Entrepreneurship

Venture Initiation, Management and Development

George Vozikis, Timothy Mescon, Howard Feldman, Eric W Liguori

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317471349
• Edition: 2
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

The authors present core concepts of entrepreneurship in an easy-to-follow, logical sequence. Starting with basic definitions and an overarching conceptual framework in Part I, the book then addresses topics pertaining to Venture Initiation (Part II), Venture Management (Part III), and Venture Development (Part IV). Each chapter contains a case study in which a real-life entrepreneur, who confronts the issues of growth and competition, is followed. Venture initiation and development are key components of this book.Entrepreneurship has all the standard features that entrepreneurs-in-training need. The book's strength, however, lies in the clear, straightforward, and logical manner in which the various topics within this complex subject are presented. The book also includes learning objectives, outlines, terms, and review questions.

	P A R T
	1

Introduction to Entrepreneurship and Intrapreneurship

1	Entrepreneurship and the Entrepreneur

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LEARNING OBJECTIVES

1. To understand the essence of entrepreneurship.

2. To identify the major characteristics of the entrepreneur.

3. To be able to relate and integrate the process of venture initiation and development into a workable action model.

TOPIC OUTLINE

Introduction

History of Entrepreneurship

Characterizing the Entrepreneur

Entrepreneurs: Born or Made?

The Enterprising Model

Conclusion

Website Information

Key Terms

Review Questions

Case Study

References

“We say here that everybody wants to be a chickens head, not a bull’s toenail.”

(Chien-Shien Wang, Taiwan’s former vice minister for economic affairs, on why there are so many small businesses in his country.)

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INTRODUCTION

Twenty years ago, Fortune 500 companies in the U.S. hired over 70% of college graduates. Today, Fortune 500 companies hire less than 7% of college graduates and the entrepreneurial enterprises hire over 80%. More than 40% of students start a business within one year of graduation” (Houston Business Journal, 2000). These businesses employ 55% of the total American work force. When we think of the entrepreneur, we often visualize the small business. While most, if not all, business ideas begin small, a great deal of focus is placed upon entrepreneurial ideas that have grown into sizable corporations. In examining the entrepreneur, we should not get entwined in the small vs. large argument; rather, we should focus on the individual that made his or her dream come true. The individual who is able, through painstaking effort, to transform a simple idea into a moneymaking, successful venture is the real, classical entrepreneur.

HISTORY OF ENTREPRENEURSHIP

In the beginning of human history, mankind was an agrarian society, and the first entrepreneurs were farmers, artisans, or craftsmen. True entrepreneurial recognition came much later, during the mercantilism period in Louis XIV’s France in the eighteenth century, which created merchant entrepreneurs. The word entrepreneur evolved from the French entreprendre, meaning “to undertake”. This meaning was first introduced by Richard Cantillon (1697—1734), an Irish economist of French descent whose Essai sur la Nature de Commerce preceded Adam Smiths Wealth of Nations by more than 20 years. He characterized an entrepreneur as a specialist in taking on risk, in terms of insuring workers by buying their products or labor services for resale long before consumers indicated how much they are willing to pay for them. In other words, according to Cantillon, the entrepreneur is the agent who purchases the various means of production for ultimate assembly or combination into marketable products. He recognized that a degree of uncertainty and risk entered into the entrepreneurial activity. The workers receive an assured income (in the short run, at least), while the entrepreneur bears the risk caused by price fluctuation in consumer markets.

Until then, the prevalent theory on wealth accumulation was the one advocated by Jean-Baptiste Colbert (1619–1683), who served as the French Minister of Finance from 1665 to 1683 under King Louis XIV. He coined the term mercantilism, in which the wealth of a nation is ensured by relentlessly exporting and hoarding gold rather than importing, which had left the French people impoverished and hastened the French Revolution. But the fate of the East India Company, which personified mercantilism, showed that the mercantilists might have been too optimistic about a state company’s ability to avoid being corrupted by politics. Later, Adam Smith (1723–1790) denounced the East India Company as a “bloodstained, burdensome, and useless monopoly” (The Economist, 2011). Today’s global, Chinese state-owned companies are the most similar in concept to the East India Company, which was finally put out of its misery in 1874.

In an attempt to refute mercantilism accumulate wealth, Adam Smith credited the entrepreneur and his or her invisible entrepreneurial hand, unrestrained and seemingly chaotic, to determine resource allocations that produce wealth rather than merely export it. Adam Smith, the father of private enterprise, influenced heavily by Cantillon, viewed the entrepreneur as a contributor to the workings of the economic system. According to Smith, the businessman who funded entrepreneurial ventures provided capital and nothing else to the productive process. The role can be likened to that of the catalyst that serves to initiate and incite a chemical reaction but serves no useful subsequent function (Schumpeter, 1939).

Of course, this relates to the undertaking of a business and translating words into action in the same way that we view today’s entrepreneur. The Webster’s definition of entrepreneur is “One who organizes, manages, and assumes the risks of a business or enterprise” (Merriam-Webster, 1999). This definition applies to an entrepreneur’s desire to undertake an idea and implement it through a business plan, with the essential goal of making a profit. The word itself expresses the dynamic nature of entrepreneurship and the inherent contradictions in the attempt to balance the need for a venture’s flexibility with the need for coordination.

Additionally, the word entrepreneurship also reflects the inherent difficulties in balancing three seemingly impossible acts: (a) the entrepreneurial problem as far as the choice of products and markets are concerned; (b) the engineering problem in terms of the development of a production process for these products and their distribution in the targeted markets; and (c) the administrative problem of designing the appropriate managerial structures and processes to ensure the venture’s effective organization, in anticipation of the next entrepreneurial problem, as the venture grows and evolves.

Entrepreneurs come in all shapes, sizes, and colors. They are young and old, male and female. Some are successful in their endeavors, while many are not. However, one common bond exists among all entrepreneurs: they have implemented their thoughts in a cohesive, concerted effort. Words become action, and hopes become realities.

Joseph A. Schumpeter (1883—1950) an acclaimed Austrian economist, labeled entrepreneurship as “the perennial gale of creative destruction” (1939). He viewed the entrepreneur as an innovator as well as a manager. Schumpeter continues this line of reasoning by arguing that entrepreneurial profit evolves from innovation or from procuring a commodity at a lower unit cost than any competitor. However, subsequent statements in his seminal work titled Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (1939) serve as a caveat to any entrepreneur hoping to rest upon past accomplishments. Schumpeter warned of the continuous prospect of creative destruction, because once their enterprise is in existence, almost all entrepreneurs feel threatened and put on the defensive. As a matter of fact, he warned that successful businesses conspire with politicians through lobbying to preserve the status quo! Entrepreneurs and business people, therefore, are unsung heroes and are responsible for the most benign development in human history: the spread of mass affluence by moving resources, however painfully, to areas where they can be used more innovatively and productively. Schumpeter said: “The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls, in return for steadily decreasing amount of effort!”

Chester I. Barnard advanced the belief that a relationship exists between the entrepreneur and innovation. To Barnard, the entrepreneur was the one who conceives, discovers, and promotes innovative activities in business operation. Innovation is essential to all formal organizations. In an environment that is constantly changing, it is crucial to have the capacity to sense and affect change if an organization is to survive.

Harbison and Myers (1959) developed the notion of the organization builder. To them, the organization builder is “the catalytic agent in the process of industrialization, that is, he/ she acts and reacts with economic and social environment to bring about economic change” (Harbison & Myers, 1959, p. 17). On the other hand, Collins, Moore, and Unwalla (1964) concluded, after an exhaustive review of conflicting terminologies, that when utilizing the term entrepreneur, “We shall (only) mean the innovating entrepreneur who has developed an ongoing business activity where none existed before” (p. 20).

Exhibit 1.1

The Evolution of the Entrepreneur

Cantillon	A specialist in taking on risk
Smith	Catalyst initiating a chemical reaction
Schumpeter	Innovator wh...