Introduction to Entrepreneurship

OBJECTIVES

1. To introduce the concept of entrepreneurship and its historical development.

2. To explain the entrepreneurial decision process.

3. To identify the basic types of start-up ventures.

4. To explain the role of entrepreneurship in economic development.

5. To discuss the ethics and racial responsibility of entrepreneurs.

NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP

The term entrepreneur comes from the French and translates "between-taker" or "go-between."

Earliest Period

In this period the money person (forerunner of the capitalist) entered into a contract with the go-between to sell his goods. While the capitalist was a passive risk bearer, the merchant bore all the physical and emotional risks.

Middle Ages

In this age the term entrepreneur was used to describe both an actor and a person who managed large production projects. In such large production projects, this person did not take any risks, managing the project with the resources provided. A typical entrepreneur was the cleric who managed architectural projects.

17th Century

In the 17th century the entrepreneur was a person who entered into a contract with the government to perform a service Richard Cantillon, a noted economist of the 1700s, developed theories of the entrepreneur and is regarded as the founder of the term. He viewed the entrepreneur as a risk taker who "buy[s] at certain price and sell[s] at an uncertain price, therefore operating at a risk."

18th Century

In the 18th century the person with capital was differentiated from the one who needed capital. In other words, entrepreneur was distinguished from the capital provider.

Many of the inventions developed during this time as was the case with the inventions of Eli

Whitney and Thomas Edison were unable to finance invention themselves. Both were capital users

(entrepreneurs), not capital providers (venture capitalists.) Whitney used expropriated crown property. Edison raised capital from private sources.

A venture capitalist is a professional money manager who makes risk investments from a pool of equity capital to obtain a high rate of return on investments.

19th and 20th Centuries

In the late 19th and early 20th centuries, entrepreneurs were viewed mostly from an economic perspective. The entrepreneur "contributes his own initiative, skill and ingenuity in planning, organizing and administering the enterprise, assuming the chance of loss and gain."

Andrew Carnegie is one of the best examples of this definition, building the American steel industry on of the wonders of industrial world, primarily through his competitiveness rather than creativity.

In the middle of the 20th century, the notion of an entrepreneur as an innovator was established.

Innovation, the act of introducing something new, is one of the most difficult tasks for the entrepreneur.

Edward Harriman and John Pierpont Morgan are examples of this type of entrepreneur. Edward reorganized the Ontario and southern railroad through the northern pacific trust and john developed his large banking house by reorganizing and financing the nation’s industries.

This ability to innovate is an instinct that distinguishes human beings from other creatures and can be observed throughout history.

DEFINITION OF ENTREPRENEUR

The concept of entrepreneurship from a personal perspective has been explored in this century. This exploration is reflected in the following three definitions of an entrepreneur:

In almost all definitions of entrepreneurship, there is agreement that we are talking about a kind of

behavior that includes:

1.   Initiative taking

2.   The organizing and reorganizing or social/economic mechanisms to turn resources and situations to practical account.

3.   The acceptance of risk or failure.

To an economist, an entrepreneur is one who brings resources, labor, materials, and other assets into combinations that make their value greater than before, and one who introduces changes, innovations, and a new order.

To a psychologist, such a person is typically driven by certain forces- the need to obtain something, to experiment, to accomplish or perhaps to escape the authority of others.

Entrepreneurship is the dynamic process of creating incremental wealth. Our definition of entrepreneurship involves four aspects:

1.   Entrepreneurship involves the creation process.

2.   It requires the devotion of the necessary time and effort.

3.   It involves assuming the necessary risks.

4.   The rewards of being an entrepreneur are independence, personal satisfaction, and monetary reward.

For the person who actually starts his or her own business there is a high failure rate due to poor sales, intense competition, lack of capital or lack of managerial ability.

THE ENTR EPRENEURIAL DECISION PROCESS

(Deciding to become an entrepreneur by leaving present activity )

Many individuals have difficulty bringing their ideas to the market and creating new venture entrepreneurship and the actual entrepreneurial decisions have resulted in several million new businesses being started throughout the world. Although no one knows the exact number in the United States.

Indeed, millions of ventures are formed despite recession, inflation, high interest rates, and lack of infrastructure, economic uncertainty and the high probability of failure

The entrepreneurial decision process entails a movement     from  something  to  something— a movement from a present life style to forming a new enterprise.

To leave a present live-style to create something new comes from a negative force--disruption. Many companies are formed by people who have retired, moved, or been fired. Another cause of disruption

is completing an educational degree.

The decision to start a new company occurs when an individual perceives that forming a new enterprise is both desirable and possible.

KEY TERMS Breakthrough innovations

A new product with some technological change

Business ethics

The study of behavior and morals in a business situation

Desirability of new venture formation

Aspects of a situation that make it desirable to start a new company.

Entrepreneur

Individual who takes risks and starts something new

Entrepreneur as an innovator

An individual developing something unique

Entrepreneurial decision process

Deciding to become an entrepreneur by leaving present activity

Entrepreneurship

Process of creating something new and assuming the risks and rewards

THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP

OBJECTIVES

1.   To introduce the concept of entrepreneurship and its historical development.

2.   To explain the entrepreneurial decision process.

Desirability of New Venture Formation

(Aspects of a situation that make it desirable to start a new company)

The perception that starting a new company is desirable results from an individual’s culture, subculture, family, teachers and peers.

American culture places a high value on being your own boss, being a success and making

money therefore, it is not surprising to find a high rate of company formation in the United

States. On the other hand in some countries making money is not as valued and failure may be a disgrace. The rate of business formation in these countries is not as high. Many subcultures that shape value systems operate within a cultural framework.

Studies indicate that a high percentage of founders of companies had fathers and/or mothers who valued independence. Encouragement to form a company is also gained from teachers, who can significantly influence individuals. An area having a strong educational base is also a requirement for entrepreneurial activity. Peers are important, also, as is an area with an entrepreneurial pool and peer-meeting place.

Possibility of New Venture Formation

(Factors making it possible to create a new venture)

Although the desire of new venture formation derived from the individual’s culture, subculture, family, teachers and peers needs to be present before any action is taken, the second feature necessary centers around this question “What makes it possible to form a new company?”

Formal education and previous business experience give a potential entrepreneur the skills

needed to form and manage a new enterprise. Although educational systems are important in

providing the needed business knowledge, individual will tend to be more successful in

forming in fields in which they have worked. The government also contributes by providing the infrastructure to help a new venture.

The market must be large enough and the entrepreneur must have the marketing know-how to put together the entire package.

Finally, financial resources must be readily available. Although most start-up money comes from personal savings, credit, and friends, but there is often a need for additional capital. Risk- capital availability plays an essential role in the development and growth of entrepreneurial activity.

KEY TERMS Foundation companies

A type of company formed from research and development that usually does not go public.

Gazelles

Very high growth ventures.

Government as an innovator

A government active in commercializing technology

High-potential ventures.

A venture that has high growth potential and therefore receives great investor interest

Entrepreneurship

Entrepreneurship within an existing business structure

Iterative synthesis

The intersection of knowledge and social need that starts the product development process

Lifestyle firm

A small venture that supports the owners and usually does not grow

Ordinary innovation

Z new product with little technological change

Possibility of new venture formation

Factors making it possible to create a new venture