MODULE 1

SESSION 1:
ENTREPRENEURSHIP AND HIS ROOTS

Credit to the Source: 1) Facebook Picture Quezon Avenue, Legazpi City in the 1960s. Photo courtesy of John Glenn Lee
2) https://www.flickr.com/

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
What Is This Session About?
For the first session of Module 1, we look back in history and try to understand just where
the concept of entrepreneurship originated from. Entrepreneurship has been around since
humans started bartering with one another, but when exactly did it develop into the school of
thought that we know it be today? This is the primary question this session will try to answer.
Along that line, we will also look at the different interpretations, definitions, and kinds of
entrepreneurship there is. Another issue to be tackled in this session is the one thing that binds
all kinds definition entrepreneurship has - that is innovation. We will learn about the different
types of innovation and understand how we can use these in our entrepreneurial journey.
Overall, this section of the module will introduce you to the entrepreneur and the
characteristics he has that sets him apart from the average Joe. By learning about the history of
entrepreneurship and the elements around it, we will come to learn about who exactly the
entrepreneur is.

What Will You Learn?

At the end of the session, you will learn about the history of the development of
entrepreneurship as a school of thought. We will learn about great minds who have contributed
to its development. In the same vain, we will also begin to understand the characteristics of the
entrepreneur.

What Do You Already Know?

Let’s begin this session by reflecting on this definition of entrepreneurship:

Let’s Reflect

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
Now, write down below your own definition or understanding of what entrepreneurship is:
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Let’s Study:
The word entrepreneur takes its humble roots from the 13 th century French word
“entrepredre” which meant to undertake. The word itself, the term entrepreneur stems from
the French literally, between taker, or go between with early references having been traced to
the eighteenth century economists Richard Cantillon, Anne- Robert Jacques Turgot, and Francois
Quesnay. The term was even used as early as the Middle Ages to denote an actor with reference
to warlike action or in particular, a person in charge of large-scale construction projects such as
cathedrals, bearing no risks but simply carrying the task forward until resources were exhausted.
It was only in the 16th century that it was first related to business and took to mean as a person
engaged in business.

The person responsible for the first academic usage of the word
entrepreneur was economist Richard Cantillon in his Essai sur La
Nature du Commerce en General. He stated that the bearing
of risk by engaging in business without an assurance of the
profits that will be derived is the distinguishing feature of an
entrepreneur. He further identified the entrepreneur as an
adventurer.

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
 This was later supported by Daniel Defoe by embodying
the entrepreneur through the protagonist of his novel Robinson
Crusoe. Brann, in her book review The Unexpurgated Robinson
Crusoe state “Alone on the island he is altogether a man of
projects, a “projector” and “adventurer,” as entrepreneurs used
to be called. He is a busy man, a man of business, labors, and
accounts…He establishes timetables and schedules and runs his
island like a going concern of one. He is the ultimate individualist,
who does everything by himself and for himself and sets a world
humming, a world that has only a single human inhabitant, who is, however, all over it. He is
indeed the true individualist, alone singled out by his God and yet representing a paradoxical
archetype: the unique Everyman. This society of one shows Robinson in a humanly novel aspect:
He gives meaning to the term “private enterprise.” He is a culture of one.
By the Seventeenth Century towards the Eighteenth Century, the term entreprendre
was highly related to risk taking, the entrepreneur being the risk taker who entered into a
contractual relationship with the government for the performance of a service or the supply of
goods. The price at which the contract was valued was fixed and the entrepreneur bore the risks
of profit and loss from the barging.
The 19th century saw three major additions to the growing concept of entrepreneurship.
Jean Baptiste Say portrays that the entrepreneur with his knowledge and judgment as someone
who sought opportunities to earn profits by reallocating resources from areas of low productivity
to areas of high productivity by describing an entrepreneur in terms of behavior. "He is called
upon," said Say, "to estimate, with tolerable accuracy, the importance of a specific product, the
probable amount of demand, and the means of production; sometimes to employ a great
number of hands; again to buy or order raw materials, to combine the workers, find consumers,
to exercise a spirit of order and economy. In the course of such operations there are obstacles to
be surmounted, anxieties to be overcome, misfortunes to be repaired, and expedients to be
devised." John Stuart Mill on the other hand describes the entrepreneur as someone who was
more than the venture capitalist but also one who managed the venture. It was however Alfred

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
Marshall who linked Say’s and Mill’s ideas claiming that the entrepreneur was one who
coordinated the four factors (land, labor, capital and organization) together. It must be noted
that at this point in time, discussions on entrepreneurship were vastly based on the “who” of the
concept. In addition to being dubbed as a risk taker, a projector, and an adventurer, the
entrepreneur has evolved such that he was also identified as an arbitrageur (Say), a manager
distinct from a capitalist (Mill) and as a coordinator (Marshall).
At the dawn of the twentieth century, these “who” concepts of entrepreneurship were
further developed by the likes of Frank H. Knight and Joseph Schumpeter. Their discussions,
however, were less focused on who the entrepreneur was but what his actions were that makes
him an entrepreneur.

Frank H. Knight carried forward the notion of risk taking by

classifying two kinds of risks. Two different kinds of risk were
distinguished by Frank Knight (1885-1972): one is capable of
being measured (i.e., objective probability that an event will
happen) and shifted from the entrepreneur to another party by
insurance; the other is un-measurable (i.e., no objective measure
of probability of gain or loss), e.g., the inability to predict
consumer demand. According to Knight, the entrepreneur takes
the latter risk: “true” uncertainty found in situations, which do not repeat themselves with
sufficient conformity to make possible a computation of probability (what we nowadays term as
"unknown and unknowable"). He further developed the ideas proposed by his predecessors by
distinguishing a boundary between management and entrepreneurship. He sees entrepreneurs
in the strict sense as producers; while the great mass of population furnish them with productive
services, placing their persons and property at the disposal of entrepreneurs who guarantee to
them a fixed remuneration. Entrepreneurial profit depends on whether an entrepreneur can
make productive services yield more than the price fixed upon them by those who furnish
productive services think they can make them yield. Therefore, its magnitude is based on a
margin of error in calculation by entrepreneurs and non-entrepreneurs who do not force the

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
entrepreneurs to pay as much for productive services as they could be forced to pay. It is this
margin of error in judgment that constitutes true uncertainty that is borne by the true
entrepreneur and which results in his profit. In Knight’s view, the function of manager thus does
not itself imply entrepreneurship.
It was during this period that the entrepreneur was
further becoming distinguished from the manager, the capitalist
and the businessman. The discussions on entrepreneurship
were also shifting towards the specific actions entrepreneurs
take that make them who they are. This is shown in Joseph
Schumpeter’s discussion on innovation and how it is a vital
component of who an entrepreneur is. His two greatest insights
were that innovation is the driving force not only of capitalism
but also of economic progress in general, and that entrepreneurs
are the agents of innovation. These new combinations or
“creative destruction” as they are sometimes called are what he referred to as innovation. He
discussed that the entrepreneur did not necessarily have to be the inventor, more importantly
he had to be the one to act in an enterprising manner upon the innovation. He also stated that
the innovation need not be new, it was a matter of how it can be used in production or how it
can be brought commercially into the market. As can be seen in Schumpeter’s discourse,
entrepreneurship was no longer entirely focused on the “who” of the concept but more on what
the “who’s” actions were.

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
The Five Types of Innovation according to Joseph Schumpeter:

a. Product – The introduction of a new product or quality

An example of this is the combination of the horseless
carriage and the steam engine, which led the way to the
invention of automotive such as trains, steam boats and
eventually cars. The combination of two existing products to
create an entirely new product was an example of an
innovation as described by Schumpeter.

b. Process – The introduction of a new method of production

Another type of innovation that Schumpeter has
identified is the introduction of a new process of
production. An example of this is when Henry Ford
introduced the assembly line, which significantly
decreased the amount of time from twelve hours to two
and a half hours it took to create the Ford T1 Model cars
back in 1913. Today his innovation is still used in various
industries around the world.

c. Business Model – Opening of a new market

Have you ever been stuck in traffic in
Manila inside a taxi, bus or a jeepney, wishing that
there was a quicker way for you to reach your
destination? You’re not alone. In fact, there are
millions of commuters who have the same thoughts
running through their minds every day. These
millions accounts for the market for the much
disputed two-wheel taxis like Angkas. Angkas is a a ride-sharing company, and is an example of

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
Schumpter’s third kind of innovation: the opening of new markets as it has recognized that
among commuters there exist a substantial number who were willing, needed and could afford
to avail of the services of a ride sharing company like theirs.

d. Source of Supply - the conquest of a new source of supply of new materials or parts
People these days are on the constant look out
for sustainable and eco-friendly products. One such
product is vegan leather made from cactus. An
innovative solution has been discovered by two
entrepreneurs who have developed a way to create
authentic looking leather from cactus. This is an example of a new source of supply of new
materials or parts.

e. Mergers and Divestments - organization of any industry

The carrying out of the new organization of any industry, like the creation of a monopoly
position (for example through trustification) or the breaking up of a monopoly position is another
kind of innovation according to Schumpeter.
These ideas were further developed by Ludwig Von Misses and Peter Drucker. Ludwig
Von Misses argued that while innovation was an important factor of entrepreneurship it is not
entirely what makes him one. He indicated in his theory of consumer sovereignty that while
entrepreneurs were responsible for production, it is not him nor innovation that determines what
is to be produced. According to him, it is the customers who do that. It would seem that Mises
somewhat downplayed Schumpeter’s noble claim of innovation as an integral mover of the
economy by saying: “Innovation is the whim of an elite before it becomes a need of the public.”
This did not however deviate his idea that the role of an entrepreneur is not limited to discovering
and testing new technologies but to choose among those that may already in fact be in existence
in order economist, F.W.Taussig (1859-1940) that although innovation is one of the activities
performed by the entrepreneur, it is not the only one, and perhaps not even the most important
one.

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
 Peter Drucker (1909-2005) notes that
entrepreneurship can be defined as changing the yield of
resources (seen in supply or production terms) or as changing
the value and satisfaction obtained from resources by the
consumer (defined in demand terms) and innovation to be
the specific instrument of entrepreneurship. Like Taussig and
Mises, Drucker asserts that innovation does not have to be
technical and are often social as well. He argued that
management (as ‘a useful knowledge’) is an innovation of
the 20th century as it has made possible the emergence of
the entrepreneurial economy in America and converted
modern society into something brand new: a society of organizations. He therefore prescribed a
systematic form of entrepreneurship management, based on systematic innovation: “Systematic
innovation consists in the purposeful and organized search for changes and in the systematic
analysis of the opportunities such changes might offer for economic or social innovations”.
It would be a difficult task to determine the specific point in time when the focus of
entrepreneurship discussions began to shift from the actor to the action. Arguably, however, it
may have begun with Frank H. Knight’s ideas on risks. The point nevertheless is that this shift
was what began the development of the many approaches to the discussion of the concept of
entrepreneurship. As the entrepreneur became more distinguished as a unique individual and
the actions he takes as distinct and out of the ordinary, ideas on the qualities these individuals
have also began to take shape.
One can say that, to define entrepreneurship would be to define both the entrepreneur
and the actions he takes. It is then best to use Commission of European Communities’ definition
which is: Entrepreneurship is the mindset and process to create and develop economic activity
by blending risk-taking, creativity and/or innovation with sound management, within a new or
an existing organization. As a mindset and a process, it is then something that can be learned.

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
Let’s Think About This:
Upon reviewing the history of the development of the concept of entrepreneurship, we
now come to see that it is a combination of the actor and the action taken. With this in mind,
answer the following questions:
1. Do you think that entrepreneurship is a mindset or a process?
2. In these present times, what do you think is the most relevant kind of innovation?
Let’s Reflect:

The second section of Session 1 provides an

insight of what makes an entrepreneur. This
is done through a discussion of the Personal
Entrepreneurial Competencies. Let us begin
this section by reflecting upon this photo.
Now, ask yourself this, what would
your own description be for each part of the
entrepreneur’s anatomy?

Let’s Study:
PERSONAL ENTREPRENEURIAL COMPETENCIES

Entrepreneurial Competencies refers to the key characteristics that entrepreneurs ideally

possess in order to perform entrepreneurial functions effectively. Competencies are defined as
the combination of knowledge, abilities, and attitudes needed to accomplish a role efficiently. In
adopting this definition, entrepreneurial competencies to the three components of the PECs
which are the planning cluster (knowledge), achievement cluster (abilities), and power cluster
(attitudes). These clusters are further subdivided in several characteristics.

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
THE PLANNING CLUSTER

The planning cluster of the personal entrepreneurial competencies covers three

characteristics and they are: goal setting, information seeking and systematic planning and
monitoring. One of the more popular myths about entrepreneurship is that, they grab
opportunities without considering the risks. Some say that they free-dive into new ventures as
easily as they cross streets. However, the truth to the matter is successful entrepreneurs rarely
go into any business venture without a plan. In fact, it is innate with them to set goals when
meaning to achieve something, seeking relevant information that would ensure success. In
addition to this, they keep a tight reign over their entrepreneurial ventures, overseeing things
even to the most minute details. This especially happens early on an entrepreneurial venture.

THE ACHIEVEMENT CLUSTER

Ask any successful entrepreneur why they did and rarely would you hear that they did it
for money. Some have done it for the heck of being the first, or for even shallower reasons.
Either way, for successful entrepreneurs, starting an entrepreneurial venture and willingly
accepting all the risks involved, is usually never about the money. More often than not, it’s just
that they have a burgeoning need to overcome a challenge or difficulty or even the stubbornness
to accept that something that others might have said cannot be done.

This is manifested in the achievement cluster of the Personal Entrepreneurial

Competencies and is composed of opportunity seeking, persistence, commitment to work, risk
taking and demand for efficiency and quality.

THE POWER CLUSTER

Entrepreneurs have strong communication skills, and it’s this strength that enables
them to effectively sell their product or service to clients and customers. They’re also
natural leaders with the ability to motivate, inspire and influence those around them.

Passion is perhaps the most important trait of the successful entrepreneur. They
genuinely love their job and are willing to put in those extra h ours to make their business
grow; they get a genuine sense of pleasure from their work that goes way beyond just cash.

Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management
 These traits are manifested under the power cluster of Personal Entrepreneurial
Competencies and is composed of persuasion and negotiation and self-confidence.

Let’s Think About This:

We’ve had a look at the different facets of an entrepreneur’s characteristics. Answer the
following questions based on your personal observations on entrepreneurs you know or know
of:

1. Do you think that one cluster of the PEC is dependent on another?

2. Do you think that a person can be considered an entrepreneur if he possesses at least one of
the clusters but not the rest?

Let’s Try This:

We have enumerated five kinds of innovations, as qualified by Joseph Schumpeter. Do
an online research of an innovative enterprise in the Philippines. Discuss the specific innovations
made on their businesses and identify which of Schumpeter’s five kinds of innovation they used.
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Ma. Crestia Banares (2020). Module 1, The Entrepreneur and His Mind. Department of Entrepreneurship, Bicol University
College of Business Economics and Management