Article 1
What Are the Theories of
Entrepreneurship?
by Eric Dontigney, Demand Media
An entrepreneur, as described by the Small Business Association, puts together a business and accepts the associated risk to make a profit. While this definition serves as a simple but accurate description of entrepreneurs, it fails to explain the phenomena of entrepreneurship itself. A number of theories exist, but all of them fall into one of five main categories:
Economic
Theories
Economic entrepreneurship
theories date back to the first half of the 1700s with the work of Richard
Cantillon, who introduced the idea of entrepreneurs as risk takers. The
classic, neoclassical and Austrian Market process schools of thought all pose
explanations for entrepreneurship that focus, for the most part, on economic
conditions and the opportunities they create. Economic theories of
entrepreneurship tend to receive significant criticism for failing to recognize
the dynamic, open nature of market systems, ignoring the unique nature of
entrepreneurial activity and downplaying the diverse contexts in which
entrepreneurship occurs.
Opportunity-Based
Theory
Prolific
business management author, professor and corporate consultant, Peter Drucker
put forward an opportunity-based theory. Drucker contends that entrepreneurs
excel at seeing and taking advantage of possibilities created by social,
technological and cultural changes. For example, where a business that caters
to senior citizens might view a sudden influx of younger residents to a
neighborhood as a potential death stroke, an entrepreneur might see it as a
chance to open a new club.
Psychological
Theories
Psychological
theories of entrepreneurship focus on the individual and the mental or
emotional elements that drive entrepreneurial individuals. A theory put forward
by psychologist David McCLelland, a Harvard emeritus professor, offers that
entrepreneurs possess a need for achievement that drives their activity. Julian
Rotter, professor emeritus at the University of Connecticut, put forward a
locus of control theory. Rotter’s theory holds that people with a strong
internal locus of control believe their actions can influence the external
world and research suggests most entrepreneurs possess trait. A final approach,
though unsupported by research, suggests personality traits ranging from
creativity and resilience to optimism drive entrepreneurial behavior.
Resource-Based
Theories
Resource-based
theories focus on the way individuals leverage different types of resources to
get entrepreneurial efforts off the ground. Access to capital improves the
chances of getting a new venture off the ground, but entrepreneurs often start
ventures with little ready capital. Other types of resources entrepreneurs
might leverage include social networks and the information they provide, as
well as human resources, such as education. In some cases, the intangible
elements of leadership the entrepreneur adds to the mix operate as resource
that a business cannot replace.
Sociological/Anthropological
Theories
The sociological theory centers its
explanation for entrepreneurship on the various social contexts that enable the
opportunities entrepreneurs leverage. Paul D. Reynolds, a George Washington
University research professor, singles out four such contexts: social networks,
a desire for a meaningful life, ethnic identification and social-political
environment factors. The anthropological model approaches the question of
entrepreneurship by placing it within the context of culture and examining how
cultural forces, such as social attitudes, shape both the perception of
entrepreneurship and the behaviors of entrepreneurs.
About the Author
Eric Dontigney received a B.A. in
philosophy with a psychology minor. He has been writing for over 10 years and
presently works full time as a freelance writer. Most of his writing work is
done for private clients.
Reference:
Article 2
Nine
Characteristics of Successful Entrepreneurs
By Ruchira
Agrawal, Monster Contributing Writer
Have you ever
thought about striking out on your own? After all, being your own boss can be
an exciting prospect. However, owning a business isn’t for everyone. To be a
successful entrepreneur, you must have -- or develop -- certain personality
traits. Here are nine characteristics you should ideally possess to start and
run your own business:
1. Motivation
Entrepreneurs
are enthusiastic, optimistic and future-oriented. They believe they’ll be
successful and are willing to risk their resources in pursuit of profit. They
have high energy levels and are sometimes impatient. They are always thinking
about their business and how to increase their market share. Are you
self-motivated enough to do this, and can you stay motivated for extended
periods of time? Can you bounce back in the face of challenges?
2. Creativity
and Persuasiveness
Successful
entrepreneurs have the creative capacity to recognize and pursue opportunities.
They possess strong selling skills and are both persuasive and persistent. Are
you willing to promote your business tirelessly and look for new ways to get
the word out about your product or service?
3. Versatility
Company
workers can usually rely on a staff or colleagues to provide service or
support. As an entrepreneur, you’ll typically start out as a “solopreneur,”
meaning you will be on your own for a while. You may not have the luxury of
hiring a support staff initially. Therefore, you will end up wearing several
different hats, including secretary, bookkeeper and so on. You need to be
mentally prepared to take on all these tasks at the beginning. Can you do that?
4. Superb
Business Skills
Entrepreneurs
are naturally capable of setting up the internal systems, procedures and
processes necessary to operate a business. They are focused on cash flow, sales
and revenue at all times. Successful entrepreneurs rely on their business
skills, know-how and contacts. Evaluate your current talents and professional
network. Will your skills, contacts and experience readily transfer to the
business idea you want to pursue?
5. Risk
Tolerance
Launching any
entrepreneurial venture is risky. Are you willing to assume that risk? You can
reduce your risk by thoroughly researching your business concept, industry and
market. You can also test your concept on a small scale. Can you get a letter
of intent from prospective customers to purchase? If so, do you think customers
would actually go through with their transaction?
6. Drive
As an
entrepreneur, you are in the driver’s seat, so you must be proactive in your
approaches to everything. Are you a doer -- someone willing to take the reins
-- or would you rather someone else do things for you?
7. Vision
One of your
responsibilities as founder and head of your company is deciding where your
business should go. That requires vision. Without it, your boat will be lost at
sea. Are you the type of person who looks ahead and can see the big picture?
8. Flexibility
and Open-Mindedness
While
entrepreneurs need a steadfast vision and direction, they will face a lot of
unknowns. You will need to be ready to tweak any initial plans and strategies.
New and better ways of doing things may come along as well. Can you be
open-minded and flexible in the face of change?
9.
Decisiveness
As an
entrepreneur, you won’t have room for procrastination or indecision. Not only
will these traits stall progress, but they can also cause you to miss crucial
opportunities that could move you toward success. Can you make decisions
quickly and seize the moment?
About the Author
[Ruchira
Agrawal is a personal and professional development coach, author and CEO of
InnerVeda Communications. She works with individuals at a life and career
crossroads who are looking to change careers and discover their right work. Her
eBook -- Before You Launch Your Business: How to Decide If Being an
Entrepreneur Is for You -- is available at Amazon’s Kindle store. She has an
MBA, along with 21 years of work experience in marketing, recruiting, coaching
and entrepreneurship. Visit InnerVeda to subscribe to her free newsletter.]
Reference:
Article 3
Entrepreneurship:
Characteristics,Importance, Types, and Functions of Entrepreneurship
by Smriti
Chand Entrepreneur
Entrepreneurial
development today has become very significant; in view of its being a key to
economic development. The objectives of industrial development, regional
growth, and employment generation depend upon entrepreneurial development.
Entrepreneurs
are, thus, the seeds of industrial development and the fruits of industrial
development are greater employment opportunities to unemployed youth, increase
in per capita income, higher standard of living and increased individual
saving, revenue to the government in the form of income tax, sales tax, export
duties, import duties, and balanced regional development.
Concept of
Entrepreneurship:
The word
“entrepreneur” is derived from the French verb enterprendre, which means ‘to
undertake’. This refers to those who “undertake” the risk of new enterprises.
An enterprise is created by an entrepreneur. The process of creation is called
“entrepreneurship”.
Entrepreneurship
is a process of actions of an entrepreneur who is a person always in search of
something new and exploits such ideas into gainful opportunities by accepting
the risk and uncertainty with the enterprise.
Characteristics
of Entrepreneurship:
Entrepreneurship
is characterized by the following features:
1. Economic
and dynamic activity:
Entrepreneurship
is an economic activity because it involves the creation and operation of an
enterprise with a view to creating value or wealth by ensuring optimum
utilisation of scarce resources. Since this value creation activity is
performed continuously in the midst of uncertain business environment,
therefore, entrepreneurship is regarded as a dynamic force.
2. Related to
innovation:
Entrepreneurship
involves a continuous search for new ideas. Entrepreneurship compels an
individual to continuously evaluate the existing modes of business operations
so that more efficient and effective systems can be evolved and adopted. In
other words, entrepreneurship is a continuous effort for synergy (optimization
of performance) in organizations.
3. Profit
potential:
“Profit
potential is the likely level of return or compensation to the entrepreneur for
taking on the risk of developing an idea into an actual business venture.”
Without profit potential, the efforts of entrepreneurs would remain only an
abstract and a theoretical leisure activity.
4. Risk
bearing:
The essence of
entrepreneurship is the ‘willingness to assume risk’ arising out of the
creation and implementation of new ideas. New ideas are always tentative and
their results may not be instantaneous and positive.
An
entrepreneur has to have patience to see his efforts bear fruit. In the
intervening period (time gap between the conception and implementation of an
idea and its results), an entrepreneur has to assume risk. If an entrepreneur
does not have the willingness to assume risk, entrepreneurship would never
succeed.
Entrepreneurial
Process:
Entrepreneurship
is a process, a journey, not the destination; a means, not an end. All the
successful entrepreneurs like Bill Gates (Microsoft), Warren Buffet (Hathaway),
Gordon Moore (Intel) Steve Jobs (Apple Computers), Jack Welch (GE) GD Birla,
Jamshedji Tata and others all went through this process.
To establish
and run an enterprise it is divided into three parts – the entrepreneurial job,
the promotion, and the operation. Entrepreneurial job is restricted to two
steps, i.e., generation of an idea and preparation of feasibility report. In
this article, we shall restrict ourselves to only these two aspects of
entrepreneurial process.
Figure 4.1:
The Entrepreneurial Process
1. Idea
Generation:
To generate an
idea, the entrepreneurial process has to pass through three stages:
a.
Germination:
This is like seeding process, not like planting seed. It is more like the natural seeding.
This is like seeding process, not like planting seed. It is more like the natural seeding.
Most creative ideas can be linked to an individual’s interest or curiosity
about a specific problem or area of study.
b.
Preparation:
Once the seed
of interest curiosity has taken the shape of a focused idea, creative people
start a search for answers to the problems. Inventors will go on for setting up
laboratories; designers will think of engineering new product ideas and
marketers will study consumer buying habits.
c. Incubation:
This is a
stage where the entrepreneurial process enters the subconscious intellectualize. The sub-conscious mind joins the unrelated ideas so as to
find a resolution.
2. Feasibility
study:
Feasibility
study is done to see if the idea can be commercially viable.
It passes
through two steps:
a.
Illumination:
After the
generation of idea, this is the stage when the idea is thought of as a
realistic creation. The stage of idea blossoming is critical because ideas by
themselves have no meaning.
b.
Verification:
This is the
last thing to verify the idea as realistic and useful for application.
Verification is concerned about practicality to implement an idea and explore
its usefulness to the society and the entrepreneur.
Importance of
Entrepreneurship:
Entrepreneurship
offers the following benefits:
Benefits of
Entrepreneurship to an Organization:
1. Development
of managerial capabilities:
The biggest
significance of entrepreneurship lies in the fact that it helps in identifying
and developing managerial capabilities of entrepreneurs. An entrepreneur
studies a problem, identifies its alternatives, compares the alternatives in
terms of cost and benefits implications, and finally chooses the best
alternative.
This exercise
helps in sharpening the decision making skills of an entrepreneur. Besides,
these managerial capabilities are used by entrepreneurs in creating new
technologies and products in place of older technologies and products resulting
in higher performance.
2. Creation of
organizations:
Entrepreneurship
results into creation of organizations when entrepreneurs assemble and
coordinate physical, human and financial resources and direct them towards
achievement of objectives through managerial skills.
3. Improving
standards of living:
By creating
productive organizations, entrepreneurship helps in making a wide variety of
goods and services available to the society which results into higher standards
of living for the people.
Possession of
luxury cars, computers, mobile phones, rapid growth of shopping malls, etc. are
pointers to the rising living standards of people, and all this is due to the
efforts of entrepreneurs.
4. Means of
economic development:
Entrepreneurship
involves creation and use of innovative ideas, maximization of output from
given resources, development of managerial skills, etc., and all these factors
are so essential for the economic development of a country.
Factors
affecting Entrepreneurship:
Entrepreneurship
is a complex phenomenon influenced by the interplay of a wide variety of
factors.
Some of the
important factors are listed below:
1. Personality
Factors:
Personal
factors, becoming core competencies of entrepreneurs, include:
(a) Initiative
(does things before being asked for)
(b) Proactive
(identification and utilization of opportunities)
(c)
Perseverance (working against all odds to overcome obstacles and never
complacent with success)
(d)
Problem-solver (conceives new ideas and achieves innovative solutions)
(e) Persuasion
(to customers and financiers for patronizing of his business and develops
& maintains relationships)
(f)
Self-confidence (takes and sticks to his decisions)
(g) Self-critical
(learning from his mistakes and experiences of others)
(h) A Planner
(collects information, prepares a plan, and monitors performance)
(i) Risk-taker
(the basic quality).
2.
Environmental factors:
These factors
relate to the conditions in which an entrepreneur has to work. Environmental
factors such as political climate, legal system, economic and social
conditions, market situations, etc. contribute significantly towards the growth
of entrepreneurship. For example, political stability in a country is
absolutely essential for smooth economic activity.
Frequent
political protests, bandhs, strikes, etc. hinder economic activity and
entrepreneurship. Unfair trade practices, irrational monetary and fiscal
policies, etc. are a roadblock to the growth of entrepreneurship. Higher income
levels of people, desire for new products and sophisticated technology, need
for faster means of transport and communication, etc. are the factors that
stimulate entrepreneurship.
Thus, it is a
combination of both personal and environmental factors that influence
entrepreneurship and brings in desired results for the individual, the
organisation and the society.
Types of
Entrepreneurs:
Depending upon
the level of willingness to create innovative ideas, there can be the following
types of entrepreneurs:
1. Innovative
entrepreneurs:
These
entrepreneurs have the ability to think newer, better and more economical ideas
of business organization and management. They are the business leaders and
contributors to the economic development of a country.
Inventions
like the introduction of a small car ‘Nano’ by Ratan Tata, organized retailing
by Kishore Biyani, making mobile phones available to the common may by Anil
Ambani are the works of innovative entrepreneurs.
2. Imitating
entrepreneurs:
These
entrepreneurs are people who follow the path shown by innovative entrepreneurs.
They imitate innovative entrepreneurs because the environment in which they
operate is such that it does not permit them to have creative and innovative
ideas on their own.
Such
entrepreneurs are found in countries and situations marked with weak industrial
and institutional base which creates difficulties in initiating innovative
ideas.
In our country
also, a large number of such entrepreneurs are found in every field of business
activity and they fulfill their need for achievement by imitating the ideas
introduced by innovative entrepreneurs.
Development of
small shopping complexes is the work of imitating entrepreneurs. All the small
car manufacturers now are the imitating entrepreneurs.
3. Fabian
entrepreneurs:
The dictionary
meaning of the term ‘fabian’ is ‘a person seeking victory by delay rather than
by a decisive battle’. Fabian entrepreneurs are those individuals who do not
show initiative in visualising and implementing new ideas and innovations wait
for some development which would motivate them to initiate unless there is an
imminent threat to their very existence.
4. Drone
entrepreneurs:
The dictionary
meaning of the term ‘drone’ is ‘a person who lives on the labor of others’.
Drone entrepreneurs are those individuals who are satisfied with the existing
mode and speed of business activity and show no inclination in gaining market
leadership. In other words, drone entrepreneurs are die-hard conservatives and
even ready to suffer the loss of business.
5. Social
Entrepreneur:
Social
entrepreneurs drive social innovation and transformation in various fields including
education, health, human rights, workers’ rights, environment and enterprise
development.
They undertake
poverty alleviation objectives with the zeal of an entrepreneur, business
practices and dare to overcome traditional practices and to innovate. Dr
Mohammed Yunus of Bangladesh who started Gramin Bank is a case of social
entrepreneur.
Functions of
an Entrepreneur:
The important
functions performed by an entrepreneur are listed below:
1. Innovation:
An
entrepreneur is basically an innovator who tries to develop new technology,
products, markets, etc. Innovation may involve doing new things or doing
existing things differently. An entrepreneur uses his creative faculties to do
new things and exploit opportunities in the market. He does not believe in
status quo and is always in search of change.
2. Assumption
of Risk:
An
entrepreneur, by definition, is risk taker and not risk shirker. He is always
prepared for assuming losses that may arise on account of new ideas and
projects undertaken by him. This willingness to take risks allows an
entrepreneur to take initiatives in doing new things and marching ahead in his
efforts.
3. Research:
An
entrepreneur is a practical dreamer and does a lot of ground-work before taking
a leap in his ventures. In other words, an entrepreneur finalizes an idea only
after considering a variety of options, analyzing their strengths and
weaknesses by applying analytically techniques, testing their applicability,
supplementing them with empirical findings, and then choosing the best
alternative. It is then that he applies his ideas in practice. The selection of
an idea, thus, involves the application of research methodology by an
entrepreneur.
4. Development
of Management Skills:
The work of an
entrepreneur involves the use of managerial skills which he develops while
planning, organizing, staffing, directing, controlling and coordinating the
activities of business. His managerial skills get further strengthened when he
engages himself in establishing equilibrium between his organization and its
environment.
However, when
the size of business grows considerably, an entrepreneur can employ
professional managers for the effective management of business operations.
5. Overcoming
Resistance to Change:
New
innovations are generally opposed by people because it makes them change their
existing behavior patterns. An entrepreneur always first tries new ideas at his
level.
It is only
after the successful implementation of these ideas that an entrepreneur makes
these ideas available to others for their benefit. In this manner, an
entrepreneur paves the way for the acceptance of his ideas by others. This is a
reflection of his will power, enthusiasm and energy which helps him in
overcoming the society’s resistance to change.
6. Catalyst of
Economic Development:
An
entrepreneur plays an important role in accelerating the pace of economic
development of a country by discovering new uses of available resources and
maximizing their utilization.
To better
appreciate the concept of an entrepreneur, it is desirable to distinguish him
from an entrepreneur and promoter. Table 4.1 outlines the distinction between
an entrepreneur and entrepreneurs, and Table 4.2 portrays basic points of
distinction between an entrepreneur and promoter.
Table 4.1:
Distinction between Entrepreneur and Intrapreneur:
Basis
|
Entrepreneur
|
Intrapreneur
|
Capacity
|
Own
|
An manager
|
Status
|
Own boss
|
Salaried employee
|
Decisions
|
Takes own decisions
|
Executes decisions with the
concurrence of owner
|
Reward
|
Uncertain and unlimited
|
Fixed rewards and salary
|
Table 4.2:
Distinction between Entrepreneur and Promoter:
Basis
|
Entrepreneur
|
Promoter
|
Stage of business
|
From conception to continuation
|
To bring a business into
existence
|
Owning business
|
Owns the enterprise
|
May or may not own
|
Nature of job
|
Includes everything
|
Highly specialised
|
Example
|
Any business
|
A consultant or a chartered account
and offering services
|
Some Myths
about Entrepreneurship:
Over the
years, a few myths about entrepreneurship have developed. These are as under:
(i)
Entrepreneurs, like leaders, are born, not made:
The fact does
not hold true for the simple reason that entrepreneurship is a discipline
comprising of models, processes and case studies.
One can learn
about entrepreneurship by studying the discipline.
(ii)
Entrepreneurs are academic and socially misfits:
Dhirubai Ambani
had no formal education. Bill Gates has been a School drop-out. Therefore, this
description does not apply to everyone. Education makes an entrepreneur a true
entrepreneur. Mr Anand Mahindra, Mr Kumar Mangalam Birla, for example, is
educated entrepreneurs and that is why they are heroes.
(iii) To be an
entrepreneur, one needs money only:
Finance is the
life-blood of an enterprise to survive and grow. But for a good idea whose time
has come, money is not a problem.
(iv) To be an
entrepreneur, a great idea is the only ingredient:
A good or
great idea shall remain an idea unless there is proper combination of all the
resources including management.
(v) One wants
to be an entrepreneur as having no boss is great fun:
It is not only
the boss who is demanding; even an entrepreneur faces demanding vendors,
investors, bankers and above all customers.
An
entrepreneur’s life will be much simpler, since he works for himself. The truth
is working for others are simpler than working for oneself. One thinks 24 hours
a day to make his venture successful and thus, there would be a punishing
schedule.
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