The Entrepreneurial Dilemma in the Life Cycle of the Small Firm

How the firm and the entrepreneur change during the life cycle of the firm, or how they should change

Enno Masurel

• Publisher: Emerald Publishing Limited
• Year: 2019
• Print ISBN:
  9781789733181
  9781789733167
• eBook ISBN:
  9781789733174
• Topic: Business
• Subtopic: Business General
• Index: Business

Entrepreneurial dilemmas play an important, though heavily underexposed, role in the life cycle of the small firm. This book defines the entrepreneurial dilemma as a situation where entrepreneurs have to choose between multiple future courses of action concerning their firm, without sufficient information to make that choice.  

The Entrepreneurial Dilemma in the Life Cycle of the Small Firm enables lecturers, researchers and practitioners in the fields of entrepreneurship, small business development and business administration to understand these entrepreneurial dilemmas and ways to resolve them. 

This book presents an in-depth analysis of the modern theories in the field of entrepreneurship, including innovation, sustainable entrepreneurship, characteristics of small businesses, the life cycle of the firm, entrepreneurial behavior and small business finance. 

Enno Masurel provides a clear overview of the opportunities that teaching entrepreneurship in a higher education context offers, and embodies this teaching within ten universal cases that will help readers to further understand the the dilemmas faced by entrepreneurial activity in the development of small firms.

Chapter 1

Theoretical Background of Entrepreneurship

This chapter introduces the basic theoretical features of entrepreneurship and forms the theoretical backbone of this book. These basic theoretical features of entrepreneurship are important to understand the phenomenon of entrepreneurship that plays a crucial role in the development of the small firm, and they are necessary for the development of entrepreneurship education (see Chapter 2 in this book) and for solving the entrepreneurial dilemmas (see Chapter 3 in this book). Eleven basic features of entrepreneurship are distinguished, all presented in different sections. Two sections also contain two subsections, respectively.

The first section (1.1) of this first chapter pays attention to the main definition of entrepreneurship that is used in this book and its five distinguished elements (i.e., creation, discovery, exploitation, value-adding, and opportunities). Then follow two phenomena that are of crucial interest for entrepreneurship nowadays, viz. innovation (Section 1.2) and sustainable entrepreneurship (Section 1.3). In the fourth section of this chapter, the main characteristics of small businesses are dealt with, as the main focus of this book is on the role of entrepreneurship in small businesses, both quantitative characteristics (Section 1.4.1) and qualitative characteristics (Section 1.4.2). In Section 1.5, the different stages in the development of small businesses are dealt with, with a number of alternative approaches in distinguishing different development stages for small businesses during the life cycle of the firm. Special attention is also paid to the protection of the firm (Section 1.5.1) and the exit strategy of the firm (Section 1.5.2), as these two aspects play a crucial role in this context. This section is followed by the subject of different types of entrepreneurs (including types of entrepreneurs outside the small businesses domain) in Section 1.6. The next section (1.7) is focused on the different roles that an entrepreneur can play within his business (which is in this section also explicitly connected to the different stages in the development of small businesses from Section 1.5). Section 1.8 deals with the 16 main entrepreneurial competences that can be distinguished, in order to be successful as an entrepreneur. The ninth section of this chapter is about entrepreneurial motivation, mainly to be distinguished between opportunity-driven (pull) and necessity-driven (push). The focus of the tenth section is on entrepreneurial behavior, with attention for the three most important models nowadays, viz. discovery and creation, causation and effectuation, and entrepreneurial orientation. The final section (1.11) of this chapter is about the so-called root of all evil: finance, viz. the different forms of financing the small business. All sections are provided with a limited number of additional and suggested readings on the subject.

1.1. Entrepreneurship

The first subject in this section is the historical background of the thinking in the field of entrepreneurship, from the eighteenth century until the 1930s. Additionally, the definition of entrepreneurship that is used in this book is discussed, with its five different elements: creation, discovery, exploitation, value-adding, and opportunities.

The theoretical positioning of entrepreneurship can be traced back to (at least) the eighteenth century, although entrepreneurs have existed much longer, they even in a sense have existed ever since the beginning of mankind. In order to survive, the first humans were already busy with the creation, discovery, and exploitation of value-adding opportunities, alone or in an informal or organized group.

However, it is commonly accepted that one of the first important publications in the field of entrepreneurship is Essai sur la Nature du Commerce en Général, in the French language, by Richard Cantillon (who lived from about 1685 until 1734), if not the first important publication. This book in the field of entrepreneurship saw its light in 1730 and is often abbreviated with the title “Essai.” In this publication, the entrepreneur is mainly seen as the person who accepts the risks that are associated with uncertainty in the future, as he sees a profitable opportunity in this uncertain future. Although not much is known about the life and practice of Richard Cantillon, his personal background is often described as Irish-French: the Irish part may have to do with his country of birth whereas the French part may have to do with the fact that he was later in his life employed by the French government.

Another early writer in the field of entrepreneurship is Jean-Baptiste Say (1767–1832); he was (also) French, with his publication Traité d’Economie Politique, which appeared for the first time in 1803. In this publication, the entrepreneur is mainly seen as the coordinator in the production processes and in the distribution processes of goods. Say is also known for his law “supply creates its own demand” (Say’s law is also called the law of markets).

In the following more than 200 years after Say, a great number of publications on entrepreneurship have emerged (and without any doubt, a great number of publications on entrepreneurship will follow in the future). Two developments are worth to mention here. The first publications were only on paper, whereas nowadays the publications are more and more digital and online. Next, the first publications mainly concerned books, later the publications also concerned papers in scientific journals, and later even papers in journals solely focused on the subject of entrepreneurship. International publishers have obtained a strong position in the market of publications on entrepreneurship.

Still, one of the most important and influential scientists in the context of entrepreneurship is Joseph Alois Schumpeter (1883–1950), who focused on (among others) the relationship between entrepreneurship and innovation. In Section 1.2, more attention is paid to the focal subject of the works of Joseph Schumpeter (who was born in Austria-Hungary and moved to the United States on a later age, in the 1930s), especially from the perspective of innovation.

In all these years of publications in the field of entrepreneurship, consensus on the definition has always been far away, and this consensus is still far away, and most probably this consensus will never be reached. There is an overwhelming multitude of definitions of entrepreneurship available nowadays, and without any doubt this pile will even grow further in the coming years. In the Oxford Dictionary, the meaning of the word entrepreneurship is not specifically described but only mentioned under the heading of the word entrepreneur, next to the word entrepreneurial. As already mentioned in the “Introduction” in this book, the meaning of the word “entrepreneur” is described by the Oxford Dictionary as “a person who starts or organizes a commercial enterprise, especially one involving financial risk.” Related to this noun is the adjective “entrepreneurial,” for which the next examples were given by the Oxford Dictionary: (1) entrepreneurial flair/skills/spirit and (2) some investors have become more entrepreneurial. This description of the word “entrepreneurship” in the Oxford Dictionary has a more or less tautological character, as the related word “enterprise” is part of the description of the word “entrepreneur.” The four meanings of the word “enterprise” given in the Oxford Dictionary are, however, rather revealing: (1) a project or an activity, especially one that is difficult or requires effort, (2) the ability, imagination and desire to create or carry out new projects or activities, (3) business activity developed and managed by individuals rather than the state, and (4) a business company or firm. Although much can be brought against these descriptions in the field of entrepreneurship, the third meaning of the word “enterprise” here comes closest to what is understood with entrepreneurship in this book, especially through the elements “business activity” and “individuals.” However, also the state may start and develop its own business activities and the concept of ownership is neglected in this third meaning of the word “enterprise.”

The basics of the word “entrepreneur” go back to the French verb “entreprendre,” which is translated to the English language as “to undertake,” “to launch” or “to begin” (see www.dictionnaire.reverso.net). The word “entrepreneur” is by the same source translated as “contractor.” This is quite strange, as the Oxford Dictionary describes “contractor” as “a person or firm that does jobs or provides goods of services under contract.” Although a person who does jobs or who provides services under contract sounds very much like what can now be interpreted as an entrepreneur, indicating an entrepreneur as just a contractor is much too limited, as an entrepreneur is considerably more than just a contractor. When the translation is made in the opposite way, from English to French, “entrepreneur” translates identically as “entrepreneur” (www.dictionnaire.reverso.net). However, the English word “entrepreneurship” is translated to French as “esprit d’enterprise,” which means as much as “spirit of enterprise.” All in all, the strict translation of entrepreneurship does not bring us much further, which is an important reason to make a broader interpretation of entrepreneurship. The link to the French language, however, is logical, given the facts that one of the first publications in the field of entrepreneurship was by somebody with a partly French background (Richard Cantillon) and that another early important writer in the field of entrepreneurship was (also) French (Jean-Baptiste Say). Both seminal books were also written in French. However, nowadays, the literature in the field of entrepreneurship is most often in the English language, although within any country or language area, literature, and other materials in the own language may exist.

In this book, the definition of entrepreneurship that is used sounds: the creation, discovery, and exploitation of value-adding opportunities. This definition is self-developed by the author of this book and is partially based on the overwhelming number of definitions of entrepreneurship that are available all over the world, on the one hand, and many years of working in the academic field of entrepreneurship education and entrepreneurship research by the author of this book, on the other. The origins of this definition go back to 2009 (and even further back), when the early definition of entrepreneurship was formulated by the author of this book as follows: “entrepreneurship is concerned with the (creation) discovery and exploitation of profitable opportunities.” This early definition of entrepreneurship was importantly based on the seminal work by Shane and Venkataraman (2000), in which they phrased entrepreneurship as “the existence, discovery, and exploitation of entrepreneurial opportunities.” After a period of time, this early definition became unsatisfactory to the author of this book and, after a few steps in-between, the early definition was changed into the current main definition of entrepreneurship, as phrased at the beginning of this paragraph. A full place, without brackets, was given to “creation,” as it emphasized the dynamic aspect of entrepreneurship. This addition was much inspired on the difference between discovery theory and creation theory, as distinguished by Alvarez and Barney (2007) in their seminal work, see Section 1.10 in this chapter. The major change in the early definition of entrepreneurship, however, was to replace the word “profitable” with the word “value-adding,” as the orientation of the author of this book is very much on sustainable entrepreneurship, in which looking for a balance between economic value, social value and ecological value plays a key role, next to leading the organization (see also Section 1.3 in this chapter). So, the main definition of entrepreneurship in this book clearly holds these five elements: creation, discovery, exploitation, value-adding, and opportunities. All these five elements will be explained in the remainder of this section.

Creation stands for the process of going from nothing to something, or, more pragmatically, the process of going from something less to something more. In this respect, entrepreneurship clearly connects to innovation. Greatly based on the earlier mentioned seminal work by Schumpeter (1934), six forms of innovation can be distinguished: new products and services, new production processes, new markets, new inputs, new organizations, and new brands. The main addition of the author of this book to Schumpeter’s works is the addition of “and services” to “new products” and the addition of new brands to the old list of five forms of innovation. The addition of “and services” to “new products” is quite obvious, as services can be seen as intangible products as well, and also given the increasing role of services in economic development since the launch of Schumpeter’s seminal work. The addition of new brands to this list of innovation forms is more controversial. However, as brands contribute to the creation of customer value, according to the author of this book, it is a rather actual addition to Schumpeter’s list of innovation forms. Remember that Schumpeter launched his seminal work more than 75 years ago and that in the meantime the society has changed dramatically. See Section 1.2 of this book for more information about the relationship between entrepreneurship and innovation.

The second element in the definition of entrepreneurship (viz. discovery) means bringing in something that already existed or applying something that already existed in a new context. One of best metaphors in this context is the discovery of America by Christopher Columbus (although he presumed that he had entered the Indies, but it appeared to be what was later called America); the newly discovered continent of America […] already existed, even for a long time, but it was only brought into the global system (which was dominated by Europe in those days) after its discovery. In a certain sense, an application of something that already existed took place in a new context. More recently, the increasing use of the internet and social media by senior citizens can be pointed at, as an example of discovery, as the elderly formed one of the demographic groups that were lagging behind in the use of internet and social media, compared with the younger people, whereas in principle the elderly use internet and social media in the same way as the younger people do. The growing number of elderly even forms an interesting market for entrepreneurs. So, discovery has more or less to do with incremental innovations, based on existing points of departure, whereas previous mentioned creation has more to do with radical innovations, closer to a start from scratch. The distinction between incremental innovations and radical innovations (and more) will be dealt with in the next section of this book.

The third element in the definition of entrepreneurship that is used in this book, viz. exploitation, in this context means extracting value from the entrepreneurial idea (and what value is, will be dealt with in the next paragraph). Exploitation, thus, makes the entrepreneurial idea more worth and/or more useful. Between an entrepreneurial idea, on the one hand, and the final market success, on the other, lies to the so-called valley of entrepreneurial death. Many promising entrepreneurial ideas fail to reach the market in the end and they drop prematurely in this valley of entrepreneurial death, as proverbial prey for the vultures and only bleached skulls are left, under a burning sun. Only a limited number of entrepreneurial ideas will successfully reach the market in the end. Proper preparation of entrepreneurial activities and ditto business planning clearly contribute to bridging this gap, surviving the valley of entrepreneurial death, and eventually achieving entrepreneurial success. In other words, creation and discovery alone are not enough for entrepreneurial success; exploitation is indispensable for entrepreneurial success as well.

Value-adding is the fourth element of the definition of entrepreneurship that is used in this book. The concept of value can be seen as worth or usefulness. More specifically, in entrepreneurship, value may take three subforms: economic value, social value, and ecological value. Here, we see the Triple P bottom line (or the profit-people-planet concept), as economic value stands for Profit (and issues like labor productivity), social value stands for People (and especially their well-being), and ecological value stands for Planet (with special focus on environmental caretaking). In this book, the term sustainable entrepreneurship is used, defined as leading the firm by balancing between economic value, social value, and ecological value, see also Section 1.3 in this book. One of the most intriguing issues in this Triple P approach is to bring all three subforms under the same general denominator of value. This bringing together leads to bold statements about, for example, th...

Table of contents

• Cover
• Title Page
• Introduction
• Chapter 1 Theoretical Background of Entrepreneurship
• Chapter 2 Entrepreneurship Education
• Chapter 3 Cases about the Entrepreneurial Dilemma in the Development of the Small Firm
• Appendix 1: The Financial Plan
• Appendix 2: Case – The Financial Plan of Pizza Pete
• Appendix 3: Business Model Canvas 2018
• Appendix 4: Lean Start-up in a Nutshell
• Appendix 5: Sustainable Entrepreneurship Balanced Scorecard1
• Index