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ENTREPRENEURSHIP

The definition of an entrepreneur encompasses anyone who starts a business. It could be from just the
person who perceives an opportunity and creates an organisation to pursue it.

Schumpeter Entrepreneur (1934): a person who tries out new combinations of existing elemens to
create new industries which in turn create new structural changes in an economy
The Kirznerian entrepreneur(1973) is alert to the opportunities for trade the possibilities for profitable
exchange exist because of imperfect knowledge. The entrepreneur has some additional knowledge,
which is not possessed by others, and this permits the entrepreneur to take advantage of profitable
opportunities
CASUAL RATIONALITY

EFFECTUAL RATIONALITY

Begins with a pre-determined goal and a given


set of means, and seeks to identify the optimal
fastest, cheapest, most efficient, etc.
alternative to achieve the given goal

Begins with a given set of means and allows


goals to emerge contingently over time from the
varied imagination and diverse aspirations of
the founders and the people they interact with.

Characterised by careful planning and


subsequent execution

Characterised by straightforward execution

Focuses on expected return

Emphasizes affordable loss

Depends upon competitive analysis

Built upon strategic partnership

Urges the exploitation of pre-existing


knowledge and prediction

Stresses the leveraging of contingencies

Avoidance of the unexpected

Embraces the unexpected by leveraging it

Entrepreneurs choose to view the future through effectual logic. Consciously, or unconsciously, they
act as if they believe that the future is not out there to be discovered, but that it gets created through the
very strategies of the players. They believe that to the extent that the future is shaped by human action, it
is not much use trying to predict it it is much more useful to understand and work with the people who are
engaged in the decisions and actions that bring it into existence.
A negative aspect of the use of effectual logic in entrepreneurial activity. Since they do not assume
specific pre-existent goals or effects and let these effects emerge through the process, in using effectual
logic to create products and markets, entrepreneurs and their partners may also end up creating harmful
and problematic effects for the society they live in.
The process of effectual reasoning:
1.Who they are? ( traits, tastes and abilities) 2. What they know? (education, training, expertise)
3. Whom they know? (social and professional network)
Affordable Loss: entrepreneurs tend to find ways to reach the market with minimum expenditure of
resources such as time, effort, and money. They do not tie themselves to any theorized or pre-conceived
market or strategic universe for their idea. Instead, they open themselves to surprises as to which
market or markets they will eventually end up building their business in or even which new markets they
will end up creating
Strategic Partnership: entrepreneurs tend to start the process without assuming the existence of a
predetermined market for their idea, Instead entrepreneurs focus on building partnerships right from the
start. Since the entrepreneur is not wedded to any particular market for their idea, the expanding network
of strategic partnerships determines to a great extent which market or markets the company will
eventually end up in
Leveraging contingencies: It is the core of the effectual rationality characterised by the ability to turn
the unexpected into the profitable. Entrepreneurs believe that everything whether good or bad, can be
used as inputs into the new venture creation process. This differentiates effectual reasoning from causal
reasoning which tends to focus on the avoidance of surprises as far as possible.
Effectual reasoning may not necessarily increase the probability of success of new enterprises, but
it reduces the costs of failure by enabling the failure to occur earlier and at lower levels of investment.

Self Efficacy and Entrepreneurship:

Bandura (1994) defined self efficacy as ones beliefs in their abilities to perform a certain level of
performance or desired outcomes that influence situations that affect their lives. Entrepreneurial selfefficacy is then the self belief in ones ability to adopt the role and conduct the tasks of an entrepreneur
successfully
In a given situation, entrepreneurs perceive more opportunities than those who have low levels of
entrepreneurial self-efficacy, who perceive the same situation to have more costs and greater risks.
People who have a higher level of self-efficacy also feel more competent to overcome perceived
obstacles and they anticipate more positive results and persist in the effective search and organisation of
activities in the midst of uncertainty. (Vecchio, 2003)
Self-efficacy can also be used to identify the reasons why some individuals avoid becoming
entrepreneurs, since some people avoid entrepreneurial activities not because of their lack of ability but
because they believe that they do not have such ability. Some businesses do not grow, on the grounds
that some entrepreneurs have insufficient self-efficacy to cope with specific tasks (Vecchio, 2003).
Entrepreneurs differ in their cognitive styles. Successful entrepreneurs enjoy discovering
opportunities, being innovators and taking risks. They have an affinity towards the creative style which is
characterised by holistic and conceptual thinking. Individuals who use this style tend to be creative and
enjoy experimentation. They tend to see opportunities and challenges. They do not like rules and
procedures, and take pleasure in uncertainty and freedom. They are ambitious and achievementoriented.
Research has shown that entrepreneurs collect, process and evaluate information in a more
intuitive manner than managers, middle managers and initiates.
Cooper (1988) found that 81% of entrepreneurs interviewed believed that their chances of success
would be at least 70% and 33% claimed that they were destined for success. However, reality showed
that only 25% of new businesses survive for more than five years.
Self-efficacy beliefs and intentions proved to be the most important predictor of entrepreneurial
behaviour, specifically those self-efficacy beliefs related to the ability to face unexpected challenges

Cognitive Characteristics of an entrepreneur: (Sanchez, 2011)


Creative and knowing cognitive style
Use intuition to make decisions
Develop expert scripts
Self-efficient in the perception and development of opportunities
Create an innovative environment
Cope with unexpected challenges, develop investor relations
Define business goals
Develop human resources
Prone to innovation and risk taking
More intense counterfactual thoughts related to business
More alert to opportunities
Less prone to planning failures and to the use of heuristics

ENTREPRENEURIAL ORIENTATION:
(all processes, practices, and decision-making activities that lead to new entry) Lumpkin & Dess

The central idea underlying the concept of entrepreneurship is new entry. New entry is the act of
launching a new venture. This is accomplished by either entering a new or an established markets with a
new or an existing good or service. (Burgelman, 1983)
The small business firm is simply an extension of the individual who is in charge. This is also consistent
with Schumpeter (1942), who shifted attention away from the individual entrepreneur by arguing that
entrepreneurship would be dominated by firms capable of devoting more resources to innovation.
Miller (19833) suggested that an entrepreneur is one that "engages in product market innovation,
undertakes somewhat risky ventures, and is first to come up with 'proactive' innovations, beating
competitors to the punch. Meaning that is not enough to simply be opportunistic.
Lumpkin & Dess(1996) identified five key dimensions that characterise an EO: a propensity to act
autonomously, a willingness to innovate and take risks, and a tendency to be aggressive toward
competitors and proactive relative to marketplace opportunities.
Five Dimensions of Entrepreneurship:
1. Autonomy - bringing forth an idea or a vision and carrying it through to completion. It means the ability
and will to be self-directed in the pursuit of opportunities. In organisational settings this is characterised
by actions such as bending the rules and bypassing procedures and budgets (Shane, 1994)
2. Innovativeness - Reflects the tendency to engage in new ideas, experimentation and creative
processes that may result in new products, services or technological processes. It may take the form of
a simple willingness to either try a new product line or experiment with a new advertising venue, to a
passionate commitment to master the latest in new products or technological advances.
Schumpeter (1942) was among the first to emphasise the role of innovation in the entrepreneurial
process. He outlined an economic process of "creative destruction," by which wealth was created
when existing market structures were disrupted by the introduction of new goods or services that
shifted resources away from existing firms and caused new firms to grow
3. Risk Taking - is one of the principal factors that separates entrepreneurs from hired employees, i.e. the
uncertainty and risk taking of self-employment (Cantillon, 1734 - first used term entrepreneurship)
Risk can take the form of either: - Venturing into the unknown
Baird and Thomas(1985)
- Committing a relatively large proportion of assets
- Borrowing heavily
4. Proactiveness: relates to the first mover advantage.
One of the best strategies to capitalise a market opportunity. It is characterised by the exploitation of
asymmetries in the marketplace, the first mover can capture unusually high profits and get a head start on
establishing brand recognition. Basically it is the taking of initiative by anticipating and pursuing new
opportunities and by participating in emerging markets.
Proactiveness may be crucial to an entrepreneurial orientation because it suggests a forwardlooking perspective that is accompanied by innovative or new-venturing activity. One can also be
proactive even if hes not the first as proactiveness refers to how a firm relates to market opportunities
in the process of new entry. It does so by seizing initiative and acting opportunistically in order to "shape the
environment," that is, to influence trends and, perhaps, even create demand.
e.g. Amdahl, when it learned that IBM had introduced a new product just as they were about to
proactively enter the large CPU market with a lighter, faster machine, responded by returning to investors to
secure an additional $16 million to further upgrade their product line prior to entry.
5. Competitive aggressiveness - Relates to how firms relate to competitors, that is, how firms respond
to trends and demand that already exist in the marketplace.
Characterised by the propensity to directly and intensely challenge its competitors to achieve entry
or improve position, that is, to outperform industry rivals in the marketplace.

Porter (1985) suggested that an aggressive stance and intense competition are critical to the
survival and success of new entrants because new ventures are more likely to fail than established
businesses. He also identified 3 approaches for aggressively pursuing firms:
1.Reconfiguration - doing things differently
2.Changing context- redefining the product or service and its market channels or scope
3.Outspending the industry leader
Competitive aggressiveness can take the form of head-to-head confrontation, for example, when a
firm enters a market that another competitor has identified, or reactive, for example, when a firm lowers
prices in response to a competitive challenge. Other examples include:
Adopting unconventional tactics to challenge industry leaders
Analysing and targeting a competitors weaknesses, focusing on hing value-added products
Cutting prices and sacrificing profits
Spending aggressively compared to competition on marketing, product and service quality or
manufacturing capacity.
Although all five dimensions are central to understanding the entrepreneurial process, they may
occur in different combinations, depending on the type of entrepreneurial opportunity a firm pursues.
Any firm that engages in an effective combination of autonomy, innovativeness, risk taking,
proactiveness, and competitive aggressiveness is entrepreneurial.
New-entry is the action that distinguishes entrepreneurial behaviour from other types of business
activity that might be undertaken to capitalise on an opportunity. For example, it might be good business to
purchase a large supply of raw materials that suddenly becomes available at a deeply discounted price, or
it may increase efficiency to reorganise a production capability by outsourcing key components of the
process. These actions reflect insightful decision making and good management practices rather than
entrepreneurship.
Defining entrepreneurship as new entry, therefore, represents a somewhat narrower approach to
defining the concept rather than suggested by Stevenson and Jarillo (1990), who defined it rather broadly
as "the process of . .. pursuing opportunities.