Module 1

Topics

1. Evolution of Entrepreneurship
2. Approaches to Entrepreneurship
3. Entrepreneurial Revolution
4. Entrepreneurial Cognition
5. Dealing with Failures
6. Dark Side of Entrepreneurs
7. Ethical Dilemmas

1.1 Introduction

This module concentrates on entrepreneurs and entrepreneurial ventures where the entrepreneur’s principal objectives are
innovation, profitability, and growth, not on small businesses, which, although they are independently owned and operated,
are not dominant in their fields and usually do not engage in many new or innovative practices. Entrepreneurship is 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 recognize opportunity where
others see chaos, contradiction, and confusion.

To underscore its approach to entrepreneurship, Entrepreneurship  examines 10 myths about the topic that, once safely
sidestepped, allows for a foundation of research and contemporary theory to be built. The myths are presented to debunk
misconceptions about entrepreneurship and educate the reader of the true nature of entrepreneurship. The chapter then
provides an overview of entrepreneurial theory and contemporary research to broaden the horizon for studying
entrepreneurship and to better focus on the what, how, and why behind the discipline.

1.1 Entrepreneurship: Evolutionary Development-Revolutionary Impact

Evolution of Entrepreneurship

Entrepreneurship is from the French “ entreprendre,” meaning “to undertake.”

 An entrepreneur is an innovator or developer who recognizes and seizes opportunities; converts those opportunities into
workable/marketable ideas; adds value through time, effort, money, or skills; assumes the risks of the competitive
marketplace to implement these ideas; and realizes the rewards from these efforts.

 Characteristics of entrepreneurs:

Personal initiative Goal-oriented behavior

The ability to consolidate resources Confidence
Management skills Opportunistic behavior
A desire for autonomy Intuitiveness
Risk taking Reality-based action
 Aggressiveness The ability to learn from mistakes
Competitiveness The ability to employ human relations skills

 Historical developments in entrepreneurship:

 No single definition of entrepreneur exists.

 Recognition of entrepreneurs dates back to eighteenth-century France.
 Until 1950, the majority of definitions and references came from economists.
 Over the decade, writers have continued to modify the definition.
 Robert C. Ronstadt said, “Entrepreneurship is the dynamic process of creating incremental wealth.”
 In the twentieth century, the word entrepreneur became closely linked with free enterprise and
capitalism.
 Entrepreneurs serve as agents for change, provide creative, innovative ideas for business
enterprise and help businesses grow and become profitable.
 In the twenty-first century, entrepreneurs are considered heroes of free enterprise.
 Many people now regard entrepreneurship as “pioneership” on the frontier of business.

 An integrated definition of entrepreneurship recognizes entrepreneurship as a dynamic process of vision, change, and
creation.

The Myths of Entrepreneurship

 Myth 1: Entrepreneurs Are Doers, Not Thinkers

 Myth 2: Entrepreneurs Are Born, Not Made
 Myth 3: Entrepreneurs Are Always Inventors
 Myth 4: Entrepreneurs Are Academic and Social Misfits
 Myth 5: Entrepreneurs Must Fit the Profile
 Myth 6: All Entrepreneurs Need Is Money
 Myth 7: All Entrepreneurs Need Is Luck
 Myth 8: Entrepreneurship Is Unstructured and Chaotic
 Myth 9: Most Entrepreneurial Initiatives Fail
 Myth 10: Entrepreneurs Are Extreme Risk Takers

Approaches to Entrepreneurship

THE MACRO VIEW

Presents a broad array of factors that relate to success or failure in contemporary entrepreneurial ventures. Exhibits a
strong external locus of control point of view.

The Macro View Entrepreneurial Schools of thought:

1. The Environmental School of Thought

2. The Financial/Capital School of Thought
3. The Displacement School of Thought
Major types of displacement include:

 Political displacement: Deals with government’s policies and regulations

 Cultural displacement: Deals with social groups precluded from professional fields
 Economic displacement: Deals with economic variations of recession and
depression

THE MICRO VIEW

Exhibits an internal locus of the control point of view.

 Micro View Entrepreneurial  schools of thought

1. The Entrepreneurial Trait School of Thought

2. The Venture Opportunity School of Thought
3. The Strategic Formulation School of Thought

Entrepreneurial Revolution

Entrepreneurial Revolution is occurring throughout the United States and the world. The U.S. Small Business Administration
has reported that, during the past ten years, new business start-ups numbered nearly 600,000 per year. Approximately one
new firm with employees is established every year for every 300 adults in the United States. Because the typical new firm
has at least two owners/managers, 1 of every 150 adults participates in the founding of a new firm each year. Substantially
more—1 in 12—are involved in trying to launch a new firm. And, during the “Great Recession” (as some have called our
lengthy recessionary period), more Americans have become entrepreneurs than at any time in the past 20 years. The net
result, then, is that the United States has a very robust level of firm creation. Among the 6 million establishments (single-
and multisite firms) with employees, approximately 600,000 to 800,000 are added each year. That translates into an annual
birthrate of 14 to 16 per 100 existing establishments.

A Global Phenomenon

According to GEM (Global Entrepreneurship Monitor) data:

 110 million people between 18 and 64 years old were actively engaged in starting a business.
 140 million were running new businesses they started less than 3½ years earlier.
 250 million people were involved in early-stage entrepreneurial activity.

The Impact of Gazelles

New and smaller firms create the most jobs in the U.S. economy. The vast majority of these job-creating companies are
fast-growing businesses. David Birch named these firms gazelles. A gazelle is a business establishment with at least 20
percent sales growth (for five years), starting sales of at least $100,000.

GAZELLES AND INNOVATION

New and smaller firms have been responsible for 55 percent of the innovations in 362 different industries and for 95 percent
of all radical innovations. Gazelles produce twice as many product innovations per employee as do larger firms. New and
smaller firms obtain more patents per sales dollar than do larger firms.

GAZELLES AND GROWTH

During the last 10 years business start-ups have approached nearly 600,000 per year.

GAZELLES AND SURVIVAL

About half of all start-ups last between five and seven years, depending on economic conditions.

1.2 The Entrepreneurial Mindset in Individuals: Cognition and Ethics

Entrepreneurial Cognition

Cognition is used to refer to :

o Mental functions
o Mental processes (thoughts)
o Mental states of intelligent humans.           

Metacognitive Perspective

The metacognitive model of the entrepreneurial mindset integrates the combined effects of entrepreneurial motivation and
context, toward the development of metacognitive strategies applied to information processing within an entrepreneurial
environment.

Who Are Entrepreneurs?

Starting a new business requires more than just an idea; it requires a special person, an entrepreneur, who combines sound
judgment and planning with risk taking to ensure the success of his or her own business.

Characteristics Associated with Entrepreneurial Mind-Set

Determination and Perseverance Calculated Risk Taking
Drive to Achieve  High Energy Level 

Opportunity Orientation Creativity and Innovativeness

Persistent Problem Solving Vision

Seeking Feedback Passion

Internal Locus of Control  Team Building
Tolerance for Ambiguity  

Dealing with Failures

How Entrepreneurs Deals with Failures

o Entrepreneurs use failure as a learning experience. They have a tolerance for failure.
o The most effective entrepreneurs are realistic enough to expect difficulties and failures.
o If entrepreneurs deal effectively with grief that emanates from failure then they will not become
disappointed, discouraged, or depressed. In adverse and difficult times, they will continue to look for opportunity.
The Grief Recovery Process

- is a negative emotional response from loss of something important that triggers behavioral, psychological, and
physiological symptoms.

- the emotions generated by failure (i.e., grief) can interfere with the learning process.

- A “loss orientation” towards grief recovery, which focuses on the failure, can sometimes exacerbate negative emotional
reactions to failure.

- A “restoration orientation,” alternatively, enables entrepreneurs to distract themselves from thinking about the failure.
However, avoiding negative emotions is unlikely to be successful in the long-run

- Research indicates that entrepreneurs may recover more quickly from a failure if they oscillates between a loss and a
restoration orientation.

Dark Side of Entrepreneurs

Certain negative factors may envelop entrepreneurs and dominate their behavior. Although each of these negative factors
has a positive aspect, it is important for entrepreneurs to understand their potential destructive side as well.

The Entrepreneur’s Confrontation with Risk

Starting or buying a new business involves risk. A typology of entrepreneurial styles helps describe the risk-taking activity of
entrepreneurs. In this model, financial risk is measured against the level of desire to gain profit from the venture.

Risk Taking Activity of Entrepreneurs:

 Financial risk
 Career risk
 Family and social risk
 Psychic risk

Stress and the Entrepreneur

To achieve their goals, entrepreneurs are willing to tolerate the effects of stress: back problems, indigestion, insomnia, or
headaches. In general, stress can be viewed as a function of discrepancies between a person’s expectations and ability to
meet demands.

Lacking the depth of resources, entrepreneurs must bear the cost of their mistakes while playing a multitude of roles, such
as salesperson, recruiter, spokesperson, and negotiator. Simultaneous demands can lead to role overload.

Entrepreneurs often work alone or with a small number of employees and therefore lack the support from colleagues.

A basic personality structure, common to entrepreneurs and referred to as type A personality structure, describes people
who are impatient, demanding, and overstrung.

Sources of Stress
Four causes of entrepreneurial stress (Boyd and Gumpert)
 o Loneliness
o Immersion in Business
o People Problems
o Need to Achieve

Dealing with Stress

If stress can be kept within constructive bounds, it can increase a person’s efficiency and improve performance.

Entrepreneurs Stress Vents:

1. Networking—One way to relieve the loneliness of running a business is to share experiences by

networking with other business owners.
2. Getting Away from It All—The best antidote could be a well-planned vacation.
3. Communicating with Employees—Entrepreneurs are in close contact with employees and can
readily assess the concerns of their staff.
4. Finding Satisfaction Outside the Company—Entrepreneurs need to get away from the business
occasionally and become more passionate about life itself; they need to gain some new perspectives.
5. Delegating—Entrepreneurs find delegation difficult because they think they have to be at the
business all the time and be involved in all aspects of the operation.
6. Exercising Rigorously—Research demonstrates the value of exercise regimens on relieving the
stress associated with entrepreneurs.

The Entrepreneurial Ego

Certain characteristics that usually propel entrepreneurs into success also, if exhibited in the extreme have destructive
implications for entrepreneurs.

Destructive Implications for Entrepreneurs:

1. Overbearing need for control—Entrepreneurs are driven by a strong desire to control both their
venture and their destiny.
2. SENSE OF DISTRUST Because entrepreneurs are continually scanning the environment, it could
cause them to lose sight of reality, distort reasoning and logic, and take destructive action.
3. Overriding desire for success This can be dangerous because there exists the chance that the
individual will become more important than the venture itself.
4. Unrealistic optimism—When external optimism is taken to its extreme, it could lead to a fantasy
approach to the business.

Ethical Dilemmas

Entrepreneurial Ethics
Today’s entrepreneurs are faced with many ethical decisions. As there is no simple universal formula for solving ethical
problems, entrepreneurs have to choose their own codes of conduct; the outcome of their choices makes them who they
are.

Ethics provides the basic rules or parameters for conducting any activity in an “acceptable” manner.

Ethics represents a set of principles prescribing a behavioral code that explains what is good and right or bad and wrong.

Ethical Rationalizations

Decision makers use one of four rationalizations to justify questionable conduct

 That the activity is not “really” illegal or immoral

 That it is in the individual’s or the corporation’s best interest
 That it will never be found out
 That, because it helps the company, the company will condone it

Morally questionable acts can be classified as: non-role, role failure, role distortion, and role assertion.

The Matter of Morality

 Requirements of law may overlap at times but do not duplicate the moral standards of
society.
 Some laws have no moral content whatsoever.
 Some laws are morally unjust.
 Some moral standards have no legal basis.
 Legal requirements tend to be negative, morality tends to be positive.
 Legal requirements usually lag behind the acceptable moral standards of society

Complexity of Decisions

Business decisions, in the context of entrepreneurial ethics are complex. Why?

 Ethical decisions have extended consequences.

 Ethical questions have multiple alternatives—the choices are not always “do” or “don’t do.”
 Ethical business decisions often have mixed outcomes.
 Most business decisions have uncertain ethical consequences.
 Most ethical business decisions have personal implications.

Online Ethical Dilemmas in E-Commerce

 Slow demise of face-to-face interactions cause entrepreneurs to find ways to build trust.
 Entrepreneurs recognize that online consumer reviews are used to inform purchasing decisions
and are posted to reputation management systems (Amazon and Yelp).
 Entrepreneurs find it far greater to exhibit strong ethical responsibility in their actions.

CHAPTER 1 PPT

Entrepreneurship: Evolutionary Development—Revolutionary Impact

 • Identify the different types of risk entrepreneurs face as well as major schools of entrepreneurial thought

• Determine the concepts and principle surrounding the revolutionary development of entrepreneurship

• Compare and contrast using a Venn diagram the approaches to entrepreneurship.

ENTREPRENEUR BREAKTHROUGH INNOVATORS

Entrepreneurs

• Recognize opportunities where others see chaos, contradiction, or confusion

• Are aggressive catalysts for change within the marketplace

• Challenge the unknown and continuously create breakthroughs for the future

Entrepreneurs versus Small Business Owners: A Distinction

Small Businesses Owners

 Manage their businesses by expecting stable sales, profits, and growth

Entrepreneurs

 Focus their efforts on innovation, profitability and sustainable growth

Entrepreneurship: A Mind-Set

• Entrepreneurship is more than the mere creation of business:

 Seeking opportunities

 Taking risks beyond security

 Having the tenacity to push

an idea through to reality

• Entrepreneurship is an integrated concept that permeates an individual’s business in an innovative manner .

The Evolution of Entrepreneurship

• Entrepreneur is derived from the French entreprendre, meaning “to undertake.”

 The entrepreneur is one who undertakes to organize, manage, and assume the risks of a business.

 Although no single definition of entrepreneur exists and no one profile can represent today’s entrepreneurs,
research is providing an increasingly sharper focus on the subject.

A Summary Description of Entrepreneurship

• Entrepreneurship (Robert C. Ronstadt)

 The dynamic process of creating incremental wealth.

 This wealth is created by individuals who assume major risks in terms of equity, time, and/or career
commitment of providing value for a product or service.
  The product or service itself may or may not be new or unique but the entrepreneur must somehow infuse
value by securing and allocating the necessary skills and resources.

An Integrated Definition

• Entrepreneurship

 A dynamic process of vision, change, and creation.

• Requires an application of energy and passion towards 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 skills of building a solid business plan.

• The vision to recognize opportunity where others see chaos, contradiction, and confusion.

Avoiding Folklore: The Myths of Entrepreneurship

• Myth 1: Entrepreneurs Are Doers, Not Thinkers

• Myth 2: Entrepreneurs Are Born, Not Made

• Myth 3: Entrepreneurs Are Always Inventors

• Myth 4: Entrepreneurs Are Academic and Social Misfits

• Myth 5: Entrepreneurs Must Fit the Profile

• Myth 6: All Entrepreneurs Need Is Money

• Myth 7: All Entrepreneurs Need Is Luck

• Myth 8: Entrepreneurship Is Unstructured and Chaotic

• Myth 9: Most Entrepreneurial Initiatives Fail

• Myth 10: Entrepreneurs Are Extreme Risk Takers

The Entrepreneurial Process

• Types of people involved with contemporary small businesses:

 The entrepreneur who invents a business that works without him or her.

 The manager who produces results through employees by developing and implementing effective systems
and, by interacting with employees, enhances their self-esteem and ability to produce good results.

 The technician who performs specific tasks according to systems and standards management developed.
1.1 Entrepreneurial Schools-of-Thought Approach

1.2

Macro View: External Locus of Control

• The Environmental School of Thought

 Considers the external factors that affect a potential entrepreneur’s lifestyle.

• The Financial/Capital School of Thought

 Based on the capital-seeking process—the search for seed and growth capital.

• The Displacement School of Thought

 Alienation drives entrepreneurial pursuits

• Political displacement (laws, policies, and regulations)

• Cultural displacement (preclusion of social groups)

• Economic displacement (economic variations)

Micro View: Internal Locus of Control

• The Entrepreneurial Trait School of Thought

 Focuses on identifying traits common to successful entrepreneurs.

• Achievement, creativity, determination, and technical knowledge

• The Venture Opportunity School of Thought

 Focuses on the opportunity aspect of venture development—the search for idea sources, the development
of concepts, and the implementation of venture opportunities.

• Corridor principle: New pathways or opportunities will arise that lead entrepreneurs in different
directions.
 • The Strategic Formulation School of Thought

 Emphasizes the planning process in successful venture development.

 Strategic formulation is a leveraging of unique elements:

• Unique Markets—mountain gap strategies

• Unique People—great chef strategies

• Unique Products—better widget strategies

• Unique Resources—water well strategies

Process Approaches to Entrepreneurship

• An Integrative Approach

 Built around the concepts of input to the entrepreneurial process and outcomes from the entrepreneurial
process.

• Dynamic States Approach

 Stresses dependency of venture on environment and the interaction of:

• The dominant logic of the firm

• The business model

• Value creation

• A Framework of Frameworks Approach

 Offers a more dynamic view of entrepreneurship.

 Allows for the profession to move forward.

 Identifies the static and dynamic elements of new theories, typologies, or frameworks of importance.

The Entrepreneurial Revolution: A Global Phenomenon

• Entrepreneurship is the symbol of business tenacity and achievement.

• Entrepreneurs were the pioneers of today’s business successes.

• Two perspectives on entrepreneurship:

 Statistical: numbers that emphasize the importance of entrepreneurs to the economy.

 Academic: trends in entrepreneurial research and education.

Phases of Economic Development

 The
The The
The efficiency-
efficiency- The
The innovation-
innovation-
factor-driven
factor-driven driven
driven phase
phase driven
driven phase
phase
phase
phase

Entrepreneurial Ventures in the United States

• Reasons for the exceptional entrepreneurial activity in the U.S. include:

 A national culture that supports risk taking and seeking opportunities.

 Americans’ alertness to unexploited economic opportunity and a low fear of failure.

 U.S. leadership in entrepreneurship education at both the undergraduate and graduate level.

 A high percentage of individuals with professional, technological or business degrees who are likely to
become entrepreneurs.

The Impact of Gazelles -> David Birch

• A “Gazelle”

 A business establishment with at least 20% sales growth in each year for five years, starting with a base of
at least $100,000 in annual sales.

• Gazelles as leaders in innovation:

 Are responsible for 55% of innovations in 362 different industries and 95% of radical innovations.

 Produce twice as many product innovations per employee as do larger firms.

 Obtain more patents per sales dollar than do larger firms.

Gazelles And Survival

• How many gazelles survive?

 The simple answer is “none.”

Sooner or later, all companies wither and die.

• The Common Myth of Failure:

 85% of all firms fail in the first year—in actuality, about half of all start-ups last between 5 and 7 years.

21st Century Trends in Entrepreneurship Research

 21st Century Trends in Entrepreneurship Research

• Major Research Themes:

1. Venture Financing: venture capital and angel capital financing and other financing techniques strengthened
in the 1990s.

2. Corporate Entrepreneurship and the need for entrepreneurial cultures has drawn increased attention.

Venture
3. Social Entrepreneurship has Financing
unprecedented strength within
the new generation of entrepreneurs.

4. Entrepreneurial Cognition is providing new insights into the psychological aspects

Corporate Socialof the entrepreneurial
process.
Entrepreneurship Entrepreneurship
5. Women and Minority Entrepreneurs appear to face obstacles and difficulties different from those that other
entrepreneurs face.

6. The Global Entrepreneurial Movement is increasing.

Trends in Women and
Entrepreneurial
Entrepreneurship
7. Family Businesses have become a stronger focus of research. Minority
Cognition
Research Entrepreneurs
8. Entrepreneurial Education has become one of the hottest topics in business and engineering schools
throughout the world.

T.I.P.’s very own Technopreneurship efforts

Global
Entrepreneurial
Entrepreneurial
Education
Movement
Family Businesses