Professional Documents
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The Entrepreneurial Perspective: The Nature and Importance of Entrepreneurship
The Entrepreneurial Perspective: The Nature and Importance of Entrepreneurship
The Entrepreneurial Perspective: The Nature and Importance of Entrepreneurship
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THE ENTREPRENEURIAL
1
PERSPECTIVE
CHAPTER 1
The Nature and Importance of Entrepreneurship
CHAPTER 2
The Entrepreneurial Mind-Set
CHAPTER 3
Entrepreneurial Intentions and Corporate Entrepreneurship
CHAPTER 4
International Entrepreneurship Opportunities
1
THE NATURE AND IMPORTANCE OF
ENTREPRENEURSHIP
LEARNING OBJECTIVES
1
To introduce the concept of entrepreneurship and its historical development.
2
To explain the entrepreneurial process.
3
To identify the basic types of start-up ventures.
4
To explain the role of entrepreneurship in economic development.
5
To discuss ethics and entrepreneurship.
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OPENING PROFILE
OPRAH WINFREY
Born in Kosciusko, Mississippi, in 1954, Oprah Winfrey spent her early years in a house
without electricity and running water. Education and books helped Oprah to realize
that this was not all that there was in life. As a result of her hard work and dedication,
at the age of 19, while still in high school, she landed her first broadcasting job as a re-
porter for radio station WVOL in Nashville and simultane-
ously enrolled in Tennessee State University to study speech
www.oprah.com and performing arts. During her sophomore year oprah be-
came the first African American anchor at Nashville’s WTVF-TV.
In 1977 she moved to Baltimore to coanchor the six o’clock news, where she was
also recruited to cohost Baltimore’s local talk show People Are Talking. In 1984 Oprah
relocated to Chicago to host WLS-TV’s half-hour morning talk show, AM Chicago. The
new show ran opposite Phil Donahue’s show, which had been the dominant TV talk
show in Chicago for more than a decade. Within a month, Oprah was beating Donahue
in ratings, and in less than a year, the show expanded to one hour and was renamed
The Oprah Winfrey Show. This was the beginning of Oprah’s career and the founda-
tion for her future success as an entrepreneur and a businesswoman.
In 1984, already a very successful talk show host, Oprah met with Jeff Jacobs, look-
ing for help with a new contract. Jeff, at that time a known entertainment lawyer, con-
vinced Oprah to establish her own company instead of being simply a talk show host
hired by someone else. As a result, Harpo, Inc., was established in 1986, with Jeff Jacobs
eventually joining as president. Oprah and Jeff, although not agreeing on everything,
were able to create an effective alliance in which Oprah’s creativity and intuition were
well complemented by Jeff’s business acumen and ability to effectively navigate
through the ambiguities of the entertainment industry, particularly on the issues of in-
tellectual property. Harpo, Inc., enjoyed substantial savings on agents and managers,
especially during the first years of the company’s operation.
Early in the company’s existence, Harpo, Inc., operated as a true entrepreneurial
venture with no formal structure and a hectic, high-pressured work environment. As
the company grew and the show became more and more popular, Oprah realized that
she needed help building the true corporate foundation for her company. She hired
3
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her former boss, a TV station executive, as chief operating officer (COO) to build cor-
porate departments—accounting, legal, and human resources—and to make Harpo,
Inc., run like a true corporation. Even with the rapid growth of her company, Oprah
did not change her approach to dealing with employees and business partners. Her
choice of people to work with was based on only one criterion: trust.
The Oprah show became the core of the business, contributing a large share of rev-
enue each year. In 2001 nearly $300 million of Harpo’s revenue came from the show. It
airs in 107 countries and has held a No.1 position in U.S. daytime talk shows for 16 years,
despite at least 50 other rivals. However, Oprah did not stop there. During the first years
of the company’s existence Oprah entered into two alliances—with TV syndicator King
World to distribute her show and with ABC to air her TV movies. In the past few years
she has made a few more deals. In November 1998, Oprah invested in Oxygen Media
LLC, which was controlled by Geraldine Laybourne and Carsey-Werner-Mandabach
(CWM LLC). Oxygen Media LLC includes a women’s cable network for which Oprah pro-
duces and stars in the show called Use Your Life. The Harpo, Inc., movie division produces
films like Tuesdays with Morrie and contributes about $4 million a year in revenue.
In 2000 Oprah launched O, The Oprah Magazine, which serves as a personal growth
guide in the new century. It is credited as being the most successful start-up magazine
in the industry. One year after its launch it reached a paid circulation of 2.5 million and
earned $140 million in revenue. This is an incredible achievement, given that success-
ful magazines usually take five years to turn a profit. Oprah also created a motiva-
tional “Live Your Best Life” tour that was attended by 8,500 women in four cities. With
all her success and despite the many requests, Oprah is reluctant to license her name
because she is not only the chief content creator but also the chief content itself. This
is probably the most unique aspect of all Oprah’s businesses: She is able to successfully
leverage herself into various entertainment categories.
Today Oprah is an owner and the chair of Harpo, Inc.; Harpo Productions; Harpo Stu-
dios, Inc.; Harpo Films, Inc.; Harpo Print LLC; and Harpo Video, Inc., with a total net worth
of over $1 billion. The organization has grown to include 221 people, of whom 68 per-
cent are women, and has a modest turnover of 10 to 15 percent. In 2002, the first inter-
national edition of O, The Oprah Magazine was launched in South Africa. The Oprah
Winfrey Show continues to impress the industry with an average of 7.2 million viewers
per episode, beating the second-ranked show by 35 percent. Jeff Jacobs, the president of
Harpo, Inc., has 10 percent of the ownership of that company, with Oprah still holding
90 percent. At this time, she is not willing to go public with any of her ventures.
Having come from poverty, Oprah is one of the largest philanthropists of our time. She
donates at least 10 percent of her annual income to charity, most of it anonymously.
Oprah’s main focus is on women, children, and education. She established an Oprah Win-
frey foundation and a Scholars Program that provides grants toward education for
women, children, and families, as well as scholarships for students in the United States
and abroad who plan to use their education to give something back to their communi-
ties. Oprah’s commitments extended to her initiation of the National Child Protection Act
in 1991 by testifying before the U.S. Senate Judiciary Committee to establish a national
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database of convicted child abusers. As a result, in 1993 President Clinton signed the na-
tional “Oprah Bill.” In 1997, Oprah created Oprah’s Angel Network, a campaign encour-
aging people to help others in need, which has already raised $12 million from viewer
donations, sponsors, and celebrity contributions. The funds are used to grant scholarships
and to build homes and schools in developing countries. As a result of Oprah’s contribu-
tions to television, social awareness, education, film, and music, in 1998 she was named
one of the 100 most influential people of the 20th century by Time Magazine.
Although Oprah readily admits that she cannot read a balance sheet and doesn’t
think of herself as a businesswoman, in fact she is. While she might not know all the
business terminology and nuances, she has a true entrepreneurial spirit that helps her
focus on her vision and gives her the energy to continue coming up with new creative
ideas. As a true entrepreneurial woman, she was able to clearly identify her areas of
weakness and create an executive team capable of successfully running the media and
entertainment giant that she created. This is what often distinguishes a great from a
good entrepreneur—the ability to spot an idea with the right emotional and strategic
fit and to identify the resources necessary to take advantage of the opportunity.
The saga of Oprah Winfrey reflects the story of many entrepreneurs in a variety of in-
dustries and various-sized companies. The historical aspect of entrepreneurship, as well as
the decision that Oprah Winfrey and others have made to become entrepreneurs, is reflected
in the following remarks of two successful entrepreneurs:
Being an entrepreneur and creating a new business venture is analogous to raising children—it
takes more time and effort than you ever imagine and it is extremely difficult and painful to get
out of the situation. Thank goodness you cannot easily divorce yourself from either situation.
When people ask me if I like being in business, I usually respond: On days when there are
more sales than problems, I love it; on days when there are more problems than sales, I won-
der why I do it. Basically, I am in business because it gives me a good feeling about myself.
You learn a lot about your capabilities by putting yourself on the line. Running a successful
business is not only a financial risk, it is an emotional risk as well. I get a lot of satisfaction
from having dared it—done it—and been successful.
Do the above quotes and the profile of Oprah Winfrey fit your perception of the career
of an entrepreneur? Entrepreneurship is an exciting field of study. Research indicates that
individuals who study entrepreneurship are three to four times more likely to start their own
business, and that they will earn 20 to 30 percent more than students studying in other
fields. To understand the field better, it is important to learn about the nature and develop-
ment of entrepreneurship, the entrepreneurial process, and the role of entrepreneurship in
the economic development of a country.
In spite of all this interest, a concise, universally accepted definition has not yet emerged.
The development of the theory of entrepreneurship parallels to a great extent the develop-
entrepreneur Individual ment of the term itself. The word entrepreneur is French and, literally translated, means
who takes risks and starts “between-taker” or “go-between.”
something new
Earliest Period
An example of the earliest definition of an entrepreneur as a go-between is Marco Polo,
who attempted to establish trade routes to the Far East. As a go-between, Marco Polo
would sign a contract with a money person (forerunner of today’s venture capitalist) to
sell his goods. A common contract during this time provided a loan to the
merchant–adventurer at a 22.5 percent rate, including insurance. While the capitalist was
a passive risk bearer, the merchant–adventurer took the active role in trading, bearing all
the physical and emotional risks. When the merchant–adventurer successfully sold the
goods and completed the trip, the profits were divided, with the capitalist taking most
of them (up to 75 percent), and the merchant–adventurer settling for the remaining
25 percent.
Middle Ages
In the Middle Ages, the term entrepreneur was used to describe both an actor and a person
who managed large production projects. In such large production projects, this individual
did not take any risks, but merely managed the project using the resources provided, usu-
ally by the government of the country. A typical entrepreneur in the Middle Ages was the
cleric—the person in charge of great architectural works, such as castles and fortifications,
public buildings, abbeys, and cathedrals.
17th Century
The reemergent connection of risk with entrepreneurship developed in the 17th century,
with an entrepreneur being a person who entered into a contractual arrangement with the
government to perform a service or to supply stipulated products. Since the contract price
was fixed, any resulting profits or losses were the entrepreneur’s. One entrepreneur in this
period was John Law, a Frenchman, who was allowed to establish a royal bank. The bank
eventually evolved into an exclusive franchise to form a trading company in the New
World—the Mississippi Company. Unfortunately, this monopoly on French trade led to
Law’s downfall when he attempted to push the company’s stock price higher than the value
of its assets, leading to the collapse of the company.
Richard Cantillon, a noted economist and author in the 1700s, understood Law’s mis-
take. Cantillon developed one of the early theories of the entrepreneur and is regarded by
some as the founder of the term. He viewed the entrepreneur as a risk taker, observing that
merchants, farmers, craftsmen, and other sole proprietors “buy at a certain price and sell at
an uncertain price, therefore operating at a risk.”1
18th Century
In the 18th century, the person with capital was differentiated from the one who needed
capital. In other words, the entrepreneur was distinguished from the capital provider
(the present-day venture capitalist). One reason for this differentiation was the industri-
alization occurring throughout the world. Many of the inventions developed during this
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time were reactions to the changing world, as was the case with the inventions of
Eli Whitney and Thomas Edison. Both Whitney and Edison were developing new
technologies and were unable to finance their inventions themselves. Whereas Whitney
financed his cotton gin with expropriated British crown property, Edison raised capital
from private sources to develop and experiment in the fields of electricity and chemistry.
Both Edison and Whitney were capital users (entrepreneurs), not providers (venture
capitalists). A venture capitalist is a professional money manager who makes risk
investments from a pool of equity capital to obtain a high rate of return on the
investments.
Andrew Carnegie is one of the best examples of this definition. Carnegie invented
nothing, but rather adapted and developed new technology in the creation of products to
achieve economic vitality. Carnegie, who descended from a poor Scottish family, made the
American steel industry one of the wonders of the industrial world, primarily through his
unremitting competitiveness rather than his inventiveness or creativity.
entrepreneur as an In the middle of the 20th century, the notion of an entrepreneur as an innovator was
innovator An individual established:
developing something
unique The function of the entrepreneur is to reform or revolutionize the pattern of production by
exploiting an invention or, more generally, an untried technological method of producing a
new commodity or producing an old one in a new way, opening a new source of supply of
materials or a new outlet for products, by organizing a new industry.3
further enhanced by the novelty intrinsic to entrepreneurial actions, such as the creation
of new products, new services, new ventures, and so on.9 Entrepreneurs must decide to
act even in the face of uncertainty over the outcome of that action. Therefore, entrepreneurs
respond to, and create, change through their entrepreneurial actions, where entrepreneurial
entrepreneurial action action refers to behavior in response to a judgmental decision under uncertainty about a
Refers to behavior in possible opportunity for profit.10 We now offer a process perspective of entrepreneurial
response to a judgmental action.
decision under uncertainty
about a possible
opportunity for profit ENTREPRENEURS VERSUS INVENTORS
There is a great deal of confusion about the nature of an entrepreneur versus an inventor. An
inventor An individual inventor, an individual who creates something for the first time, is a highly driven individual
who creates something motivated by his or her own work and personal ideas. Besides being highly creative, an in-
new ventor tends to be well educated, with college or, most often, postgraduate degrees; has
family, education, and occupational experiences that contribute to creative development and
free thinking; is a problem solver able to reduce complex problems to simple ones; has a
very high level of self-confidence; is willing to take risks; and has the ability to tolerate am-
biguity and uncertainty.11 A typical inventor places a high premium on being an achiever and
measures achievement by the number of inventions developed and the number of patents
granted. An inventor is not likely to view monetary benefits as a measure of success.
As indicated in this profile, an inventor differs considerably from an entrepreneur.
Whereas an entrepreneur falls in love with the organization (the new venture) and will do
almost anything to ensure its survival and growth, an inventor falls in love with the inven-
tion and will only reluctantly modify the invention to make it more commercially feasible.
The development of a new venture based on an inventor’s work often requires the expertise
of an entrepreneur and a team approach, as many inventors are unable to focus on just one
invention long enough to commercialize it. Inventors really enjoy the process of inventing,
not implementing.
10
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partners, including software providers like Nav- 5. Fuel cells outlast lithium ion batteries, today’s
iMedix itself. But doctors’ offices are a golden op- portable power champ: “Electronics are going
portunity because turnover is high, and regulations to a 24/7 mode of operation,” says Bill Acker,
require existing staff to take refresher courses. MicroFuel’s president and CEO. Fuel cell PDAs and
3. Video-on-demand becomes reality: Video- mobile phones won’t conk out before your day
on-demand has been heralded as the next big ends. The extra juice is also enabling such combi-
thing for more than a decade. This time it’s for nations as digital cameras that link to mobile
real. Really. By midyear 2003 cable companies will phones. Applying fuel cells to other devices will
be running large-scale trials. Still dubious? “The also open new opportunities. Think of wireless
industry itself was skeptical,” says Steve Fredrick speakers. Rather than substituting a dangling
of Novak Biddle Venture Partners. “There were a power cord for dangling speaker wire, build a
lot of things that needed to come together, but fuel cell and wireless connection into the speak-
by all measures, we’ve met critical mass.” (Trans- ers—and, suddenly, they can be anywhere in a
lation: The cable companies have spent so much living room.
money that it has to succeed.) Other than the
cable, says Fredrick, almost every component in ADVICE TO AN ENTREPRENEUR
the video food chain is wide open. Among the 1. What is it about these “anniversaries” that pro-
areas ripe for activity: technologies to distribute vides entrepreneurs opportunities?
multiple video streams over digital cable, new 2. Which “anniversary” above do you believe pro-
content providers, and new advertising models. vides the greatest opportunity for you to form a
One reason for optimism is the rocket-like takeoff management team and enter the industry?
of video recorders like TiVo. “Video-on-demand 3. Does an analysis of trends like this provide ideas
deploys that functionality, but the hardware is in about possible entrepreneurial opportunities or is
the network,” says Fredrick. “It will do for video it like trying to drive a car by looking in the
and movies what the Web did for static text.” rearview mirror?
4. Fuel-cell technology takes off: The media have 4. What advice would you give an entrepreneur
fawned over fuel cells for years, but usually for cars. who says, “I want to create a company and enter
(Fuel cells convert fuel to electricity with minimal the fuel cell industry not because I think there is
pollution.) But the initial consumer application of a lot of money to be made there, but I want to
the technology may come in a smaller format: hand- do some good, I want to help the
held computers. MTI MicroFuel Cells Inc. of Albany, environment”?
New York, completed three technology prototypes
last year. This year, the company is launching prod- Source: Reprinted with permission of Entrepreneur Media, Inc.,
“Remember When: These Are the Milestones You’ll Remember 2003
uct prototypes with an eye toward a 2004 rollout. By. Hope You Take Advantage,” by Chris Sundlund, January 2003,
Competitors are trying to beat it to the punch. Entrepreneur magazine: www.entrepreneur.com.
entrepreneur always monitors the play habits and toys of her nieces and nephews. This is
her way of looking for any unique toy product niche for a new venture.
Although most entrepreneurs do not have formal mechanisms for identifying business
opportunities, some sources are often fruitful: consumers and business associates, members
of the distribution system, and technical people. Often, consumers are the best source of
ideas for a new venture. How many times have you heard someone comment, “If only there
was a product that would . . .” This comment can result in the creation of a new business.
One entrepreneur’s evaluation of why so many business executives were complaining about
the lack of good technical writing and word-processing services resulted in the creation of
her own business venture to fill this need. Her technical writing service grew to 10 em-
ployees in two years.
Due to their close contact with the end user, channel members in the distribution system
also see product needs. One entrepreneur started a college bookstore after hearing all the
11
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students complain about the high cost of books and the lack of service provided by the only
bookstore on campus. Many other entrepreneurs have identified business opportunities
through a discussion with a retailer, wholesaler, or manufacturer’s representative. Finally,
technically oriented individuals often conceptualize business opportunities when working
on other projects. One entrepreneur’s business resulted from seeing the application of a
plastic resin compound in developing and manufacturing a new type of pallet while devel-
oping the resin application in another totally unrelated area—casket moldings.
Whether the opportunity is identified by using input from consumers, business
associates, channel members, or technical people, each opportunity must be carefully
screened and evaluated. This evaluation of the opportunity is perhaps the most critical
element of the entrepreneurial process, as it allows the entrepreneur to assess whether the
specific product or service has the returns needed compared to the resources required. As
indicated in Table 1.1, this evaluation process involves looking at the length of the oppor-
tunity, its real and perceived value, its risks and returns, its fit with the personal skills and
goals of the entrepreneur, and its uniqueness or differential advantage in its competitive
environment.
window of opportunity The market size and the length of the window of opportunity are the primary bases for
The time period available determining the risks and rewards. The risks reflect the market, competition, technology,
for creating the new and amount of capital involved. The amount of capital needed provides the basis for
venture the return and rewards. The methodology for evaluating risks and rewards, the focus of
Chapters 7 and 9, frequently indicates that an opportunity offers neither a financial nor a
personal reward commensurate with the risks involved. One company that delivered bark
mulch to residential and commercial users for decoration around the base of trees and
shrubs added loam and shells to its product line. These products were sold to the same
customer base using the same distribution (delivery) system. Follow-on products are
important for a company expanding or diversifying in a particular channel. A distribution
channel member such as Kmart, Service Merchandise, or Target prefers to do business with
multiproduct, rather than single-product, firms.
Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is
particularly important that the entrepreneur be able to put forth the necessary time and
effort required to make the venture succeed. Although many entrepreneurs feel that the
desire can be developed along with the venture, typically it does not materialize. An entre-
preneur must believe in the opportunity so much that he or she will make the necessary sac-
rifices to develop the opportunity and manage the resulting organization.
Opportunity analysis, or what is frequently called an opportunity assessment plan, is one
method for evaluating an opportunity. It is not a business plan. Compared to a business
plan, it should be shorter; focus on the opportunity, not the entire venture; and provide the
basis for making the decision of whether or not to act on the opportunity.
An opportunity assessment plan includes the following: a description of the product or
service, an assessment of the opportunity, an assessment of the entrepreneur and the team,
specifications of all the activities and resources needed to translate the opportunity into a
viable business venture, and the source of capital to finance the initial venture as well as its
growth. The assessment of the opportunity requires answering the following questions:
• What market need does it fill?
• What personal observations have you experienced or recorded with regard to that
market need?
• What social condition underlies this market need?
• What market research data can be marshaled to describe this market need?
• What patents might be available to fulfill this need?
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• What competition exists in this market? How would you describe the behavior of this
competition?
• What does the international market look like?
• What does the international competition look like?
• Where is the money to be made in this activity?
Types of Start-Ups
What types of start-ups result from this entrepreneurial decision process? One very useful
classification system divides start-ups into three categories: lifestyle firms, foundation
lifestyle firm A small companies, and high-potential ventures. A lifestyle firm is privately held and usually
venture that supports the achieves only modest growth due to the nature of the business, the objectives of the entre-
owners and usually does preneur, and the limited money devoted to research and development. This type of firm
not grow may grow after several years to 30 or 40 employees and have annual revenue of about
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$2 million. A lifestyle firm exists primarily to support the owners and usually has little op-
portunity for significant growth and expansion.
foundation company A The second type of start-up—the foundation company—is created from research and
type of company formed development and lays the foundation for a new business area. This firm can grow in 5 to
from research and 10 years from 40 to 400 employees and from $10 million to $20 million in yearly revenue.
development that usually Since this type of start-up rarely goes public, it usually draws the interest of private in-
does not go public vestors only, not the venture-capital community.
high-potential venture The final type of start-up—the high-potential venture—is the one that receives the great-
A venture that has high est investment interest and publicity. While the company may start out like a foundation
growth potential and company, its growth is far more rapid. After 5 to 10 years, the company could employ
therefore receives great around 500 employees, with $20 million to $30 million in revenue. These firms are also
investor interest called gazelles and are integral to the economic development of an area.
gazelles Very high
Given that the results of the decision-making process need to be perceived as desirable
growth ventures
and possible for an individual to change from a present lifestyle to a radically new one, it
is not surprising that the type and number of new business formations vary greatly through-
out the world as well as throughout the United States. Some regions in the United States
have more support infrastructure and a more positive attitude toward new business creation.
Science
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Thermodynamics
Fluid mechanics
Electronics
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Corporate Entrepreneurship
Corporate entrepreneurship (entrepreneurship within an existing business) can also
bridge the gap between science and the marketplace. Existing businesses have the finan-
cial resources, business skills, and frequently the marketing and distribution systems to
commercialize innovation successfully. Yet, too often the bureaucratic structure, the
emphasis on short-term profits, and a highly structured organization inhibit creativity and
prevent new products and businesses from being developed. Corporations recognizing
these inhibiting factors and the need for creativity and innovation have attempted to
establish an entrepreneurial spirit in their organizations. In the present era of hypercom-
petition, the need for new products and the entrepreneurial spirit have become so great
that more and more companies are developing an entrepreneurial corporate environment,
often in the form of strategic business units (SBUs). Corporate entrepreneurship is
discussed in Chapter 3.
Independent Entrepreneurship
The third method for bridging the gap between science and the marketplace is via inde-
pendent entrepreneurship, such as the creation of a new organization. Many entrepreneurs
have a difficult time bridging this gap and creating new ventures. They may lack managerial
skills, marketing capability, or financial resources. Their inventions are often unrealistic,
requiring significant modification to be marketable. In addition, entrepreneurs frequently
do not know how to interface with all the necessary entities, such as banks, suppliers,
customers, venture capitalists, distributors, and advertising agencies.
Yet, in spite of all these difficulties, entrepreneurship is presently the most effective
method for bridging the gap between science and the marketplace, creating new enterprises,
and bringing new products and services to the market. These entrepreneurial activities
significantly affect the economy of an area by building the economic base and providing
jobs. In some areas, entrepreneurship accounts for the majority of new products and net
new employment. Given its impact on both the overall economy and the employment of an
area, it is surprising that entrepreneurship has not become even more of a focal point in
economic development.
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ETHICS
Morris Housen is a busy guy. The founder and CEO tool they can take various forms, from a single letter
of Birch Point Paper Products—a five-year-old com- to a series of essays. (The only difference between
pany in Shirley, Massachusetts, that makes cus- legacy statements and ethical wills is that a legacy
tomized napkins, cups, plates, and place mats—he statement is presented to heirs when a business
is also the chief operating officer at Irving Indus- owner is still alive, while an ethical will is bequeathed
tries, a business started by his grandfather and after he is deceased.)
great-uncle that produces 120 tons of tissue paper Housen sees his legacy statement as a way to ex-
each day and does about $85 million in annual plain to his children why he often spends long hours
sales. And besides his two day jobs, Housen does ex- away from his family building his business. He also
tensive volunteer work for the Anti-Defamation wants them to understand values such as teamwork
League. and honesty, points he illustrates by relating stories
But several times each month, Housen finds the about his business in his legacy statement. “For me, a
time to sit down in front of his laptop at his home in written document is more powerful, precise, and
Acton, Massachusetts, and write carefully crafted thought-out than a conversation could ever be,”
messages to his two children, Molly and Ethan. That Housen says.
would be wholly unremarkable if not for the fact To illustrate the value of teamwork, for instance,
that neither of Housen’s children, ages 3 and 5, yet Housen writes about his experience developing a suc-
knows how to read. But that doesn’t matter, since cessful marketing campaign for Birch Point Paper.
Housen, 37, doesn’t intend to show his children what The campaign—which echoed the milk lobby’s fa-
he’s written for years—not until they are embarking mous “Got milk?” advertisements—depicted such
on their own adulthoods. messy situations as coffee spilled on a $1 million
Housen is one of a growing number of entrepre- check, followed by the tag line “Got napkins?” The
neurs who are choosing to create a legacy statement, idea for the campaign was the result of a collective
or an ethical will. While traditional wills deal with the effort among his staff, the kind of interdependency
disposition of property and possessions, these docu- Housen wants his kids to appreciate.
ments are a creative way of passing on a business
Source: From Jeremy Kahn, “Where There’s an (Ethical) Will,
owner’s experiences, family history, values, and work There’s a Way,” Fortune Small Business 11, no. 8. Copyright © 2001
ethic to the next generation. As an estate-planning Time, Inc. All rights reserved.
A central question in business ethics is, “For whose benefit and at whose expense should
the firm be managed?”16 In addressing this question we focus on the means of ensuring that
resources are deployed fairly between the firm and its stakeholders—the people who have
a vested interest in the firm, including employees, customers, suppliers, and society itself.
If resource deployment is not fair, then a stakeholder is being exploited by the firm.
Entrepreneurship can play a role in the fair deployment of resources to alleviate the
exploitation of certain stakeholders. Most of us can think of examples of firms that have ben-
efited financially because their managers have exploited certain stakeholders—receiving
more value from them than they supply in return. This exploitation of a stakeholder group
can represent an opportunity for an entrepreneur to more fairly and efficiently redeploy the
resources of the exploited stakeholder. Simply stated, where current prices do not reflect the
value of a stakeholder’s resources, an entrepreneur who discovers the discrepancy can enter
the market to capture profit. In this way the entrepreneurial process acts as a mechanism to
ensure a fair and efficient system for redeploying the resources of a “victimized” stakeholder
to a use where value supplied and received is equilibrated.17
Therefore, while there is evidence that some use the entrepreneurial process to exploit
others for profit, it is important to understand that the entrepreneurial process can be an im-
portant means of helping exploited stakeholders and at the same time setting up a viable
business. Think of the entrepreneurial process as a tool that can be used effectively
18
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to achieve outcomes for the benefit of others (and the entrepreneur) rather than to the detri-
ment of others. Some aspects of business ethics are indicated in the Ethics box in each chap-
ter. Ethics is not only a general topic for conversation but a deep concern of businesspeople.
this spirit benefits society by keeping the United States in the lead in technology. General
business magazines such as Barron’s, BusinessWeek, Forbes, and Fortune have provided
similar coverage by adding special columns on entrepreneurship and venturing. Magazines
such as Black Enterprise, Entrepreneur, and Inc.—which focus on specific issues of the
entrepreneurial process, starting new ventures, and small, growing businesses—have built
solid and increasing circulation rates. Television on both a national and a local level has
highlighted entrepreneurship by featuring specific individuals and issues involved in the
entrepreneurial process. Not only have local stations covered regional occurrences, but na-
tionally syndicated shows such as The Today Show, Good Morning America, and 20/20 have
had special segments devoted to this phenomenon. This media coverage uplifts the image of
the entrepreneur and growth companies and focuses on their contributions to society.
Finally, large companies will continue to have an interest in their special form of
entrepreneurship—corporate entrepreneurship—in the future. These companies will be in-
creasingly interested in capitalizing on their research and development (R&D) in today’s hy-
percompetitive business environment. The largest 15 companies in the United States account
for over 20 percent of the total U.S. R&D and over 40 percent of private-sector R&D. General
Electric, for example, has created several $1 billion businesses internally in the last 15 years and
has moved all its lighting research and development to Hungary to its joint venture, Tungstram.
Other companies will want to create more new businesses through corporate entrepreneurship
in the future, particularly in light of the hypercompetition and the need for globalization.
IN REVIEW
SUMMARY
The definition of an entrepreneur has evolved over time as the world’s economic struc-
ture has changed and become more complex. Since its beginnings in the Middle Ages,
when it was used in relation to specific occupations, the notion of the entrepreneur
has been refined and broadened to include concepts that are related to the person
rather than the occupation. Risk taking, innovation, and creation of wealth are examples
of the criteria that have been developed as the study of new business creations has
evolved. In this text, entrepreneurship is defined as the process of creating something
new with value by devoting the necessary time and effort; assuming the accompanying
financial, psychological, and social risks; and receiving the resultant rewards of monetary
and personal satisfaction and independence.
The entrepreneur then goes through the entrepreneurial process, which involves
finding, evaluating, and developing opportunities for creating a new venture. Each step
is essential to the eventual success of the new firm and is closely related to the other
steps. Before the opportunity identification stage can result in a meaningful search, the
potential entrepreneur must have a general idea about the type of company desired.
There are both formal and informal mechanisms for identifying business opportunities.
Although formal mechanisms are generally found within a more established company,
most entrepreneurs use informal sources for their ideas, such as being sensitive to the
complaints and chance comments of friends and associates. Once the opportunity is
identified, the evaluation process begins. Basic to the screening process is understanding
the factors that create the opportunity: technology, market changes, competition, or
changes in government regulations. From this base, the market size and time dimension
associated with the idea can be estimated. It is important that the idea fit the personal
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skills and goals of the entrepreneur, and that the entrepreneur have a strong desire to
see the opportunity brought to fruition. In the process of evaluating an opportunity, the
required resources should be clearly defined and obtained at the lowest possible cost.
The decision to start an entrepreneurial venture consists of several sequential steps:
(1) the decision to leave a present career or lifestyle, (2) the decision that an entrepre-
neurial venture is desirable, and (3) the decision that both external and internal factors
make new venture creation possible. Although the decision-making process is applicable
to each of the three types of start-up companies, the emphasis in each one is certainly
different. Because of their differing natures, foundation companies and high-potential
ventures require a more conscious effort to reach a defensible decision on these points
than do lifestyle firms.
The study of entrepreneurship has relevance today, not only because it helps entre-
preneurs better fulfill their personal needs but because of the economic contribution
of the new ventures. More than increasing national income by creating new jobs,
entrepreneurship acts as a positive force in economic growth by serving as the bridge
between innovation and the marketplace. Although the government gives great
support to basic and applied research, it has not had great success in translating the
technological innovations to products or services. Although corporate entrepreneur-
ship offers the promise of a marriage of those research capabilities and business skills
that one expects from a large corporation, the results so far in many companies have
not been spectacular. This leaves the entrepreneur, who frequently lacks both technical
and business skills, to serve as the major link in the process of innovation development
and economic growth and revitalization. The study of entrepreneurship and the
education of potential entrepreneurs are essential parts of any attempt to strengthen
this link so essential to a country’s economic well-being.
R E S E A R C H TA S K S
1. Ask five entrepreneurs what the term entrepreneurship means to them. Be
prepared to present the commonalities and differences of these definitions to
the class. Can differences in the definitions be explained by the “type” of
entrepreneur interviewed?
2. What impact does entrepreneurship have on your local, state (or province), and
national economies? Use data to back up your arguments.
3. Research the policy statements of your local, state (or province), and national
governments for their goals and objectives regarding the importance of
entrepreneurship and means of encouraging it.
4. Speak to people from five different countries and ask what entrepreneurship
means to them and how their national culture helps and/or hinders
entrepreneurship.
CLASS DISCUSSION
1. List the content that you believe is necessary for an entrepreneurship course. Be
prepared to justify your answer.
2. Do you believe that ethics and social responsibility should be part of an
entrepreneurship course or did the textbook authors just include a section on it to
be “politically correct”?
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SELECTED READINGS
Aldrich, Howard E.; and Martha Argelia Martinez. (Summer 2001). Many Are Called,
but Few Are Chosen: An Evolutionary Perspective for the Study of Entrepreneurship.
Entrepreneurial Theory and Practice, pp. 41–56.
More than a decade ago, three elements indispensable to an understanding of
entrepreneurial success were identified: process, context, and outcomes. Although
the knowledge of entrepreneurial activities has increased dramatically, we still have
much to learn about how process and context interact to shape the outcome of
entrepreneurial efforts.
Ardichvili, Alexander; Richard Cardozo; and Sourav Ray. (2003). A Theory of
Entrepreneurial Opportunity Identification and Development. Journal of Business
Venturing, vol. 18, pp. 105–123.
This paper builds on existing theoretical and empirical studies in the area of entre-
preneurial opportunity identification and development. It utilizes Dubin’s theory
building framework to propose a theory of the opportunity identification process.
It identifies the entrepreneur’s personality traits, social networks, and prior knowl-
edge as antecedents of entrepreneurial alertness to business opportunities. Entre-
preneurial alertness, in its turn, is a necessary condition for the success of the
opportunity identification triad: recognition, development, and evaluation.
Brouwer, Maria T. (2002). Weber, Schumpeter and Knight on Entrepreneurship and
Economic Development. Journal of Evolutionary Economics, vol. 12, pp. 83–105.
This paper interprets the discussion on entrepreneurship and economic develop-
ment that was started by Weber, Schumpeter, and Knight. The paper demonstrates
how these three authors influenced each other on the topics of importance of
innovation and entrepreneurship, uncertainty, and perceptiveness and hidden
qualities of people.
Drayton, William. (2002). The Citizen Sector: Becoming as Entrepreneurial and
Competitive as Business. California Management Review, vol. 44, no. 3, pp. 120–32.
This article explores the aspects that have driven the entrepreneurial transformation
of the social half of society that has taken place over the last two and a half
decades, identifies three management challenges made urgent by this shift, and
describes its impact on the rest of society.
Fiet, James; Alexandre Piskounov; and Pankaj Patel. (2005). Still Searching
(Systematically) for Entrepreneurial Discoveries. Small Business Economics, vol. 25,
pp. 489–504.
In this article the authors examine how entrepreneurs can search deliberately for dis-
coveries. They use consideration sets to impose constraints on how and where they
search. A consideration set is a promising set of information channels, which entre-
preneurs can select and search based on prior knowledge. To decide how to search
the channels in a consideration set, they apply existing mathematical formalism to
illustrate a maximal search sequence. Because there is some probability that a search
sequence could continue indefinitely, they determine stopping rules. They argue that
entrepreneurial search is more feasible within a consideration set than it is in the rest
of the world.
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Osborne, Stephen W.; Thomas W. Falcone; and Prashanth B. Nagendra. (2000). From
Unemployed to Entrepreneur: A Case Study in Intervention. Journal of Developmental
Entrepreneurship, vol. 5, no. 2, pp. 115–36.
A summary of the entrepreneurial potential, training, and success of a group of
recently unemployed workers from a wide spectrum of previous occupations and
industries.
Wennekers, Sander; and Roy Thurik. (1999). Linking Entrepreneurship and Economic
Growth. Small Business Economics, vol. 13, no. 1, pp. 27–55.
The concept of entrepreneurship is discussed, with the aim of explaining entrepre-
neurship’s role in the process of economic growth. By considering three levels on
which entrepreneurship can be analyzed (individual, firm, and aggregate level), the
relationship between entrepeneurship and economic growth is examined.
END NOTES
1. Robert F. Herbert and Albert H. Link, The Entrepreneur—Mainstream Views
and Radical Critiques (New York: Praeger Publishers, 1982), p. 17.
2. Richard T. Ely and Ralph H. Hess, Outlines of Economics, 6th ed. (New York:
Macmillan, 1937), p. 488.
3. Joseph Schumpeter, Can Capitalism Survive? (New York: Harper & Row, 1952),
p. 72.
4. Albert Shapero, Entrepreneurship and Economic Development (Wisconsin: Pro-
ject ISEED, LTD, The Center for Venture Management, Summer 1975), p. 187.
5. Karl Vesper, New Venture Strategies (Englewood Cliffs, NJ: Prentice Hall, 1980),
p. 2.
6. Robert C. Ronstadt, Entrepreneurship (Dover, MA: Lord Publishing Co., 1984),
p. 28.
7. This definition is modified from the definition first developed for the woman
entrepreneur. See Robert D. Hisrich and Candida G. Brush, The Woman Entrepre-
neur: Starting, Financing, and Managing a Successful New Business (Lexington,
MA: Lexington Books, 1985), p. 18.
8. L. V. Mises, Human Action: A Treatise on Economics, 4th rev. ed. (San Francisco,
CA: Fox & Wilkes, 1949).
9. See T. M. Amabile, “Entrepreneurial Creativity through Motivational Synergy,”
Journal of Creative Behavior 31 (1997), pp. 18–26; J. A. Schumpeter, The Theory
of Economic Development (New Brunswick: Transaction Publishers, 1934); W. B.
Gartner, “What Are We Talking about When We Talk about Entrepreneurship?”
Journal of Business Venturing 5 (1990), pp. 15–29.
10. J. S. McMullen, and D. A. Shepherd, “Toward a Theory of Entrepreneurial Action:
Detecting and Evaluating Opportunities,” Academy of Management Review 31
(2006), pp. 132–52.
11. This and other information on inventors and the invention process can be found
in Robert D. Hisrich, “The Inventor: A Potential Source for New Products,” The
Mid-Atlantic Journal of Business 24 (Winter 1985–86), pp. 67–80.
12. G. T. Lumpkin, and G. G. Dess, “Clarifying the Entrepreneurial Orientation Con-
struct and Linking It to Performance, ” Academy of Management Review 21
(1996), pp. 135–72.
13. A version of this process can be found in Howard H. Stevenson, Michael J.
Roberts, and H. Irving Grousbeck, New Business Ventures and the Entrepreneur
(Burr Ridge, IL: Richard D. Irwin, 1985), pp. 16–23.
14. This process is discussed in Yao Tzu Li, David G. Jansson, and Ernest G. Cravelho,
Technological Innovation in Education and Industry (New York: Van Nostrand
Reinhold, 1980), pp. 6–12.
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15. For summary of the research on ethics in entrepreneurship, see the papers pub-
lished as part of the Ruffin Lecture Series of 2002 by the Business Ethics Society of
The Darden School, University of Virginia.
16. E. R. Freeman, “A Stakeholder Theory of the Modern Corporation.” In T. C.
Beauchamp and N. E. Bowie (eds.), Ethical Theory and Business (Englewood Cliffs,
NJ: Prentice Hall, 1994), pp. 66–76 (quote from p. 67).
17. S. Venkataraman, “Stakeholder Value Equilibration and the Entrepreneurial
Process.” In R. E. Freeman and S. Venkataraman (eds.), Ethics and Entrepreneur-
ship—The Ruffin Series, Volume 3 (2002).