CHAPTER 2 Entrepreneurship: An Evolving Concept CHAPTER OBJECTIVES 1. To examine the historical development of entrepreneurship 2. To explore and debunk the myths of entrepreneurship 3. To define and explore the major schools of entrepreneurial thought 4. To explain the process approaches to the study of entrepreneurship 5. To set forth a comprehensive definition of entrepreneurship Most of what you hear about entrepreneurship, says America's leading management thinker, is all wrong. It's not magic; it's not mysterious; and it has nothing to do with genes. It's a discipline and, like any discipline, it can be learned. Peter F. Drucker
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CHAPTER 2
Entrepreneurship: An Evolving Concept
CHAPTER OBJECTIVES
1. To examine the historical development of entrepreneurship
2. To explore and debunk the myths of entrepreneurship
3. To define and explore the major schools of entrepreneurial thought
4. To explain the process approaches to the study of entrepreneurship
5. To set forth a comprehensive definition of entrepreneurship
Most of what you hear about entrepreneurship, says America's leading management thinker, is all
wrong. It's not magic; it's not mysterious; and it has nothing to do with genes. It's a discipline and, like
any discipline, it can be learned.
Peter F. Drucker
Innovation and Entrepreneurship
THE EVOLUTION OF ENTREPRENEURSHIP
The word entrepreneur is derived from the French entreprendre, meaning "to
undertake." The entrepreneur is one who undertakes to organize, manage, and
assume the risks of a business. In recent years entrepreneurs have been doing so many
things that it is necessary to broaden this definition. Today, an entrepreneur is an
innovator or developer who recognizes and seizes opportunities; converts those
opportunities into workable/marketable ideas; adds value through time, effort,
money, or skills; assumes the risks of the competitive marketplace to implement these
ideas; and realizes the rewards from these efforts. 1
The entrepreneur is the aggressive catalyst for change in the world of business.
He or she is an independent thinker who dares to be different in a background of
common events. The literature of entrepreneurial research reveals some
similarities, as well as a great many differences, in the characteristics of
entrepreneurs. Chief among these characteristics are personal initiative, the ability to
consolidate resources, management skills, a desire for autonomy, and risk taking.
Other characteristics include aggressiveness, competitiveness, goal-oriented
diagram depicts some of the numerous elements that affect each event in the process.
Entrepreneurial Assessment Approach
Another model, developed by Robert C. Ronstadt, stresses making assessments
qualitatively, quantitatively, strategically, and ethically in regard to the entrepreneur,
the venture, and the environment .29 (Figure 2.3 depicts this model.) To examine
entrepreneurship, the results of these assessments must be compared to the stage of the
entrepreneurial career— early, midcareer, or late. Ronstadt termed this process "the
entrepreneurial perspective." We focus on this term in Chapter 4 when we examine
the individual characteristics of entrepreneurship.
Multidimensional Approach
A more detailed process approach to entrepreneur ship is the multidimensional
approach. 30 In this view entrepreneurship is a complex, multidimensional framework
that, emphasizes the individual, the environment, the organization, and the venture
process. £ Specific factors that relate to each of these dimensions follow.
THE INDIVIDUAL
1. Need for achievement 5. Previous work experience
2. Locus of control 6. Entrepreneurial parents
3. Risk-taking propensity 7. Age
4. Job satisfaction 8. Education
THE ENVIRONMENT
1. Venture capital availability 7. Proximity of universities
2. Presence of experienced entrepreneurs
8. Availability of land or facilities
3. Technically skilled labor force
9. Accessibility of transportation
4. Accessibility of suppliers
10. Attitude of the area population
5. Accessibility of customers or new markets
11. Availability of supporting
services
6. Governmental influences
12. Living conditions
THE ORGANIZATION
1. Type of firm 4 Strategic variables
2 Entrepreneurial environment a) Cost b) Differentiations c) Focus
3 Partners 5 Competitive entry wedges
THE PROCESS
1. Locating a business opportunity
2. Accumulating resources
3. Marketing products and services
4. Producing the product
5. Building an organization
6. Responding to government and society 31
Figure 2.4 depicts the interaction of the four major dimensions of this
entrepreneurial, or new-venture, process and lists more variables. This type of
process moves entrepreneurship from a segmented school of thought to a dynamic,
interactive process approach.
INTRAPRENEURSHIP
Recently the term intrapreneurship has become popular in the business
community, though very few executives thoroughly understand the concept. Gifford
Pincliot has denned an intrapreneur as "any of the dreamers who do...”. However,
he goes on to say, "... take hands-on responsibility for creating innovation of any kind
within an organization. The intrapreneur may be the creator or the inventor but is
always the dreamer who figures out how to turn an idea into a profitable reality." 52
This definition has definite similarities to entrepreneurship except that
intrapreneurship takes place within an organization. The major thrust of
intrapreneuring, then, is to create or develop the entrepreneurial spirit within
corporate boundaries, thereby allowing an atmosphere of innovation to prosper. 33
More about this specific application of entrepreneurs hip is presented in Chapter 3.
KEY CONCEPTS
Before concluding our discussion of the nature of entrepreneurship, we need to
put into three perspective three key concepts: entrepreneurship, entrepreneur,
and entrepreneurial management.
Entrepreneurship
Entrepreneurship is a process of innovation and new-venture creation through four
majors dimensions—individual, organizational, environmental, process—that is aided
by collaborative networks in government, education, and institutions.. All of the
macro and micro positions of entrepreneurial thought must he considered while
recognizing and seizing opportunities that can be converted into marketable ideas
capable of competing for implementation in today's economy.
Entrepreneur
The entrepreneur is a catalyst for economic change who uses purposeful searching,
careful planning, and sound judgment when carrying out the entrepreneurial process.
Uniquely optimistic and committed, the entrepreneur works creatively to establish
new resources or endow old ones with a new capacity, all for the purpose of creating
wealth.
Entrepreneurial Management
The underlying theme of this book is the discipline of entrepreneurial
management, a concept that has been delineated as follows:
Entrepreneurship is based upon the same principles, whether the
entrepreneur is on existing large institution or an individual starting his or
her new venture single-handed. It makes little or no difference whether
the entrepreneur is a business or a nonbusiness public-service
organization, nor even whether the entrepreneur is a governmental or
nongovernmental institution. The rules are pretty much the same, the
things that work and those that don't are pretty much the same, and so are
the kinds of innovation and where to look for them. In every case there is
a discipline we might call Entrepreneurial Management. 34
The techniques and principles of this emerging discipline will drive the
entrepreneurial economy of our time.
SUMMARY
This chapter examined the evolution of entrepreneurship, providing a foundation for
further study of this dynamic and developing discipline. Exploring the early
economic definitions as well as selected contemporary ones, the chapter presented a
historical picture of how entrepreneurship has been viewed. In addition, the ten
major myths of entrepreneur-ship were discussed to permit a better understanding of
the folklore surrounding this newly developing field of study. Contemporary
research is broadening the horizon for studying entrepreneurship and is providing a
better focus on the what, how, and why behind this discipline.
The approaches to entrepreneurship were examined from two different perspectives:
schools of thought and process. Six selected schools of thought were presented, and
three approaches for understanding contemporary entrepreneurs!]ip as a process were
discussed. The chapter concluded with definitions of entrepreneurship, entrepreneur,
and entrepreneurial management.
KEY TERMS AND CONCEPTS
better widget strategies financial/capital school of though!
corridor principle great chef strategies
displacement school of thought internal locus of control
entrepreneur intrapreneurship
entrepreneurial assessment approach macro view of entrepreneurship
entrepreneurial events approach micro view of entrepreneurs hip
entrepreneurial management mountain gap strategies
entrepreneurial trait school of thought multidimensional approach
entrepreneurship strategic formulation school of thought
environmental school of thought venture opportunity school of thought
external locus of control water well strategies
REVIEW AND DISCUSSION QUESTIONS
1. Briefly describe the evolution of the term entrepreneurship.
2. What are the ten myths associated with entrepreneurship? Debunk each.
3. What is the macro view of entrepreneurship?
4. What are the schools of thought that use the macro view of entrepreneurship?
5. What is the micro view of entrepreneurship?
6. What are the schools of thought that use the micro view of entrepreneurship?
7. What are the three specific types of displacement?
8. In the strategic formulation school of thought, what are the four types of strategies
involved with unique elements? Give an illustration of each.
9. What is the process approach to entrepreneurship'.' In your answer describe the
entrepreneurial assessment approach.
10. What are the major elements in the framework for entrepreneurship presented in
Figure 2.4? Give an example of each.
EXPERIENTIAL EXERCISE
Understanding Your Beliefs about Successful Entrepreneurs
Read each of the following ten statements, and to the left of each indicate your
agreement or disagreement. If you fully agree with the statement, put a 10 on the
line at the left. If you totally disagree, put a 1. If you tend to agree more than you
disagree, give a response between 6 and depending on how much you agree. If you
tend to disagree, give a response between 2 and 5.
____1. Successful entrepreneurs are often methodical and analytical individuals
who carefully plan out what they are going to do and then do it.
____2. The most successful entrepreneurs are born with special characteristics such
as high achievement drive and a winning personality, and these traits serve them
well in their entrepreneurial endeavors.
____3. Many of the characteristics needed for successful entrepreneur ship can be
learned through study and experience.
____4. The most successful entrepreneurs are those who invent a unique product
or service.
____5. Highly successful entrepreneurs tend to have very little formal schooling.
____6. Most successful entrepreneurs admit that dropping out of school was the
best thing they ever did.
____7. Because they are unique and individualistic in their approach to business,
most successful entrepreneurs find it hard to socialize with others; they just do not fit in.
____8. Research shows that although it is important to have adequate financing
before beginning an entrepreneurial venture, it is often more important to have man-
agerial competence and proper planning.
____9. Successful entrepreneurship is more a matter of preparation and desire than
it is of luck.
____10. Most successful entrepreneurs do well in their first venture, which
encourages them to continue; failures tend to come later on as the enterprise grows.
Put your answers on the following list in this way: (a) Enter answers to numbers 1,
3, 8, and 9 just as they appeal; and then ft) subtract the answers to 2,4,5,6,7, and 10
from 11 before entering them here. Thus, if you gave an answer of S to number 1, put an
8 before number 1 here. However, if you gave an answer of 7 to number 2 here, place a
4 before number 2 here. Then add both columns of answers and enter your total on the
appropriate line.
____ 1 ____ 6*
____ 2* ____ 7*
____ 3 ____ 8
____ 4* ____ 9
____ 5* ____10*
____ Total
Interpretation: This exercise measures how much you believe the myths of
entrepreneurship. The lower your total, the stronger your beliefs; the higher your
total, the less strong your beliefs. Numbers 1, 3, 8, and 9 are accurate statements;
numbers 2, 4, 5, 6, 7, and 10 are inaccurate statements. Here is the scoring key:
80-100 Excellent. You know the facts about entrepreneurs.
61-79 Good, but you still believe in a couple of myths.
41-60 Fair. You need to review the chapter material on the myths of
entrepreneurship.
0-40 Poor. You need to reread the chapter material on the myths of entrepre-
neurship and study these findings.
VIDEO CASE 2.1
DREW PEARSON COMPANIES: SUPER BOWL CHAMP PUTS A CAP ON
SUCCESS
When Drew Pearson, a wide receiver for the Dallas Cowboys, played in his
third Super Bowl, he had no idea he'd become the CEO of one of the nation's top
designers and manufacturers of sports caps. "When 1 left professional football, it
was hard to imagine that my earning power off the field would ever eclipse my
earning power on the field," Pear-son reveals. But in the megabuck business of
logo-licensed headwear, Drew Pearson Companies (DPC) has racked up some
impressive statistics since it was formed in 1985. Sales have skyrocketed from $3
million in 1985 to $10 million in 1989 to $77.5 million in 1993. DPC is one of
only six companies to have scored licenses with the National Football League
(NFL), National Basketball Association, Major League Baseball, and the National
Hockey League. Equally impressive is the fact that DPC is the only company to
have exclusive worldwide rights with the Walt Disney Company.
Nicknamed "The Clutch" during his Cowboy days, Pearson was accustomed to
making spectacular plays. But DPC's superstar rise in die headwear industry hasn't
been without a few fumbles along the way. "Of course, being a former NFL
player, I thought the natural thing would be to approach the NFL first," Pearson
says. "Roger Staubach, who was an initial investor, and I went to New York to
meet with NFL Properties. The meeting lasted maybe 35 minutes. They just told
us no."
In time, Pearson proved that DPC had the financial resources and capabilities to
produce quality products, and it became me first minority-owned business to
secure a licensing agreement with the NFL. But more important, DPC discovered
its competitive edge. "What's really set us apart from our competitors is our
innovative designs," Pearson admits. Colorful, intricately stitched hats with
names like "The Jagged Edge" are DPC's trademark. Early on, DPC embraced
technology to create its fashion-forward caps. "We were able to bring together in
our creative services area the first computer that generated art that could show
three-dimensional variations in designs—forward looks, backward looks—
things that our competition had no clue as to how we were generating. While they
were trying to figure out the technology, we were gaining market share," DPC
president Ken Shead explains.
In 1995, DPC shipped 30 million trendsetting caps to 7,500 retailers
throughout the United States, making it the industry's fastest-growing headwear
company. The company's aggressive growth has been the payoff for Pearson's
winning vision. "We knew that the spoils licensing industry, especially in the
headwear category, is very competitive. We had to do something to set ourselves
apart." DPC began courting the entertainment industry and was rewarded with
lucrative licensing rights to feature Mickey Mouse, Looney Tunes characters, the
Flinlstones, Barney, Garfield, and other pop-culture icons on DPC head-wear.
"Our number-one-selling hat is Mickey Mouse," Pearson says. "It outsells the
NFL; it outsells Major League Baseball; it even outsold the Chicago Bulls with
Michael Jordan."
Impressive sales in the domestic market have served as a catalyst for DPC's
expansion worldwide. "DPC is a global company. We made that decision to
focus on the international market worldwide approximately three years ago,"
Mike Russell, executive vice president of marketing, says. "From the standpoint
of developing products to sell internationally, we're somewhat unique in our
industry since Mickey Mouse doesn't change whether he's sold in the Far East
or Central America. We have a definitive line of products that transcend
international markets, and the demand for American logo products is continually
growing internationally."
With new products and new markets on the horizon, Drew Pearson Companies is
poised to extend its winning streak well into the next century. But the former NFL
star-turned-CEO knows his team can't rest on its laurels. "When you win a Super
Bowl, you're not necessarily satisfied with winning one Super Bowl. You want to go
back and win it again. You like the adulation and the accolades that come along with
success. We try to implement that same feeling, that same strategy at the Drew
Pearson Companies, No matter what level of success we reach, we know there's
more to attain. There's more to garner. We're not the number one headwear
company in the world, and that's a goal of ours."
Questions
1. What myths in entrepreneurship do DPC and Drew Pearson seem to debunk?
2. Describe the schools of entrepreneurial thought that may apply to Drew
Pearson and his venture.
3. Using Figure 2.3, explain how Pearson's venture fits into the entrepreneurial
assessment approach.
Case 2.2
PAUL'S FOUR SHORT COMINGS
Paul Enden has always been very reliable and a hard worker. For the past eight
years Paul has been working in a large auto service garage. During this lime he
has made a number of recommendations to the owner regarding new services that
could be provided to customers. One of these is called the "'fast lube." With this
service people who want to have their oil changed and their car lubricated do not
have to leave the auto and come back later in the day. Three service racks handle
this job. It generally takes less than 10 minutes lo take care of a car, and most
people can have the job completed within 25 minutes of the time they arrive. The
service, which has become extremely popular with customers, resulted in an
increase in overall profits of 5 percent last year.
Paul's wife believes he has a large number of ideas that could prove profitable.
"You ought to break away and open your own shop," she has told him, Paul would
like to do so, but he believes four things help account for entrepreneurial
success and he has none of them. Here is how he explained it to his wife:
"To be a successful entrepreneur, you have lo be a thinker, not a doer. I'm a doer.
Thinking bores me. I wouldn't like being an entrepreneur. Second, those guys
who do best as entrepreneurs tend to he inventors. I'm not an inventor. If
anything, I think of new approaches to old ways of doing business. I 'm more of
a tinkerer than an inventor. Third, you've got to be lucky to be a successful
entrepreneur. I'm hard working; I'm not lucky. Fourth, you have to have a lot of
money to do well as an entrepreneur. I don't have much money. 1 doubt whether
$50,000 would get me started as an entrepreneur."
Questions
1. Does Paul need to be an inventor to be an effective entrepreneur? Explain
your answer.
2. How important is it that Paul have a lot of money if he hopes to be an
entrepreneur? Explain your answer.
3. What is wrong with Paul's overall thinking? Be sure to include a
discussion of the myths of entrepreneurs hip in your answer.
The "Entrepreneurs are Gamblers" MythBy
Jeff Cornwallon November 24, 2003 2:05 PM | Permalink | Comments (0) | TrackBacks (2)
"I could never start my own business. I cannot tolerate that kind of risk. After all, entrepreneurs are nothing more than gamblers who are willing to bet it all on a hunch of a business idea." Many people view entrepreneurship this way. To them entrepreneurship is as nothing more than a crap shoot. However, when we study financially successful entrepreneurs a very different picture emerges.
This primary cause of this myth about entrepreneurs comes from a misunderstanding of risk. Risk is erroneously defined only in terms of the downside potential of the business. This can be thought of as "Sinking the Boat Risk". Ultimately, this could be the failure of the business. We read over and over that 80% of business start-ups fail. While this is may be true to a point, this risk can actually be drastically reduced with proper training and preparation as discussed in a previous posting on this site.
In our writing about the "Good Entrepreneur", Mike Naughton and I talk about the virtue of prudence as playing such an important role in managing this type of risk. If entrepreneurs view their role as one of being a steward of the resources at their disposal, they begin to take a much more careful and thoughtful approach to business formation. The true act of entrepreneurial courage from this perspective is not blindly forging into a new venture, but rather become one of a willingness to only move ahead when "Sinking the Boat" risk is minimized.
The view of entrepreneurs as gamblers obscures another key aspect of risk. "Missing the Boat" risk refers to what economists call the opportunity cost of not acting on a viable business idea. That is, there is a risk that is associated with not acting on an opportunity just as there is a risk associated with acting, but failing. In fact, failure to act on a business opportunity that has real potential for success can be seen as being equally imprudent and shows poor stewardship of the resources at your disposal (and ultimately the gifts you have been given). Succumbing to fear and not moving ahead can be viewed as the vice that corresponds to virtue of the courageous act of starting a new venture.
The successful entrepreneurs I have been associated with are rarely gamblers. In fact, they are careful, thoughtful business people who understand the risk of moving ahead, and approach that risk with a sober understanding of their responsibilities.
Many myths have arisen about entrepreneurs. These ideas are the result of a lack of research and understanding. As many researchers in the field have noted, the study of entrepreneurship is still emerging, and thus “folklore” will tend to prevail until it is dispelled with contemporary research findings.
Myth 1: Entrepreneurs are doers, not thinkersAlthough it is true entrepreneurs tend toward action, they are also thinkers. Indeed, they are often very methodical people who plan their moves carefully. The emphasis today on the creation of clear and complete business plans is an indication that “thinking” entrepreneurs are as important as “doing” entrepreneurs.
Myth 2: Entrepreneurs are born, not madeAs a professor of entrepreneurship, I hear this one all the time. The idea that the characteristics of entrepreneurs cannot be taught or learned, that they are innate traits one must be born with, has long been prevalent. These traits include aggressiveness, initiative, drive, a willingness to take risks, analytical ability, and skill in human relations.
Today, however, the recognition of entrepreneurship as a discipline is helping to dispel this myth. Like all disciplines, entrepreneurship has models, processes, and case studies that allow the topic to be studied and the knowledge to be acquired.
We are all born with different traits, however, no special trait exists that will make you an entrepreneur.
Myth 3: All entrepreneurs need is moneyIt is true that a venture needs capital to survive; it is also true that a large number of business failures occur because of a lack of adequate financing. Yet having money is not the only bulwark against failure.
Failure due to lack of proper financing often is an indicator of other problems: managerial incompetence, lack of financial understanding, poor investments, poor planning, and the like.
Many successful entrepreneurs have overcome the lack of money while establishing their ventures. To those entrepreneurs, money is a resource but never an end in itself.
If money was the sole answer then every professional athlete and every “rock star” would be an entrepreneur. Unfortunately they squander their money and never use it to develop an entrepreneurial venture because that is not where their passion lies.