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Left to right, Eric Schmidt, Sergey Brin and LarryPage of Google, which is sometimes cited as anexample of entrepreneurship and disruptiveinnovation.
EntrepreneurshipFrom Wikipedia, the free encyclopedia
Entrepreneurshipis the process of starting abusiness or other organization. The entrepreneurdevelops a business model, acquires the human andother required resources, and is fully responsible forits successor failure. Entrepreneurship operateswithin an entrepreneurship ecosystem.
Contents
1 Background
2 History
2.1 Etymology and historical usage2.2 Historical barriers to
entrepreneurship
3 What is an entrepreneur
4 Skill set
4.1 Joseph Schumpeter
4.2 Frank Knight and Peter Drucker
4.3 Individual/opportunity nexus
4.4 Entrepreneurship and piracy
5 Psychological make-up
6 Project entrepreneurship
6.1 Innate ability vs. public perception
6.2 Entrepreneurial styles
7 Financing
7.1 Bootstrapping
7.2 Externalfinancing8 Predictors of entrepreneurial success
9 Predictors of entrepreneurial failure
10 See also
11 References
12 Further reading
Background
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In 2012, Ambassador-at-Large forGlobal Women's Issues MelanneVerveer greeted participants in anAfrican Women's EntrepreneurshipProgram at the State Department inWashington, D.C.
In recent years, "entrepreneurship" has been extended from its origins in business to include social andpolitical activity. Entrepreneurship within an existing firm orlarge organization has been referred to as intrapreneurship andmay include corporate ventures where large entities spin off
subsidiary organizations.[1]Entrepreneurs are leaders willing totake risk and exercise initiative, taking advantage of marketopportunities by planning, organizing, and employing
resources,[2]often by innovating new or improving existingproducts.[3]More recently, the term entrepreneurship has beenextended to include a specific mindset (see also entrepreneurialmindset) resulting in entrepreneurial initiatives, e.g. in the formof social entrepreneurship, political entrepreneurship, orknowledge entrepreneurship.
According to Paul Reynolds, founder of the GlobalEntrepreneurship Monitor, "by the time they reach theirretirement years, half of all working men in the United States
probably have a period of self-employment of one or more years one in four may have engaged in self-employment for six or more years. Participating in a new business creation is a common activity among
U.S. workers over the course of their careers."[4]In recent years, entrepreneurship has been claimed as amajor driver of economic growth in both the United States and Western Europe.
Entrepreneurial activities differ substantially depending on the type of organization and creativityinvolved. Entrepreneurship ranges in scale from solo, part-time projects to large-scale undertakings thatcreate many jobs. Many "high value" entrepreneurial ventures seek venture capital or angel funding
(seed money) in order to raise capital for building the business.[5]Many organizations exist to support
would-be entrepreneurs, including specialized government agencies, business incubators, science parks,and some NGOs.
Beginning in 2008, an annual "Global Entrepreneurship Week" event aimed at "exposing people to thebenefits of entrepreneurship" and getting them to "participate in entrepreneurial-related activities".
History
Etymology and historical usage
First used in 1723, today the term entrepreneurimplies qualities of leadership, initiative and innovationin business. Economist Robert Reich has called team-building, leadership, and management ability
essential qualities for the entrepreneur.[6][7]
An entrepreneur is a factor in microeconomics, and the study of entrepreneurship reaches back to thework in the late 17th and early 18th centuries of Richard Cantillon and Adam Smith, which wasfoundational to classical economics.
In the 20th century, entrepreneurship was studied by Joseph Schumpeter in the 1930s and other Austrian
economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. The term"entrepreneurship" was coined around the 1920s, while the loan from French of the word entrepreneurdates to the 1850s.
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Initially, economists made the first attempt to study the entrepreneurship concept in depth[8]RichardCantillon (1680-1734) considered the entrepreneur to be a risk taker who deliberately allocates resources
to exploit opportunities in order to maximize the financial return.[9][10]Cantillon emphasized thewillingness of the entrepreneur to assume risk and to deal with uncertainty. Thus, he draws attention tothe function of the entrepreneur, and distinguishes clearly between the function of the entrepreneur and
the owner who provides the money.[9][11]Alfred Marshall viewed the entrepreneur as a multi-taskingcapitalist. He observed that in the equilibrium of a completely competitive market, there was no spot for
entrepreneurs as an economic activity creator.[12]
Historical barriers to entrepreneurship
Rooting back to the times of the medieval Guild, in Germany craftsmanship a special permission tooperate as an entrepreneur was the small proof of competence (Kleiner Befhi-gungsnachweis), whichrestricted training of apprentices to craftsmen who held a Meister certificate. This institution wasintroduced in 1908 after a period of so-called freedom of trade (Gewerbefreiheit, introduced in 1871) inthe German Reich. However, the small proof of competence was not required to start a business. In 1935
and in 1953, the greater proof of competence was reintroduced (Groer BefhigungsnachweisKuhlenbeck) and required that craftsmen obtain a Meister certificate to train apprentices and before
being permitted to set up a new business.[13]
What is an entrepreneur
Entrepreneur( i/ntrprnr/), is a loanword from French.[14]It is defined as an individual whoorganizes or operates a business or businesses. Credit for coining the term entrepreneurgenerally goesto the French economist Jean-Baptiste Say, but in fact the Irish-French economist Richard Cantillon
defined it first[15]in hisEssai sur la Nature du Commerce en Gnral, orEssay on theNature of Trade inGeneral, a book William Stanley Jevons considered the "cradle of political economy"[16]Cantillon usedthe term differently. Biographer Anthony Breer noted that Cantillon saw the entrepreneur as a risk-takerwhile Say considered the entrepreneur a "planner".
Cantillon defined the term as a person who pays a certain price for a product and resells it at an uncertainprice: "making decisions about obtaining and using the resources while consequently admitting the riskof enterprise." The word first appeared in the French dictionary entitled "Dictionnaire Universel de
Commerce" compiled by Jacques des Bruslons and published in 1723.[17]
Successful entrepreneurs have the ability to lead a business in a positive direction by proper planning, to
adapt to changing environments and understand their own strengths and weakness.[18]
Skill set
The entrepreneur is commonly seen as an innovator a generator of new ideas and business
processes.[20]Management skill and strong team building abilities are often perceived as essential
leadership attributes for successful entrepreneurs.[21]Political economist Robert Reich considers
leadership, management ability, and team-building to be essential qualities of an entrepreneur.[22][23]
Joseph Schumpeter
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British entrepreneur Karren Brady hasan estimated net worth of 82
million[19]
Dell Women's Entrepreneur Network
event in New York City, May 2013
According to Schumpeter, an entrepreneur is willing and able to convert a new idea or invention into a
successful innovation.[24]Entrepreneurship employs what Schumpeter called "the gale of creativedestruction" to replace in whole or in part inferior offerings across markets and industries,simultaneously creating new products and new business models. Thus, creative destruction is largelyresponsible for long-term economic growth. The idea that entrepreneurship leads to economic growth isan interpretation of the residual in endogenous growth theory and as such continues to be debated inacademic economics. An alternate description by Israel Kirzner suggests that the majority of innovations
may be incremental improvements such as the replacement of paper with plastic in the construction of adrinking straw that require no special qualities.
For Schumpeter, entrepreneurship resulted in new industries andin new combinations of currently existing inputs. Schumpeter'sinitial example of this was the combination of a steam engine andthen current wagon making technologies to produce the horselesscarriage. In this case the innovation, the car, wastransformational, but did not require the development of dramaticnew technology. It did not immediately replace the horse-drawn
carriage, but in time, incremental improvements reduced the costand improved the technology, leading to the modern autoindustry.
Despite Schumpeter's early 20th-century contributions,traditional microeconomic theory did not formally consider theentrepreneur in its theoretical frameworks (instead assuming thatresources would find each other through a price system). In this treatment the entrepreneur was animplied but unspecified actor, consistent with the concept of the entrepreneur being the agent of x-efficiency.
For Schumpeter, the entrepreneur did not bear risk: the capitalist did. Schumpeter believed that theequilibrium ideal was imperfect Schumpeter (1934) demonstrated that changing environmentcontinuously provides new information about the optimum allocation of resources to enhance
profitability some individuals acquire the new information before others, recombine the resources togain an entrepreneurial profit. Schumpeter was of the opinion that entrepreneurs shift the Production
Possibility Curve to a higher level using innovations.[25]
Frank Knight and Peter Drucker
For Frank H. Knight[26]and Peter Drucker, entrepreneurship isabout taking risk. The entrepreneur is willing to put his or hercareer and financial security on the line and take risks in thename of an idea, spending time as well as capital on an uncertainventure. Knight classified three types of uncertainty:
Risk, which is measurable statistically (such as the
probability of drawing a red color ball from a jar
containing 5 red balls and 5 white balls).
Ambiguity, which is hard to measure statistically (such as
the probability of drawing a red ball from a jar containing
5 red balls but with an unknown number of white balls).
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True Uncertainty or Knightian Uncertainty, which is impossible to estimate or predict statistically,
such as the probability of drawing a red ball from a jar whose number of red balls is unknown as
well as the number of other colored balls.
Entrepreneurship is often associated with true uncertainty, particularly when it involves something reallynovel, whose market did not already exist. However, even if a related market already exists, nothingguarantees that room exists for a particular new entry.
The place of the entrepreneur in traditional economic theory presents theoretic quandaries. WilliamBaumol has added greatly to this area and was recently honored for this work at the 2006 annual meeting
of the American Economic Association.[27]
Individual/opportunity nexus
According to Shane and Venkataraman, entrepreneurship comprises two "enterprising individuals" and"entrepreneurial opportunities", and researchers should study the nature of the individuals who respond
to these opportunities when others do not, the opportunities themselves and the nexus betweenindividuals and opportunities.[28]
Entrepreneurship and piracy
Recent research ventures embarked on striking links between entrepreneurship and piracy. In thiscontext, the claim is made for a nonmoral approach to piracy as a source of inspiration for
entrepreneurship education[29]as well as for research in entrepreneurship[30]and business model
generation.[31]
Psychological make-up
Studies show that the psychological propensities for male and female entrepreneurs are more similarthan different. Empirical studies suggest that male entrepreneurs possess strong negotiating skills andconsensus-forming abilities.
Jesper Srensen wrote that significant influences on the decision to become an entrepreneur areworkplace peers and social composition. Srensen discovered a correlation between working withformer entrepreneurs and how often these individuals become entrepreneurs themselves, compared to
those who did not work with entrepreneurs.[32]Social composition can influence entrepreneurialism inpeers by demonstrating the possibility for success, stimulating a He can do it, why cant I? attitude. As
Srensen stated, When you meet others who have gone out on their own, it doesnt seem that crazy.[33]
As per Cattells personality framework, both personality traits and attitudes are thoroughly investigatedby psychologists. However, in case of entrepreneurship research, these notions are employed byacademics too, but vaguely. According to Cattell, personality is a system that is related to theenvironment. He further adds that the system seeks explanation to the complex transactions conducted
by both - traits and attitudes. This is because both of them bring about change and growth in a person.
So, personality is that which informs what an individual will do when faced with a given situation.
Simply put, a persons response is triggered by his/her personality and the situation faced.[34]
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Innovative entrepreneurs may be more likely to experience what psychologist, Mihaly Csikszentmihalyicallsflow. Flow occurs when an individual forgets about the outside world given a powerful insight.Csikszentmihalyi suggested that breakthrough innovations occur at the hands of individuals in that
tate.[35]Other research has concluded that a strong internal motivation is a vital ingredient for
breakthrough innovation.[36]Flow can be compared to Maria Montessori's concept of normalization, a
state that includes a childs capacity for joyful and lengthy periods of intense concentration.[37]
Csikszentmihalyi acknowledged that Montessorisprepared environmentoffers children opportunities to
achieve flow.[38]Thus quality and type of early education may influence entrepreneurial capability.
Project entrepreneurship
Project entrepreneus are individuals who are engaged in the repeated assembly of temporary
organizations.[39]These are organizations that have limited lives devoted to producing a singularobjective or goal and get disbanded very rapidly when the project ends. Industries where project-based
enterprises are widespread include: music, movies, software, television, construction, and new media.[40]
What makes project-entrepreneurs distinctive from a theoretical standpoint is that they have to rewirethese temporary ventures whenever new project opportunities emerge. As a result, they are exposed
repeatedly to problems and tasks typical of the entrepreneurial process.[41]Indeed, project-entrepreneursface two critical challenges that invariably characterize the creation of a new venture: locating the rightopportunity to launch the project venture and assembling the most appropriate team to exploit thatopportunity effectively. Resolving the first challenge requires project-entrepreneurs to access anextensive range of information needed to seize new investment opportunities. Resolving the secondchallenge requires assembling a collaborative team that has to fit well with the particular challenges ofthe project and has to function almost immediately to reduce the risk that performance might beadversely affected.
Innate ability vs. public perception
Individuals use what is described as "an innate ability" or quasi-statistical sense to gauge public
opinion.[42]People assume they can sense and figure out what others are thinking.[43]
The Mass media play a large part in determining what the dominant opinion is, since ourdirect observation is limited to a small percentage of the population. The mass media havean enormous impact on how public opinion is portrayed, and can dramatically impact an
individual's perception about where public opinion lies, whether or not that portrayal isfactual.[44]
The ability of entrepreneurs to innovate relates to innate traits, including extroversion and a proclivityfor risk-taking. According to Joseph Schumpeter, the capabilities of innovating, introducing newtechnologies, increasing efficiency and productivity, or generating new products or services, arecharacteristic qualities of entrepreneurs. Also, many scholars maintain that entrepreneurship is a matter
of genes, and that it is not everyone who can be an entrepreneur.[45]
It has, however, been argued that entrepreneurs are not that distinctive and that it is essentially poor
conceptualizations of "non-entrepreneurs" that maintain laudatory portraits of "entrepreneurs." [46][47]
Entrepreneurial styles
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Differences in entrepreneurial organizations often partially reflect their founders' heterogenousidentities. Fauchart and Gruber have classified entrepreneurs into three main types:Darwinians,CommunitariansandMissionaries. These types of entrepreneurs diverge in fundamental ways in their
self-views, social motivations, and patterns of new firm creation.[48]
Financing
Bootstrapping
Entrepreneurs may attempt to "bootstrap" a company rather than seeking external investors. Oneconsensus definition of bootstrapping sees it as "a collection of methods used to minimize the amount of
outside debt and equity financing needed from banks and investors".[49]Most commonly, entrepreneursengaging in bootstrapping incur personal credit-card debt, but they may utilize a wide variety ofmethods. While bootstrapping involves increased risk for entrepreneurs, the absence of any otherstakeholder gives the entrepreneur more freedom to develop the company. Many successful companies -including Dell Computer and Facebook - started by bootstrapping.
Types of bootstrapping include:[50]
owner financing
sweat equity
minimization of accounts payable
joint utilization
delaying payment
minimizing inventorysubsidy finance
personal debt
External financing
Many businesses need more capital than can be provided by the owners themselves, and in this case, arange of options is available including:
Angel investorsVenture capital investors.
Crowd funding
Hedge funds
Alternative Asset Management
Some of these sources provide not only funds, but also financial oversight, accountability for carryingout tasks and meeting milestones, and in some cases business contacts and experience in many cases inreturn for an equity stake.
Predictors of entrepreneurial success
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Factors that may predict entrepreneurial success include the following:[51]
Market
Business-to-business (B2B) model, not business-to-consumer (B2C)
High growth market
Target customer's missed by others
Industry
Growing industry
High technology impact on the industry
Low capital intensity
Small average incumbent firm size
Team
Large, diverse venture team, not individual entrepreneurs
Graduate degrees
Management experience
Work experience in the start-up industry
Employed full-time prior to new venture, as opposed to unemployed
Prior successful entrepreneurial experience
Full-time involvement in the new ventureMotivated by high profits, not independence
Number and diversity of individual's social ties
Company
Written business plan
Activity focused on a single product or service
Competition based on a dimension other than price
Early, frequent and intense marketing
Tight financial controls
$100,000+ start-up capital
Corporation, not sole proprietorship
Status
Wealth
Dominant Race, Ethnicity, or Gender in a Socially Stratified Culture [52]
Predictors of entrepreneurial failure
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Low Business Acumen, failing to add value in consumers lives.
Jack of all Trade, doing what everyone is doing and not doing what one can do the best.
Short-sightedness, failing to create long lasting solutions for todays vices.
Extravagance, satisfying unnecessary wants and misuse of resources at hand.
Insecurity, not building an efficient team.[53]
See also
References
List of entrepreneurs
Business opportunity
Corporate social entrepreneurship
Corporate entrepreneurship
Entrepreneurship ecosystem
University spin-off
Spiral of silence
Small Business Administration
Business Administration
Innovation
1. ^Shane, Scott Andrew (2000).A General Theory of Entrepreneurship: The Individual-opportunity Nexus
(https://books.google.com/books?id=0FxO_Wsh30kC). Edward Elgar Publishing. ISBN 978-1-78100-799-0.
2. ^Deakins & Freel 2012.
3. ^Johnson, D. P. M. (2005). "A Glossary of Political Economy Terms, 2005"
(https://libraries.ucsd.edu/info/resources/glossary-political-economy-terms). Auburn University.
4. ^Paul D. Reynolds (30 September 2007).Entrepreneurship in the United States: The Future Is Now
(https://books.google.com/books?id=gPBP7oP9-p4C). Springer. ISBN 978-0-387-45671-3.
5. ^Mark Van Osnabrugge, Robert J. Robinson (2000).Angel Investing. John Wiley & Sons. ISBN 0-7879-
5202-8.
6. ^Muljadi, Paul (ed.).Entrepreneurship (https://books.google.com/books?id=eNy7hA-rvOUC). Paul Muljadi.
7. ^Crainer, Stuart Dearlove, Des (2000). Generation Entrepreneur. FT Press. p. 202.
8. ^Landstrom, H. (31 December 2007).Pioneers in Entrepreneurship and Small Business Research
(https://books.google.com/books?id=oSjccQt5zTsC). Springer. ISBN 978-0-387-23633-9.
9. ^a
b
Cantillon, Richard (1755).Essai sur la nature du commerce en gnral. London: MacMillan.10. ^Stevenson, H. Jarillo, J. (26 May 2007). Cuervo, lvaro Ribeiro, Domingo Roig, Salvador, eds. A
Paradigm of Entrepreneurship: Entrepreneurial Management, in (https://books.google.com/books?id=2v-
aWpdgoPQC&pg=5).Entrepreneurship: Concepts, Theory and Perspective(Springer Science Business
- - - -
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