ENTREP LESSON 2: DEVELOPMENT OF
and sale of the same or similar asset in
ENTREPRENEURSHIP
Risk and Uncertainty
Richard Cantillon (1680-1734) born in
France. He was an Irish economist. He
appears to be the person who introduced
the term entrepreneur to the world.
“According to Cantillon, the
entrepreneur is a specialist in taking on
risk, ‘insuring’ workers by buying their
output for resale before consumers have
indicated how much they are willing to
pay for it” (Casson & Godley, 2005p. 26).
two other classes of economic agents;
landowners, who were financially
independent, and hirelings (employees),
who did not partake in the decision-making
in exchange for relatively stable incomes
through employment contracts.
Cantillon described entrepreneurs as
individuals who generated profits through
exchanges. They exercise business
judgment. They purchase resources at one
price and sell their product at a price that is
uncertain, with the difference representing
their profit (Chell, 2008; Hebert & Link,
2009).
Farmers were the most prominent
entrepreneurs during Cantillon’s lifetime,
and they interacted with “arbitrageurs” –
or middlemen between farmers and end
consumers—who also faced uncertain
incomes, and who were also, therefore,
entrepreneurs.
Arbitrageurs
a person who engages in arbitrage.
Arbitrage is the simultaneous purchase
different markets in order to profit from
tiny differences in the asset's listed price.
Cantillon observed that consumers were
willing to pay a higher price per unit to be
able to purchase products in the smaller
quantities they wanted, which created
opportunities for the intermediaries to make
profits.
Adolph Reidel (1809-1872), from the
German School of thought, picked up on
Cantillon’s notion of uncertainty and
extended it to theorize that entrepreneurs
take on uncertainty so others, namely
income earners, do not have to be subject
to the same uncertainty.
Frank Knight (1885-1972) founded the
Chicago School of Economics. He refined
Cantillon’s perspective on entrepreneurs
and risk by distinguishing insurable risk as
something that is separate from uncertainty,
which is not insurable.
risks can be insurable because they have
occurred enough times in the past that the
expected loss from such risks can be
calculated.
According to Knight, entrepreneurs can’t
share the risk of loss by insuring themselves
against uncertain events, so they bear these
kinds of risks themselves, and profit is the
reward that entrepreneurs get from
assuming uninsurable risks (Casson &
Godley, 2005).
Distinction Between Entrepreneur
and Manager
Jean-Baptiste Say (1767-1832), also from
the French School, advanced Cantillon’s
work, but added that entrepreneurship was
essentially a form of management. Say “put
the entrepreneur at the
core of the entire process of production and
distribution” (Hebert & Link, 2009, p. 17).
Frank Knight made several contributions to
entrepreneurship theory, but another of note
is how he distinguished an entrepreneur
from a manager. He suggested that a
manager crosses the line to become an
entrepreneur “when the exercise of
his/her judgment is liable to error and
s/he assumes the responsibility for its
correctness” (Chell, 2008, p. 33).
Entrepreneurs calculate the risks
associated with uncertain business
situations and make informed judgments
and decisions with the expectation that, if
they assess the situation and make the
correct decisions, they will be rewarded by
earning a profit. Those who elect to avoid
taking these risks choose the relative
security of being employees
Alfred Marshall (1842-1924), was one of
the founders of neoclassical economics.
His research involved distinguishing
between the term’s capitalist, entrepreneur,
and manager. Marshall saw capitalists as
individuals who “committed themselves to
the capacity and honesty of others, when
he by himself had incurred the risks of
having contributed with the capital”
Marshall recognized that the reward
capitalists received for contributing capital
was interest
income, and the reward entrepreneurs
earned was profits.
The main risks from firm failure were to their
reputations or their employment status.
Managers had little incentive to strive to
maximize profits
Entrepreneurship versus Entrepreneur
Adam Smith (1723-1790) published An
Inquiry into the Nature and Causes of the
Wealth of Nations in 1776. Smith did not
dwell on a particular class of individuals. He
was concerned with studying how all
people fit into the economic system.
Smith contended that the economy was
driven by self-interest in the marketplace
His work focused on how the capitalist
system worked. He explained how
manufacturers must invest their capital in
response to the demand for the products
they produce. If demand decreases,
manufacturers should borrow less and
reduce their workforce. When demand is
high, they should do the reverse.
Carl Menger (1840-1921) ranked goods
according to their causal connections to
human satisfaction. Lower-order goods
include items like bread that directly
satisfy a human want or need, like hunger.
Higher-order goods are those that are
further removed from satisfying a human
need. A second-order good is the flour
that was used to make the bread. The grain
used to make the flour is an even higher-
order good.
Entrepreneurs coordinate these factors
of production to turn higher-order goods into
lower-order goods that more directly satisfy
human wants and needs

Schumpeter (1934) viewed innovation as
arising from new combinations of materials
and forces. He provided the following five
cases of new combinations.
1. The introduction of a new good – that
is, one with which consumers are not yet
familiar—or of
a new quality of goods.
2. The introduction of a new method of
production, that is, one not yet tested by
experience in the branch of manufacture
concerned, which by no means needs to be
founded upon discovery, can also exist in a
new way of handling a commodity
commercially.
3. The opening of a new market, that is a
market into which the branch of
manufacture of the country in question has
not previously entered, whether this market
has existed before.
4. The conquest of a new source of
supply of raw materials or half-
manufactured goods, again
irrespective of whether this source already
exists or whether it has first been created.
5. The carrying out of the new
organization of any industry, like the
creation of a monopoly position or the
breaking up of a monopoly position
Creative destruction
This was meant to indicate that the existing
ways of doing things need to be dismantled
—to be destroyed—to enable a
transformation through innovation to a new
way of doing things.
Entrepreneurs use innovation to disrupt
how things are done and establish a better
way of doing them.
15 Important Entrepreneurial Traits
According to Divina Edralin, 2016
1. Initiative – it is the entrepreneur who
takes or initiates the first move towards
setting up an enterprise.
2. Looking for opportunity – always on
the lookout or searching for opportunity and
ready to exploit it in the best interest of the
organization.
3. Persistence – is never disheartened by
failure. He believes in the Japanese
proverb. “Fall seven times, stand up
eight.”
choosing to never give up hope, and to
always strive for more. means that your
focus isn't on the reality in front of you, but
on a greater vision that may not be reality
yet.
learning that happens when we fall down
that makes us better – and stronger
4. Information seeker – always keeps his
eyes and ears open and is receptive to new
ideas that can help him realize his goals.
5. Quality consciousness – set high
standards for themselves and then do their
best to achieve them.
6. Commitment to work – are prepared to
make all sacrifices to honor the
commitments they have Made.
7. Commitment to efficiency – are keen to
evolve and try new methods aimed at
making work easier, simpler, better, and
more economical.
Contributor Definition

8. Proper planning – they believe in

developing relevant and realistic plans and
ensuring proper execution of the same in Knight (1921) Having profits from
their pursuit of attaining their goals. bearing uncertainty
and risk.
9. Problem solver – they will first
Schumpeter Carrying out new
understand the problem and then evolve an (1934) combinations of firm
appropriate strategy organization products,
for overcoming it. new services, new
sources of raw
10. Self-confidence – they have full faith in materials, new
their knowledge, skills, and competence and methods of
production, new
are not worried about future uncertainties.
markets, and new
forms of organization.
11. Assertive – assertive person knows
what to say, when to say, how to say, and Hoselitz (1952) Uncertainty bearing....
whom to say it to. coordination of
He believes in his abilities and ensures that productive
resources... the
others will fall in line with his thinking, aimed
introduction of
at promoting the interests of the innovations and the
organization. provision of capital.

12. Persuasive – it’s not physical force but Cole (1959) Purposeful activity to
intellectual force he will use for convincing initiate and develop a
profit-oriented
others.
business.

13. Effective monitoring – they ensure McClelland (1961) Taking moderate risk
regular monitoring of the work so that the
goals of the organization are achieved in the Shapero (1975) A kind of behavior
(1) initiative taking, (2)
best possible manner.
the organizing or
reorganizing of social
14. Employee’s welfare – he takes a mechanisms to turn
personal interest in solving problems, and resources and
confronting workers and generates the situations into
feeling that there is interdependence practical accounts; (3)
between the interests of workers and the acceptance of risk
failure.
management.
Casson (1982) Decisions and
15. Effective strategist – he can evolve judgments about the
relevant strategies aimed at safeguarding or coordination of scarce
promoting the interest. resources.
Ronstadt (1984) Dynamic process of vision, change, and
creating incremental creation that requires
wealth. Wealth is an application of
created by individuals energy and passion
who assume the toward the creation
major risks in terms of and implementation of
equity, time, and/or new ideas and
career commitment to creative solutions.
providing value
through some product Dyck and Neubert Conceive the
or service. The (2012) opportunity to offer
product or service new or improved
itself may or may not goods or services,
be new or unique, but show the initiative to
the value must pursue that
somehow be infused opportunity, make
by the entrepreneur plans, and mobilize
by securing and the resources
allocating the necessary to convert
necessary skills and the opportunity into
resources. reality.

Drucker (1985) Behavior rather than The overview consists of six historical
a personality trait. periods where entrepreneurship
Its foundation lies in contributors or scholars are cited based on
concept and theory their work.
rather than intuition.

Gartner (1985) Creation of new Period Theory and Concept

organizations.
The Earliest Entrepreneur is a
Hisrich and Brush Process of creating Period person who sells goods
(1985) something new with on behalf of
value by devoting the the goods’ owner, the
necessary time and entrepreneur was
effort, assuming the exhibited by Marco
accompanying Polo, (1254- 1324)
financial, psychic, and the merchant from
social risks and Venice who traveled to
uncertainties, and many places in Asia to
receiving the resulting trade. He would enter
rewards of monetary into a formal
and personal agreement with a
satisfaction. capitalist to sell his
goods. He bore
all the risks of possible
damage or loss of the
goods. After everything
was sold, profits were
Kuratko (2009) Dynamic process of
 divided between the The 18th Century entrepreneur was
capitalist and trader as distinguished from the
agreed. capitalist, who simply
provided
The Middle Ages term entrepreneur was money for the creation
used to describe both of products to be sold.
an actor and a person Jean-Baptiste Say
who was in charge of (1767-1832), a
and managed large French economist and
production projects. businessman,
This person merely described the
managed large entrepreneur as a
production projects person
using the resources who plays a central
provided by the coordinating role both
government. In this in producing and
case, he did not selling goods. He
assume any risks. was someone who
’’The entrepreneur in coordinated and led.
this age who was in And manages all the
charge of great activities of the firm.
architectural works
such as public
buildings and 19th and 20th There was little
cathedrals.” Century distinction between an
entrepreneur and a
The 17th Century Entrepreneurship has manager. However,
become associated towards the middle of
with risk. The the 20th century,
entrepreneur would Joseph Schumpeter
enter into a formal (1883-1950), an
agreement with the Australian-Hungarian-
government to American economist
provide products or and Political Scientist,
services, it was refuted the
common practice to idea of
agree on the price as entrepreneurship as a
part of the terms of the manager of the firm,
agreement. In effect, and espoused the
the entrepreneur either concept
reaps profits or bears of the entrepreneur as
losses. A prominent an innovator who
theorist during this seeks opportunities
period was Richard and leads
Cantillon (1680-1734), “existing means of
an economist who production into new
viewed the channels.” The
entrepreneur as a risk Entrepreneur is neither
taker and a bearer of a risk–bearer nor a
uncertainty. manager nor capitalist”.
 the nature of the entrepreneurs’
During this period,
business expert Peter decision-making environment, they
Drucker (1990-2005) would oftentimes think this way:
came up with
the behavioral concept 1. ACTUATE SELF-ASSESSMENT AND
of the entrepreneur, CHOOSE COURSE OF ACTION
who searches for
change,
2. GENERAL MULTIPLE DECISION
responds to it, and
exploits change as an MODELS
opportunity.
• Capacity to think of different plans that
21st Century Hailed as the Dotcom could be part of their success.
era, entrepreneurs in • More plans/ choices mean more chances
the 21st century are
of attaining victory.
considered the heroes
of free enterprise. 3. LEARN FROM FAILURE
“Today, many people
regard ● In business, failure refers to a
entrepreneurship as company ceasing operations
pioneering on the following its inability to make
frontiers
of business” (Kuratko & profit or to bringing in enough
Hodgetts, 2004) revenue to cover its expenses. A
profitable business can fail if it
does not generate adequate
cash flow to meet expenses.
ENTREPRENEURS AND
Failure is one of the realities of
ENTREPRENEURIAL COMPETENCIES
life, but it doesn’t mean that
you will stop if you’re in this
1. Entrepreneurs Are More Intuitive Than
phase. Despite many mistakes
Non-Entrepreneurs.
and failures, perhaps you’re on
your way to success.
◦ Intuitive also means they tend to be
relatively non-conformist, preferring an
open-minded approach to problem-solving
and less structured, more ambiguous, and
random methods of exploration. (Armstrong
And Hird)

2. Entrepreneurial Mindset
“The ability to rapidly serve, act and
mobilize, even under uncertain conditions.”
(Hisrich, Peters, And Shepherd)