ME 492 ENTREPRNEURSHIP DEVELOPMENT AND MANAGEMENT
Stephen H.M. Aikins Department of Agricultural Engineering College of Engineering, KNUST, Kumasi
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Entrepreneurship & Free Enterprise
What is Entrepreneurship? Entrepreneurship is the practice of starting
new organisations or revitalizing mature organisations, particularly new businesses generally in response to identified opportunities.
Entrepreneurship is often a difficult
undertaking, as a vast majority of new businesses fail.
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Entrepreneurship
Entrepreneurial activities are substantially
different depending on the type of organisation that is being started.
Entrepreneurship ranges in scale from solo
projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities.
Entrepreneurship
Many "high-profile" entrepreneurial ventures
seek venture capital or angel funding in order to raise capital to build the business.
Angel investors generally seek returns of 20-
30% and more extensive involvement in the business.
Entrepreneurship
Many kinds of organisations now exist to
support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NonGovernmental Organisations (NGOs).
History of Entrepreneurship
The understanding of entrepreneurship owes
much to the work of economist Joseph Schumpeter and some Austrian Economists, etc.
History of Entrepreneurship
Entrepreneurs do things that are not
generally done in the ordinary sense of business (Schumpeter, 1934).
Entrepreneurship is one of the four
mainstream economic factors: land, labour, capital and entrepreneurship.
History of Entrepreneurship
The word entrepreneurship derived from the 17th century French
entreprendre,
refers to individuals who were undertakers
meaning those who undertook the risk of new enterprise.
History of Entrepreneurship
They were contractors who bore the risks
of profit or loss, and many early entrepreneurs were soldiers of fortune, adventurers, builders, merchants, and incidentally, funeral directors.
How the term undertaker became
associated with funerals is a mystery, but there is considerable body of literature on entrepreneurship.
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History of Entrepreneurship
Early references to the entreprendeur in the
14th century spoke about tax contractors individuals who paid a fixed sum of money to a government for license to collect taxes in their region.
Tax entreprendeurs bore the risk of
collecting individual taxes.
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History of Entrepreneurship
If they collected more than the sum paid for
their licenses, they made profits and kept the excess.
If they failed to collect enough to match the
cost of their licenses, government officials, who already had their money from license fees, could care less.
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History of Entrepreneurship
Economics & Entrepreneurship
Richard Cantillon, a French economist of
Irish descent, is credited with giving the concept of entrepreneurship a central role in economics.
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Richard Cantillon
Cantillon described an entrepreneur as a
person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using resources while consequently assuming the risk of enterprise.
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Economics and Entrepreneurship
A critical point in Cantillons argument was
that entrepreneurs consciously make decisions about resource allocations.
Consequently, astute entrepreneurs would
always seek the best opportunities for using resources for their highest commercial yields.
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Economics and Entrepreneurship
Cantillon played out his theory in real life,
becoming a wealthy arbitrageur investing in European ventures, dealing in monetary exchange, and controlling commodities, such as farm produce, to auction in high-demand markets.
His vision is illustrated for farm produce in
Figure 1.
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Investment
Transformation
Profit or loss
Entrepreneur buys farm produce at certain prices
Entrepreneur repacks and transports farm produce to market
Entrepreneur sells food produce in city at uncertain prices
Figure 1: Cantillons Early View of Entrepreneurial Behaviour
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Economics and Entrepreneurship
Adam Smith spoke of the enterpriser in his
1776 Wealth of Nations as an individual who undertook the formation of an organisation for commercial purposes.
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Adam Smith
He thereby ascribed to the entrepreneur the
role of industrialist, but he also viewed the entrepreneur as a person with unusual foresight who could recognize potential demand for goods and services.
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Economics and Entrepreneurship
In Smiths view, entrepreneurs reacted to
economic change, thereby becoming the economic agents who transformed demand into supply.
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Economics and Entrepreneurship
French economist Jean Baptiste Say, in his
1803 Trait dconomie politique (translated into English in 1845 as A Treatise on Political Economy), described an entrepreneur as one who possessed certain arts and skills of creating new economic enterprises, yet a person who had exceptional insight into societys needs and was able to fulfil them.
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Economics and Entrepreneurship
Say, therefore, combined the economic risk
taker of Cantillon and the industrial manager of Smith into an unusual character.
Says entrepreneur influenced society by
creating new enterprises and at the same time was influenced by society to recognise needs and fulfil them through astute management of resources.
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Economics and Entrepreneurship
In 1848, British economist John Stuart Mill
elaborated on the necessity of entrepreneurship in private enterprise.
The term entrepreneur subsequently
became common as a description of business founders, and the fourth factor of economic endeavour was entrenched in economic literature as encompassing the ultimate ownership of commercial enterprise.
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Economics and Entrepreneurship
Mills work, however, was among the last of
the early economic studies in Britain or France that recognised entrepreneurship as central to economic theory.
For the greater part of the next hundred
years, British and French economists were more concerned with models of macroeconomics, and most of these were reduced to precise mathematical formulae.
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Economics and Entrepreneurship
The human side of enterprise the role of the
adventurer or risk-taking entrepreneur was left for history.
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Economics and Entrepreneurship
During that time however, there was an
important movement in Austria that subsequently influenced our 20th century concept of entrepreneurship.
Carl Menger (1840 1871) established the
subjectivist perspective of economics in his 1871 Principles of Economics.
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Economics and Entrepreneurship
In Mengers view, economic change does not
arise from circumstances but from an individuals awareness and understanding of those circumstances.
The entrepreneur becomes, therefore, the
change agent who transforms resources into useful goods and services, often creating circumstances that lead to industrial growth.
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Economics and Entrepreneurship
Menger envisioned a causal chain of events
whereby resources having no direct use in terms of fulfilling human needs were transformed into highly valued products that directly fulfilled human needs; this is the classic theory of production.
However, Menger saw the entrepreneur as
an astute individual who could envision this transformation and create the means to implement it.
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Economics and Entrepreneurship
Menger assigned priority numbers to different
events (or circumstances) in this chain so that a high priority event would have a low number (e.g. 1) and would be an ultimate end use to satisfy a human need such as providing consumers with baked loaves of bread.
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Economics and Entrepreneurship
At the other extreme, Menger assigned a low
priority event with a high number (e.g. 8) and this might represent a raw material needed to create the number 1 event; fields of unharvested wheat would have a low priority.
The entrepreneur, in Mengers view, was able
to see both extremes and conceive of ways to transform the unharvested wheat into fresh bread.
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Economics and Entrepreneurship
Joseph Schumpeter (1883-1950), an
Austrian Economist, described entrepreneurship as a force of creative destruction whereby established ways of doing things are destroyed by the creation of new and better ways to get things done.
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Economics and Entrepreneurship
Entrepreneurship is often a subtle force,
challenging the order of society through marginally small changes, but in Schumpeters view, it can be extraordinarily powerful, like the transformation of crude oil into an energy resource.
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Economics and Entrepreneurship
Schumpeter described entrepreneurship
as a process and entrepreneurs as innovators who use the process to shatter the status quo through new combinations of resources and new methods and commerce.
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Entrepreneurship
According to Schumpeter, the entrepreneur seeks to
reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products.
Entrepreneurship, as defined, essentially consists in
doing things that are not generally done in the ordinary course of business routine.
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Entrepreneurship
Schumpeter did not equate entrepreneurs
with inventors, suggesting instead that an inventor might only create a new product, whereas an entrepreneur will gather resources, organise talent, and provide leadership to make it a commercial success.
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Entrepreneurship
This viewpoint was mirrored by Peter Drucker (1909-2005),
who described the entrepreneurial role as one of gathering and using resources, but he added that resources, to produce results, must be allocated to opportunities rather than to problems.
In Druckers view, entrepreneurship occurs when resources are
redirected to progressive opportunities, not used to ensure administrative efficiency.
This redirection of resources distinguishes the entrepreneurial
role from that of the traditional management role, a distinction that Henry Ford made in his decisions.
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Entrepreneurship: Robert Ronstadts Def.
Entrepreneurship is the dynamic process of
creating incremental wealth. This wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment of providing value for some product or service.
The product or service itself may or may not be
new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources.
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Who is an Entrepreneur?
Is the local fuel station owner an entrepreneur?
The (Estate Agent) realtor, the butcher, the franchise
computer retailer? Are there entrepreneurs in corporations? In schools? In government?
There are no short answers to these questions, and
there are no formal guidelines for classifying entrepreneurs. There is no entrepreneurial licensing procedure and no evidence of professional status.
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Who is an Entrepreneur?
An entrepreneur is an innovator or
developer who recognizes and seizes opportunities; converts these opportunities into workable/marketable ideas; adds value through time, effort, money, or skills; assumes the risks of the competitive marketplace to implement these ideas; and realizes the rewards from these efforts.
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Corporate Entrepreneurship
Corporate Entrepreneurship, sometimes
referred to as intrapreneurship, is concerned with innovation that leads to new corporate divisions or subsidiary ventures in established, larger firms.
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Who is an Intrapreneurship?
Intrapreneurship refers to entrepreneurial
activities that receive organisational sanction and resource commitments for the purpose of innovative results.
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What Makes Someone an Entrepreneur?
Who can become an entrepreneur? There is no one definitive profile. Successful entrepreneurs come in various ages,
income levels, gender, and race.
They differ in education and experience. But
research indicates that most successful entrepreneurs share certain personal attributes, including: creativity, dedication, determination, flexibility, leadership, passion, self-confidence, and smarts.
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What Makes Someone an Entrepreneur?
Dedication is what motivates the
entrepreneur to work hard, 12 hours a day or more, even seven days a week, especially in the beginning, to get the endeavour off the ground.
Planning and ideas must be joined by hard
work to succeed.
Dedication makes it happen.
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What Makes Someone an Entrepreneur?
Determination is the extremely strong desire to
achieve success.
It includes persistence and the ability to bounce back
after rough times.
It persuades the entrepreneur to make the 10th phone
call, after nine have yielded nothing.
For the true entrepreneur, money is not the
motivation. Success is the motivator; money is the reward.
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Characteristics of Successful Entrepreneurs
Self-confident and optimistic Able to take calculated risk Respond positively to challenges Energetic and diligent Creative, need to achieve Dynamic leader
Flexible and able to adapt
Knowledgeable of markets
Responsive to suggestions
Take initiatives
Able to get along well with others Resourceful and persevering Independent minded Versatile knowledge Perceptive with foresight Responsive to criticism
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What is a Small Business?
A Small Business is one that does not
dominate its industry, has less than $10 million in annual sales, and has fewer than 1,000 employees.
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What is a Family Enterprise?
Family enterprises are locally owned and
operated, often by one person called a sole proprietor.
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What are Personal Service Firms?
Personal Service Firms rely crucially on
unique skills of their founders or key employees. In most instances, the business is the person, and succession is unlikely unless a son or daughter develops comparable skills.
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What is a Franchise?
A Franchise is a business system created
by a contract between a parent company, called the franchisor, and the acquiring business owner, called the franchisee, giving the acquiring owner the right to sell goods or services, to use certain products, names, or brands, or to manufacture certain products.
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What is a Franchise?
A Franchise is any arrangement in which
the owner of a trademark, trade name, or copyright has licensed others to use it to sell goods or services.
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