18/10/2020

Wk-3-4
Entrepreneurship
Process and
Process
Theories of
Entrepreneurship

Dr. Mutahir

What Is An Entrepreneur? DEFINITIONS

• Entrepreneur is any person that
continuously seeks and acts upon
opportunities for economic and or social
ENTREPRENEUR gains through applying the principle of
creative problem solving.
A vision-driven individual who
assumes significant personal and • Entrepreneurship is a mindset and
financial risk to start or expand a practice of looking and acting upon
business. opportunities for economic and or social
benefits through innovation and risk
taking.

Who is an Entrepreneur? Who is an Entrepreneur?

Situational more than personality Manager’s Opportunities
Future Goals
Change Status Quo
Flexibility Ability

Age
Distribution
for Satisfied
Starting Company Possible Entrepreneur
manager

Perceived
Capability
Frustrated Classic
20 25 30 35 40 45 Blocked manager bureaucrat
Age

1
 18/10/2020

Who are entrepreneurs? What is Entrepreneurship?

ENTREPRENEURSHIP IS BEING IN CHARGE OF TRANSFORMING “CAN DO” INTO “DONE”
• Common traits • Common traits YOUR OWN DESTINY. IT IS THE JOURNEY AND
CREATING AN MARSHALLING RESOURCES
EXPERIENCE OF TURNING YOUR DREAMS INTO
– Original thinkers – Self employed parents REALITY
EXCITING NEW IN A CREATIVE WAY IN ORDER TO
FUTURE INITIATE CHANGE
– Risk takers – Firstborns BY TAKING
ENTREPRENEURSHIP IS
– Take responsibility for LOOKING AT
– Between 30-50 years old THE ENGINE THAT ACTION TODAY
own actions TURNS IDEAS INTO ENTREPRENEURSHIP IS MORE THAN STARTING A
THE WORLD

– Feel competent and – Well educated – 80% SOLUTIONS

WITH AN
NEW BUSINESS, IT IS A WAY OF LIVING WITH AN OPPORTUNITY-
capable have college degree and THINKING BIG ATTITUDE, FACING ALL SITUATIONS AS ORIENTED
– Set high goals and enjoy 1/3 have a graduate BRINING AND DOING OPPORTUNITIES TO LEARN, DISCOVER, CREATE, MINDSET
level degree YOUR EXPLORE, AND MAKE THE WORLD A BETTER
working toward them THE
VERSION
UNEXPECTED PLACE. STAYING
OF THE GROUNDED WITH
WORLD TO ENTREPRENEURSHIP IS THE IMPROVING YOURSELF BY A 30,000-FOOT
LIFE DIFFERENCE BETWEEN RECOGNIZING IMPROVING THE WORLD
PERSPECTIVE
AN OPPORTUNITY AND ACTING ON IT AND ITS PEOPLE AROUND
YOU.

What Is An Entrepreneur? Entrepreneurship

• Entrepreneurship: a way of thinking,
ENTREPRENEURSHIP
The pursuit of opportunity through
innovation, creativity and hard work
without regard for
the resources currently controlled.
reasoning, and acting that is:
– opportunity obsessed
– holistic in approach
– and leadership balanced
(This definition of entrepreneurship has evolved over the past two
decades from research at Babson College and the Harvard Business
School and has recently been enhanced by Stephen Spinelli, Jr., and
John H. Muller, Jr., Term Chair at Babson College.)

WHY ENTREPRENEURSHIP? THINK ENTREPRENEURIAL!

• What matters
• Opportunities and support are available most is who
• Create self employment owns the cup!
• Promote innovation
• Build communities
• Alleviate psycho-social problems and
delinquency
• Youth Unemployment is High
• Help to Create Wealth and Contribute to the
Economy 12

2
 18/10/2020

Development of Entrepreneurship Evolution of entrepreneurship

• Earliest Period- Marco Polo time Focus Definitions
• Middle Ages- Theater,
Architectural Works 1850 - 1870 Economics Entrepreneurship as a market function – an

• 17th Century- Mississippi

entrepreneur has an ability to identify profit
opportunity
Company
Entrepreneurship as a market function – an
• 18th Century- Edison & 1890 - 1920 Economics
entrepreneur as instability creator and creative
Whitney destruction
• 19th & 20th Centuries
– Organize/Operate 1950 - 1970 Behavioral sciences Entrepreneurs as individual with particular
– Innovation attributes and behaviors

1985 - Management Entrepreneurship as a process

Modified from Landström (2004) 16

The Entrepreneurial Process

(Timmons, 2000)
The Entrepreneurial Process
Communication
Eval., Review, Analysis
Opportunity Resources & Feedback
Business Plan
Fits and Gaps
Ambiguity Exogenous Forces
Creativity
Team Leadership
Uncertainty Capital Market Forces
Implementation Strategy
Formulation

Founder

The Entrepreneurial Process The Entrepreneurial Process

Three Part Process The Entrepreneurial Process Consists of Four Steps

Step 1: Deciding to become an entrepreneur.
Step 2: Developing successful business ideas.

Planning Step 3: Moving from an idea to an entrepreneurial firm.

Step 4: Managing and growing the entrepreneurial firm.

Luck Strategy

Copyright ©2012 Pearson Education, Inc.

publishing as Prentice Hall 1-20

3
 18/10/2020

Steps in the Entrepreneurial Steps in the Entrepreneurial

Process Process
1. Discovery: The stage in which the
entrepreneur generates ideas,
1. Discovery recognizes opportunities, and studies
2. Concept the market
Development
Innovation
3. Resourcing
4. Actualization
5. Harvesting Opportunity

Steps in the Entrepreneurial

Discovery Process
2. Concept Development:
– Develop a business plan: a
detailed proposal describing
Consider consumer
Consider your needs and wants the business idea
hobbies or skills
Code of ethics
Executive summary

Conduct Surveys and
questionnaires – test the
market
Mission Statement
We thrive in an environment of academic excellence where students are prepared to meet
and exceed their future challenges. We recognize each student's worth and develop life-
Study demographics long learners who make positive contributions to our changing society.

Steps in the Entrepreneurial

Concept Development
Process
– Choose business location 3. Resourcing: The stage in which the
– Will a patent or trademark be required? entrepreneur identifies and acquires
the financial, human, and capital
resources needed for the venture
startup, etc

Start-up resources

4
 18/10/2020

Steps in the Entrepreneurial

Resourcing
Process
Apply for loans, 4. Actualization: The stage in which
grants and
the entrepreneur operates the
assistance
business and utilizes resources to
Identify potential achieve its goals/objectives.
investors

$$ Grand Opening $$

Hire Day-to-Day Operations

employees

Steps in the Entrepreneurial

Process
5. Harvesting: The stage in which the
entrepreneur decides on venture’s Theories of
future growth, development, or
demise Entrepreneurship
What is your 5-year or 10-year plan?

Consider adding locations or providing different

products/services

Will you go public?

Development of Entrepreneurship Development of

Theories Entrepreneurship Theories
• Carl Menger (1871) – The entrepreneur acts as an economic
• Adam Smith (1776) – An entrepreneur is a person agent who transforms resources into products and services.
who acts as agent in transforming demand into These transformation process gives added value to the
supply. output.
• Joseph Aloysius Schumpeter (1934) – The entrepreneur is
• Jean Baptiste Say (1803) – An entrepreneur is a an innovator. The economy moves through leaps and
person who shifts resources from an area of low bounds because of the innovations. This process is known as
productivity to higher productivity. “creative destruction”
• Alfred Marshall (1936) – The process of entrepreneurship
• John Stuart Mill (1848) – An entrepreneur is a development is evolutionary. The entrepreneur is
prime mover in the private enterprise. The responsible for the evolution of sole proprietorships into a
entrepreneur is the fourth factor of production. public company.

5
 18/10/2020

Development of Islamic Entrepreneurship

Entrepreneurship Theories • Discussion on Islamic entrepreneurship is
based on the following main topics:
• Ibnu Khaldun (Abdul Rahman Mohamed Khaldun) –
The entrepreneur is seen as a knowledgeable – Integration
individual and is instrumental in the development – Human nature
of a city-state where enterprises emerge.
– Motivation
• David C. McLelland (1951) – The entrepreneur is a
person with a high need for achievement. This – Islamic business and entrepreneurs
need for achievement is the foundation of the – Islamic economic system
entrepreneurship process.
– Guidelines
– Exemplary conducts

Classification of Entrepreneurship
Theories 01-Economic theories
The theories can be categorized as under- • Entrepreneurship and economic development are
interdependent. Economic development takes place when
a country' real rational income increases overall period of
time wherein the role of entrepreneurs is an integral part
1. Economic theories • Mark Casson – The demand for entrepreneurship stems
from the need to adjust to the change. The supply of
2. Psychological theories entrepreneurs is limited due to scarcity of requisite
personal qualities. Identifying the potential entrepreneurs
3. Sociological theories is crucial.
• Leibenstein – Role of an entrepreneur is
4. Cultural theories/ Anthropological theories – A) input completion – improving the efficiency of available
resources
5. Integrated theories – B) Gap filling – arbitrage function

ECONOMIC THEORIES Harvard School Theory

• Schumpeter’s Theory of Innovation Schumpeter’s theory
of entrepreneurship is a pioneering work of economic
development. development in his sense, implies that
carrying out of new combination of entrepreneurship is
basically a creative activity.
• Entrepreneur is a catalyst that disrupts the stationery
circular flow of the economy by innovations.
1. The introduction of new goods, that is the one with which
consumers are not yet familiar, of a new quality.
2. The introduction of new method of production
3. The opening of new market
4. The conquest of new source of supply of raw material
5. The carrying out of new organization
• Entrepreneurship is a purposeful activity that
initiates, maintains or develops a profit
oriented business in interaction with the
internal situation of the business or with the
economic, political & social circumstances
surrounding the business.
• Two activities –
– 1. organizational or coordination
– 2. sensitivity to the environmental changes

6

02-Psychological Theories
• Psychological theories centre's around the psychological
characteristics of the individual in a society. Psychological
characteristics affect the supply of entrepreneurs in the
society.
• McClelland – theory
• Theory of personal resourcefulnes
• The root of entrepreneurial process can be traced to the
initiative taken by some individuals to go beyond the
existing way of life.
• Supply of entrepreneurship depends on two factors
– Cognitive function: emotions, inner feelings, thoughts,
motivations
– Human aspect: will to power, excel, achieve, change, innovate
03-Sociological theories
• Sociological Theories :Explain how sociological
factors accelerate the growth of entrepreneurs.
• The forces of custom, values, the rigidity or
flexibility of changing social status, acceptance of
new ideas, freedom to exercise intellectual
curiosity are determined by socio-cultural values
which act as channels for economic action that
gives birth to entrepreneurship
• Theory of religious beliefs
• Theory of social change
Theory of Social Change
• Everett E. Hagen, in his theory of social change states how traditional
society transforms into technical advanced society
• The theory states that the entrepreneur’s creativity as the key
element of social transformation and economic growth.
• Interrelationship among physical environment, social structure,
personality and culture plays an important part in transformation of
society
• Economic Growth is a product of social change and political change :
• According to Hagen, most of the economic theories of
underdevelopment are inadequate. He rejected the idea that the
solution to economic development lies in imitating western
technology.
18/10/2020
Psychological Theories cont..
Maslow & Alderfer:
• Maslow’s need hierarchy theory: Human beings have
five basic levels of needs such as
– 1. Physiological – survival needs
– 2. Safety & security – security, stability, insurance, etc
– 3. Social – affiliation, belongingness
– 4. Esteem – egoistic needs- respect, recognition, etc
– 5. Self actualization – realizing one’s potential fully
Theory of religious beliefs
• Weber: Religious beliefs exogenously drive entrepreneurial spirit
through encouraging or discouraging intensive occupational pursuit,
accumulation of assets, etc.
• Few religions like hinduism, buddhism, Islam do not encourage
entrepreneurship.
• He emphasized that entrepreneurial energies are exogenous
supplied by means of religious beliefs
• Spirit of Capitalism is encouraged only when ‘Capitalism’ as an
economic system in which economic freedom and private
enterprise are glorified, so also the entrepreneurial culture.
• Adventurous Spirit- Weber also made a distinction between spirit of
capitalism and adventurous spirit. According to him, the former is
influenced by the strict discipline whereas the latter is affected by
free force of impulse. Entrepreneurship culture is influenced by
both these factors.
04-CULTURAL THEORIES
• Advocates of cultural theories point out that entrepreneurship is
the product of culture.
• Entrepreneurial talents come from cultural values and cultural
system embedded into the cultural environment.
• Hoeselitz’s Theory :Hoeselitz explains that the supply of
entrepreneurship is governed by cultural factors, and culturally
minority groups are the spark-plugs of entrepreneurial and
economic development.
• In many countries, entrepreneurs have emerged from a particular
socio-economic class.
• He emphasized the role of culturally marginally groups like Jews and
the Greeks in medieval Europe, the Chinese in South Africa and
Indian in east Africa in promoting economic development.
•
7
 18/10/2020

Cultural theories cont.. DRUCKER ON ENTREPRENEURSHIP

• Thomas Cohram:
• Cultural values, role expectations & role sanctions play
an imp role in process of entrepreneurship
development.
• Entrepreneurs are seen as representing society’s
‘model’ personality rather than as deviant or super
normal individuals.
• It is moulded by prevailing child rearing practices,
educational practices & culture.
• Entrepreneurs own attitude towards his occupation
and the role expectations held by sanctioning groups
are determined by society’s values.
• Peter F. Drucker: an entrepreneur is one who always searches for
change, responds to it and exploits it as an opportunity.”
• He laid emphasis on two important factors – innovation and
resource- that led to emergence of entrepreneurship.
• Innovation is the real hub of entrepreneurship which creates
resource. A thing is regarded as resource when its economic value is
recognized.
• Entrepreneurship is not confined to big businesses and economic
institutions, it is equally important to small business and non-
economic institutions.
• Entrepreneurship behavior rather than personality trait is more
important to enhance entrepreneurship
• The foundation of entrepreneurship lies in concept and theory
rather than in intuition.

Drucker contd… 05-Integrated approach

• Thus, Drucker has given his views that “an
entrepreneur need not be a capitalist or an
owner. A banker who mobilizes other’s money
and allocates it in areas of higher yield is very
much an entrepreneur though he is not the
owner of the money.
• Udai Pareek and T.V.Rao: Few sequential
propositions lead to entrepreneurship:
– Need for motive – main thrust behind action
– long term involvement & reinforcement in action
– Resources – cognition, social & material inputs
– Socio-political system which reinforces the individual
needs to establish, develop, maintain or expand his
business activity
• This approach tries to synthesize psychological &
sociological theories.

Summary of different theories

Theories Content

Questions
Casson (Economic) Need for bringing out change
Leibenstein (economic) Gap filling
Harvard (economic) Purposeful & profit oriented activity
Schumpeter (economic) Innovations
McClelland (psychological) Need for achievement
Maslow & Alderfer(psychological) Need hierarchy
Weber (social) Religion
Hegen Social change & disadvantaged groups
Cochran (cultural) Role expectations & social sanctions
Hoselitz Cultural factors
Drucker Innovations
Pareek & Rao Integrated approach