity.
Prior to considering business ideas, much of the literature on entrepreneurship recommends that entrepreneurs examine their own motivations and their commitment to starting a business, which involves asking why they want to go into business, what types of businesses match their skills and interests, and whether they are willing to risk property and money in a business venture. The answers to these questions will provide the framework for future planning, growth, and innovation. In addition, entrepreneurs should identify their personal goals for the business venture.
Therefore, entrepreneurs should consider whether starting a new business will enable them to meet their goals. Some entrepreneurs want to make a certain return on their efforts and investment or are looking to run a business that will afford them a certain lifestyle. Others are looking to capture a certain percentage of the market. Still others go into business for themselves because it would afford them the independence and freedom that working for someone else would not. Before taking the plunge, prospective entrepreneurs should investigate the extent to which their envisioned business will give them an opportunity to meet their goals.
Once entrepreneurs have answered these questions, they can begin the entrepreneurial process with far greater personal insight and information. Before any business opens its doors, it must make crucial decisions about the way the business will be run. The first step in the entrepreneurial process is the planning stage, the time when the entrepreneur generates ideas about the opportunity he or she will pursue and on what innovations the organization will be based. The first stage is where the entrepreneur determines what kind of potential market exists for the business and forms a rough idea of how to penetrate that market. During the planning stage, the entrepreneur must answer hard questions about the potential business: Does the market need this product or service? Is there a currently needed product failing to meet market demands in some way? Is the market not being served because of undercapacity or location gaps? Will this product or service meet the demands of the market competitively (and profitably)? After entrepreneurs answer these and other related questions they must evaluate their business venture ideas by collecting data about the market and their type of business to determine if such a venture is feasible.
A new business can be opened by anyone with the capital and time to do it. Nevertheless, businesses that will be successful, that will remain viable for years and employ others, must be strong financially. Among the first questions an entrepreneur should ask are those that explore the potential profitability of the venture. The entrepreneur should be able to estimate sales and selling expenses as well as other costs of doing business. In order to develop a sense of the economic feasibility of a venture, the entrepreneur should ask: How big is the potential market for the product or service? Is it a regional or national market? Are businesses currently making money in the market? How much capital will it take to get the business up and running? Who are the competitors? Quantitative analysis of the opportunity is a vital part of the conceptualization of the business. The results of "running the numbers" and creating a set of figures with which the future can be planned, will enable the entrepreneur to determine whether the potential business will be profitable.
After doing research and testing the business idea for feasibility, entrepreneurs can decide whether to pursue the intended business or not. If not, they must start over and find a more feasible idea. Once the decision to pursue a line of business has been made, the entrepreneur develops a detailed business plan, which includes its strategy, operational/company structure, marketing techniques, and financial proposal, according to John B. Vinturella in The Entrepreneur's Fieldbook. When coming up with a strategy, entrepreneurs must determine the objectives of their businesses and how they plan to take advantage of the opportunities available. Operational structure refers to the structure and scope of a company, which encompasses planning the location, the equipment and supplies needed, and what, if any, kind of distribution system is needed. Marketing planning entails considering how a company wants to differentiate itself from competitors: whether by differences in products or services, prices, promotions, or location. Finally, the business plan should include a financial proposal that delineates how much money an entrepreneur will need to launch the company and to cover expenses during the first stage of business. In addition, this proposal should contain sales forecasts and the ownership structure of the company.
Once the planning is completed, entrepreneurs are ready to begin implementing their plans by gathering the necessary resources. After entrepreneurs have the necessary resources, they can start operating their businesses. Without a sufficient supply of resources the opportunity might never be turned into a business that makes money for the entrepreneur. In the resource gathering stage entrepreneurs begin to assemble the tools that they will need to profit from the opportunity. In order to create a viable organization an individual entrepreneur has to be ready and able to manage the resources at his or her disposal, bringing them together in ways that are advantageous and efficient. In general, entrepreneurs have to gather three types of primary resources: capital, human/managerial, and time.
Capital can be financial (in the form of cash, stock ownership, or loans), intellectual (patents, trademarks, brand names and copyrights), and technical (innovations in design or production that competitors can not or will not duplicate). Therefore, resources could mean anything from a Small Business Administration loan, to signing contracts with distributors or sales representatives, to signing a lease on office space.
Human resources refers to the individuals who will help the entrepreneur take advantage of the opportunity, either as employees of the new organization or as paid and unpaid counselors. A computer systems manager or a marketing manager or a good accountant could also be resources, tools that the entrepreneur will use to build his or her business team.
Of the resources available to an entrepreneur, one of the most important is time. When an opportunity becomes apparent, most people realize it will not last forever. There is a "window of opportunity" that will close at some time in the future. For instance, a business based on a patented technological innovation has a certain amount of time to operate before the patent expires and competitors can duplicate the innovation. When the patent expires, the competitive advantage held by the business is diminished or gone. Other businesses may be based on selling to a new or unique market. The entrepreneur who runs the business has a certain amount of time before potential competitors notice that the business is (or will be) profitable. In that time frame—the window of opportunity—the entrepreneur who found the opportunity must manage resources so that the business is established and protected from the threat of competition. The time which is available to exploit the opportunity is another dimension, another resource, which the entrepreneur must manage. The entrepreneur must try to exploit the opportunity while the "window" remains open.
However, the entrepreneur's job is not done after launching a business venture. Once the business is up and running, the entrepreneur enters a third stage of entrepreneurship: new venture management. The entrepreneur goes from being just a visionary to a visionary-with-a-business-to-run and so his or her activities become even more varied. The entrepreneurial process demands that the activities of the entrepreneur change to meet the needs of a dynamic business.
One way to examine the changing managerial activities of the entrepreneur is to look at the different roles filled by the entrepreneur as the business develops. In her book Entrepreneurial Behavior, Barbara J. Bird examined entrepreneurial roles and their place in the management of ventures. The first role most entrepreneurs fill is that of the organization creator. As the instigator of the organization, the entrepreneur sets the philosophy of the organization, establishes the strategic focus and educates new employees. In this role, the entrepreneur lays the groundwork for the emerging corporate culture.
Another role Bird argued most entrepreneurs must fill is the promoter role. They must act as the new venture's chief salesperson in contacts with financial backers, prospective clients, employees, suppliers, and others. In many cases, the entrepreneur acts as a role model or a mentor to others in the organization. As founders (or founding team members) of organizations, entrepreneurs are often called upon to provide counsel or advice to community members or employees. The roles that an entrepreneur must fill demand flexibility and creativity. In order to successfully manage a new venture, an entrepreneur must be comfortable in all the roles.
Even more important than being able to juggle the multiple entrepreneurial roles, entrepreneurs must be able to balance the activities of leadership and his or her managerial duties. In short, leaders are trying to make important strategic decisions. They are attempting to do the things they believe will lead to a successful organization. Managers, on the other hand, are more concerned with the day-to-day operations of the business. Bird argued that managers are resource-driven and leaders are opportunity-driven. It is a precarious relationship, but entrepreneurs must be both managers and visionaries in order to build their organizations. A successful entrepreneur has to avoid getting caught up in the details of management such that he or she loses sight of the larger mission that guides the new venture.
The mission of the new venture can only be fulfilled if the entrepreneur remains entrepreneurial throughout the life of the organization. That is, innovation has to be a primary strategy of the venture. Drucker pointed out that the venture must be receptive to innovation and open to the possibilities inherent in change. Change must be seen as a positive for a business to remain entrepreneurial. Therefore, management of an entrepreneurial organization requires policies that encourage innovation and rewards those who innovate. If the venture is to remain dedicated to entrepreneurship, management has to take the lead in establishing the patterns that will lead to a dynamic, flexible, and vital organization.
SEE ALSO : Intrapreneurship
Arenzi, Sergio. "Entrepreneurship and Job Creation." OECD Observer, December-January 1997, 18.
Bird, Barbara J. Entrepreneurial Behavior. Glenview, IL: Scott, Foresman and Co., 1989.
Casson, Mark, ed. Entrepreneurship. Brookfield, VT: Edward Elgar Publishing, 1990.
Dollinger, Marc J. Entrepreneurship: Strategies and Resources. Upper Saddle River, NJ: Prentice Hall, 1999.
Drucker, Peter F. Innovation and Entrepreneurship. New York: Harper & Row, 1986.
——. "Our Entrepreneurial Economy." Harvard Business Review, January-February, 1984, 59-64.
Kent, Calvin A., Donald L. Sexton, and Karl H. Vesper, eds. Encyclopedia of Entrepreneurship. Englewood Cliffs, NJ: Prentice-Hall, 1982.
Vinturella, John B. The Entrepreneur's Fieldbook. Upper Saddle River, NJ: Prentice Hall, 1999.