The Foundation of Entrepreneurship

The Concept of Entrepreneurship

The nature of entrepreneurship implies several images and meanings. We can understand the definitions of an entrepreneur. Inegbenebor and Igbinomwanhia (2011) define an entrepreneur as a person who has possession of an enterprise, or venture, and assumes significant accountability for the inherent risks and the outcome of the enterprise. According to Jones , George and Hill (2000), entrepreneurs are individuals who notice opportunities and take responsibility for mobilizing the resources necessary to produce new and improved goods and services. In other words, entrepreneurs start new business venture and do all of the planning, organising, leading and controlling necessary to meet organizational goals. Sharma (1999) defines entrepreneurs as the owners of the business who contribute the capital and bear the risk of uncertainties in business life. He organizes, manages, assumes the risks and takes the decisions about the enterprise. Scarborough (2014) defines entrepreneur as one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying significant opportunities and assembling the necessary resources to capitalize on them. Drucker (1986) defines the entrepreneur as someone who always searches for change, respond to it, and exploits it as an opportunity. Kuratko (2014), defines entrepreneurs are individuals who recognise opportunities where others see chaos, contradiction, and confusion. They are aggressive catalysts for change within the marketplace.

The process of performing the roles of an entrepreneur is called entrepreneurship. Thus, we may define entrepreneurship as Barringer and Ireland (2012) opine as the process by which individuals pursue opportunities without regard to resources they currently control. Wilson(2004) defines entrepreneurship as the art of turning an idea into a business. Kuratko (2008), defines entrepreneurship as a dynamic process of vision, change, and creation. It requires an application of energy and passion toward the creation and implementation of new ideas and creative solutions. Essential ingredients include the willingness to take calculated risks in terms of time, equity or career, the ability to formulate an effective venture team; the creative skill to marshal needed resources; the fundamental skill of building a solid business plan; and finally, the vision to recognise opportunity where others see chaos, contradiction, and confusion. Stoner et al (2009) define entrepreneurship as the seemingly discontinuous process of combining resources to produce new goods or services. Jones et al (2000) define entrepreneurship as the mobilization of resources to take advantage of an opportunity to provide customers with new or improved goods and services. Bateman and Snell (2011) define entrepreneurship as a situation when an enterprising individual pursues a lucrative opportunity. Entrepreneurship is defined as the willingness and ability of an individual (or a group of individuals) to seek out investment opportunities, especially through innovation, establish and run the enterprise successfully. (Inegbenebor, 2003 unpublished lecture note).

While there are several definitions of entrepreneurship, the central ideas of the concept incorporates uncertainty and risk taking, innovation, perception and change (Herbert and Link, 1989).

Entrepreneurs and entrepreneurship are more often associated with small and medium scale enterprises. This is because the vast majority of enterprises in which the entrepreneur plays a visible role are small and medium scale enterprises.

The Role of Entrepreneurship in a Developing Society

Entrepreneurship has been recognized all over the world as a catalyst for development in any economy. Entrepreneurship in developing countries in particular is being seriously advocated because of the following importance:

  1. Employment Generation: It helps to provide jobs through the establishment of new businesses, especially small and medium scale enterprises.
  2. Productivity: One of the factors for the greater interest in entrepreneurship has been the increasing recognition of its role in raising productivity through various forms of innovation. Entrepreneurs, through their innovation and creativity are capable of transforming existing business sectors, and creating new sectors. They are helping to bring about new goods and services (expanding productivity) and supplying the needs of large enterprises, which have to rely on their operations for business success.
  3. Facilitate the transfer/adaptation of technology: It enables entrepreneurs to have the opportunities of developing and adapting appropriate technological methods and provide a veritable avenue for skilled, unskilled and semi-skilled workers.
  4. Ensures increased resource utilization: It helps entrepreneurs to put limited resources that might otherwise remain idle into good use. They contribute to the mobilization of domestic savings and utilization of local resources, including human resources.
  5. Stimulates growth in those sectors which supplies it with inputs: Entrepreneurship stimulates growth in its supply market. The greater the number of entrepreneurship that exist in the downstream‘ of a particular sector, the greater the market, hence, the greater the potential for increased capacity utilization.
  6. Reinvigorates large-scale enterprises and public enterprises: Most large scale enterprises and public sector enterprises depend on the activities of small and medium scale enterprises (SMEs) to supply them with various raw materials and other component parts and also to assist them in the distribution of the finished goods to the final consumers. Entrepreneurship has made it possible to be able to transform the public sector into a viable, market oriented and profitable organization.
  7. Encourages and sustains economic dynamism that enables an economy to adjust successfully in a rapidly changing global economy: As a result of the dynamic nature of the environment, small and medium scale enterprises have no choice than to respond and adapt to environmental changes from time to time.
  8. Enables individuals to use their potential and energies to create wealth, independence and status for themselves in society. The above eight points are not in any way exhaustive.

Functions of an Entrepreneur To list the functions of entrepreneurs, give the impression that there are clearly defined activities which the entrepreneur is expected to perform. On the basis of this understanding, the entrepreneur is expected to perform the following functions:

  1. Perception and identification of business opportunities: This is the first function of the entrepreneur. It has to do with the recognition and definition of an unsatisfied need of individuals, firms or households which can be satisfied with a product or service at the right price that will guarantee satisfactory profit to the entrepreneur. In other words, business opportunity occurs whenever there is a vacuum in the market place which is not being satisfied by existing organizations or is being inadequately satisfied.
  2. Selection of the legal form, location and site of the business: The form of business ownership that the entrepreneur may decide to go into depends entirely on the amount of capital available to the individual. To this end, the business enterprise may be operated either as sole proprietorship, partnership or a limited liability. The selection of the initial legal form of the enterprise as well as the location and site of the enterprise is the second function performed by the entrepreneur.
  3. Identification, selection and acquisition of key resources: The identification, selection and acquisition of key resources is yet another function unique to entrepreneurs. For any start up firm to survive and grow depends heavily on the availability of competent manpower who will be able to translate the entrepreneur‘s ideas into concrete forms. Thus, key personnel must be sourced and encouraged to contribute their talents and energy during and after the turbulent period of formation and take-off. In addition, the technology that is suitable for the needs of the firm must be identified, evaluated and acquired. Sourcing of funds is one of the major constraints in starting businesses by entrepreneurs, since the organization has no track record to boost of with investors and bankers, a lot depends on the talents and trust of the entrepreneur to develop an attractive project idea, form a credible and resourceful team in order to encourage others to believe in the business.
  4. Innovation: This is usually regarded as the height of entrepreneurship. Innovation may be defined as the translation of a new idea into a new company. In other words, innovation simply refers to striving to satisfy your customers better than what competitors are doing/offering. This may take the form of a new product in an old market; old product in a new market; or entirely a new product in a new market. It is important to emphasize that sustaining the patronage of customers depend largely on the ability of the entrepreneur to respond to their needs with new or modified products, new and better techniques of production which reduce cost of production, better methods of distribution, pricing and promotion.
  5. Risk bearing: This has been traditionally associated with the entrepreneur. There are various types of risks in business. The risk of fire, accidents, bad debts, theft etc can be minimized by taking preventive action and by insuring against them. Other risks arise because business decisions are future oriented. Risk of business failure may arise from adverse fluctuation in demand, unfavourable government policies, strong competitive advantage of other firms, obsolete technology and hence high cost of operation etc. These risks cannot usually be insured against and must be borne by the entrepreneur. One way of managing risk is for the entrepreneur to be engage actively in monitoring the environment in order to be able to respond and adapt to the dynamic nature of the environment from time to time. By so doing, the entrepreneur proactively assesses the conditions facing him/her, and on the basis of the evaluation of his/her strengths and weaknesses, he or she makes a choice of a strategy considered suitable. Having made a choice, the entrepreneur accepts personal responsibility for the outcome of his/her decision.
  6. Management of the ongoing enterprises: The job of an entrepreneur is not hit and run or one off activity. But rather, it is on a continuous basis (on going activity). To be able to sustain the ongoing nature of the business, the entrepreneur must put in place these activities namely: establishment of goals and targets for the enterprise; determination of the tasks to be undertaken to achieve the goals/targets; efficient and effective allocation of the necessary resources and controlling of the activities involved. This simply implies that the entrepreneur is a planner, organizer, communicator, coordinator, leader, motivation and controller, and most of all, a facilitator. Management of the on-going enterprise also involves the process whereby the entrepreneur monitors and evaluates changes that are continuously taking place in the political, economic, socio-cultural, technological, legal and ecological environment so as to respond appropriately to ensure the survival of the business.

Management versus Entrepreneurship

Morris, Kuratko and Covin (2011) made a clear distinction between management and entrepreneurship. According to them, management is the process of setting objectives and coordinating resources, including people, in order to attain those objectives. In essence, management involves getting things done through other people. In a sense, management is a transformation process, where technical, human, and conceptual skills are used to transform inputs into outputs. In addition, managers must understand how the organization interacts with the external environments and how the different parts of the organization work together. By so doing, managers will be able to carry out their responsibilities of efficiently and effectively. Management is both an art and a science. It is an art because it involves the use of instinct. It is a science because it involves the use of logic. Both art and science complement each other. Managers use the two efficiently and effectively in order to achieve organizational goals. On the other hand, the entrepreneurship is preoccupied not with what is, but with what can be. They envision the future, recognise emerging patterns, identify untapped opportunities and come up with innovations to exploit those opportunities. As earlier noted by Morris et al (2011), entrepreneurs pursue opportunity regardless of resources controlled. They do this by demonstrating creative capabilities in obtaining and leveraging resources, overcoming obstacles, mitigating risks, and persisting in implementing new ideas that represent change. They opine that within great organizations, a balance is achieved between disciplined management and entrepreneurship (Barringer & Ireland, 2012). Disciplined management requires focus, attention to basic management principles and values, and a strong sense of accountability for results. Entrepreneurship requires vision, a willingness to take risks, and a focus on creating the future. Achieving this balance suggests that managers must become entrepreneurs. In other words, optimization of current operations must be done by managers while at the same time engaging in activities that make current operations obsolete.

Wilken (1982) explains that entrepreneurship involves initiating changes in production, whereas management involves the ongoing coordination of the production process.

Who is an Intrapreneur?

According to Jones, George and Hill (2000), an intrapreneur is a manager, scientist, or researcher who works inside an existing organization and notices opportunities for product improvements and is responsible for managing the product development process. The above definition was corroborated by Pinchot (1985),when he coined the term intrapreneur to represent an innovative individual (employee) in an existing business organization who perceives new market opportunities, secures resources and initiates the realization of the opportunity. Rather than perform the roles of an entrepreneur as an independent unit and for private economic gains, the intrapreneur performs the same roles within an existing large organization to enhance the competitiveness and profitability of the organization.

The Meaning of Intrapreneurship

Stoner et al., (2009) opined that in today‘s faced-paced economy, companies that do not keep up may go the way of the dinosaur. According to them, a large number of companies have lost their entrepreneurial spirit that they started with. As they have grown larger, their ability to be innovative and flexible may have been stifled by the very size and success of the organization. Many concepts have been used to describe how managers can keep organizations from stagnating, make organizations adaptive, and promote organizational climates that support creative learning.

Perhaps, the most widely used term for this process is intrapreneurship. Intrapreneurship or corporate entrepreneurship is the process whereby an organization seeks to expand by exploring new opportunities through new combinations of its existing resources.

Intrapreneurship requires special attention from managers, because by design it cuts against the grain of established organizational activities. Thus, we might expect that the following are important to support intrapreneurship:

  1. Explicit goals for intrapreneurial processes
  2. A system of information exchange between managers and intrapreneurs
  3. An emphasis on individual responsibility and accountability
  4. Rewards for creative effort

Characteristics of an Entrepreneur

Timmons (1989) identified fourteen dominant characteristics of successful entrepreneurs. They are:

  1. Drive and Energy: Entrepreneurs are more energetic than the average person. They possess the capacity to work for long hours and in spurts of several days with less than a normal amount of sleep. Long hours and hard work are the rule rather than the exception, and the pace can be grueling.
  2. Self-confidence: Entrepreneurs typically have an abundance of confidence in their abilities to achieve the goals they set and confident that they chose the correct career path. They also believe that events in their lives are mainly self-determined, that they have a major influence on their personal destinies, and have little belief based in fate.
  3. Long term involvement: Entrepreneurship is hard work, and launching a company successfully requires total commitment from an entrepreneur. They make a commitment to a long term project and they work towards goals that may be quite distant in the future. Business founders often immerse themselves completely in their companies. Entrepreneurs who create high potential ventures are driven to build a business, rather than simply get in and out in a hurry with someone else‘s money.
  4. Money as a measure: One of the most common misconceptions about entrepreneurs is that they are driven wholly by the desire to make money. To the contrary, achievement seems to be entrepreneur primary motivating force: money is simply a way of ―keeping score‖ of accomplishment – a symbol of achievement. What drives entrepreneur goes much deeper than just the desire for wealth, (Scarborough, 2014).
  5. Persistent problem solving: Entrepreneurs possess an intense level of determination and desire to overcome hurdles, solve a problem and complete the job in the course of successfully building new enterprises. They are not intimidated by difficult situations.
  6. Goal setting: Entrepreneurs have the ability and commitment to set goals that are both measurable and attainable for themselves. These goals tend to be high and challenging, but they are realistic and attainable. Entrepreneurs are doers, they are goal and action oriented individuals. Entrepreneurs are motivated by a high need for achievement.
  7. Preference for moderate risk: Entrepreneurs are not wild risk takers but instead take calculated and moderate risk.
  8. Dealing with failure: Entrepreneurs do not fear failure. Anybody who is afraid of falling will cancel whatever achievement motivation he or she possesses. From the point of view of entrepreneur, failing is an opportunity to learn from.
  9. Desire for immediate feedback: Entrepreneurs like the challenge of doing a business and they want to know how far they are doing in terms of performance. The use of feedback enables entrepreneurs to assess/take stock of their performance with the aim of improving on it.
  10. Taking initiative and seeking personal responsibility: Entrepreneurs feel a deep sense of personal responsibility for the outcome of businesses they start. They willingly put themselves in situations where they personally take responsibility for the success or failure of the business. They prefer to use available resources to achieve self-determined goals and also want to be in charge of their resources.
  11. Use of resources: Entrepreneurs have been known to use resources efficiently and effectively in order to achieve organizational goals.
  12. Competing against self-imposed and objective standards: High performing entrepreneurs possess this internalized kind of competitive spirit in which he or she continuously engages in competition with himself/herself to beat his or her last best performance.
  13. Internal locus of control belief: The success or failure of a new business enterprise from the point of view of an entrepreneur does not depend on luck or chance, or other external, personally uncontrollable factors. But rather, the entrepreneur believes that one‘s personal accomplishments as well as setbacks lie within one‘s personal control and influence.
  14. Tolerance of ambiguity and uncertainty: Entrepreneurs tend to have a high tolerance for ambiguous ever-changing situations, the environment in which they most often operate. This ability to handle uncertainty is critical because these business builders constantly make decisions using new, sometimes conflicting information gleaned from a variety of unfamiliar sources. The above characteristics are not by any means exhaustive.

Conclusion

We have seen in this unit that entrepreneurship lies at the centre of any nation‘s free enterprise system; small and medium scale enterprises (SMEs) are truly the backbone of any economy be it developed or developing economy. This agent of catalyst for development has contributed immensely to the businesses themselves in particular and the economy in general.