Differentiating Entrepreneurs From Small Business Owners

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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

Locus of control need for achievement and entre-

preneurship. Unpublished doctoral dissertation. University of

Texas at Austin, 1974.

Acad

emy of Management Journal. 1980, 23(3), 509-520.

Kent, D. L. Sexton, & K. H. Vesper (Eds.), Encyclopedia of

entrepreneurship.

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39-57.

Weidenbaum , M. L. Governm ent regulation:

The small business burden.

Journal of Small Business Manage-

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Ch aracteristics of small business founders in Texas

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. & Cooper A. C. Entrepreneurial typologies.

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Prince, 1977.

Business policy and strategic management. New

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Administrative Science Quarterly. 1959, 3,

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rnada y, J. A., & Ab oud, J. Characteristics of successful en-

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Liles, P. R.

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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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Differentiating Entrepreneurs From Small Business Owners