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ENTREPRENEURSHIP

Topic 1: Definitions and myths of entrepreneurship


Before we look at entrepreneurship in detail in this subject, we need to identify what we are
going to talk about. For example, what are the key aspects that distinguish entrepreneurship
from management in a big organisation? That is, our core question is: What is
entrepreneurship?
Thus this first topic sets out to define what entrepreneurship is, and the core question for this
topic will be answered by covering the following four parts:
1.
2.
3.
4.

Examine the historical development of the term entrepreneur - what do they do?
Avoiding folklore: the myths of entrepreneurship
Approaches to entrepreneurship: schools of entrepreneurial thought
Define entrepreneurship

Learning resources
Chapter 1 of the textbook is essential: Kuratko, D.F., (2009),
Entrepreneurship: Theory Process Practice, 8th edition, South
Western Cengage Learning, Mason, Ohio.

Key terms and concepts


-

Entrepreneur
Opportunity
Risk and uncertainty
Managerial competence and networks
Cantillon, Smith, Say, Schumpeter and Drucker
Entrepreneurs are born and made
Schools of thought in research about entrepreneurship
Definition of entrepreneurship
Individual, environment, organisation and process

Part 1: Examine the historical development of the term entrepreneur


what do they do?
Let us review the history of thinking about what an entrepreneur is. The word entrepreneur
derives from the French verb entreprendre meaning to undertake, and was translated from
the German verb unternehmen which also means to undertake. As early as the sixteenth
century, French entrepreneurs undertook to lead military expeditions and build roads, bridges
and harbours for military activities. However, Cantillon is credited with the introduction of
the word entrepreneur in his essay Essai sur la Nature du Commerce en General in 1755.
Cantillon described the entrepreneur as a rational decision maker who assumed the risk and
provided management for the firm. This risk-bearing was especially evident during the
Industrial Revolution when entrepreneurs assumed the risk of many ventures.

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Later, Smith assumed that entrepreneurs were the capitalist who provided the capital for these
risky ventures. More recently, the term entrepreneur does not mean a capitalist but someone
who secures and allocates resources, such as capital for example. Say also used the term
entrepreneur around 1800 in his discussions of the person who shifts economic resources
out of an area of lower productivity and into an area of higher productivity and higher yield.
In 1931, the Harvard economist supported Say by emphasising that a dynamic disequilibrium
with new firms and industries being created and old one destroyed driven was the norm of a
healthy economy and was driven by entrepreneurs. More recently, Drucker (1992) claimed
that the greatest achievements in business come from ideas of entrepreneurs so that they are
the sources of wealth and prosperity in an economy. For example, although the modern
chemical industry should have arisen in England with the Englishman Perkins discovery of
aniline dyes in 1856, more entrepreneurial German business people took leadership in the new
industry.
Based on these and other thinkers, modern thinking emphasises that an entrepreneur:
Creates and/or recognise opportunities for something new.
Handles the uncertainty and risk of that new venture (which is not restricted to stand
alone business ventures).
Has the managerial competence to gather required resources from the environment
(like capital) without necessarily owning these resources. This includes possessing an
ability to plan, to lead a team and to network outside the venture.
In other words, at the heart of the entrepreneurial process is the creation and/or recognition
of opportunities, followed by the will and initiative to seize these opportunities and a
willingness to take risks - both personal and financial - but in a calculated fashion to
constantly shift the odds of success (Timmons & Spinelli 2004, p. 47).
Note that our use of the term venture above is not restricted to new business ventures. Most of
our thinking about entrepreneurs does emphasise business ventures, but the new venture could
be a part of a big business (as we will see in a later topic's coverage on of intrapreneurship or
corporate entrepreneurship) or be part of a public service organisation. Our emphasis is on
newness and risk, and these are not restricted to business ventures.

Textbook and activity


The textbook briefly summarises the evolution of what an
entrepreneur does on pages 4-5 of the eighth edition (or pages
32-33 of the seventh edition or pages 28-30 of the sixth
edition). It develops an integrated definition on page 5.
Activity 1.1
Please read the pages listed above and then consider whether the integrated
definition the textbook offers at the end of that section coincides with the three points
that have been identified above that define what an entrepreneur does:
1. Creates and/or recognise opportunities for something new.

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2. Handles the uncertainty and risk of that new venture (which is not restricted to
stand alone business ventures).
3. Has the managerial competence to gather required resources from the
environment (like capital) without necessarily owning these resources, which
includes an ability to plan, to lead a team and to network outside the venture.

Part 2: Avoiding folklore: the myths of entrepreneurship


Now that an entrepreneur has been defined, consider some of the things that they are not.
There is much folklore about entrepreneurship and we should not believe the folklore because
many myths have been debunked through years of research about entrepreneurship. These
myths are myths because they are too black or white - they do not show that the issues
involved are grey. For example, one myth is that entrepreneurs are born, not made. However,
entrepreneurs are likely to have role models, about 8 to 10 years of experience in the industry,
and be reasonably well educated. They are likely to have experience in product/marketing and
across several functional areas. Most entrepreneurs start in their 30s or 40s, and only one
quarter do so before they are 25 (Timmons and Spinelli 2004, p. 66). So experience is a
necessary element of entrepreneurship and people are obviously not born with experience.
Moreover, even the personality characteristics of entrepreneurs can be honed through
experience, as Topic 2's notes will show. In other words, although entrepreneurs require some
intelligence and energy, they also require relevant skills, experience and network contacts.
That is, entrepreneurs are both born and made - 'like all disciplines, entrepreneurship has
models, processes and case studies that allow the topic to be studied and the knowledge to be
acquired.' (Kuratko and Hodgetts 2004, p. 30).
In other words, all these myths capture only a part of entrepreneurship. Your textbook
identifies ten of these myths:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Entrepreneurs are doers not thinkers


Entrepreneurs are born not made
Entrepreneurs are always inventors
Entrepreneurs are academic and social misfits
Entrepreneurs must fit a particular profile
All entrepreneurs need is money
All entrepreneurs need is luck
Entrepreneurship is unstructured and chaotic
Most entrepreneurial initiatives fail
Entrepreneurs are gamblers

Textbook and activities


Look through the ten myths of entrepreneurship on pages 5-8 of
the eighth edition (or pages 30-33 of the seventh edition or
pages 30-33 of the sixth edition) for more information.
The experiential exercise about myths of entrepreneurship
referred to in Activity 1.3 below is on pages 23 and 24 of the
eighth edition (or pages 49-50 of the seventh edition or pages
46-47 of the sixth edition) of the textbook.
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Activity 1.2
To summarise your understanding of what entrepreneurship is, do the experiential
exercise on page 23 and 24 in the textbook about myths of entrepreneurship.
Activity 1.3
This activity helps you prepare for a possible examination question about whether
entrepreneurs are born or made, or both. For the activity, use the textbook to do a
force field analysis of the myth that entrepreneurs are born, not made. Identify some
'forces' that make you think that the question is answered in one way or another and
then say how strong a force is from 0 points (not important) to 10 points (very
important). The forces could be established as 'needs' by looking at other myths of
entrepreneurship like:
The need to be a doer rather than a thinker (for example, this would be 5 points
because a person can be made into a thinker by education and an entrepreneur
needs to be both a doer and a thinker)
The need to be an inventor (5 points for the reasons given in the textbook)
The need to be an academic and social misfit (0 points because the
entrepreneur no longer needs to be a misfit)
The need to fit a profile (3 points for the reasons in the textbook)and so on,
following the textbook.
Activity 1.4
Read the 'Paul's four shortcomings' case below and answer the three questions at
the end of the case. The case is copied from pages 50-51 of the seventh edition (or
pages 47-48 of the sixth edition of the textbook).
Paul Emden has always been a very reliable and a hard worker. For the past eight
years Paul has been working in a large auto service garage. During this time he has
made a number of recommendations to the owner regarding new services that could
be provided to customers. One of these is called fast lube. With this service people
who want to have their oil changed and their car lubricated do not have to leave the
auto and come back later in the day. Three service handle the job. It generally takes
less than 10 minutes to take care of a car, and most people can have the job
completed within 25 minutes of the time they arrive. The service, which has become
extremely popular with customers, resulted in an increase in overall profits of 5
percent last year.
Pauls wife believes he has a large number of ideas that could prove profitable. You
ought to break away and open your own shop, she has told him. Paul would like to
do so, but he believes four things help for entrepreneurial success and he has none
of them. Here is how he explained it to his wife:
To be a successful entrepreneur, you have to be a doer, not a thinker. Im a doer.
Thinking bores me. I wouldnt like being an entrepreneur. Second, those guys who do
best as entrepreneurs tend to be inventors. Im not an inventor. If anything, I think of
new approaches to old ways of doing business. Im more of a tinkerer than an
inventor. Third, youve got to be lucky to be an entrepreneur. Im hard working; Im not
lucky. Fourth, you have to have a lot of money to do well as an entrepreneur. I dont
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have much money. I doubt whether $50,000 would get me started as an


entrepreneur.
Questions:
1. Does Paul need to be an inventor to be an effective entrepreneur? Explain your
answer.
2. How important is it that Paul has a lot of money if he hopes to be an entrepreneur?
Explain your answer.
3. What is wrong with Pauls overall thinking? Be sure to include a discussion of the
myths of entrepreneurship in your answer.

Part 3: Approaches to entrepreneurship: schools of entrepreneurial thought


To debunk myths about entrepreneurship above, we referred to research about
entrepreneurship. There are several 'schools' of this research, each focussing on one or more
of the several variables involved in entrepreneurship. Just like research about management in
general, research about entrepreneurship has had to be interdisciplinary. The schools in
entrepreneurship research range from the environment outside the entrepreneur through to
personal traits of entrepreneurs themselves. Not one of these schools give a complete picture
of entrepreneurship and students of entrepreneurship must be careful of getting too immersed
in any one of them - if they concentrate on just one of them, they will display an incomplete
understanding of entrepreneurship. These are the six schools identified in your textbook:
Macro or outside the individual and venture:
1.

Environmental

2.

Financial

3.

Displacement

Micro or inside the individual and venture:


4.

Entrepreneurial trait

5.

Venture opportunity

6.

Strategic formulation

Textbook
Please
read the brief
description
of
the
schools
of
entrepreneurial thought on pages 8-12 of the eighth edition
(or pages 37-41 of the seventh edition or pages 33-39 of the
sixth edition). This reading will help to broaden your
understanding of entrepreneurship. Although the details of
each school will not be an exam question, all students should
be aware that one particular school will give an incomplete
understanding of entrepreneurship and advanced students could
refer briefly to some of them in their answer to an exam
question.
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Part 4: Define entrepreneurship


Now we are in a position to define entrepreneurship. First, what an entrepreneur does was
identified and some myths of entrepreneurship were debunked. Then some schools of
entrepreneurship were categorised. Now a comprehensive definition of entrepreneurship can
be developed that focuses on what an entrepreneur does and incorporates the many schools of
entrepreneurship research. From the textbook (page 21), that definition emphasise four
dimensions of the individual, the environment, the organisation and the process:
Entrepreneurship is a dynamic process of vision, change and creation that requires an
application of energy and passion towards the creation and implementation of new
ideas and creative solutions. This process of innovation and new-venture creation is
accomplished through four major dimensions - individual, organisational,
environmental, process - and is aided by collaborative networks in government,
education and institutions while recognising and seizing opportunities that can be
converted into marketable ideas capable of competing for implementation in today's
economy.
In other words, entrepreneurship is a dynamic, interactive process involving the four
dimensions of:
1.

An individual with experiences and traits, like need for achievement and internal locus
of control.

2.

Working within an environment that has resources like capital and suppliers.

3.

A venture organisation that has a team and competitive strategies.

4.

A process of locating an opportunity, accumulating resources, producing and marketing


a product, building an organisation, and responding to government and society.

Textbook and activities


For
details
of
this
comprehensive
definition
of
entrepreneurship, please look at pages 21-22 of the eighth
edition (or pages 47-48 of the seventh edition or pages 42-43
of the sixth edition) of your textbook. You will not have to
know this definition off by heart for the exam, but you should
know what the four dimensions of entrepreneurship are. Note
that the definition applies to today's economy. That is, the
definition covers intrapreneurship within an organisation that
creates a market-related product, but it does not cover
creativity and innovation in not-for-profit organisations and
the public service. Do you think it should cover these other
creative acts?

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Activity 1.5
Nominate a person you would identify as an entrepreneur and give reasons why you
consider this person to be classified as an entrepreneur. It may be a person you
know personally or someone you have read about in the popular media. Preferably,
the person you nominate should operate within your local or regional market or
national economy, but you can use a person described in the textbook
Activity 1.6
Finally, check your understanding of what is covered in the whole of the chapter of
the textbook through the quiz on the textbooks internet site:
First access the student resources at the companion site for the eighth edition
through the publishers web site www.cengage.com. That is, go to

http://kuratko.swlearning.comhttp://websites.swlearning.com/cgiwadsworth/course_products_wp.pl?fid=M20bI&flag=instructor&product_i
sbn_issn=9780324590913&disciplinenumber=416
(You get to that page by going to www.cengage.com, click on higher education
catalogue on the left, search at the top for kuratko, click on companion site for
Student towards the right.)
Click on the appropriate chapter number at the top left
Click at the left on 'Interactive quiz'
Do the quiz
Click on the option of End quiz and view summary
A summary of your results will appear. At the start of the summary, do not enter
your instructors details, go down a bit further down to see your results and why
you got any answer wrong.
Why not repeat the quiz by clicking on Start over until you get all the questions
correct!
By the way, there are lots of other reading materials at the site.

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Conclusion
In summary, this topic laid the foundations for this subject's examination of entrepreneurship.
It had four parts. First, the historical development of the term entrepreneur has identified three
things that an entrepreneur does. Next, some myths of entrepreneurship were identified that
showed that an entrepreneur was both born and made. Then six major schools of research
about entrepreneurship were identified. On the foundations of the three parts of this topic, the
final part established a comprehensive, four-dimensional definition of entrepreneurship.
In conclusion, entrepreneurship is a complex but very interesting and important area of study.
Here is one issue that a possible exam question could ask about this topic and that you might
like to consider when you prepare for your exam:
What is your comprehensive definition of entrepreneurship? Why do you think that
your definition is comprehensive? Does it cover all situations where entrepreneurship
occurs? Your answer should cover intrapreneurship within a business organisation
and you should justify why it covers other forms of creativity and innovation.
References
Drucker, P.F., (1992), 'The big power of little ideas', in
Sahlman, W.A. and Stevenson, H.H., (eds), The Entrepreneurial
Venture: Readings, Boston, Harvard Business School, Boston,
pp. 65-72.
Kuratko,
D.F.,
(2009),
Entrepreneurship:
Theory
Process
Practice, 8th edition, Thompson South Western, Mason, Ohio.
Timmons, J.A. and Spinlelli, S., (2004), New Venture Creation,
6th edition, Irwin, Boston.

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Feedback about activities


Activity 1.1
The integrated definition does indeed cover all the three points except for its neglect
of networking outside the venture'. But note that this point is covered in the
comprehensive definition of entrepreneurship developed in Part 4 of this topic.
Activity 1.2
An explanation of how to rate your answers is at the end of the questions in the
exercise.
Activity 1.4
1.

No, Paul does not need to be an inventor. That idea is one of the ten most
commonly known myths of entrepreneurship. Entrepreneurship covers all
varieties of profit-making activities, and thus is not limited to inventions.

2.

While having start-up capital is always important in new ventures, it is not the
only factor. In fact, many entrepreneurs are able to obtain enough capital
through loans because the funding source believes in the managerial ability of
the entrepreneur. Thus, having lots of money is not the only key to success.

3.

Pauls overall thinking is caught up in the typical mythical beliefs about


entrepreneurship. The myths have arisen due to lack of knowledge and
research about entrepreneurs. Therefore, people have simply believed that
entrepreneurs are born, not made, and need luck, money and ignorance to
succeed. Paul is reflecting the traditionally accepted folklore that still exists due
to the infancy of the current research. However, each year the research
expands, knowledge increases and contemporary entrepreneurs realise the
weakness in the myths.

Activity 1.5
There is no one clear way of defining whether your nominated person has been
involved in entrepreneurial activities. But you might like to consider his or her story
along the three parts of the term entrepreneur in Part 1 and the four dimensions of
the comprehensive definition in Part 4. The person should have had experience and
been involved in things like:
An opportunity to make a creative change
An open system that interacted with its environment
External networking
Risk and uncertainty
The acquisition and management of resources

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An organisation that had to be built


Processes of building that organisation over time

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