The Entrepreneur and His Roots PDF 2020

WHAT IS THE ENTREPRENUERIAL MIND? Welcome to the subject Entrepreneurial Mind. This subject will introduce to the concept of entrepreneurship and how entrepreneurs think, make decisions, and take actions. We will also learn about the importance of entrepreneurship not only for the econom...

WHAT IS THE ENTREPRENUERIAL MIND? Welcome to the subject Entrepreneurial Mind. This subject will introduce to the concept of entrepreneurship and how entrepreneurs think, make decisions, and take actions. We will also learn about the importance of entrepreneurship not only for the economy and society but also how it can be used as a way of thinking and looking at things from a different perspective. So, whether you are an engineering student, a soon to be programmer, a student of the arts, there is much to be learned from this class. The Entrepreneurial Mind Modules will allow us to discover what entrepreneurship is and who the entrepreneur is. We will have a look into the history of entrepreneurship as a school of thought as a means of understanding what entrepreneurship is. What better way to understand something than to learn about its origins, right? We will also be introduced to how entrepreneurs think. It has been said that entrepreneurs are a class of their own. They are known to be risk-takers and innovators. They are also known to have better focus and persistence than others. What exactly drives entrepreneurs to be that way? These modules will help us achieve better understanding of that not only by learning about the distinct characteristics of entrepreneurs but also, undertaking practical activities that will allow us to put ourselves in the entrepreneur’s shoes. We will learn all this throughout four modules namely: Module on the Entrepreneur and His Roots, Module on the Entrepreneur and His Social Impact, Module on The Entrepreneur and his Journey and Module on The Entrepreneur and his Personal Initiative. WHAT WILL YOU LEARN? At the end of these modules, you will acquire the following essential knowledge and skills on how to: Discuss the different characteristics of entrepreneurs, Discuss the different types of innovation, Identify, screen, and evaluate opportunities, and Distinguish pro-active and reactive behaviors of entrepreneurs. With that dear learner, welcome to the Module on the Entrepreneur and His Roots! Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management What Is This Module About? For this Module on the Entrepreneur and His Roots, we look back in history and try to understand just where the concept of entrepreneurship originated from. Entrepreneurship has been around since humans started bartering with one another, but when exactly did it develop into the school of thought that we know it be today? This is the primary question this session will try to answer. Along that line, we will also look at the different interpretations, definitions, and kinds of entrepreneurship there is. Another issue to be tackled in this session is the one thing that binds all kinds definition entrepreneurship has - that is innovation. We will learn about the different types of innovation and understand how we can use these in our entrepreneurial journey. Overall, this section of the module will introduce you to the entrepreneur and the characteristics he has that sets him apart from the average Joe. By learning about the history of entrepreneurship and the elements around it, we will come to learn about who exactly the entrepreneur is. What Will You Learn? At the end of the session, you will learn about the history of the development of entrepreneurship as a school of thought. We will learn about great minds who have contributed to its development. In the same vain, we will also begin to understand the characteristics of the entrepreneur. What Do You Already Know? Let’s begin this session by reflecting on this definition of entrepreneurship: Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management Let’s Reflect Now, write down below your own definition or understanding of what entrepreneurship is: _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _________________________________________________________________________. Let’s Study: The word entrepreneur takes its humble roots from the 13 th century French word “entrepredre” which meant to undertake. The word itself, the term entrepreneur stems from the French literally, between taker, or go between with early references having been traced to the eighteenth-century economists Richard Cantillon, Anne- Robert Jacques Turgot, and Francois Quesnay. The term was even used as early as the Middle Ages to denote an actor with reference to warlike action or in particular, a person in charge of large-scale construction projects such as cathedrals, bearing no risks but simply carrying Image Source: https://en.wikipedia.org/wiki/Richard_Cantillon the task forward until resources were exhausted. It was only in the 16th century that it was first related to business and took to mean as a person engaged in business. The person responsible for the first academic usage of the word entrepreneur was economist Richard Cantillon in his Essai sur La Nature du Commerce en General. He stated that the bearing of risk Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management by engaging in business without an assurance of the profits that will be derived is the distinguishing feature of an entrepreneur. He further identified the entrepreneur as an adventurer. This was later supported by Daniel Defoe by embodying the entrepreneur through the protagonist of his novel Robinson Crusoe. Brann, in her book review The Unexpurgated Robinson Crusoe state “Alone on the island he is altogether a man of projects, a “projector” and “adventurer,” as entrepreneurs used to be called. He is a busy man, a man of business, labors, and accounts…He establishes timetables and schedules and runs his island like a going concern of one. He is the ultimate individualist, who does everything by himself and for himself and sets a world humming, a world that has only a single human inhabitant, who is, however, all over it. He is indeed the true individualist, alone singled out by his God and yet representing a paradoxical archetype: the unique Everyman. This society of one show Robinson in a humanly novel Image Source: https://www.britannica.com/biography/Daniel-Defoe aspect: He gives meaning to the term “private enterprise.” He is a culture of one. By the Seventeenth Century towards the Eighteenth Century, the term “entreprendre” was highly related to risk taking, the entrepreneur being the risk taker who entered into a contractual relationship with the government for the performance of a service or the supply of goods. The price at which the contract was valued was fixed and the entrepreneur bore the risks of profit and loss from the barging. The 19th century saw three major additions to the growing concept of entrepreneurship. Jean Baptiste Say portrays that the entrepreneur with his knowledge and judgment as someone who sought opportunities to earn profits by reallocating resources from areas of low productivity to areas of high productivity by describing an entrepreneur in terms of behavior. "He is called upon," said Say, "to estimate, with tolerable accuracy, the importance of a specific product, the probable amount of demand, and the means of production; sometimes to employ a great number of hands; again to buy or order raw materials, to combine the workers, find consumers, to exercise a spirit of order and economy. In the course of such operations there are obstacles to be surmounted, anxieties to be overcome, misfortunes to be repaired, and expedients to be devised." John Stuart Mill on the other hand describes the entrepreneur as someone who was more than the venture capitalist but also one who managed the venture. It was however Alfred Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management Marshall who linked Say’s and Mill’s ideas claiming that the entrepreneur was one who coordinated the four factors (land, labor, capital and organization) together. It must be noted that at this point in time, discussions on entrepreneurship were vastly based on the “who” of the concept. In addition to being dubbed as a risk taker, a projector, and an adventurer, the entrepreneur has evolved such that he was also identified as an arbitrageur (Say), a manager distinct from a capitalist (Mill) and as a coordinator (Marshall). At the dawn of the twentieth century, these “who” concepts of entrepreneurship were further developed by the likes of Frank H. Knight and Joseph Schumpeter. Their discussions, however, were less focused on who the entrepreneur was but what his actions were that makes him an entrepreneur. Frank H. Knight carried forward the notion of risk taking by classifying two kinds of risks. Two different kinds of risk were distinguished by Frank Knight (1885-1972): one is capable of being measured (i.e., objective probability that an event will happen) and shifted from the entrepreneur to another party by insurance; the other is un-measurable (i.e., no objective measure of probability of gain or loss), e.g., the inability to predict consumer demand. According to Knight, the entrepreneur takes the latter risk: “true” uncertainty found in situations, which do not repeat themselves with sufficient conformity to make possible a computation of probability (what we nowadays term as "unknown and unknowable"). He further developed the ideas proposed by Image Source: https://www.lib.uchicago.edu/collex/exhibits/frank-knight-1885-1972/ his predecessors by distinguishing a boundary between management and entrepreneurship. He sees entrepreneurs in the strict sense as producers; while the great mass of population furnish them with productive services, placing their persons and property at the disposal of entrepreneurs who guarantee to them a fixed remuneration. Entrepreneurial profit depends on whether an entrepreneur can make productive services yield more than the price fixed upon them by those who furnish productive services think they can make them yield. Therefore, its magnitude is based on a margin of error in calculation by entrepreneurs and non- entrepreneurs who do not force the entrepreneurs to pay as much for productive services as they could be forced to pay. It is this margin of error in judgment that constitutes true uncertainty that is borne by the true entrepreneur and which results in his profit. In Knight’s view, the function of manager thus does not itself imply entrepreneurship. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management  It was during this period that the entrepreneur was further becoming distinguished from the manager, the capitalist and the businessman. The discussions on entrepreneurship were also shifting towards the specific actions entrepreneurs take that make them who they are. This is shown in Joseph Schumpeter’s discussion on innovation and how it is a vital component of who an entrepreneur is. His two greatest insights were that innovation is the driving force not only of capitalism but also of economic progress in general, and that entrepreneurs are the agents of innovation. These new Image Source: combinations or “creative destruction” as they are sometimes https://www.irwincollier.com/austrian-economist-mugshots- osterreichische-nationalbibliothek/ called are what he referred to as innovation. He discussed that the entrepreneur did not necessarily have to be the inventor, more importantly he had to be the one to act in an enterprising manner upon the innovation. He also stated that the innovation need not be new, it was a matter of how it can be used in production or how it can be brought commercially into the market. As can be seen in Schumpeter’s discourse, entrepreneurship was no longer entirely focused on the “who” of the concept but more on what the “who’s” actions were. The Five Types of Innovation according to Joseph Schumpeter: a. Product – The introduction of a new product or quality An example of this is the combination of the horseless carriage and the steam engine, which led the way to the invention of automotive such as trains, steam boats and eventually cars. The combination of two existing Image Source: products to create an entirely new product was an example bilwissedition Ltd. & Co. KG / Alamy Stock Photo of an innovation as described by Schumpeter. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management  b. Process – The introduction of a new method of production Another type of innovation that Schumpeter has identified is the introduction of a new process of production. An example of this is when Henry Ford introduced the assembly line, which significantly decreased the amount of time from twelve hours to two and a half hours it took to Image Source: MGPhoto76 / Alamy Stock Photo create the Ford T1 Model cars back in 1913. Today his innovation is still used in various industries around the world. c. Business Model – Opening of a new market Have you ever been stuck in traffic in Manila inside a taxi, bus or a jeepney, wishing that there was a quicker way for you to reach your destination? You’re not alone. In fact, there are millions of commuters who have the same thoughts running through their minds every day. These millions accounts for the market for the much disputed two-wheel taxis like Angkas. Image Source:George Calvelo, ABS-CBN News Angkas is a a ride-sharing company, and is an example of Schumpter’s third kind of innovation: the opening of new markets as it has recognized that among commuters there exist a substantial number who were willing, needed and could afford to avail of the services of a ride sharing company like theirs. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management  d. Source of Supply - the conquest of a new source of supply of new materials or parts People these days are on the constant look out for sustainable and eco-friendly products. One such product is vegan leather made from cactus. An innovative solution has been discovered by two entrepreneurs who have developed a way to create authentic looking leather from cactus. This is an Image Source: https://www.entertales.com/cactus-leather-fabric-save-animals/ example of a new source of supply of new materials or parts. e. Mergers and Divestments - organization of any industry The carrying out of the new organization of any industry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position is another kind of innovation according to Schumpeter. These ideas were further developed by Ludwig Von Misses and Peter Drucker. Ludwig Von Misses argued that while innovation was an important factor of entrepreneurship it is not entirely what makes him one. He indicated in his theory of consumer sovereignty that while entrepreneurs were responsible for production, it is not him nor innovation that determines what is to be produced. According to him, it is the customers who do that. It would seem that Mises somewhat downplayed Schumpeter’s noble claim of innovation as an integral mover of the economy by saying: “Innovation is the whim of an elite before it becomes a need of the public.” This did not however deviate his idea that the role of an entrepreneur is not limited to discovering and testing new technologies but to choose among those that may already in fact be in existence in order economist, F.W.Taussig (1859-1940) that although innovation is one of the activities performed by the entrepreneur, it is not the only one, and perhaps not even the most important one. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management  Peter Drucker (1909-2005) notes that entrepreneurship can be defined as changing the yield of resources (seen in supply or production terms) or as changing the value and satisfaction obtained from resources by the consumer (defined in demand terms) and innovation to be the specific instrument of entrepreneurship. Like Taussig and Mises, Drucker asserts that innovation does not have to be technical and are often social as well. He argued that management (as ‘a useful knowledge’) is an innovation of the 20th century as it has made possible the emergence of the entrepreneurial economy in America and converted modern society into something brand new: a society of organizations. He therefore prescribed a systematic form of entrepreneurship management, based on systematic Image Source: https://www.druckerforum.org/peter-f-drucker/ innovation: “Systematic innovation consists in the purposeful and organized search for changes and in the systematic analysis of the opportunities such changes might offer for economic or social innovations.” It would be a difficult task to determine the specific point in time when the focus of entrepreneurship discussions began to shift from the actor to the action. Arguably, however, it may have begun with Frank H. Knight’s ideas on risks. The point nevertheless is that this shift was what began the development of the many approaches to the discussion of the concept of entrepreneurship. As the entrepreneur became more distinguished as a unique individual and the actions he takes as distinct and out of the ordinary, ideas on the qualities these individuals have also began to take shape. One can say that, to define entrepreneurship would be to define both the entrepreneur and the actions he takes. It is then best to use Commission of European Communities’ definition which is: Entrepreneurship is the mindset and process to create and develop economic activity by blending risk-taking, creativity and/or innovation with sound management, within a new or an existing organization. As a mindset and a process, it is then something that can be learned. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management Let’s Think About This: Upon reviewing the history of the development of the concept of entrepreneurship, we now come to see that it is a combination of the actor and the action taken. With this in mind, answer the following questions: 1. Do you think that entrepreneurship is a mindset or a process? 2. In these present times, what do you think is the most relevant kind of innovation? Let’s Reflect: The second section of Session 1 provides an insight of what makes an entrepreneur. This is done through a discussion of the Personal Entrepreneurial Competencies. Let us begin this section by reflecting upon this photo. Now, ask yourself this, what would your own description be for each part of the entrepreneur’s anatomy? Let’s Study: PERSONAL ENTREPRENEURIAL COMPETENCIES Entrepreneurial Competencies refers to the key characteristics that entrepreneurs ideally possess in order to perform entrepreneurial functions effectively. Competencies are defined as the combination of knowledge, abilities, and attitudes needed to accomplish a role efficiently. In adopting this definition, entrepreneurial competencies to the three components of the PECs which are the planning cluster (knowledge), achievement cluster (abilities), and power cluster (attitudes). These clusters are further subdivided in several characteristics. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management THE PLANNING CLUSTER The planning cluster of the personal entrepreneurial competencies covers three characteristics and they are: goal setting, information seeking and systematic planning and monitoring. One of the more popular myths about entrepreneurship is that, they grab opportunities without considering the risks. Some say that they free-dive into new ventures as easily as they cross streets. However, the truth to the matter is successful entrepreneurs rarely go into any business venture without a plan. In fact, it is innate with them to set goals when meaning to achieve something, seeking relevant information that would ensure success. In addition to this, they keep a tight reign over their entrepreneurial ventures, overseeing things even to the most minute details. This especially happens early on an entrepreneurial venture. THE ACHIEVEMENT CLUSTER Ask any successful entrepreneur why they did and rarely would you hear that they did it for money. Some have done it for the heck of being the first, or for even shallower reasons. Either way, for successful entrepreneurs, starting an entrepreneurial venture and willingly accepting all the risks involved, is usually never about the money. More often than not, it’s just that they have a burgeoning need to overcome a challenge or difficulty or even the stubbornness to accept that something that others might have said cannot be done. This is manifested in the achievement cluster of the Personal Entrepreneurial Competencies and is composed of opportunity seeking, persistence, commitment to work, risk taking and demand for efficiency and quality. THE POWER CLUSTER Entrepreneurs have strong communication skills, and it is this strength that enables them to effectively sell their product or service to clients and customers. They are also natural leaders with the ability to motivate, inspire and influence those around them. Passion is perhaps the most important trait of the successful entrepreneur. They genuinely love their job and are willing to put in those extra hours to make their business grow; they get a genuine sense of pleasure from their work that goes way beyond just cash. These traits are manifested under the power cluster of Personal Entrepreneurial Competencies and is composed of persuasion and negotiation and self-confidence. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management Let’s Think About This: We’ve had a look at the different facets of an entrepreneur’s characteristics. Answer the following questions based on your personal observations on entrepreneurs you know or know of: 1. Do you think that one cluster of the PEC is dependent on another? 2. Do you think that a person can be considered an entrepreneur if he possesses at least one of the clusters but not the rest? Let’s Try This: We have enumerated five kinds of innovations, as qualified by Joseph Schumpeter. Do online research of an innovative enterprise in the Philippines. Discuss the specific innovations made on their businesses and identify which of Schumpeter’s five kinds of innovation they used. _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ ___________________________________________________________. Ma. Crestia Banares (2020). Module on The Entrepreneur and His Roots. Department of Entrepreneurship, Bicol University College of Business Economics and Management