ENTREPRENEURSHIP THEORIES. The entrepreneur has been variously defined as a risk- taker, an organization builder, a decision maker, and/or an innovator.
This is in the Weberian tradition, according to which the entrepreneur is the ultimate source of authority in an organization (Hartman 1959).
The, concept of innovation according to Schumpeter (1934:66), covers the following five cases.
The Schumpeterian concept of entrepreneurship has been elaborated by other prominent writers later, such as; March and Simon (1958), who stress the need to distinguish between the investor and the innovator (entrepreneur);
Drucker (1985), who illustrates entrepreneurship and intrapreneurship, with numerous examples of innovation;
Vesper (1994), who maintains that every new venture is an innovation;
Peterson (1981), who defines entrepreneurship as the process of unprogrammed innovative recombination of pre-existing elements of activity; and
Landau (1982), who defines the entrepreneur in terms of two dimensions, namely, innovativeness and risk-bearing capacity (see figure 3.1).
Low Innovativeness (High)
Source: Adapted from Landau (1982).
Identifying attributes of strategic resources
Entrepreneurs are individuals and they are unique resources to the new firm, resources that money cannot buy.
The theory says that firms have different starting points for resources (called resource heterogeneity) and other firms cannot get them (called resource immobility).
The theory values creativity, uniqueness, entrepreneurial vision and intuition, and the initial conditions (history) under which new ventures are created.
What are the origins of new firm? Economic organizations have their origins in the resources of the entrepreneur and the assets that entrepreneurial team controls.
Such potentially acquire, and finally combine and assemble.
Firms usually begin their history with a relatively small amount of strategically relevant resources and skills, and each company’s uniqueness shows how these resources are expected to perform in the marketplace.
However, this is only possible if cheap or undervalued resources and skills exist. And their availability depends on market imperfections and differences of opinion about prices and events.
The resource based theory holds that Sustainable Competitive Advantage (SCA) is created when firms possess and employs resources and capabilities that are-
Some firms also have natural resources such as minerals, energy resources, or land. These natural resources can affect the quality of its physical inputs and raw materials.
Physical resources can be the source of SCA if they have the four attributes previously described. But since most physical things can be manufactured and purchased they are probably not rare or hard to copy. Only in special circumstances, like a unique historical situation, will physical resources be a source of SCA.
Fortuna magazine’s annual survey of corporate reputation indicates that seven of the top ten corporations in any given year have appeared in the top ten many times before.
Other research indicates that the importance of these are product quality management integrity and financial soundness.
Are there personality characteristics that help us predict who will be an entrepreneur and who will not? Who will be a successful entrepreneur and who will not? Over the past few decades, entrepreneurial research has identified a number of personality characteristics that differentiate entrepreneurs from others. Among the most frequently discussed are the need for achievement, locus of control, and risk-taking propensity.
The Need for Achievement The entrepreneurial need for achievement, or n Ach. was first identified as personally trait by McClelland (1961) in his work on economic development. People with high levels of n Ach have a strong desire to solve problems on their own, enjoy setting goals and achieving them through their own efforts, and like receiving feedback on how they are doing. They are moderate risk takers.
However, the link between n Ach and entrepreneurship has not always held up in empirical testing. Researchers who have attempted to replicate McClelland’s findings or apply them in other settings have occasionally been disappointed.
For example, n Ach is a week predictor of a person’s tendency to start a business and people specially trained to have high n Ach sometimes perform no differently from a control group that receive no training. The causal link between n Ach and small business ownership has not proven.
A second trait often associated with entrepreneurship is locus of control. In locus-control theory, there are two types of people
A logical prediction of this theory would be that internals are more entrepreneurial than externals. But evidence supporting this hypothesis has been inconclusive.
Some studies have shown that there are more internals among entrepreneurs but others show no difference between entrepreneurs and others. In fact, it could be argued that any good manager must also possess the qualities of an internal; a person who believes that efforts affect outcomes.
So, while locus of control might distinguish people who believe in astrology and those who do not, it may not differentiate potential entrepreneurs from potential managers or just plain business students.
Risk-taking Propensity Related to the need for achievement is risk-taking propensity. Since the task of new venture creation is apparently fraught with risk and the financing of these ventures is often called risk capital, researchers have tried to determine whether entrepreneurs take some risks than other businesspeople. That hypothesis has been tested in a number of way, but the work by Brockhaus has been most incisive.
One researcher described the search of the entrepreneurial trait this way, “My own personal experience was that for ten years we can ran a research center in entrepreneurial history, for ten years we tried to define the entrepreneur. We never succeeded. Each of us had some notion of it – what he thought was, for his purpose , a useful definition. An I don’t think you are going to get farther than that.
The trait approach looks for similarity among entrepreneurs. But as the resource-based theory suggests, if all entrepreneurs have a certain trait or characteristic, it is not an advantage to any of them, for it is neither rare nor hard to duplicate. To understand entrepreneurship, we must look for circumstances that produce differences, not similarities. For this we turn to a sociological framework that emphasizes personal history and the uniqueness of an individual’s path to new venture creation.
How are entrepreneurs unique? Each has a background, history and biography. The sociological approach tries to explain the social conditions fro which entrepreneurs emerge and the factors that influence the decision. A sociological model is presented in figure 2-2. It depicts the decision to become an entrepreneur as a function of two factors; the impetus factors and the situational factors. The model is multiplicative; A zero on either the causes means a failure to produce the entrepreneurial event.
IMPETUS FOR ENTREPRENEURSHIP
What propels entrepreneurs forward toward self-employment? There are four factors; negative displacement, being between things, positive push, and positive pull.
Figure below begins with the notion that people who find themselves displaced in some negative way may become entrepreneurs.
Negative displacement is the alienation of individuals or groups of individuals from the core of society. These individuals or groups may be seen as ‘not fitting in’ to the main flow of social and economic life. Because they are on the outer fringes of the economy and of society, they are sensitive to the allure of self-employment; having no one to depend on, they depend on no one.
An example of this phenomenon is the tendency of immigrants to become entrepreneurs. In societies where economic rights are more easily exercised than political rights, immigrants turn to entrepreneurship. Throughout the world, for example. Asian and Jewish immigrants, wherever they have settled, have gone into business for themselves.
Perceptions of Desirability
Perceptions of Feasibility
Consolidation of resources
Management of organization
Source: Adapted form A. shapero and L. sokol. The social Dimension of Entrepreneurship in c, Kent D. Sexton, and K. Vesper, eds, Encyclopedia of entrepreneurship (Eaglewood Cluts NJ. Prentice Hall, 1982) pp 72.90
Other negative displacement result from being fired from job or being angered or bored by current employment. Many bored managers and stifled executive in large corporations are leaving their white collar jobs for challenges and autonomy.
According to Harry Levingsone, a Harvard psychologist who specializes and life cycle issues, “The entrepreneur psychologically speaking, has a lot more freedom than anybody in a big corporation”
To illustrate this, consider the case of Philip Shawtz, who was an executive with Olin corporation and Airco Inc. He left his middle-level managerial career to start a business as a wholesaler of packaging materials and cleaning supplies and to find out “who and what I am "He reports that he enjoys the autonomy and the action of drumming up business and interacting with customers. He enjoy putting his own personal stamp on his company. Having only four employees, he can create a family atmosphere, relaxed and friendly.
He imprints his own values of honesty and dependability on the business, something that no middle-level corporate manager can do.
Middle age or divorce can also provide the impetus for new venture creation. In an unusual example, one entrepreneur recreated his business because of a midlife crisis. Tom Chappell co-founded a personal-care and health-products business, Tom’s of Maine Inc. A number of years ago he realized that he was not happy running this business even though he was successful. He went back to school and obtained a Master’s degree from Harvard Divinity school.
His studies there led him to examine his values and his motivation for managing his own firm. Hen changed the company’s goals, setting its mission to “address community concerns, in Maine and around the globe, by devoting a portion of our time, talent and resources to the environment.
People who are between things are also more likely to seek entrepreneurial out-lets than those who are in the “middle of things”.
Like immigrants, people who are between things are sometimes outsiders. Three examples are offered
Positive influences also leads to the decision to investigate entrepreneurship. And these are called positive pull influences.
They can come from a potential partner. A mentor, A parent, an investor, or a customer.
The potential partner encourages the individual with the offer of sharing the experience, helping with the work, and spreading the risk.
The mentor raises self-esteem and confidence. Mentors and partners can also introduce the entrepreneur to people inside the social and economic network for new venture activity.
There also appears to be a relationship between a parent’s occupation and offspring entrepreneurship. Many entrepreneurs have a strong self-employed father figure in the family. Investors that provide the initial financing can convince the individual that ‘there may be more where that came from.
The prospect of a potential customer pulling the entrepreneur into business raises some difficult ethical and economic issues. However, having a guaranteed market for the products or services is a temptation few can resist.
The final category of situations that provide impetus and momentum for entrepreneurship is termed positive push.
Positive-push factors include such things as a career path that offers entrepreneurial opportunities or a education that gives the individual the appropriate knowledge and opportunity.
What types of career choices can people make that put them in good position to become entrepreneurs? Two types of career paths can lead to entrepreneurship.
The first is the industry path. A person prepares himself for a job or career in a particular industry and learns everything there is to know about that industry. Since all industries display some sort of dynamics or change, over time, entrepreneurial opportunities that exploit that change come and go. A person with a deep knowledge of the industry is an excellent position to develop a business that fills a niche or gap created by industry change.
People taking the industry path to new venture creation emphasize that specialized knowledge is the key resource. That knowledge may be embodied in particular people, a technology, or a system or process.
The new firm may be a head-to-head competitor. It may serve a new niche not served by the former employer, or it may be an upstream firm (a supplier) or a downstream firm (a distributor or retailer).
Whatever its functional form, a spin-off is a knowledge-based business, its primary resources are the competencies and experiences and the networks and contacts being transferred to a new venture.
The challenge for these people is to procure the other resources, financial and physical, that will enable them to make their plan a reality.
A different approach, the sentry path emphasizesthe money and the deal. People with careers in sentry positions see many different opportunities in many different industries. They tend to be lawyers, accountants, consultants, bankers (especially business loan officers), and brokers.
These people learn how to make deals and find money. They have contacts that enable them to raise money quickly when the right property comes along.
Perception of Desirability Entrepreneurship must be seen as desirable in order to be pursued. The factors that affect the perceptions of desirability can come from the individual’s culture, family, peers and colleagues, or mentors. For example, the Sikhs and Punjabis who dominate the service station business in New York City also dominate the transportation and mechanics business in their native country. Sometimes religion can spark entrepreneurship and entrepreneurship and legitimize the perception of desirability. For example, Zen Buddhist communities are historically self-sufficient economically and provide the background for the story of an unusual entrepreneur, Bernard Glassman.
Glassman was born the son of immigrant Jewish parents and trained as a systems engineer. But now he is building a better worlds by combining Zen entrepreneurship with a mission to help people at the bottom of the economic ladder. After Glassman introduction to Buddhism, he found that meditation alone could not meet his spiritual needs. So he chose the way of Entrepreneurship. In 1983, he and his Zen community launched Greyston Bakery in Yonkers, New York, supplying high-priced pies and cakes to wealthy consumers. He received his early training as a baker from another Zen sect in San Francisco. Today his bakery grosses $1.2 million and employs 200 people, many previously considered unemployed. Many entrepreneurs say that they want to help the poor and needy, but Glassman has made it happen. Through Greyson’s profile, he has been able to renovate buildings, provide counseling services , and open a day-care centre. He still has to pay close attention to the bottom line, however; the bakery is his mandala and he must concentrate intensely to make it a success.
At the end of the process depicted in the figure, the new venture creation process begins, The pre-entrepreneurial conditions described end in the entrepreneurial event, that is, in the creation and management of a new venture.
One model of this process comprises five components:-
Management of the organization. The business’s resource acquisition, transformation, and disposal are routinized and systemized. Those elements that are not easily systematized are managed separately.
Another process-oriented model by Stevenson emphasizes entrepreneurial behaviour toward resources. This model makes two valuable contributions to our understanding of the entrepreneurial process;