ENTREPRENEURSHIP

An entrepreneur is one who organizes a new business venture in the hopes of making a profit. Entrepreneurship is the process of being an entrepreneur, of gathering and allocating the resources—financial, creative, managerial, or technological—necessary for a new venture's success. One engages in entrepreneurship when one begins to plan an organization that uses diverse resources in an effort to take advantage of the newly found opportunity. It usually involves hard work, long hours, and, usually, the hope of significant financial return. More importantly, entrepreneurship is characterized by creative solutions to old or overlooked problems; ingenuity and innovation are the entrepreneur's stock in trade. By taking a new look at difficult situations, the entrepreneur discerns an opportunity where others might have seen a dead end.

Entrepreneurship is also a source of more entrepreneurship. Societies around the world have always been fueled by the innovations and new products that entrepreneurs bring to the market. All big businesses started out small, usually as one man or woman with a good idea and the willingness to work hard and risk everything. While it is true that many new businesses fail, the ones that succeed contribute a great deal to the creation of other new ventures which leads, in turn, to a dynamic national economy. Indeed, today's economists and business researchers cite entrepreneurship as a key component of future economic growth in North America and around the world. "Entrepreneurship is viewed as the catalyst to transfer a segment of our new generation of [downsized] people into self-employed business owners who will, in turn, provide jobs for the rest," wrote Mitch Lenko in CMA. "It is viewed as the necessary component to the creation of new wealth; and hopefully represents the fountainhead from which will spawn innovative management techniques for the design, manufacture and marketing of products that will compete globally."

Successful entrepreneurship depends on many factors. Of primary importance is a dedicated, talented, creative entrepreneur. The person who has the ideas, the energy, and the vision to create a new business is the cornerstone to any start-up. But the individual must have ready access to a variety of important resources in order to make the new venture more than just a good idea. He or she needs to develop a plan of action, a road map that will take the venture from the idea stage to a state of growth and institutionalization. In most instances, the entrepreneur also needs to put together a team of talented, experienced individuals to help manage the new venture's operations. Entrepreneurship also depends on access to capital, whether it be human, technological, or financial. In short, entrepreneurship is a process that involves preparation and the involvement of others in order to exploit an opportunity for profit.

ENTREPRENEURSHIP DEFINED

The multiplicity of the entrepreneur's motivations and goals leads to questions aimed at distilling the essence of entrepreneurship. To what or to whom does one refer when one uses the word? Is there any difference between a person who opens yet another dry cleaning establishment, sandwich shop, or bookstore and the entrepreneur? If so, what is it that separates the two? What characteristics define an entrepreneur and entrepreneurship itself? Historians and business writers have struggled with providing the answers. Even today, there is no widely accepted definition, but the variety of possibilities provides important clues as to what makes entrepreneurship special.

Harvard professor Joseph Schumpeter, for example, argued that the defining characteristic of entrepreneurial ventures was innovation. By finding a new "production function" in an existing resource—a previously unknown means through which a resource could produce value—the entrepreneur was innovating. The innovation was broadly understood; an innovation could take place in product design, organization of the firm, marketing devices, or process design. Nevertheless, innovation was what separated the entrepreneur from others who undertook closely related endeavors. Other researchers, such as professor Arthur Cole, defined entrepreneurship as purposeful activity to initiate, maintain, and develop a profit-oriented business. The important part of this definition is the requirement that individuals must create a new business organization in order to be considered entrepreneurial. Cole's entrepreneur was a builder of profit-minded organizations.

Still other observers, such as Shapero and Sokol, have argued that all organizations and individuals have the potential to be entrepreneurial. These researchers focus on activities rather than organizational make-up in examining entrepreneurship. They contend that entrepreneurship is characterized by an individual or group's initiative taking, resource gathering, autonomy, and risk taking. Their definition could theoretically include all types and sizes of organizations with a wide variety of functions and goals.

In his book Innovation and Entrepreneurship, Peter F. Drucker took the ideas set forth by Schumpeter one step further. He argued that Schumpeter's type of innovation can be systematically undertaken by managers to revitalize business and nonbusiness organizations. By combining managerial practices with the acts of innovation, Drucker argued, business can create a methodology of entrepreneurship that will result in the institutionalization of entrepreneurial values and practice. Drucker's definition of entrepreneurship—a systematic, professional discipline available to anyone in an organization—brings our understanding of the topic to a new level. He demystified the topic, contending that entrepreneurship is something that can be strategically employed by any organization at any point in their existence, whether it be a start-up or a firm with a long history. Drucker understood entrepreneurship as a tool to be implemented by managers and organizational leaders as a means of growing a business.

THE ENTREPRENEURIAL PERSONALITY

Writing in his book The Entrepreneurial Mind, Jeffry Timmons defined entrepreneurship as "the ability to create and build something from practically nothing." His definition captures the spirit of the word, the sense that entrepreneurs are like magicians, creating thriving organizations out of good ideas by virtue of hard work, canny business dealing, and personal skills. Timmons's words hint at the myths inherent in the common understanding of entrepreneurship. They bring to mind the great entrepreneurs who have become icons of American business mythology.

Many businesspeople believe that entrepreneurs have a personality that is different than those of "normal" people. Entrepreneurs are seen as having "the right stuff." But defining the various characteristics and qualities that embody entrepreneurial success can be an elusive task, for as Lanko indicated, "today's entrepreneurs are big and tall, and short and small. They come from every walk of life, every race and ethnic setting, all age groups, male and female, and from every educational background. There is no mould for the entrepreneur. Entrepreneurs make their own mold."

But while it is hard to generalize about what it takes to be a successful entrepreneur, some personality traits seem to be more important than others. "While many authors and researchers have disagreed on the relative significance of individual entrepreneurial traits, all agree on one quality that is essential to all entrepreneurs, regardless of definition," wrote Lanko. "That quality is 'commitment'; it is self-motivation that distinguishes successful entrepreneurs from those that fail. It is the common thread in the lives and biographies of those that have succeeded in new enterprises. It is the one quality which entrepreneurs themselves admit is critical to the success of their initiatives."

Other traits commonly cited as important components of entrepreneurial success include business knowledge (business planning, marketing strategies, asset management, etc.), self-confidence, technical and other skills, communication abilities, and courage. But there are other, less obvious, personality characteristics that an entrepreneur should develop as a means of further ensuring their success. In his book Entrepreneurship: Texts, Cases, Notes, Robert C. Ronstadt indicated some additional traits that help entrepreneurs build thriving organizations, including creativity and the ability to tolerate ambiguous situations.

Creative solutions to difficult problems may make or break the young and growing business; the ability of an entrepreneur to find unique solutions could be the key to his or her success. One of the most vexing situations entrepreneurs face is the allocation of scarce resources. For instance, owners of new ventures need to be able to decide how to best use a small advertising budget or how best to use their limited computer resources. Furthermore, they must be creative in their ability to find capital, team members, or markets. Entrepreneurial success is often directly predicated on the business owner's ability to make do with the limited resources available to him or her.

In addition to being creative, an entrepreneur must be able to tolerate the ambiguity and uncertainty that characterize the first years of a new organization. In nearly all cases, business or market conditions are bound to change during the first few years of a new business's life, causing uncertainty for the venture and for the entrepreneur. Being creative enables entrepreneurs to more successfully manage businesses in new and ambiguous situations, but without the ability to handle the pressure that uncertainty brings upon an organization, the entrepreneur may lose sight of his or her purpose.

Finally, environmental factors often play a significant part in influencing would-be entrepreneurs.

Often, personal or work history has led individuals to be more open to taking the risks involved with undertaking a new venture. For instance, individuals who know successful entrepreneurs may be stimulated to try their hand at running their own business. The successful entrepreneurs act as role models for those thinking about undertaking a new venture, providing proof that entrepreneurship does not always end in bankruptcy.

In addition, work experience can provide entrepreneurs with invaluable experience and knowledge from which to draw. "First and foremost, entrepreneurs should have experience in the same industry or a similar one," insisted the Portable MBA in Entrepreneurship. "Starting a business is a very demanding undertaking indeed. It is no time for on-the-job training. If would-be entrepreneurs do not have the right experience, they should either go out and get it before starting their new venture or find partners who have it."

THE PROCESS OF ENTREPRENEURSHIP

The myths that have grown up around the great entrepreneurs in America have focused more on the personality of the individual than on the work that he or she did to create a prosperous organization. What sticks in our memories are the qualities of a great entrepreneur, those personality traits that "make" a great businessperson. Successful entrepreneurs, however, work hard to build their organizations, starting from little and undertaking a process that results in a thriving business. Even the best ideas become profitable only because the entrepreneur went through the steps necessary to build a company from the ground up. Successful new ventures do not appear magically out of the swirl of the marketplace; they are planned, created, and managed.

It is important to understand some of the stages a businessperson must go through in order to create a successful entrepreneurial venture. All entrepreneurs go through three very general stages in the process of creating their ventures: a concept formation stage where ideas are generated, the innovation and opportinity are identified, and the business begins to take shape; a resource gathering stage where necessary resources are brought together to launch the new business; and a stage where the organization is actually created.

CONCEPT FORMATION Before any business opens its doors, it must make crucial decisions about the way the business will be run. This first step in the entrepreneurial process is where the entrepreneur determines what kind of potential market exists for the business and forms a rough idea of how to penetrate the existing market. During the concept formation stage, the entrepreneur must answer hard questions about the potential business as well as his or her own motivations for starting his or her own business. The answers to these questions will provide the framework for future planning, growth, and innovation.

There is a great deal that is unknown to the entrepreneur before he or she starts out. The viability of the venture depends on the individual's ability to lessen that which is unknown and maximize that which is known. The central question an entrepreneur should ask him or herself during the idea generation stage is whether there is actually an opportunity for a successful venture. That is, will starting a new business enable the entrepreneur to accomplish things or meet personal and professional goals that he or she might not otherwise meet? Some entrepreneurs want to make a certain return on their efforts and investment or are looking to run a business that will afford them a certain lifestyle. Others are looking to capture a certain percentage of the market and thus increase their wealth. Still others go into business for themselves because it would afford them the independence and freedom that working for someone else would not. Before taking the plunge, prospective entrepreneurs should investigate the extent to which their envisioned business will give them an opportunity to meet their goals.

A new business can be opened by anyone with the capital and time to do it. Nevertheless, businesses that will be successful for years to come must maintain a certain level of financial soundness. Among the first questions an entrepreneur should ask are those that explore the potential profitability of the venture. The entrepreneur should be able to estimate sales and selling expenses as well as other costs of doing business. In order to develop a sense of the economic feasibility of a venture, the entrepreneur should investigate the size and other characteristics of the potential market for the product or service, including competitive pressures and capital start-up requirements. Quantitative analysis of the opportunity is a vital part of the conceptualization of the business. The results of "running the numbers" and creating a set of figures with which the future can be planned will enable the entrepreneur to determine whether the potential business will be profitable. "There is no more luck in becoming successful at entrepreneurship than in becoming successful at anything else," wrote William D. Bygraves in The Portable MBA in Entrepreneurship. "In entrepreneurship, it is a question of recognizing a good opportunity when you see one and having the skills to convert that opportunity into a thriving business. To do that, you must be prepared. So in entrepreneurship, just like any other profession, luck is where preparation and opportunity meet."

RESOURCE GATHERING The first stage of the entrepreneurship process should give the individual enough information to decide whether or not the business has the capacity to meet the individual's personal and professional goals. Once the decision has been made, the entrepreneur may: 1) continue to work in his or her present employment capacity; 2) begin looking for a new entrepreneurial opportunity that is a better fit; or 3) beings the second step in the entrepreneurial process, that of gathering the necessary resources.

Without a sufficient supply of resources the opportunity might never be turned into a business that makes money for the entrepreneur. In the resource gathering stage the entrepreneur begins to assemble the tools that he or she will need to make the business idea a successful one. In general, a person has to gather three types of primary resources: capital, human/managerial, and time. Capital can be financial (in the form of cash, stock ownership, or loans), intellectual (patents, trademarks, brand names and copyrights), and technical (innovations in design or production that competitors can not or will not duplicate). Human resources refers to the individuals who will help the entrepreneur take advantage of the opportunity, either as employees of the new organization or as paid and unpaid counselors. In order to create a viable organization, an entrepreneur has to be ready and able to manage the resources at his or her disposal, bringing them together in advantageous, efficient ways that meet the needs of the fledgling organization.

An often-overlooked consideration in the resource gathering stage is time. Many entrepreneurial ventures that manage to succeed do so in part because they were launched at an opportune time, and because their founders were able to carve out an adequate amount of time—a most valuable resource, after all—to attend to the myriad start-up needs of the business. For instance, a business based on a patented technological innovation has a certain amount of time to operate before the patent expires and competitors can duplicate the innovation. When the patent expires, the competitive advantage held by the business is diminished or gone. Other businesses may be based on selling to an emerging market. The entrepreneur who runs the business has a certain amount of time before potential competitors notice that the business is (or will be) profitable. In that time frame—the window of opportunity—the entrepreneur who found the opportunity must manage resources so that the business is established and protected from the threat of competition. In such instances, however, the would-be entrepreneur also needs to avoid the common mistake of rushing in to take advantage of the opportunity without adequately addressing all of the various elements that produce a successful start-up.

ORGANIZATION CREATION AND DEVELOPMENT

This stage of the entrepreneurial process is the actual establishment and opening of the business. During this stage, the entrepreneur goes from being just a visionary to a visionary with a business to run. One way to examine the changing managerial activities of the entrepreneur is to look at the different roles filled by the entrepreneur as the business develops. As the founder of the organization, the entrepreneur sets the philosophy of the organization, establishes the strategic focus, and educates new employees. In this role, the entrepreneur lays the groundwork for the emerging corporate culture. In addition, most entrepreneurs serve as the primary promoters for their new start-ups. They must act as the new venture's chief spokesperson in contacts with financial backers, prospective clients, employees, suppliers, and others. In addition, as founders (or founding team members) of organizations, entrepreneurs are often called upon to provide counsel or advice to community members or employees. The roles that an entrepreneur must fill demand flexibility and creativity. In order to successfully manage a new venture, an entrepreneur must be comfortable in all the roles.

ENTREPRENEURSHIP AND LEADERSHIP

Entrepreneurs must also be able to balance their managerial duties with leadership activities. In other words, they have to be able to handle both the day-today operations of the business as well as decision making obligations that determine the organization's long-term direction, philosophy, and future. It is a precarious relationship, but entrepreneurs must be both managers and visionaries in order to build their organizations. Indeed, researchers contend that many otherwise talented entrepreneurs have failed because they were unable to strike an appropriate balance between details of management and the larger mission that guides the new venture. Many entrepreneurs eventually reach a point where they realize that these twin obligations can not be fully met alone. It is at this point that staffing decisions can become a critical component of long-term business success. In general, entrepreneurs should search for ways to delegate some of their management tasks rather than their leadership tasks. After all, in most cases the new business has long been far more dependent on its founder's leadership and vision than on his or her ability to monitor product quality or select new computers.

The mission of the new venture can only be fulfilled if the entrepreneur remains entrepreneurial throughout the life of the organization. That is, innovation has to be a primary strategy of the venture. Drucker pointed out that the venture must be receptive to innovation and open to the possibilities inherent in change. Change must be seen as a positive for a business to remain entrepreneurial. Therefore, management of an entrepreneurial organization requires policies that encourage innovation and rewards those who innovate. If the venture is to remain dedicated to entrepreneurship, management has to take the lead in establishing the patterns that will lead to a dynamic, flexible, and vital organization.

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