Introduction to Entrepreneurship

Introduction to Entrepreneurship

• This chapter aims to cover introductory concepts related to entrepreneurship

Learning Objectives

• Understand the concepts and characteristics of entrepreneurship.
• Comprehend role of entrepreneurship in development
• Understand relationship between entrepreneurship, creativity, and innovation.
• Identify myths of entrepreneurship and avoid them.

Key Points

• The term entrepreneurship is defined in many different ways
• Entrepreneurship contributes to socio-economic and political development
• Creativity and innovation are elements of entrepreneurship
• Avoid myths of entrepreneurship to become entrepreneurs

Entrepreneurship Concepts

• Entrepreneurship drives economic growth across the globe.
• Many people choose to become entrepreneurs
• Entrepreneurship has become a symbol of strength and achievement.
• The mass media are usually reporting about entrepreneurship and entrepreneurs
• Entrepreneurship is the process of recognizing an opportunity by shifting resources from an area of lower productivity to an area of higher productivity, involving some element of innovation and risk, and being driven by the objective of creating value and reaching a personal reward
• This process is driven by an individual or a small team around a leading individual with certain enabling personal traits, who attracts necessary resources and implements the idea beyond an existing organization.
• Each definition views entrepreneurs from a slightly different perspective but each contains similar notions: newness, organizing, creating wealth, and risk-taking
• Entrepreneurs are found in all professions, education, medicine, research, law, architecture, engineering, social work, and distribution.
• Hisrich and Brush (1985) define entrepreneurship as the process of creating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence
• Entrepreneurship is the process of creating or seizing an opportunity and pursuing it regardless of the resources currently controlled, generating benefits to individuals, groups, organizations, and society.

Evolution of Entrepreneurship

• The term entrepreneur means “between-taker” or “go-between”.
• In the Middle Ages, the term entrepreneur was used to describe a person managing large production projects
• A typical entrepreneur in the Middle Ages was the cleric – the person in charge of great architectural works such as castles, fortifications, public buildings, abbeys, and cathedrals
• In the 17th century, the concept of risk in the notion of entrepreneurship was developed, with an entrepreneur being viewed as a person who entered into a contractual arrangement with the government to perform a service or supply stipulated products
• Cantillon viewed the entrepreneur as a risk-taker, seeing merchants, farmers, craftsmen, and other sole proprietors buy an item at a certain price and sell it at an uncertain price, therefore operating at a risk.
• In the 18th century, a person with capital was differentiated from one needing capital; the entrepreneurial role was distinguished from the capital-providing role
• Venture capitalist is a professional money manager who invests in risky investments from a pool of equity capital to obtain a high rate of return on the investments.
• In the late 19th and early 20th centuries, entrepreneurs were frequently not distinguished from managers and were mainly viewed from an economic perspective
• In the middle of the 20th century, the notion of an entrepreneur as an innovator was established
• The function of entrepreneurs is to reform or revolutionize 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 source of supply of materials or a new outlet for products by reorganizing a new industry.
• Innovation and newness are integral parts of entrepreneurship, requiring the ability to create, conceptualize, and understand the forces at work in the environment

Characteristics of Entrepreneurship

• Total dedication to success helps an entrepreneur overcome obstacles and setbacks.
• Unwavering commitment often provides and edge against insurmountable odds and compensating for shortcomings
• Entrepreneurs with high-potential ventures should expect investors to measure their commitment, including a willingness to sacrifice personal comfort.
• Entrepreneurs are self-starters internally driven by a desire to compete and attain challenging goals.
• High achievers are moderate risk-takers who assess situations, increase odds of success, and act decisively
• Entrepreneurs focus on opportunity rather than resources, structure, or strategy
• Entrepreneurs are goal-oriented, prioritize selectively, and know when to decline opportunities
• Entrepreneurs have been viewed as self-reliant innovators
• Effective entrepreneurs seek and take initiative
• They willingly put themselves in situations where they are personally responsible for the success or failure
• Entrepreneurs like to take initiative to solve problems in the absence of leadership
• Entrepreneurs are not intimidated by difficult situations.
• Confident and optimistic, they believe impossible tasks just take longer.
• Entrepreneurs are not aimless but realistic, recognizing what they can and cannot do.
• Effective entrepreneurs are quick learners with a desire to know how well they're doing and how to improve
• Actively seeking and using feedback is central to their learning from mistakes.
• Successful entrepreneurs believe in themselves and their control over success.
• They are consistent with high achievement, personal responsibility, and self-confidence.
• Start-up entrepreneurs are ambiguity-tolerant.
• Successful entrepreneurs thrive on the fluidity and excitement of ambiguous environments, unconcerned with job security and retirement
• Successful risk takers are not gamblers, but calculated and thoughtful in their ventures
• Entrepreneurs try to improve the odds in their favor and sharing the risks with partners and investors
• Integrity and reliability are important traits to sustain trust and confidence and are crucial to success.
• Entrepreneurs use failure as a learning experience
• Entrepreneurs are realistic enough to expect difficulties
• They look for opportunities in adverse times and believe they learn more from failures than successes.
• Entrepreneurs requires high energy levels, demanding careful attention to diet, exercise, and relaxation.
• Creativity school of thought believes it can be learned
• New ventures often have collective creativity from the joint efforts of personnel.
• Entrepreneurs know where they want to go and have a concept of what their firm can be
• Vision develops over time as the individual realizes what the firm is and can be.
• Entrepreneurs maintain their abilities despite major obstacles
• Drive for independence with a commitment to “make a difference” adds up to an independent personality.
• Entrepreneurs wish to have authority to make the important decisions.
• Independence and autonomy doesn't preclude the desire to build a strong entrepreneurial team.
• Successful entrepreneurs have well-motivated teams.
• Although the entrepreneur may have the clearest vision of where the firm is headed, the personnel are often more qualified to handle the day-to-day implementation challenges

Entrepreneur Role

• Entrepreneurship is one of the influencing factors for socio-economic and political development
• Entrepreneurship stimulates creativity and innovation in the private sector, public sector, not-for-profit, and other organizations
• Entrepreneurship stimulates business growth and development and creates employment opportunities.
• Political entrepreneurship strengthens public governance.
• Entrepreneurship enables not-for-profit organizations and social business organizations to address social problems

Entrepreneurship, Creativity, and Innovation Concepts

• Creativity and innovation are among the major elements of entrepreneurship.
• Entrepreneurs obtain creative and innovative ideas from different sources.
• Ideas can come from existing companies, consumers, distribution channels, government, and internal research and development.
• Focus groups, brainstorming, and problem inventory analysis are methods to generate and test new ideas.
• Brainstorming stimulates greater creativity by meeting with others and participating in an organized group experience
• The four overall rules that needs to be followed when using the brainstorming method: no criticism, freewheeling encouraged, and quantity of ideas is desired

Creativity

• Creativity is the generation of ideas that result in improved efficiency or effectiveness of a system
• The creative process has four commonly agreed-upon phases or steps
• Phase1: Background or knowledge accumulation
• Phase 2: incubation process
• Phase 3: idea experience stage
• Phase 4: evaluation and implementation.

Phase 1

• Successful creations are preceded by investigation and information gathering through:
  • Reading a variety of fields
  • Joining professional groups and associations
  • Attending professional meetings and seminars
  • Traveling to new places
  • Talking to anyone and everyone about your subject
  • Scanning magazines, newspapers, and journals
  • Developing a subject library
  • Carrying a notebook
  • Devoting time to curiosities
  • Conducting additional investigations

Phase 2

• Creative individuals allow their subconscious to mull over gathered information.
• Incubation often occurs during unrelated activities, and can be induced by:
  • Engaging in routine activities
  • Exercising regularly
  • Playing (sports, board games, puzzles)
  • Thinking about the project or falling asleep
  • Meditating or practicing hypnosis
  • Relaxing regularly

Phase 3

• This is where the idea or solution the individual is seeking is discovered
• New and innovative ideas emerge while the person is busy doing something unrelated to the enterprise, venture, or investigation.
• Idea experience can be sped up by the following ways:
  • Daydreaming
  • Practicing your hobbies
  • Working in a leisurely environment
  • Keeping a notebook bedside
  • Taking breaks while working.

Phase 4

• Successful entrepreneurs can identify ideas that are workable and that they can implement skillfully
• They do not give up when they run into obstacles
• They educate yourself in the business planning process and all facets of business
• Entrepreneurs need to test your ideas with knowledgeable people
• They needs to learn about organizational policies and practices
• Entrepreneurs need to seek advice from others

Creativity In The Work Place

• Creativity is most likely to occur when the climate is right
• Some of the most important characteristics of this climate are:
  • Trustful management
  • Open channels of communication
  • Considerable contacts
  • Acceptance to change
  • Experimenting

Innovation

• Innovation is the specific function of entrepreneurship.
• Innovation is the process by which entrepreneurs convert opportunities into marketable ideas and catalysts for change

Success Combination

• Blend imaginative and creative thinking with a systematic, logical process, and ability
• Potential entrepreneurs sense potential in business problems by asking “what if” or “why not."
• They develop an ability to see, recognize, and create opportunities where others find only problems.
• There are basic types of innovation.
  • Invention
  • Extension
  • Duplication
  • Synthesis
• Some internal and external areas that serve as sources of innovation are:
  • Unexpected occurrences
  • Incongruities
  • Process needs
  • Industry and market change
  • Demographic change
  • Perceptual change
  • Knowledge-based concepts

Myths About Innovation

• Innovation is planned and predictable.
• Technical specifications should be thoroughly prepared.
• Creativity relies on dreams and blue-sky ideas.
• Big projects will develop better innovations than smaller ones.
• Technology is the driving force of innovation and success.

Guiding Principles of Innovation

• Innovators always must be active and search for new ideas, opportunities, or sources of innovation.
• People must readily understand how the innovation works.
• Innovators must always keep the customer in mind. The more an innovator has the end user in mind, the more the concept will be accepted and used.
• Innovators should not attempt a project or development on a grand scale; begin small and then build and develop.
• Innovators should aim high for success by seeding a niche in the marketplace.
• Innovators should follow the rule of try, test, and revise.
• Learn from failures: innovation does not guarantee success, failures often give rise to innovations.
• Innovators follow schedule that indicates milestone accomplishments.
• Reward heroic activity: tolerate failure as a means of accomplishing innovation and innovation work must be seen as a heroic activity.
• Conclude the innovation principles It takes work, not genius or mystery, to innovate successfully.

Entrepreneurial Individual Introduction

• Who is an entrepreneur?
• The entrepreneurial process
• The entrepreneurial background
• Characteristics and factors that facilitate or restrain the entrepreneurial process
• To be able to understand who the entrepreneurs are and what they do
• To be able to explain the entrepreneurial process and use the concept in managerial activities
• To be able to understand the motivation for entrepreneurship and develop entrepreneurial mindset
• Analyze and understand the effect of different factors (environmental factors) on entrepreneurship development
• Be able to use the concepts in promoting entrepreneurial activities in your organization
• An entrepreneur is a person who creates and builds an enterprise

Entrepreneur Aspects

• Entrepreneurship involves process
• Many reasons motivate entrepreneurs
• Entrepreneurs should always understand their environment

Who Is An Entrepreneur

• An entrepreneur is a person who creates and builds an enterprise.
• Entrepreneurs are self-reliant, strive for distinction, optimistic, and are always willing to take calculated risks
• Besides what has been discussed in Chapter 1, the following points (may overlap) help identify entrepreneurs.
  • Entrepreneurs do what they enjoy doing
  • Entrepreneurs do what they are doing seriously
  • Entrepreneurs plan everything
  • Entrepreneurs manage money wisely (income and expenses)
  • Entrepreneurs strive to satisfy their customers
  • Entrepreneurs project positive business image (vision)
  • Entrepreneurs level the playing field with technology (use technology)
  • Entrepreneurs network with stakeholders and build enterprise team
  • Entrepreneurs are experts (solve the problem)
  • Entrepreneurs seek to create a competitive advantage.
  • Entrepreneurs invest in capacity-building programs (purchase)
  • Entrepreneurs master the art of negotiations (good negotiators).
  • Entrepreneurs get and stay organized.
  • Entrepreneurs have flexible schedules
  • Entrepreneurs constantly follow up on their environment
• Entrepreneurs seek to generate value through creation or expansion of economic activity, by identifying and exploiting new products, processes or markets

Entrepreneurial Processs

• The process of starting a new venture is embodied in the entrepreneurial process
• A entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces that resist the creation of something new.
• The four distinct phases are
  • Identification and evaluation of the opportunity
  • Development of the business plan
  • Determination of the required resources
  • Management of the resulting enterprise
• Identify and evaluate the opportunity
• Development of the business plan
• Determine the resources required
• Manage the enterprise
• Evaluate risk and returns, fit with personal skills and goals, and competitive advantage.
• Develop a business plan and determined required resources
• Acquire needed resources promptly while giving up as little control as possible
• Manage resources and implement the business plan
• In all stages-define the problem or opportunity
• Collect information
• Generate selected alternatives
• Implement selected alternatives

Entrepreneurial Activities

• Entrepreneurial activity is enterprising human action in pursuit of the generation of value, through the creation or expansion of economic activity, by identifying and exploiting new products
• The key points for entrepreneurs are:
  • Enterprising human activity
  • The assembly of unique bundles of resources, identification of market opportunities, and/or utilization of innovative capabilities
  • The significance of the business and wider environment
  • The creation of value

Motivational Reasons

• Considered to be the benefits of entrepreneurship in the business sector
  • Opportunity to Gain Control over Your Destiny: Owning a business
  • Opportunity to Reach Your Full Potential
  • Opportunity to Reap Unlimited Profits
  • Opportunity to Contribute to Society and to Recognize Your Effort
  • Opportunity to Do What You Enjoy

Drawbacks

• Entrepreneurs face several different types of risks grouped into four basic areas

4 Basic Basic Areas

• Financial risk
• Career risk
• Family/Social risk
• Psychic risk
• Uncertainty of Income
• Long hours and hard work
• Low quality of life until the business gets established
• High level of stress
• Complete responsibilit

2 Entrepreneurial Mindset Aspects

• Increase experiential learning
• Develop new coach/moderator for teachers
• Change education context
• Reduce hierarchical relationship in schools

3 Contradictory Forces

• Like any human activity, entrepreneurship takes place in an environment
• Environment will impact a entrepreneur positively or adversely
• Analyze environment to establish new venture
• This section presents environmental factors that influence entrepreneurship.