Tuesday, 19 September 2006
Concepts of entrepreneurship
I originally wrote this article, “Concepts of entrepreneurship” in March 2004.
Entrepreneur traits, creativity, innovation, business planning and growth management are five of the main concepts of entrepreneurship. Lists of characteristics common to entrepreneurs have been published by many authors but others suggest that previous experiences are more important. Entrepreneurial creativity requires a paradigm shift and there are many techniques available to help the entrepreneur to see things in a different perspective, to come up with new ideas. Innovation involves implementing newly created ideas and the process can be classified as invention, extension, duplication and synthesis. Strategic planning is used to assess the entrepreneur's position in external/internal environments, identify key success factors/competencies and to implement a strategy. Finally, the issue of growth management requires the entrepreneur to settle on what size of company he is happy with, how much direct control is afforded to him and how entrepreneurial spirit can be retained in a growing business.
Many authors have published lists of characteristics that they consider to be displayed by entrepreneurs. Cunningham and Lischeron (1991) have grouped these contributions into six schools of thought. They classify these as the; "Great Person", Psychological, Classical, Management, Leadership and Intrapreneurship schools of thought.
"Great person" - Born entrepreneurs, e.g. Fords, Rockefeller, Trump.
Psychological - Entrepreneurial personality, behaviour developed over time.
Classical - Entrepreneurial key factors are innovation and creativity.
Management - Entrepreneurs can be developed or trained in the classroom.
Leadership - Attract people to support a vision and transform it into reality.
Intrapreneurship - Encouraging people to work in semi-autonomous units.
However, much criticism is levelled at these theories because many of the characteristics are not unique to entrepreneurs and can be found in successful managers and executives. Liles (1974:43) proposes that "certain kinds of experiences and situational conditions - rather than personality or ego - are the major determinants of whether or not an individual becomes an entrepreneur" and Bailey (2003) questions whether entrepreneurs possess different characteristics or whether they are merely products of unique situational factors. This view is also supported by O'Neile (1989), who affirms that the entrepreneur is a "product of his historical and environmental circumstances." The choice to become an entrepreneur must be influenced by events that led to the decision, claims Brockhaus and Horwitz (1986). They suggest that previous experience has an effect. These previous experiences could be positive, such as role models and education, or they could be negative displacements. Refugees and migrants may choose entrepreneurship if gaining employment is difficult. Job dissatisfaction or job loss may be other stimuli to select entrepreneurship.
Entrepreneurship can be partly described as a combination of creativity followed by innovation, where creativity is the act of 'thinking' new things, coming up with ideas and innovation is 'doing' new things or implementing the newly created ideas. Creativity is also concerned with new ways of looking at opportunities and new approaches to solving problems. This may require the entrepreneur to shift paradigms and discard old assumptions and perspectives. Mukerjea (2003), in "Brain Symphony", describes sixteen techniques that can be used by entrepreneurs to stimulate creativity:
Visual Gym - Creating scenes through imagination, used by Nikola Tesla.
Torrence Tests - Reverse, substitute, modify, adapt, new uses, combine, eliminate, simplify.
Random' Riting - Paragraph creation from randomly selected words.
Cinquains - Noun, two adjectives, three verbs, four word statement, noun.
Matchmaking - Attribute matrices, linking, lists and morphological analysis.
Radiant Thinking - Word association to branches radiating from the centre.
Metaphorical-Analogical Thinking - Problem, analogy, attributes, emergent ideas.
Cut n' Paste - Collage of cut-out images with captions.
Abstract Designs - Creative interpretation of instructions for drawing objects.
Object Analogy - Use ordinary objects to draw analogies for problem solving.
Freewheeling - Combine randomly selected objects to produce new objects.
Mentamorphosis - Infusing oneself into theactual form of the central problem.
Ideavisuals - Picture codes and storyboarding, used by Wait Disney.
Kaleidoscoping - Mixing and matching synonyms of the key problem words.
SitSol Reversal - Reverse the situation and focus on the negatives.
Fishboning - Cause and effect diagram for clarifying ambiguities.
Another technique is to “surround yourself with people who are different from you. Always ask for help and another point of view - even when you may not think that you need it. You'll often be surprised that there is a better way to look at the original idea", says Gillian Franklin, according to Turner (2003).Once the entrepreneur has created, or discovered, new ideas then they are evaluated against each other as a candidate for innovation.
Schumpeter (1934) identifies the entrepreneur's challenge as discovering and implementing new ideas. He asserts that innovation is a unique feature which separates entrepreneurs from managers. It's stated that this is achieved by (1) developing new products or services, (2) developing new methods of production, (3) identifying new markets, (4) discovering new sources of supply, and (5) developing new forms of organizations.
The innovation process can be categorized into four basic types, suggests Kuratko and Hodgetts (2004). These are; invention, extension, duplication and synthesis. Novel products or services are 'inventions', and the application of a current concept to a different application is an 'extension'. An improvement to an already existing concept is a 'duplication' and forming a new application from existing concepts is 'synthesis'.
Entrepreneurs are repeatedly monitoring windows of opportunity. These windows are continuously opening and closing and strategic planning is required to assess if the opportunity is worthwhile for the entrepreneur and how it should be successfully exploited. Whilst strategic planning is essential to ensure successful operation, it is a particularly useful tool when the entrepreneur's business is growing, it serves a niche market or business performance is improving. There are many schools of strategic management thought available to the entrepreneur and Mintzberg (1990:112) illustrates the Design School Model.
The Design School Model can be described as having eleven components:
External appraisal - An examination of the external elements influences the entrepreneur's strategy options. This involves investigating customers, competitors, market and the environment. Where the environment is political, economic, society, technology and ecology considerations.
Threats and opportunities in the environment - The external appraisal reveals the opportunities that the entrepreneur can exploit and the threats he faces. Opportunities are regarded as positive trends and threats are negative trends.
Key success factors - Key success factors are competitive assets or competences that the entrepreneur needs to compete successfully in his chosen industry. An absence of strategic necessities is a weakness and possession of strategic strengths will give advantage to the entrepreneur.
Internal appraisal - An examination of the skills of the entrepreneur's employees, resources, innovations and financial position discloses how the business is constrained by it's capabilities and resources.
Strengths and weaknesses of the organization - Any activities that the entrepreneur does well are identified as strengths from the internal appraisal. Any lack of resources or activities that the entrepreneur does not do well are identified as weaknesses.
Distinctive competencies or assets - Distinctive competencies are the activities that the entrepreneur does exceptionally well.
Social responsibility - Social responsibility is the entrepreneur's obligation, beyond that required by the law and economics, to pursue long-term goals that are good for society.
Managerial values - This describes how the entrepreneur's managers establish, promote and practice the business values. The building of team spirit, influencing marketing efforts, shaping of employee behaviour and guidance for manager's decisions and actions are examples of the main purposes of managerial values.
Creation of strategy - Strategic alternative strategies need to be developed by the entrepreneur for evaluation. These strategies should take advantage of environmental opportunities and exploit the company's strengths.
Evaluation and choice of strategy -Some of the criteria used for selection of a strategy from alternatives are scenario consideration, sustainable competitive advantage pursuit, organizational vision and objectives consistency, feasibility and the relationship to the other strategies of the entrepreneur.
Implementation of strategy - For the entrepreneur to succeed, the chosen strategy must be implemented and this involves converting strategic alternatives into an operating plan.
The final stage of business planning is to actually implement the strategic plan and four approaches are suggested. Strengths and weaknesses can be identified on a year-to-year basis in an opportunity management approach. Activities can be carried out sequentially in a milestone planning approach with achievable goals along the way. Expert theory can be used in a strategic model approach which states how the plan should be prepared and executed. Significant variables, venture phase and the entrepreneur's growth preferences can be applied to a contingency model.
The entrepreneur's management of the growth of the business raises many important issues. Amongst these are; activity level, retaining entrepreneurial spirit, delegation, and ownership. The ability, need and opportunity will determine the business growth.
First and foremost, the entrepreneur has to make the big decision as to what level of activity he wants for the business. Churchill and Lewis (1992) categorize the entrepreneur's business growth into the five stages of existence, survival, success, take off, and maturity. So, the entrepreneur must want to move from each stage to the next, otherwise he must remain at a stage where he is comfortable with the level of activity.
The high entrepreneurial spirit that exists in a small business can erode as the business grows in size, unless a conscious effort is made to avoid the adverse effects of bureaucratization. This can be achieved by creating entrepreneurial momentum that exists within the business and which, in itself, becomes a driving force of entrepreneurship.The business cannot grow unless the entrepreneur is able to effectively delegate. This can create a problem for many entrepreneurs who might fear that they are losing control of the business by giving greater responsibility to their staff. The act of delegation is made easier if the entrepreneur is able to create work procedures for standardactivities like accounting, dispatch, etc.
The finalmain issue of growth management is that of ownership. It is not possible for most entrepreneurs to achieve growth with their own limited financial resources and the surplus cash flow of the business, especially in the early years. Working capital requirements increase dramatically with increasing growth rates because of the need to outlay capital for expenditure before revenue is received. For this reason, the entrepreneur must raise capital through debt or dilution of ownership. Many entrepreneurs fear that shareholders or venture capitalists will influence the management of their venture or, in the extreme, remove them from the business.
Bailey, J. 2003, 'The right stuff', Business Review Weekly, 4-10 September, pp. 32-34, 36.
Brockhaus, R.H. & Horwitz, P.S. 1986, 'The psychology of the entrepreneurs' in Sexton, D.L. & Smilor, R.W. (Eds), The Art and Science of Entrepreneurship, Cambridge, MA: Ballinger Publishing pp. 25-48.
Churchhill, N.C. & Lewis, V.L. 1992, 'The five stages of business growth' in Sahlman, W.A. & Stevenson, H.H. (Eds), The Entrepreneurial Venture: Readings, Boston, MA: Harvard Business School Publications pp. 263-275.
Cunningham, J.B. & Lischeron, J. 1991, 'Defining entrepreneurship', Journal of Small Business Management, Vol. 29, January, pp. 45-59.Kuratko, D.F. & Hodgetts, R.M. 2004, Entrepreneurship: Theory, process, and Practice, 6th edn. Ohio: South Western.
Liles, P. R. 1974, 'Who are the entrepreneurs?', MSU Business Topics, Vol. 22, No. 1 pp. 43-55.
Mintzberg, H. 1990, 'Strategy Formation - Schools of Thought', in J.W. Frederickson (ed) Perspectives on Strategic Management, Harper Business, New York.
Mukerjea, D. 2093, Brain Symphony, Horizon Books pte Ltd, Singapore.
O'Neile, M.J. 1989, 'The entrepreneur in economic thought', Armidale, NSW: Department of Accounting and Financial Management University of New England.
Schumpeter, J.A. 1934, The Theory of Economic Development, Harvard University Press, Cambridge, Mass., p.56.
Turner, R. 27hey just did it', Boss Magazine, April, pp. 55-56, 59-60, 64-70.