Topic

The Role of the Entrepreneur

 The

word entrepreneur is derived from the French verb enterprendre. It means to undertake. The term entrepreneur was applied to business initially by the French economist, Cantillon, in the 18th century, to designate a dealer who purchases the means of production for combining them into marketable products.

ENTREPRENEURSHIP may defined in various ways, but the four key elements involved in it are: i. Innovation. ii. Risk-taking. iii.Vision. iv.Organising skill.

MEANING
An individual who bears the risk of operating a

business in the face of uncertainity about the future conditions. An entrepreneur is a person who has possession of an enterprise, or venture, and assumes significant accountability for the inherent risks and the outcome. It is an ambitious leader who combines land, labor, and capital to often create and market new goods or services.

WORKING DEFINITION
An entrepreneur is a person who combines various factors of production, processes raw material, converts the raw material into a finished product and creates utility and sells the produce in the market to earn profit.

ENTREPRENEURS ARE MADE AND NOT BORN.

JOSEPH A. SCHUMPETER
The entrepreneur in an advanced economy is an

individual who introduces something new in the economy. Entrepreneur is who innovates, raises money, assembles input,chooses managers and sets the organisation going with his ability to identify.

PETER DRUCKER
Entrepreneur as one who always searches for change, respond to it and exploits it as an opportunity . Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or services.

E.E. HAGGEN
An entrepreneur is an economic man who tries to

maximise his profits by innovations. Innovations involve problem- solving and the entrepreneurs gets satisfaction from using his capabilities in attacking problems.

Who or What Is an Entrepreneur?

A person who acts in a way that is innovative, creative and oriented toward growth and opportunity. People who found new businesses, not people who found religions, social movements, or corporate ventures, or people who are just acting creatively. -- Shane, 2008 Entrepreneurship = small business An entity, new or existing that provides a new product or service or that develops and uses new methods to produce or deliver existing goods and services at lower cost -- Baumol, Litan and Schramm (2007) Entrepreneurship small business

Part I Entrepreneurship in the Twenty-First Century

Entrepreneurship: An Evolving Concept

ENTREPRENEURSHIP
It requires a requires a willingness to take calculated

risks both personal and financial, and then to do everything possible to reduce the chances of failure. It also includes the ability to build an entrepreneurial or venture team to complement your (the entrepreneur) own skills and talents.

The Evolution of Entrepreneurship

Entrepreneur is derived from the

French entreprendre, meaning to undertake. Although no single definition of entrepreneur exists and no one profile can represent todays entrepreneur, research is providing an increasingly sharper focus on the subject.

Robert C. Ronstadt put together a summary description:

Entrepreneurship is the dynamic process of

creating incremental wealth. This wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment of providing value for some product or service. The product or service itself may or may not be new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources.

An Integrated Definition
Entrepreneurship is a dynamic process of

vision, change, and creation. It requires an application of energy and passion towards the creation and implementation of new ideas and creative solutions. Essential ingredients include the willingness to take calculated risks- in terms of time, equity, or career; the ability to formulate an effective venture team; the creative skill to marshall needed resources; the fundamental skills of building a solid business plan; and, finally, the vision to recognize opportunity where others see chaos, contradiction, and confusion.

Types of Entrepreneurship
The academic literature focuses on several questions that draw distinctions among types of entrepreneurship What is the outcome of the entrepreneurial activity? Innovative v. replicative What motivates the entrepreneur? Opportunity entrepreneurship vs. necessity entrepreneurship What is the employment status of the entrepreneur? Self-employed vs. employee Entrepreneurship v. intrapreneurship Does the entrepreneurial activity increase the size of the pie, or just the entrepreneurs share of the pie? Productive vs. unproductive (I.e. political lobbying, organized crime)

Entrepreneurship Can be Analyzed at Many Different Levels

Individual level:
Entrepreneurs and their characteristics, strategies

and achievements
Firm level:
Firms and their size, technology they produce,

managerial style and outcomes

Regional and national level:
Relationship between entrepreneurial activities or

entrepreneurship public policy and economic growth

Entrepreneurship v. Small businesses

Entrepreneurship research often focuses on small

businesses and startups Innovative corporations may also be considered entrepreneurs regardless of size An expanded definition of entrepreneurship encompasses people both in small businesses and big corporations and acknowledges their movement from one status to another
Self-employed Entrepreneurial Managerial Schumpeterian entrepreneurs Managerial business owners Employee Intrapreneurs Executive managers

Entrepreneurship Arises When an Entrepreneur Employs an Entrepreneurial Opportunity

Entrepreneurship involves the nexus of

two phenomena (Shane & Venkataraman, 2000) The presence of lucrative opportunities
Determined by social, economic and

technological environment
The presence of enterprising individuals Determined by motivation, aspiration, knowledge and skills

The Myths of Entrepreneurship

Myth 1: Entrepreneurs Are Doers, Not

Thinkers Myth 2: Entrepreneurs Are Born, Not Made Myth 3: Entrepreneurs Are Always Inventors Myth 4: Entrepreneurs Are Academic and Social Misfits Myth 5: Entrepreneurs Must Fit the Profile Myth 6: All Entrepreneurs Need Is Money

The Myths of Entrepreneurship

Myth 7: All Entrepreneurs Need Is Luck

Myth 8: Ignorance Is Bliss For Entrepreneurs

Myth 9: Entrepreneurs Seek Success But

Experience High Failure Rates Myth 10: Entrepreneurs Are Extreme Risk Takers (Gamblers)

The Corridor Principle States that with every venture launched, new and unintended opportunities often arise.

Approaches to Entrepreneurship
Schools of Thought

Approach Process Approaches

Entrepreneurial Schools-of-Thought Approach

Macro View

Environmental School of Thought Financial School of Thought Displacement School of Thought Entrepreneurial Trait School of Thought (People School) Venture Opportunity School of Thought Strategic Formulation School of Thought

Micro View

Macro View
(External locus of control)

The Environmental School of Thought The Financial/Capital School of Thought The Displacement School of Thought 1. Political Displacement 2. Cultural Displacement 3. Economic Displacement

The Micro View

(internal locus of control)
The Entrepreneurial Trait School of Thought The Venture Opportunity School of Thought The Strategic Formulation School of Thought

Ronstadt Views Strategic Formulation as a Leveraging of Unique Elements

Unique Markets: mountain gap strategies
Unique People: great chef strategies Unique Products: better widget strategies Unique Resources: water well strategies

Process Approaches
Integrative Approach Entrepreneurial Assessment

Approach Multidimensional Approach

An Integrative Model of Entrepreneurial Inputs and Outcomes

Inputs
Environmental opportunities Entrepreneurial individuals An organizational context Unique business concepts Resources The Entrepreneurial Process Identify Opportunity Assess and acquire necessary resources Implementation

Outcomes
A going venture Entrepreneurial Value creation Intensity New products, Number of events services (and) Processes degree of entrepreneurship Technologies Profits and/or personal Innovation Proactivebenefits ness Employment, Risk taking asset, and revenue growth

Entrepreneurial Assessment Approach

Type of Venture Qualitative, Quantitative, Strategic, and Ethical ASSESSMENTS

Type of Entrepreneur

Type of Environment

Do the Results of the Assessments Make Sense Given: Stage of Entrepreneurial Career

Prior Experience and Education

Early Career

Mid Career

Late Career

Multidimensional Approach
Individual(s)

Environment

Organization

Process

Entrepreneurial Management
The underlying theme of this book is the

discipline of entrepreneurial management:

Entrepreneurship is based upon the same principles,

whether the entrepreneur is an existing large institution or an individual starting his or her new venture single-handed. It makes little or no difference whether the entrepreneur is a business or a nonbusiness public-service organization, nor even whether the entrepreneur is a governmental or nongovernmental institution. The rules are pretty much the same, the things that work and those that dont are pretty much the same, and so are the kinds of innovations and where to look for them. In every case there is a discipline we might call Entrepreneurial Management.

Personal traits and characteristics of entrepreneurs.

33

Characteristics and Skills of an Entrepreneur Entrepreneurial Characteristics

Entrepreneurial Characteristics Not everyone wants to be an entrepreneur and run their own business. Being an entrepreneur requires specific characteristics and skills that are often achieved through education, hard work, and planning. Risk Taker Businesses face risk. Entrepreneurs minimize risk through research, planning, and skill development. Perceptive Entrepreneurs view problems as opportunities and challenges. Curious Entrepreneurs like to know how things work. They take the time and initiative to pursue the unknown.
34

Characteristics and Skills of an Entrepreneur Entrepreneurial Characteristics

Imaginative Entrepreneurs are creative. They imagine solutions to problems that encourage them to create new products and generate ideas. Persistent True entrepreneurs face bureaucracy, make mistakes, receive criticism, and deal with money, family, or stress problems. But they still stick to their dreams of seeing the venture succeed. Goal-setting Entrepreneurs are motivated by the excitement of staring a new business. Once achieved, they seek out new goals or ventures to try. Hardworking Entrepreneurs need a great deal of energy to see a venture start and succeed. Yet they are not deterred by the long hours to achieve their goal.
35

Characteristics and Skills of an Entrepreneur Entrepreneurial Characteristics

Self-confident Entrepreneurs believe in themselves. Their self-confidence takes care of any doubts they may have. Flexible Entrepreneurs must be flexible in order to adapt to changing trends, markets, technologies, rules, and economic environments. Independent An entrepreneurs desire for control and the ability to make decisions often makes it difficult for them to work in a controlled environment.
36

Characteristics and Skills of an Entrepreneur Entrepreneurial Skills

A skill is the ability to do something specific or to translate knowledge into action. Research Skills Entrepreneurs need to identify what they need to know and use research techniques to obtain it. Gathering Information Reliable and relevant sources of information may include books consultants periodicals professionals indexes and databases schools the Internet
37

Characteristics and Skills of an Entrepreneur Entrepreneurial Skills

Using Information After information is acquired, it needs to be sorted into relevant data that answers the entrepreneurs initial questions. These questions may lead the entrepreneur to look at new ventures. Management Skills Management skills for entrepreneurs involve planning, organizing, directing, and controlling. These are then applied towards their personal, financial, and material goals. Planning Entrepreneurs develop financial, production, and marketing plans that comprise the overall business plan.

38

Characteristics and Skills of an Entrepreneur Entrepreneurial Skills

Organizing Organizing the venture is vital. The key to this is timemanagement.
Directing Entrepreneurs learn how to motivate their staff by encouraging initiative and self-direction. This inspires a sense of shared responsibilities to grow the business.

Controlling Entrepreneurs need to develop budgets and keep accurate bookkeeping and accounting records.

39

Characteristics and Skills of an Entrepreneur Entrepreneurial Skills

Relationship Skills Running a business means building good relationships with staff, suppliers, and customers. Staff Relationships Employees need to feel that they are treated fairly, are rewarded for their efforts, and have their needs met. Supplier Relationships Communication is the most important relationship skill required to deal with suppliers. They act as sources of information for the new business. Suppliers also require feedback to know how to improve their service. Customer Relationships In an entrepreneurial business, the customer is the boss and the key to the business success. Therefore, the entrepreneur and his or her 40 staff must develop a positive relationship with the customer.

Characteristics and Skills of an Entrepreneurs

Jimmy Pattison Pattison used his entrepreneurial skills as a child selling garden seeds, magazines, and papers door-to-door. In university, he washed used cars and bought and fixed them to sell to students and later managed a car dealership. Today, as a billionaire, Pattison is past chair of Vancouvers World Fair, Expo 86, and owner of Ripleys Believe it or Not. Vickie Kerr In 1986, Kerr used some potatoes growing on her familys potato farm to create a healthy snack for kids. Her persistence resulted in a unique potato chip called Miss Vickies that sold locally and nationally. In 1993, Kerr sold her brand to the US-owned Hostess Frito-Lay Co David Tuccaro A Mikisew Cree, Tuccaro owns Neegan Development Corp. and Tucs Contracting in Fort McMurray, Alberta. He is a business ally of Syncrude Canada, a major developer in the Northern Albertas Athabasca oil sands. Tuccaro uses his business success and cultural knowledge to improve the lives of Aboriginals in Canada and abroad.

41

Characteristics and Skills of an Entrepreneur Venture Evaluation Criteria

An entrepreneur must develop a good business plan that is feasible, marketable, and profitable. Key points are below.

Feasibility Finances list the amount required in a budget including the source of capital (bank, credit union, and so on) Location explain the location outlining the details (address, rent, taxes, and so on) Licences and permits list the licences or permits and state how to obtain them Suppliers make a list of everything required including the name of the suppliers and their prices and terms Staff describe staffing needs and ways to meet them
42

Characteristics and Skills of an Entrepreneur Entrepreneurial Characteristics

Marketability Entrepreneurs need to ask themselves the following questions about their product, service, or charity: Does your target market want this product? Prove it. What is you competition? How much of the market do they own already? How will you take it away from them? Are you competitively priced? Is this a short-term venture? How long will it last? What do you offer that no other product, service, or charity offers? Why would a customer pay money for what you provide?
Profitability To expect a profit, an entrepreneur must ensure that revenue exceeds all costs. Listing expected revenue and expenses can help to achieve this.
43

Advantages of Entrepreneurship
They are their own boss They can choose a business that interest them They can be creative They can make lots of money

Disadvantages of Entrepreneurship
Entrepreneurship is risky Entrepreneurs face uncertain an irregular incomes Entrepreneurs work long hours Entrepreneurs must make all decisions by

themselves

 According to Dun & Bradstreet study of businesses between 1989-1992: 66% of businesses remain open at least 2 years. 50% remain open at least 4 years. 40% remain open at least 6 years.

New Firm Survival Rates

Study of Canadian firms found roughly the same:

Roles of Entrepreneur
The person who assumes the risks associated with

uncertainty The supplier of financial capital An innovator A decision-maker An industrial leader A manager or a superintendent An organizer and coordinator of economic resources The owner of an enterprise An employer of factors of production A contractor An arbitrageur An allocator of resources among alternative uses The person who realizes a start-up of a new business

Entrepreneur v. Capitalist
Schumpeterian view suggests that the role of

entrepreneur can be separated from the role of the capitalist Entrepreneur identified opportunities in the economy Capitalist bears the risk Others view risk-bearing as a key element or characteristic of entrepreneruship (Knight, 1921) Capital markets provide an inefficiently low level of capital to entrepreneurs due to moral hazard and adverse selection problems Entrepreneurs self-finance and bear the risk of failure This perspective is consistent with empirical evidence on liquidity constraints as a barrier to entrepreneurship (Evans and Bojanovic, 1989; Fairlie and Robb, 2008).

Policymakers Believe Entrepreneurship Promotes Economic Growth

Research strives to find empirical evidence for the link between entrepreneurship and economic success at several levels
At the individual level Whether and how entrepreneurs perform better than non-

entrepreneurs in self-realization and personal wealth (Block &

Wagner, 2006)
At the firm level How size, R&D, managerial style etc. affect firm performance

(Carree & Thurik 2002)

At the regional/national level How entrepreneurship affects economic growth

Entrepreneruship measured in terms of the number of start-

ups, resident employment composition, firm size composition affect economic performance (Carree & Thurik
2002) Very difficult to disentangle cause and effect

The Economic View of the Entrepreneurial Decision

access to resources
ability to organize resources

other job opportunities

specialized skills

knowledge Expected Performance

entrepreneurship orientation

Performance Threshold

Source: Gimeno, Folta, Cooper, & Woo (1997). Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms. Administrative Science Quarterly, 42: 750 -783.

Conceptual Framework Linking Entrepreneurship to Growth

Public Policy Can Influence the Availability of Entrepreneurial Opportunities

Macroeconomic policies Economic regulation Deregulation across the developed countries in the late

1980s Market reform in former central planning economies (China, Russia, Vietnam and more) Industry policy (Japan, S. Korea, Taiwan etc.) Other Policies Anti-global warming (construction technique example in the Netherlands) Federal R&D investment Policies influencing liquidity (bank regulation, interest rates, etc) Creating and maintaining property rights Auction of PCS spectrum

Public Policy May be Able to Help Individuals Identify Entrepreneurial Opportunities

Education
General Science and technology education Entrepreneurship education

Patent system

Public Policy Can Help to Encourage Individuals Exploit Opportunities That They Have Identified
Entrepreneurship education

Financial assistance programs

Health insurance policy Bankruptcy laws Minority entrepreneurship programs Loan programs
Subsidized loans Micro-finance

Small business research grants

Why should you be interested?

Many young people have succeeded:
Michael Dell - Dell Computers Frank Carney - Pizza Hut Paul Orfalea - Kinkos Fred DeLuca - Subway.

Kristy Taylor - SkinCareRx.com

Opportunity to reap large profits

THINK CRITICALLY!!

Entrepreneurs can fail even if they are committed

and have the characteristics needed to be successful. Why do you think this can happen?
Why is it important for entrepreneurs to choose a

field that they will enjoy?

Do you think the advantages of entrepreneurship

outweigh the disadvantages? Why or why not?

Why should you be interested in this class?

Help overcome high rate of failure

It is the entrepreneur, not the idea that can

provide the advantage Training in entrepreneurship becoming more commonplace Importance of business plans Provides a simulation experience