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ENTREPRENEURSHIP

• OBJECTIVES

• LECTURES NOTES

• Introduction

• An Entrepreneurial Perspective.

• Defining Entrepreneurship.

• Traits versus Characteristics.

• Creative as a prerequisite to
Innovation.

• Innovation and Entrepreneurship.

• Significant ways for new

enterprise.

• TRANSPARENCIES

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ENTREPRENEURSHIP

Objectives

Define Entrepreneurship and discus the characteristics of Entrepreneurs.

Discus the importance of creativity and innovation to Entrepreneurship.

Compare and contrast the attitudes and behavior of entrepreneurial manager and the
trustee with respect to creativity and innovation.

Explain the innovation process, the characteristics of innovative organizations, the

critical innovation roles, and the barriers to innovation in the organizations.

Compare and contrast power bases, managerial behaviors, and advantages and
disadvantages associated with alternative planned change strategies.

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Lectures Notes

ENTREPRENEURSHIP1

INTRODUCTION2
The concept of entrepreneurship has been around for a very long time, but its
resurgent popularity implies a ”sudden discovery”, as if we had stumbled onto a new
direction for American enterprise. This is a myth, as we shall see, because the
American system of free enterprise has always engendered the spirit of
entrepreneurship. America was discovered by entrepreneurs, and the United States
became a world economic power through entrepreneurial activity. More important, our
future rests squarely on entrepreneurial ventures founded by creative individuals. They
are inspired people, often adventurers, who can at once disrupt a society and instigate
progress. They are risk takers who seize opportunities to harness and use resources in
unusual ways, and entrepreneurs will thrust us into the twenty-first century with a
thunderous roar.

An Entrepreneurial Perspective

• Entrepreneurship is one of the four mainstream economic factors: land, labor,

capital, and entrepreneurship.

• The word itself, derived from 17th-century French entreprendre, refers to

individuals who were “undertakers”, meaning those who “undertook” the risk of new
enterprise. They were “contractors” who bore the risks of profit or loss, and many
early entrepreneurs were soldiers of fortune, adventurers, builders, merchants, and,
incidentally, funeral directors.

• Early reference to the entrepreneur in the 14th century spoke about tax
contractors individuals who paid a foxed sum of money to a government for the
license to collect taxes in their region.

• In the 19th century, entrepreneurs were the “captains of industry”, the risk
takers, the decision makers, the individuals who aspired to wealth and who
gathered and managed resources to create new enterprises.

1
USE TRANSPARENCIES SLIDES ENTRE1.PPT
2
Holt, David H., Entrepreneurship: New Venture Creation, Prentice Hall: 1992.

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• Notable early French, British, and Austrian economists wrote enthusiastically

about entrepreneurs as the “change agents” of progressive economies.

Economics and Entrepreneurship

• Richard Cantillon, a French economist, was credited with giving the

concept of entrepreneurship a central role in economics. In his Essaisur la
nature du commerce en général, Cantillon described an entrepreneur as a
person who pays a certain price for a product to resell it at an uncertain price,
Thereby making decisions about obtaining and using resources while
consequently assuming the risk of enterprise. A critical point in Cantillon’s
argument was that entrepreneurs consciously make decisions about resources
allocations.

• Adam Smith spoke of the “enterpriser” in his 1776 Wealth of Nations as

an individual who undertook the formation of an organization for commercial
purposes. In Smith’s view, entrepreneurs reacted to economic change, thereby
becoming the economic agents who transformed demand into supply.

• French economist Jean Baptiste Say, in his 1803 Traité d’ éeconomie

politique, described an entrepreneur as one who possessed certain arts and
skills of creating new economic enterprises, yet a person who had exceptional
insight into society’s needs and was able to fulfill them.

• In 1848, British economist John Stuart Mill elaborated on the necessity

of entrepreneurship in private enterprise. The term entrepreneur subsequently
became common as a description of business founders, and the “fourth factor”
of endeavor was entrenched in economic literature as encompassing the
ultimate ownership of a commercial enterprise.

• Carl Menger (1840-1921) established the “subjectivist perspective of

economics” in his 1871 Principles of Economics. The entrepreneur becomes,
therefore, the change agent who transforms resources into useful goods and
services, often creating the circumstances that lead to industrial growth.
However, Menger saw the entrepreneur as an astute individual who could
envision this transformation and create the means to implement it. Menger
assigned priority numbers to different events in this chain so that a high-priority
event would have a low number (e.g., 1) and would be an ultimate “end use” to
satisfy a human need. At the other extreme, Menger assigned a low-priority
event with a high number (e.b., 8), and this might represent raw material needed
to create the number 1 event; fields of unharvested wheat would have a low
priority.

Entrepreneurship as a Process

• Joseph Schumpeter, Austrian economist revived the concept of

entrepreneurship when he joined Harvard University and his work was
published in the United States in 1934. Schumpeter described

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entrepreneurship as a force of “creative destruction” whereby established

ways of doing things ate destroyed by the creation of new and better ways
to get things done.

Defining Entrepreneurship

• The entrepreneur seeks, in Schumpeter’s word,

to reform or revolutionized the pattern of production by exploiting an

invention or, more generally, an untried technological possibility for
producing a new commodity or producing an old one in a new way, by
opening up anew source of supply of materials or a new outlet for
products . . . . Entrepreneurship, as defined, essentially consists in doing
things that are not generally done in the ordinary course of business
routine.

• The evolution of the concept has generated many definitions, but

perhaps a recent one by writer Robert Ronstand captures its essence. we
shall use Ronstad’s definition of entrepreneurship:

Entrepreneurship is the dynamic process of creating incremental wealth.

This wealth 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.

Traits versus Characteristics

In an effort to understand entrepreneurs better, researchers have sought to

define traits common to a majority of individuals who start and operate new ventures.
John Hornaday of Babson College was among the first to use surveys and intense
interviews to develop a composite list of entrepreneurial traits,

Characteristic of Successful Entrepreneurs

Self-confident and optimistic Energic and diligent

Able to take calculated risk
Respond positively to challenges
Flexible and able to adapt
Knowledgeable of markets
Able to get along well with others
Independent minded
Creative, need to achieve
Dynamic leader
Responsive to suggestions
Take initiatives
Resourceful and persevering
Perceptive with foresight

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Versatile knowledge Responsive to criticism

Entrepreneurship and Innovation

Creative as a prerequisite to innovation

• The terms creativity and innovation are often used to mean the thing, but each
has a unique connotation.

1. Creativity - is “the ability to bring something new into existence. This

definition emphasizes the “ability”, not the “activity”, of bringing
something new into existence.

2. Innovation - is the process of doing new thing.

• Innovation, therefore, is the transformation of creative ideas into useful

applications, but creativity is a prerequisite to innovation.

The Creative Process

• Entrepreneurs need ideas to pursue, and ideas seldom materialize accidentally.

Ideas usually evolve through a creative process whereby imaginative people,
germinate ideas, nuture them, and develop them successfully.

• Various labels have been applied to stages in the creative process, but most
social scientist agree on five stages that we label as:

• Idea Germination
• Preparation
• Incubation
• Illumination
• Verification

A model of the creative process:

Idea Germination: Preparation: Incubation:

The seeding Conscious Subconscious
stage of a search for assimilation of
new idea knowledge information
Recognition Rationalization Fantasizing

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Illumination: Verification:
Recognition of Application or
ideas as being test to prove
feasible ideas has value
Realization Validation

Innovation and Entrepreneurship

• It is important to recognize that innovation implies action, not just conceiving

new ideas. When people have passed through the illumination and verification
stages of creativity, they may have become inventors, but they are not yet
innovators.

• The difference between invention and innovation is:

1. Invention - is the creation of new products, processes, and technologies not

previously known to exist.
2. Innovation - is the transformation of creative ideas into useful applications
by combining resources in new or unusual ways to provide value to society
for or improved products, technology, or services.

• Elements in the Innovation Process

1. Analytical Planning - to identify: product design, market strategy,

financial need

2. Organizing Resources - to obtain: materials, technology, human

resources, capital

3. Implementation - to accomplish: organization, product design,

manufacturing, services

4. Commercial Application - to provide: value to customers, reward of

employees, revenues for investors, satisfaction for founders

Your own new enterprise serves your interest in significant

ways:

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Salary. Nothing can spin out money like a profitable company. You should, in
time, be able to make a far higher salary that you could ever earn working for
someone else.

Security. If you can consistently earn a big salary for many years running, you
can take long step toward security. Beyond that lies a company profit-sharing
plan, a retirement program, started at the moment that you company enter
black, that will pile up a splendid asset for your later years.

Assets builder. As your company grows and become more profitable, it takes
on value. It becomes a separate unit which can be sold for a sum money.
Naturally, the more profitable it becomes , the more it is worth.

Perks. A company allows you the use of an automobile for business purposes,
along with a host of other small advantages. it will make you a short-term loan
or pay for your home security system.

Independence. Your own business can set you free from financial worries. It
removes the necessity to beholden to an employer. It allows you
independence and freedom from bosses and supervisors.

Fulfillment. The excitement and challenge of your own enterprise makes life
immensely stimulating. You derive a deep, psychological satisfaction from
“doing business”, and you banish boredom and restlessness from your life.

Entrepreneur: What's In a Definition?

How do we define "entrepreneur"? Is there anything to be learned about entrepreneurship
and building a business by studying the definition? Or, is studying the historical
definition of "entrepreneur" just an academic exercise?
Let's look at how some small business experts define the word "entrepreneur":
Bob Reiss, successful entrepreneur and author of Low-Risk, High-Reward: Starting and
Growing Your Small Business With Minimal Risk, says: "Entrepreneurship is the
recognition and pursuit of opportunity without regard to the resources you currently
control, with confidence that you can succeed, with the flexibility to change course as
necessary, and with the will to rebound from setbacks."
A key factor in Reiss's definition is that entrepreneurs undertake opportunities regardless
of the resources the entrepreneur currently controls. I've known many people who say
they'd love to start a business, but they just don't have the money to get started. Neither
did many of history's greatest entrepreneurs like Michael Dell, who started his computer
company in his college dorm room or Lillian Vernon, who started her mail-order
business when she was a housewife looking for extra income. These successful
entrepreneurs didn't start rich and successful. They ended rich and successful.
Entrepreneurs find ways to acquire the resources they need to achieve their goals. One of
those resources is capital. "Entrepreneurial" is often associated with venturesome or
creative. Be creative in acquiring the resources you need to build and grow your

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business. Think outside the box and you'll improve your chances of acquiring what you
need to succeed.
Linda Pinson, author of much of the SBA's material about writing a business plan and
creator of business plan software (business-plan.com) says: "I have always thought of an
entrepreneur as a person who starts a business to follow a vision, to make money, and to
be the master of his/her own soul (both financially and spiritually). Inherent in the
venture is the risk of what the future may bring. Therefore, I believe that an essential key
to success is that the entrepreneur also be an "educated" risk taker.... "
Pinson continues: "I think that there is a general admiration for the entrepreneur who has
a skill and bravely jumps into the middle of the fire hoping not to get burned. If he
makes it, he is our shining example of who we want to be. If he does not, we say, "Oh,
well" and pay no heed to the plight of his venders, associates, and customers who have
been burned in the process. The view, though, I think is rapidly changing because a large
percentage of American entrepreneurs have not been successful. Their industry
knowledge and skills have been everything we could hope for......but their business skills
have been sorely lacking. I think it is now recognized that the "educated risk taker" will
win the race."
Pinson makes two key points. First, many entrepreneurs want to be masters of their own
fate and they can't find this outside of entrepreneurship. While studies have shown that
people derive tremendous satisfaction from their work, how many people are really doing
exactly what they want to be doing? Entrepreneurs are usually doing what they want, or,
at least, they are doing something which they feel gives them control over their future.
Entrepreneurs like to be in control of their future. They like to set their own course.
Many entrepreneurs feel that running a business offers far more security than being an
employee. Entrepreneurs often argue that you can acquire wealth much faster if you own
a business and you can build a buffer of personal financial security. Further, an
entrepreneur's continued paycheck isn't dependent upon a single employer whose faulty
business decisions could lead to being laid off. So, while some people see starting a
business as more risky than conventional employment, other people see it as less risky.
Pinson's second point is the growing awareness of "professional entrepreneurship."
Today, more people aren't just starting one business. They are starting one business
followed by another and often another. Such entrepreneurs are sometimes called "serial
entrepreneurs." Sometimes these people become angel investors who invest their own
money into start-up companies. The more you understand about business and
entrepreneurship, the better your chance of succeeding in business. Become an educated
risk taker.
Pinson reminds us that entrepreneurs have a certain responsibility not only to themselves
but also to their customers, suppliers, and associates.
Gillian Murphy, leader of San Joaquin Delta College Small Business Development
Center, says: "An entrepreneur is not static but fluid...continues to seek opportunities
and/or different methods of operation. When I think of someone with 'an entrepreneurial
spirit,' I think of a person who will do whatever it takes to be successful in business, e.g.,

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A former client wanted to open a business in a specific strip mall. However, there were
no vacancies. He sought out a business that didn't appear to be very healthy. The business
owner agreed to my client's suggestion of dividing her premises, leaving her with
reduced rent, inventory needs, and general operations. In turn, my client "found" a
location where he could operate his business!"
Murphy again shows the value of creativity in acquiring the necessary business
resources. Thinking outside the box or taking creative approaches can often gain access
to resources that appear unavailable to less entrepreneurial-minded people. Further,
entrepreneurs are willing to propose unique ideas to potential partners or to negotiate
unconventional deals to get what they want.

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