Defining Entrepreneurship

Defining Entrepreneurship

                                                    

There has been a great deal of attention paid to the subject of entrepreneurship over the past few years, stemming primarily from the discovery by economic analysts that small firms contri-bute considerably to economic growth and vitality. Moreover, many people have chosen entrepreneurial careers because doing so seems to offer greater eco-nomic and psychological rewards than does the large company route. Programmes, such as the TKMPK strive to identify potential entrepreneurs from within the target group of unemployed graduates and, to a certain extent, teach entrepreneurship.

Yet, despite all of the discussion and attention paid to this issue, two fundamental questions remain unanswered: What is entrepreneurship? and Can you measure it? Clearly, in the context of TKMPK participant selection, these are two questions that need answering!

Peter Kilby once compared entrepreneurship to the imaginary animal, the Heffa-lump:

It is a large and important animal which has been hunted by many individuals using various ingenious trapping devices ... All who claim to have caught sight of him report that he is enormous, but they disagree on his particulari-ties. Not having explored his current habitat with sufficient care, some hunters have used as bait their own favourite dishes and have then tried to persuade people that what they caught was a Heffalump. However, very few are convinced, and the search goes on (Kilby, Hunting the Heffalump: Entrepre-neurship and Economic Development, 1971).

What is Entrepreneurship?

Many definitions of entrepreneurship can be found in the literature describing business processes. The earliest definition of entrepreneurship, dating from the eighteenth century, used it as an economic term describing the process of bearing the risk of buying at certain prices and selling at uncertain prices. Other, later commentators broadened the definition to include the concept of bringing together the factors of production. This definition led others to question whether there was any unique entrepreneurial function or whether it was simply a form of management. Early this century, the concept of innovation was added to the definition of entrepreneur-ship. This innovation could be process innovation, market innovation, product innovation, factor innovation, and even organisational innovation. Later definitions described entrepreneurship as involving the creation of new enterprises and that the entrepreneur is the founder.

Considerable effort has also gone into trying to understand the psychological and sociological wellsprings of entrepreneurship. These studies have noted some common characteristics among entrepreneurs with respect to need for achievement, perceived locus of control, orientation toward intuitive rather than sensate thinking, and risk-taking propensity. In addition, many have commented upon the common, but not universal, thread of childhood deprivation, minority group membership and early adolescent economic experiences as ty-pifying the entrepreneur.

At first glance then, we may have the beginnings of a definition of entrepreneurship. However, detailed study of both the literature and actual examples of entrepreneurship tend to make a definition more difficult, if not impossible.

Although risk bearing is an important element of entrepreneurial behaviour, many entrepreneurs have succeeded by avoiding risk where possible and seeking others to bear the risk. As one extremely successful entre-preneur has said; 'My idea of risk and reward is for me to get the reward and others to take the risks'.

Creativity is often not a prerequisite for entrepreneurship either. Many successful entrepreneurs have been good at copying others and they qualify as innovators and creators only by stretching the definition beyond elastic limits.

There are similarly many questions about what the psychological and social traits of entrepreneurs are. The same traits shared by two individuals can often lead to vast different results: successful and unsuccessful entrepreneurs can share the characteristics commonly identified. As well, the studies of the life paths of entrepreneurs often show decreasing 'entrepreneurship' following success, which tends to disprove the centrality of character or personality traits as a sufficient basis for defining entrepreneurship.

So, we are left with a range of factors and behaviours which identify entrepreneurship in some individuals. All of the above tends to reinforce the view that it is difficult, if not impossible to define what an entrepreneur is, and that the word itself can be best used in the past tense to describe a successful business person.

Measuring Entrepreneurship

Despite the above, there is remains a powerful impulse, particularly amongst enterprise development practitioners, to measure entrepreneurship in some way. These measurement attempts can range from simple checklists through to complex and detailed computer programmes. This need for a definition and measure of entrepreneurship is because, however defined, the entrepreneur is the key to the successful launch of any business.

He or she is the person who perceives the market opportunity and then has the motivation, drive and ability to mobilise resources to meet it. The major characteristics of entrepreneurs that have been listed by many commentators include the following.

·         Self confident and multi-skilled. The person who can 'make the prod-uct, market it and count the money, but above all they have the confidence that lets them move comfortably through unchartered waters'.

·         Confident in the face of difficulties and discouraging circumstances.

·         Innovative skills. Not an 'inventor' in the traditional sense but one who is able to carve out a new niche in the market place, often invisible to others.

·         Results-orientated. To make be successful requires the drive that only comes from setting goals and targets and getting pleasure from achieving them.

·         A risk-taker. To succeed means taking measured risks. Often the successful entrepreneur exhibits an incremental approach to risk taking, at each stage exposing him/herself to only a limited, measured amount of personal risk and moving from one stage to another as each decision is proved.

·         Total commitment. Hard work, energy and single-mindedness are essential elements in the entrepreneurial profile.

However, two warnings need to be attached to this partial list of entrepreneurial qualities.

Firstly, selecting individuals for enterprise development training by such a set of attitudes and skills in no way guarantees business success.

Secondly, the entrepreneurial characteristics required to launch a business successfully are often not those required for growth and even more frequently not those required to manage it once it grows to any size. The role of the entrepreneur needs to change with the business as it develops and grows, but all too often he or she is not able to make the transition.

Visionaries and Managers

In new and emerging businesses, the person who starts the business is often an entrepreneur; a visionary.

The visionary who starts a business with a fresh idea -- to make something better or less expensively, to make it in a new way or to satisfy a unique need -- is often not primarily interested in making money. The visionary wants to do something that no one else has done because they can, because it is interesting and exciting, and because it may be meeting a need. Once the business begins to have some success, then the nature of the processes needed change.

At this stage, the infant business experiences its first set of challenges:

·         How does the visionary entrepreneur transfer the skills and the inspiration that made the little enterprise a success into something larger?

·         How does the business deal with cash flow constraints?

·         How does it obtain the legitimacy necessary to enable it to borrow?

Often, the visionary is not interested in these issues. Visionaries are notoriously poor at supervising staff, negotiating with investors, or training successors. The business now needs a professional management focus, which calls on a different set of skills, to manage and sustain growth, that are distinct from the skills necessary to start an enterprise and promote a vision.

Applying management skills allows the adolescent enterprise continues to do well, but the business culture begins to change. The emphasis of management is structure, policies, procedures and the bottom line, that is profitability. Then the business reaches the next challenge: the maturing enterprise now requires a management structure or governance to create checks and balances and to ensure that the management focus does not become too powerful and overwhelm the entrepreneurship necessary to create rapid growth and access new markets.

Businesses in emerging industries go through these three stages characterised by vision, management, and governance. Upon developing into an institutionalised company with appropriate governance structures, the business encounters a new set of challenges that are common to all industries:

·         How does the business preserve its vision?

·         How does it balance growth, risk, and profitability?

·         How does it establish a governance system that holds management accountable without undermining its independence and flexibility?

Conclusion

This business development cycle described above is common amongst successful businesses. The cycle itself raises the issue of what to focus on when attempting to select a business idea to take part in a programme such as the TKMPK. The real danger for those involved in selection activities is that of selecting entrepreneurial qualities over managerial skills. This may thereby condemn the business to uneven growth, poor management and ultimate failure, as the enterprise does not respond adequately to new market and trading conditions. A further danger is attempting to select people over ideas.

The focus of any predicative element in the selection process, therefore, needs to be on a balance of both entrepreneurial and managerial qualities. And the major determinant in selecting a participant for business management training must remain the business idea itself.

Profile Of An Entrepreneur
     Do you have the key traits of an entrepreneur? How many times have you considered starting your own business? Do you know what it takes to be successful in your own business? Over the past several months I've been asked numerous times to make a profile of the average entrepreneur. I've done my research and included a concise summary of an entrepreneur in this article. Read the five main traits of an entrepreneur and then visit our website to take our free online Interactive Entrepreneur Profiler.

Problem Solver:
Entrepreneurs have an uncanny ability to find solutions for difficult problems. The business environment of a start up company will present you with many unique problems. It is your job to quickly solve these problems
.
Calculated Risk Taker:

A successful entrepreneur is a good judge of acceptable risk levels. They always research a topic before trying to make decisions and leave no stone unturned. They tend to be an adventurous group but always minimize their risk with alternate plans should something unexpected arise. Starting a business is inherently risky so you must research and plan before jumping in with both feet.

Innovator:
During their lifetime most entrepreneurs will start several businesses. This is due to the fact that they always have great new business ideas flowing through their head. An entrepreneur will start a company and then move on to the next big project. It is rare for an entrepreneur to stick around and actually "run" a company past the start up phase. The idea of running an established company does not appeal to them so they are likely to sell the business or hire someone to run the daily operations for them.

Delegate Tasks:
One of the keys to becoming an excellent entrepreneur is their ability to delegate tasks to others. When you are starting a business it's impossible to know how to do everything yourself. Even if you do know how to do something you probably will not have time to do it yourself. Delegate those tasks and run the parts of the business that you excel in.

Handle Rejection Well:
Dealing with rejection is part of being an entrepreneur. Just trying to get a business started you are liable to run into opposition from friends, family, creditors, business associates, and soon to be ex co-workers. When you become an entrepreneur you step out of the comfort zone for many people. Whether it is out of jealousy or other factors there are many people that will not want you to succeed. You must overcome this by believing in your business and sticking to it until you obtain the level of success you desire.
Now that you know what the five main traits of entrepreneurs are I'm sure you're wondering if you have these traits. We've developed a unique interactive feature on our website that will test your entrepreneurial skills.

Distinction between an Entrepreneur and a Manager

The terms Entrepreneur and Manager are considered one and the same. But the two terms have different meanings.
The following are some of the differences between a manager and an entrepreneur.

· The main reason for an entrepreneur to start a business enterprise is because he comprehends the venture for his individual satisfaction and has personal stake in it where as a manager provides his services in an enterprise established by someone.

· An entrepreneur and a manager differ in their standing, an entrepreneur is the owner of the organization and he bears all the risk and uncertainties involved in running an organization where as a manager is an employee and does not accept any risk.

· An entrepreneur and a manager differ in their objectives. Entrepreneur’s objective is to innovate and create and he acts as a change agent where as a manager’s objective is to supervise and create routines. He implements the entrepreneur’s plans and ideas.

· An entrepreneur is faced with more income uncertainties as his income is contingent on the performance of the firm where as a manager’s compensation is less dependent on the performance of the organization.

· An entrepreneur is not induced to involve in fraudulent behavior where as a manger does. A manager may cheat by not working hard because his income is not tied up to the performance of the organization.

· Entrepreneur is required to have certain qualifications and qualities like high accomplishment motive, innovative thinking, forethought, risk-bearing ability etc. Conversely it’s mandatory for a manager to be educated in the fields of management theories and practices.

· An entrepreneur deals with faults and failures as a part of learning experience where as a manager make every effort to avoid mistakes and he postpones failure.

“An entrepreneur could be a manager but a manager cannot be an entrepreneur”. An entrepreneur is intensely dedicated to develop business through constant innovation. He may employ a manager in order to perform some of his functions such as setting objectives, policies, rules etc. A manager cannot replace an entrepreneur in spite of performing the allotted duties because a manager has to work as per the guidelines laid down by the entrepreneur.

On the downside, typical manager brings professionalism into working of an organization. They bring fresh perspectives, ideas and approach to trouble shooting which can be invaluable.

Lately there has been convergence of the entrepreneur and the manager in certain sectors like software. An employee is being given highly valuable stock options, which make a typical ‘manager’ a part owner.

The Entrepreneur and the Manager - The Significant Difference
By Prof. Liora Katzenstein, President, ISEMI -

The Theory of Organizational Behavior distinguishes five classic phases in the development of an organization:

Phase 1: Enterprise/Creativity
Phase 2: Establishment/Professional Management
Phase 3: Delegation of Authority
Phase 4: Coordination Between the Various Parts of the Organization
Phase 5: Cooperation Between the Various Parts of the Organization (the "Interlaced Circles" Organizational Structure)

An examination of this model shows that the transition from phase to phase is usually accompanied by a crisis in the organization indicating the need for immediate change. Empirical and theoretical studies have described these transitional stages in the life of the organization, but less is known about the various types of management and how they adapt to changes in the organization due to the transition from phase to phase.

In this paper, we will survey the consequences for management when the organization moves from Phase 1 to Phase 2. The passage from being a new "enterprise" to becoming an "established" institution is one of the most difficult and critical in the life of any organization.

The  and the Manager - Are they different?

At the heart of every  and  company is a "structural conflict", which often poses a threat to the continued existence of the organization. This conflict can be summed up by the following statement: "The very qualities necessary to set up a new business, are the qualities which will adversely affect the smooth running of that business, sometimes, fatally".

The "structural conflict" arises from the fact that the entrepreneur, who has taken significant personal and commercial risks to set up the business, who has worked day and night to strengthen and promote it, at some point discovers that the business is working well and he can sit back, relax, and enjoy the fruits of his labors. But the typical entrepreneur is not the type to take things easy; he continues to be actively involved in the day-to-day activities of the company, which is growing quickly and now requires well-organized administration. His involvement can lead to hostility and tension, which damage the organization's ability to function and even to survive.

For this reason, the literature and history of commercial organizations in western countries are full of cases where the entrepreneur did not know when to ask himself: "Am I superfluous around here?" as well as many descriptions of "the entrepreneur who ruins his business".

Let's summarize the significant differences between the entrepreneur and the manager:

1.      Behavioral Differences

The typical entrepreneur wants to "be in control" of his life (which is often the reason why he started the business), of his business and especially of his employees.

The professional manager, on the other hand, enters a company which needs to delegate authority, since it has reached the stage in its development where the entrepreneur can no longer "do it all himself".

2.      Management Style

The  style is very demanding, leaving very little room for error, and none at all for actual failures, since in most cases the business is a "one man show", even if there are other employees.

The professional manager, however, must be tolerant of failure (and see it as a basis for learning) and develop an administrative team, since a basic assumption is that responsibility in the organization must pass from the "all-knowing" entrepreneur to people who still have to learn about the business.

3.      The Moving Force

Entrepreneurial management is characterized by concepts such as "", "creativity",  and so on, indicators of the desire to create "something from nothing".

Professional management is characterized by concepts such as "order", "organization", "procedures", and so on, indicating the desire to organize and maintain what exists.

4.      Growth

is noted for its ability to react quickly and effectively to new. This ability is the foundation for rapid growth of the company in its entrepreneurial stage.

Professional management is noted for medium and long term strategic planning, which leads to controlled growth of the company during the process of establishment.

5.      Organizational Structure

The entrepreneurial organization is characterized by its informal, flexible structure, which allows it to adapt to changes required by its rapid growth.

Professional management, on the other hand, requires a formal and fairly rigid organizational structure, which leaves no room for rapid reactions to business opportunities, but protects the organization from sudden collapse.

6.      Decision-Making
The entrepreneur usually makes decisions, even those of critical importance for his business, on the basis of his own personal intuition and "gut feelings".

The professional manager makes decisions after collecting detailed information and reaching operative conclusions, while relying on experts both from within and outside the organization.

7.      Definition of Aims

The entrepreneur describes his organization in terms of "vision", "dream" and "mission" and manages to give his employees the feeling that they are working for a higher aim than just  a product and/or service.

The professional manager describes the company aims in terms of market segments, yield per worker and profitability.

8.      Attitude to Money

Although the accepted myth is that entrepreneurs are driven by the desire for power and money, both theoretical and empirical studies have shown that typical entrepreneurs are in fact driven by the desire for success rather than power. This means that, in the eyes of most entrepreneurs, while money is a welcome by-product of their efforts, it is not the reason for their efforts.

The professional, on the other hand, looks at the business he manages through "financial eyes" and defines its aims (usually in the short term only) purely in financial terms.

9.      Attitude to Risk

The myths describe entrepreneurs as "wild risk-takers", although many studies have shown that in fact the typical entrepreneur is very good at assessing risks.

On the other hand, the professional manager, who sees his task as strengthening and maintaining the company, is naturally afraid of risks and tries to maintain the status quo.

  Company Culture

The typical entrepreneur does not usually try to define a "culture" for the organization he sets up, since in most cases he himself is the organization. The literature defines this situation as "the entrepreneurial organizational culture", characterized by large doses of charisma and "manipulativeness".

The professional manager does try to establish a well-defined company culture, based on company values on one hand and commercial aims on the other.

Conclusions

In the light of the foregoing, we can conclude that there is a world of difference between the "entrepreneurial manager" and the professional manager, and indeed this was true until the last decade. But, it has become clear in recent years that the ideal manager will be one who knows how to combine certain traits of the professional manager, such as order and discipline, with entrepreneurial characteristics such as quick reaction to business opportunities, creativity and the ability to fill employees with a sense of vision and challenge.

	Characteristic	Entrepreneur	Manager
	Behavior Characterized by	Desire for Control	Delegation of Authority
	Management Style	One-Man Show	Management Team
	Driving Force	Creativity - Innovation	Establish and Preserve the Status Quo
	Organizational Growth	Rapid Reaction	Strategic Planning
	Organization Structure	Informal, Flexible	Organized
	Decision-Making	Intuitive	Collect Information and Seek Advice
	Definition of Aims	In terms of "Vision"	In Commercial Terms
	Attitude to Money	A By-Product	Measure of Success
	Attitude to Risk	Calculated Risks	Avoidance of Risks
	Organizational Culture	"Entrepreneurial Culture"	"Management Culture"