MODULE 2

Entrepreneurship
Overview:
This chapter provides an overview of entrepreneurship and of the language of
entrepreneurship, particularly to provide students with skills needed to effectively organize,
develop, create, and manage a business. The challenges associated with defining entrepreneur
and entrepreneurship are explored, as is an overview of how entrepreneurship can be studied.
The objective is to enable to apply current concepts in entrepreneurship to the evaluation of
entrepreneurs, their ventures, and the venturing environment. This chapter will also develop skills,
including the capability to add value in the venture sector of the economy. It will promote and
practice evaluation skills useful in consulting, advising, and making new venture decisions.

Objectives:
At the end of this lesson, you should be able to:
1. Examine the challenges associated with defining the concepts of entrepreneur and
entrepreneurship.
2. Discuss how the evolution of entrepreneurship thought has influenced how we view the
concept of entrepreneurship today.
3. Discuss how the list of basic questions in entrepreneurship research can be expanded
to include research inquiries that are important in today’s world.
4. Discuss how the concepts of entrepreneurial uniqueness, entrepreneurial personality
traits, and entrepreneurial cognitions can help society improve its support for
entrepreneurship.
5. Apply the general venturing script to the study of entrepreneurship.
Introduction
A country’s living standards depend on its ability to produce goods and services.
This statement bears the questions on who will work, what goods and how many of them
should be produced, what resources should be used in production, and at what price
should the goods be sold (Mankiw, 2012). Essentially, finding answers to these economic
questions depict the nature of managing the efficient use of scarce resources to produce
commodities for the maximum satisfaction of unlimited human needs and wants (Gabay, et
al, 2012). Therefore, these questions lead the economy’s basic decision-making unit to
identify economic activities that will maximize the use of scarce resources.
The Basic decision-making units in an economy is divided into three categories. The
most common decision-making unit in the economy is the household. They are considered
as the consuming units in an economy. Most of the decisions being faced by a household is
buying decisions which includes the relationship of the price of the good with respect to its
quantity. Another decision-making unit considered in the economy is the firm. It is an
organization that transforms resources into products. Essentially, firms are the primary
producing units in a market economy.
Finally, one of the most significant decision-making unit of an economy is the
entrepreneur. It is a person who organizes, manages, and assumes the risks of a firm,
taking a new idea or a new product and turning it into a successful business. It is imperative
that many decisions faced by the producing unit of an economy involves an entrepreneur.
That is why creativity and innovation are becoming increasingly important especially for
business operating in a market with multiple opportunities creating product differences
(Barney and Arikan, 2001; Mujuru, 2014). This supports the fact that one of the major
factors of production includes the transformation of resources into profitable ventures
commonly known as entrepreneurship (Gabay et al., 2012).

What is Entrepreneurship?

Topic 1: Entrepreneurs and Entrepreneurship

Entrepreneurship can be defined as a field of business that seeks to understand
how opportunities to create something new (e.g., new products or services, new markets,
new production processes or raw materials, new ways of organizing existing technologies)
arise and are discovered or created by specific persons, who then use various means to
exploit or develop them, thus producing a wide range of effects (Baron, Shane, & Reuber,
2008).
A concise definition of entrepreneurship “is that it is the process of pursuing
opportunities without limitation by resources currently in hand” (Brooks, 2009) and “the
process of doing something new and something different for the purpose of creating wealth
for the individual and adding value to society” (Kao, 1993)
Entrepreneur, on the other hand, is one who undertakes an endeavor. This is the
meaning of the French word entrepreneur. It is really all about starting something and
making it prosper while offering people the services and products they need. When you
 decide to become an entrepreneur your life changes or at least it should. In order to
become a successful entrepreneur, it is important that you develop your entrepreneurial
skills through education, networking and research.
Gartner (1990) identified 90 attributes that showed up in definitions of entrepreneurs
and entrepreneurship provided by entrepreneurs and other experts in the field. The following
are a few of these attributes:

 Innovation – Does a person need to be innovative to be considered an entrepreneur? Can

an activity be considered to be entrepreneurial if it is not innovative?
 Activities – What activities does a person need to do to be considered an entrepreneur?
 Creation of a new business – Does someone need to start a new business to be
considered to be an entrepreneur, or can someone who buys a business, buys into a
franchise, or takes over an existing family business be considered an entrepreneur?
 Starts an innovative venture within an established organization – Can someone who works
within an existing organization that they don’t own be considered an entrepreneur if they
start an innovative venture for their organization?
 Creation of a not-for-profit business – Can a venture be considered to be entrepreneurial if
it is a not-for-profit, or should only for-profit businesses be considered entrepreneurial?

After identifying the 90 attributes, Gartner (1990) went back to the entrepreneurs and other
experts for help in clustering the attributes into themes that would help summarize what people
concerned with entrepreneurship thought about the concept. He ended up with the following eight
entrepreneurship themes:
1. The Entrepreneur – The entrepreneur theme is the idea that entrepreneurship involves
individuals with unique personality characteristics and abilities (e.g., risk-taking, locus of
control, autonomy, perseverance, commitment, vision, creativity). Almost 50% of the
respondents rated these characteristics as not important to a definition of entrepreneurship

2. Innovation – The innovation theme is characterized as doing something new as an idea,

product, service, market, or technology in a new or established organization. The
innovation theme suggests that innovation is not limited to new ventures, but recognized as
something which older and/or larger organizations may undertake as well. Some of the
experts Gartner questioned believed that it was important to include innovation in
definitions of entrepreneurship and others did not think it was as important.

3. Organization Creation – The organization creation theme describes the behaviors involved
in creating organizations. This theme described acquiring and integrating resource
attributes (e.g., Brings resources to bear, integrates opportunities with resources, mobilizes
resources, gathers resources) and attributes that described creating organizations (new
venture development and the creation of a business that adds value).

4. Creating Value – This theme articulated the idea that entrepreneurship creates value. The
attributes in this factor indicated that value creation might be represented by transforming a
business, creating a new business growing a business, creating wealth, or destroying the
status quo.
 5. Profit or Non-profit – The profit/nonprofit theme is concerned with whether entrepreneurship
involves profit-making organizations only. In other words, there were businesses that
creates income for personal gain, and there were businesses that are established for
community development.

6. Growth – At issue in this theme is the importance of growth as a characteristic of

entrepreneurship. It depicts a life-cycle wherein it shows the stages of development from
business establishment to maturity and decline.

7. Uniqueness – This theme suggested that entrepreneurship must involve uniqueness.

Uniqueness was characterized by attributes such as a special way of thinking, a vision of
accomplishment, ability to see situations in terms of unmet needs, and creates a unique
combination.

8. The Owner-Manager – Some of the respondents questioned by Gartner (1990) did not
believe that small mom-and-pop types of businesses should be considered to be
entrepreneurial. Some respondents felt that an important element of a definition of
entrepreneurship was that a venture be owner-managed.
An entrepreneur can also be described as “one who creates a new business in the face of
risk and uncertainty for the purpose of achieving profit and growth by identifying significant
opportunities and assembling the necessary resources to capitalize on them” (Zimmerer &
Scarborough, 2008). An entrepreneur is “one who organizes, manages, and assumes the risks of a
business or enterprise” (Entrepreneur, n.d.).

Topic 2: Historic Background

One of the first entrepreneurs was Marco Polo. He had ideas of trading with Asia in
the 13th century and was sure of how he could get there and the materials he could trade.
His expeditions were financed by venture capitalists in Venice with an assurance that he
would share his profits with them. These loose associations continued to flourish in Europe
and other parts of the world where people with money were willing to back ideas and new
schemes when they were convinced that there was some pecuniary advantage in the end
(Herbert & Link, 2009).
Entrepreneurship first took off when production levels exceeded local consumption
and people were left with surpluses of the things they produced, whether in the form of
agricultural produce, dairy products, livestock and quite a few manufactured items.
This initially led to a barter system that allowed people exchanged things to satisfy
their own requirements. This further led to the development of the market place where
people gathered to barter or sell their excess production in order to profit themselves. This
came about with the realization that they could not wait indefinitely for a coincidence of
wants before they could barter their own products. Government agencies stepped into the
act in the 17th century and made capital available to people to finance production ventures.
The risk involved in such ventures was the sole responsibility of the entrepreneur and they
 had to make a fixed payment to the government, irrespective of any profit they made from
the venture. Governments considered this as a source of revenue (Herbert & Link, 2009).
The concept of entrepreneurship was first established in the 1700s. There are many
concepts and theories about its genesis. However, based on its key features, there were three
basic ideas that explain the appearance of entrepreneurial activity.

 The first focuses on the individual, in other words, entrepreneurial action is conceived as a
human attribute, such as the willingness to face uncertainty, accepting risks, the need for
achievement, which differentiate entrepreneurs from the rest of society.

 The second fundamental idea emphasizes economic and environmental factors that
motivate and enable entrepreneurial activity, such as the dimension of markets, the
dynamic of technological changes, the structure of the market or merely the industrial
dynamic.

 The third factor is linked to the functioning of institutions, culture and societal values. This
approach is not exclusive given that entrepreneurial activity is also a human activity and
does not spontaneously occur solely due to the economic environment or technological,
normative or demographic changes.
The present development of entrepreneurship started after the Second World War in the
1950’s when nations were looking to build up their economies from the ravages of the war. People
had new ideas for business or jobs as individuals and started in small ways with limited capital to
form businesses which went on to challenge the well-established companies.
In the 20th century, economist Joseph Schumpeter (1883-1950) focused on how
the entrepreneur’s drive for innovation and improvement creates upheaval and change.
Schumpeter viewed entrepreneurship as a force of “creative destruction.” The entrepreneur carries
out “new combinations,” thereby helping render old industries obsolete. Established ways of doing
business are destroyed by the creation of new and better ways to do them. Business
expert Peter Drucker (1909-2005) took this idea further, describing the entrepreneur as someone
who actually searches for change, responds to it, and exploits change as an opportunity.

Topic 3: Risks and Benefits

What leads a person to strike out on his own and start a business?
Sometimes a person is frustrated with his or her current job and doesn’t see any
better career prospects on the horizon. Sometimes a person realizes that his or her job is in
jeopardy. Some people are actually repulsed by the idea of working for someone else.
They object to a system where reward is often based on seniority rather than
accomplishment, or where they have to conform to a corporate culture. Other people
decide to become entrepreneurs because they are disillusioned by the bureaucracy or
politics involved in getting ahead in an established business or profession (Casson &
Godley, 2005).
 Those who are attracted to entrepreneurship by the advantages of starting “their own thing”.
These include:

 Entrepreneurs are their own bosses. They make the decisions. They choose whom to do
business with and what work they will do. They decide what hours to work, as well as what
to pay and whether to take vacations.

 Entrepreneurship offers a greater possibility of achieving significant financial rewards than

working for someone else.

 It provides the ability to be involved in the whole lifecycle of the business, from concept to
design and creation, from sales to business operations and customer response.

 It offers the prestige of being the person in charge.

 It gives an individual the opportunity to build equity, which can be kept, sold, or passed on
to the next generation.

 Entrepreneurship creates an opportunity for a person to make a contribution. Most new

entrepreneurs help the local economy. A few—through their innovations—contribute to
society as a whole.
One example is entrepreneur Steve Jobs, who co-founded Apple in 1976, and the subsequent
revolution in desktop computers.
However, it is important to note that to every single advantage there is a matching
disadvantage which should be carefully analyzed. Here is an example of the most common pros
and cons to entrepreneurship:

Salary
Advantage Disadvantage

Often people do not feel fully compensated Becoming an entrepreneur means you have to leave
for the work they do. Becoming an behind the security of being paid each month.
entrepreneur means you can reap the
benefits of all your hard work.

Flexibility
Advantage Disadvantage

Having control over your work schedule Although entrepreneurs benefit from a flexible schedule,
means that you can choose when to take they often have to work very long hours particularly in
time off and work the schedule that suits the start-up phase. Furthermore, entrepreneurs’ work
you best. schedules are never predictable and they must deal with
emergencies that may occur at any time.
 Decisions
Advantage Disadvantage

Entrepreneurs are able to make all of the Being responsible for all decisions can be quite stressful
decisions relating to their company and handling such responsibility can be difficult.
themselves; they have complete control.
This allows for a huge degree of
independence and a chance to shape
one’s own career.

Excitement

Advantage Disadvantage
Becoming an entrepreneur is a very There is also great risk attached to entrepreneurship.
exciting time, from the idea and start-up to The success or failure of the business rests with the
the development and realization of the entrepreneur.
product or service.

After comparing the advantages and disadvantages, you will have to decide if you can
realistically handle the responsibility of running your own business. Being an entrepreneur is a
huge responsibility with many risks attached. In business decisions should be carefully considered.
Risk assessment (giving thoughtful consideration to potential costs and benefits) and the
collection of relevant information are key to successful decision making.
Nothing splendid has ever been achieved except by those who dared believe that
something inside them was superior to circumstance.

Topic 4: Entrepreneurship and Innovation

Jeremy Bentham (1748-1832), from the English School of thought, considered
entrepreneurs to be innovators. They “depart from routine, discover new markets, find new
sources of supply, improve existing products and lower the costs of production” (Chell,
2008).
Joseph Schumpeter’s (1883-1950) parents were Austrian, he studied at the
University of Vienna, conducted research at the University of Graz, served as Austria’s
Minister of Finance, and was the president of a bank in the country. Because of the rise of
Hitler in Europe, he went to the United States and conducted research at Harvard until he
retired in 1949. Because of this, he is sometimes associated with the American School of
thought on entrepreneurship (Chell, 2008).
Whereas Menger saw entrepreneurship as occurring because of economic progress,
Schumpeter took the opposite stance. Schumpeter saw economic activity as leading to
economic development (Hebert & Link, 2009). Entrepreneurs play a central role in
Schumpeter’s theory of economic development, and economic development can occur
when the factors of production are assembled in new combinations.
 Schumpeter (1934) viewed innovation as arising from new combinations of
materials and forces. He provided the following five cases of new combinations.
1. The introduction of a new good – that is one with which consumers are not yet familiar – or
of a new quality of good.

2. The introduction of a new method of production, that is one not yet tested by experience in
the branch of manufacture concerned, which need by no means be founded upon a
discovery scientifically new, and can also exist in a new way of handling a commodity
commercially.

3. The opening of a new market, that is a market into which the particular branch of
manufacture of the country in question has not previously entered, whether or not this
market has existed before.

4. The conquest of a new source of supply of raw materials or half-manufactured goods,

again irrespective of whether this source already exists or whether it has first to be created.

5. The carrying out of the new organization of any industry, like the creation of a monopoly
position … or the breaking up of a monopoly position.
Another concept popularized by Schumpeter – in addition to the notion of new combinations –
was creative destruction. This was meant to indicate that the existing ways of doing things need to
be dismantled – to be destroyed – to enable a transformation through innovation to a new way of
doing things. Entrepreneurs use innovation to disrupt how things are done and to establish a better
way of doing those things.

Topic 5: Elements of Entrepreneurship

Generally, entrepreneurship is considered to consist of the following elements, or
subscripts (Brooks, 2009; Mitchell, 2000).
1. Searching
2. Idea Screening
3. Planning and Financing
4. Set-Up
5. Start-Up
6. Ongoing Operations
7. Harvest

Searching (also called idea formulation or opportunity recognition)

 This script begins when a person decides they might be a potential entrepreneur (or when
an existing entrepreneur decides they need more ideas in their idea pool).
 This script ends when there are a sufficient number of ideas in the idea pool.
  The scripting process involves a logical flow of steps (including feedback loops, actions
which must occur in sequence, and actions which can be implemented at the same time as
other actions) designed to:
o overcome mental blockages to creativity which might hinder this person’s ability to
identify viable ideas;
o implement steps to identify a sufficient number of ideas (most likely 5 or more)
which the person is interested in investigating to determine whether they might be
viable given general criteria such as this person’s personal interests and capabilities;

Idea Screening (also called concept development)

 This script begins when the person with the idea pool is no longer focusing on adding new
ideas to it; but is instead taking steps to choose the best idea for them given a full range of
specific criteria.

 This script ends when one idea is chosen from among those in the idea pool.

 The scripting process involves a logical flow of steps to assess the current situation and the
trends in the following areas. The right tools must be used for each level of analysis.
o Do the current societal-level factors indicate that a particular idea should be
considered for implementation? Do the trends in these societal-level factors indicate
that the idea will be viable and sustainable into the future?
 Evaluate the political, economic, social, technological, environmental, and
legal climates

o Do the current industry/market-level factors indicate an idea is viable? Are the

trends in these factors supportive of the idea?
 Evaluate the degree of competitiveness in the industry, the threat of
substitutes emerging, the threat of new entrants to the industry, the degree
of bargaining power of buyers, and the degree of bargaining power of
suppliers.
 Do a market profile analysis to assess the attractiveness of the position
within the industry that the potential venture will occupy.

o Do the current firm-level factors support the pursuit of the idea?

 Formulate and evaluate potential strategies to leverage organizational
strengths, overcome/minimize weaknesses, take advantage of opportunities,
and overcome/minimize threats;
 Complete financial projections and analyze them to evaluate financial
attractiveness;
 Assess the founder fit with the ideas;
 Evaluate the core competencies of the organization relative to the idea;
 Assess advice solicited from trusted advisers
Planning and Financing (also called resource determination and acquisition)

 This script begins when the idea screening script ends and when the person begins making
the plans to implement the single idea chosen from the idea pool, which is done in concert
with securing financing to implement the venture idea.
 This script ends when sufficient business planning has been done and when adequate
financing has been arranged.
 The scripting process involves a logical flow of steps to develop a business plan and
secure adequate financing to start the business.

Set-Up (also called launch)

 This script begins when the planning and financing script ends and when the person begins
implementing the plans needed to start the business.
 This script ends when the business is ready to start-up.
 The scripting process involves a logical flow of steps, including purchasing and installing
equipment, securing the venture location and finishing all the needed renovations,
recruiting and hiring any staff needed for start-up, and the many other steps needed to
prepare for start-up.
 Start-Up (also called launch)
 This script begins when the set-up script ends and when the business opens and begins
making sales.
 This script ends when the business has moved beyond the point where the entrepreneur
must continually fight for the business’s survival and persistence. It ends when the
entrepreneur can instead shift emphasis toward business growth or maintaining the
venture’s stability.
 The scripting process involves a logical flow of steps needed to establish a new venture.

Ongoing Operations (also called venture growth)

 This script begins when the start-up script ends and when the business has established
persistence and is implementing growth (or maintenance) strategies.
 This script ends when the entrepreneur chooses to harvest the value they generated with
the venture.
 The scripting process involves a logical flow of steps needed to grow (or maintain) a
venture.