Nature & Development of Entrepreneurship
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This document provides an overview of entrepreneurship and entrepreneurs. It defines entrepreneurship and different types of entrepreneurs such as novice, habitual, nascent, serial, and portfolio entrepreneurs. It also discusses the entrepreneurial process which involves identifying opportunities, developing business plans, determining required resources, and managing the enterprise. The document outlines the history of entrepreneurship from earliest periods to the 20th century. It distinguishes between entrepreneurs and inventors and discusses the role of entrepreneurship in economic development. Finally, it covers ethics, social responsibilities, and the future of entrepreneurship.
Nature & Development of Entrepreneurship
- 1. Nature & Development of Entrepreneurship Entrepreneurship Module 1
- 2. Entrepreneur & Entrepreneurship Entrepreneur Definition: (derived from French word Entreprendre means to undertake) • To an economist: entrepreneur is a person who bring resources, labor, material & other assets into combination that make their value greater than before & also one who introduces change, innovation & new order. • To a psychologist: such a person is driven by certain forces i.e the need to obtain/attain something, to experiment, or to escape the authorities of others. • To a businessman: to one businessman an entrepreneur appears as a threat, a competitor where as to another businessman the same entrepreneur may be a source of supply or a customer. Simple words: An individual who takes initiative to bundle resources in innovative ways & is willing to bear the risk/uncertainty to act.
- 3. Types of Entrepreneurs Novice Entrepreneur: • Has no prior business ownership experiences as a business founder, inheritor, or purchaser Habitual Entrepreneur: • Has prior business ownership experience Nascent Entrepreneur: • In the process of starting a new business • Can be either a novice or a habitual entrepreneur
- 4. Cont. Serial Entrepreneur: • Has sold or closed an original business and establishes another new business • Continues the cycle of selling/closing and establishing Portfolio Entrepreneur: • Retains an original business and builds a portfolio of additional businesses • Through inheriting, establishing, and purchasing the businesses
- 5. Cont. Entrepreneurship: • Entrepreneurship is the process of creating something new with value by devoting their necessary time and effort assuming the accompanying financial, psychic and social risks and receiving the resulting rewards of monetary and personal satisfaction and independence. OR • Entrepreneurship is a dynamic process of vision, change, and creation. It requires an application of energy and passion towards the creation and implementation of new ideas and creative solutions.
- 6. A Brief History Of Entrepreneurship • Earliest Period • Middle Ages • 17th Century • 18th Century • 19th Century & • 20th Century
- 7. Earliest Period • The earliest definition of entrepreneur may be related to the person (merchant – adventurer) who attempted to establish trade routes to the far east. E.g. Marco polo who was an Italian. • They would sign a contract with money person to sell his goods. • The capitalist was a passive risk bearer. • Merchant adventurer took the active role in trading bearing all the physical and emotional risks while the capitalist was a passive risk bearer. • When he completes the trip, the profits divided (capitalist – 75% , adventurer – remaining 25%)
- 8. MIDDLE AGES • The term was used to describe both an actor and a person who managed large production projects • Did not take any risks but merely managed using the resources provided usually by the government of the country • A typical entrepreneur in the middle ages was cleric – the person in charge of great architectural works, such as castles and fortifications, public buildings, abbeys and cathedrals
- 9. 17TH CENTURY • The connection of the risk with entrepreneurship developed in the 17th century. • An entrepreneur was a person who entered into a contract with the government to perform a service or to supply stipulated products. Since the contract price was fixed, any resulting profits or losses were the entrepreneur’s. • During this period, one entrepreneur John Law,– established a royal bank then evolved as a trading company unfortunately led to downfall when he attempted to push the company’s stock price higher than the value of assets, leading to collapse. • This led to the first definition given by Richard Cantillon, an economist and author “The term entrepreneur, which most people recognize as meaning someone who organizes and assumes the risk of a business in return for the profits”.
- 10. 18TH CENTURY • Finally , the person with capital was differentiated from one who needed capital (in other words the entrepreneur was distinguished from the capital provider ) • Many inventions developed during this time and changed the world • Inventors like Eli Whitney and Thomas Edison developed new technologies, both raise capital from private sources to develop and experiment (capital users not providers) • a venture capitalist who makes risk investments from a pool of equity capital to obtain a high rate of return on investments
- 11. 19TH CENTURY • Entrepreneurs not distinguished from managers and were viewed from an economical perspective. • An entrepreneur organizes and operates for personal gain. • For e.g., Andrew Carniege, descended from poor Scottish family made the American steel industry one of the wonders– invented nothing but adapted new tech in the creation of products to achieve economic vitality.
- 12. 20TH CENTURY • the notion of an entrepreneur as an innovator was established • The concept of innovation and newness is an integral part of entrepreneurship. • The newness can consist of anything from a new product to a new distributions system to a method for developing a new organizational structures. • E.g. Edward Harriman, who reorganized the railroad in the United States. • Traditional technologies innovations (translators, computers, lasers) that are usually associated with the word invention.
- 13. Entrepreneurs versus Inventors Inventor: • An inventor is an individual who created something new for the first time, & is highly motivated by his/her own work & personal ideas. An inventor: • Tends to be well educated • Has family, educational & occupational experiences that contribute to free thinking • Is a problem solver • Has a high level of confidence • Is willing to take risk • Has the ability to tolerate uncertainty • Focus on achievement as success rather than money.
- 14. Cont. Entrepreneur: • Entrepreneur looks forward for venture while inventor love Inventions. • Development of new venture based on an inventors work often requires the expertise of an entrepreneur to commercialize it.
- 15. Entrepreneurial Process • The process of starting a new venture is embodied in the entrepreneurial process, which involves more than just problem solving in a typical management position. An entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces that resist the creation of something new. The entrepreneurial process involves all the functions, activities and actions linked with perceiving an opportunity and creating an organization to pursue them. The process has four distinct phases: 1. Identification and evaluation of the opportunity 2. Development of the business plan 3. Determination of the required resources 4. Management of the resulting enterprise
- 16. Cont. 1. Identify and Evaluate the Opportunity: • Opportunity identification and evaluation is a very difficult task. Most good business opportunities do not suddenly appear, but rather result from an entrepreneur’s alertness to possibilities, or in some case, the establishment of mechanisms that identify potential opportunities. E.g. one entrepreneur ask at every cocktail party whether anyone is using a product that does not fulfill its intended purpose. • Although most entrepreneurs do not have formal mechanisms or identifying business opportunities, some sources are often fruitful: consumers and business associates, members of the distribution system, and technical people. Often, consumers are the best source of ideas for a new venture.
- 17. Cont. • Whether the opportunity is identified by using input from consumers, business associates, channel members, or technical people, each opportunity must be carefully screened and evaluated. This evaluation of the opportunity is perhaps the most critical element of the entrepreneurial process, as it allows the entrepreneur to assess whether the specific product or service has the returns needed compared to the resources required. This evaluation process involves looking at the length of the opportunity, its real and perceived value, its risks and returns, its fit with the personal skills and goals of the entrepreneur, and its uniqueness or differential advantage in its competitive environment. • Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is particularly important that the entrepreneur be able to put forth the necessary time and effort required to make the venture succeed.
- 18. Cont. 2. Developing a Business Plan: business plan is the description of the future direction of the business. • A good business plan must be developed in order to exploit the defined opportunity. This is a very time-consuming phase of the entrepreneurial process. An entrepreneur usually has not prepared a business plan before and does not have the resources available to do a good job. A good business plan is essential to developing the opportunity and determining the resources required, obtaining those resources, and successfully managing the resulting venture.
- 19. Cont. 3. Determine the Resources Required: • The resources needed for addressing the opportunity must also be determined. This process starts with an appraisal of the entrepreneur’s present resources. Any resources that are critical need to be differentiated from those that are just helpful. Care must be taken not to underestimate the amount of variety of resources needed. The downside risks associated with insufficient or inappropriate resources should also be assessed.
- 20. Cont. 4. Manage the Enterprise: • After resources are acquired, the entrepreneur must use them to implement the business plan. The operational problems of the growing enterprise must also be examined. This involves implementing a management style and structure, as well as determining the key variables for success. A control system must be established, so that any problem areas can be quickly identified and resolved. Some entrepreneurs have difficulty managing and growing the venture they created.
- 21. Types of Startups 1. Lifestyle Firm: a small venture that supports the owners and usually does not grow. • Privately held • Limited money devoted to R&D • Grow after several years to 30 or 40 employees • Annual revenues of about $2 million • Exists primarily to support owners • Little opportunity for significant growth and expansion For example, people, who are passionate about drawing, are launching Animation startup companies as it gives them the perfect opportunity to do what they do best. People who have some level of expertise in sky jumping are now offering sky jumping training as well. Lifestyle Startup is all about pursuing ones passion and finding a way to earn money through it.
- 22. Cont. 2. Scalable Startups: • Unlike small business startups, scalable startups aim high. They believe that their ideas can change the world and the perfect examples are Facebook, Twitter, Skype and their likes. Scalable Startup revolves around a simple but powerful concept and they always look for financial investors to raise capital for their dream idea.
- 23. Cont. 3. High Potential Venture: • Receives the greatest investment, interest and publicity • Rapid growth • After 5 to 10 years could employ about 500 employees • Revenues are $20 million to $30 million • Also called Gazelles
- 24. Role of Entrepreneurship in Economic Development • It involves more than just increasing per capita output and income, it involves change in business and society. This change is accompanied by growth and increased output, which allows more wealth to be divided among the various participants What facilitates needed change and development? • One theory of economic growth depicts innovation as the key not only in developing new products but also stimulating investment interest in the new ventures being created. The new capital created expands the capacity for growth • It is the process through which innovation develops and commercializes through entrepreneurial activity which in turn stimulates economic growth.
- 25. Cont. Product – Evaluation process: • The process through which innovation develops and commercializes through entrepreneurial activity, which in turn stimulates economic growth. Iterative (Repeating)synthesis: • The critical point in the product-evaluation process is the intersection of knowledge and a recognized social need, which begins the product development phase. This point is called iterative synthesis. Ordinary innovations: • New products having little uniqueness and technology
- 26. Cont. Technological innovations: • New products with significant technological advancement. Regardless of its level of technology, each innovation evolves into and develops into commercialization through one of the three mechanisms: • The government • Intrapreneurship or • Entrepreneurship
- 27. Ethics & Social Responsibilities of Entrepreneurs Ethics: • The study of whatever is right & good for humans. • Many businesses develop their own codes of ethics or conduct • These codes outline what employees are to do in order to carry out what the company sees as the “right thing to do” in various circumstances Social responsibility: • An ethical framework that suggests that an organization or individual, has an obligation to act for the benefit of society at large.
- 28. Outline for a Code of Ethics Over all, a code of ethics should be a formal statement of a business’s values concerning ethics and social issues. It commonly speaks to acceptable norms of behavior, guided by six areas of concern: 1. Honesty: to be truthful in all your endeavors; to be honest and forthright with one another and with customers, communities, suppliers, and other stakeholders. 2. Integrity: to say what you mean, to deliver what you promise, and to stand up for what is right. 3. Respect: to treat others with dignity and fairness, appreciating the diversity of the people you deal with and their uniqueness. 4. Trust: to build confidence through teamwork and open, candid communication. 5. Responsibility: to speak up — without fear of retribution — and report concerns in the workplace and elsewhere, including violations of laws, regulations, and company policies. 6. Citizenship: to obey all laws of the countries where you do business and to improve the communities where you live and work.
- 29. Being Socially Responsible • It is not enough to be ethical, or do the right thing anymore • Businesses are now expected to act in a socially responsible manner – they need to be good citizens as well as give back to the societies (including global) in which they exist. Types of Socially Responsibility: • Environment: One primary focus of corporate social responsibility is the environment. Businesses, both large and small, have a large carbon footprint. Any steps they can take to reduce those footprints are considered both good for the company and society as a whole. • Philanthropy: Businesses also practice social responsibility by donating to national and local charities. Whether it involves giving money or time, businesses have a lot of resources that can benefit charities and local community programs.
- 30. Cont. • Ethical labor practices: By treating employees fairly and ethically, companies can also demonstrate their corporate social responsibility. • E.g. Cole and Parker – This Canada-based sock company does more than just sell colorful footwear. Through its partnership with microfinance organization Kiva, Cole and Parker donates proceeds from every sock sale to a fund that is used to provide small loans for entrepreneurs in developing countries.
- 31. The Future of Entrepreneurship The term entrepreneurship means different things to different people In spite of differences, there are some common aspects: • Risk taking • Creativity • Independence and • Rewards These commonalities will continue to be the driving force behind the notion of entrepreneurship in the future. • We are living in the age of entrepreneur, with entrepreneurship endorsed by educational institutions, governmental units, society and corporations.
- 32. Cont. • Various governments are taking an increased interest in promoting the growth of entrepreneurship. • Large companies will continue to have an interest in their special form of entrepreneurship – intrapreneurship – in the future. • These companies will be increasingly interested in capitalizing on their research and development (R&D) in the hyper competitive business environment today.
- 33. Cont. • Next generation is more demanding and challenging than that of the founder. Fear of failure may panic them. If not managed properly, not calculated risk properly, they may land themselves in trouble. Entrepreneur in the present & future must: • Know the business well. • Know themselves, their strength& weakness. • Have had necessary education &experience. • Are & will be guided by previous generations & advisors. • Earn respect of employees, suppliers, customers & other family members. • Their skills & abilities fit the most of the business. • Want to lead & serve.