Entrepreneur Unit-1 PDF

Introduction to UNIT 1 INTRODUCTION TO Entrepreneurship ENTREPRENEURSHIP Objectives After reading this unit, you should be able to: Understand the word ‘Entrepreneurship’ Examine the difference between Entrepreneur and M...

Introduction to UNIT 1 INTRODUCTION TO Entrepreneurship ENTREPRENEURSHIP Objectives After reading this unit, you should be able to: Understand the word ‘Entrepreneurship’ Examine the difference between Entrepreneur and Manager Understand the difference between Entrepreneur and Intrapreneur Identify different theories of Entrepreneurship Understand different types of Entrepreneurship Structure 1.1 Introduction 1.2 Evolution of Entrepreneurship 1.3 Entrepreneur vs. Manager 1.4 Entrepreneur vs Intrapreneur 1.5 Theories of Entrepreneurship 1.6 Types of Entrepreneurship 1.7 Summary 1.8 Keywords 1.9 Self-Assessment Questions 1.10 References/Further Readings 1.1 INTRODUCTION The word “Entrepreneurship” originally evolved from a French expression called “entreprendre”. Etymologically, "entrepreneurship" denotes “taking from below” or “undertaking”. Entrepreneurship is the capacity of a person to assume risk, accountability and challenges with a view to explore opportunities, disrupt market norms and create values. Some scholars defined entrepreneurship in terms of the attributes of an entrepreneur (e.g. trait, competencies, cognitive capabilities etc.), while others defined it in terms of the activities that the entrepreneurs undertake. French economist and banker Richard Cantillon (1680–1744) first popularised the idea of entrepreneurship by investigating entrepreneurial activities in France during early eighteenth century. He pointed out that business owners pay a particular price for a product so as to resell it in the market for an uncertain price. This makes business owners different from other people because they take on more risk. Later, Adam Smith (1776) expanded the economic definition of entrepreneurship by characterizing the entrepreneur as “profit-seeking enterpriser” who is striving to establish a business with a commercial goal. 7 Entrepreneurship: By incorporating economic development into the idea of entrepreneurship, An Overview Jean-Baptiste Say (1807) expanded the meaning of the term entrepreneurship. He proposed that an entrepreneur's role is to coordinate and manage the factors of production. The entrepreneur also assumes the risk of the business through this job, while at the same time making profit and building wealth. According to Say, entrepreneurial functions include “coordination, organisation and supervision” and the entrepreneurs must have the skills of superintendence and administration. Additionally, an entrepreneur can recognise society’s fundamental requirements and problems, and is capable of satisfying those needs. Before Schumpeter (1934) proposed his Theory of Innovation and Economic Development, entrepreneurship was not envisaged as a dynamic force capable of transforming and expanding the economic activity of a nation. In the view of Schumpeter, creation of new undertaking involves exploring pioneering innovations and using novel combinations of resources & actions by the entrepreneurs. The entrepreneur can help a new business thrive by creating new demand, expanding into new markets, exploring new technology or supply chain etc. According to Schumpeter, an entrepreneur destroys or disrupts an equilibrium-state market. According to this equilibrium, market economies operate in a situation where individuals are unwilling to alter their current behaviour because there aren't enough incentives. Schumpeter argued that an entrepreneur is essentially an innovator: “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 way, opening a new source of supply of materials or a new outlet for products, by reorganizing a new industry”. According to Cole (1942), Entrepreneurship is an “integrated sequence of actions taken by an individual or by a group operating for individual business units in a world characterized by a large degree of uncertainty”. Low & MacMillan (1988) argued that entrepreneurship entails formation of new organisation and it plays vital role in the advancement of the economy. Entrepreneurship, according to Davidsson et al. (2006), is “the creation of new economic activity” which includes the development of new businesses as well as the expansion of already existing ones. Entrepreneurship is defined by Gartner (1988, 1990, 1993, and 2001) as the creation of new organisations. According to Katz & Gartner (1988), the emergence of a new business venture is the result of the dynamic interplay between agents like individuals, groups, parent company and external business environment. Katz and Gartner (1988) are one of the earliest entrepreneurship scholars to emphasize that behavioural dispositions of the entrepreneurs play a crucial role in venture development. According to them, for entrepreneurial venture to exist it must have resources, and extra organizational place of exchange and the intentionality of the founders. 8 Entrepreneurship was defined by Shane & Venkataraman (2000) as “the Introduction to Entrepreneurship process by which opportunities to develop or create new goods & services are discovered, evaluated and exploited”. The concept acknowledges that “creativity” is the foundation of entrepreneurship, which can entail not just discovering novel insights and knowledge but also allocating resources in novel ways. According to Stevenson & Mossi (1990) entrepreneurship is the process of making changes and it is the pursuit of opportunity seeking beyond the resources under current control. 1.2 EVOLUTION OF ENTREPRENEURSHIP The present academic discipline of entrepreneurship has evolved from various schools of thoughts. One of the most widely accepted approaches with respect to analysis of venture formation was proposed by Gartner (1985) who identified the following four different perspectives namely 1) individuals or persons (i.e., the founder) 2) activities undertaken by the founder during venture creation process, 3) the external environment and 4) structure and strategy of the organization. Alvarez & Urbano (2011) recognised three primary entrepreneurship approaches: 1) “The economic approach” 2) “The psychological approach” and 3) “The sociological or institutional approach” (i.e. influence of socio-cultural factors on business and entrepreneurial decisions of an individual). Six schools of entrepreneurship were advocated by Bridge, O'Neil, & Cromie (2012): personality theories, behavioural theories, economic school, sociological perspective, and integrated perspectives. Cunningham and Lischeron (1991) categorized entrepreneur- related knowledge into six categories: 1) The Great Person School, which is centred on the biographies of prosperous business people 2) The school of psychological traits, which examines how entrepreneurs act in accordance with their values as they look to satisfy demands; 3) The classical school, which incorporates the notion of innovation propounded by the economists; 4) School of administration, 5) school of leadership, and 6) School of intrapreneurship. Nevertheless, the evolution of the concept of entrepreneurship can be classified into following phases: Entrepreneur as a Rational Agent Following Cantillón's heritage, a group of economists has defined entrepreneur as rational actor with respect his economic environment. According to this school, an entrepreneur was distinguished from a traditional investor or capitalist by virtue of being a risk-seeker (Cantillon, Baudeau, Thunen, Bentham, Say, Knight), an efficient and superior worker (Say, Smith), an individual possessing highest intellectual capabilities (Cantillón, Quesnay, Baudeau, Turgot), an efficient coordinator who skilfully manipulates factors and resources, builds teams and makes effective business decisions (Marshall, Casson), a passionate information seeker who can recognize and explore opportunities (Hayek, Kirzner), and the innovator or promoter of new combinations (Smith, Schumpeter,). The economics school concentrated on how businesses were developed, how resources were managed, and how they interacted with the external environment. Most theorists, except Schumpeter and Kirzner, visualized entrepreneurs as 9 Entrepreneurship: performing reactive functions in response to changes in external business An Overview environment. Nevertheless, the idea of an entrepreneur lacked clarity and consensus. From rational agent to entrepreneurial personality traits: Research on entrepreneurship then advanced to focus on the individual characteristics of an entrepreneur and his or her persona instead of merely categorizing entrepreneurs as a rational economic actor. In particular, trait theories, personality, and cognitive processes in psychology were used to identify characteristics and psychological attributes of the entrepreneurs relevant to business venturing. According to McClelland (1965), an entrepreneur's personality is defined by their need for success or self- realization. Several other traits were thought to influence entrepreneurial behaviour including internal locus of control, self-confidence, inclination towards risk taking, need for power and achievement as well as drive for independence. Although numerous studies on personality traits of the entrepreneurs were conducted, their results were not highly successful. The findings of these investigations were occasionally inconclusive, and it is always difficult to identify specific entrepreneur's traits that can lead to success in business creation and development. Fonrouge (2002) developed the behavioural school of entrepreneurship which argues that specific competencies act as the antecedent of entrepreneurial behaviour which eventually helps in formation of successful business entity. From Personality Trait to Opportunity Recognition: In the late 1990s, the study of entrepreneurship turned its emphasis to recognition and discovery of opportunities with an attempt to comprehend how they are found, created, and utilised. The information available in the market is asymmetrically distributed and individuals having specialized information, knowledge, skills and behavioral attributes are better suited to decode the opportunities in the market and develop sustainable business plan. An opportunity may be described as an unfulfilled market need or spotting any new technological invention that may be further developed as business idea. According to Kirzner (1997) an opportunity may represent itself as an “imprecisely defined market need, or un- or under-employed resources or capabilities”. These market needs or novel technological innovations or under employed resource and capabilities are transformed into a viable business opportunity by an entrepreneur through his individual capabilities such as skills, knowledge, personality traits and distinctive cognitive attributes. According to Shane & Venkataraman (2000), the discovery of business opportunities and their exploitation are two connected processes that constitute entrepreneurship. Ardichvilli et al., (2003) argued that opportunity recognition and development is not a chance discovery of any existing opportunity in the market. Rather opportunity development is a continuous process that requires proactive creation and development of an opportunity from perceiving an idea to development of complete business plan. Ardichvilli et al., (2003) also opined that the process of opportunity development involves three distinct phases namely perception, discovery and 10 creation. From the opportunity to institutions and network: Introduction to Entrepreneurship These theories contend that a collection of environmental, institutional and cultural factors, as opposed to the capacity or choice to launch a firm, determine how a business is initiated. As a result, the development of organisations is dependent on the sociocultural environment. Sociocultural values are a crucial component of entrepreneurial actions because they foster an environment where taking risks, innovating, and being self-reliant are supported and encouraged. This approach of entrepreneurship was developed using theories from the network, marginalisation, role, population ecology, and institutional theories. According to institutional theory, a society's institutions provide the incentive structure and offer the necessary infrastructure to sustain economic progress. Institutions precede the behaviour of the entrepreneurs and provide conditions favourable for the formation of business ventures. Five institutional factors that affect entrepreneurial activity have been highlighted by Gnyawali & Fogel (1994), these are i) government policies, law, rules and regulations ii) existing socio- economic conditions iii) entrepreneurial capabilities and knowledge iv) availability of financial support to start a new business and v) non-financial supports. According to Aldrich (1987) and Zimmer (1986), the entrepreneurs are part of a larger social network that is essential for the flow of vital resources for the entrepreneurial process. According to Cimadevilla & Sánchez (2001), network is envisioned as a coordinated system of “exchange relationships” set up by the agents. A network can also be described as an integrated system comprised of a group of actors, either people or organisations, and the connections and ties that link them together. The pioneering works of Birley (1986) and Aldrich et al. (1987) highlight that distinctive connections and chain reactions which arise from the interactions of different groups or actors lead to the dissemination of knowledge and ideas which eventually promote the formation of businesses. Entrepreneurs particularly benefit from social networks because these ties help in accessing new resources, act as source of pertinent business information, promote opportunity identification and exploitation, encourage competitiveness, innovation and growth of business. Emergence of Constructivist and Integrating approach: Busenitz et al. (2003) highlighted the importance of examining the unique connections among environment, people, organisational capacity, and entrepreneurial opportunity. According to Watson (2013), integration of social sciences disciplines like history, philosophy and sociology would encourage the diversification of the field of entrepreneurship to focus more broadly on a phenomenon like business in socio-institutional contexts. A constructivist framework calls for understanding the relationship between creation of new value (like innovation or formation of new venture) with the individual or entrepreneur. To comprehend a business venture in totality, one must comprehend the person and the project and the connections between them, strategies for survival, development processes, and ultimately, the effects of the environment and various resources available therein. 11 Entrepreneurship: Activity 1 An Overview Explain briefly the evolution of Entrepreneurship over the years. ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… 1.3 ENTREPRENEUR VS. MANAGER Primarily, an entrepreneur’s task is to recognize unexplored opportunities, exploit unfulfilled market needs, develop a business idea or plan, and assume financial risk and uncertainty with an objective to achieve a commercial goal. An entrepreneur recognizes an opportunity in the form of an unfulfilled market need and develops appropriate solution to address such needs through creation of new products and services. An entrepreneur essentially revolutionizes the pattern of production of goods or services either by exploiting a novel technological invention or through innovating existing means of production or introducing novel production process or new business model. Additionally, the entrepreneur decides on appropriate business strategy considering the threats and prospects of the business and invests money and effort to create the venture. The focus of an entrepreneur is predominantly external wherein he or she scans and interprets the external market information to formulate appropriate business strategy. Typical entrepreneurs often introduce a pioneering business idea having potential for value creation. On the contrary, a manager is primarily responsible for overseeing and guiding the ongoing operations in an existing firm with an objective to produce and supply goods & services in an efficient and timely manner. Manager performs the above tasks with the help of his or her assistants. The objective of a manager is to achieve business goals in an effective way. Unlike entrepreneurs who owns a business and seek profits through his efforts and investments, a manager is essentially an employee of an organization who manages the affairs of the firm in return of a fixed salary and defined incentives. In a business entity, a manager's major responsibilities include planning, organizing, motivating, controlling, and coordinating. Managers ensure that the resources of the firm are used optimally and the members of the organization work efficiently with an objective to contribute meaningfully towards the goal of the company. Sphere of activity of a manager is mostly focused on what is happening inside the company. 1.4 ENTREPRENEUR VS INTRAPRENEUR Individuals who perform as entrepreneurs but do it within an organisation are referred to as intrapreneurs. Intrapreneurs are employees of an organisation 12 who innovate for the business and take the risks for their employer (i.e., an intrapreneur is an intra-company entrepreneur). Intrapreneurship is a word Introduction to Entrepreneurship coined by Pinchot (1985) to describe the "entrepreneurial spirit" that fosters project and business initiatives within organisations. In their position within the organisation, intrapreneurs put their entrepreneurial knowledge, insight, and forward-thinking to use. They are imaginative people who frequently work in teams with the goal of promoting innovation and the creation of new products, technologies, or services for their employers. Unlike entrepreneurs who runs their own organization independently and takes risk with an objective to create incremental wealth & impact, intrapreneurs are not independent and they work within the confines and objectives of the company. A person can develop new concepts, goods, and commercial objectives through intrapreneurism without having to assume the risks associated with formation of a new business like an entrepreneur, such as lack of revenue, a small team, a lack of time, an uncertain future, etc. The rewards for successful intrapreneurship may not be as attractive as those for a disruptive innovation of an entrepreneur. Most often, the company own the products developed by intrapreneurs as their intellectual property. The rewards for intrapreneurship may be limited to bonus, promotions, or salary hike. Since the company assumes the financial risk and makes the investment, reward for innovation is minimal for the intrapreneurs. Some of the renowned Intrapreneurs are Paul Buchheit who created Gmail or Ken Kutaragi who created PlayStation at Sony. Activity 2 Explain how an entrepreneur is different from an intrapreneur. ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… 1.5 THEORIES OF ENTREPRENEURSHIP Several theories have been propounded in order to describe the idea of entrepreneurship. The majority of these theories have their origin in five academic disciplines namely, economics, psychology, anthropology, management and sociology. The economic theories stem from classical and neoclassical economic theories as well as the Austrian notion of market process. The economic factors that encourage entrepreneurial behaviour are the focal subject of these theories. Classical economic theory is focused on rivalry, competition, specialisation and free trade. The theory was mostly inspired by the industrial revolution, which started in Britain in the middle of the 18th century. Land, capital, and labour were the three factors of production outlined by classical theorists. However, the classical theories faced severe criticism. The dynamic upheaval brought about by industrial age entrepreneurs was not adequately 13 Entrepreneurship: explained by these theorists. The neoclassical approach upholds the impact of An Overview diminishing marginal utility and entrepreneurs' responses to them as another significant element that was absent from the classical works. The ontological premises of perfect rationality (i.e., that agents are always able to make the best decisions) and structurally complete information characterise the neoclassical component of economics. They believe that perfect rationality is limited to a small number of people, and that comprehensive knowledge of profitable opportunities is costly spread throughout the market. The fundamental focus of Austrian market process theories is on individual decision making based on their knowledge and understanding of the economy. Pioneering work of Israel Kirzner highlights that markets are not always completely transparent and that there are not always fully informed representative agents. Entrepreneurs require incentives to effect change, and these incentives take the shape of knowledge and information. In psychological theories, the person is the level of analysis. These theories emphasise personal attributes and characteristics that may influence entrepreneurial behaviour, such as personality, locus of control, risk-taking capability, need for achievement, creativity, innovativeness, and tolerance for uncertainty and ambiguity etc. The sociological theory is the third major subfield in entrepreneurship theory. The primary focus of sociological study is the social environment including the influence of social institutions and networks on entrepreneurship. The anthropological theories on the other hand deals with influence of culture of the people in the community, development, customs, belief etc. on entrepreneurial process. Some of the major entrepreneurship theories are discussed below. Innovation Theory of Joseph A. Schumpeter According to Schumpeter (1934), entrepreneurship serves as a stimulant for economic development by upending the economy's fixed circular flow. By experimenting with "novel combinations" of the factors of production (which has been referred to as innovation by Schumpeter), entrepreneurs push the economy to a new level of development. In the “Theory of Economic Development”, Schumpeter (1934) placed a substantial focus on the role of the entrepreneur as the "man of action," an "engine of growth," and the driver of the economic change process. According to Schumpeter, an entrepreneur's job is to integrate the factors that contribute to productivity, bring them together, and manage the resources that contribute to productivity. Schumpeter defined entrepreneurial activities as exploring new combinations of existing resources, introduction of a novel products or services unknown to the consumers, inventing new process of production which is yet to be exploited, entry into a new market, the discovery of a new raw material supply source, or implementation of a new industrial and organisational structure. Schumpeter therefore asserts that entrepreneurship is “a creative activity” involving innovation, risk taking and managing of resources as integral parts of the process. Schumpeter is the first leading economic theorist to envisage human actors and their actions at the core of economic development. 14 Schumpeter draws a divide between an innovator and an inventor. New Introduction to Entrepreneurship techniques and materials are discovered by an inventor. An innovator, on the contrary, is an individual who applies or modifies discoveries and innovations to produce unique combinations. An entrepreneur transforms a technical discovery or an invention into financially viable business opportunity while an inventor is largely interested in technical work of discovery. Theory of Locus of Control A crucial component of personality is locus of control. In the 1950s, Julian Rotter made the initial presentation of the idea. Locus of control can be defined as an individual’s view and perspective about the underlying causes of the events in his or her life. Therefore, locus of control is a point of view on whether the outcomes of our actions are dependent on what we do (internal control orientation) or on external factors or circumstances beyond our control (external control orientation). Individuals with an external locus of control think that external forces, such as chance, luck, or fate, are to blame for life's happenings. In contrast, the people having an internal locus of control think that they can themselves control the events and consequences of their life. Empirical findings suggest that internal locus of control is a trait that most successful entrepreneurs possess. Moreover, internal locus of control was found to be positively correlated with intention to start a business. Additionally, Rauch & Frese (2000) found that compared to other groups, company owners have a marginally greater internal locus of control. High levels of inventiveness, competitive aggressiveness, and autonomy have also been observed among individuals with internal locus of control by other investigations. Need for Achievement Theory of David McClelland David McClelland developed the need for achievement theory (1961) which assumes that humans have a need to succeed, accomplish, excel, or achieve in life. In his book “The Achieving Society”, McClelland argues that motivation is the ultimate driver of entrepreneurship. This desire to succeed and attain goals is what motivates the successful entrepreneurs. The need for achievement (N-Ach encourages the entrepreneurs to endeavour into risky and uncertain tasks. As opposed to the persons with low need for achievement, those having a strong need for achievement (N-Ach) are not swayed by money or any other kind of external inducement or reward. According to McClelland, N-Ach is a relatively stable personality attribute that develops during middle childhood as a result of family socialisation and child-learning practises that place an emphasis on the development of superior standards, material warmth, and self-reliance. He argued that, a person's life experiences eventually lead to the emergence of three main forms of desires:  Need for Achievement: a desire and motivation to succeed, progress, and grow.  Need for Power: a desire to control or influence other people or circumstances. 15 Entrepreneurship:  Need for Affiliation: a desire for friendly and intimate interpersonal An Overview and social relationship. McClelland discovered that some specific communities generate a large proportion of high achievers. He made the point that the societies with people having a strong drive for achievement and success will also have greater levels of economic prosperity than those without one. According to McClelland, the N-Ach trait has five main components: (1) accepting responsibility for problem solving, (2) setting objectives, (3) achieving goals by one's own effort, (4) recognising the value of and utilizing feedback, and (5) a propensity for taking moderate amounts of risk. Theory of Risk and Uncertainty by Knight: Risk-taking is an essential prerequisite of entrepreneurship. Professor Knight and John Staurt Mill believed that taking risks was an essential part of becoming an entrepreneur. The risk-bearing theory states that the entrepreneur makes profit by taking risks. Depending on their abilities and preferences, entrepreneurs take on varied degrees of risk. The risk theory states that if a business endeavour is riskier, the extent of profit is also likely to be large. He defines uncertainty as a condition in which neither “a priori reasoning” nor statistical inference can be used to establish the probabilities of alternative events. Simply put, applying a priori reasoning to an economic situation involving a unique event is irrelevant. This theory contends that the reward for an entrepreneur's efforts in taking on non-insurable risks and uncertainties is profit. The amount of profit earned is a function of the level of uncertainty borne by the entrepreneur. Hagen’s Theory of Entrepreneurship Hagen (1962) argued that the primary driver of entrepreneurship is the creativity of a marginalised minority group. He based his argument for this concept on the Japanese samurai community. The samurai community had traditionally enjoyed considerable respect and prestige, which was subsequently taken away from it. The community became more active and vigorous in an effort to restore this lost respect, and it gave rise to several entrepreneurs. Hagen emphasised the critical role that creativity plays in society's transition from a traditional one to a modern industrial economy. He makes a detailed distinction between the “creative personality” and “uncreative personality”. According to him, all cultures have historically been conventional and continue to be so due to authoritarian child rearing practises that produce uncreative personalities. Several societies have transformed into modern economies, while many others have maintained their conventional ways of living. Hagen believes that the loss of respect and status acts as a catalyst for personality changes that eventually promote entrepreneurial behaviour. When members of a social group believe that other social communities do not respect their goals and beliefs, status withdrawal develops. Hagen hypothesize that several factors may result in status withdrawal including the displacement of a conventional elite group from its privileged position, the denial of valued symbols through a change in the approach of the superior group, the incompatibility of status symbols due 16 to shift in distribution of economic power, and failure to accept expected Introduction to Entrepreneurship status upon immigrating to a new culture. Hagen further speculates that four probable responses and four distinct personality types may emerge from the lack of status respect: i) Retreatist: Entrepreneur who engages in social activity while retreating from his work or position. ii) Ritualist: Someone who conforms to social rules at work but has no possibility of improving his status or working conditions. iii) Reformist: A reformist is a rebel who seeks to create a new society and way of doing things. iv) Innovator: Entrepreneur who uses creativity to work toward self- imposed goals is an innovator. The elites avoid participating in economic activities in traditional societies because they view them as unimportant. The creative personalities focus their resources mostly on things that the elites avoid in order to regain their status position. Therefore, it is simpler for these creative individuals to participate in economic activity which makes them economically powerful over time. Eventually, they acquire other powers and alter the socio-economic system to one that is based on the contemporary economy. Theory of Cultural Values by Thomas Cochran According to Thomas Cochran's thesis entrepreneurship represents a “model personality” which emanates from role expectations, cultural norms or values, and social sanctions. He claims that the entrepreneur embodies the ideal personality of society. His/Her own attitudes and perspectives towards work, the requirements of sanctioning organisations, and the operational necessities of the job have profound impact on his performance. Modern child upbringing practices instil values like high achievement, cooperation, teamwork, rationalism, etc. In addition to the value structure, the defining groups' expectations about roles and the new operational demands influence an entrepreneur's personality. The role structure will be impacted by changes in operational requirements brought on by long-term shifts in factors like population, technology, and institutional drift. In the majority of nations, entrepreneurs have come from a specific socioeconomic stratum. It is believed that the Protestant ethic of the West helped to create a new generation of industrialists. It should be noted that various castes and communities have served as the foundation for entrepreneurship, including the samurai in Japan, the French family structure, the Parsees, Marwaris, and Gujaratis in India, the Yoruba in Nigeria, the Kikuya in Kenya, the Christians in Lebanon, the Halai Memon industrialists in Pakistan. Sociological Theory Entrepreneurship by P.D. Reynolds Four social contexts have been identified by P.D. Reynolds (1991) which contributes to entrepreneurial opportunity exploitation and development. The first social context is social networks. Here, instead of opportunism, the 17 Entrepreneurship: emphasis is on social ties and links that foster trust. To put it another way, an An Overview entrepreneur must not take advantage of others in order to prosper. Rather, success in entrepreneurial venture comes from upholding goodwill and kindness toward others. The second context propounded by Reynolds is the life course stage, which involves investigating the traits and circumstances of those individuals who have chosen to pursue entrepreneurship. Experiences may have an effect on how people behave and think which then inspires them to live fulfilling and meaningful lives. The third social context is ethnic identification. Sociological background is one of the key "drivers" that motivates someone to launch their own business. For example, an individual's potential for advancement is influenced by their social background. Marginalized people may surmount all obstacles and strive to achieve success because they are driven by their trying circumstances to improve their condition of life. The "population ecology" is the fourth social context. The idea is that environmental factors have a big impact on viability of business. Environmental factors including the political system, law, government rules, consumers, workers and rivals may have an impact on survival of new ventures and the performance of an entrepreneur. Opportunity–Based Theory of Entrepreneurship The opportunity-based paradigm is proposed by Howard Stevenson and Peter Drucker. Contrary to what the Schumpeterian or Austrian school holds, opportunity based theory assumes that an entrepreneur takes advantage of the opportunities that originates from novel changes (e.g. changes in technology, client preferences, etc.) rather than bringing about change. Drucker opines that, “This defines an entrepreneur and entrepreneurship; the entrepreneur always searches change, responds to it, and exploits it as an opportunity.” According to Drucker's opportunity framework, entrepreneurs are typically more concerned with opportunities offered by changes than the problems. Stevenson (1990) broadened the opportunity-based paradigm of Drucker by including the dimension of resourcefulness. His hypothesis was based on an examination of the differences between entrepreneurial and administrative management. According to Stevenson, the essence of entrepreneurial management is the search and exploration of opportunities "without regard to currently controlled resources." Ardichvilli et al., (2003) argued that opportunity recognition and development is not a chance discovery of any existing opportunity in the market. Rather opportunity development is a continuous process that requires proactive creation and development of an opportunity from perceiving an idea to development of complete business plan. The authors also opined that the process of opportunity development involves three distinct phases namely perception, discovery and creation. The first stage is to perceive or sense an unfulfilled market need and/or an underemployed resource. At the second stage the entrepreneur recognizes or discovers a “fit” between the market need and resource”. Finally, at the third stage, the entrepreneur discovers or creates a “new fit between separate needs and resources in the form of a business concept”. Researchers in the past have attempted to explain the individual differences in opportunity recognition capability in terms of 18 psychological or cognitive attributes, ability to form relevant social network Introduction to Entrepreneurship and previous knowledge and experience of the entrepreneur. Individuals may differ in their sensitivity to perceive any unmet market need for creation of new value or its potential application because of heterogeneity in knowledge structure, information processing ability, experience, background etc. Theory of Entrepreneurial Alertness by Israel Kirzner Kirzner (1973) introduced the entrepreneurial discovery theory which highlights the importance of an entrepreneur in eliminating market price discontinuities and bringing the market closer to equilibrium. In other words, Kirzner hypothesize that entrepreneurs can balance demand and supply dynamics by recognizing and exploiting market imperfections. The underlying factors of market imperfections include bounded rationality and asymmetric distribution of information. Driven by profitable opportunities, the entrepreneur purchases items at reduced rates and sells them at greater prices. Kirzner opined that entrepreneurs set prices rather than simply accepting them. This opportunity is created by the ignorance or incompetence of incumbent firms or other players in the market. Market dynamics are fuelled by perceptive activity of the entrepreneur. Entrepreneurs should be able to recognise and seize economic possibilities that others ignore or fail to comprehend, such as the need for novel goods or services. In this context, Kirzner has popularized the term “entrepreneurial alertness” which refers to an “individual's ability to identify changes, shifts, opportunities, and possibilities which are overlooked by others”. Kirzner's work (1979), characterized alert individuals as one having an “antenna” that allows them to recognize problems or gaps with limited clues. Kirzner (1999) has also argued that alertness of an individual is a “creative and imaginative action” and may “impact the type of transactions that will be entered into future market periods”. The concept of entrepreneurial alertness was further elaborated by Tang et al. (2012). The framework of entrepreneurial alertness proposed by Tang et al., (2012) posits that the cognitive function of alertness is comprised of three related cognitive processes, namely scanning and search of information, making association and connection between information gathered and evaluation and judgment. The Theory of Resources and Capabilities This highly influential theory, which was first presented by Chandler (1962), Tilles (1963), and Ansoff (1965), can be thought of as a process of strategy formulation, where the entrepreneur examines the resources the company has in order to gauge their potential for value creation as defined in a business strategy in order to capture the most value possible in a sustainable manner. The production process must take into account these financial, physical, human, technological, reputational, and organisational resources. On the other hand, capabilities are defined as the ability of a group to carry out a task or activities which represent the main source of the company's competitive advantage. When putting this theory into action, one of the keys to the success is making effective use of routines, which are described regular, stable, consistent and predictable patterns of activity made up of a series of coordinated and repeated (learning-by-doing) acts performed by individuals. 19 Entrepreneurship: The outcome is the creation of sustainable economies of experience. These An Overview economies of experience are crucial to entrepreneurs, particularly when they launch firms. Theory of Effectuation by Sarasvathy The notion of effectuation was developed by Sarasvathy (2001) to explain the inherent characteristics and nature of the entrepreneurial process. Sarasvathy argues that the process of entrepreneurship is primarily “effectuation” rather than “causation”. While effectuation processes take a set of methods as given and concentrate on choosing amongst different effects using those means, causation processes take a specific effect as given and focus on choosing the ways to achieve that effect using means available (Sarasvathy, 2001). In a causation process, an individual might create a menu for a particular meal by gathering the ingredients, and subsequently prepare the intended meal. However, while using an effectuation process in preparing a meal, the maker first checks to determine what ingredients are on hand before combining these resources to create a palatable meal. According to Sarasvathy, the entrepreneurial effectuation process starts with a set of restricted resources, and the entrepreneur then chooses between the possible outcomes in accordance with a preset degree of manageable loss. The entrepreneur's function is crucial to the effectuation process. The entrepreneur weighs the implications and then uses the existing means to exploit the contingencies appropriately. The four guiding principles of Sarasvathy's theory of effectuation are: entrepreneurial decisions based on affordable losses rather than expected returns, the use of strategic partnerships instead of competitive analyses, the utilisation of contingencies instead of the use of pre-existing knowledge, and the control of an unpredictable future rather than the prediction of an uncertain one. The effectuation hypothesis states that an entrepreneurial firm makes decisions differently than an established firm. Theory of Entrepreneurial Bricolage The behavioural theory of entrepreneurial bricolage, first put forth by the French anthropologist Lévi-Strauss in 1962, seeks to comprehend how entrepreneurs respond and act when confronted with resource limitations in order to "manage market uncertainties, survive, and perhaps even flourish despite resource constraints". Bricolage actually deals with making things and carrying out plans with whatever is available. Bricolage is more prevalent in microbusinesses and SMEs because resource constraints are typically more severe in these sectors. Entrepreneurs' creativity encourages bricolage by developing organisational resilience, improvisation, and making use of technical systems and artefacts. Businesses that use entrepreneurial bricolage refuse to implement the restrictions imposed by the shortage of resources. Instead, these companies gather both material and immaterial resources and build creative business strategies, tactical processes, and policies to achieve the desired output through learning, experimentation, or even serendipity. Entrepreneurial Bricolage fosters catalytic innovations and scale/growth changes. 20 Activity 3 Introduction to Entrepreneurship Evaluate the contribution of Joseph Schumpeter and David McClelland with regard to entrepreneurship. ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… 1.6 TYPES OF ENTREPRENEURSHIP Different individuals have different aims, goals, dreams, and visions for the type of business they wish to start. This decision depends primarily on their skill level, prior knowledge, experience, entrepreneurial ecosystem of the country or region, preference etc. In general, following types of entrepreneurship are observed: Small Business Entrepreneurship Small businesses make up the vast majority of entrepreneurial activities in India. Small business operators make money to sustain their families and maintain a basic quality of life. Because they are small, mostly informal and lack the substantial innovative capability, small businesses find it difficult to obtain venture investment for efficient operation. These entrepreneurs generally borrow money from friends and family or utilise their own savings and resources to fund their business activities. Frequently, the workers in their enterprise are neighbours or relatives. Vast majority of these businesses are family managed and are inherited from parents. Local milk kiosks, grocery stores, hair salons, boutiques etc. are examples of small business owners. Large Company entrepreneurship These are the big business houses that continue to provide cutting-edge products and services to earn a profit. Over time, they have grown into big organisations and have developed their sustainable competitive advantage over their competitors. To suit the ever-changing needs of their clients, they are always developing their technology through research and development. Apple or Samsung are two well-known examples of large-scale corporate entrepreneurship. These organizations are managed by skilled and creative professionals who understand how to sustain innovation to maintain competitive advantage of the businesses. These businesses offer a variety of items based on their core product or services. When a small business experiences rapid growth, it can quickly scale up to become a major corporation. This is also feasible if a major corporation buys them. Large- company entrepreneurship exhibits specific lifecycle. 21 Entrepreneurship: Scalable Start-up Entrepreneurship An Overview Scalable start-up entrepreneurship starts with an innovative idea that has the potential to bring about significant changes. Before starting a profitable business, these entrepreneurs identify a market need and provide a solution for that. Venture capitalists typically grant investment for such businesses on the basis of the originality and scalability of the business idea. They hire specialized workers in order to achieve their goals of quick growth and large profits. International Entrepreneurship In international entrepreneurship, entrepreneurs carry out business operations outside the borders of India. This involves setting up a sales unit overseas or exporting goods from one host country to another. International entrepreneurship is profitable when local demand for goods and services is declining and demand in world market is rising. Before they are mature enough to explore other overseas markets, international business entrepreneurs initially offer their products just in their home territory. Social Entrepreneurship Social entrepreneurs recognize a social problem and plan their entrepreneurial initiatives to benefit the society. These entrepreneurs develop innovative goods, services or remedies to tackle urgent societal challenges. Efforts to protect the environment, animal welfare, care for underserved populations through humanitarian endeavours, encouraging community health and education etc. are some of the areas where social enterprises work. The non profit enterprises are motivated by the realisation of societal benefits rather than absolute orientation towards profit. The goal of the majority of social enterprises is to prioritise financially sustainable social change. These organisations use moral strategies to encourage success, such as mindful consumption and corporate social responsibility. Instead of focusing on making money and expanding the owners' wealth, social entrepreneurship seeks to better the world. The non-profit organisations committed to resolving various social issues are the best examples of social enterprises. Environmental Entrepreneurship This form of entrepreneurship is also known as ecopreneurship and green entrepreneurship. These businesses undertake environmentally conscious endeavours or practices while making profit from their business activities. An ecopreneur employs practises and business philosophies that are environmentally conscious. Furthermore, they work to supplant the existing products or services with environment friendly alternatives. So, as opposed to prioritizing monetary gain, environmental entrepreneurship promotes social and environmental value. The creation of audiobooks, impact blogs, and SaaS software are a few examples of environment friendly enterprises that don't hurt plants. Technopreneurship or Technological Entrepreneurship A technopreneur builds a company that heavily depends on innovative use of 22 technology, and this involves efficient use of his technical expertise and entrepreneurial acumen. These businessmen have the ability to change Introduction to Entrepreneurship the market and offer their clients cutting-edge solutions. Technopreneurs undertake measured risks that could be financially rewarding. The backbone of the products and services provided by such a corporation is technology. Technology companies prefer to employ innovative and tech-savvy employees who are eager to explore technological advancements to offer unique solutions to the consumers. Imitative Entrepreneurship This type of entrepreneurship strives by mimicking or imitating any pre- existing business concepts and copy the currently available goods and services. These companies frequently operate on a franchise contract. These business owners are willing to make changes to the current goods or services and improve them, but they are not very interested in bringing in new innovations. Imitative businesses frequently make an effort to modify current products, services, or technologies to suit local requirements. The best examples of imitative entrepreneurship are fast food restaurants. Researcher Entrepreneurship Researcher Entrepreneurs thoroughly investigate the market and available opportunities before launching the business. These entrepreneurs believe that if they are well-informed, organized, and prepared, they would have a higher chance of being successful in their business. They depend less on intuition and gut feelings and more on knowledge, data, and logic. Before establishing their company, they follow a detailed plan and conduct a thorough study of the research findings to lower the probability of failure. Innovation Entrepreneurship Innovation Entrepreneurship involves the identification of market gaps and leveraging cutting-edge technology and innovative thinking to create goods and services that can improve people's lives. Such business ideas are novel and unique that nobody else has thought of yet. People who routinely think outside the box and come up with creative and imaginative solutions are suitable for innovation entrepreneurship. Products like Tesla and iPhones are examples of innovation entrepreneurship. Cyber Entrepreneurship Cyber entrepreneurs are those who exploit the advantages of information technology to run a business. They create original concepts for supplying goods and services to consumers via internet-based applications. These individuals are well-informed about the digital or virtual environment and provide their goods or services via online portals to avoid the inconvenience of going to a physical store. Since these businesses operate online, they are known as virtual businesses. Cyberpreneurship includes online retail and over-the-top (OTT) entertainment services. 1.7 SUMMARY Entrepreneurship is the act of creating a business while bearing all the risks with the hope of making a profit. But as a basic definition, that one is a bit 23 Entrepreneurship: limiting. The more modern entrepreneurship definition is also about An Overview transforming the world by solving big problems like bringing about social change or creating an innovative product that challenges the status quo of how we live our lives on a daily basis. The present academic discipline of entrepreneurship has evolved from various schools of thought. Several theories have been propounded in order to describe the idea of entrepreneurship. The majority of these theories have their origin in five academic disciplines namely, economics, psychology, anthropology, management and sociology. Different individuals have different aims, goals, dreams, and visions for the type of business they wish to start. This decision depends primarily on their skill level, prior knowledge, experience, entrepreneurial ecosystem of the country or region, preference etc. 1.8 KEYWORDS Entrepreneurship: It is the capacity of a person to assume risk, accountability, and challenges with a view to explore opportunities, disrupt market norms, and create values. Manager: A Manager is primarily responsible for overseeing and guiding the ongoing operations of an existing firm with the objective to produce and supply goods and services in an efficient and timely manner. Intrapreneurs: They are employees of an organization who innovate for the business and take the risks for their employer (i.e., an intrapreneur is an intra- company entrepreneur). Innovation Entrepreneurship: It involves the identification of market gaps and leveraging cutting-edge technology and innovative thinking to create goods and services that can improve people's lives. Researcher Entrepreneurship: Researcher Entrepreneurs thoroughly investigate the market and available opportunities before launching the business. 1.9 SELF-ASSESSMENT QUESTIONS 1. Mention the basic theories of entrepreneurship. Discuss any 2 theories with relevant examples. 2. Explain the factors which motivate people to become entrepreneurs. 3. Give an account of the emergence of the entrepreneurial class and elaborate on the various types of entrepreneurs. 4. What is the importance of entrepreneurship in a developing country like India? 5. What is entrepreneurship? Discuss the various types of entrepreneurs. 1.10 REFERENCES/FURTHER READINGS Ansoff, H. I. (1965). Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion. New York: McGraw-Hill. 24 Ardichvili, A., Cardozo, R., & Ray, S. (2003). A theory of entrepreneurial Introduction to Entrepreneurship opportunity identification and development. Journal of Business Venturing, 18(1), 105-123. Alvarez, C., Urbano, D., Coduras, A. and Ruiz‐Navarro, J. (2011), Environmental conditions and entrepreneurial activity: a regional comparison in Spain, Journal of Small Business and Enterprise Development, 18(1), 120- 140. Busenitz, L. W., West III, G. P., Shepherd, D., Nelson, T., Chandler, G. N., & Zacharakis, A. (2003). Entrepreneurship research in emergence: Past trends and future directions. Journal of Management, 29(3), 285–308. Cimadevilla, B.J. and Sánchez, E.F. 2001. Factores determinantes en la creación de pequeñas empresas: una revisión de la literatura. Papeles de Economía Española, (89), 322- 342. Chandler, A.D. (1962) Strategy and Structure: Chapters in the History of American Enterprise. MIT Press, Boston. Cole, A.H. (1942) Entrepreneurship as an Area of Research. Journal of Economic History Supplement, 2, 118-126. Cunningham, J.B. and Lischeron, J. (1991) Defining Entrepreneurship. Journal of Small Business Management, 29, 45-61. Davidsson, P., Delmar, F. & Wiklund, J. (2006), Entrepreneurship and the Growth of Firms, Edward Elgar Publishing. Drucker, Peter F., & Peter Ferdinand Drucker. (1994). Innovation and entrepreneurship: Practice and principles. Oxford, UK: Routledge. Gartner, W.B. (1985). A conceptual framework for describing the phenomenon of new venture creation. Academy of Management Review, 10, 696–706. Gartner, W.B. (1988). Who is an entrepreneur? Is the wrong question. American Journal of Small Business, 12(4), 11–32. Gartner, W.B. (1990). What are we talking about when we talk about entrepreneurship? Journal of Business Venturing, 5, 15–28. Gartner, W.B. (1993). Organizing the voluntary association. Entrepreneurship: T heory and Practice, 17(2), 103–106. Gartner, W.B. (2001). Is there an elephant in entrepreneurship? Entrepreneurship T heory and Practice, 25(4), 27–39. Gnyawali, D.R. and Fogel, D.S. (1994) Environments for Entrepreneurship Development: Key Dimensions and Research Implications. Entrepreneurship Theory and Practice, 18, 43-62. Hagen, Everett E. (1962) On the Theory of Social Change: How Economic Growth Begins. Homewood, IL: The Dorsey Press, Inc. Katz, J., & Gartner, W. B. (1988). Properties of emerging organizations. The Academy of Management Review, 13(3), 429–441. Kirzner, I. (1973). Competition and Entrepreneurship. Chicago, IL, US: University of Chicago Press. 25 Entrepreneurship: Kirzner, I. (1985). Discovery and the Capitalist Process. Chicago, IL, US: An Overview University of Chicago Press. Kirzner, I. M. (1997). Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach. Journal of Economic Literature, 35, 60-85. Levi-Strauss, C. (1962). The savage mind (George Weidenfeld & Nicolson Ltd., Trans.). Chicago, IL: The University of Chicago Press. Low, M. B., & MacMillan, I. C. (1988). Entrepreneurship: Past research and future challenges. Journal of Management, 14(2), 139–161. McClelland, D.C. (1961). The achieving society. Van Nostrand. McClelland, D. C. (1965). Toward a theory of motive acquisition. American Psychologist, 20(5), 321–333. Pinchot III, Gifford. (1985). Intrapreneuring: Why you don’t have to leave the corporation to become an entrepreneur. Urbana, IL: University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. Rauch, A., & Frese, M. (2000). Psychological approaches to entrepreneurial success. In I. T. Robertson (Ed.), International Review of Industrial and Organizational Psychology, 15, 101-142. Reynolds, P. D. (1991). Sociology and Entrepreneurship: Concepts and Contributions. Entrepreneurship Theory and Practice, 16, 47-70. Sarasvathy, S.D. (2001) Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency. Academy of Management. The Academy of Management Review, 26, 243-263. Schumpeter, J.A. (1934) The Theory of Economic Development: An Inquiry into Profits, Capital, Credits, Interest, and the Business Cycle. Transaction Publishers, Piscataway. Shane, S., & Venkataraman, S. (2000). The promise of entrepreneurship as a field of research. The Academy of Management Review, 25(1), 217–226. Smith, Adam. The Wealth of Nations: An Inquiry into the Nature and Causes of the Wealth of Nations. 1776. Stevenson, H.H., and J.C. Jarillo-Mossi. (1990). A Paradigm of Entrepreneurship: Entrepreneurial Management. Strategic Management Journal 11(4),17–27. Tang, J., Kacmar, K.M.M. and Busenitz, L. (2012), Entrepreneurial alertness in the pursuit of new opportunities. Journal of Business Venturing, 27(1), 77-94. Tilles, S. (1963). The manager's job: A systems approach. Harvard Business Review, 41(1), 73–81. Watson, T.J. (2013). Entrepreneurship in action: bringing together the individual, organizational and institutional dimensions of entrepreneurial action, Entrepreneurship & Regional Development, 25(5-6),404-422. 26