Entrepreneurship - Nature & Development PDF

NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP  Learning Outcomes At the end of this lecture, students should be able to: Describe the brief History of entrepreneurship Describe Entrepreneurial Traits Describe the approaches to entrepreneurship Outline entrepreneurial...

NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP  Learning Outcomes At the end of this lecture, students should be able to: Describe the brief History of entrepreneurship Describe Entrepreneurial Traits Describe the approaches to entrepreneurship Outline entrepreneurial tasks Explain skills requirements of entrepreneurs Identify mistakes of entrepreneurs  Content Entrepreneurship – A Brief History Entrepreneurial Personality or Traits Approaches to Entrepreneurship The Entrepreneurial Tasks Skills Requirements of Entrepreneurs Mistakes of Entrepreneurs  ENTREPRENEURSHIP – A BRIEF HISTORY The word ‘Entrepreneur” derived In the middle ages, an from the French, literally means entrepreneur was someone who someone who “takes between” or managed large projects on behalf “goes between” of a landowner or the church, such as the building of a castle or The earliest use of the term a cathedral reflected this sense of “middleman” who directed In the 17th century the concept resources provided by others was extended to include some elements of risk and profit.  Entrepreneurship – A Brief History 2 Richard Cantillon introduced the 1. the “landowner” who as the word entrepreneurship into proprietor of land provided the economic literature in 1734 when he primary resource; described three types of agents in the economy: 2. “Entrepreneurs”, i.e. farmers and merchants who organized resources and accepted risk by “buying at a certain price and selling at an uncertain price”; and 3. “Hirelings” who rented their service.  Entrepreneurship – A Brief History 3 J.B. Say, distinguished between the This definition implies changing what profits of those who provided capital already existed; it sees the entrepreneur and the profit of entrepreneurs who as an instrument of change, someone used it who seek to perfect, or optimize existing ways of doing things He defined an entrepreneur as someone who consciously moves economic resources from an area of lower, and into an area of higher, productivity and greater yield  Entrepreneurship – A Brief History 4 In the 20th century, the understanding Entrepreneurs employ what of entrepreneurship owes much to the Schumpeter called the gale of work of some scholars including “creative destruction” to replace in Schumpeter whole or in part inferior innovations across markets and industries, For Schumpeter, an entrepreneur is a simultaneously creating new products person who is willing and able to including new business models convert a new idea or invention into a successful innovation  Entrepreneurship – A Brief History 5 For Schumpeter, entrepreneurship resulted in new industries but also in new combinations of currently existing inputs (smartphone: banking, entertainment, research, business, social media) Schumpeter's initial example of this was the combination of a steam engine and the current wagon making technologies to produce the horseless carriage In this case the car, was transformational but did not require the development of a new technology, merely the application of existing technologies in a novel manner  Entrepreneurship – A Brief History 6 Different scholars have described The behavior of the entrepreneur entrepreneurs as, among other things, reflects a kind of person willing to put bearing risk. However, for Schumpeter, his or her career and financial security the entrepreneur did not bear risk, the on the line and take risks in the name capitalist did of an idea, spending much For Knight (1921) and Drucker (1970) entrepreneurship is about taking risk with time as well as capital on an uncertain venture  Types of Uncertainty Knight classified three types of uncertainty: 3. True Uncertainty or Knightian 1. Risk: which is statistically measurable Uncertainty: which is impossible to (e.g. the probability of drawing a red estimate or predict statistically (such color ball from a jar containing 5 red as the probability of drawing a red ball balls and 5 white balls) from a jar whose number of red balls is unknown as well as the number of other colored balls) 2. Ambiguity: which is hard to measure statistically (e.g. the probability of drawing a red ball from a jar containing 5 red balls but with an unknown number of white balls)  Uncertainty (Cont.) The acts of entrepreneurship are often associated with true uncertainty, particularly when it involves bringing something really novel to the world, whose market never existed.  ENTREPRENEURIAL PERSONALITY (OR TRAITS) A number of traits or personality The Need for Achievement characteristics have been put forward. (McClelland, 1961) Amongst these are the following:  Parental influences are significant in the development of this personality trait  Entrepreneurs are likely to have parents who expected them to be self-reliant at an early age, whilst remaining supportive and not rejecting their offspring  Entrepreneurial or Traits (cont. 2) The need for achievement manifest itself in a number of ways: Desire for responsibility Preference for moderate risk (risk eliminators) Confidence in their ability to succeed Desire for immediate feedback High level of energy Future orientation (serial entrepreneurs) Skill in organization Value of achievement over money  Entrepreneurial Traits (cont. 3) Self-determination However, there is debate over the – Successful entrepreneurs are convinced levels of risk taken, which highlights they can control their own destinies a distinction between an – They are described as having an entrepreneur and a small business internal locus of control owner Risk taking – The small business owner’s traits match – With a significant level of belief in those of an administrator more than an themselves, they take the initial risk of entrepreneur starting their business – Risk taking have many shades (reckless – They are characterized as risk takers to calculated), which depends on the because they know that gains will not context as well as the individual’s accrue to those who play it safe character  Entrepreneurial Traits (cont. 5) Desire for independence – The freedom to create their own futures – This can be linked to their internal locus of control (belief in their ability to control their own destiny) Innovation – Innovative behavior is a major element of the entrepreneurial trait – Drucker (1986) insist individuals can develop their innovative skills  Entrepreneurial Personality (cont. 6) Entrepreneurship and innovation Entrepreneurship is not a knack that are tasks that should be organized you either have/have not, but a in a purposeful/systematic way practice which you constantly follow or you choose to ignore Drucker sees entrepreneurs, not as people who are born with certain It can be developed/learned; its traits, but as managers who know core activity is innovation and a where to look for innovation, and continuous search for new ideas how to develop it into useful products or services  Entrepreneurial or Traits (cont. 7) Activity: Look within the Ghanaian entrepreneurial landscape and share your observation about the traits/characteristics of a known entrepreneur  Limitations of the Trait Approach There is a limitation in attempting a. Over-emphasis on finding the one key define entrepreneurs along some trait which characterizes the particular traits entrepreneur  Timmons (1990) tried to overcome this problem by looking for This attempt finds single traits that clusters/groupings of desirable attitudes and behaviors. This is based around characterizes entrepreneurs but three behavioral dimensions of risk cannot claim general application taking, innovation and proactive response Criticisms of this so-called “trait approach includes:  Limitations of the Trait Approach b. Trait approach implies that c. There is the lack of recognition that entrepreneurial traits are formed during the needs of a business venture childhood, so that the would-be adult change during its life cycle, and so the entrepreneur can either have them or characteristics of successful not, and so cannot acquire them later entrepreneurship will likewise change The personal attitudes which can bring a new venture to life are unlikely to be the same as those which can manage it as a more mature business  Suggestions to overcoming the limitations of The Trait Approach (cont.) In overcoming the above limitations Chell et al (1991) have put forward the following profile of the archetypal entrepreneur: Opportunistic Innovative Proactive rather than reactive High-profile image maker Restless and easily bored  APPROACHES TO ENTREPRENEURSHIP Entrepreneurship is interdisciplinary. A. Macro View As such it contains various approaches 1. The environmental school of thought that can increase one’s understanding of the field 2. The financial/capital school of thought 3. The displacement school of thought Thus we need to recognize the diversity of theories B. Micro View 1. Entrepreneurial trait school of thought One way to examine these theories is 2. Venture opportunity school of thought the “schools of thought” approach 3. Strategic formulation school of thought that divides entrepreneurship into specific activities  Macro: The Environmental School of Thought This school of thought deals with the external factors that affect a potential entrepreneur’s lifestyle These factors can either be a positive/negative in molding the entrepreneurial desires The focus is on institutions and social groups. This will either serve to promote the person’s desire to pursue an entrepreneurial career or not  Macro: Financial/Capital School of Thought This school of thought is based on the capital- seeking process The search for seed and growth capital is the entire focus of this entrepreneurial emphasis. The venture capital process is vital to an entrepreneur’s development. Business- planning guides, workshops/seminars focusing on the application of funds for entrepreneurs emphasize this phase  Macro: Displacement School of Thought Individuals will not pursue a 1. Political displacement: venture unless they are 2. Cultural displacement prevented/displaced from doing 3. Economic displacement other activities (Ronstadt 1984) Political displacement: Three types of displacement – This is caused by factors ranging illustrates this school of thought: from an entire political regime that rejects free enterprise to governmental regulations/policies that limit or redirect certain industries  Cont. Cultural displacement: Economic displacement: – This deals with social groups – This is concerned with the economic precluded from professional fields, variations of recession/ depression and ethnic background, religion, race, and boom gender are all examples of factors that figure in the minority experience – Job loss, capital shrinkage, or simply “bad times” can create the foundation – Increasingly, this experience will turn for entrepreneurial pursuits, just as it various individuals, from standard can affect venture development and business professions toward reduction entrepreneurial ventures  The Micro View The micro view of entrepreneurship examines the factors that are specific to entrepreneurship or part of the internal locus of control Thus the potential entrepreneur has the ability/control, to direct/adjust the outcome of each major influence in this view These are examined in three (3) perspectives in the following slides:  Micro: The Entrepreneurial Trait School of Thought Four factors that are usually Family/parental development nurtures and exhibited by successful supports would be entrepreneurs entrepreneurs; 1. Achievement This promotes the belief that certain traits established and supported early in life will 2. Creativity lead eventually to entrepreneurial success 3. Determination 4. Technical knowledge Others also contend that new programs and new educational developments have been found to aid in entrepreneurial development  Micro: Venture Opportunity School of Thought This school of thought focuses on the opportunity aspect of venture development The search for ideas, the development of concepts, and the implementation of venture opportunities are the focus of this school Creativity and market awareness are viewed as essential Another dimension of this school of thought is the corridor principle. Preparation meeting opportunity equals “luck” underlies this principle  Micro: The strategic formulation approach The strategic formulation approach to entrepreneurial theory emphasizes identifying  Unique people  Unique products  Unique markets  Unique resources  Other Entrepreneurial Approaches 1. Entrepreneurial events 3. Multidimensional approach approach (Bygrave, 1989). (Gartner, 1985), related the concepts to individual, environment, organization, and process. 2. Entrepreneurial Assessment process (Ronstadt, 1984).  1. Entrepreneurial Events Approach This approach focuses on the process of entrepreneurial activity and includes: Initiative: individual or group Organization: Administration: Relative autonomy: Risk taking: Environment  2. Entrepreneurial Assessment Approach Under this model, Ronstadt (1984), stresses on making assessments Qualitatively Quantitatively Strategically, and Ethically in regard to the entrepreneur, the venture, and the environment  3. Multidimensional Approach This approach views entrepreneurship as a complex multidimensional framework that emphasizes: The individual The environment The organization The venture process The components are explained in following slides  The Individual The Environment The organization The Process Need for achievement Venture capital Type of firm Locating a business Locus of control availability Entrepreneurial opportunity Risk taking propensity Presence of experienced environment Accumulating resources Previous work Technically skilled labor Partners Producing the product experience force Strategic variables (Cost, Building an organization Age Accessibility of suppliers Differentiation, Focus) Marketing products and Locus of control Accessibility of Competitive entry services Job satisfaction customer of new wedges Responding to markets government and society Previous work experience Governmental influences Entrepreneurial parents Proximity of universities Education Availability of land or facilities Accessibility of transportation Attitude of the area population Availability of supporting services Living conditions  THE ENTREPRENEURIAL TASKS 1. Planning 2. Organizing 3. Controlling 4. Leading people 5. Budgeting 6. Coordinating 7. Decision-making  DEVELOPING ENTREPRENEURIAL SKILL The process of developing an This applies both to the entrepreneurial skill involves four entrepreneur’s personal needs and main stages: to the process of assisting i. Analyze and identify the current and employees to develop new skills foreseeable skills’ needs of the that will also benefit the business venture ii. Identify the entrepreneur’s own personal goals/objectives and skills/resources iii. Produce a realistic personal development plan iv. Monitor on-going performance  Skills Requirements of Entrepreneurs 1. Technical knowledge or expertise 2. Marketing 3. Sales 4. Organizational 5. Decision-making 6. Financial 7. Customer service 8. Staff management  POTENTIAL DRAWBACKS OF ENTREPRENEURSHIP 1. Uncertainty of income 2. Risk of losing entire investment 3. Long hours and hard work 4. Lower quality of Life until the business gets Established 5. High levels of stress  The Deadly Mistakes of Entrepreneurship 1. Management mistakes 2. Lack of experience 3. Poor financial control 4. Weak marketing efforts 5. Failure to develop a strategic plan 6. Uncontrolled growth 7. Poor location 8. Improper inventory control 9. Incorrect pricing  The Deadly Mistakes of Entrepreneurship Inability to make the “Entrepreneurial Transition.” Making it over the “entrepreneurial start-up hump” is no guarantee of business success. Discussion: – Discuss your knowledge about businesses that have failed. Were the failures due to one or more of these causes or were other factors involved? How to Avoid the Pitfalls of Failures in Entrepreneurship 1. Know Your Business in-depth 2. Develop a Solid Business Plan 3. Manage Financial Resources 4. Understand Financial Statements 5. Learn to Manager People Effectively  Discussion If you were to begin a business immediately after your academic career, what challenges are you likely to face? When will you consider as the ideal time in your life to launch your first venture? What experiences might you find beneficial before you start your own business.  Entrepreneurship Quotation “I built a conglomerate and emerged the richest black man in the world in 2008 but it didn’t happen overnight. It took me thirty years to get to where I am today. Youths of today aspire to be like me but they want to achieve it overnight. It’s not going to work. To build a successful business, you must start small and dream big. In the journey of entrepreneurship, tenacity of purpose is supreme.” Aliko Dangote  Assignment Group formation Examine your ‘’Entrepreneurial self’’