UNIT 4: The ENTREPRENEUR and the ENTREPRENEURAL MIND

Introduction
Unit Learning Objective
Entrepreneurs play a key role in any economy, By the end of this unit, you should be
using the skills and initiative necessary to anticipate able to appreciate the role and
needs and bring good new ideas to market. importance of an Entrepreneur to
Entrepreneurs who prove to be successful in taking on the society and economy.
the risks of a start-up are rewarded with profits, fame,
and continued growth opportunities. Those who fail,
suffer losses and become less prevalent in the markets
(Hayes, 2021).

It is important to note here that entrepreneurs are individuals who actually care to take the
risks in starting a new business particularly taking the unexplored ventures. They likewise create
firms which coordinate capital and labor to produce goods and services in return for a profit.

Entrepreneurship is an essential catalyst of economic group and innovation. His efforts can
ultimately impact exponentially the economy in a positive way.

Timing

A better comprehension of the topic would require four (4) hours of reading and analysis of
the content of Unit 5. After which students will perform the set of activities to measure their level of
comprehension on the said topic. The fifth set of unit assessments are located in the Activity Section.

Getting Started!

4.1 The Basic Theory of an Entrepreneur

One of the crucial points here is the approach used in defining the term “entrepreneur.” The
definition of the term entrepreneur can be defined either through functional approach or indicative
approach (Casson, 2003). Using the functional approach within the context of an entrepreneur, such
a term simply means “an entrepreneur is what an entrepreneur does.” It is just like saying that
“because you are teaching now, then you are a teacher.” Hence, in the case of an entrepreneur, the
above-mentioned approach specifies a certain function and considers anyone who performs such
function to be an entrepreneur. However, the indicative approach gives an appropriate description of
the entrepreneur, through which he is recognizable by society. Unlike the functional definition, which
can be abstract, an indicative approach is very plain and simple because it describes his legal status,
his contractual relations with other parties, his position in society, and others.
As a term, “entrepreneur” has been introduced into economics by Richard Cantillon in 1755,
while Jean-Baptiste Say was the one who coined the term from the French word “entreprendre” which
usually means “undertaker of a project” or “adventurer” (Casson, 2003). Say explained it better than
the famous Adam Smith by saying that an entrepreneur is a risk taker who deserves to earn profit, a
point of view (about profit earning) which Smith denied about an entrepreneur. Later, John Stuart
Mill popularized the term in England, yet it almost disappeared from usage by the turn of the 19th
century. The stress on the routine activities of management and superintendence than the innovative
activity of an entrepreneur was laid down by Alfred Marshall.

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 The economic theorists adopted the functional approach while the economic historians used
the indicative one. Even if there is a social significance, an economic theory developed must be
concerned of analyzing the reasonable and systematic allocation of scarce resources. The analysis and
explanation of an economic theory requires the definition of the resource in terms of its use. The
economic historian, on his own, is more concerned with the recording and interpreting of significant
events which transpired. As a consequence, economic historians have the primary role of developing
a taxonomy instead of a theory.

4.2. The Function of Entrepreneur

To understand the nature of the function of an entrepreneur, it is very basic to come up with its
acceptable functional definition. An entrepreneur is someone who specializes in taking judgmental
decisions about the coordination of scarce resources. From this definition, we can derive the
important elements of the term entrepreneur.
From the definition, an entrepreneur is someone, which means it is a person, not a team, nor a
committee (Casson, 2003). It is very obvious that it can only refer to individuals who make decisions,
which no corporate bodies can render even if decisions are done by aggregated votes. Individuals,
also, in committees make strategic decisions, but not the committee itself. This does not mean that
the role of teams and committees are excluded, but only point out how teams and committees operate
internally without the matter of decision making within its coverage of function.
Likewise, the definition mentions about an entrepreneur as someone who specializes. Who is a
specialist? A specialist is one who carries out his function not only on his own behalf but on behalf of
other people. In accordance with their personal comparative advantage, individuals who cannot rely
on their own decision hire out the services of a specialist like the consultants or managers who are
very much competent. As a result, there are owners of businesses today who hire specialists in helping
them out make right decisions. However, it would be a better position for one to have a good
knowledge of what these specialists have, particularly, if decision making process is being rendered.
Also, the definition refers to the act of taking in judgmental decisions. A judgmental decision is
one where different individuals, although guided by the same objectives in similar circumstances,
make different decisions. The difference is due to different perceptions of the situation arising from
different access to information or different interpretations of the said situation. Likewise, the
difference is not only due to a quantitative matter but also on account of a qualitative thing.
The above definition includes the matter of coordination. Coordination may be defined as a
beneficial reallocation of resources. Unlike the term allocation, its opposite concept, which is static,
coordination is dynamic. This captures the idea that an entrepreneur is an agent of change because
he is not concerned with the perpetuation of the existing allocation of resources, but with improving
its process.
Lastly, the definition talks of scarce resources. This means that the focus of the study here is on
matters that are related to economics due to the use of methods and techniques in allocating scarce
resources.

4.3. Resource Cost of Decision Making

Decision making by entrepreneurs involves the use of resources which have an opportunity
cost. To avoid wastage of resources during decision making, certain steps or stages must be followed
such as: the formulation of the decision problem, generating the data, and execution of decision.
The first stage is the formulation of the decision problem. This involves the specification of the
objective, the potential strategies vis-à-vis the constraints, and the derivation of the decision rule. The
objective is defined upon a set of targets or goals. If there are many targets in face of one objective,
then the objective must indicate clearly the way the different targets can be traded off against each
other. While an entrepreneur has a practical knowledge of existing constraints, he must address them
with the use of viable strategies in order to achieve the objective despite the existence of such
constraints. Just be mindful that constraints limit the degree of freedom in choosing the instruments
of strategies. The strategies can use controllable instruments by the entrepreneur while he sets
particular values upon each strategy. He must always reserve one strategy to be considered which is
known as the null strategy. A null strategy is one which involves the act of preserving the present
status qou. This means that, with null strategy, the allocation of resources will never change. On the
other hand, the other strategies represent alternative methods of exploiting an opportunity for
coordination. In this case, the optimal strategy to choose is the one which maximizes the value of the
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objective. The decision rule, which can be achieved using analytical skills of the entrepreneur, can be
derived with the help of both quantitative and qualitative means. It must be one which optimizes the
value of the objective.
The second state is to generate the data. The data establish the numerical values for the state
variables. Although the data might be available from secondary sources, an option to gather them
from primary sources through the initiative of the entrepreneur can be possible. Even if all available
data sources have been tapped, some of them may still remain incomplete. In view of such
incompleteness, the decision maker must supply his own estimates of the unknown variables. In
order to aid the decision maker in completing this second stage, he must have both mathematical and
observational skills because this stage would require him to perform data collection and data
estimation.
The third stage, the last one, is the execution of the decision. It is here that the application of the
decision rule to the completed data set and the implementation process would all be integrated.
With regards to decision-making function, a great deal of information processing is evident.
Such information processing includes collection, analysis, communication, and storage of
information. As opposed to physical labor, mental labor is very important in each input of information
processing mentioned earlier. Yet, in today’s general, the voluminous task of information processing
can be done through the use of computers and other technologically advanced systems. At this point,
an opportunity cost is reflected in the utilization of non-human resources, like for example computers,
to perform the task-filled information processing which the entity cannot do away with due to its
significant role in rendering decisions.
An alternative means through which an entrepreneur can lessen the time he spends for each
decision is delegation. But not all tasks can be delegated. Only those tasks which the entrepreneur
knows to well as easier to be accomplished when delegated to the lower ranks. On the other hand,
there are obstacles to delegation. The first is the difficulty of communication between the delegate
and the principal (in this case, the entrepreneur). Communication, in this case, involves encoding of a
message, its transmission, and its decoding. When the language used, by either party, becomes
ambiguous, then there is a possibility of misunderstanding. The second difficulty is about the
organization of delegation. In this case, a major problem of delegation is known as default. Default
may occur either because the delegate is incompetent or because he is dishonest or untrustworthy.
The risk of incompetence can be controlled by performing a thorough screening of delegates for
ability, while deliberate default can be controlled by screening for honesty and devising a system of
incentives. To reduce the risk of default over time, it is necessary to perform a repeated delegation of
the same tasks and functions to the same delegate. On cost considerations, repeated delegation of the
same tasks reduces the cost of production since the repetition does not require additional training of
tasks. Another alternative is to delegate without discretion. This means that the delegate is only given
precise instruction on how to proceed with his task. The said instructions given would be the basis in
evaluating whether the delegate obeyed orders. If there is a delegation, supervision is tied up to such
function. Through supervision, there is an assurance that the task is done with quality because, as
expected, the supervisor constantly makes spot checking of delegated tasks for quality performance.

Impact to Economies

Nurturing entrepreneurship can have a positive impact on an economy and a society in several
ways (Hayes, 2021). Starters, entrepreneurs create new business because they invent goods and
services, resulting in employment, and often create a ripple effect, resulting in more and more
development. For example, after information techno companies began in the 1990s, a lot of associated
businesses started like call center operations and computer hardware providers. Thus, we can see the
exponential growth that resulted from few start-ups of certain entrepreneurs.
Entrepreneurs add to the gross national income (Hayes, 2021). Even if established businesses
have already captured their markets and hit their target income, they still venture into new products
or technologies since they create new markets which can broaden their revenue base. With an
increased capacity, more people can get employed, higher earnings will be contributed to the
economy in the form of business taxes.
Entrepreneurs propel social change. They do not care if they are not keepers of tradition,
because they are more interested with unique inventions which can reduce dependence upon existing
methods and systems of doing things making them obsolete. Through their efforts, smartphones start
to improve communications and their related apps help people connect in real time anywhere, as long
as network coverage can reach.

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 Entrepreneurs also invest in certain community projects which can help charities and other
non-profit organizations, supporting causes beyond their own. Bill Gates, for example, used his
accumulated wealth for education and public health initiatives.

Notes

Entrepreneur, Entreprendre, Coordination, Null strategy, Delegation, Globish

Unit Activity

Refer to the attached activities and unit assessments in the activity section.

Unit Summary

• Every entrepreneur has a goal of creating a difference through his innovative efforts.
• An entrepreneur is aware of scarcity of resources which is the reason for his careful
decisions in coordinating the limited labor and capital.
• An Entrepreneur is a great partner for innovation and economic development.

References

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Hayes, Adam. Entrepreneur. | Business Essentials. Reviewed by Amy Drury. Article online
<https://www.investopedia.com/terms/e/entrepreneur.asp/>. Accessed, 9 January 2021.

Heather Griffiths, et. al. Introduction to Sociology 2a. | Sex and Gender. Article online
<https://openstax.org/books/introduction-sociology-2e/pages/12-1-sex-and-gender>. Date
Accessed, 9 January 2021.

Meister, Chad. Philosophy of Religion. Braddock, Matthew, Ed. The Internet Encyclopaedia of
Philosophy, ISSN 2161-0002. Article online <https://iep.utm.edu/religion/>. Date Accessed,
19 December 2020.
Stefon, Matt. The Five Ways | Philosophy. Article online <https://www.britannica.com/topic/the-
Five-Ways>. Date Accessed, 5 January 2021.