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^Academ y of Mana gement Review . 1984. V ol. 9, No. 2. 354-359.
Differentiating Entrepreneurs from
Small Business Owners:
A Conceptualization
JAMES W CARLAND
Western Carolina University
FRANK HOY
WILLIAM R BOULTON
University of Georgia
JO ANN C. CARLAND
Western Carolina University
The literature of sm all business and entrepren eurship is
explored
It is es-
tablished that although there is an overlap between entrepreneurial firms
and small business firms they are different en tities. Using the
934
work
of S chumpeter andrecognizing the additions to thefteld of current writers
a conceptual framew ork is established for the differentiation of entrepre-
neurs
from small business owners.
Schumpeter (1934) was among the first to identify
the entrepreneur as an entity worthy of study, distinct
from business owners and managers. He described
entrepreneurs as individuals whose function was to
carry out new combinations of means of production.
To Schumpeter, this function was fundamental to
economic development. Entrepreneurs, therefore,
warranted study independent of capitalists and busi-
ness managers. Today there continues to be an im-
plicit assumption that the entrepreneur contributes
disproportionately to the economy of a nation, yet
little has been done to isolate this individual for fur-
ther analysis. Extending the theory of Schumpeter,
who argued that an entrepreneur was distinguishable
both by type and by conduct, two conceptualizations
are proposed in this pape r: one for differentiating
entrepreneurs from small business o wne r/manag ers
and the second for differentiating entrepreneurial
ventures from small businesses.
Entrepreneurship: The Contribution
Because the definition of entrepreneurship denotes
the creation of some combination that did not pre-
viously exist, entrepreneu rship often is equated with
small business ownership and management.
small business sector has received a ttention in th
nomic and m anagem ent literature because of i
nificance to the economy. The Small Busines
ministration (U.S. Government Printing O
1982) has compiled a list of statistics that dramat
demonstrate the impact of small business on th
tion's economy:
1. There are 14.7 million businesses in the Un
States, of which 3.2 million are farms.
2. App roxima tely 99.7 percent of these businesse
considered small by the SBA's size standards
loan applicants.
3.
Th e small businesses identified ab ove accoun t
38 percent of the gross national product; 44
cent of the gross business product; and 47 perc
of total U.S. business employment.
4. The small business sector identified above
counted for the vast majority of the net new
created by business between 1969 and
1976
Although there is no uniform definition of a
firm, the statistics above relate to businesses th
within SBA guidelines as being small. The
Business Act states that a small business co
shall be deemed to be one which is independ
owned and operated and which is not domin
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field of ope rati on (U .S. Small Business Admin-
As the SBA statistics demonstrate, small business
isjustified because of sheer numb ers. It must
rces as compared with the dee p pocke ts of re-
iables on the small business sector (C hilton &
1981;
Legler&Hoy,
Robinson, 1982).
Although small business is a significant segment
ging in entrepreneurial behavior (Ro nstad t, 1982,
epreneur (M artin, 1982). Clearly, an overlap ex-
ts of entrepren eurship with the small business sec-
ions and if entrepreneurial activity is a fundamen-
eneurial m anagers in order for the phenomenon
erature Re view: The En trepren eur
One of the earliest definitions of an entrepreneur
1100 who described th e
vidual as a ra tional decision m aker w ho assumed
risk and provided man agement for the firm (Kil-
th bringing the term into general use amo ng econ-
shing a man ager from an entrepreneur was the
ng ofrisk Schumpeter, however, countered that
therefore, the risk bearing propensity would
not be a trait. Martin (1982) believes that capital r
is a function of the investor. Further, Brockha
(1980) cast doubt on the validity of the risk taki
propensity as an entrepreneurial characteristic w
his descriptive work. B rockhaus found no statisti
difference in the risk preference pattern s of a g ro
of entrepreneurs and a group of managers. It shou
be noted that Brockhaus used the establishment
a business as the criterion for inclusion of the p
ticipants in the entrepreneur group. Omitting bu
ness ownership as a designation of entrepreneursh
permits both the inclusion of corporate entreprene
and the elimination of the risk bearing characterist
However, many writers have asserted and contin
to assert that risk bearing is a prime factor in the e
trepreneurial character and function (McClellan
1%1; Palmer,
1971;
Timm ons, 1978; Welsh Wh
1981).
Num erous normative and descriptive studies ha
supported various sets of personality characterist
of entrepreneurship. Brockhaus (1982) has present
an excellent historic overview of the definitions
entrepreneurs. Perhaps the most important fact
from a societal perspective is the charac teristic of
novation. Schumpeter (1934) believed that innov
tion was the central characteristic of the entrep
neurial endeavor. His emphasis on this point is
vealed in his declaration that one behaves as an e
trepreneur only when carrying out innovatio
McClelland (1961) stated that energetic and/or nov
instrumental activity was a key factor in entrep
neurial activity. Martin (1982) stressed that entrep
neurial creativity is different from literary or artis
creativity in that th e entrepreneur does not inno v
by creating ideas but by exploiting the value of ide
Table1 displays a sampling of entrepreneurial c
acteristics appearing in the literature.
The characteristics listed in Table1 represent
tudes and behaviors that may be manifested by e
trepreneurs. Demographic characteristics such
birth order, sex, or marital status have been examin
in certain of the studies cited and in various oth
investigations (Vaught Hoy, 1981). They have b
excluded from the present conceptualization becau
of the inability of a prospective entrepreneur to al
those variables in order to increase his/her probab
ity of success.
Schein's (1974) work on career anchors clarif
some of the differences in individual approaches
careers. In studying M.I.T. graduates' careers,
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Table 1
Characteristics of Entrepreneurs
te
Author s)
Characteristic s)
Normative Em
Mill
W e be r
S c hum pe t e r
Sut ton
H a r t m a n
McCle l land
Davids
Pickle
P a lm e r
H or na da y
&
A boud
Winte r
Bor land
Liles
Gasse
T i m m o n s
Sexton
Welsh & Whi te
&
Coope r
Riskbear ing
Source
of
formal author i ty
Innova t ion , in i t i a t ive
Desire
fo r
responsibi l i ty
Source
of
formal author i ty
Risk taking, need
fo r
achievement
Ambi t ion ; des i r e
for
independence; responsibi l i ty; self -conf idence
Dr ive /menta l ; human r e la t ions ; communica t ion ab i l i ty ; t echnica l knowledge
Risk measurement
Need
fo r
achievement ; au tonomy; aggres s ion ; power ; r ecogni t ion ; innova t ive /
independent
Need
fo r
power
Internal locus
of
cont ro l
Need
for
achievement
Personal value or ientat ion
Drive/self -conf idence; goal or iented moderated r isk taker ; internal locus
o f
cont ro l ; c r ea t iv i ty / innova t ion
Energe t ic /ambi t ious ; pos i t ive r eac t ion
to
setbacks
Need
to
con trol ; responsibi l i ty seeker ; self -conf idenc e/dr ive; challenge tak er ;
moderate r isk taker
Growth or ien ted ; independence or ien ted ; c r a f t sman or ien ted
that five types of job directions were prevalent.
ity need, independence need, and crea-
vity. The entrepreneurs m ade up his creative gro up .
The group concerned with creat ivi ty is the most in-
terest ing in that i t contains the entrepreneurs. Four
of these men ar e successful in that they have been able
to launch enterprises which have succeeded and have
brought to their founders ei ther fame or fortune or
both. The kinds of act ivi t ies vary great lybut they
all have in common that they are clear extensions of
the person and his identity is heavily involved in the
vehicle which is created (1974, p. 19).
It is difficult to sketch a profile of an entrep rene ur
esper's (1980) view ofacontinuum along which
ral ty p es of entrepreneurs exist. The question
first type, the So lo Self-Employed
div idu al, is essentially what is treated here as the
l business own er/op erator, but not truly an en-
r in the Schu mp eterian sense because a new
not created.
A major obstacle preventing the attribution of
Vespe r ' s continuum is the great diversity of so
from w hich the authors cited in Tab le 1 derived
identified characteristics. Those citations that ar
dicated in Table 1 as normative are generally a
dotal, describing either the authors' personal im
sions or conclusions drawn from reading the w
of others. The empirical studies draw from quit
verse samples. McClelland's (1961) entrepren
were in fact business executives representing var
functional specialities: general management,
and marketing, finance, engineering, and person
Senior marketing managers were found to have
highest need for achievement. More frequently,
ples of small business owners are chosen for s
(Hornaday Ab oud , 1971; Pickle, 1964). Th
sumption underlying these selections is that the
trepreneur was the individual who brought the
sources together and initiated the venture. Suc
ful entrepreneurs are defined as those whose en
prises have survived some period of time, per
two years. The question then is: Are the charact
tics listed in Table
those of entrepreneurs, of
business owners, or o f som e m ixture that may or
not be capab le of demo nstrating the entreprene
function of economic development?
The Entrepreneurial Venture
A considerable body of literature has been
up treating the stages of o rganizational develop
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would represent an entrepreneurial character-
tic to som e scholars (Du nkelb erg Co ope r, 1982).
of ventu re types, many business owners never
Glueck (1980) distinguished between entrepreneu-
Glueck cited the oft observed family business
An entrepreneu rial ve nture can be identified by the
Vesper (1980) and can b e used as the basis for clas-
1. Introduction of new goods
2.
Introduction of new methods of production
3. Opening of new markets
4. Opening of new sources of supply
5. Industrial reorganization
Because of the ambiguity of criterion 4, it is not
Schumpeter 's criteria represent evidence of in
vative strategies or inno vative strategic postures.
criteria also emphasize the behavior of a firm c
sistent with its own best interests. This perspec
is congruent with the development and pursuit o
distinctive competence prescribed by Vesper (19
as a requirement for an entrepreneurial ventur
Conceptual Distinction Between
Small Business and Entrepreneurship
From the foregoing discussion, it can be seen t
although there is considerable overlap between sm
business and entrepreneurship, the concepts are
the same. All new ventures are not entrepreneu
in nature. Entrepreneurial firms may begin at any
level, but key on growth over time. Some new sm
firms may grow, but many will remain small b
nesses for their organizational lifetimes.
The critical factor proposed here to distinguish
trepreneurs from nonentrepreneurial managers a
in particular, small business owners is innovat
The en trepreneur is characterized by a preference
creating activity, manifested by some innovative c
bination of resources for profit. Drawing further
the characteristics outlined in Table 1, it is sugges
that analyses of prospective entrepreneurial char
teristics examine such traits as need for achievem
(perhaps more appropriately labeled goal-orie
t ion) ,
internal locus of control, need for inde
dence, need for responsibility, and need for pow
Although a risk taking propensity is mentioned
quently in the literature, Schumpeter noted that i
inherent in ownership rather than entrepreneurs
Further, Brockhaus (1980) supported Schump
with empirical results demonstrating that risk tak
behavior cannot be used as a distinguishing cha
teris tic of entrepreneurship.
From this analysis, it is suggested that many p
lished studies may be misleading in their conclusio
Economic theorists propose that the entrepreneu
essential to economic development (Schumpe
1934; Williams, 1981). Yet studies of entrepren
ship neglect to distinguish adequately between en
preneurs and other business managers, prima
small business owners. Erroneous descriptions of
trepreneurs can jeopardize investigations in a v
ety of ways. Specifically, analyses of how entre
neurs make their fundamental contributions to e
nomic development cannot draw sound conclusi
if the case studies are not entrepreneurial.
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To guide future studies, the following definitions
Small business venture:A small business venture
dominant in its field, and does not engage
Entrepreneurial venture:
An entreprenuerial ven-
Small business owner:
A smaii ousmcss uwn
an individual who establishes and manages a
ness for the principal purpose of furthering pers
goals. The business must be the primary sourc
income and will consume the majority of one's
and resources. The owner perceives the busines
an extension of his or her personality, intrica
bound with family needs and desires.
Entrepreneur: An entrepreneur is an indiv
who establishes and manages a business for the
cipal purposes of profit and growth. The entre
neur is characterized principally by innovative
havior and will employ strategic management p
tices in the business.
eferen es
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preneurship. Unpublished doctoral dissertation. University of
Texas at Austin, 1974.
Acad
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Kent, D. L. Sexton, & K. H. Vesper (Eds.), Encyclopedia of
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Englewood Cliffs, N.J.: Prentice-Hall, 1982,
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Weidenbaum , M. L. Governm ent regulation:
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Journal of Small Business Manage-
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Ch aracteristics of small business founders in Texas
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James Carland is Assistant Professor of Management
School of Business Western Carolina University.
Frank Hoy is Associate Professor of Management in the
College of usinessAdministration and Director of R e-
search and Experiential Education in the Small Business
Developm ent Center University of Georgia.
William
Bou tton is Associate Professor of Man agement in
the College of Business Administration University of
Georgia.
Jo Ann Carland is Assistant P rofessor of M anageme nt in
the School of Business Western Carolina University.
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