DATE: 24, FEB 2013

GMAG 412

ENTREPRENEURSHIP
GREENWICH UNIVERSITY

Assignment # 1

Introduction to Entrepreneurship

SUBMITTED TO: MR. ASSAD HUMAYUN SUBMITTED BY: UMAIR ZIA (BS37 3174)

Entrepreneurship Entrepreneurship is one of the fastest growing fields in colleges and universities around the world, However it is argued that there is still much work to be done in defining entrepreneurship and clarifying how it relates to the firm. In economics and strategic-management literature, a realistic understanding of entrepreneurship has been given by the neoclassical economics with the assumptions of perfect competition and production functions, however much work is focused on understanding the relationship between entrepreneur and the firm. In real life, entrepreneurs within different firms are not in perfect competition and do not have accurate production curves that they can passively follow. Rather, they must take actions that they feel will lead to the best outcomes for the firm. The Austrian School of economics' draws view of heterogeneous capital goods and an active, thinking entrepreneur to establish their definition of entrepreneurship. They explore seven different conceptions of entrepreneurship, discussing each and how they connect entrepreneurship with the firm.

Following are the seven different approaches to entrepreneurship given by the new theory of entrepreneurship by the Austrian school of economics; 1. Entrepreneurship as small business management: In this approach, entrepreneurship is strictly linked with firms that qualify as small businesses. It deems with all aspects of small or new business, while excluding the identical tasks that may not be performed by large or established business. This

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structural approach to entrepreneurship is one of the weakest yet still holds influence among colleges and universities today. 2. Entrepreneurship as imagination and creativity: When defined by personal, psychological characteristics such as imagination and creativity, entrepreneurship becomes a specialized activity or a skill that some individuals are particularly well-equipped to perform. Using this conception, entrepreneurship has no observable connection to the theory of the firm. The services of imaginative or creative people could be purchased when necessary by the firm. 3. Entrepreneurship as innovation: This conception of entrepreneurship was championed by economist Joseph Schumpeter. He argued the entrepreneur introduces "new combinations" of ideas and resources and dynamically shakes up the economy out of its previous equilibrium state. Schumpeter called this process "creative destruction." The entrepreneur is the source of economic change. In this conception, entrepreneurship is only demonstrated within the firm when it introduces new products, processes, or strategies. The regular day-to-day operation of the firm has nothing to do with entrepreneurship. The firm's nature and structure has no effect on the level of entrepreneurship. Thus the connection between entrepreneur and firm is weak. 4. Entrepreneurship as alertness to opportunity: This conception is most attributed to economist Israel Kirzner. "Opportunities" have come to be defined as situations in which resources can be redeployed to create value
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through various forms of arbitrage. Entrepreneurs are characterized as having special knowledge or insight that no one else has. According to the conception, entrepreneurs only need to be aware of profit opportunities. They do not need to own assets. Since they are merely exercising privileged knowledge, they are neither facing uncertainty nor necessarily bearing any risk. In Kirzner's formulation, the worst that can happen to an entrepreneur is the failure to discover and capitalize on an existing profit opportunity. Entrepreneurs use their skilled knowledge to create something new. They need intuition and power of observation to make a hypothesis and conduct lean experimentation to check the viability scenario. In this conception, entrepreneurs do not need a firm to be entrepreneurs.

5. Entrepreneurship as the ability to adjust: This is the approach of Nobel Prizewinning economist Theodore Schultz. This approach assumes that innovation is occurring in the economy and measures entrepreneurship by how people adjust to large changes in the economy. Entrepreneurship is defined as "the ability to reallocate one's resources in response to changing circumstances." Schultz argued that entrepreneurial ability is a resource with an actual market price and quantity. By this conception, it is not only implied but overtly asserted that entrepreneurship could simply be purchased by firm management. Management could purchase the services of entrepreneurs during times of great change. Beyond that, there is no real connection between the entrepreneur and the firm.

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6. Entrepreneurship as charismatic leadership: This conception is heavily influenced by Max Weber. Entrepreneurship is defined as "the ability to articulate a plan, a set of rules, or a broader vision, and impose it on others." Successful entrepreneurs must be excellent communicators and generate a following. Critique of this conception is that it only speaks of ones personal characteristic and says nothing about the physical assets that an entrepreneur controls. It says nothing of how he makes decisions about those assets.

7. Entrepreneurship as judgment: Entrepreneurship is defined as "judgmental decision-making under conditions of uncertainty." Judgment is defined as "decisive action about the deployment of economic resources when outcomes cannot be predicted according to known probabilities." In this conception, the entrepreneur is an active, creative agent. He is not passively identifying opportunities that he is aware of, but rather creating new opportunities by his judgment. Decision-making under uncertainty is the qualifying function of entrepreneurship whether it involves imagination, creativity, and leadership or not. It is argued that there is no market for this judgment and therefore entrepreneurs must create markets to function in the economy. The definition of judgment implies that entrepreneurs own and manage assets to grow.

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