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

behavior, confidence, opportunistic behavior, intuitive-ness, reality-based actions,

the ability to learn from mistakes, and the ability to employ human relations skills. 2

Although no single definition of entrepreneur exists and no one profile can

represent today's entrepreneur, research is providing an increasingly sharper focus on

the subject. A brief review of the history of entrepreneurship illustrates this.

America currently is in the midst of a new wave of business and economic

development, and entrepreneurship is its catalyst. Yet the social and economic forces of

entrepreneurial activity existed long before the 1990s. In fact, as noted in Chapter 1, the

entrepreneurial spirit has driven many of humanity's achievements.

Humanity's progress from caves to campuses has been explained in numerous ways. But central to

virtually ad of these theories has been the role of the "agent of change," the force that initiates and

implements material progress. Today we recognize that the agent of change in human history has

been and most likely will continue to be the entrepreneur. 3

The recognition of entrepreneurs dates back to eighteenth-century France when

economist Richard Cantillon associated the "risk-bearing" activity in the economy

with the entrepreneur. In England during the same period, the Industrial Revolution

was evolving, with the entrepreneur playing a visible role in risk taking and the

transformation of resources .4

The association of entrepreneurship and economics has long been the accepted

norm. In fact, until the 1950s the majority of definitions and references to

entrepreneurship had come from economists. For example, Cantillon (1725), just

mentioned; Jean Baptiste Say (1803), the renowned French economist; and Joseph

Schumpeter (1934), a twentieth-century economic genius, all wrote about

entrepreneurship and its impact on economic development. 5 Over the decades

writers have continued to try to describe or define what entrepreneurship is all about.

Here are some examples:

Entrepreneurship . . . consists in doing things that are not generally done in the ordinary course of

business routine; it is essentially a phenomenon that comes under the wider aspect of leadership. 6

Entrepreneurship, at least in all nonauthoritarian societies, constitutes a bridge between society as

a whole, especially the noneconomic aspects of that society, and the profit-oriented institutions

established to take advantage of its economic endowments and to satisfy, as best they can, its

economic desires. 7

In . . . entrepreneurship, there is agreement that we are talking about a kind of behavior that

includes: (1) initiative taking, (2) the organizing or reorganizing of social economic mechanisms

to turn resources and situations to practical account, and (3) the acceptance of risk of failure. 8

After reviewing the evolution of entrepreneurship and examining its varying

definitions, Robert C. Ronstadt put together a summary description:

Entrepreneurship is the dynamic process of creating incremental wealth. This wealth is created by

individuals who assume the major risks in terms of equity, time, and/or career commitment of

providing value for some product or service. The product or service itself may or may not be new

or unique but value must somehow be infused by the entrepreneur by securing and allocating the

necessary skills and resources. 9

Entrepreneurship as a topic for discussion and analysis was introduced by the

economists of the eighteenth century, and it continued to attract the interest of

economists in the nineteenth century. In the present century, the word has become

synonymous or at least closely linked with free enterprise and capitalism. Also, it is

generally recognized that entrepreneurs serve as agents of change; provide creative,

innovative ideas for business enterprises; and help businesses grow and become

profitable.

Whatever the specific activity they engage in, entrepreneurs today are considered

the heroes of free enterprise. Many of them have used innovation and creativity to

build multimillion-dollar enterprises from fledgling businesses—some in less than

a decade! These individuals have created new products and services and have assumed

the risks associated with these ventures. Many people now regard entrepreneurship as

"pioneership" on the frontier of business.

Entrepreneurship is the ability to create and build a vision from practically nothing: fundamentally it

is a human, creative act. It is the application of energy to initiating and building an enterprise or

organization, rather than just watching or analyzing. This vision requires a willingness to take

calculated risks—both personal and financial—and then to do everything possible to reduce the

chances of failure. Entrepreneurship also includes the ability to build an entrepreneurial or venture

team to complement your own skills and talents. It is the knack for sensing an opportunity where

others see chaos, contradiction, and confusion. It is possessing the know-how to find, marshal, and

control resources (often owned by others). 10

THE MYTHS OF ENTREPRENEURSHIP

Throughout the years many myths have arisen about entrepreneurship. These myths

are the result of a lack of research on entrepreneurship, 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. Ten of

the most notable myths with an explanation to dispel each myth appear next.

Myth 1: Entrepreneurs Are Doers, Not

Thinkers

Although 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 (see Part 2) is an indication

that "thinking" entrepreneurs are as important as "doing" entrepreneurs.

Myth 2: Entrepreneurs Are Born, Not Made

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.

Myth 3: Entrepreneurs Are Always Inventors

The idea that entrepreneurs are inventors is a result of misunderstanding and tunnel

vision. Although many inventors are also entrepreneurs, numerous entrepreneurs

encompass all sorts of innovative activity.'' For example, Ray Kroc did not invent the

fast-food franchise, but his innovative ideas made McDonald's the largest fast-food

enterprise in the world. A contemporary understanding of entrepreneurship covers

more than just invention. It requires a complete understanding of innovative behavior

in all forms.

　

Myth 4; Entrepreneurs Are Academic and Social Misfits

The belief that entrepreneurs are academically and socially ineffective is a result of

some business owners having started successful enterprises after dropping out of

school or quitting a job. In many cases such an event has been blown out of

proportion in an attempt to "profile" the typical entrepreneur. Historically, in fact,

educational and social organizations did not recognize the entrepreneur. They

abandoned him or her as a misfit in a world of corporate giants. Business education,

for example, was aimed primarily at the study of corporate activity. Today the

entrepreneur is considered a hero—socially, economically, and academically. No

longer a misfit, the entrepreneur is now viewed as a professional.

Myth 5: Entrepreneurs Must Fit the "Profile"

Many books and articles have presented checklists of characteristics of the successful

entrepreneur. These lists were neither validated nor complete; they were based on case

studies and on research findings among achievement-oriented people. Today we

realize that a standard entrepreneurial profile is hard to compile. The environment,

the venture itself, and the entrepreneur have interactive effects, which result in many

different types of profiles. Contemporary studies conducted at universities across the

United States will, in the future, provide more accurate insights into the various

profiles of successful entrepreneurs. As we will show in Chapter 4, an

"Entrepreneurial Perspective" within individuals is more understandable than a

particular profile.

Myth 6: All Entrepreneurs Need Is Money

It 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 a 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.

Myth 7: All Entrepreneurs Need Is Luck

Being at "the right place at the right time" is always an advantage. But "luck

happens when preparation meets opportunity" is an equally appropriate adage.

Prepared entrepreneurs who seize the opportunity when it arises often seem "lucky."

They are, in fact, simply better prepared to deal with situations and turn them into

successes. What appears to be luck really is preparation, determination, desire,

knowledge, and innovativeness.

Myth 8: Ignorance Is Bliss for Entrepreneurs

The myth that too much planning and evaluation lead to constant problems—that

over-analysis leads to paralysis—does not hold up in today's competitive markets,

which demand detailed planning and preparation. Identifying a venture's strengths and

weaknesses, setting up clear timetables with contingencies for handling problems, and

minimizing these problems through careful strategy formulation are all key factors

for successful entrepreneurship. Thus careful planning—not ignorance of it—is the

mark of an accomplished entrepreneur.

　

Myth 9: Entrepreneurs Seek Success but Experience High Failure Rates

It is true that many entrepreneurs suffer a number of failures before they are

successful. They follow the adage "If at first you don't succeed, try, try, again." In

fact, failure can teach many lessons to those willing to learn and often leads to

future successes. This is clearly shown by the corridor principle, which states that

with every venture launched, new and unintended opportunities often arise. The 3M

Corporation invented Post-it notes using a glue that had not been strong enough for its

intended use. Rather than throw away the glue, the company focused on finding

another use for it and, in the process, developed a multimillion-dollar product. Yet,

the statistics of entrepreneurial failure rates have been misleading over the years. In

fact, one researcher, Bruce A. Kirchoff, has reported that the "high failure rate" most

commonly accepted may be misleading. Tracing 814,000 businesses started in 1977,

Kirchoff found that more than 50 percent were still surviving under their original

owners or new owners. Additionally, 28 percent voluntarily closed down, and only 18

percent actually "failed" in the sense of leaving behind outstanding liabilities. 12

Myth 10: Entrepreneurs Are Extreme Risk Takers (Gamblers)

As we will show in Chapter 4, the concept of risk is a major element in the

entrepreneurial process. However, the public's perception of the risk most

entrepreneurs assume is distorted. Although it may appear that an entrepreneur is

"gambling" on a wild chance, the fact is the entrepreneur is usually working on a

moderate or "calculated" risk. Most successful entrepreneurs work hard through

planning and preparation to minimize the risk involved in order to better control the

destiny of their vision.

These ten myths have been presented to provide a background for today's current

thinking on entrepreneurship. By sidestepping the "folklore," we can build a

foundation for critically researching the contemporary theories and processes of

entrepreneurship.

APPROACHES TO ENTREPRENEURSHIP

To understand the nature of entrepreneurship, it is important to consider some of the

theory development so as to better recognize the emerging importance of

entrepreneurship. The research on entrepreneurship has grown dramatically over the

years. As the field has developed, research methodology has progressed from

empirical surveys of entrepreneurs to more contextual and process-oriented research.

As yet, no comprehensive theory base has emerged, however.

A theory of entrepreneurship is defined as a verifiable and logically coherent

formulation of relationships, or underlying principles that either explain

entrepreneurship, predict entrepreneurial activity (for example, by characterizing

conditions that are likely to lead to new profit opportunities to the formation of new

enterprises), or provide normative guidance (that is, prescribe the right action in

particular circumstances).13 As we are now in the new millennium, it has become

increasingly apparent that we need to have some cohesive theories or classifications

to better understand this emerging field.

In the study of contemporary entrepreneurs hip, one concept recurs: Entrepreneurship

is interdisciplinary. As such it contains various approaches that can increase one's

understanding of the field. l4 Thus we need to recognize the diversity of theories as

an emergence of entrepreneurial understanding. One way to examine these

theories is with a "schools of thought" approach that divides entrepreneurship into

specific activities. These activities may be within a "macro" view or a "micro" view,

yet all address the conceptual nature of entrepreneur ship.

The Schools of Entrepreneurial Thought

In this section we will highlight the ideas emanating from the macro and micro

views of entrepreneurial thought, and we will further break down these two major

views into six distinct schools of thought, three within each entrepreneurial view

(sec Figure 2.1). Although this presentation does not purport to be all-inclusive,

neither does it claim to limit the schools to these six, for a movement may develop for

unification or expansion. Whatever the future holds, however, it is important to

become familiar with these conceptual ideas on entrepreneurship to avoid the

semantic warfare that has plagued general management thought for so many years. 15

　

THE MACRO VIEW The macro view of entrepreneurship presents a broad

array of factors that relate To success or failure in contemporary entrepreneurial

ventures. This array includes external processes that are sometimes beyond the

control of the individual entrepreneur, for they exhibit a strong external locus of

control point of view.

Three schools of entrepreneurial thought represent a breakdown of the macro

view: (1) the environmental school of thought, (2) the financial/capital school of

thought, and (3) the displacement school of thought. The first of these is the

broadest and the most pervasive school.

The Environmental School of Though! This school of thought deals with the external

factors that affect a potential entrepreneur's lifestyle. These can be either positive or

negative forces in the molding of entrepreneurial desires. The focus is on

institutions, values, and mores that, grouped together, form a sociopolitical

environmental framework that strongly influences the development of

entrepreneurs. 16 For example, if a middle manager experiences the freedom and

support to develop ideas, initiate contracts, or create and institute new methods,

the work environment will serve to promote mat person's desire to pursue an

entrepreneurial career. Another environmental factor that often affects the potential

development of entrepreneurs is their social group. The atmosphere of friends and

relatives can influence the desire to become an entrepreneur.

The Financial/Capitol School of Thought This school of thought is based on the

capital-seeking process. The search for seed and growth capital is the entire focus

of this entrepreneurial emphasis. Certain literature is devoted specifically to this

process, whereas other sources tend to treat it as but one segment of the

entrepreneurial process. 17 In any case, the venture capital process is vital to an

entrepreneur's development. Business-planning guides and texts for

entrepreneurs emphasize this phase, and development seminars focusing on the

funds application process are offered throughout the country on a continuous

basis. This school of thought views the entire entrepreneurial venture from a

financial management standpoint. As is apparent from Table 2.1, decisions

involving finances occur at every major point in the venture process.

The Displacement School of Thought This school of thought focuses on group

phenomena. It holds that the group affects or eliminates certain factors that project

the individual into an entrepreneurial venture. As Ronstadt has noted, individuals

will not pursue a venture unless they arc prevented or displaced from doing

other activities. 18 Three major types of displacement illustrate this school of

thought:

1. Political displacement. This is caused by factors ranging from an entire political

regime that rejects free enterprise (international environment) to governmental

regulations and policies that limit or redirect certain industries.

2. Cultural displacement. This deals with social groups precluded from

professional fields. Ethnic background, religion, race, and sex arc all examples

of factors that figure in the minority experience. Increasingly, this experience

will turn various individuals from standard business professions and

toward entrepreneurial ventures. According to the U.S. government, the

number of minority businesses grew by nearly half a million during the last

ten years and represents one-tenth of all the nation's businesses. 19

3. Economic, displacement. This is concerned with the economic variations of

recession and depression. Job loss, capital shrinkage, or simply "bad

limes" can create the foundation for entrepreneurial! pursuits, just as it can

affect venture development and reduction.

These examples of displacement illustrate the external forces that can influence

the development of entrepreneurship. Cultural awareness, knowledge of political

and public policy, and economic indoctrination will aid and improve

entrepreneurial understanding under the displacement school of thought. The

broader the educational base in economics and political science, (lie stronger the

entrepreneurial understanding.

THE MICRO VIEW The micro view of entrepreneurship examines the factors

that are specific to entrepreneurship and are part of the internal locus of control.

The potential entrepreneur has the ability, or control, to direct or adjust the

outcome of each major influence in this view. Although some researchers have

developed this approach into various definitions and segments, as shown in Table

2.2, our approach presents the entrepreneurial trait theory (sometimes referred to as

the "people school of thought"), the venture opportunity theory, and the strategic

formulation theory. Unlike the macro approach, which focuses on events from

the outside looking in, the micro approach concentrates on specifics from the

inside looking out. The first of these schools of thought is the most widely

recognized.

　

The Entrepreneurial Trait School of Thought Many researchers and writers have

been interested in identifying traits common to successful entrepreneurs. 20

this approach is grounded in the study of successful people who tend to

exhibit similar characteristics that, if copied, would increase success

opportunities for the emulators. For example, achievement, creativity,

determination, and technical knowledge are four factors that usually are

exhibited by successful entrepreneurs. Family development and educational

incubation are also examined. Certain researchers have argued against

educational development of entrepreneurs because they believe it inhibits the

creative and challenging nature of entrepreneurship. 21 Other authors, however,

contend that new programs and new educational developments are on the

increase because they have been found to aid in entrepreneurial development .22

The family development idea focuses on the nurturing and support that exist

within the home atmosphere of an entrepreneurial family. This reasoning

promotes the belief that certain traits established and supported early in life

will lead eventually to entrepreneurial success.

　

The Venture Opportunity School of Thought This school of thought focuses on the

opportunity aspect of venture development. The search for idea sources, the

development of concepts, and the implementation of venture opportunities are the

important interest areas for this school. Creativity and market awareness are viewed

as essential. Additionally, according to this school of thought, developing the

right idea at the right time for the right market niche is the key to entrepreneurial

success.

Another development from this school of thought is the previously described

corridor principle. New pathways or opportunities will arise that lead

entrepreneurs in different directions. The ability to recognize these opportunities

when they arise and to implement the necessary steps for action are key factors.

The maxim that preparation meeting opportunity equals "luck" underlies this

corridor principle. Proponents of this school of thought believe that proper

preparation in the interdisciplinary business segments will enhance the ability to

recognize venture opportunities.

The Strategic Formulation School of Thought George Steiner has stated that

"Strategic planning is inextricably interwoven into the entire fabric of

management; it is not something separate and distinct from the process of

management." 23 The strategic formulation approach to entrepreneurial theory

emphasizes the planning process in successful venture development. 24

Ronstadt views strategic formulation as a leveraging of unique elements. 25

Unique markets, unique people, unique products, or unique resources are

identified, used, or constructed into effective venture formations. The

interdisciplinary aspects of strategic adaptation become apparent in the

characteristic elements listed here with their corresponding strategies:

• Unique markets: Mountain versus mountain gap strategies, which refers to

identifying major market segments as well as interstice (in-between) markets that

arise from larger markets.

• Unique people: Great chef strategies, which refers to the skills or special

talents of one or more individuals around whom the venture is built.

• Unique products: Better widget strategies, which refers to innovations that

encompass new or existing markets.

• Unique resources: Water well strategies, which refers to the ability to gather

or harness special resources (land, labor, capital, raw materials) over the long term.

Without question, the strategic formulation school encompasses a breadth of

managerial capability that requires an interdisciplinary approach. 26

SCHOOLS OF ENTREPRENEURIAL THOUGHT: A SUMMARY Although

the knowledge and research available in entrepreneur ship are in an emerging

stage, it is still possible to piece together and describe current schools of thought

in the field. From this point we can begin to develop an appreciation for the

schools and view them as a foundation for entrepreneurial theory. However, just as

the field of management has used a "jungle" of theories as a basis for understanding

the field and its capabilities, so too must the field of entrepreneurship use a number of

theories in its growth and development.

PROCESS APPROACHES

Another way to examine the activities involved in entrepreneurship is through a

process approach. Although numerous methods and models attempt to structure the

entrepreneurial process and its various factors, we shall examine three of the more

traditional process approaches here. 27 First, we will discuss the "entrepreneurial

events" approach, as described by William D. Bygrave. 28 Bygrave's model

incorporates theoretical and practical concepts as they affect entrepreneurs hip

activity. The second approach is an assessment process based on an entrepreneurial

perspective developed by Robert C. Ronstadt. The third process approach, developed

by William B. Gartner, is multidimensional and weaves together the concepts of

individual, environment, organization, and process. All of these methods attempt to

describe the entrepreneurial process as a consolidation of diverse factors, which is the

thrust of this book.

Entrepreneurial Events Approach

Entrepreneurship is not a series of isolated activities or undertakings. Rather, it is a

process by which individuals plan, implement, and control their entrepreneurial

activities. In addition, a number of elements affect each event in the entrepreneurial

process. The entrepreneurial events approach focuses on the process of

entrepreneurial activity and includes the following factors:

• Initiative: An individual or group takes the initiative.

•Organization: Resources are brought together in organizational form to

accomplish some objective (or the resources in an existing organization are

reorganized).

• Administration: Those who look the initiative take over management of ihe organization.

• Relative autonomy: The initiators assume relative freedom to dispose of and

distribute resources.

• Risk taking: The organization's success or failure is shared by the initiator's

supervisors and employees.

V Environment: This milieu includes the opportunities, resources, competitors, and

so forth that affect the entrepreneurial events at different stages,*

Bygrave has outlined a model that mixes theoretical concepts from basic social

sciences with practical concepts from applied sciences. Figure 2.2 illustrates the four

distinct events: innovation -> triggering event -•» implementation —» growth. The

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.

Five Myths About Entrepreneurs

May 19, 2008 by Rich Whittle | 0 Comments

Donald F. Kuratko at IndyStar.com:

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.

Read more.

Photo by viryboss.

Nirma Ent. Myths — Presentation Transcript

THE MYTHS OF ENTREPRENEURSHIP Introduction: Throughout the years many myths have been arisen about

entrepreneurship. These myths are the result of a lack of adequate research on entrepreneurship. 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. Ten of the most notable myths are explained as under: Myth 1:

Entrepreneurs Are Doers, Not Thinkers Although entrepreneurs tend to act, they are also thinkers. They are often very

methodical who plan their actions carefully. The emphasis to-day on the creation of clear and complete business plans

is an indication that entrepreneurs take action systematically after proper thinking. They are calculated “risk takers” i.e.

they do risk analysis which is again a thinking process.

Myth 2: Entrepreneurs Are Borne, Not Made The idea that characteristics of entrepreneurs cannot be taught or learned,

that they are innate traits one must be born with, has been long prevalent. These traits include aggressiveness,

initiative, drive, a willingness to take risk, analytical ability, and skill in human relations. To-day, 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. Myth 3:

Entrepreneurs Are Always Inventors The idea that entrepreneurs are inventors is a result of misunderstanding and

tunnel vision. Although many inventors are also entrepreneurs, large number of entrepreneurs have undertaken

innovative activity. This innovation may be the result of inventions. Invention is an incident, entrepreneurship is a

innovation process.

A contemporary understanding of entrepreneurship covers more than just invention. It requires a complete

understanding of innovative behavior in all forms. Myth 4: Entrepreneurs Are Academic and Social Misfits The belief

that entrepreneurs are academically and socially ineffective is a result of some business owners having started

successful enterprises after dropping out of a school or quitting a job. Historically, in fact, educational and social

organizations did not recognize the entrepreneur. To-day the entrepreneur is considered a winner- socially,

economically, and academically. No longer a misfit, the entrepreneur is now viewed as a professional and

entrepreneurship plays is very important role for economic development. Myth 5: Entrepreneurs Must Fit the “Profile”

They are many publications listing characteristics of the successful entrepreneur. The list is neither validated nor

complete; they are based on case studies and on research

findings among achievement-oriented people. To-day we realize that a standard entrepreneurial profile is hard to

compile. The environment, the venture itself, and the entrepreneur have interactive effects, which result in many

different types of profiles. Contemporary studied conducted at universities across the United States will, in the future,

provide more accurate insights into various profiles of successful entrepreneurs. “Entrepreneurial Perspective” within

individuals is more understandable than a particular profile. Myth 6 : All Entrepreneurs Need is Money It is true that a

venture needs capital to survive; it is fact 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 a 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 source but never an end in itself. Myth 7: All entrepreneurs Need Is Luck Being at “the right

place at the right time” is always an advantage. But “luck happens when preparation meets opportunity” is an equally

appropriate adage. They are, in fact, simply better prepared to deal with situations and turn them into success.What

appears to be luck really is preparation, determination, desire, knowledge, and innovativeness. Myth 8: Ignorance Is

Bliss for Entrepreneurs The myth that too much planning and evaluation lead to constant problems – that over-analysis

leads to paralysis – does no hold up in to-day’s competitive markets, which demand detailed planning and preparation.

Identifying a venture’s strengths and weaknesses, setting up clear timetables with contingencies for handling problems,

and

minimizing these problems through careful strategy formulation are all key factors for successful entrepreneurship.

Thus careful planning – not ignorance of it – is the mark of an accomplished entrepreneur. Myth 9: Entrepreneurs Seek

Success But Experience High Failure Rates Many entrepreneurs suffer a number of failures before they are successful.

They follow the adage “If at first you don’t succeed, try, try, again.” In fact, failure can teach many lessons to those

willing to learn and often leads to future successes. This is clearly shown by the corridor principle, which states that with

every venture launched, new and unintended opportunities often arise. Myth 10: Entrepreneurs Are Extreme Risk

Takers (Gamblers) The concept of risk is a major element in the entrepreneurial process. However, the public’s

perception of the risk most entrepreneurs assume is distorted. Although it may appear that an entrepreneur is

“gambling”

on a wild chance, the fact is the entrepreneur is usually working on a moderate or “calculated” risk. Most successful

entrepreneurs work hard through planning and preparation to minimize the risk involves in order to better control the

destiny of their vision. These ten myths have been presented to provide a background for today’s thinking on

entrepreneurship. By sidestepping “folklore” we can build a foundation for critically researching the contemporary

theories and processes of entrepreneurship. Exercise Read carefully :THE E-MYTH (page no.31) and explain the

following observation: “ The owners must begin working on the business, in addition to working in it.”