Entrepreneurship

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Entrepreneurship is the process of designing, launching and running a new business, which is often initially a small business. The people who create these businesses are called entrepreneurs.[1][2]

Entrepreneurship has been described as the "capacity and willingness to develop, organize and manage a business venture along with any of its risks to make a profit."[3] While definitions of entrepreneurship typically focus on the launching and running of businesses, due to the high risks involved in launching a start-up, a significant proportion of start-up businesses have to close due to "lack of funding, bad business decisions, an economic crisis, lack of market demand, or a combination of all of these."[4]

A broader definition of the term is sometimes used, especially in the field of economics. In this usage, an Entrepreneur is an entity which has the ability to find and act upon opportunities to translate inventions or technologies into products and services: "The entrepreneur is able to recognize the commercial potential of the invention and organize the capital, talent, and other resources that turn an invention into a commercially viable innovation." [5] In this sense, the term "Entrepreneurship" also captures innovative activities on the part of established firms, in addition to similar activities on the part of new businesses.

Elements[edit]

Entrepreneurship is act of being an entrepreneur, or "the owner or manager of a business enterprise who, by risk and initiative, attempts to make profits".[6] Entrepreneurs act as managers and oversee the launch and growth of an enterprise. Entrepreneurship is the process by which either an individual or a team identifies a business opportunity and acquires and deploys the necessary resources required for its exploitation. Early-19th-century French economist Jean-Baptiste Say provided a broad definition of entrepreneurship, saying that it "shifts economic resources out of an area of lower and into an area of higher productivity and greater yield". Entrepreneurs create something new, something different—they change or transmute values.[7] Regardless of the firm size, big or small, they can partake in entrepreneurship opportunities. The opportunity to become an entrepreneur requires four criteria. First, there must be opportunities or situations to recombine resources to generate profit. Second, entrepreneurship requires differences between people, such as preferential access to certain individuals or the ability to recognize information about opportunities. Third, taking on risk is a necessity. Fourth, the entrepreneurial process requires the organization of people and resources.[8]

The entrepreneur is a factor in and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith in the late 17th and early 18th centuries. However, entrepreneurship was largely ignored theoretically until the late 19th and early 20th centuries and empirically until a profound resurgence in business and economics since the late 1970s. In the 20th century, the understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. According to Schumpeter, an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to replace in whole or in part inferior innovations across markets and industries, simultaneously creating new products including new business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. The supposition that entrepreneurship leads to economic growth is an interpretation of the residual in endogenous growth theory and as such is hotly debated in academic economics. An alternative description posited by Israel Kirzner suggests that the majority of innovations may be much more incremental improvements such as the replacement of paper with plastic in the making of drinking straws.

The exploitation of entrepreneurial opportunities may include:[9]

Developing a business plan

Hiring the human resources

Acquiring financial and material resources

Providing leadership

Being responsible for both the venture's success or failure

Risk aversion

Economist Joseph Schumpeter (1883–1950) saw the role of the entrepreneur in the economy as "creative destruction" – launching innovations that simultaneously destroy old industries while ushering in new industries and approaches. For Schumpeter, the changes and "dynamic disequilibrium brought on by the innovating entrepreneur [were] the norm of a healthy economy".[10] While entrepreneurship is often associated with new, small, for-profit start-ups, entrepreneurial behavior can be seen in small-, medium- and large-sized firms, new and established firms and in for-profit and not-for-profit organizations, including voluntary-sector groups, charitable organizations and government.[11]

Entrepreneurship may operate within an entrepreneurship ecosystem which often includes:

Government programs and services that promote entrepreneurship and support entrepreneurs and start-ups

Non-governmental organizations such as small-business associations and organizations that offer advice and mentoring to entrepreneurs (e.g. through entrepreneurship centers or websites)

Small-business advocacy organizations that lobby governments for increased support for entrepreneurship programs and more small business-friendly laws and regulations

Entrepreneurship resources and facilities (e.g. business incubators and seed accelerators)

Entrepreneurship education and training programs offered by schools, colleges and universities

Financing (e.g. bank loans, venture capital financing, angel investing and government and private foundation grants)[12][need quotation to verify]

In the 2000s, usage of the term "entrepreneurship" expanded to include how and why some individuals (or teams) identify opportunities, evaluate them as viable, and then decide to exploit them.[13] The term has also been used to discuss how people might use these opportunities to develop new products or services, launch new firms or industries, and create wealth.[14] The entrepreneurial process is uncertain because opportunities can only be identified after they have been exploited.[15]

Entrepreneurs exhibit positive biases towards finding new possibilities and seeing unmet market needs, and a tendency towards risk-taking that makes them more likely to exploit business opportunities.[16][17]

History[edit]

Historical usage[edit]

17th-century Walloon-Dutch-Swedish businessman Louis De Geer was a pioneering entrepreneur and industrialist at the dawn of modern capitalism.[18][19]

Emil Jellinek-Mercedes (1853–1918), here at the steering wheel of his Phoenix Double-Phaeton, was a European entrepreneur who helped design the first modern car

"Entrepreneur" (/ˌɒ̃trəprəˈnɜːr, -ˈnjʊər/ (About this soundlisten), UK also /-prɛ-/) is a loanword from French. The word first appeared in the French dictionary entitled Dictionnaire Universel de Commerce compiled by Jacques des Bruslons and published in 1723.[20] Especially in Britain, the term "adventurer" was often used to denote the same meaning.[21] The study of entrepreneurship reaches back to the work in the late 17th and early 18th centuries of Irish-French economist Richard Cantillon, which was foundational to classical economics. Cantillon defined the term first in his Essai sur la Nature du Commerce en Général, or Essay on the Nature of Trade in General, a book William Stanley Jevons considered the "cradle of political economy".[22][23] Cantillon defined the term as a person who pays a certain price for a product and resells it at an uncertain price, "making decisions about obtaining and using the resources while consequently admitting the risk of enterprise". Cantillon considered the entrepreneur to be a risk taker who deliberately allocates resources to exploit opportunities to maximize the financial return.[24][25] Cantillon emphasized the willingness of the entrepreneur to assume the risk and to deal with uncertainty, thus he drew attention to the function of the entrepreneur and distinguished between the function of the entrepreneur and the owner who provided the money.[24][26]

Jean-Baptiste Say also identified entrepreneurs as a driver for economic development, emphasizing their role as one of the collecting factors of production allocating resources from less to fields that are more productive. Both Say and Cantillon belonged to French school of thought and known as the physiocrats.[27]

Dating back to the time of the medieval guilds in Germany, a craftsperson required special permission to operate as an entrepreneur, the small proof of competence (Kleiner Befähigungsnachweis), which restricted training of apprentices to craftspeople who held a Meister certificate. This institution was introduced in 1908 after a period of so-called freedom of trade (Gewerbefreiheit, introduced in 1871) in the German Reich. However, proof of competence was not required to start a business. In 1935 and in 1953, greater proof of competence was reintroduced (Großer Befähigungsnachweis Kuhlenbeck), which required craftspeople to obtain a Meister apprentice-training certificate before being permitted to set up a new business.[28]

20th century[edit]

In the 20th century, entrepreneurship was studied by Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. While the loan from French of the word "entrepreneur" dates to the 1850, the term "entrepreneurship" was coined around the 1920s. According to Schumpeter, an entrepreneur is willing and able to convert a new idea or invention into a successful innovation.[29] Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to replace in whole or in part inferior offerings across markets and industries, simultaneously creating new products and new business models, thus creative destruction is largely responsible for long-term economic growth. The idea that entrepreneurship leads to economic growth is an interpretation of the residual in endogenous growth theory[clarification needed] and as such continues to be debated in academic economics. An alternative description by Israel Kirzner suggests that the majority of innovations may be incremental improvements such as the replacement of paper with plastic in the construction of a drinking straw that require no special qualities.

For Schumpeter, entrepreneurship resulted in new industries and in new combinations of currently existing inputs. Schumpeter's initial example of this was the combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case, the innovation (i.e. the car) was transformational, but did not require the development of dramatic new technology. It did not immediately replace the horse-drawn carriage, but in time incremental improvements reduced the cost and improved the technology, leading to the modern auto industry. Despite Schumpeter's early 20th-century contributions, the traditional microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks (instead of assuming that resources would find each other through a price system). In this treatment, the entrepreneur was an implied but unspecified actor, consistent with the concept of the entrepreneur being the agent of x-efficiency.

For Schumpeter, the entrepreneur did not bear risk: the capitalist did. Schumpeter believed that the equilibrium was imperfect. Schumpeter (1934) demonstrated that the changing environment continuously provides new information about the optimum allocation of resources to enhance profitability. Some individuals acquire the new information before others and recombine the resources to gain an entrepreneurial profit. Schumpeter was of the opinion that entrepreneurs shift the production possibility curve to a higher level using innovations.[30]

Initially, economists made the first attempt to study the entrepreneurship concept in depth.[31] Alfred Marshall viewed the entrepreneur as a multi-tasking capitalist and observed that in the equilibrium of a completely competitive market there was no spot for "entrepreneurs" as an economic activity creator.[32]

21st century[edit]

In 2012, Ambassador-at-Large for Global Women's Issues Melanne Verveer greets participants in an African Women's Entrepreneurship Program at the State Department in Washington, D.C.

In the 2000s, entrepreneurship has been extended from its origins in for-profit businesses to include social entrepreneurship, in which business goals are sought alongside social, environmental or humanitarian goals and even the concept of the political entrepreneur.[according to whom?] Entrepreneurship within an existing firm or large organization has been referred to as intrapreneurship and may include corporate ventures where large entities "spin-off" subsidiary organizations.[33]

Entrepreneurs are leaders willing to take risk and exercise initiative, taking advantage of market opportunities by planning, organizing and deploying resources,[34] often by innovating to create new or improving existing products or services.[35] In the 2000s, the term "entrepreneurship" has been extended to include a specific mindset resulting in entrepreneurial initiatives, e.g. in the form of social entrepreneurship, political entrepreneurship or knowledge entrepreneurship.

According to Paul Reynolds, founder of the Global Entrepreneurship Monitor, "by the time they reach their retirement years, half of all working men in the United States probably have a period of self-employment of one or more years; one in four may have engaged in self-employment for six or more years. Participating in a new business creation is a common activity among U.S. workers over the course of their careers".[36] In recent years, entrepreneurship has been claimed as a major driver of economic growth in both the United States and Western Europe.

Entrepreneurial activities differ substantially depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo, part-time projects to large-scale undertakings that involve a team and which may create many jobs. Many "high value" entrepreneurial ventures seek venture capital or angel funding (seed money) to raise capital for building and expanding the business.[37] Many organizations exist to support would-be entrepreneurs, including specialized government agencies, business incubators(which may be for-profit, non-profit, or operated by a college or university), science parks and non-governmental organizations, which include a range of organizations including not-for-profits, charities, foundations and business advocacy groups (e.g. Chambers of commerce). Beginning in 2008, an annual "Global Entrepreneurship Week" event aimed at "exposing people to the benefits of entrepreneurship" and getting them to "participate in entrepreneurial-related activities" was launched.[who?]

Relationship between small business and entrepreneurship[edit]

The term "entrepreneur" is often conflated with the term "small business" or used interchangeably with this term. While most entrepreneurial ventures start out as a small business, not all small businesses are entrepreneurial in the strict sense of the term. Many small businesses are sole proprietor operations consisting solely of the owner—or they have a small number of employees—and many of these small businesses offer an existing product, process or service and they do not aim at growth. In contrast, entrepreneurial ventures offer an innovative product, process or service and the entrepreneur typically aims to scale up the company by adding employees, seeking international sales and so on, a process which is financed by venture capital and angel investments. In this way, the term "entrepreneur" may be more closely associated with the term "startup". Successful entrepreneurs have the ability to lead a business in a positive direction by proper planning, to adapt to changing environments and understand their own strengths and weakness.[38]

Historians' ranking[edit]

A 2002 survey of 58 business history professors gave the top spots in American business history to Henry Ford, followed by Bill Gates; John D. Rockefeller; Andrew Carnegie, and Thomas Edison. They were followed by Sam Walton; J. P. Morgan; Alfred P. Sloan; Walt Disney; Ray Kroc; Thomas J. Watson; Alexander Graham Bell; Eli Whitney; James J. Hill; Jack Welch; Cyrus McCormick; David Packard; Bill Hewlett; Cornelius Vanderbilt; and George Westinghouse. [39] A 1977 survey of management scholars reported the top five pioneers in management ideas were: Frederick Winslow Taylor; Chester Barnard; Frank Bunker Gilbreth Sr.; Elton Mayo; and Lillian Moller Gilbreth.[40]

Types of entrepreneurs[edit]

Ethnic[edit]

The term "ethnic entrepreneurship" refers to self-employed business owners who belong to racial or ethnic minority groups in the United States and Europe. A long tradition of academic research explores the experiences and strategies of ethnic entrepreneurs as they strive to integrate economically into mainstream U.S. or European society. Classic cases include Jewish merchants and tradespeople in large U.S. cities in the 19th and early 20th centuries as well as Chinese and Japanese small business owners (restaurants, farmers, shop owners) on the West Coast.[41] In the 2010s, ethnic entrepreneurship has been studied in the case of Cuban business owners in Miami, Indian motel owners of the U.S. and Chinese business owners in Chinatowns across the United States. While entrepreneurship offers these groups many opportunities for economic advancement, self-employment and business ownership in the United States remain unevenly distributed along racial/ethnic lines.[42] Despite numerous success stories of Asian entrepreneurs, a recent statistical analysis of U.S. census data shows that whites are more likely than Asians, African-Americans and Latinos to be self-employed in high prestige, lucrative industries.[42]

Institutional[edit]

The American-born British economist Edith Penrose has highlighted the collective nature of entrepreneurship. She mentions that in modern organizations, human resources need to be combined to better capture and create business opportunities.[43] The sociologist Paul DiMaggio (1988:14) has expanded this view to say that "new institutions arise when organized actors with sufficient resources [institutional entrepreneurs] see in them an opportunity to realize interests that they value highly".[44] The notion has been widely applied.[45][46][47][48]

Cultural[edit]

According to Christopher Rea and Nicolai Volland, cultural entrepreneurship is "practices of individual and collective agency characterized by mobility between cultural professions and modes of cultural production", which refers to creative industry activities and sectors. In their book The Business of Culture (2015), Rea and Volland identify three types of cultural entrepreneur: "cultural personalities", defined as "individuals who buil[d] their own personal brand of creativity as a cultural authority and leverage it to create and sustain various cultural enterprises"; "tycoons", defined as "entrepreneurs who buil[d] substantial clout in the cultural sphere by forging synergies between their industrial, cultural, political, and philanthropic interests"; and "collective enterprises", organizations which may engage in cultural production for profit or not-for-profit purposes.[49]

Feminist[edit]

A feminist entrepreneur is an individual who applies feminist values and approaches through entrepreneurship, with the goal of improving the quality of life and well-being of girls and women.[50] Many are doing so by creating "for women, by women" enterprises. Feminist entrepreneurs are motivated to enter commercial markets by desire to create wealth and social change, based on the ethics of cooperation, equality and mutual respect.[51][52]

Social[edit]

Student organizers from the Green Club at Newcomb College Institute formed a social entrepreneurship organization in 2010.

Main article: Social entrepreneurship

Social entrepreneurship is the use of the by start up companies and other entrepreneurs to develop, fund and implement solutions to social, cultural, or environmental issues.[53] This concept may be applied to a variety of organizations with different sizes, aims, and beliefs.[54] For-profit entrepreneurs typically measure performance using business metrics like profit, revenues and increases in stock prices, but social entrepreneurs are either non-profits or blend for-profit goals with generating a positive "return to society" and therefore must use different metrics. Social entrepreneurship typically attempts to further broad social, cultural, and environmental goals often associated with the voluntary sector[55] in areas such as poverty alleviation, health care[56] and community development. At times, profit-making social enterprises may be established to support the social or cultural goals of the organization but not as an end in itself. For example, an organization that aims to provide housing and employment to the homeless may operate a restaurant, both to raise money and to provide employment for the homeless people.

Nascent[edit]

A nascent entrepreneur is someone in the process of establishing a business venture.[57] In this observation, the nascent entrepreneur can be seen as pursuing an opportunity, i.e. a possibility to introduce new services or products, serve new markets, or develop more efficient production methods in a profitable manner.[58][59] But before such a venture is actually established, the opportunity is just a venture idea.[60] In other words, the pursued opportunity is perceptual in nature, propped by the nascent entrepreneur's personal beliefs about the feasibility of the venturing outcomes the nascent entrepreneur seeks to achieve.[61][62][63] Its prescience and value cannot be confirmed ex ante but only gradually, in the context of the actions that the nascent entrepreneur undertakes towards establishing the venture,[64] Ultimately, these actions can lead to a path that the nascent entrepreneur deems no longer attractive or feasible, or result in the emergence of a (viable) business. In this sense, over time, the nascent venture can move towards being discontinued or towards emerging successfully as an operating entity.

The distinction between the novice, serial and portfolio entrepreneurs is an example of behavior-based categorization.[65] Other examples are the (related) studies by,[66][67] on start-up event sequences. Nascent entrepreneurship that emphasizes the series of activities involved in new venture emergence,[68][69][70] rather than the solitary act of exploiting an opportunity. Such research will help separate entrepreneurial action into its basic sub-activities and elucidate the inter- relationships between activities, between an activity (or sequence of activities) and an individual's motivation to form an opportunity belief, and between an activity (or sequence of activities) and the knowledge needed to form an opportunity belief. With this research, scholars will be able to begin constructing a theory of the micro-foundations of entrepreneurial action.

Scholars interested in nascent entrepreneurship tend to focus less on the single act of opportunity exploitation and more on the series of actions in new venture emergence,[68][71],.[70] Indeed, nascent entrepreneurs undertake numerous entrepreneurial activities, including actions that make their businesses more concrete to themselves and others. For instance, nascent entrepreneurs often look for and purchase facilities and equipment; seek and obtain financial backing, form legal entities, organize teams; and dedicate all their time and energy to their business[72]

Project-based[edit]

Project entrepreneurs are individuals who are engaged in the repeated assembly or creation of temporary organizations.[73] These are organizations that have limited lifespans which are devoted to producing a singular objective or goal and get disbanded rapidly when the project ends. Industries where project-based enterprises are widespread include: sound recording, film production, software development, television production, new media and construction.[74] What makes project-entrepreneurs distinctive from a theoretical standpoint is that they have to "rewire" these temporary ventures and modify them to suit the needs of new project opportunities that emerge. A project entrepreneur who used a certain approach and team for one project may have to modify the business model or team for a subsequent project.

Project entrepreneurs are exposed repeatedly to problems and tasks typical of the entrepreneurial process.[75] Indeed, project-entrepreneurs face two critical challenges that invariably characterize the creation of a new venture: locating the right opportunity to launch the project venture and assembling the most appropriate team to exploit that opportunity. Resolving the first challenge requires project-entrepreneurs to access an extensive range of information needed to seize new investment opportunities. Resolving the second challenge requires assembling a collaborative team that has to fit well with the particular challenges of the project and has to function almost immediately to reduce the risk that performance might be adversely affected. Another type of project entrepreneurship involves entrepreneurs working with business students to get analytical work done on their ideas.

Millennial[edit]

The term "millennial entrepreneur" refers to a business owner who is affiliated with the generation that was brought up using digital technology and mass media—the products of Baby Boomers, those people born during the 1980s and early 1990s. Also known as Generation Y, these business owners are well equipped with knowledge of new technology and new business models and have a strong grasp of its business applications. There have been many breakthrough businesses that have come from millennial entrepreneurs such as Mark Zuckerberg, who created Facebook.[76] Despite the expectation of millennial success, there have been recent studies that have proven this to not be the case. The comparison between millennials who are self-employed and those who are not self-employed shows that the latter is higher. The reason for this is because they have grown up in a different generation and attitude than their elders. Some of the barriers to entry for entrepreneurs are the economy, debt from schooling and the challenges of regulatory compliance.[77]

Entrepreneurial behaviors[edit]

The entrepreneur is commonly seen as an innovator—a designer of new ideas and business processes.[78] Management skills and strong team building abilities are often perceived as essential leadership attributes for successful entrepreneurs.[79][unreliable source] Political economist Robert Reich considers leadership, management ability and team-building to be essential qualities of an entrepreneur.[80][81]

Uncertainty perception and risk-taking[edit]

Theorists Frank Knight[82] and Peter Drucker defined entrepreneurship in terms of risk-taking. The entrepreneur is willing to put his or her career and financial security on the line and take risks in the name of an idea, spending time as well as capital on an uncertain venture. However, entrepreneurs often do not believe that they have taken an enormous amount of risks because they do not perceive the level of uncertainty to be as high as other people do. Knight classified three types of uncertainty:

Risk, which is measurable statistically (such as the probability of drawing a red color ball from a jar containing five red balls and five white balls)

Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing five red balls but an unknown number of white balls)

True uncertainty or Knightian uncertainty, which is impossible to estimate or predict statistically (such as the probability of drawing a red ball from a jar whose contents, in terms of numbers of coloured balls, are entirely unknown)

Malala Yousafzai, a Pakistani activist, social entrepreneur and youngest-ever Nobel Peace Prizewinner

Entrepreneurship is often associated with true uncertainty, particularly when it involves the creation of a novel good or service, for a market that did not previously exist, rather than when a venture creates an incremental improvement to an existing product or service. A 2014 study at ETH Zürich found that compared with typical managers, entrepreneurs showed higher decision-making efficiency and a stronger activation in regions of frontopolar cortex (FPC) previously associated with explorative choice.[83]

"Coachability" and advice taking[edit]

The ability of entrepreneurs to work closely with and take advice from early investors and other partners (i.e. their coachability) has long been considered a critical factor in entrepreneurial success.[84] At the same time, economists have argued that entrepreneurs should not simply act on all advice given to them, even when that advice comes from well-informed sources, because entrepreneurs possess far deeper and richer local knowledge about their own firm than any outsider. Indeed, measures of coachability are not actually predictive of entrepreneurial success (e.g. measured as success in subsequent funding rounds, acquisitions, pivots and firm survival). This research also shows that older and larger founding teams, presumably those with more subject expertise, are less coachable than younger and smaller founding teams.

Strategies[edit]

Strategies that entrepreneurs may use include:

Innovation of new products, services or processes[85]

Continuous process improvement (CPI)[85]

Exploration of new business models

Use of technology[85]

Use of business intelligence

Use of economical strategics

Development of future products and services[85]

Optimized talent management[85]

Designing individual/opportunity nexus[edit]

According to Shane and Venkataraman, entrepreneurship comprises both "enterprising individuals" and "entrepreneurial opportunities", so researchers should study the nature of the individuals who identify opportunities when others do not, the opportunities themselves and the nexus between individuals and opportunities.[86] On the other hand, Reynolds et al.[87]argue that individuals are motivated to engage in entrepreneurial endeavors driven mainly by necessity or opportunity, that is individuals pursue entrepreneurship primarily owing to survival needs, or because they identify business opportunities that satisfy their need for achievement. For example, higher economic inequality tends to increase necessity-based entrepreneurship rates at the individual level.[88]

Opportunity perception and biases[edit]

One study has found that certain genes affecting personality may influence the income of self-employed people.[89] Some people may be able to use[weasel words] "an innate ability" or quasi-statistical sense to gauge public opinion[90] and market demand for new products or services. Entrepreneurs tend to have the ability to see unmet market needs and underserved markets. While some entrepreneurs assume they can sense and figure out what others are thinking, the mass media plays a crucial role in shaping views and demand.[91] Ramoglou argues that entrepreneurs are not that distinctive and that it is essentially poor conceptualizations of "non-entrepreneurs" that maintain laudatory portraits of "entrepreneurs" as exceptional innovators or leaders [92][93] Entrepreneurs are often overconfident, exhibit illusion of control, when they are opening/expanding business or new products/services.[16]

Styles[edit]

Differences in entrepreneurial organizations often partially reflect their founders' heterogenous identities. Fauchart and Gruber have classified entrepreneurs into three main types: Darwinians, communitarians and missionaries. These types of entrepreneurs diverge in fundamental ways in their self-views, social motivations and patterns of new firm creation.[94]

Communication[edit]

Entrepreneurs need to practice effective communication both within their firm and with external partners and investors to launch and grow a venture and enable it to survive. An entrepreneur needs a communication system that links the staff of her firm and connects the firm to outside firms and clients. Entrepreneurs should be charismatic leaders, so they can communicate a vision effectively to their team and help to create a strong team. Communicating a vision to followers may be well the most important act of the transformational leader.[95] Compelling visions provide employees with a sense of purpose and encourage commitment. According to Baum et al.[96] and Kouzes and Posner,[97] the vision must be communicated through written statements and through in-person communication. Entrepreneurial leaders must speak and listen to articulate their vision to others.[98]

Communication is pivotal in the role of entrepreneurship because it enables leaders to convince potential investors, partners and employees about the feasibility of a venture.[99]Entrepreneurs need to communicate effectively to shareholders.[100] Nonverbal elements in speech such as the tone of voice, the look in the sender's eyes, body language, hand gestures and state of emotions are also important communication tools. The Communication Accommodation Theory posits that throughout communication people will attempt to accommodate or adjust their method of speaking to others.[101] Face Negotiation Theory describes how people from different cultures manage conflict negotiation to maintain "face".[102] Hugh Rank's "intensify and downplay" communications model can be used by entrepreneurs who are developing a new product or service. Rank argues that entrepreneurs need to be able to intensify the advantages of their new product or service and downplay the disadvantages to persuade others to support their venture.[103]

Links to sea piracy[edit]

Research from 2014 found links between entrepreneurship and historical sea piracy. In this context, the claim is made for a non-moral approach to looking at the history of piracy as a source of inspiration for entrepreneurship education[104] as well as for research in entrepreneurship[105] and business model generation.[106]

Psychological makeup[edit]

Apple co-founder and longtime leader Steve Jobs (pictured in 2010) led the introduction of many innovations in the computer, smartphone and digital music industry

Stanford University economist Edward Lazear found in a 2005 study that variety in education and work experience was the most important trait that distinguished entrepreneurs from non-entrepreneurs[107] A 2013 study by Uschi Backes-Gellner of the University of Zurich and Petra Moog of the University of Siegen in Germany found that a diverse social network was also important in distinguishing students that would go on to become entrepreneurs.[108][109]

Studies show that the psychological propensities for male and female entrepreneurs are more similar than different. Empirical studies suggest that female entrepreneurs possess strong negotiating skills and consensus-forming abilities.[110] Asa Hansson, who looked at empirical evidence from Sweden, found that the probability of becoming self-employed decreases with age for women, but increases with age for men.[111] She also found that marriage increased the probability of a person becoming an entrepreneur.[111]

Jesper Sørensen wrote that significant influences on the decision to become an entrepreneur are workplace peers and social composition. Sørensen discovered a correlation between working with former entrepreneurs and how often these individuals become entrepreneurs themselves, compared to those who did not work with entrepreneurs.[112] Social composition can influence entrepreneurialism in peers by demonstrating the possibility for success, stimulating a "He can do it, why can't I?" attitude. As Sørensen stated: "When you meet others who have gone out on their own, it doesn't seem that crazy".[113]

Entrepreneurs may also be driven to entrepreneurship by past experiences. If they have faced multiple work stoppages or have been unemployed in the past, the probability of them becoming an entrepreneur increases[111] Per Cattell's personality framework, both personality traits and attitudes are thoroughly investigated by psychologists. However, in case of entrepreneurship research these notions are employed by academics too, but vaguely. According to Cattell, personality is a system that is related to the environment and further adds that the system seeks explanation to the complex transactions conducted by both—traits and attitudes. This is because both of them bring about change and growth in a person. Personality is that which informs what an individual will do when faced with a given situation. A person's response is triggered by his/her personality and the situation that is faced.[114]

Innovative entrepreneurs may be more likely to experience what psychologist Mihaly Csikszentmihalyi calls "flow". "Flow" occurs when an individual forgets about the outside world due to being thoroughly engaged in a process or activity. Csikszentmihalyi suggested that breakthrough innovations tend to occur at the hands of individuals in that state.[115] Other research has concluded that a strong internal motivation is a vital ingredient for breakthrough innovation.[116] Flow can be compared to Maria Montessori's concept of normalization, a state that includes a child's capacity for joyful and lengthy periods of intense concentration.[117] Csikszentmihalyi acknowledged that Montessori's prepared environment offers children opportunities to achieve flow.[118] Thus quality and type of early education may influence entrepreneurial capability.

Research on high-risk settings such as oil platforms, investment banking, medical surgery, aircraft piloting and nuclear power plants has related distrust to failure avoidance.[119]When non-routine strategies are needed, distrusting persons perform better while when routine strategies are needed trusting persons perform better. This research was extended to entrepreneurial firms by Gudmundsson and Lechner.[120] They argued that in entrepreneurial firms the threat of failure is ever present resembling non-routine situations in high-risk settings. They found that the firms of distrusting entrepreneurs were more likely to survive than the firms of optimistic or overconfident entrepreneurs. The reasons were that distrusting entrepreneurs would emphasize failure avoidance through sensible task selection and more analysis. Kets de Vries has pointed out that distrusting entrepreneurs are more alert about their external environment.[121] He concluded that distrusting entrepreneurs are less likely to discount negative events and are more likely to engage control mechanisms. Similarly, Gudmundsson and Lechner found that distrust leads to higher precaution and therefore increases chances of entrepreneurial firm survival.

Researchers Schoon and Duckworth completed a study in 2012 that could potentially help identify who may become an entrepreneur at an early age. They determined that the best measures to identify a young entrepreneur are family and social status, parental role modeling, entrepreneurial competencies at age 10, academic attainment at age 10, generalized self-efficacy, social skills, entrepreneurial intention and experience of unemployment.[122]

Strategic[edit]

Some scholars have constructed an operational definition of a more specific subcategory called "Strategic Entrepreneurship". Closely tied with principles of strategic management, this form of entrepreneurship is "concerned about growth, creating value for customers and subsequently creating wealth for owners".[123] A 2011 article for the Academy of Management provided a three-step, "Input-Process-Output" model of strategic entrepreneurship. The model's three steps entail the collection of different resources, the process of orchestrating them in the necessary manner and the subsequent creation of competitive advantage, value for customers, wealth and other benefits. Through the proper use of strategic management/leadership techniques and the implementation of risk-bearing entrepreneurial thinking, the strategic entrepreneur is therefore able to align resources to create value and wealth.[123]

Leadership[edit]

Leadership in entrepreneurship can be defined as "process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task"[124] in "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods".[8] This refers to not only the act of entrepreneurship as managing or starting a business, but how one manages to do so by these social processes, or leadership skills. Entrepreneurship in itself can be defined as "the process by which individuals, teams, or organizations identify and pursue entrepreneurial opportunities without being immediately constrained by the resources they currently control".[125] An entrepreneur typically has a mindset that seeks out potential opportunities during uncertain times.[125] An entrepreneur must have leadership skills or qualities to see potential opportunities and act upon them. At the core, an entrepreneur is a decision maker. Such decisions often affect an organization as a whole, which is representative of their leadership amongst the organization.

With the growing global market and increasing technology use throughout all industries, the core of entrepreneurship and the decision-making has become an ongoing process rather than isolated incidents. This becomes knowledge management which is "identifying and harnessing intellectual assets" for organizations to "build on past experiences and create new mechanisms for exchanging and creating knowledge".[126] This belief draws upon a leader's past experiences that may prove useful. It is a common mantra for one to learn from their past mistakes, so leaders should take advantage of their failures for their benefit. This is how one may take their experiences as a leader for the use in the core of entrepreneurship-decision making.

Global leadership[edit]

The majority of scholarly research done on these topics have been from North America.[127] Words like "leadership" and "entrepreneurship" do not always translate well into other cultures and languages. For example, in North America a leader is often thought to be charismatic, but German culture frowns on such charisma due to the charisma of Nazi leader Adolf Hitler. Other cultures, like some European countries, view the term "leader" negatively, like the French.[128] The participative leadership style that is encouraged in the United States is considered disrespectful in many other parts of the world due to the differences in power distance.[129] Many Asian and Middle Eastern countries do not have "open door" policies for subordinates and would never informally approach their managers/bosses. For countries like that, an authoritarian approach to management and leadership is more customary.

Despite cultural differences, the successes and failures of entrepreneurs can be traced to how leaders adapt to local conditions.[130] With the increasingly global business environment a successful leader must be able to adapt and have insight into other cultures. To respond to the environment, corporate visions are becoming transnational in nature, to enable the organization to operate in or provide services/goods for other cultures.[131]

Entrepreneurship training and education[edit]

Michelacci and Schivardi[132] are a pair of researchers who believe that identifying and comparing the relationships between an entrepreneur's earnings and education level would determine the rate and level of success. Their study focused on two education levels, college degree and post-graduate degree. While Michelacci and Schivardi do not specifically determine characteristics or traits for successful entrepreneurs, they do believe that there is a direct relationship between education and success, noting that having a college knowledge does contribute to advancement in the workforce.

Michelacci and Schivardi state there has been a rise in the number of self-employed people with a baccalaureate degree. However, their findings also show that those who are self-employed and possess a graduate degree has remained consistent throughout time at about 33 percent. They briefly mention those famous entrepreneurs like Steve Jobs and Mark Zuckerberg who were college dropouts, but they call these cases all but exceptional as it is a pattern that many entrepreneurs view formal education as costly, mainly because of the time that needs to be spent on it. Michelacci and Schivardi believe that in order for an individual to reach the full success they need to have education beyond high school. Their research shows that the higher the education level the greater the success. The reason is that college gives people additional skills that can be used within their business and to operate on a higher level than someone who only "runs" it.

Resources and financing[edit]

Entrepreneurial resources[edit]

An entrepreneurial resource is any company-owned asset that has economic value creating capabilities. Economic value creating both tangible and intangible sources are considered as entrepreneurial resources. Their economic value is generating activities or services through mobilization by entrepreneurs.[133] Entrepreneurial resources can be divided into two fundamental categories: tangible and intangible resources.[134]

Tangible resources are material sources such as equipment, building, furniture, land, vehicle, machinery, stock, cash, bond and inventory that has a physical form and can be quantified. On the contrary, intangible resources are nonphysical or more challenging to identify and evaluate, and they possess more value creating capacity such as human resources including skills and experience in a particular field, organizational structure of the company, brand name, reputation, entrepreneurial networks that contribute to promotion and financial support, know-how, intellectual property including both copyrights, trademarks and patents.[135][136]

Bootstrapping[edit]

At least early on, entrepreneurs often "bootstrap-finance"[137] their start-up rather than seeking external investors from the start. One of the reasons that some entrepreneurs prefer to "bootstrap" is that obtaining equity financing requires the entrepreneur to provide ownership shares to the investors. If the start-up becomes successful later on, these early equity financing deals could provide a windfall for the investors and a huge loss for the entrepreneur. If investors have a significant stake in the company, they may as well be able to exert influence on company strategy, chief executive officer (CEO) choice and other important decisions. This is often problematic since the investor and the founder might have different incentives regarding the long-term goal of the company. An investor will generally aim for a profitable exit and therefore promotes a high-valuation sale of the company or IPO to sell their shares. Whereas the entrepreneur might have philanthropic intentions as their main driving force. Soft values like this might not go well with the short-term pressure on yearly and quarterly profits that publicly traded companies often experience from their owners.

One consensus definition of bootstrapping sees it as "a collection of methods used to minimize the amount of outside debt and equity financing needed from banks and investors".[138] The majority of businesses require less than $10,000 to launch,[139][self-published source] which means that personal savings are most often used to start. In addition, bootstrapping entrepreneurs often incur personal credit-card debt, but they also can utilize a wide variety of methods. While bootstrapping involves increased personal financial risk for entrepreneurs, the absence of any other stakeholder gives the entrepreneur more freedom to develop the company.

Bootstrapping methods include:[140]

Owner financing, including savings, personal loans and credit card debt

Working capital management that minimizes accounts receivable

Joint utilization, such as reducing overhead by coworking or using independent contractors

Increasing accounts payable by delaying payment, or leasing rather than buying equipment

Lean manufacturing strategies such as minimizing inventory and lean startup to reduce product development costs

Subsidy finance

Additional financing[edit]

Many businesses need more capital than can be provided by the owners themselves. In this case, a range of options is available including a wide variety of private and public equity, debt and grants. Private equity options include:

Startup accelerators

Angel investors

Venture capital investors

Equity crowdfunding

Hedge funds

Debt options open to entrepreneurs include:

Loans from banks, financial technology companies and economic development organizations

Line of credit also from banks and financial technology companies

Microcredit also known as microloans

Merchant cash advance

Revenue-based financing

Grant options open to entrepreneurs include:

Equity-free accelerators

Business plan/business pitch competitions for college entrepreneurs and others

Small Business Innovation Research grants from the U.S. government

Effect of taxes[edit]

Entrepreneurs are faced with liquidity constraints and often lack the necessary credit needed to borrow large amounts of money to finance their venture.[141] Because of this, many studies have been done on the effects of taxes on entrepreneurs. The studies fall into two camps: the first camp finds that taxes help and the second argues that taxes hurt entrepreneurship.

Cesaire Assah Meh found that corporate taxes create an incentive to become an entrepreneur to avoid double taxation.[141] Donald Bruce and John Deskins found literature suggesting that a higher corporate tax rate may reduce a state's share of entrepreneurs.[142] They also found that states with an inheritance or estate tax tend to have lower entrepreneurship rates when using a tax-based measure.[142] However, another study found that states with a more progressive personal income tax have a higher percentage of sole proprietors in their workforce.[143] Ultimately, many studies find that the effect of taxes on the probability of becoming an entrepreneur is small. Donald Bruce and Mohammed Mohsin found that it would take a 50 percentage point drop in the top tax rate to produce a one percent change in entrepreneurial activity.[144]

Predictors of success[edit]

Dell Women's Entrepreneur Network event in New York City

Factors that may predict entrepreneurial success include the following:[145]

Methods

Establishing strategies for the firm, including growth and survival strategies

Maintaining the human resources (recruiting and retaining talented employees and executives)

Ensuring the availability of required materials (e.g. raw resources used in manufacturing, computer chips, etc.)

Ensuring that the firm has one or more unique competitive advantages

Ensuring good organizational design, sound governance and organizational coordination

Congruency with the culture of the society[146]

Market

Business-to-business (B2B) or business-to-consumer (B2C) models can be used

High growth market

Target customers or markets that are untapped or missed by others

Industry

Growing industry

High technology impact on the industry

High capital intensity

Small average incumbent firm size

Team

Large, gender-diverse and racially diverse team with a range of talents, rather than an individual entrepreneur

Graduate degrees

Management experience prior to start-up

Work experience in the start-up industry

Employed full-time prior to new venture as opposed to unemployed

Prior entrepreneurial experience

Full-time involvement in the new venture

Motivated by a range of goals, not just profit

Number and diversity of team members' social ties and breadth of their business networks

Company

Written business plan

Focus on a unified, connected product line or service line

Competition based on a dimension other than price (e.g. quality or service)

Early, frequent intense and well-targeted marketing

Tight financial controls

Sufficient start-up and growth capital

Corporation model, not sole proprietorship

Status

Wealth can enable an entrepreneur to cover start-up costs and deal with cash flow challenges

Dominant race, ethnicity or gender in a socially stratified culture[147]

You’re Not a Real Entrepreneur

Posted on June 10, 2010 by steveblank

Who is an entrepreneur really? It turns out that there are four distinct types of entrepreneurial organizations; small businesses, scalable startups, large companiesand social entrepreneurs. They all engage in entrepreneurship. Yet entrepreneurs in one class think that the others aren’t the “real” entrepreneurs. This post looks at the differences and similarities and explains why there’s such confusion.

Small Business EntrepreneurshipMy parents came to the United States through Ellis Island in steerage in sight of the Statue of Liberty. As immigrants their biggest dream was opening a small grocery store on the Lower East Side of New York City, which they did in 1939. They didn’t aspire to open a chain of grocery stores, just to feed their family.

My parents were no less of an entrepreneur than I was. They went on an uncharted course, took entrepreneurial risk and only made money if the business succeeded. The only capital available to them was their own savings and what they could borrow from relatives. Both my parents worked as hard as any Silicon Valley entrepreneur but with a different definition of a successful business model; when they made a profit, they could feed our family. When business was bad they figured out why, adapted and worked harder still. They were only accountable to one and other.

Today, the overwhelming number of entrepreneurs and startups in the United States are still small businesses.

Scalable Startup EntrepreneurshipUnlike my parents, Fred Durham and his partner Maheesh Jain started the now $100+ million CafePress, knowing they wanted to build a large company. Founded in offices smaller than my parents grocery store, Fred and Maheesh’s vision was to provide a home for artists who made personalized products assembled in a just-in-time factory that today delivers a customized gift each second. Once they found a profitable business model they realized that scale required external venture capital to fuel rapid expansion. With venture capital came accountability to board members, forecasts, and other people’s agendas. Success for a scalable startup is a three-times (or more) return on the investor’s money – either by a public offering of stock or by selling the company.

Scalable startups in technology centers (Silicon Valley, Shanghai, New York, Bangalore, Israel, etc.) make up a small percentage of entrepreneurs and startups but because of the outsize returns attract almost all the risk capital (and press.)

Large Company EntrepreneurshipAt the end of 1980, IBM decided to compete in the rapidly growing personal computer market. They were smart enough to realize that IBM’s existing processes and procedures wouldn’t be agile enough to innovate in this new market. The company established their new PC division (called Entry Systems), as a Skunk Works in Boca Raton Florida a 1000 miles from IBM headquarters. This small group consisted of 12 engineers and designers under the direction of Don Estridge. Success for this new division meant generating substantial revenue and profit for company.

The division developed the IBM PC and announced it in less than a year. Three years later the division had sold 1 million PC’s, had 9500 people and a billion dollars in sales.

Don Estridge’s paycheck and funding for the division came from IBM and he reported up the organization, but in his own division he was no less entrepreneurial than Michael Dell or Steve Jobs – or Fred Durham or my parents.

Social EntrepreneurshipIrfan Alam, a 27-year-old from the Indian state of Bihar started the Sammaan Foundation to transform the lives of 10 million rickshaw-pullers in India. Irfan got banks to finance rickshaw-pullers and designed rickshaws that can shelve newspapers, mineral water bottles and other essentials for rickshaw passengers. These rickshaws carry ads and the pullers get 50% of the ad revenue, the remainder going to Sammaan. The rickshaw-pullers end up as owners after re-paying the bank loan in installments. Irfan started off with 100 such rickshaws in 2007 and have 300,000 today.

Irfan doesn’t take a salary but he is as focused on scalability, asset leverage, return on investment and growth metrics as any Silicon Valley entrepreneur ever was.

SummaryIf you put the four entrepreneurs in the room you would understand what they had in common- they were resilient, agile, tenacious and passionate – the four most common traits of any class of entrepreneur.

Also in common, each of their businesses initially were searching for a business model, and each was instinctively executing a customer discovery and validation process.

Yet there are obvious differences in each type; personal risk, size of vision and goal.

Entrepreneurship: Characteristics,Importance, Types, and Functions of Entrepreneurship

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Read this article to get information on the characteristics, process, importance, types, functions and Myths about Entrepreneurship!

Entrepreneurial development today has become very significant; in view of its being a key to economic development. The objectives of industrial development, regional growth, and employment generation depend upon entrepreneurial development.

Entrepreneurs are, thus, the seeds of industrial development and the fruits of industrial development are greater employment opportunities to unemployed youth, increase in per capita income, higher standard of living and increased individual saving, revenue to the government in the form of income tax, sales tax, export duties, import duties, and balanced regional development.

Image Courtesy : go.christiansteven.com/Portals/168354/images/accounting1.jpg

Concept of Entrepreneurship:

The word “entrepreneur” is derived from the French verb enterprendre, which means ‘to undertake’. This refers to those who “undertake” the risk of new enterprises. An enterprise is created by an entrepreneur. The process of creation is called “entrepreneurship”.

Entrepreneurship is a process of actions of an entrepreneur who is a person always in search of something new and exploits such ideas into gainful opportunities by accepting the risk and uncertainty with the enterprise.

Characteristics of Entrepreneurship:

Entrepreneurship is characterized by the following features:

1. Economic and dynamic activity:

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Entrepreneurship is an economic activity because it involves the creation and operation of an enterprise with a view to creating value or wealth by ensuring optimum utilisation of scarce resources. Since this value creation activity is performed continuously in the midst of uncertain business environment, therefore, entrepreneurship is regarded as a dynamic force.

2. Related to innovation:

Entrepreneurship involves a continuous search for new ideas. Entrepreneurship compels an individual to continuously evaluate the existing modes of business operations so that more efficient and effective systems can be evolved and adopted. In other words, entrepreneurship is a continuous effort for synergy (optimization of performance) in organizations.

3. Profit potential:

“Profit potential is the likely level of return or compensation to the entrepreneur for taking on the risk of developing an idea into an actual business venture.” Without profit potential, the efforts of entrepreneurs would remain only an abstract and a theoretical leisure activity.

4. Risk bearing:

The essence of entrepreneurship is the ‘willingness to assume risk’ arising out of the creation and implementation of new ideas. New ideas are always tentative and their results may not be instantaneous and positive.

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An entrepreneur has to have patience to see his efforts bear fruit. In the intervening period (time gap between the conception and implementation of an idea and its results), an entrepreneur has to assume risk. If an entrepreneur does not have the willingness to assume risk, entrepreneurship would never succeed.

Entrepreneurial Process:

Entrepreneurship is a process, a journey, not the destination; a means, not an end. All the successful entrepreneurs like Bill Gates (Microsoft), Warren Buffet (Hathaway), Gordon Moore (Intel) Steve Jobs (Apple Computers), Jack Welch (GE) GD Birla, Jamshedji Tata and others all went through this process.

To establish and run an enterprise it is divided into three parts – the entrepreneurial job, the promotion, and the operation. Entrepreneurial job is restricted to two steps, i.e., generation of an idea and preparation of feasibility report. In this article, we shall restrict ourselves to only these two aspects of entrepreneurial process.

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Figure 4.1: The Entrepreneurial Process

1. Idea Generation:

To generate an idea, the entrepreneurial process has to pass through three stages:

a. Germination:

This is like seeding process, not like planting seed. It is more like the natural seeding. Most creative ideas can be linked to an individual’s interest or curiosity about a specific problem or area of study.

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b. Preparation:

Once the seed of interest curiosity has taken the shape of a focused idea, creative people start a search for answers to the problems. Inventors will go on for setting up laboratories; designers will think of engineering new product ideas and marketers will study consumer buying habits.

c. Incubation:

This is a stage where the entrepreneurial process enters the sub­conscious intellectualization. The sub-conscious mind joins the unrelated ideas so as to find a resolution.

2. Feasibility study:

Feasibility study is done to see if the idea can be commercially viable.

It passes through two steps:

a. Illumination:

After the generation of idea, this is the stage when the idea is thought of as a realistic creation. The stage of idea blossoming is critical because ideas by themselves have no meaning.

b. Verification:

This is the last thing to verify the idea as realistic and useful for application. Verification is concerned about practicality to implement an idea and explore its usefulness to the society and the entrepreneur.

Importance of Entrepreneurship:

Entrepreneurship offers the following benefits:

Benefits of Entrepreneurship to an Organisation:

1. Development of managerial capabilities:

The biggest significance of entrepreneurship lies in the fact that it helps in identifying and developing managerial capabilities of entrepreneurs. An entrepreneur studies a problem, identifies its alternatives, compares the alternatives in terms of cost and benefits implications, and finally chooses the best alternative.

This exercise helps in sharpening the decision making skills of an entrepreneur. Besides, these managerial capabilities are used by entrepreneurs in creating new technologies and products in place of older technologies and products resulting in higher performance.

2. Creation of organisations:

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Entrepreneurship results into creation of organisations when entrepreneurs assemble and coordinate physical, human and financial resources and direct them towards achievement of objectives through managerial skills.

3. Improving standards of living:

By creating productive organisations, entrepreneurship helps in making a wide variety of goods and services available to the society which results into higher standards of living for the people.

Possession of luxury cars, computers, mobile phones, rapid growth of shopping malls, etc. are pointers to the rising living standards of people, and all this is due to the efforts of entrepreneurs.

4. Means of economic development:

Entrepreneurship involves creation and use of innovative ideas, maximisation of output from given resources, development of managerial skills, etc., and all these factors are so essential for the economic development of a country.

Factors affecting Entrepreneurship:

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Entrepreneurship is a complex phenomenon influenced by the interplay of a wide variety of factors.

Some of the important factors are listed below:

1. Personality Factors:

Personal factors, becoming core competencies of entrepreneurs, include:

(a) Initiative (does things before being asked for)

(b) Proactive (identification and utilisation of opportunities)

(c) Perseverance (working against all odds to overcome obstacles and never complacent with success)

(d) Problem-solver (conceives new ideas and achieves innovative solutions)

(e) Persuasion (to customers and financiers for patronisation of his business and develops & maintains relationships)

(f) Self-confidence (takes and sticks to his decisions)

(g) Self-critical (learning from his mistakes and experiences of others)

(h) A Planner (collects information, prepares a plan, and monitors performance)

(i) Risk-taker (the basic quality).

2. Environmental factors:

These factors relate to the conditions in which an entrepreneur has to work. Environmental factors such as political climate, legal system, economic and social conditions, market situations, etc. contribute significantly towards the growth of entrepreneurship. For example, political stability in a country is absolutely essential for smooth economic activity.

Frequent political protests, bandhs, strikes, etc. hinder economic activity and entrepreneurship. Unfair trade practices, irrational monetary and fiscal policies, etc. are a roadblock to the growth of entrepreneurship. Higher income levels of people, desire for new products and sophisticated technology, need for faster means of transport and communication, etc. are the factors that stimulate entrepreneurship.

Thus, it is a combination of both personal and environmental factors that influence entrepreneurship and brings in desired results for the individual, the organisation and the society.

Types of Entrepreneurs:

Depending upon the level of willingness to create innovative ideas, there can be the following types of entrepreneurs:

1. Innovative entrepreneurs:

These entrepreneurs have the ability to think newer, better and more economical ideas of business organisation and management. They are the business leaders and contributors to the economic development of a country.

Inventions like the introduction of a small car ‘Nano’ by Ratan Tata, organised retailing by Kishore Biyani, making mobile phones available to the common may by Anil Ambani are the works of innovative entrepreneurs.

2. Imitating entrepreneurs:

These entrepreneurs are people who follow the path shown by innovative entrepreneurs. They imitate innovative entrepreneurs because the environment in which they operate is such that it does not permit them to have creative and innovative ideas on their own.

Such entrepreneurs are found in countries and situations marked with weak industrial and institutional base which creates difficulties in initiating innovative ideas.

In our country also, a large number of such entrepreneurs are found in every field of business activity and they fulfill their need for achievement by imitating the ideas introduced by innovative entrepreneurs.

Development of small shopping complexes is the work of imitating entrepreneurs. All the small car manufacturers now are the imitating entrepreneurs.

3. Fabian entrepreneurs:

The dictionary meaning of the term ‘fabian’ is ‘a person seeking victory by delay rather than by a decisive battle’. Fabian entrepreneurs are those individuals who do not show initiative in visualising and implementing new ideas and innovations wait for some development which would motivate them to initiate unless there is an imminent threat to their very existence.

4. Drone entrepreneurs:

The dictionary meaning of the term ‘drone’ is ‘a person who lives on the labor of others’. Drone entrepreneurs are those individuals who are satisfied with the existing mode and speed of business activity and show no inclination in gaining market leadership. In other words, drone entrepreneurs are die-hard conservatives and even ready to suffer the loss of business.

5. Social Entrepreneur:

Social entrepreneurs drive social innovation and transformation in various fields including education, health, human rights, workers’ rights, environment and enterprise development.

They undertake poverty alleviation objectives with the zeal of an entrepreneur, business practices and dare to overcome traditional practices and to innovate. Dr Mohammed Yunus of Bangladesh who started Gramin Bank is a case of social entrepreneur.

Functions of an Entrepreneur:

The important functions performed by an entrepreneur are listed below:

1. Innovation:

An entrepreneur is basically an innovator who tries to develop new technology, products, markets, etc. Innovation may involve doing new things or doing existing things differently. An entrepreneur uses his creative faculties to do new things and exploit opportunities in the market. He does not believe in status quo and is always in search of change.

2. Assumption of Risk:

An entrepreneur, by definition, is risk taker and not risk shirker. He is always prepared for assuming losses that may arise on account of new ideas and projects undertaken by him. This willingness to take risks allows an entrepreneur to take initiatives in doing new things and marching ahead in his efforts.

3. Research:

An entrepreneur is a practical dreamer and does a lot of ground-work before taking a leap in his ventures. In other words, an entrepreneur finalizes an idea only after considering a variety of options, analyzing their strengths and weaknesses by applying analytical techniques, testing their applicability, supplementing them with empirical findings, and then choosing the best alternative. It is then that he applies his ideas in practice. The selection of an idea, thus, involves the application of research methodology by an entrepreneur.

4. Development of Management Skills:

The work of an entrepreneur involves the use of managerial skills which he develops while planning, organizing, staffing, directing, controlling and coordinating the activities of business. His managerial skills get further strengthened when he engages himself in establishing equilibrium between his organization and its environment.

However, when the size of business grows considerably, an entrepreneur can employ professional managers for the effective management of business operations.

5. Overcoming Resistance to Change:

New innovations are generally opposed by people because it makes them change their existing behavior patterns. An entrepreneur always first tries new ideas at his level.

It is only after the successful implementation of these ideas that an entrepreneur makes these ideas available to others for their benefit. In this manner, an entrepreneur paves the way for the acceptance of his ideas by others. This is a reflection of his will power, enthusiasm and energy which helps him in overcoming the society’s resistance to change.

6. Catalyst of Economic Development:

An entrepreneur plays an important role in accelerating the pace of economic development of a country by discovering new uses of available resources and maximizing their utilization.

To better appreciate the concept of an entrepreneur, it is desirable to distinguish him from an entrepreneur and promoter. Table 4.1 outlines the distinction between an entrepreneur and entrepreneurs, and Table 4.2 portrays basic points of distinction between an entrepreneur and promoter.

Table 4.1: Distinction between Entrepreneur and Intrapreneur:

Basis	Entrepreneur	Intrapreneur
• Capacity• Status• Decisions • Reward	— Owner— Own boss— Takes own decisions — Uncertain and unlimited	— An manager— Salaried employee— Executes decisions with the concurrence of owner — Fixed rewards and salary

Table 4.2: Distinction between Entrepreneur and Promoter:

Basis	Entrepreneur	Promoter
• Stage of business• Owning business• Nature of job • Example	— From conception to continuation— Owns the enterprise— Includes everything — Any business	— To bring a business into existence— May or may not own— Highly specialised — A consultant or a chartered account and offering services

Some Myths about Entrepreneurship:

Over the years, a few myths about entrepreneurship have developed. These are as under:

(i) Entrepreneurs, like leaders, are born, not made:

The fact does not hold true for the simple reason that entrepreneurship is a discipline comprising of models, processes and case studies.

One can learn about entrepreneurship by studying the discipline.

(ii) Entrepreneurs are academic and socially misfits:

Dhirubai Ambani had no formal education. Bill Gates has been a School drop-out. Therefore, this description does not apply to everyone. Education makes an entrepreneur a true entrepreneur. Mr Anand Mahindra, Mr Kumar Mangalam Birla, for example, is educated entrepreneurs and that is why they are heroes.

(iii) To be an entrepreneur, one needs money only:

Finance is the life-blood of an enterprise to survive and grow. But for a good idea whose time has come, money is not a problem.

(iv) To be an entrepreneur, a great idea is the only ingredient:

A good or great idea shall remain an idea unless there is proper combination of all the resources including management.

(v) One wants to be an entrepreneur as having no boss is great fun:

It is not only the boss who is demanding; even an entrepreneur faces demanding vendors, investors, bankers and above all customers.

An entrepreneur’s life will be much simpler, since he works for himself. The truth is working for others are simpler than working for oneself. One thinks 24 hours a day to make his venture successful and thus, there would be a punishing schedule.

Success in entrepreneurship isn’t just about your idea or your money. Plenty of people have interesting ideas or a lot of cash to throw around — and they never quite manage to find success in their ventures.

If you want to be an entrepreneur, take a step back and evaluate whether or not you have the following characteristics. (And remember: if you don’t have these traits now, you can develop them down the road to improve your chances of success.)

1. Self-Motivation

One of the most important traits of entrepreneurs is self-motivation. When you want to succeed, you need to be able to push yourself. You aren’t answerable to anyone else as an entrepreneur, and that sometimes means that it’s hard to get moving without anyone to make you. You need to be dedicated to your plan and keep moving forward — even if you aren’t receiving an immediate paycheck.

2. Understand What You Offer

As an entrepreneur, you need to know what you offer, and how it fits into the market. Whether it’s a product or a service, you need to know where you fit in. That means you need to know when it’s time to tweak things a little bit. This also includes knowing whether you are high end, middle of the road or bargain. Being able to position yourself and then adjust as needed is an important part of entrepreneurship.

3. Take Risks

Successful entrepreneurs know that sometimes it’s important to take risks. Playing it safe almost never leads to success as a business owner. It’s not about taking just any risk, though. Understanding calculated risks that are more likely to pay off is an important part of being an entrepreneur. You’ll need to be willing to take a few risks to succeed.

4. Know How to Network

Knowing how to network is an important part of entrepreneurship. Sometimes who you know is an important part of success. Being able to connect with others and recognize partnership opportunities can take you a long way as a business owner. Figure out where to go for networking opportunities and make it a point to learn how to be effective.

5. Basic Money Management Skills and Knowledge

We often think of successful entrepreneurs as “big picture” people who don’t worry so much about managing the day to day. And it’s true that you might have an accountant or other team members to help you manage the business. However, if you want to be successful, you should still have basic money management skills and knowledge. Understand how money works so that you know where you stand, and so that you run your business on sound principles.

6. Flexibility

To a certain degree, you need to be flexible as an entrepreneur. Be willing to change as needed. Stay on top of your industry and be ready to adopt changes in processes and product as they are needed. Sometimes, you also need flexibility in your thinking. This is an essential part of problem-solving. You want to be able find unique and effective solutions to issues.

7. Passion

Finally, successful entrepreneurs are passionate. They feel deeply about their product or service or mission. Passion is what will help you find motivation when you are discouraged and it will drive your forward. Passion is fuel for successful entrepreneurship. If you find yourself losing your passion, that might be the clue that it’s time to move on to something else (that stokes your passion). There are many serial entrepreneurs that create successful businesses, sell them, and then create something else.

As you consider your characteristics, think about how to better develop them to help you become a better entrepreneur.

Entrepreneurs are a different breed - they think different, act different, and live different than the rest of society. However, the successful ones all seem to share a few of the same traits with each other. Here are 12 of the most common:

1. They take what they do seriously.

Entrepreneurs understand that the success of the business ultimately rests upon their shoulders. When you run a startup, whether or not rent is paid depends on how you run the business. Because of this, all successful entrepreneurs take their work very seriously.

2. They make it all about the customer

Customers are why a business exists. Their sales dollars determine the success of any business. Successful entrepreneurs realize this early on and make their business about the customers. Studies show that customers are four times more likely to switch to a competitor if they have a customer service concern versus a price or product issue.

Related: 25 Common Characteristics of Successful Entrepreneurs

3. They make the big decisions carefully.

Every decision has consequences, whether good or bad. Over time, those consequences shape our reality and tell the story of our lives. Entrepreneurs who are doing well take note and carefully identify the potential long-term effects of each decision, while seeking counsel before making major decision.

4. They aren’t scared of the road less traveled.

Following the crowd only leads to where others have been before. Successful entrepreneurs aren’t afraid to venture out on their own with a company and blaze a new trial. That’s their defining characteristic. Some of the best inventions and designshave come from the minds of those who weren’t afraid to be different.

5. They harness technology.

Things change constantly, and they change especially quickly in business. To best serve their customers, successful entrepreneurs keep up to date with the best technology can offer to them. Take, for example, live chat. It can make a huge difference in your company’s customer service results and overall growth.  

6. They invest in themselves.

You can’t make other people better unless you make yourself better first. Entrepreneurs who are successful make a point to carve out time from their calendar and money from their budget to invest in themselves. This investment may be further education or a well-earned vacation. Either way, successful entrepreneurs find ways to recharge and propel themselves further.

Related: The 5 Mistakes Standing Between You and Your First Million

7. They are constantly learning.

There’s always something you don’t know and something else that has just been discovered. Both are essential for entrepreneurs. You can’t build a business around something you don’t know about, and you can’t improve products and services using outdated methods. Entrepreneurs are always on the prowl to learn more about what they do and what the competition is working on.

8. They’re not afraid of risks

The best things in life are often found on the other side of a worthwhile risk; in that way, the best business you can build may be on the other side of possible failure. Entrepreneurs don’t shy away from the unknown or the uncharted. They know that’s where the future sales dollars and profits are. While uncalculated risks can cause terrible consequences, calculated risks are the sweet spot of a new business venture.

9. They’re willing to experience failure

Very few successful entrepreneurs have made it without living through some failure, large or small. They realize failure is just information about what doesn’t work, not the end of the journey. They continue trying long after most would have given up.

10. They adapt to the current needs of the customer and market

As conditions and society go through changes, so do the needs of customers. The successful businesses of tomorrow will be those that learn how to meet those needs quickly and don't get left behind in the heap of non-adapters.

11. They know how to sell themselves

Successful entrepreneurs know when something is valuable, even if no one else does yet. They can explain and prove why their product or service is worth the price or investment. Finding a way to sell yourself before anyone believes in you or your business is the key to successful entrepreneurship.

12. They network, network, network

Not everyone is going to be jumping at the chance to use a new product and service, and some still won’t adopt even after a lot of compelling information. So entrepreneurs network; not only to find clients, but also to meet others who share their passion and desire and who can help them go even further.

Successful business people have many traits in common with one another. They are confident and optimistic. They are disciplined self starters. They are open to any new ideas which cross their path (Side note: Rich20Something is a great book about this, it covers the mindset of millennial entrepreneurs). Here are ten traits of the successful entrepreneur.

1. Disciplined

These individuals are focused on making their businesses work, and eliminate any hindrances or distractions to their goals. They have overarching strategies and outline the tactics to accomplish them. Successful entrepreneurs are disciplined enough to take steps every day toward the achievement of their objectives.

2. Confidence

The entrepreneur does not ask questions about whether they can succeed or whether they are worthy of success. They are confident with the knowledge that they will make their businesses succeed. They exude that confidence in everything they do.

3. Open Minded

Entrepreneurs realize that every event and situation is a business opportunity. Ideas are constantly being generated about workflows and efficiency, people skills and potential new businesses. They have the ability to look at everything around them and focus it toward their goals.

4. Self Starter

Entrepreneurs know that if something needs to be done, they should start it themselves. They set the parameters and make sure that projects follow that path. They are proactive, not waiting for someone to give them permission.

5. Competitive

Many companies are formed because an entrepreneur knows that they can do a job better than another. They need to win at the sports they play and need to win at the businesses that they create. An entrepreneur will highlight their own company’s track record of success.

6. Creativity

One facet of creativity is being able to make connections between seemingly unrelated events or situations. Entrepreneurs often come up with solutions which are the synthesis of other items. They will repurpose products to market them to new industries.

7. Determination

Entrepreneurs are not thwarted by their defeats. They look at defeat as an opportunity for success. They are determined to make all of their endeavors succeed, so will try and try again until it does. Successful entrepreneurs do not believe that something cannot be done.

8. Strong people skills

The entrepreneur has strong communication skills to sell the product and motivate employees. Most successful entrepreneurs know how to motivate their employees so the business grows overall. They are very good at highlighting the benefits of any situation and coaching others to their success.

9. Strong work ethic

The successful entrepreneur will often be the first person to arrive at the office and the last one to leave. They will come in on their days off to make sure that an outcome meets their expectations. Their mind is constantly on their work, whether they are in or out of the workplace.

10. Passion

Passion is the most important trait of the successful entrepreneur. They genuinely love their work. They are willing to put in those extra hours to make the business succeed because there is a joy their business gives which goes beyond the money. The successful entrepreneur will always be reading and researching ways to make the business better.

Successful entrepreneurs want to see what the view is like at the top of the business mountain. Once they see it, they want to go further. They know how to talk to their employees, and their businesses soar as a result.

What are the 5 P’s of Marketing?

The 5 P’s of Marketing – Product, Price, Promotion, Place, and People – are key marketing elements used to position a business strategically. The 5 P’s of Marketing, also known as the marketing mix, are variables that managers and owners control to satisfy customers in their target market, add value to their business, and help differentiate their business from competitors.

Product

Product refers to the products and services offered by a business. Product decisions include function, packaging, appearance, warranty, quality, etc.

Customers need to understand the features, advantages, and benefits that can be enjoyed by buying the goods or services. When thinking about a product, consider the key features, benefits, and the needs and wants of customers.

Price

Price refers to the pricing strategy for products and services and how it will affect customers. Pricing decisions do not include just the selling price, but also discounts, payment arrangements, credit terms, or any other price-matching services offered.

When determining a pricing strategy, it is important to consider the business’s position in the current marketplace. For example, if the business is advertised as a high-quality provider of mechanical equipment, the product pricing should reflect that.

Promotion

Promotion refers to the activities that make the business more known to consumers. It includes items such as sponsorships, advertising, and public relations activities.

Since promotion costs can be substantial, it is essential to conduct a break-even analysis when making promotion decisions. It is important to understand the value of a customer and whether it is worth conducting promotions to acquire them.

Place

Place refers to where the product/service of the business is seen, made, sold, or distributed. In essence, place decisions are associated with distribution channels and ways of getting the product to target key customers.

It is important to consider how accessible the product or service is and ensure that customers can easily find you. The product or service must be available to customers at the right time, at the right place, and in the right quantity.

For example, a business may want to provide their products over an e-commerce site, at a retail store, or through a third-party distributor.

People

People refer to the staff, salespeople, and those who work for the business. People decisions are usually centered around customer service – how do you want your employees to be perceived by customers?

Example of the 5 P’s of Marketing

John is considering operating a jet ski shop catering to travelers and tourists. To position his business, John may consult the 5 Ps of marketing in the following manner:

• Product: By-the-hour jet ski rentals for people who are in the city for a short duration of time. A limited liability form to be signed by people who participate in the service and a monetary deposit in case of damages.
• Price: Cheap jet ski trips to cater to the budget constraints of travelers and tourists. A 10% discount on jet ski trips when referred by a travel agency.
• Promotions: A Facebook page, Instagram page, and a Twitter handle to promote the business. Also, paid promotions on travel agency websites.
• Place: An easy to access location from existing transit systems.
• People: Friendly staff members who love meeting other travelers and offer exceptional customer service.

6 P's are the keys to success

By Ed Abel   March 7, 2012

Ed Abel

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You have the best products, the best services, and a prime location. So why might your business be failing? You have everything a successful business needs, but your business, along with your life, feels like it is lacking. What you are missing are interrelated keys to a successful business as well as a successful life called "The Six P's" - passion, patience, persistence, positive attitude, planning, and practice. You are who you are, inside and outside of your business. Therefore you need to incorporate these important keys to success in all aspects of your life to make your business successful.

Passion is a highly integral part of a successful business. It is important to be doing something you are passionate about. Even if where you are is not where you want to be you need to have passion for that end result. Know exactly why you wake up each morning and surround yourself with people you want to work with. Managing a business as well as life in general can distract you from your original goals so remember to stay connected to your passion.

Patience is said to be a virtue. As a new business, gathering clients and achieving your long term goals can be a tedious process. Although we want that instant gratification, results take time. Also remember that even though you expect a proposal to be returned within a few days, those reviewing it expect to return it within the week. You are not the only business owner with a busy schedule. If you are frustrated, have a few relaxing tactics ready to use to bring that much needed patience back into your life.

Persistence is essential to your business. If your business is worth pursuing, you will stay with it through the bad times. Very few ventures that have paid off in the end succeeded on the first try. The emphasis is on keeping your same goal but changing the methods used to reach it. Use the patience you have learned and do not give up on that deal too early.

Having a positive attitude can make all the difference. Potential clients are not going to want to conduct business with someone who comes off as negative or grumpy. Surround yourself with positive people and find opportunities in every situation, both good and bad.

Planning can leverage how you use your time, money, and resources. Separate the year into separate blocks that work for your business and plan for those individual blocks each time. This will reduce spending, save time, and make sure that you are not wasting valuable resources. By knowing exactly what to expect out of, for example, the next 90 days, you can keep you and your business on schedule.

Practice is the final key to a successful business. No matter what you do or how good you are at your job, there is always room for improvement. Clients are reassured by someone who not only knows what they are doing but also by someone who is increasing their efficiency.

The keys to a successful business are simple. By incorporating these six simple steps you are not only improving your business but you are improving your life.

An entrepreneur is someone who organizes, manages, and assumes the risks of a business or enterprise. An entrepreneur is an agent of change. Entrepreneurship is the process of discovering new ways of combining resources. When the market value generated by this new combination of resources is greater than the market value these resources can generate elsewhere individually or in some other combination, the entrepreneur makes a profit. An entrepreneur who takes the resources necessary to produce a pair of jeans that can be sold for thirty dollars and instead turns them into a denim backpack that sells for fifty dollars will earn a profit by increasing the value those resources create. This comparison is possible because in competitive resource markets, an entrepreneur’s costs of production are determined by the prices required to bid the necessary resources away from alternative uses. Those prices will be equal to the value that the resources could create in their next-best alternate uses. Because the price of purchasing resources measures this opportunity cost— the value of the forgone alternatives—the profit entrepreneurs make reflects the amount by which they have increased the value generated by the resources under their control.

Entrepreneurs who make a loss, however, have reduced the value created by the resources under their control; that is, those resources could have produced more value elsewhere. Losses mean that an entrepreneur has essentially turned a fifty-dollar denim backpack into a thirty-dollar pair of jeans. This error in judgment is part of the entrepreneurial learning, or discovery, process vital to the efficient operation of markets. The profit-and-loss system of capitalism helps to quickly sort through the many new resource combinations entrepreneurs discover. A vibrant, growing economy depends on the efficiency of the process by which new ideas are quickly discovered, acted on, and labeled as successes or failures. Just as important as identifying successes is making sure that failures are quickly extinguished, freeing poorly used resources to go elsewhere. This is the positive side of business failure.

Successful entrepreneurs expand the size of the economic pie for everyone. Bill Gates, who as an undergraduate at Harvard developed BASIC for the first microcomputer, went on to help found Microsoft in 1975. During the 1980s, IBM contracted with Gates to provide the operating system for its computers, a system now known as MS-DOS. Gates procured the software from another firm, essentially turning the thirty-dollar pair of jeans into a multibillion-dollar product. Microsoft’s Office and Windows operating software now run on about 90 percent of the world’s computers. By making software that increases human productivity, Gates expanded our ability to generate output (and income), resulting in a higher standard of living for all.

Sam Walton, the founder of Wal-Mart, was another entrepreneur who touched millions of lives in a positive way. His innovations in distribution warehouse centers and inventory control allowed Wal-Mart to grow, in less than thirty years, from a single store in Arkansas to the nation’s largest retail chain. Shoppers benefit from the low prices and convenient locations that Walton’s Wal-Marts provide. Along with other entrepreneurs such as Ted Turner (CNN), Henry Ford (Ford automobiles), Ray Kroc (McDonald’s franchising), and Fred Smith (FedEx), Walton significantly improved the everyday life of billions of people all over the world.

The word “entrepreneur” originates from a thirteenth-century French verb, entreprendre, meaning “to do something” or “to undertake.” By the sixteenth century, the noun form, entrepreneur, was being used to refer to someone who undertakes a business venture. The first academic use of the word by an economist was likely in 1730 by Richard Cantillon, who identified the willingness to bear the personal financial risk of a business venture as the defining characteristic of an entrepreneur. In the early 1800s, economists Jean-Baptiste Say and John Stuart Mill further popularized the academic usage of the word “entrepreneur.” Say stressed the role of the entrepreneur in creating value by moving resources out of less productive areas and into more productive ones. Mill used the term “entrepreneur” in his popular 1848 book, Principles of Political Economy, to refer to a person who assumes both the risk and the management of a business. In this manner, Mill provided a clearer distinction than Cantillon between an entrepreneur and other business owners (such as shareholders of a corporation) who assume financial risk but do not actively participate in the day-to-day operations or management of the firm.

Two notable twentieth-century economists, Joseph Schumpeter and Israel Kirzner, further refined the academic understanding of entrepreneurship. Schumpeter stressed the role of the entrepreneur as an innovator who implements change in an economy by introducing new goods or new methods of production. In the Schumpeterian view, the entrepreneur is a disruptive force in an economy. Schumpeter emphasized the beneficial process of creative destruction, in which the introduction of new products results in the obsolescence or failure of others. The introduction of the compact disc and the corresponding disappearance of the vinyl record is just one of many examples of creative destruction: cars, electricity, aircraft, and personal computers are others. In contrast to Schumpeter’s view, Kirzner focused on entrepreneurship as a process of discovery. Kirzner’s entrepreneur is a person who discovers previously unnoticed profit opportunities. The entrepreneur’s discovery initiates a process in which these newly discovered profit opportunities are then acted on in the marketplace until market competition eliminates the profit opportunity. Unlike Schumpeter’s disruptive force, Kirzner’s entrepreneur is an equilibrating force. An example of such an entrepreneur would be someone in a college town who discovers that a recent increase in college enrollment has created a profit opportunity in renovating houses and turning them into rental apartments. Economists in the modern austrian school of economics have further refined and developed the ideas of Schumpeter and Kirzner.

During the 1980s and 1990s, state and local governments across the United States abandoned their previous focus on attracting large manufacturing firms as the centerpiece of economic development policy and instead shifted their focus to promoting entrepreneurship. This same period witnessed a dramatic increase in empirical research on entrepreneurship. Some of these studies explore the effect of demographic and socioeconomic factors on the likelihood of a person choosing to become an entrepreneur. Others explore the impact of taxes on entrepreneurial activity. This literature is still hampered by the lack of a clear measure of entrepreneurial activity at the U.S. state level. Scholars generally measure entrepreneurship by using numbers of self-employed people; the deficiency in such a measure is that some people become self-employed partly to avoid, or even evade, income and payroll taxes. Some studies find, for example, that higher income tax rates are associated with higher rates of self-employment. This counterintuitive result is likely explained by the higher tax rates encouraging more tax evasion through individuals filing taxes as self-employed. Economists have also found that higher taxes on inheritance are associated with a lower likelihood of individuals becoming entrepreneurs.

Some empirical studies have attempted to determine the contribution of entrepreneurial activity to overall economic growth. The majority of the widely cited studies use international data, taking advantage of the index of entrepreneurial activity for each country published annually in the Global Entrepreneurship Monitor. These studies conclude that between one-third and one-half of the differences in economic growth rates across countries can be explained by differing rates of entrepreneurial activity. Similar strong results have been found at the state and local levels.

Infusions of venture capital funding, economists find, do not necessarily foster entrepreneurship. Capital is more mobile than labor, and funding naturally flows to those areas where creative and potentially profitable ideas are being generated. This means that promoting individual entrepreneurs is more important for economic development policy than is attracting venture capital at the initial stages. While funding can increase the odds of new business survival, it does not create new ideas. Funding follows ideas, not vice versa.

One of the largest remaining disagreements in the applied academic literature concerns what constitutes entrepreneurship. Should a small-town housewife who opens her own day-care business be counted the same as someone like Bill Gates or Sam Walton? If not, how are these different activities classified, and where do we draw the line? This uncertainty has led to the terms “lifestyle” entrepreneur and “gazelle” (or “high growth”) entrepreneur. Lifestyle entrepreneurs open their own businesses primarily for the nonmonetary benefits associated with being their own bosses and setting their own schedules. Gazelle entrepreneurs often move from one start-up business to another, with a well-defined growth plan and exit strategy. While this distinction seems conceptually obvious, empirically separating these two groups is difficult when we cannot observe individual motives. This becomes an even greater problem as researchers try to answer questions such as whether the policies that promote urban entrepreneurship can also work in rural areas. Researchers on rural entrepreneurship have recently shown that the Internet can make it easier for rural entrepreneurs to reach a larger market. Because, as Adam Smith pointed out, specialization is limited by the extent of the market, rural entrepreneurs can specialize more successfully when they can sell to a large number of online customers.

What is government’s role in promoting or stifling entrepreneurship? Because the early research on entrepreneurship was done mainly by noneconomists (mostly actual entrepreneurs and management faculty at business schools), the prevailing belief was that new government programs were the best way to promote entrepreneurship. Among the most popular proposals were government-managed loan funds, government subsidies, government-funded business development centers, and entrepreneurial curriculum in public schools. These programs, however, have generally failed. Government-funded and -managed loan funds, such as are found in Maine, Minnesota, and Iowa, have suffered from the same poor incentives and political pressures that plague so many other government agencies.

My own recent research, along with that of other economists, has found that the public policy that best fosters entrepreneurship is economic freedom. Our research focuses on the public choice reasons why these government programs are likely to fail, and on how improved “rules of the game” (lower and less complex taxes and regulations, more secure property rights, an unbiased judicial system, etc.) promote entrepreneurial activity. Steven Kreft and Russell Sobel (2003) showed entrepreneurial activity to be highly correlated with the “Economic Freedom Index,” a measure of the existence of such promarket institutions. This relationship between freedom and entrepreneurship also holds using more widely accepted indexes of entrepreneurial activity (from the Global Entrepreneurship Monitor) and economic freedom (from Gwartney and Lawson’s Economic Freedom of the World) that are available selectively at the international level. This relationship holds whether the countries studied are economies moving out of socialism or economies of OECD countries. Figure 1 shows the strength of this relationship among OECD countries.

The dashed line in the figure shows the positive relationship between economic freedom and entrepreneurial activity. When other demographic and socioeconomic factors are controlled for, the relationship is even stronger. This finding is consistent with the strong positive correlation between economic freedom and the growth of per capita income that other researchers have found. One reason economic freedom produces economic growth is that economic freedom fosters entrepreneurial activity.

Figure 1 Economic Freedom and Entrepreneurship in OECD Countries, 2002

ZOOM

Economists William Baumol and Peter Boettke popularized the idea that capitalism is significantly more productive than alternative forms of economic organization because, under capitalism, entrepreneurial effort is channeled into activities that produce wealth rather than into activities that forcibly take other people’s wealth. Entrepreneurs, note Baumol and Boettke, are present in all societies. In government-controlled societies, entrepreneurial people go into government or lobby government, and much of the government action that results—tariffs, subsidies, and regulations, for example—destroys wealth. In economies with limited governments and rule of law, entrepreneurs produce wealth. Baumol’s and Boettke’s idea is consistent with the data and research linking economic freedom, which is a measure of the presence of good institutions, to both entrepreneurship and economic growth. The recent academic research on entrepreneurship shows that, to promote entrepreneurship, government policy should focus on reforming basic institutions to create an environment in which creative individuals can flourish. That environment is one of well-defined and enforced property rights, low taxes and regulations, sound legal and monetary systems, proper contract enforcement, and limited government intervention.

What Is an Entrepreneur?

An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and business/or procedures.

Entrepreneurs play a key role in any economy, using the skills and initiative necessary to anticipate needs and bring good new ideas to market. Entrepreneurs who prove to be successful in taking on the risks of a startup are rewarded with profits, fame, and continued growth opportunities. Those who fail, suffer losses and become less prevalent in the markets.

Entrepreneur

How Entrepreneurs Work

Entrepreneurship is one of the resources economists categorize as integral to production, the other three being land/natural resources, labor and capital. An entrepreneur combines the first three of these to manufacture goods or provide services. They typically create a business plan, hire labor, acquire resources and financing, and provide leadership and management for the business.

Entrepreneurs commonly face many obstacles when building their companies. The three that many of them cite as the most challenging are as follows:

1. Overcoming bureaucracy
2. Hiring talent
3. Obtaining financing

The Entrepreneur and Financing

Given the riskiness of a new venture, the acquisition of capital funding is particularly challenging, and many entrepreneurs deal with it via bootstrapping: financing a business using methods such as using their own money, providing sweat equity to reduce labor costs, minimizing inventory, and factoring receivables.

While some entrepreneurs are lone players struggling to get small businesses off the ground on a shoestring, others take on partners armed with greater access to capital and other resources. In these situations, new firms may acquire financing from venture capitalists, angel investors, hedge funds, crowdsourcing, or through more traditional sources such as bank loans.

Entrepreneurship Definitions

Economists have never had a consistent definition of "entrepreneur" or "entrepreneurship" (the word "entrepreneur" comes from the French verb entreprendre, meaning "to undertake"). Though the concept of an entrepreneur existed and was known for centuries, the classical and neoclassical economists left entrepreneurs out of their formal models: They assumed that perfect information would be known to fully rational actors, leaving no room for risk-taking or discovery. It wasn't until the middle of the 20th century that economists seriously attempted to incorporate entrepreneurship into their models.

Three thinkers were central to the inclusion of entrepreneurs: Joseph Schumpeter, Frank Knight, and Israel Kirzner. Schumpeter suggested that entrepreneurs—not just companies—were responsible for the creation of new things in the search of profit. Knight focused on entrepreneurs as the bearers of uncertainty and believed they were responsible for risk premiums in financial markets. Kirzner thought of entrepreneurship as a process that led to the discovery.

KEY TAKEAWAYS

• An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards.
• An entrepreneur combines capital, land, and labor to manufacture goods or provide services through the formation of a firm.
• In a market full of uncertainty, it is the entrepreneur who can actually help clear up uncertainty, as he makes judgments or assumes the risk.
• Entrepreneurship is high-risk, but also can be high-reward as it serves to generate economic wealth, growth, and innovation.

Entrepreneurs Impact the Economy

In economist-speak, an entrepreneur acts as a coordinating agent in a capitalist economy. This coordination takes the form of resources being diverted toward new potential profit opportunities. The entrepreneur moves various resources, both tangible and intangible, promoting capital formation.

In a market full of uncertainty, it is the entrepreneur who can actually help clear up uncertainty, as he makes judgments or assumes the risk. To the extent that capitalism is a dynamic profit-and-loss system, entrepreneurs drive efficient discovery and consistently reveal knowledge. Established firms face increased competition and challenges from entrepreneurs, which often spurs them toward research and development efforts as well. In technical economic terms, the entrepreneur disrupts course toward steady-state equilibrium.

Entrepreneurs Help Economies

Nurturing entrepreneurship can have a positive impact on an economy and a society in several ways. For starters, entrepreneurs create new business. They invent goods and services, resulting in employment, and often create a ripple effect, resulting in more and more development. For example, after a few information technology companies began in India in the 1990s, businesses in associated industries, like call center operations and hardware providers, began to develop too, offering support services and products.

Entrepreneurs add to the gross national income. Existing businesses may remain confined to their markets and eventually hit an income ceiling. But new products or technologies create new markets and new wealth. And increased employment and higher earnings contribute to a nation’s tax base, enabling greater government spending on public projects.

Entrepreneurs create social change. They break tradition with unique inventions that reduce dependence on existing methods and systems, sometimes rendering them obsolete. Smartphones and their apps, for example, have revolutionized work and play across the globe.

Entrepreneurs invest in community projects and help charities and other non-profit organizations, supporting causes beyond their own. Bill Gates, for example, has used his considerable wealth for education and public health initiatives.

Entrepreneurial Ecosystems

There is research that shows high levels of self-employment can stall economic development: Entrepreneurship, if not properly regulated, can lead to unfair market practices and corruption, and too many entrepreneurs can create income inequalities in society. Overall, though, entrepreneurship is a critical driver of innovation and economic growth. Therefore, fostering entrepreneurship is an important part of the economic growth strategies of many local and national governments around the world.

To this end, governments commonly assist in the development of entrepreneurial ecosystems, which may include entrepreneurs themselves, government-sponsored assistance programs and venture capitalists. They may also include non-government organizations, such as entrepreneurs' associations, business incubators, and education programs.

For example, California's Silicon Valley is often cited as an example of a well-functioning entrepreneurial ecosystem. The region has a well-developed venture capital base, a large pool of well-educated talent, especially in technical fields, and a wide range of government and non-government programs fostering new ventures and providing information and support to entrepreneurs.

Becoming an Entrepreneur

After retiring her professional dancing shoes, Judi Sheppard Missett taught a dance class to civilians in order to earn some extra cash. But she soon learned that women who came to her studio were less interested in learning precise steps than they were in losing weight and toning up. Sheppard Missett then trained instructors to teach her routines to the masses, and Jazzercise was born. A franchise deal followed. Today, the company has more than 8,900 locations worldwide.

Following an ice cream making correspondence course, Jerry Greenfield and Ben Cohen paired $8,000 in savings with a $4,000 loan, leased a Burlington, Vt., gas station and purchased equipment to create uniquely flavored ice cream for the local market. Twenty years later, Ben & Jerry’s hauls in millions in annual revenue.

Although the "self-made man" (or woman) has always been a popular figure in American society, entrepreneurship has gotten greatly romanticized in the last few decades. In the 21st century, the example of Internet companies like Alphabet, fka Google (GOOG) and Facebook (FB)—both of which have made their founders wildly wealthy—people are enamored with the idea of becoming entrepreneurs.

Unlike traditional professions, where there is often a defined path to follow, the road to entrepreneurship is mystifying to most. What works for one entrepreneur might not work for the next and vice versa. That said, there are five general steps that most, if not all, successful entrepreneurs have followed:

1. Ensure Financial Stability

This first step is not a strict requirement but is definitely recommended. While entrepreneurs have built successful businesses while being less than financially flush (think of Facebook founder Mark Zuckerberg as a college student), starting out with an adequate cash supply and ensuring ongoing funding can only help an aspiring entrepreneur, increasing his or her personal runway and give him more time to work on building a successful business, rather than worrying about making quick money.

2. Build a Diverse Skill Set

Once a person has strong finances, it is important to build a diverse set of skills and then apply those skills in the real world. The beauty of step two is it can be done concurrently with step one.

Building a skill set can be achieved through learning and trying new tasks in real-world settings. For example, if an aspiring entrepreneur has a background in finance, he can move into a sales role at his existing company to learn the soft skills necessary to be successful. Once a diverse skill set is built, it gives an entrepreneur a toolkit that he can rely on when he is faced with the inevitability of tough situations.

3. Consume Content Across Multiple Channels

As important as building a diverse skill set is, the need to consume a diverse array of content is equally so. This content can be in the form of podcasts, books, articles or lectures. The important thing is that the content, no matter the channel, should be varied in what it covers. An aspiring entrepreneur should always familiarize himself with the world around him so he can look at industries with a fresh perspective, giving him the ability to build a business around a specific sector.

4. Identify a Problem to Solve

Through the consumption of content across multiple channels, an aspiring entrepreneur is able to identify various problems to solve. One business adage dictates that a company's product or service needs to solve a specific pain point—either for another business or for a consumer group. Through the identification of a problem, an aspiring entrepreneur is able to build a business around solving that problem.

It is important to combine steps three and four so it is possible to identify a problem to solve by looking at various industries as an outsider. This often provides an aspiring entrepreneur with the ability to see a problem others might not.

5. Solve That Problem

Successful startups solve a specific pain point for other companies or for the public. This is known as "adding value within the problem." Only through adding value to a specific problem or pain point does an entrepreneur become successful.

Say, for example, you identify the process for making a dentist appointment is complicated for patients, and dentists are losing customers as a result. The value could be to build an online appointment system that makes it easier to book appointments.

Passion to Action

What else do entrepreneurial success stories have in common? They invariably involve industrious people diving into things they’re naturally passionate about.

Giving credence to the adage, “find a way to get paid for the job you’d do for free,” passion is arguably the most important component startup business owners must have, and every edge helps. While the prospect of becoming your own boss and raking in a fortune is alluring to entrepreneurial dreamers, the possible downside to hanging one’s own shingle is vast. Income isn’t guaranteed, employer-sponsored benefits go by the wayside, and when your business loses money, your personal assets can take a hit—not just a corporation’s bottom line. But adhering to a few tried and true principals can go a long way in diffusing risk.

Getting Your Hands Dirty

When starting out, it’s essential to personally handle sales and other customer interactions whenever possible. Direct client contact is the clearest path to obtaining honest feedback about what the target market likes and what you could be doing better. If it’s not always practical to be the sole customer interface, entrepreneurs should train employees to invite customer comments as a matter of course. Not only does this make customers feel empowered, but happier clients are more likely to recommend businesses to others.

Personally answering phones is one of the most significant competitive edges home-based entrepreneurs hold over their larger competitors. In a time of high-tech backlash, where customers are frustrated with automated responses and touch-tone menus, hearing a human voice and is one surefire way to entice new customers and make existing ones feel appreciated—an important fact, given that some 80% of all business is generated from repeat customers.

Paradoxically, while customers value high-touch telephone access, they also expect a highly polished website. Even if your business isn’t in a high-tech industry, entrepreneurs still must exploit internet technology to get their message across. A startup garage-based business can have a superior website than an established $100 million company. Just make sure a live human being is on the other end of the phone number listed.

Knowing When to Change Course

Few successful businesses owners find perfect formulas straight out of the gate. On the contrary: ideas must morph over time. Whether tweaking product design or altering food items on a menu, finding the perfect sweet spot takes trial and error.

Former Starbucks Chairman and CEO Howard Schultz initially thought playing Italian opera music over store speakers would accentuate the Italian coffeehouse experience he was attempting to replicate. But customers saw things differently and didn’t seem to like arias with their espressos. As a result, Schultz jettisoned the opera and introduced comfortable chairs instead.

Shrewd Money Management

Through the heart of any successful new business, venture beats the lifeblood of steady cash flow—essential for purchasing inventory, paying rent, maintaining equipment and promoting the business. The key to staying in the black is rigorous bookkeeping of income versus expenses. And since most new businesses don’t make a profit within the first year, by setting money aside for this contingency, entrepreneurs can help mitigate the risk of falling short of funds. Related to this, it’s essential to keep personal and business costs separate, and never dip into business funds to cover the costs of daily living.

Of course, it’s important to pay yourself a realistic salary that allows you to cover essentials, but not much more—especially where investors are involved. Of course, such sacrifices can strain relationships with loved ones who may need to adjust to lower standards of living and endure worry over risking family assets. For this reason, entrepreneurs should communicate these issues well ahead of time, and make sure significant loved ones are spiritually on board.

Questions for Entrepreneurs

Embarking on the entrepreneurial career path to “being your own boss” is exciting. But along with all your research, make sure to do your homework about yourself and your situation.

A Few Questions to Ask Yourself:

• Do I have the personality, temperament, and mindset of taking on the world on my own terms?
• Do I have the required ambiance and resources to devote all my time to my venture?
• Do I have an exit plan ready with a clearly defined timeline in case my venture does not work?
• Do I have a concrete plan for next "x" number of months or will I face challenges midway due to family, financial or other commitments? Do I have a mitigation plan for those challenges?
• Do I have the required network to seek help and advice as needed?
• Have I identified and built bridges with experienced mentors to learn from their expertise?
• Have I prepared the rough draft of a complete risk assessment, including dependencies on external factors?
• Have I realistically assessed the potential of my offering and how it will figure in the existing market?
• If my offering is going to replace an existing product in the market, how will my competitors react?
• To keep my offering secure, will it make sense to get a patent? Do I have the capacity to wait that long?
• Have I identified my target customer base for the initial phase? Do I have scalability plans ready for larger markets?
• Have I identified sales and distribution channels?

Questions That Delve into External Factors:

• Does my entrepreneurial venture meet local regulations and laws? If not feasible locally, can I and should I relocate to another region?
• How long does it take to get the necessary license or permissions from concerned authorities? Can I survive that long?
• Do I have a plan about getting the necessary resources and skilled employees, and have I made cost considerations for the same?
• What are the tentative timelines for bringing the first prototype to market or for services to be operational?
• Who are my primary customers?
• Who are the funding sources I may need to approach to make this big? Is my venture good enough to convince potential stakeholders?
• What technical infrastructure do I need?
• Once the business is established, will I have sufficient funds to get resources and take it to the next level? Will other big firms copy my model and kill my operation?

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