ENTREPRENEURIAL BEHAVIOR

Chapter 1
Students must be able to:
1. Define Entrepreneurship
2. Identify the role of Entrepreneurship in the
economy
3. Identify the Macro and Micro views of
entrepreneurship
4. Define innovation and self-employment
5. Demonstrate understanding on the
interrelatedness of entrepreneurship, innovation,
and self-employment
6. Identify mechanisms driving economic growth
What is entrepreneurship and its
role to the economy?
Entrepreneurship
➢ is the process of starting and operating a business with
the goal of generating profit.
Entrepreneur
➢ an individual who identifies a business opportunity and
assumes the associated risks in order to pursue that
opportunity.
➢ often characterized by their innovation, creativity, and
willingness to take on challenges.
Characteristics of entrepreneurship include:

1. Innovation
➢ Entrepreneurs are driven by the desire to introduce new
products and services
2. Risk-taking
➢ Entrepreneurship involves taking calculated risks, as
there is no guarantee of success in business.
➢ Entrepreneurs are willing to invest time, money, and
effort into their ventures despite uncertainties.
3. Vision:
➢ entrepreneurs often have a vision of what they want to
achieve and how their business will make an impact.
4. Problem-solving
➢ Entrepreneurs identify problems or needs in the market
and develop solutions to address them
➢ involves understanding customer needs and finding
ways to meet those needs
5. Resourcefulness
➢ Entrepreneurs are resourceful in acquiring funds, talent,
or other assets, to bring their ideas to fruition.
6. Adaptability
➢ entrepreneurs need to be adaptable to changes in
market conditions and consumer preferences.
Entrepreneurship plays a vital role in the economy.
Here are some key ways in which entrepreneurship
impacts the economy:
➢ Job Creation: Entrepreneurs often establish new
businesses, and these ventures create job opportunities
➢ Wealth Creation: Successful entrepreneurs can
accumulate wealth through profitability of their
businesses. This wealth can be reinvested in new
ventures or used for personal consumption, both of
which contribute to economic activity.
➢ Tax Revenue: Entrepreneurial ventures generate tax
revenue for governments through corporate taxes,
income taxes, and other business-related taxes.
➢ Economic Growth: As successful entrepreneurs expand
their businesses, they generate more revenue,
contribute to GDP (Gross Domestic Product), and
stimulate overall economic activity.
Early Definitions of Entrepreneurship
❖The concept of entrepreneurship has evolved over time,
and early definitions often focused on specific aspects of
the entrepreneurial process.
❖Here are a few early definitions of entrepreneurship:
1. Jean-Baptiste Say (1767-1832)
➢a French economist
➢is often credited with coining the
term "entrepreneur"
➢he described entrepreneurs as
individuals who shift economic
resources out of areas of lower
productivity into areas of higher
productivity and yield. https://www.econlib.org/libr
ary/Enc/bios/Say.html
2. Richard Cantillon (1680-1734):
➢Irish-French economist
➢described the entrepreneur as a
risk-taker who buys goods at
certain prices to sell them at
uncertain prices in the future https://en.wikipedia.org/w
iki/Richard_Cantillon
3. Frank H. Knight (1885-1972):
➢ American economist
➢defined entrepreneurs as
individuals who bear uncertainty
and make decisions in conditions
of risk and uncertainty.

https://en.wikipedia.org/
wiki/Frank_Knight
4. Joseph Schumpeter (1883-1950):
➢Austrian economist
➢defined entrepreneurs as
innovators who introduce new
products, services, or ways of
doing things, disrupting existing
markets and creating economic
https://en.wikipedia.org
change. /wiki/Joseph_Schumpe
ter
5. John Stuart Mill (1806-1873):
➢He highlighted the
entrepreneurial function of
coordinating and organizing
resources to meet market
demands.
https://www.britannica.com/bio
graphy/John-Stuart-Mill
6. Cantillon-Schumpeter Synthesis
➢Some scholars have synthesized the ideas of
Cantillon and Schumpeter
➢emphasizing the combination of risk-taking and
innovation.
➢In this view, entrepreneurs are individuals who
engage in risk-taking activities and introduce
innovations to the market.
Schools of thought in Entrepreneurship
❖Entrepreneurship can be examined from both
macro and micro perspectives, each providing
a different lens through which to understand
its impact and dynamics.
The macro view
➢includes perspectives of the external
environment that cannot be controlled by the
entrepreneur
➢consists of three different schools.
The micro view
➢examines factors that are specific to
entrepreneurship and can be controlled by the
entrepreneur.
The three schools under the macro view are the :
1. Environmental School
2. Financial/Capital School
3. Displacement School
The Environmental School
➢Views that the socio-political environment
influences the development of entrepreneurs.
➢For example, if a person experiences positive
feedback from family and friends, the desire to
become an entrepreneur will grow
The Financial/Capital School
➢views entrepreneurship from a financial
management perspective.
➢the entire focus is placed on seeking capital for
the entrepreneurial venture
The Displacement School
➢ argues that people will only pursue an entrepreneurial
venture if they have no other alternatives.
➢ Political displacement describes situations in which
governmental regulations limit certain industries in
their scope and thus individuals are forced to seek and
create a business in other industries.
➢ Cultural displacement. Social groups excluded from
professional fields e.g. ethnic background, sex, race,
religion
➢ Economic displacement considers job loss and
recessions as initiating factors for entrepreneurship.
school of thought under the micro view
➢ Entrepreneurial Trait
➢ Venture Opportunity
➢ Strategic Formulation
The Entrepreneurial Trait School of Thought
➢ focuses on researches about successful entrepreneurs
and recognizing similar traits and characteristic that if
copied could increase success for the emulators.
➢ believe that certain attributes are usually exhibited by
entrepreneurs (creativity, determination etc.).
The Venture Opportunity School of Thought
➢ Opportunity aspect of venture development is the focus
➢ the interest areas : search for idea, development of
concepts
➢ Developing the right idea at the right time for the right
market niche is important for the entrepreneurial success
The Strategic Formulation School of Thought
➢ emphasizes the planning process in successful venture
development.
➢ Emphasizes planning, leveraging of unique markets,
unique people, unique products and unique resources.
❖Those Schools of Thought are foundations to
entrepreneurial theory.
❖And we need those theories to understand the field of
entrepreneurship in its growth and development.
❖In recent years another aspect to entrepreneurship has
been developed: intrapreneurship.
❖An intrapreneur is an employee who is tasked with
developing an innovative idea or project within a company.
Global Innovation Index (GII)
➢reveals the ranking of the most innovative
economies in the world amongst 132 economies
and localizes the top 100 science and
technology innovation clusters.
Startup Ecosystem
➢ formed by people and organizations in a location
interacting as a system to create and scale new startup
companies.
➢ involves various components to create an environment
for entrepreneurship and innovation.
➢ Here are some elements of a startup ecosystem:
1.Entrepreneurs:
➢ initiate creation of new business
2. Investors
➢ provide funding to startup
3. Support Organizations:
➢ incubators: offer mentoring, workspace, networking
opportunities, and sometimes funding.
4.Educational Institutions:
➢ contribute to the startup ecosystem by offering
entrepreneurship programs
5. Government and Policy Support:
➢ can create an environment conducive to startup growth
6.Infrastructure:
➢ such as co-working spaces and innovation hubs,
provides a collaborative environment for startups to
work, share ideas, and network.
7. Mentorship
➢ Seasoned entrepreneurs provide guidance and
mentoring
8. Corporate Involvement
➢ Established companies often engage with startups
9. Talent Pool
➢ Skilled and diverse workforce is critical for startups.
10. Market Access
➢ Startups need access to customers
11. Access to Technology
➢ enhances the capabilities of startups
Entrepreneurship, Innovation, and Self employment
Innovation
➢ the introduction of a new method, device, among others.
➢ Could be any of the following :
1. A new product
2. A new process
3. Substitution of a cheaper raw material
3. Reorganization of functions leading to increased efficiency
4. Improvement in instruments or methods
Ex : Cordless microphone, cellphone
Self-employment
➢ refers to individuals who work for themselves, own and
operate their own business, or work as freelancers or
independent contractors rather than being employed
by an external entity.
Entrepreneurship, innovation, and self-employment are
interconnected elements:
➢ Entrepreneurs drive innovation
➢ many self-employed individuals embody an
entrepreneurial spirit
➢ The ability to innovate and the pursuit of entrepreneurial
opportunities influenced the decision of individuals to
venture into self-employment.
ENTREPRENEURIAL MINDSET
❖Entrepreneurship sparks innovation, drives
employment, fuels economies, and offers solutions to
a range of environmental and societal challenges. But
before those sparks and drivers ignite, an
entrepreneurial mindset must be in place as a catalyst.
❖An entrepreneurial mindset is a specific set of beliefs,
knowledge, and thought processes that drive
entrepreneurial behavior.
❖Those with an entrepreneurial mindset tend to be goal
oriented, solution oriented, adaptable
❖An entrepreneurial mindset can be developed and
enhanced through entrepreneurial experiences
Entrepreneurship, Innovation, and
Economic Growth
The mechanisms driving innovation and economic growth :
➢ Knowledge spillovers
➢ Experimentation
➢ Decentralization
➢ Competition
Knowledge Spillovers:
➢ Definition : occur when knowledge, ideas, or
innovations generated in one context or industry
unintentionally benefit other individuals, firms, or
industries.
➢ organizations benefit from diverse perspectives and
ideas, driving product development and growth.
➢ Innovation : spurs innovation by allowing others to
build upon existing ideas, leading to the creation of
new products, services, or processes.
➢ Economic Growth : accelerates innovations across
sectors
Experimentation:
➢ Definition : involves testing of new ideas, methods, or
technologies to discover what works and what doesn't.
➢ Innovation : fosters a culture of innovation by learning from
failures, and identifying successful approaches.
➢ Economic Growth : successful experiments lead to the
development of new and improved products or processes,
driving economic growth through increased efficiency and
competitiveness.
Decentralization:
➢ Definition : refers to the distribution of decision-making
authority, resources, or control across different levels
or entities within an organization or system.
➢ Innovation : can enhance innovation by allowing for
diverse perspectives and quicker decision-making at
various levels.
➢ Economic Growth : fostering economic growth by
promoting agility and responsiveness to market
changes.
Competition:
➢ Definition : involves the rivalry among entities e.g.
market share, customers, or resources.
➢ Innovation : incentivizes businesses to innovate in order
to differentiate themselves, improve products or
services, and gain a competitive advantage.
➢ Economic Growth : contributes to economic growth by
fostering a dynamic and responsive business
environment.
These mechanisms are often interconnected, creating a
synergistic effect. For example:
➢ knowledge spillovers can be facilitated through
decentralized networks
➢ experimentation is encouraged through competition.
➢ a competitive environment may drive experimentation
❖Governments, organizations, and policymakers often
design strategies and policies that leverage these
mechanisms to promote innovation and economic
growth.
❖By understanding and harnessing the power of
knowledge spillovers, experimentation,
decentralization, and competition, economies can
create more vibrant and resilient ecosystems that drive
sustained development and prosperity.