Entrepreneurship is the act of being an
entrepreneurAn entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new
organizationAn organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
s or may be part of revitalizing mature
organizationAn organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
s in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new
businessA business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es (referred as
Startup CompanyA startup company or startup is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets...
); however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities spin-off organizations.s
According to Paul Reynolds, entrepreneurship scholar and creator of the
Global Entrepreneurship MonitorThe Global Entrepreneurship Monitor is a global study conducted by a consortium of universities.Started in 1999, it aims to analyze the level of entrepreneurship occurring in a wide basket of countries...
, "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." And in recent years has been documented by scholars such as David Audretsch to be a major driver of economic growth in both the United States and Western Europe.
Entrepreneurial activities are substantially different depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high value" entrepreneurial ventures seek
venture capitalVenture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
or angel funding (
seed moneySeed money, sometimes known as seed funding, friends and family funding or angel funding , is a securities offering whereby one or more parties that have some connection to a new enterprise invest the funds necessary to start the business so that it has enough funds to sustain itself for a period...
) in order to raise
capitalIn economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
to build the business. Angel investors generally seek annualized returns of 20-30% and more, as well as extensive involvement in the business. Many kinds of organizations now exist to support would-be entrepreneurs including specialized government agencies,
business incubatorBusiness incubators are programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts...
s,
science parkA research park, science park, or science and technology park is an area with a collection of buildings dedicated to scientific research on a business footing. There are many approximate synonyms for "science park", including research park, technology park, technopolis and biomedical park...
s, and some
NGOsA non-governmental organization is a legally constituted organization created by natural or legal persons that operates independently from any government. The term originated from the United Nations , and is normally used to refer to organizations that do not form part of the government and are...
. In more recent times, the term entrepreneurship has been extended to include elements not related necessarily to business formation activity such as conceptualizations of entrepreneurship as a specific
mindsetIn decision theory and general systems theory, a mindset is a set of assumptions, methods or notations held by one or more people or groups of people which is so established that it creates a powerful incentive within these people or groups to continue to adopt or accept prior behaviors, choices,...
(see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of
social entrepreneurshipSocial entrepreneurship is the work of social entrepreneurs. A social entrepreneur recognizes a social problem and uses entrepreneurial principles to organize, create and manage a venture to achieve social change . While a business entrepreneur typically measures performance in profit and return, a...
,
political entrepreneurThe term Political entrepreneur may refer to any of the following:* someone who founds a new political project, group, or political party...
ship, or
knowledge entrepreneurshipKnowledge entrepreneurship describes the ability to recognize or create an opportunity and take action aimed at realizing the innovative knowledge practice or product...
have emerged.
The
entrepreneurAn entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
is a factor in
microeconomicsMicroeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
, and the study of entrepreneurship reaches back to the work of
Richard CantillonRichard Cantillon was an Irish-French economist and author of Essai sur la Nature du Commerce en Général , a book considered by William Stanley Jevons to be the "cradle of political economy". Although little information exists on Cantillon's life, it is known that he became a successful banker and...
and
Adam SmithAdam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
in the late 17th and early 18th centuries, but was largely ignored theoretically until the late 19th and early 20th centuries and empirically until a profound resurgence in business and economics in the last 40 years.
In the 20th century, the understanding of entrepreneurship owes much to the work of economist
Joseph SchumpeterJoseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
in the 1930s and other
Austrian economistsThe Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
such as
Carl MengerCarl Menger was the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists such as Adam Smith and David Ricardo.- Biography :Menger...
,
Ludwig von MisesLudwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
and Friedrich von Hayek. In Schumpeter, an entrepreneur is a person who is willing and able to convert a new idea or
inventionAn invention is a novel composition, device, or process. An invention may be derived from a pre-existing model or idea, or it could be independently conceived, in which case it may be a radical breakthrough. In addition, there is cultural invention, which is an innovative set of useful social...
into a successful innovation. Entrepreneurship employs what Schumpeter called "the gale of
creative destructionCreative destruction is a term originally derived from Marxist economic theory which refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto and were expanded in Marx's Grundrisse and "Volume...
" to replace in whole or in part inferior innovations across markets and industries, simultaneously creating new products including new
business modelA business model describes the rationale of how an organization creates, delivers, and captures value...
s. In this way, creative destruction is largely responsible for the dynamism of industries and long-run
economic growthIn economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
. The supposition that entrepreneurship leads to economic growth is an interpretation of the residual in
endogenous growth theoryEndogenous growth theory holds that economic growth is primarily the result of endogenous and not external force. In Endogenous growth theory investment in human capital, innovation and knowledge are significant contributors to economic growth. The theory also focus on positive externalities and...
and as such is hotly debated in academic economics. An alternate description posited by
Israel KirznerIsrael Meir Kirzner is a leading economist in the Austrian School.-Early life:The son of a well-known rabbi and Talmudist, Kirzner was born in London, England and came to the United States via South Africa.-Education:After studying with the University of Cape Town, South Africa in 1947-48 and...
suggests that the majority of innovations may be much more incremental improvements such as the replacement of paper with plastic in the construction of a drinking straw.
For Schumpeter, entrepreneurship resulted in new industries but also 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, the car, was transformational but did not require the development of a new technology, merely the application of existing technologies in a novel manner. It did not immediately replace the horsedrawn carriage, but in time, incremental improvements which reduced the cost and improved the technology led to the complete practical replacement of beast drawn vehicles in modern transportation. Despite Schumpeter's early 20th-century contributions, traditional microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks (instead assuming that resources would find each other through a price system). In this treatment the entrepreneur was an implied but unspecified actor, but it is consistent with the concept of the entrepreneur being the agent of x-efficiency.
Different scholars have described entrepreneurs as, among other things, bearing risk. For Schumpeter, the entrepreneur did not bear risk: the capitalist did.
For Frank H. Knight (1921) and
Peter DruckerPeter Ferdinand Drucker was an influential writer, management consultant, and self-described “social ecologist.”-Introduction:...
(1970) entrepreneurship is about taking
riskRisk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as
capitalIn economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
on an uncertain venture. 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 5 red balls and 5 white balls).
- Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing 5 red balls but with 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 number of red balls is unknown as well as the number of other colored balls).
The acts of entrepreneurship are often associated with true uncertainty, particularly when it involves bringing something really novel to the world, whose market never exists. However, even if a market already exists, there is no guarantee that a market exists for a particular new player in the cola category.
The place of the disharmony-creating and idiosyncratic entrepreneur in traditional economic
theoryThe English word theory was derived from a technical term in Ancient Greek philosophy. The word theoria, , meant "a looking at, viewing, beholding", and referring to contemplation or speculation, as opposed to action...
(which describes many efficiency-based ratios assuming uniform outputs) presents theoretic quandaries.
William BaumolWilliam Jack Baumol is an American economist. He is a professor of economics at New York University and is also affiliated with Princeton University. Baumol has written extensively about labor market and other economic factors that affect the economy. He also made valuable contributions to the...
has added greatly to this area of economic theory and was recently honored for it at the 2006 annual meeting of the
American Economic AssociationThe American Economic Association, or AEA, is a learned society in the field of economics, headquartered in Nashville, Tennessee. It publishes one of the most prestigious academic journals in economics: the American Economic Review...
.
The entrepreneur is widely regarded as an integral player in the business culture of American life, and particularly as an engine for job creation and economic growth.
Robert SobelRobert Sobel was an American professor of history at Hofstra University, and a well-known and prolific writer of business histories.- Biography :...
published
The Entrepreneurs: Explorations Within the American Business Tradition in 1974.
Zoltan AcsZoltan J. Acs is a professor at George Mason University where he teaches in the School of Public Policy and directs the Center for Entrepreneurship and Public Policy. He is a Research Scholar at the Max Planck Institute for Economics in Jena, Germany, and Scholar-in-Residence at the Kauffman...
and David Audretsch have produced an edited volume surveying Entrepreneurship as an academic field of research, and more than a hundred scholars around the world track entrepreneurial activity, policy and social influences as part of the
Global Entrepreneurship MonitorThe Global Entrepreneurship Monitor is a global study conducted by a consortium of universities.Started in 1999, it aims to analyze the level of entrepreneurship occurring in a wide basket of countries...
(GEM) and its associated reports.
Though
EntrepreneurAn entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s are thought to have many of the same character traits as
leadersLeadership has been described as the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task". Other in-depth definitions of leadership have also emerged.-Theories:...
,, involve particular psychological dispositions, or operate in purely business spheres of life, recent European theorising on the subject has suggested that, come the era of neo-liberalism and 'big society' politics that promote conceptualising humans as economic agents per se, normal, everyday people usually marginalised from the term 'entrepreneur' are too involved in the very same kind of processes that 'big business', proper entrepreneurs are involved with. Entrepreneurs, and entrepreneurship, as such, might be enacted by anybody, encountering as they do economic uncertainty on an everyday basis.
Concept
It has assumed super importance for accelerating economic growth both in developed and developing countries. It promotes capital formation and creates wealth in country. It is hope and dreams of millions of individuals around the world. It reduces unemployment and poverty and it is a pathway to prosper.
Entrepreneurship is the process of exploring the opportunities in the market place and arranging resources required to exploit these opportunities for long term gain. It is the process of planning, organising, opportunities and assuming. Thus it is a risk of business enterprise. It may be distinguished as an ability to take risk independently to make utmost earnings in the market. It is a creative and innovative skill and adapting response to environment of what is real.
Promotion
Given entrepreneurship's potential to support economic growth, it is the policy goal of many governments to develop a culture of entrepreneurial thinking. This can be done in a number of ways: by integrating entrepreneurship into education systems, legislating to encourage risk-taking, and national campaigns. An example of the latter is the United Kingdom's Enterprise Week, which launched in 2004.
Outside of the political world, research has been conducted on the presence of entrepreneurial theories in doctoral economics programs. Dan Johansson, fellow at the Ratio Institute in Sweden, finds such content to be sparse. He fears this will dilute doctoral programs and fail to train young economists to analyze problems in a relevant way.
Many of these initiatives have been brought together under the umbrella of
Global Entrepreneurship WeekGlobal Entrepreneurship Week is the world’s largest celebration of the innovators and job creators who launch startups that bring ideas to life, drive economic growth and expand human welfare....
, a worldwide celebration and promotion of youth entrepreneurship, which started in 2008.
Financial Bootstrapping
Financial bootstrapping is a term used to cover different methods for avoiding using the financial resources of external
investorAn investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
s. Bootstrapping can be defined as “a collection of methods used to minimize the amount of outside debt and equity financing needed from banks and investors”. The use of private
credit cardA credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
debt is the most known form of bootstrapping, but a wide variety of methods are available for
entrepreneurAn entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. Many successful companies including
DellDell, Inc. is an American multinational information technology corporation based in 1 Dell Way, Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest...
Computers and
FacebookFacebook is a social networking service and website launched in February 2004, operated and privately owned by Facebook, Inc. , Facebook has more than 800 million active users. Users must register before using the site, after which they may create a personal profile, add other users as...
were founded this way.
There are different types of bootstrapping:
- Owner financing
- Sweat equity
Sweat equity is a term that refers to a party's contribution to a project in the form of effort --- as opposed to financial equity, which is a contribution in the form of capital....
- Minimization of the accounts receivable
- Joint utilization
- Delaying payment
- Minimizing inventory
- Subsidy finance
- Personal Debt
Traditional Financing
Having outside investors is not necessarily beyond the realm of entrepreneurship. In many cases, leveraging the owners' credit cards and personal assets, such as mortgages, may not be sufficient. Inadequate investment can also kill a start up. And bringing in outsiders can be beneficial. Outsiders can provide financial oversight, accountability for carrying out tasks and meeting milestones, and many can even bring valuable business contacts and experience to the table.
- Angel Investors
- Venture capital
Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
investors
- Crowd funding
Crowd funding describes the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations...
- Hedge Funds
- Alternative Asset Management
See also
- Business opportunity
A business opportunity involves the sale or lease of any product, service, equipment, etc. that will enable the purchaser-licensee to begin a business. The licensor or seller of a business opportunity usually declares that it will secure or assist the buyer in finding a suitable location or...
- Business plan
A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals....
- Corporate Social Entrepreneurship
A corporate social entrepreneur is defined as "an employee of the firm who operates in a socially entrepreneurial manner; identifying opportunities for and/ or championing socially responsible activity; in addition to helping the firm achieve its business targets. The CSE operates regardless of...
- Entrepreneurship Ecosystem
The Entrepreneurship Ecosystem refers to the elements – individuals, organizations or institutions – outside the individual entrepreneur that are conducive to, or inhibitive of, the choice of a person to become an entrepreneur, or the probabilities of his or her success following launch...
- Entrepreneurship education
Entrepreneurship education seeks to provide students with the knowledge, skills and motivation to encourage entrepreneurial success in a variety of settings...
- Economy and Entrepreneurship
- Junior enterprise
A junior enterprise is a local non-profit organization entirely managed by students. Related to their field of studies the students offer consulting services to the market; experiencing unique learning opportunities by doing professional project work on the one side and managing small- to medium...
- University spin-off
University spin-offs transform technological inventions developed from university research that are likely to remain unexploited otherwise. As such, university spin-offs are a subcategory of research spin-offs. Prominent examples of university spin-offs are Genentech, Crucell, Lycos and Plastic...
Further reading
- Duening, Thomas N., Hisrich, Robert D., Lechter, Michael A., Technology Entrepreneurship, Academic Press, 2009. ISBN 978-0-12-374502-6
- Livingston, Jessica, Founders at work: stories of startups' early days, Berkeley, CA : Apress ; New York : Distributed to the book trade worldwide by Springer-Verlag New York, 2007. ISBN 978-1-59059-714-9
External links