Entrepreneurship

An entrepreneur is one who organizes a new business venture in the hopes of making a profit. Entrepreneurship is the process of being an entrepreneur, of gathering and allocating the resources—financial, creative, managerial, or technological—necessary for a new venture's success. One engages in entrepreneurship when one begins to plan an organization that uses diverse resources in an effort to take advantage of the newly found opportunity.

It usually involves hard work, long hours, and, usually, the hope of significant financial return. More importantly, entrepreneurship is characterized by creative solutions to old or overlooked problems; ingenuity and innovation are the entrepreneur's stock in trade. By taking a new look at difficult situations, the entrepreneur discerns an opportunity where others might have seen a dead end.

Entrepreneurship is also a source of more entrepreneurship. Societies around the world have always been fueled by the innovations and new products that entrepreneurs bring to the market. All big businesses started out small, usually as one man or woman with a good idea and the willingness to work hard and risk everything. While it is true that many new businesses fail, the ones that succeed contribute a great deal to the creation of other new ventures which leads, in turn, to a dynamic national economy.

Indeed, today's economists and business researchers cite entrepreneurship as a key component of future economic growth in North America and around the world. "Entrepreneurship is viewed as the catalyst to transfer a segment of our new generation of [downsized] people into self-employed business owners who will, in turn, provide jobs for the rest," wrote Mitch Lenko in CMA. "It is viewed as the necessary component to the creation of new wealth; and hopefully represents the fountainhead from which will spawn innovative management techniques for the design, manufacture and marketing of products that will compete globally."

Successful entrepreneurship depends on many factors. Of primary importance is a dedicated, talented, creative entrepreneur. The person who has the ideas, the energy, and the vision to create a new business is the cornerstone to any start-up. But the individual must have ready access to a variety of important resources in order to make the new venture more than just a good idea. He or she needs to develop a plan of action, a road map that will take the venture from the idea stage to a state of growth and institutionalization.

In most instances, the entrepreneur also needs to put together a team of talented, experienced individuals to help manage the new venture's operations. Entrepreneurship also depends on access to capital, whether it be human, technological, or financial. In short, entrepreneurship is a process that involves preparation and the involvement of others in order to exploit an opportunity for profit.

Entrepreneurship Defined

The multiplicity of the entrepreneur's motivations and goals leads to questions aimed at distilling the essence of entrepreneurship. To what or to whom does one refer when one uses the word? Is there any difference between a person who opens yet another dry cleaning establishment, sandwich shop, or bookstore and the entrepreneur?

If so, what is it that separates the two? What characteristics define an entrepreneur and entrepreneurship itself? Historians and business writers have struggled with providing the answers. Even today, there is no widely accepted definition, but the variety of possibilities provides important clues as to what makes entrepreneurship special.

Harvard professor Joseph Schumpeter, for example, argued that the defining characteristic of entrepreneurial ventures was innovation. By finding a new "production function" in an existing resource—a previously unknown means through which a resource could produce value—the entrepreneur was innovating. The innovation was broadly understood; an innovation could take place in product design, organization of the firm, marketing devices, or process design.

Nevertheless, innovation was what separated the entrepreneur from others who undertook closely related endeavors. Other researchers, such as professor Arthur Cole, defined entrepreneurship as purposeful activity to initiate, maintain, and develop a profit-oriented business. The important part of this definition is the requirement that individuals must create a new business organization in order to be considered entrepreneurial. Cole's entrepreneur was a builder of profit-minded organizations.

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

In his book Innovation and Entrepreneurship, Peter F. Drucker took the ideas set forth by Schumpeter one step further. He argued that Schumpeter's type of innovation can be systematically undertaken by managers to revitalize business and non business organizations. By combining managerial practices with the acts of innovation, Drucker argued, business can create a methodology of entrepreneurship that will result in the institutionalization of entrepreneurial values and practice.

Drucker's definition of entrepreneurship—a systematic, professional discipline available to anyone in an organization—brings our understanding of the topic to a new level. He demystified the topic, contending that entrepreneurship is something that can be strategically employed by any organization at any point in their existence, whether it be a start-up or a firm with a long history. Drucker understood entrepreneurship as a tool to be implemented by managers and organizational leaders as a means of growing a business.

The Entrepreneurial Personality

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

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

But while it is hard to generalize about what it takes to be a successful entrepreneur, some personality traits seem to be more important than others. "While many authors and researchers have disagreed on the relative significance of individual entrepreneurial traits, all agree on one quality that is essential to all entrepreneurs, regardless of definition," wrote Lanko.

"That quality is 'commitment'; it is self-motivation that distinguishes successful entrepreneurs from those that fail. It is the common thread in the lives and biographies of those that have succeeded in new enterprises. It is the one quality which entrepreneurs themselves admit is critical to the success of their initiatives."

Other traits commonly cited as important components of entrepreneurial success include business knowledge (business planning, marketing strategies, asset management, etc.), self-confidence, technical and other skills, communication abilities, and courage. But there are other, less obvious, personality characteristics that an entrepreneur should develop as a means of further ensuring their success.

In his book Entrepreneurship: Texts, Cases, Notes, Robert C. Ronstadt indicated some additional traits that help entrepreneurs build thriving organizations, including creativity and the ability to tolerate ambiguous situations.

Creative solutions to difficult problems may make or break the young and growing business; the ability of an entrepreneur to find unique solutions could be the key to his or her success. One of the most vexing situations entrepreneurs face is the allocation of scarce resources. For instance, owners of new ventures need to be able to decide how to best use a small advertising budget or how best to use their limited computer resources.

Furthermore, they must be creative in their ability to find capital, team members, or markets. Entrepreneurial success is often directly predicated on the business owner's ability to make do with the limited resources available to him or her.

In addition to being creative, an entrepreneur must be able to tolerate the ambiguity and uncertainty that characterize the first years of a new organization. In nearly all cases, business or market conditions are bound to change during the first few years of a new business's life, causing uncertainty for the venture and for the entrepreneur.

Being creative enables entrepreneurs to more successfully manage businesses in new and ambiguous situations, but without the ability to handle the pressure that uncertainty brings upon an organization, the entrepreneur may lose sight of his or her purpose.

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

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

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

The Process of Entrepreneurship

The myths that have grown up around the great entrepreneurs in America have focused more on the personality of the individual than on the work that he or she did to create a prosperous organization. What sticks in our memories are the qualities of a great entrepreneur, those personality traits that "make" a great businessperson. Successful entrepreneurs, however, work hard to build their organizations, starting from little and undertaking a process that results in a thriving business.

Even the best ideas become profitable only because the entrepreneur went through the steps necessary to build a company from the ground up. Successful new ventures do not appear magically out of the swirl of the marketplace; they are planned, created, and managed.

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