Entrepreneurship is the act and art of being an entrepreneur or one who undertakes innovations or introducing new things, finance and business acumen in an effort to transform innovations into economic goods. This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses (referred as startup company); however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities spin-off organizations.
According to Paul Reynolds, entrepreneurship scholar and creator of the Global Entrepreneurship Monitor, "by the time they reach their retirement 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." And in recent years has been documented by scholars such as David Audretsch to be a major driver of economic growth in both the United States and Western Europe. "As well, entrepreneurship may be defined as the pursuit of opportunity without regard to resources currently controlled (Stevenson,1983)"
Entrepreneurial activities are substantially different depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high value" entrepreneurial ventures seek venture capital or angel funding (seed money) in order to raise capital to build the business. Angel investors generally seek annualized returns of 20-30% and more, as well as extensive involvement in the business. Many kinds of organizations now exist to support would-be entrepreneurs including specialized government agencies, business incubators, science parks, and some NGOs. In more recent times, the term entrepreneurship has been extended to include elements not related necessarily to business formation activity such as conceptualizations of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship have emerged.
The entrepreneur is a factor in microeconomics, and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith in the late 17th and early 18th centuries, but was largely ignored theoretically until the late 19th and early 20th centuries and empirically until a profound resurgence in business and economics in the last 40 years.
In the 20th century, the understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek.
In Schumpeter, an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to replace in whole or in part inferior innovations across markets and industries, simultaneously creating new products including new business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. The supposition that entrepreneurship leads to economic growth is an interpretation of the residual in endogenous growth theory and as such is hotly debated in academic economics. An alternate description posited by Israel Kirzner suggests that the majority of innovations may be much more incremental improvements such as the replacement of paper with plastic in the construction of a drinking straw.
For Schumpeter, entrepreneurship resulted in new industries but also in new combinations of currently existing inputs. Schumpeter's initial example of this was the combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case the innovation, the car, was transformational but did not require the development of a new technology, merely the application of existing technologies in a novel manner. It did not immediately replace the horsedrawn carriage, but in time, incremental improvements which reduced the cost and improved the technology led to the complete practical replacement of beast drawn vehicles in modern transportation. Despite Schumpeter's early 20th-century contributions, traditional microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks (instead assuming that resources would find each other through a price system). In this treatment the entrepreneur was an implied but unspecified actor, but it is consistent with the concept of the entrepreneur being the agent of x-efficiency.
Different scholars have described entrepreneurs as, among other things, bearing risk. For Schumpeter, the entrepreneur did not bear risk: the capitalist did.
Knight and Drucker
For Frank H. Knight (1921) and Peter Drucker (1970) entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as capital on an uncertain venture.
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).
- 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).
The acts of entrepreneurship are often associated with true uncertainty, particularly when it involves bringing something really novel to the world, whose market never exists. However, even if a market already exists, there is no guarantee that a market exists for a particular new player in the cola category.
The place of the disharmony-creating and idiosyncratic entrepreneur in traditional economic theory (which describes many efficiency-based ratios assuming uniform outputs) presents theoretic quandaries. William Baumol has added greatly to this area of economic theory and was recently honored for it at the 2006 annual meeting of the American Economic Association.
Characteristics of an entrepreneur
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Entrepreneurs have many of the same character traits as leaders, similar to the early great man theories of leadership; however trait-based theories of entrepreneurship are increasingly being called into question. Entrepreneurs are often contrasted with managers and administrators who are said to be more methodical and less prone to risk-taking. Such person-centric models of entrepreneurship have shown to be of questionable validity, not least as many real-life entrepreneurs operate in teams rather than as single individuals.
It has assumed super importance for accelerating economic growth both in developed and developing countries. It promotes capital formation and creates wealth in country. It is hope and dreams of millions of individuals around the world. It reduces unemployment and poverty and it is a pathway to prosper. Entrepreneurship is the process of exploring the opportunities in the market place and arranging resources required to exploit these opportunities for long term gain. It is the process of planning, organising, opportunities and assuming. Thus it is a risk of business enterprise. It may be distinguished as an ability to take risk independently to make utmost earnings in the market. It is a creative and innovative skill and adapting response to environment.
Given entrepreneurship's potential to support economic growth, it is the policy goal of many governments to develop a culture of entrepreneurial thinking. This can be done in a number of ways: by integrating entrepreneurship into education systems, legislating to encourage risk-taking, and national campaigns. An example of the latter is the United Kingdom's Enterprise Week.
Many of these initiatives have been brought together under the umbrella of Global Entrepreneurship Week, a worldwide celebration and promotion of youth entrepreneurship, which started in 2008.
Financial bootstrapping is a term used to cover different methods for avoiding using the financial resources of external investors. Bootstrapping can be defined as “a collection of methods used to minimize the amount of outside debt and equity financing needed from banks and investors”. The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. Many successful companies including Dell Computers and Facebook were founded this way.
There are different types of bootstrapping:
- Owner financing
- Sweat equity
- Minimization of the accounts payable
- Joint utilization
- Delaying payment
- Minimizing inventory
- Subsidy finance
- Personal Debt
Many businesses need more capital than can be provided by the owners themselves, and in this case a range of options are available including:
Some of these source provide not only funds, but also financial oversight, accountability for carrying out tasks and meeting milestones, and in some cases business contacts and experience - in many cases in return for an equity stake.
- Business opportunity
- Business plan
- Corporate Social Entrepreneurship
- Entrepreneurship Ecosystem
- Startup ecosystem
- Entrepreneurship education
- Junior enterprise
- University spin-off
- Scott Andrew Shane (2003). A General Theory of Entrepreneurship: the Individual-Opportunity Nexus. Edward Elgar Publishing. ISBN 1843769964.
- Paul D. Reynolds (2010). Entrepreneurship in the United States: The Future Is Now. Springer. ISBN 1441942750.
- Paul D. Reynolds (1997). "LEVERAGING RESOURCES: BUILDING AN ORGANIZATION ON AN ENTREPRENEURIAL RESOURCE BASE". Frontiers of Entrepreneurship Research, 1997. Babson College. ISBN 0910897182.
- Mark Van Osnabrugge, Robert J. Robinson (2000). Angel Investing. John Wiley & Sons. ISBN 0787952028.
- Joseph A. Schumpeter (2012). Capitalism, Socialism and Democracy. Routledge. ISBN 0415107628.
- Frank Hyneman Knight (2002). Risk, Uncertainty and Profit. Beard Books. ISBN 1587981262.
- "Searching for the invisible man". The Economist. Mar 9 2006. p. 67. Retrieved 23 December 2012.
- Tanya Prive (19 December 2012). "Top 10 Qualities That Make A Great Leader". Forbes. Retrieved 23 December 2012.
- Ebbena, Jay; Johnson, Alec (November 2006). "Bootstrapping in small firms: An empirical analysis of change over time". Journal of Business Venturing 21 (6): 851–865. Retrieved 23 December 2012.
- Tony Bailetti (February 2012). "Technology Entrepreneurship: Overview, Definition, and Distinctive Aspects". Technology Innovation Management Review. Retrieved 23 December 2012.
- Dr Thomas N. Duening, Robert D. Hisrich, Michael A Lechter, Esq. (2009). Technology Entrepreneurship: Value Creation, Protection, and Capture. Academic Press. ISBN 0123745020.
- Jessica Livingston (2007). Founders at Work: Stories of Startups' Early Days. Apress. ISBN 1590597141.
- Anders Lundstrom, Lois A. Stevenson (2005). Entrepreneurship Policy: Theory and Practice. Springer. ISBN 038724140X.
- Richard Swedberg (2000). Entrepreneurship: The Social Science View. Oxford University Press. ISBN 019829462X.
- João Leitão, Rui Baptista (2009). Public Policies for Fostering Entrepreneurship. Springer. ISBN 978-1-4419-0248-1.
- Erik N Bowman (2011). Entrepreneur Training Manual, Third Edition: Certified Entrepreneur Core Curriculum. Guanzi Institute Press. ISBN 978-0-9826-7339-3.
- Erik N Bowman (2011). Entrepreneur Training Manual, Third Edition: Certified Entrepreneur Workbook. Guanzi Institute Press. ISBN 978-0-9837-8629-0.
- Seyed Mohammad Hossein Hojjati (May 2012). "How Entrepreneurs Influence the Success of the Developing Countries". Business Management Dynamics Vol.1, No.11. Retrieved 21 May 2013.
- Starting a Business
- The Ewing Marion Kauffman Foundation
- Enterprise UK
- Guanzi Institute
- Entrepreneurship 101 Duke University video series
- Entrepreneur Boot Camp
- Stanford University’s Entrepreneurship Corner 2000 free videos and podcasts
- In Search of Entrepreneurship