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I know what youre thinking: entrepreneurship and school dont go togetherthey never
have, never will. While I certainly agree with this, there are interesting schools of thought on the
entrepreneurial process, as well as various determinants of success. Below, Ill outline the
entrepreneurial schools of thought, as they can be separated into two main sections:
I. Macro View:
Environmental School of Thought: This school of thoughts asserts that an entrepreneurs
success is the direct influenced by his or her environment (being located in Palo Alto vs. New
Mexico; friends, family i.e. if youre dad is the President vs. a broken home).
The Financial/Capital School of Thought: This school of thoughts reckons that an
entrepreneur can only get somewhere if he or she (i) has capital, (ii) knows how to grow it, and
(iii) knows how to manage it.
The Displacement School of Thought: This school of thought, which I think is quite
fascinating, revolves around a situation where a person feels left out, or displaced. For
isntance, if all of their friends are latter-climbers in the corporate world, and the one individual is
displaced, then that feeling will cause him or her to pursue entrepreneurial ventures to prove
their friends wrong. Think of it as the Ill show them, type of people.
Strategic Formulation School of Thought: Ahh, yes. The concept of strategy. Yet another
concept academics love. This school holds that an entrepreneurs ability to target unique markets,
with a unique strategy is the ultimate deteminant of success.
CHAPTER 2
Entrepreneurship: An Evolving Concept
CHAPTER OBJECTIVES
1. To examine the historical development of entrepreneurship
2. To explore and debunk the myths of entrepreneurship
3. To define and explore the major schools of entrepreneurial thought
4. To explain the process approaches to the study of entrepreneurship
5. To set forth a comprehensive definition of entrepreneurship
Most of what you hear about entrepreneurship, says America's leading management thinker, is all
wrong. It's not magic; it's not mysterious; and it has nothing to do with genes. It's a discipline and, like
any discipline, it can be learned.
Peter F. Drucker
Innovation and Entrepreneurship
money, or skills; assumes the risks of the competitive marketplace to implement these
ideas; and realizes the rewards from these efforts. 1
The entrepreneur is the aggressive catalyst for change in the world of business.
He or she is an independent thinker who dares to be different in a background of
common events. The literature of entrepreneurial research reveals some
similarities, as well as a great many differences, in the characteristics of
entrepreneurs. Chief among these characteristics are personal initiative, the ability to
consolidate resources, management skills, a desire for autonomy, and risk taking.
Other characteristics include aggressiveness, competitiveness, goal-oriented
behavior, confidence, opportunistic behavior, intuitive-ness, reality-based actions,
the ability to learn from mistakes, and the ability to employ human relations skills. 2
Although no single definition of entrepreneur exists and no one profile can
represent today's entrepreneur, research is providing an increasingly sharper focus on
the subject. A brief review of the history of entrepreneurship illustrates this.
America currently is in the midst of a new wave of business and economic
development, and entrepreneurship is its catalyst. Yet the social and economic forces of
entrepreneurial activity existed long before the 1990s. In fact, as noted in Chapter 1, the
entrepreneurial spirit has driven many of humanity's achievements.
Humanity's progress from caves to campuses has been explained in numerous ways. But central to
virtually ad of these theories has been the role of the "agent of change," the force that initiates and
implements material progress. Today we recognize that the agent of change in human history has
been and most likely will continue to be the entrepreneur. 3
The association of entrepreneurship and economics has long been the accepted
norm. In fact, until the 1950s the majority of definitions and references to
entrepreneurship had come from economists. For example, Cantillon (1725), just
mentioned; Jean Baptiste Say (1803), the renowned French economist; and Joseph
Schumpeter (1934), a twentieth-century economic genius, all wrote about
entrepreneurship and its impact on economic development.
writers have continued to try to describe or define what entrepreneurship is all about.
Here are some examples:
Entrepreneurship . . . consists in doing things that are not generally done in the ordinary course of
business routine; it is essentially a phenomenon that comes under the wider aspect of leadership.
Whatever the specific activity they engage in, entrepreneurs today are considered
the heroes of free enterprise. Many of them have used innovation and creativity to
build multimillion-dollar enterprises from fledgling businessessome in less than
a decade! These individuals have created new products and services and have assumed
the risks associated with these ventures. Many people now regard entrepreneurship as
"pioneership" on the frontier of business.
Entrepreneurship is the ability to create and build a vision from practically nothing: fundamentally it
is a human, creative act. It is the application of energy to initiating and building an enterprise or
organization, rather than just watching or analyzing. This vision requires a willingness to take
calculated risksboth personal and financialand then to do everything possible to reduce the
chances of failure. Entrepreneurship also includes the ability to build an entrepreneurial or venture
team to complement your own skills and talents. It is the knack for sensing an opportunity where
others see chaos, contradiction, and confusion. It is possessing the know-how to find, marshal, and
control resources (often owned by others). 10
Although it is true entrepreneurs tend toward action, they are also thinkers. Indeed,
they are often very methodical people who plan their moves carefully. The emphasis
today on the creation of clear and complete business plans (see Part 2) is an indication
that "thinking" entrepreneurs are as important as "doing" entrepreneurs.
Myth 2: Entrepreneurs Are Born, Not Made
The idea that the characteristics of entrepreneurs cannot be taught or learned, that they
are innate traits one must be born with, has long been prevalent. These traits include
aggressiveness, initiative, drive, a willingness to take risks, analytical ability, and skill
in human relations. Today, however, the recognition of entrepreneurship as a
discipline is helping to dispel this myth. Like all disciplines, entrepreneurship has
models, processes, and case studies that allow the topic to be studied and the
knowledge to be acquired.
Myth 3: Entrepreneurs Are Always Inventors
The idea that entrepreneurs are inventors is a result of misunderstanding and tunnel
vision. Although many inventors are also entrepreneurs, numerous entrepreneurs
encompass all sorts of innovative activity.'' For example, Ray Kroc did not invent the
fast-food franchise, but his innovative ideas made McDonald's the largest fast-food
enterprise in the world. A contemporary understanding of entrepreneurship covers
more than just invention. It requires a complete understanding of innovative behavior
in all forms.
The belief that entrepreneurs are academically and socially ineffective is a result of
some business owners having started successful enterprises after dropping out of
school or quitting a job. In many cases such an event has been blown out of
proportion in an attempt to "profile" the typical entrepreneur. Historically, in fact,
educational and social organizations did not recognize the entrepreneur. They
abandoned him or her as a misfit in a world of corporate giants. Business education,
for example, was aimed primarily at the study of corporate activity. Today the
entrepreneur is considered a herosocially, economically, and academically. No
longer a misfit, the entrepreneur is now viewed as a professional.
Myth 5: Entrepreneurs Must Fit the "Profile"
Many books and articles have presented checklists of characteristics of the successful
entrepreneur. These lists were neither validated nor complete; they were based on case
studies and on research findings among achievement-oriented people. Today we
realize that a standard entrepreneurial profile is hard to compile. The environment,
the venture itself, and the entrepreneur have interactive effects, which result in many
different types of profiles. Contemporary studies conducted at universities across the
United States will, in the future, provide more accurate insights into the various
profiles of successful entrepreneurs. As we will show in Chapter 4, an
"Entrepreneurial Perspective" within individuals is more understandable than a
particular profile.
Myth 6: All Entrepreneurs Need Is Money
It is true that a venture needs capital to survive; it is also true that a large number of
business failures occur because of a lack of adequate financing. Yet having money is
not the only bulwark against failure. Failure due to a lack of proper financing often is
an indicator of other problems: managerial incompetence, lack of financial
understanding, poor investments, poor planning, and the like. Many successful
entrepreneurs have overcome the lack of money while establishing their ventures.
To those entrepreneurs, money is a resource but never an end in itself.
Myth 7: All Entrepreneurs Need Is Luck
Being at "the right place at the right time" is always an advantage. But "luck
happens when preparation meets opportunity" is an equally appropriate adage.
Prepared entrepreneurs who seize the opportunity when it arises often seem "lucky."
They are, in fact, simply better prepared to deal with situations and turn them into
successes. What appears to be luck really is preparation, determination, desire,
knowledge, and innovativeness.
The myth that too much planning and evaluation lead to constant problemsthat
over-analysis leads to paralysisdoes not hold up in today's competitive markets,
which demand detailed planning and preparation. Identifying a venture's strengths and
weaknesses, setting up clear timetables with contingencies for handling problems, and
minimizing these problems through careful strategy formulation are all key factors
for successful entrepreneurship. Thus careful planningnot ignorance of itis the
mark of an accomplished entrepreneur.
It is true that many entrepreneurs suffer a number of failures before they are
successful. They follow the adage "If at first you don't succeed, try, try, again." In
fact, failure can teach many lessons to those willing to learn and often leads to
future successes. This is clearly shown by the corridor principle, which states that
with every venture launched, new and unintended opportunities often arise. The 3M
Corporation invented Post-it notes using a glue that had not been strong enough for its
intended use. Rather than throw away the glue, the company focused on finding
another use for it and, in the process, developed a multimillion-dollar product. Yet, the
statistics of entrepreneurial failure rates have been misleading over the years. In fact,
one researcher, Bruce A. Kirchoff, has reported that the "high failure rate" most
commonly accepted may be misleading. Tracing 814,000 businesses started in 1977,
Kirchoff found that more than 50 percent were still surviving under their original
owners or new owners. Additionally, 28 percent voluntarily closed down, and only 18
percent actually "failed" in the sense of leaving behind outstanding liabilities. 12
Myth 10: Entrepreneurs Are Extreme Risk Takers (Gamblers)
As we will show in Chapter 4, the concept of risk is a major element in the
entrepreneurial process. However, the public's perception of the risk most
APPROACHES TO ENTREPRENEURSHIP
To understand the nature of entrepreneurship, it is important to consider some of the
theory development so as to better recognize the emerging importance of
entrepreneurship. The research on entrepreneurship has grown dramatically over the
years. As the field has developed, research methodology has progressed from
empirical surveys of entrepreneurs to more contextual and process-oriented research.
As yet, no comprehensive theory base has emerged, however.
A theory of entrepreneurship is defined as a verifiable and logically coherent
formulation of relationships, or underlying principles that either explain
entrepreneurship, predict entrepreneurial activity (for example, by characterizing
conditions that are likely to lead to new profit opportunities to the formation of new
enterprises), or provide normative guidance (that is, prescribe the right action in
particular circumstances).13 As we are now in the new millennium, it has become
increasingly apparent that we need to have some cohesive theories or classifications
to better understand this emerging field.
In the study of contemporary entrepreneurs hip, one concept recurs: Entrepreneurship
is interdisciplinary. As such it contains various approaches that can increase one's
ventures. This array includes external processes that are sometimes beyond the
control of the individual entrepreneur, for they exhibit a strong external locus of
control point of view.
Three schools of entrepreneurial thought represent a breakdown of the macro
view: (1) the environmental school of thought, (2) the financial/capital school of
thought, and (3) the displacement school of thought. The first of these is the
broadest and the most pervasive school.
The Environmental School of Though! This school of thought deals with the external
factors that affect a potential entrepreneur's lifestyle. These can be either positive or
negative forces in the molding of entrepreneurial desires. The focus is on
institutions, values, and mores that, grouped together, form a sociopolitical
environmental framework that strongly
entrepreneurs.
16
support to develop ideas, initiate contracts, or create and institute new methods,
the work environment will serve to promote mat person's desire to pursue an
entrepreneurial career. Another environmental factor that often affects the potential
development of entrepreneurs is their social group. The atmosphere of friends and
relatives can influence the desire to become an entrepreneur.
The Financial/Capitol School of Thought This school of thought is based on the
capital-seeking process. The search for seed and growth capital is the entire focus
of this entrepreneurial emphasis. Certain literature is devoted specifically to this
process, whereas other sources tend to treat it as but one segment of the
entrepreneurial process.
entrepreneur's
17
development.
Business-planning
guides
and
texts
for
18
thought:
1. Political displacement. This is caused by factors ranging from an entire political
regime that rejects free enterprise (international environment) to governmental
regulations and policies that limit or redirect certain industries.
These examples of displacement illustrate the external forces that can influence
the development of entrepreneurship. Cultural awareness, knowledge of political
and public policy, and economic indoctrination will aid and improve
entrepreneurial understanding under the displacement school of thought. The
broader the educational base in economics and political science, (lie stronger the
entrepreneurial understanding.
THE MICRO VIEW The micro view of entrepreneurship examines the factors
that are specific to entrepreneurship and are part of the internal locus of control.
The potential entrepreneur has the ability, or control, to direct or adjust the
outcome of each major influence in this view. Although some researchers have
developed this approach into various definitions and segments, as shown in Table
2.2, our approach presents the entrepreneurial trait theory (sometimes referred to as
the "people school of thought"), the venture opportunity theory, and the strategic
formulation theory. Unlike the macro approach, which focuses on events from
the outside looking in, the micro approach concentrates on specifics from the
inside looking out. The first of these schools of thought is the most widely
recognized.
The Entrepreneurial Trait School of Thought Many researchers and writers have
been interested in identifying traits common to successful entrepreneurs.
20
The Venture Opportunity School of Thought This school of thought focuses on the
opportunity aspect of venture development. The search for idea sources, the
development of concepts, and the implementation of venture opportunities are the
important interest areas for this school. Creativity and market awareness are viewed
as essential. Additionally, according to this school of thought, developing the
right idea at the right time for the right market niche is the key to entrepreneurial
success.
Another development from this school of thought is the previously described
corridor principle. New pathways or opportunities will arise that lead
entrepreneurs in different directions. The ability to recognize these opportunities
when they arise and to implement the necessary steps for action are key factors.
The maxim that preparation meeting opportunity equals "luck" underlies this
corridor principle. Proponents of this school of thought believe that proper
preparation in the interdisciplinary business segments will enhance the ability to
recognize venture opportunities.
The Strategic Formulation School of Thought George Steiner has stated that
"Strategic planning is inextricably interwoven into the entire fabric of
management; it is not something separate and distinct from the process of
management."
23
25
PROCESS APPROACHES
Another way to examine the activities involved in entrepreneurship is through a
process approach. Although numerous methods and models attempt to structure the
entrepreneurial process and its various factors, we shall examine three of the more
traditional process approaches here.
27
28
Bygrave's model
THE INDIVIDUAL
1. Need for achievement 5. Previous work experience
2. Locus of control 6. Entrepreneurial parents
3. Risk-taking propensity 7. Age
4. Job satisfaction 8. Education
THE ENVIRONMENT
7. Proximity of universities
9. Accessibility of transportation
4. Accessibility of suppliers
6. Governmental influences
THE ORGANIZATION
1. Type of firm 4 Strategic variables
2 Entrepreneurial environment a) Cost b) Differentiations c) Focus
3 Partners 5 Competitive entry wedges
THE PROCESS
1. Locating a business opportunity
2. Accumulating resources
INTRAPRENEURSHIP
Recently the term intrapreneurship has become popular in the business
community, though very few executives thoroughly understand the concept. Gifford
Pincliot has denned an intrapreneur as "any of the dreamers who do.... However,
he goes on to say, "... take hands-on responsibility for creating innovation of any kind
within an organization. The intrapreneur may be the creator or the inventor but is
always the dreamer who figures out how to turn an idea into a profitable reality." 52
This definition has definite similarities to entrepreneurship except that
intrapreneurship takes place within an organization. The major thrust of
intrapreneuring, then, is to create or develop the entrepreneurial spirit within
corporate boundaries, thereby allowing an atmosphere of innovation to prosper.
33
KEY CONCEPTS
Before concluding our discussion of the nature of entrepreneurship, we need to
put into three perspective three key concepts: entrepreneurship, entrepreneur,
and entrepreneurial management.
Entrepreneurship
Entrepreneur
The entrepreneur is a catalyst for economic change who uses purposeful searching,
careful planning, and sound judgment when carrying out the entrepreneurial process.
Uniquely optimistic and committed, the entrepreneur works creatively to establish
new resources or endow old ones with a new capacity, all for the purpose of creating
wealth.
Entrepreneurial Management
The underlying theme of this book is the discipline of entrepreneurial
management, a concept that has been delineated as follows:
Entrepreneurship is based upon the same principles, whether the
entrepreneur is on 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 don't are pretty much the same, and so are
the kinds of innovation and where to look for them. In every case there is
a discipline we might call Entrepreneurial Management. 34
The techniques and principles of this emerging discipline will drive the
entrepreneurial economy of our time.
SUMMARY
This chapter examined the evolution of entrepreneurship, providing a foundation for
further study of this dynamic and developing discipline. Exploring the early
economic definitions as well as selected contemporary ones, the chapter presented a
historical picture of how entrepreneurship has been viewed. In addition, the ten
major myths of entrepreneur-ship were discussed to permit a better understanding of
EXPERIENTIAL EXERCISE
Understanding Your Beliefs about Successful Entrepreneurs
Read each of the following ten statements, and to the left of each indicate your
agreement or disagreement. If you fully agree with the statement, put a 10 on the
line at the left. If you totally disagree, put a 1. If you tend to agree more than you
disagree, give a response between 6 and depending on how much you agree. If you
tend to disagree, give a response between 2 and 5.
____1. Successful entrepreneurs are often methodical and analytical individuals who
carefully plan out what they are going to do and then do it.
____2. The most successful entrepreneurs are born with special characteristics such as
high achievement drive and a winning personality, and these traits serve them well in
their entrepreneurial endeavors.
____3. Many of the characteristics needed for successful entrepreneur ship can be
learned through study and experience.
____4. The most successful entrepreneurs are those who invent a unique product or
service.
____5. Highly successful entrepreneurs tend to have very little formal schooling.
____6. Most successful entrepreneurs admit that dropping out of school was the best
thing they ever did.
____7. Because they are unique and individualistic in their approach to business,
most successful entrepreneurs find it hard to socialize with others; they just do not fit in.
____8. Research shows that although it is important to have adequate financing
before beginning an entrepreneurial venture, it is often more important to have managerial competence and proper planning.
____9. Successful entrepreneurship is more a matter of preparation and desire than
it is of luck.
____10. Most successful entrepreneurs do well in their first venture, which
encourages them to continue; failures tend to come later on as the enterprise grows.
Put your answers on the following list in this way: (a) Enter answers to numbers 1,
3, 8, and 9 just as they appeal; and then ft) subtract the answers to 2,4,5,6,7, and 10
from 11 before entering them here. Thus, if you gave an answer of S to number 1, put an
8 before number 1 here. However, if you gave an answer of 7 to number 2 here, place a
4 before number 2 here. Then add both columns of answers and enter your total on the
appropriate line.
____ 1 ____ 6*
____ 2* ____ 7*
____ 3 ____ 8
____ 4* ____ 9
____ 5* ____10*
____ Total
Interpretation: This exercise measures how much you believe the myths of
entrepreneurship. The lower your total, the stronger your beliefs; the higher your
total, the less strong your beliefs. Numbers 1, 3, 8, and 9 are accurate statements;
numbers 2, 4, 5, 6, 7, and 10 are inaccurate statements. Here is the scoring key:
80-100 Excellent. You know the facts about entrepreneurs.
61-79 Good, but you still believe in a couple of myths.
41-60 Fair. You need to review the chapter material on the myths of
entrepreneurship.
0-40 Poor. You need to reread the chapter material on the myths of entrepreneurship and study these findings.
its fashion-forward caps. "We were able to bring together in our creative services
area the first computer that generated art that could show three-dimensional
variations in designsforward looks, backward looksthings that our competition
had no clue as to how we were generating. While they were trying to figure out the
technology, we were gaining market share," DPC president Ken Shead explains.
In 1995, DPC shipped 30 million trendsetting caps to 7,500 retailers throughout
the United States, making it the industry's fastest-growing headwear company. The
company's aggressive growth has been the payoff for Pearson's winning vision. "We
knew that the spoils licensing industry, especially in the headwear category, is very
competitive. We had to do something to set ourselves apart." DPC began courting
the entertainment industry and was rewarded with lucrative licensing rights to feature
Mickey Mouse, Looney Tunes characters, the Flinlstones, Barney, Garfield, and
other pop-culture icons on DPC head-wear. "Our number-one-selling hat is Mickey
Mouse," Pearson says. "It outsells the NFL; it outsells Major League Baseball; it even
outsold the Chicago Bulls with Michael Jordan."
Impressive sales in the domestic market have served as a catalyst for DPC's
expansion worldwide. "DPC is a global company. We made that decision to focus
on the international market worldwide approximately three years ago," Mike
Russell, executive vice president of marketing, says. "From the standpoint of
developing products to sell internationally, we're somewhat unique in our industry
since Mickey Mouse doesn't change whether he's sold in the Far East or Central
America. We have a definitive line of products that transcend international markets,
and the demand for American logo products is continually growing internationally."
With new products and new markets on the horizon, Drew Pearson Companies is
poised to extend its winning streak well into the next century. But the former NFL starturned-CEO knows his team can't rest on its laurels. "When you win a Super Bowl,
you're not necessarily satisfied with winning one Super Bowl. You want to go back and
win it again. You like the adulation and the accolades that come along with success. We
try to implement that same feeling, that same strategy at the Drew Pearson
Companies, No matter what level of success we reach, we know there's more to attain.
There's more to garner. We're not the number one headwear company in the world,
and that's a goal of ours."
Questions
1. What myths in entrepreneurship do DPC and Drew Pearson seem to debunk?
2. Describe the schools of entrepreneurial thought that may apply to Drew Pearson
and his venture.
3. Using Figure 2.3, explain how Pearson's venture fits into the entrepreneurial
assessment approach.
Case 2.2
PAUL'S FOUR SHORTCOMINGS
Paul Enden has always been very reliable and a hard worker. For the past eight
years Paul has been working in a large auto service garage. During this lime he
has made a number of recommendations to the owner regarding new services that
could be provided to customers. One of these is called the "'fast lube." With this
service people who want to have their oil changed and their car lubricated do not
have to leave the auto and come back later in the day. Three service racks handle
this job. It generally takes less than 10 minutes lo take care of a car, and most
people can have the job completed within 25 minutes of the time they arrive. The
service, which has become extremely popular with customers, resulted in an
increase in overall profits of 5 percent last year.
Paul's wife believes he has a large number of ideas that could prove profitable.
"You ought to break away and open your own shop," she has told him, Paul would
like to do so, but he believes four things help account for entrepreneurial
success and he has none of them. Here is how he explained it to his wife:
"To be a successful entrepreneur, you have lo be a thinker, not a doer. I'm a doer.
Thinking bores me. I wouldn't like being an entrepreneur. Second, those guys
who do best as entrepreneurs tend to he inventors. I'm not an inventor. If
anything, I think of new approaches to old ways of doing business. I'm more of
a tinkerer than an inventor. Third, you've got to be lucky to be a successful
entrepreneur. I'm hard working; I'm not lucky. Fourth, you have to have a lot of
money to do well as an entrepreneur. I don't have much money. 1 doubt whether
$50,000 would get me started as an entrepreneur."
Questions
1. Does Paul need to be an inventor to be an effective entrepreneur? Explain
your answer.
2. How important is it that Paul have a lot of money if he hopes to be an
entrepreneur? Explain your answer.
3. What is wrong with Paul's overall thinking? Be sure to include a
discussion of the myths of entrepreneurs hip in your answer.