THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:DEFINITION OF ENTREPRENEUR

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THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation >>

Entrepreneurship MGT602

Lesson 1

THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP

LEARNING OBJECTIVES

1. To introduce the concept of entrepreneurship and its historical development.

2. To explain the entrepreneurial decision process.

3. To identify the basic types of start-up ventures.

4. To explain the role of entrepreneurship in economic development.

5. To discuss the ethics and racial responsibility of entrepreneurs.

NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP

The term entrepreneur comes from the French and translates "between-taker" or "go-between."

Earliest Period

In this period the money person (forerunner of the capitalist) entered into a contract with the go-between

to sell his goods. While the capitalist was a passive risk bearer, the merchant bore all the physical and

emotional risks.

Middle Ages

In this age the term entrepreneur was used to describe both an actor and a person who managed large

production projects. In such large production projects, this person did not take any risks, managing the

project with the resources provided. A typical entrepreneur was the cleric who managed architectural

projects.

17th Century

In the 17th century the entrepreneur was a person who entered into a contract with the government to

perform a service

Richard Cantillon, a noted economist of the 1700s, developed theories of the entrepreneur and is

regarded as the founder of the term. He viewed the entrepreneur as a risk taker who "buy[s] at certain

price and sell[s] at an uncertain price, therefore operating at a risk."

18th Century

In the 18th century the person with capital was differentiated from the one who needed capital. In other

words, entrepreneur was distinguished from the capital provider.

Many of the inventions developed during this time as was the case with the inventions of Eli Whitney and

Thomas Edison were unable to finance invention themselves. Both were capital users (entrepreneurs), not

capital providers (venture capitalists.) Whitney used expropriated crown property. Edison raised capital

from private sources.

A venture capitalist is a professional money manager who makes risk investments from a pool of equity

capital to obtain a high rate of return on investments.

Entrepreneurship MGT602

19th and 20th Centuries

In the late 19th and early 20th centuries, entrepreneurs were viewed mostly from an economic

perspective. The entrepreneur "contributes his own initiative, skill and ingenuity in planning, organizing

and administering the enterprise, assuming the chance of loss and gain."

Andrew Carnegie is one of the best examples of this definition, building the American steel industry on of

the wonders of industrial world, primarily through his competitiveness rather than creativity.

In the middle of the 20th century, the notion of an entrepreneur as an innovator was established.

Innovation, the act of introducing something new, is one of the most difficult tasks for the entrepreneur.

Edward Harriman and John Pierpont Morgan are examples of this type of entrepreneur. Edward

reorganized the Ontario and southern railroad through the northern pacific trust and john developed his

large banking house by reorganizing and financing the nation's industries.

This ability to innovate is an instinct that distinguishes human beings from other creatures and can be

observed throughout history.

DEFINITION OF ENTREPRENEUR

The concept of entrepreneurship from a personal perspective has been explored in this century. This

exploration is reflected in the following three definitions of an entrepreneur:

In almost all definitions of entrepreneurship, there is agreement that we are talking about a kind of

behavior that includes:

1. . Initiative taking.

2. The organizing and reorganizing or social/economic mechanisms to turn resources and situations to

practical account.

3. .The acceptance of risk or failure.

To an economist, an entrepreneur is one who brings resources, labor, materials, and other assets into

combinations that make their value greater than before, and one who introduces changes, innovations,

and a new order.

To a psychologist, such a person is typically driven by certain forces- the need to obtain something, to

experiment, to accomplish or perhaps to escape the authority of others.

Entrepreneurship is the dynamic process of creating incremental wealth. Our definition of entrepreneurship

involves four aspects:

1. Entrepreneurship involves the creation process.

2. It requires the devotion of the necessary time and effort.

3. It involves assuming the necessary risks.

4. The rewards of being an entrepreneur are independence, personal satisfaction, and monetary reward.

For the person who actually starts his or her own business there is a high failure rate due to poor sales,

intense competition, lack of capital or lack of managerial ability.

Entrepreneurship MGT602

THE ENTREPRENEURIAL DECISION PROCESS

(Deciding to become an entrepreneur by leaving present activity)

Many individuals have difficulty bringing their ideas to the market and creating new venture. Yet

entrepreneurship and the actual entrepreneurial decisions have resulted in several million new businesses

being started throughout the world. Although no one knows the exact number in the United States.

Indeed, millions of ventures are formed despite recession, inflation, high interest rates, and lack of

infrastructure, economic uncertainty and the high probability of failure

The entrepreneurial decision process entails a movement from something to something-- a movement

from a present life style to forming a new enterprise.

To leave a present live-style to create something new comes from a negative force--disruption. Many

companies are formed by people who have retired, moved, or been fired. Another cause of disruption is

completing an educational degree.

The decision to start a new company occurs when an individual perceives that forming a new enterprise is

both desirable and possible.

KEY TERMS

Breakthrough innovations

A new product with some technological change

Business ethics

The study of behavior and morals in a business situation

Desirability of new venture formation

Aspects of a situation that make it desirable to start a new company.

Entrepreneur

Individual who takes risks and starts something new

Entrepreneur as an innovator

An individual developing something unique

Entrepreneurial decision process

Deciding to become an entrepreneur by leaving present activity

Entrepreneurship

Process of creating something new and assuming the risks and rewards

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