A subject taught in many high schools and colleges, entrepreneurship is actually defined as "the state of being an entrepreneur." An entrepreneur is an individual who owns, organizes, and manages a business and, in so doing, assumes the risk of either making a profit or losing the investment. According to the Small Business Administration (1999), the total number of businesses in the United States in 1995 was somewhere between 16 million and 24 million, of which approximately 15,000 were large. In 1997, there were an estimated 8.5 million businesses owned by women.
For any business to be successful, an adequate level of funding must be furnished. The amount needed varies according to the scope and nature of the business. Another key factor in the success of an entrepreneurial organization is planning, including planning for the marketing, management, and financial aspects of the business.
From a personal perspective, becoming an entrepreneur is not a simple task. It certainly has its drawbacks. However, it can also be quite rewarding.
BENEFITS AND DRAWBACKS OF ENTREPRENEURSHIP
Choosing to create a new business, or even to purchase an existing one, is a decision that has a far-reaching impact. Long hours, poor pay, and an unclear future are only three of the challenges a budding entrepreneur must face. And, of course, losing everything one invests in a business is a very real risk. In fact, while 885,416 new employer firms were created in 1997, as reported by the U.S. Department of Labor, 857,073 businesses were terminated during the same year, with 53,826 of these being bankruptcies and 83,384 being failures. Failures and bankruptcies are business closures that occur while the business owes debts.
However, the potential rewards are unlimited. Business owners can profit greatly. Many of the wealthiest people on earth are entrepreneurs, including William Henry Gates III (1955– ), the world's richest person and cofounder, chairman, and CEO of Microsoft Corporation. Another reward entrepreneurs tend to appreciate is independence. However, entrepreneurs' time is not necessarily their own. The work of the business must be completed, and often the entrepreneur is the one who must perform the most complex tasks of the business. Although others may work for the owner and manager of the business, it is ultimately the responsibility of the entrepreneur to make sure that the work gets done. Other rewards cited by entrepreneurs include personal satisfaction gained while performing the duties of the business and the resulting prestige.
Planning is a key ingredient in the success of an entrepreneur. A business plan helps to guide the decision making needed to operate a business. The first decision is to choose what sort of business to own. The business may be:
- A retail business that markets a tangible product (such as clothing, houses, food)
- A wholesale business that acquires goods from a producer and distributes requested quantities to retailers
- A service business that offers an intangible product (such as insurance, haircuts, consultant services, construction, financial services)
- A manufacturing business that produces a product
Of course, a business may perform more than one of these functions. The scope of the business will also be
dependent on the breadth and depth of the products or services offered as well as the geographic region served.
One option available to someone interested in purchasing a business is a franchise. A franchise is a license to organize a business that markets products manufactured or owned by a parent company, such as a Kwik Copy, Sleep Inn, McDonald's, Play It Again Sports, or other businesses.
Another early decision involves choosing the legal form of ownership. Three options are sole proprietorship, partnership, and corporation. In a sole proprietorship, a single person owns and operates the business. The owner assumes all risks and responsibilities for the business, including debts. Two or more individuals may form a partnership and serve as co-owners of the business. If the partnership is a general partnership, all partners assume unlimited liability. However, if the partnership is a limited partnership, one or more of the partners assumes unlimited liability while the remaining partner(s) do(es) not. Instead, they may lose up to the amount of their investment, while having limited involvement in the business.
The third form of ownership is the corporation. A corporation is a group of individuals who obtain a charter giving the organization formed by the group legal rights and privileges. This organization can perform such functions as buying and selling, as well as owning property, as if the group were an individual person. The corporation is actually owned by individuals who purchase stock. A major advantage of this form of ownership is that the stockholders themselves have limited liability, thus minimizing financial risks.
The Small Business Administration (1999) reports that in 1996, according to the Internal Revenue Service, 16,471,000 sole proprietorships, 1,679,000 partnerships, and 5,005,000 corporations filed nonfarm business tax returns.
A business plan often contains three major sections: the marketing plan, the management plan, and the financial plan.
Marketing is a process in which the decisions of the business are based upon the goals of the organization. One of these goals is usually that of satisfying the needs and wants of potential customers or a target market. Potential customers can be divided into specific market segments that represent groups based on specified characteristics. For example, a business may strive to serve those in their late teens and early twenties who live primarily in large cities. Narrowing the segment even further, the business may offer goods or services for those interested specifically in sports—both as active players and as spectators or fans. Thus the business may sell athletic shoes and clothing, sports equipment, and how-to books. The owner(s) would locate this business in an area with a large number of people in that age group. Other factors to consider when defining a target market include such demographic factors as income level, sex, marital status, and ethnic group, and such geographic factors as climate and region of the country.
Part of the marketing plan is the marketing mix. A marketing mix has four basic components: product, place, price, and promotion.
The product is the goods and/or services offered by the business. A travel agent may offer the service of arranging any type of trip to anywhere in the world or may specialize specifically in cruises. Choosing products is dependent on the market segment the business intends to serve. Other considerations include the amount of physical space available for storing the product, the amount of funds needed to purchase the product from the wholesaler or manufacturer, and the profitability potential of offering the product. Another important consideration is the product's life cycle. A life cycle has four sections: introduction, growth, maturity, and decline. When a new product is introduced to the market, it is in the introduction phase. Over time, it may grow in popularity and sales, reaching a point of maturity. Maturity is then followed by decline. An entrepreneur must be careful to avoid offering products or services that are in decline. That is one of the reasons for continually monitoring the sales of products and adjusting the product mix to reflect such changes in the product life cycle.
Another factor in the marketing mix is place. Marketers often say that the success of a business is dependent upon "location … location … location." Choosing the location of the business is an important decision that must take into consideration such factors as the chosen target market, traffic patterns, parking availability, population trends, competitive businesses, rental costs, and other expenses. The place function also includes business activities that involve physical distribution, such as transporting goods, handling the goods, storing the goods, and keeping track of the goods (inventory).
An increasing number of businesses are locating on the Internet. Entrepreneurs create World Wide Web pages on which they promote their offerings. Consumers may either telephone the business to order the product or service or use a credit card to purchase the item over the Internet. The actual location of the business is less important since the Web is available throughout the country and, indeed, the world. However, the location still must be considered relative to business expenses (e.g., rent, utility prices) and transportation prices (e.g., cost of transporting products purchased on the Internet from the business to the customer).
Businesses can also be located in the home. In fact, home-based businesses represent a large portion of businesses in the United States. Many entrepreneurs begin their businesses in the home and eventually outgrow the space available there, at which point the owner usually seeks an outside facility.
Price is the third component of the marketing mix. A pricing structure must be developed that includes specific goals and reflects policies of the business. A goal may reflect an intended image of the business or a particular profit margin that is sought. Factors to consider when identifying goals and policies related to price are: the amount of sales that are sought, pricing policies of competitors, profits that are projected, supply of the product that is available and projected demand for that product, the location of the business, and the expenses of the business.
The fourth component of the marketing mix is promotion—the activities of the business that are intended to inform potential customers about the product or service and persuade them to purchase it. Methods include personal selling, advertising, visual merchandising (the coordination of all physical elements in a business such as displays, counters, offices, windows, signs, fixtures, lighting, and such), and publicity. The effectiveness of promotional strategies must be monitored so that promotional dollars are spent on strategies that are contributing to the achievement of business goals.
Another major section of a business plan is the management plan. The four basic functions of management are planning, organizing, directing, and controlling.
Planning involves the determination of goals and objectives for the business, including the actual results sought by the firm. A set of policies and procedures are determined that guide the identification of specific activities that will lead to these goals. Planning does not end with the creation of a business plan, however, as it continues throughout the life of the business.
To implement the plan, the entrepreneur organizes the personnel and other resources of the business. An organizational chart is created that shows the hierarchy of the people working in the business. After the number of employees and their qualifications are determined, applicants are recruited and, once hired, are trained. Other types of resources that are organized by management are facilities, equipment, materials, and supplies.
The third management function is directing. Managers direct the work of the business by applying leadership and management skills. They model desired behavior while supervising, motivating, and evaluating their employees. Finally, comparing the plan with the actual results is called controlling. By observing and studying financial statements, managers can understand the status of the business and adjust activities where necessary to contribute toward the achievement of the business goals. The controlling function also includes evaluation of employees.
The financial aspects of the business must also be planned. The financial plan includes several financial statements. One of these statements is the statement of financial requirements, which identifies the projected expenses and the assets they will create for a specified time period. Among the expenses listed are those for rent, insurance, telephone, and inventory. The entrepreneur also needs money to meet personal expenses as the business grows. These expenses are also included in this statement. The expenses are used to create assets. Assets are items of value that are owned by the business. For example, if a business purchases land upon which to place a facility for the business, the money needed for the purchase is an expense that then creates the asset of land.
The financial plan also includes the source(s) of the funds needed to meet the financial requirements. Sometimes an entrepreneur will already have all the funds needed, but more often these must be acquired from family members, private lending agencies, and/or governmental loan programs.
Another statement included in the financial plan is the income statement, which may be referred to as a profit-and-loss statement or operating statement. This statement is a projection of the sales expected in a given period of time, the cost of the merchandise that will be sold, and the operating expenses of the business. From this information, projected profits or losses are determined.
A financial plan also includes a beginning balance sheet. This form provides a list of the assets, liabilities, and net worth of a business on a given day. Assets are tangible items that are owned by the business, liabilities are the debts of a business, and net worth is the amount of investment that the owner(s) has in the business.
The financial plan also includes a cash-flow analysis and a break-even analysis. The cash-flow analysis identifies the cash generated after expenses and loan principal payments are deducted. This projection is calculated for several years into the future. The break-even analysis identifies the break-even point, which is the level of sales and expenses, including loan principal payments, at which a business has no profit and no loss.
Information that can help the budding entrepreneur is available from people, printed material, and the Internet. All entrepreneurs need people they can go to for advice. Accountants and attorneys are especially important. An accountant not only provides the financial data and statements for the business but also interprets the information for the entrepreneur. This is important because business decisions must be based on a variety of considerations, including financial ones. Attorneys provide legal advice throughout the process of purchasing or creating a business and owning and managing it.
Other sources of information include financial institutions, the Chamber of Commerce, educational institutions, insurance agents, and suppliers of products used in the business. Publications provide up-to-date information: books from major publishers, magazines such as Entrepreneur and Inc., and newsletters and journals offered by associations are available. Many types of businesses are served by trade associations such as the American Hotel and Motel Association, which is comprised of owners and operators of lodging businesses throughout the country. Along with providing publications, these organizations hold conferences and workshops and provide networking opportunities. Various government agencies are also available for advice, such as the Small Business Administration and the Internal Revenue Service.
The Internet provides information from a variety of people and organizations. Although the Internet is a valuable resource, the information available on it is not screened for accuracy. Relevant Web sites can be located by use of search engines that pinpoint specification on categories and topics.
Although it is important that the entrepreneur seeks advice throughout the planning and operation of a business, the ultimate decision maker on matters related to the business is the entrepreneur.
Successful entrepreneurs can be found in just about every community in the country. From small businesses employing only a few persons to megabusinesses employing thousands, successful entrepreneurs abound. The following successful entrepreneurs represent a few of those at the high end of success as measured by wealth:
William (Bill) H. Gates is the co-founder, chairman, and CEO of Microsoft Corporation, the world's leading provider of software for personal computers. Gates was a student at Harvard when he developed BASIC, a programming language for the first microcomputer. He founded Microsoft in 1975 with a childhood friend, Paul Allen (1953– ). According to Microsoft Corporation, Gates's determination to develop Microsoft stemmed from his belief that the personal computer would be a valuable tool for every home and office; thus he began developing software for personal computers.
Mary Kay Ash (1918–2001) launched Mary Kay Cosmetics on September 13, 1963. Mary Kay, Inc. reports that, with a life savings of $5,000, Ash launched what is now the largest direct seller of skin care products and the best-selling brand of skin-care and color cosmetics in the United States. Mary Kay Cosmetics originated from an idea of writing a book to help women survive in the male-dominated business world. From there, Ash inadvertently created the marketing plan for Mary Kay Cosmetics.
Gozi Samuel Oburota (1957– ) founded the Gozi Samuel Oburota Certified Public Accountancy Corporation (GSO) in 1994. According to the GSO Corporation, before founding the company, Oburota had served as a senior accountant at IBM, trusted with worldwide accounting responsibility for the DASD 3390 mainframe computer project from product development through manufacturing and general availability. GSO is a full service certified public accounting firm with offices in San Jose, Los Angeles, and Washington, D.C. By 1999, GSO was one of the fastest-growing professional firms headquartered in Silicon Valley. GSO is 100 percent minority owned.
see also Factors of Production; Sole Proprietorship
Ely, Vivien K., Berns, Robert G., Lynch, Richard L., and Popo, Debbi (1993). Entrepreneurship. New York: Glencoe/McGraw-Hill.
Entrepreneur Magazine, Entrepreneur Media, Inc., 2445 McCabe Way, Ste. 400, Irvine, CA 92614.
Kent, Calvin A., ed. (1990). Entrepreneurship Education Current Developments, Future Directions. New York: Quorum Books. Inc. 375 Lexington Ave., New York, NY 10017.
Longenecker, Justin G., Moore, Carlos W., and Petty, J. William (2003). Small Business Management: An Entrepreneurial Emphasis. Mason, OH: Thomson/South-Western.
Mary Kay, Inc. (2005). Retrieved October 18, 2005, from http://www.marykay.com/home.aspx.
Meyer, Earl C., and Allen, Kathleen R. (1994). Entrepreneurship and Small Business Management. Mission Hills, CA: Glencoe.
Microsoft Corporation (2005). Retrieved October 18, 2005, from http://www.microsoft.com. 1999.
Moorman, Jerry W., and Halloran, James W. (1995). Contemporary Entrepreneurship. Cincinnati, OH: South-Western Educational Publishing.
United States Small Business Administration (2005). Retrieved October 18, 2005, from http://www.sba.gov.
Robert G. Berns
Jewel E. Hairston
"Entrepreneurship." Encyclopedia of Business and Finance, 2nd ed.. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/finance/finance-and-accounting-magazines/entrepreneurship
"Entrepreneurship." Encyclopedia of Business and Finance, 2nd ed.. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/finance/finance-and-accounting-magazines/entrepreneurship
There are some unresolved differences in the definitions of entrepreneurship, but there is agreement that the term includes at least a part of the administrative function of making decisions for the conduct of some type of organization. One group of scholars would restrict the term to strategic or innovating decisions, and an overlapping group would apply it only to business organizations. The basis for these differences can be understood from the history of the concept.
The word entrepreneur appeared in the French language long before there was any general concept of an entrepreneurial function. By the early sixteenth century, men engaged in leading military expeditions were referred to as entrepreneurs. From this usage, it was easy to move to applying entrepreneur to other types of adventurers. After about 1700, entrepreneur was frequently applied by the French to government road, bridge, harbor, and fortification contractors and, somewhat later, to architects (Hoselitz 1951, p. 195). Seeing such activities as the entrepreneurial function, the mid-eighteenth-century French writer Bernard F. de Belidor further defined it as buying labor and materials at uncertain prices and selling the resultant product at a contracted price (Hoselitz 1951, pp. 198-199).
Richard Cantillon’s Essai sur la nature du commerce en général (1755), probably written a generation before its publication date, drew attention to entrepreneur as a technical term. The essence of the function of the entrepreneur was to bear uncertainty. Conversely to the Belidor emphasis, Cantillon saw the entrepreneur as anyone who bought and sold at uncertain prices. Obviously, there is no contradiction between Belidor and Cantillon in theory, but merely in the type of examples chosen. Except for princes, landowners, and salaried workers, Cantillon regarded everyone engaged in economic activity as an entrepreneur.
The physiocratic economists of the later eighteenth century, such as Francois Quesnay and Nicolas Baudeau, called the agricultural cultivator an entrepreneur. Since the physiocrats also thought that only the land was a source of social product, this put the entrepreneur in a key position. In the sphere of agriculture, Baudeau credited the entrepreneur with all the essential characteristics of risk taking and innovation that were to be elaborated in later definitions (in his Premiére introduction a la philosophie economique). At about the same time A. R. J. Turgot, in his Réflexions sur la formation et la distribution des richesses, spoke of the entrepreneur in manufacturing as one who risked capital (Hoselitz 1951, pp. 205-212).
Thus, by 1800, many French economists had given special meanings to entrepreneur and entre-preneurship, with differences arising largely from the characteristics of the sector of the economy that chiefly attracted their attention. Those economists interested in government saw the entrepreneur as a contractor, the specialists on agriculture as a farmer, and the proponents of industry as a risk-taking capitalist. The “classic” definition, which was to survive until the twentieth century, was written by an aristocratic industrialist who had had unpleasant practical experience, Jean Baptiste Say.
In the Catechism of Political Economy, Say wrote of the entrepreneur as the agent who “unites all means of production and who finds in the value of the products … the re-establishment of the entire capital he employs, and the value of the wages, the interest, and the rent which he pays, as well as the profits belonging to himself” ( 1816), pp. 28-29). This idea appeared earlier in A Treatise on Political Economy (1803), which was not translated into English until 1827. Say’s entrepreneur commonly, but not necessarily, supplies either his own or borrowed capital. To succeed, he must have “judgment, perseverance, and a knowledge of the world as well as of business. He must possess the art of superintendence and administration” (1803, p. 295 in the 1827 edition). Say does not, however, discuss the entrepreneur in relation to innovation or capital creation. As in the case of the British classicists, he was unable to make entrepreneurship a ponderable factor in his general economic theory.
In contrast to the tolerably consistent and expanding French definitions of entrepreneur, the English appear to have made rather less use of three terms: adventurer, undertaker, and projector. While the Merchant Adventurers of the sixteenth century were the equivalent of French entrepreneurs, adventurer did not come into general use. The seventeenth-century French use of entrepreneur for government contractor had its English counterpart in the term undertaker. Near the close of the century, the third term, projector, came into use. Daniel Defoe, in An Essay Upon Projects, equates the term projector with inventor, but also with fraud or swindler. In Malachy Postle-thwayt’s Universal Dictionary of Trade and Commerce the words adventurer and undertaker are referred to but these terms are not given precise definitions (Redlich 1949, p. 9). Bert F. Hoselitz (1951) finds that by the time of Postlethwayt, undertaker could be applied to businessmen in general but that the term was, in fact, becoming obsolete. [See the biographies of CANTILLON; QUESNAY; SAY; TURGOT.]
Early treatment in economic theory . As economic theory became more carefully formulated in all the western European nations, no operative place was found for the entrepreneur. This was particularly evident in English classic theory from Smith to Marshall, where many writers made no effort either to define or include entrepreneurship.
The difficulty was that English theory was based upon a normal state of equilibrium, established by the multiple reactions of businessmen, consumers, investors, and workers to the prices of goods and services. Individual variations in behavior were seen either as canceled out in the aggregate or suppressed by competition. In this highly aggregative system, any unknown element was to be derived from the relations of theoretically measurable quantities. Such a system could obviously not utilize unmeasurable social or cultural factors such as entrepreneurship. To say that the entrepreneur was rewarded for risk taking, that is, for uncertainty, was the negation of a proper theoretical explanation.
In addition to the inhospitability of classic theory, the mid-nineteenth-century business structure of small-sized to medium-sized family firms, or closely held firms, obscured the distinctive character of the entrepreneurial function. With few exceptions, the men performing this function were also capitalist owners. Their rewards could be seen as a return on capital rather than as special compensations for entrepreneurial ability per se. In his Principles of Economics, Alfred Marshall perceived the changed situation inherent in big, managerially run business: “Those general faculties, which are characteristic of the modern businessman,” he wrote, “increase in importance as the scale of business increases” (1891, p. 644). Yet Marshall did not elaborate upon the theoretical significance of this increasing factor, and in discussing the growth of English manufacturing he used capitalist and undertaker interchangeably (1891, pp. 40-43).
Perhaps the relatively early development of big corporations in the United States led American economists to think of entrepreneurship as a function separate from either ownership or the supply of capital. In the late 1870s, Francis A. Walker emphasized the distinction between capitalists and entrepreneurs and called the latter the engineers of industrial progress and the chief agents of production (Dorfman 1946-1959, vol. 3, p. 109). Frederick B. Hawley, writing in 1882, saw risk taking as the distinguishing attribute of the entrepreneur, and ranked this as a factor in production on a par with land, labor, and capital (ibid., p. ^32). At the end of the century, the unorthodox John R. Commons gave an explanation of risk-taking entrepreneurship and profit that anticipated some of the more fully elaborated ideas of Joseph A. Schumpeter (ibid., p. 283). According to Commons, one type of profits arose from the ability and risk taking of the entrepreneur and was temporary and contingent on changes in the economic situation. But Schumpeter himself, in 1912, gave John Bates Clark credit for being the first to connect “entrepreneurial profits considered as a surplus over interest (and rent), with successful introduction into the economic process of technological, commercial, or organizational improvements” (ibid., vol. 4, p. 1667i). The basic problem of finding an operative role for entrepreneurship in economic theory, however, remained unsolved; and economic theorists, in general, well aware of the incongruity of a nonmeasurable human element in a theoretical structure based on quantifiable assumptions, moved in other directions, such as the study of business cycles, income, saving, and investment. [See the biographies of CLARK, JOHN BATES; COMMONS; MARSHALL; WALKER.]
Schumpeter-Cole views . Schumpeter’s acceptance of a chair at Harvard, the translation of The Theory of Economic Development into English in 1934, and the great depression all called new attention to his position regarding the essential role of the entrepreneur in creating profits. According to Schumpeter, both interest and profit arose from progressive change, and would not exist in a static society, as he defined it. Change, in turn, was the work of innovating businessmen or entrepreneurs. Since one change was likely to stimulate others, there was a tendency for innovations to cluster and produce long upswings in profits and business activity.
Much additional interest in entrepreneurship arose from the work of two of Schumpeter’s colleagues at Harvard, economic historians Edwin F. Gay and Arthur H. Cole. In 1944, in his presidential address to the Economic History Association, Cole offered a historical analysis of the changing character of entrepreneurship. Four years later, he and Schumpeter cooperated in establishing at Harvard the Research Center in Entrepreneurial History. From the work of the center, influenced greatly by Cole and Leland H. Jenks, there emerged an approach to entrepreneurship differing from Schumpeter’s.
In the Schumpeterian view, innovation was the criterion of entrepreneurship; “… the defining characteristic is simply the doing of new things or the doing of things that are already being done in a new way (innovation)” (Schumpeter 1947, p. 151). The “new way” was a “creative response” to a situation that had, at least, three essential characteristics.
First … it can practically never be understood ex ante… . Secondly, creative response shapes the whole course of subsequent events and their “long-run” outcome… . Thirdly, creative response … has … something to do (a) with the quality of personnel available in the society, (b) … with quality available to a particular field of activity, and (c) with individual decisions, actions and patterns of behavior. Accordingly a study of creative response in business becomes coterminous with a study of entrepreneurship. (Schumpeter 1947, p. 150)
Thus, to Schumpeter, a manager was an entrepreneur only while he was making a creative or innovative response.
The Cole view of entrepreneurship, however, equates it with the continuing general activities of managers. It is “the purposeful activity (including an integrated sequence of decisions) of an individual or group of associated individuals, undertaken to initiate, maintain or aggrandize a profit oriented business unit for the production or distribution of economic goods and services” (Cole 1959, p. 7). “Novelty is successful in the business world only if the institution introducing it is being effectively maintained” (p. 15).
Since the difference in the two definitions involves only the scope within which the term may be applied, the followers of Cole and Schumpeter have worked together with a minimum of friction. Both definitions implied broad social approaches, close to the Germanic tradition of Gustav Schmoller, who had seen the need for “a deeper insight into the social context of the enterprise” (Lane & Riemersma 1953, p. 6), or Alfred Weber, who had regarded entrepreneurship as a socioeconomic function separate from profit making. Both definitions also suggest time spans longer than those of dynamic economic theory. [See the biography of SCHUMPETER.]
Recent thought . In spite of the difficulties inherent in long-run analysis and in unmeasurable human factors, the increasing interest of economists in economic development has directed their attention to entrepreneurship. While economists in this field include the entrepreneurial function in empirical studies of situations and in recommending appropriate economic policies, the theoretical problem of finding a place for unmeasurable and socially influenced forces in a mathematically oriented theory has not been solved. More specifically, the difficulty is that entrepreneurial earnings would have to be accounted for in a theory of profit, but no theoretical cost of entrepreneurship can be set.
Entrepreneurial study continues, however, in the unoccupied territory bordered by economics, history, and sociology. Two publications—Explorations in Entrepreneurial History (started by R. Richard Wohl and Hugh G. J. Aitken at the research center at Harvard and continued in the 1960s under the editorship of Ralph L. Andreano at Earlham College) and Economic Development and Cultural Change (initiated by Bert F. Hoselitz at the University of Chicago)—emphasized, during the 1950s and 1960s, the importance of entrepreneurship. In addition to scores of articles in these two publications, the Harvard center inspired a number of larger empirical studies. Of these, Fritz Redlich’s volumes on the military entrepreneur in Europe cover the longest historical time span. In all, a new field of specialization, not firmly attached to any single discipline, appears to have been established.
Students of entrepreneurship generally have come to agree that while it is a definable function, entrepreneur is a term denoting an ideal type rather than a term continuously applicable to a real person. Any businessman or other official may exercise entrepreneurship, but a classification cannot be devised that would empirically separate entrepreneurs and nonentrepreneurs.
One group of scholars has expanded the Cole point of view that entrepreneurship is a continuous function in business organization.
To the extent that behavior in a business firm is organized (formally or informally), to that extent we have entrepreneurship; to the extent that it is disorganized, random, or self-defeating, to that extent entrepreneurship is lacking… . The characteristics conventionally associated with entrepreneurship—leadership, innovation, risk-bearing, and so on—are so associated precisely because, in a highly commercialized culture such as ours, they are essential features of effective business organization. By the same logic, in a differently oriented culture, the typical characteristics of entrepreneurship differ. (Aitken 1963, p. 6).
Another school of thought prefers to keep the Schumpeterian distinction between the entrepreneurial function of making strategically important or innovating decisions and the managerial function of maintaining the more routine operations of a business organization. Nonspecialists, also, tend to emphasize strategic decision making in distinguishing entrepreneurship from management.
Thomas C. Cochran
Aitken, Hugh G. J. 1963 The Future of Entrepreneurial Research. Explorations in Entrepreneurial History Second Series 1:3-9.
Cantillon, Richard (1755) 1952 Essai sur la nature du commerce en général. Paris: Institut National d’Etudes Demographiques.
Cole, Arthur H. 1946 An Approach to the Study of Entrepreneurship: A Tribute to Edwin F. Gay. Journal of Economic History 6 (Supplement): 1-15.
Cole, Arthur H. 1959 Business Enterprise in Its Social Setting. Cambridge, Mass.: Harvard Univ. Press.
Dorfman, Joseph 1946—1959 The Economic Mind in American Civilization. 5 vols. New York: Viking. -> See especially volumes 3 and 4.
Hoselitz, Bert F. 1951 The Early History of Entrepreneurial Theory. Explorations in Entrepreneurial History 3:193-220.
Lane, Frederic C.; and RIEMERSMA, JELLE C. (editors) 1953 Enterprise and Secular Change: Readings in Economic History. Homewood, Ill.: Irwin.
Marshall, Alfred 1891 Principles of Economics. 2d ed. New York and London: Macmillan. → The first edition was published in 1890. A ninth, variorum edition was published in 1961.
Redlich, Fritz 1949 The Origins of the Concepts of “Entrepreneur” and “Creative Entrepreneur.” Explorations in Entrepreneurial History 1:1-7.
Say, Jean Baptiste (1803) 1964 A Treatise on Political Economy: Or, the Production, Distribution and Consumption of Wealth. New York: Kelley. → First published as Traitt d’economie politique: Ou, simple exposition de la maniere dont se ferment, se distribu-ent, et se consomment les richesses.
Say, Jean Baptiste (1815)1816 Catechism of Political Economy: Or, Familiar Conversations on the Manner in Which Wealth Is Produced, Distributed, and Consumed by Society. London: Sherwood. → First published as Catechisme d’economie politique.
Schumpeteh, Joseph A. (1912) 1934 The Theory of Economic Development. Cambridge, Mass.: Harvard Univ. Press. → First published in German.
Schumpeter, Joseph A. 1947 The Creative Response in Economic History. Journal of Economic History 7:149-159.
"Entrepreneurship." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/entrepreneurship
"Entrepreneurship." International Encyclopedia of the Social Sciences. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/entrepreneurship
Entrepreneurship is the process of identifying opportunities, marshalling the resources needed to take advantage of the opportunities, and creating a new venture for the purposes of providing needed products or services to customers and achieving a profit. The word “entrepreneurship” is taken from the French word entreprendre, which means “to undertake.” A person who engages in entrepreneurship is called an entrepreneur. Entrepreneur-ship occurs all over the world, but it is a particular characteristic of free-market economies. Countries with the highest rates of entrepreneurship include the United States, Canada, Israel, Italy, and Great Britain.
Entrepreneurship involves considerable risk, as the failure rate for new ventures is very high. Thus, to be successful, an entrepreneur must be able to tolerate and even thrive under conditions of risk and uncertainty. Successful entrepreneurship also requires innovativeness and creativity, as well as self-confidence, high levels of energy, and a strong need for achievement. Interest in entrepreneurship is at an all-time high. Most colleges and universities offer courses or even entire programs of study in entrepreneurship.
The process of entrepreneurship is complex and requires the aspiring entrepreneur to make many decisions. It begins with recognizing an opportunity and applying innovativeness and creativity to exploit the opportunity. The entrepreneur must engage in strategic thinking and identify a competitive advantage that will set the small business apart and provide customers a unique reason to patronize the business.
The outcomes of this strategic thinking should be a business plan, which is a written statement that provides a comprehensive blueprint for the new venture. Although every business plan should reflect the unique characteristics of the entrepreneur and the proposed new business, there are common elements that exist in most business plans. Typically, the business plan includes some or all of the following components:
- Executive Summary
- Description of the Firm's Product/Service
- Business Strategy
- Forecasted Financial Statement
- Loan or Investment Proposal
The executive summary provides a concise one to two page overview of the entire business plan. The description of the product or service should identify the key features and benefits of the product or service. The business strategy is the most detailed part of the business plan. Here, the plan provides the entrepreneur's vision and what he or she sees as the mission of the new venture.
This section must also lay out key strategies in the areas of operations, marketing, and finance. The forecasted financial statements should include monthly and/or quarterly projected cash budgets, income statements, balance sheets, and capital expenditures. The loan or investment proposal should identify the type of financing required and a plan for repayment.
Entrepreneurship is an important, if not the most important, component of a successful market-based economy. Free economies require individuals who are willing to take risks by creating, organizing, and successfully running new businesses. Most entrepreneurs operate in the areas of small business and/or family-owned business. These are the engines of economic growth. If small businesses are defined as those having fewer than 100 employees, 99 percent of businesses in the U.S. are small. Ninety percent of these small businesses employ fewer than twenty employees. Yet, it is estimated that small businesses have created 85 percent of the new jobs in the U.S. since the early 1990s. Further, most of these small businesses are family-owned. Family-owned businesses employ more than 50 million people and generate more than 50 percent of the nation's GDP. Thus, much emphasis is placed on public policies that will encourage entrepreneurial activity and nurture and sustain new ventures, small businesses, and family-owned businesses.
STARTING A BUSINESS
Once the business plan has been formed, the entrepreneur must find investors, form a business structure both legally and economically, and bring together employees with the necessary skills and tenacity to run a successful business around a common goal. These steps, especially those requiring financial backing, can be difficult for entrepreneurs. Professor Scott Shane, author of the 2008 article “Top Ten Myths of Entrepreneurship,” writes about some of these difficulties and few of the common misconceptions among those trying to start businesses.
First, it does not take a large amount of money to begin a business. The average amount is about $25,000, and successful entrepreneurs will have the skills necessary to run a company with a low amount of funding. Some of the tricks include paying beginning employees on commission, renting premises for the first couple of years, and offering conditional benefits. There are rarely large investors willing to fund starter businesses, unless they are promising computer or science companies. Most investors are not million dollar venture capitalists, and good entrepreneurs know how to work with limited resources.
Other entrepreneurs are hesitant to begin their businesses with debt, afraid that it will impede success. Actually, most entrepreneurial businesses are financed primarily by debt, with a little less than half their money coming from equity (approximately 47%). Conventional wisdom also insists that entrepreneurs search for loans among their friends, families, interested investors, and government entities, using banks only as a last resort. Banks, however, are the most common provider of loans toward entrepreneurial activities, and they are often willing to consider promising business plans.
The business an entrepreneur picks has an enormous effect on the success of his or her idea. Most entrepreneurs have difficulty spotting and entering industries that have potential. Those who began businesses in the tech industry several years ago had a far better chance of succeeding than those who chose other industries. What will be the industries of the future? What markets will open? A good entrepreneur will be able to choose an industry with potential, which will take a continuing commitment. Professor Shane's article says that only the top 10 percent of entrepreneurs make more money than their employees. The key is to defy the odds with superior innovation and work.
International entrepreneurship refers to the practice of using technology and insight to develop an overseas company by highlighting a need in foreign nations that the entrepreneur can fulfill. Foreign markets have particular resources that an entrepreneur can capitalize on, making use of differing cultures, financial regulations, economies, and desires to create a successful global business. Most international entrepreneur-ship is conducted by well-established companies that have sufficient funds or backers to attempt expanding into foreign markets. Fortunately, more investors are becoming willing to support a global endeavor, especially if a company has clear plans to fill a specific niche in international business. Like local entrepreneurship, international business-building is a matter of opportunities and design.
Once a new element is introduced into a foreign market, there is a period of adaption that takes place in increments. An international market might at first be unwilling to admit a new entrepreneurial business, requiring more time for trial and acceptance of products or services. The number of other businesses trying to sell the same new ideas and the type of international market being entered will also affect the trial period for the entrepreneurial endeavor. Generally, entrepreneurs will encounter three different types of markets globally, as described by Jones and Dimitratos in their 2004 book Emerging Paradigms in International Entrepreneurship :
- Bazaar economies. Bazaar economies function on a flexible, personal level. Prices are usually negotiated, and competition involves cooperating with others in the same industry to form a reliable network of businesses. Loyalty is often based on personal treatment, customer to customer.
- Firm-type economies. In these markets, similar to many of the markets in America, firms have much more control over goods and services. Prices are usually set by the firms or the industry. They are based on customer demand but are not negotiable, and transactions are impersonal, resembling legal contracts more than personal connections. Since relationships are not so important, competition is generally more vigorous and direct. Complex strategy and business plans are commonplace in firm-type economies. Loyalty is generally directed toward a product or a name brand, and not the companies creating or selling the product. Decision-making power, instead of being displaced on a person-to-person basis, is centrally located at a main office.
- Multi-polar network economies. These markets are systems that incorporate both personal and transactional styles in their business. Relationship marketing is conducted, where companies form lasting connections with customers. Prices are usually negotiated in these markets, but not always. Relationship networks affect competition and decision-making, but at a wider scale than person-to-person. Power is not held by any main office, but is distributed along the relationship network of the business.
Social entrepreneurship, like international entrepreneur-ship, has risen in popularity over recent years. It involves developing unique ideas, usually from a business standpoint, to solve social problems. Often social entrepreneurs can create practices that revolutionize industries and create very successful companies, but the goal is always social welfare. Social entrepreneurs tend to judge success in terms of “social value” rather than the income generated by a business. They look for ways in which their society needs aid or needs a particular problem solved, then work to solve the problem in the same way a traditional entrepreneur does. A social entrepreneur deals with social potential, and seeks to create lasting change for the better.
Examples of social entrepreneurship abound. Medical practices centering around helping the patient achieve responsibility for their own health and treatment by teaching them about their ailments is a successful form of entrepreneurship beguninWorld WarIIbydoctors like Byrnes Shouldice. Another good example is strategies for police departments to deal with criminal behavior with new, results-oriented methods. Community programs designed to bring out talents in at-risk youth or help senior citizens become more independent function in the same way.
When considering a social enterprise, an entrepreneur must first decide what sort of business to create—nonprofit or for-profit. Nonprofit businesses find it easier to focus on the social endeavor, attract the right-minded employees, and effectively market their purpose without sounding pretentious. Nonprofit organizations also receive more donations, especially from taxpayers who can write off the donation. For-profit businesses, on the other hand, can often make a better profit, raise more money through investors and stockholders who are willing to keep the business focused on its social goals, and create more opportunity for growth than nonprofit organizations. Which type of business to construct is one of the first questions a social entrepreneur should ask when sitting down to outline the plan.
Many entrepreneurial businesses can hinge on very brief—even chance—proposals to investors, ventures capitalists, and banks. These short proposals have become so useful and widespread that they are referred to as elevator pitches, the name drawn from a scenario in which an entrepreneur encounters a high-ranking business executive or capitalist in an elevator, and has only the time both are in the elevator to make the pitch and win the necessary investment.
So, how does an entrepreneur form a perfect elevator speech? Professor Jack Raiton, in his 2007 article, “Mastering the Elevator Pitch,” has several good pieces of advice:
- An elevator pitch should not be directed at making a sale. That is a lot to shoot for in a very short amount of time. Instead, the pitch should be designed to pique interest, to give valuable tidbits of information, and to secure some sort of return communication. A successful entrepreneur will win an e-mail, phone call, or interview after an elevator pitch.
- The problem or need the entrepreneur intends to solve should be presented in the elevator pitch. This should be explained in concise, vivid language.
- Since attention spans are not notably long, an elevator pitch should sound interesting—about 30 seconds of spontaneous, memorable conversation. “Spontaneity” can be achieved through extensive practice, rehearsing the speech until it flows naturally and sounds unstilted. A script and a mirror both help prepare for a good elevator pitch.
- The pitch should include the particular advantages the entrepreneur can offer, wrapped up in a nutshell. The title to a book is a good metaphor to apply. The title should be clear, explain the abilities and status of the book, and not run on all over the cover—neither should the elevator speech.
- Nothing complex should be included in an elevator pitch. If it can be simplified, simplify it. Otherwise, do not include it. An idea that is too complex can ruin the entire pitch.
The structure of the elevator speech can be formed using the guidelines above. There are many other tips entrepreneurs may find useful as well. It is a good idea, for instance, to begin by giving a statistic or other arresting fact concerning the pertinent industry, introducing the problem or general situation immediately. Technical or scientific language, in any form, should be avoided in the pitch; even though it may impress, the use of unfamiliar terms ultimately confuses and bores any investor listening. Contacts can also be used in elevator pitches to catch attention, whether it be the dropping of a significant name or previous work experience at a prestigious company. The most important thing is that the entrepreneur feels comfortable and excited giving the pitch under any circumstances.
Business angels are resourceful investors who have a medium amount of capital available to contribute to starting businesses and are known to save or start entrepreneurial endeavors. They are not as difficult to find or win over as the major-investment venture capitalists, and so much of an entrepreneur's selling efforts are directed toward angels. Angels can exist individually and as part of sponsoring networks.
As a way of life, entrepreneurship has several advantages. It offers individuals the chance to be their own boss and to enjoy an independent lifestyle. It provides individuals the opportunity to develop and grow a new business that makes an impact on their community. And, of course, successful new ventures offer the tantalizing prospect of almost unlimited profit potential. However, as a lifestyle, entrepreneurship also has its downside. It requires a tremendous amount of personal commitment and long work hours, particularly in the early stages of new business startup. Uncertainty of income and the potential for financial loss are also potential negatives.
SEE ALSO Angel Investors and Venture Capitalists; Business Plan; Initial Public Offering; Strategic Planning Tools; Strategy Formulation; Succession Planning; SWOT Analysis
Cowan, David. “Practicing the Art of Pitchcraft.” Who Has Time for This? 2008. Available from: http://www.whohastimeforthis.blogspot.com/2006/01/practicing-art-of-pitchcraft.html.
Dees, Gregory J. Strategic Tools for Social Entrepreneurs. New York: John Wiley and Sons, 2004.
“Global Entrepreneurship Monitor.” Available from: http://www.gemconsortium.org.
Jones, Marian V, and Pavlos Dimitratos. Emerging Paradigms in International Entrepreneurship. Edward Elgar Publishing, 2004.
“Nonprofit vs. For-profit Social Ventures.” SmartMoney, 2008. vailable from: http://www.entrepreneur.com/startingabusiness/smsmallbiz/article195242.html.
Oviatt, Benjamin M. “Defining International Entrepreneurship and Modeling the Speed of Internationalization.” Entrepreneurship: Theory and Practice, 2005. Available from: http://www.allbusiness.com/management/557273-1.html.
Raitin, Jack. “Mastering the Elevator Pitch: 5 Steps to Entrepreneurial Success.” Professor Raitin's Inside Perspectives, 2007. Available from: http://www.mstblog.ohsu.edu/index.php/2007/11/13/mastering-the-elevator-pitch-5-tips-to-entrepreneur-success/.
Shane, Scott. “Top Ten Myths of Entrepreneurship.” How To Change the World, 2008. Available from: http://www.blog.guykawasaki.com/2008/01/top-ten-myths-o.html.
Zimmerer, T.W., and N.M. Scarborough. Essentials of Entrepreneurship ond Small Business Management. Upper Saddle River, NJ: Prentice-Hall, 2002.
"Entrepreneurship." Encyclopedia of Management. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/management/encyclopedias-almanacs-transcripts-and-maps/entrepreneurship
"Entrepreneurship." Encyclopedia of Management. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/management/encyclopedias-almanacs-transcripts-and-maps/entrepreneurship
Entrepreneurship comes from entrepreneur, anglicized from the original French word. It means someone who undertakes something. Merriam-Webster defines "entrepreneur" as "one who assumes the risk and management of business; enterprise; undertaker." The relevant definition of "enterprise," in turn, is "the character or disposition that leads one to attempt the difficult, the untried, etc." Starting with basic definitions is useful because entrepreneurship is valued in American culture and has therefore come to be applied to all manner of business activities, including the running of very large corporations where the managers are not genuinely at risk, did not start the business, and are simply running things; their "undertakings" might sometimes be risky—but not in relation to total assets.
Academic students of the entrepreneurial phenomenon have emphasized different aspects of behavior in business. Josef Schumpeter (1883–1950), the Austrian economist, associated entrepreneurship with innovation. Arthur Cole (1889–1980), Schumpeter's colleague at Harvard, associated entrepreneurship with purposeful activity and the creation of organizations. The management guru, Peter Drucker (1909–2005) defined entrepreneurship as a discipline. "Most of what you hear about entrepreneurship is all wrong," Drucker wrote in Innovation and Entrepreneurship (1986). "It's not magic; it's not mysterious; and it has nothing to do with genes. It's a discipline and, like any discipline, it can be learned." Drucker argued that entrepreneurship extends to all types of organizations. Two widely cited contributors to the Encyclopedia of Entrepreneurship (1982), A. Shapero and L. Sokol argued, from a sociological position, that all organizations and individuals have the potential to be entrepreneurial. They focused on activities rather than organizational make-up in examining entrepreneurship. In their view entrepreneurship is characterized by an individual or group's initiative-taking, resource gathering, autonomy, and risk taking; thus, like Drucker's their definition encompasses all types and sizes of organizations with a wide variety of functions and goals—very much in line with the observation which shows that entrepreneurship is evident in the foundation and growth of all types of organizations.
The academic approach to this subject has tended to be analytical—attempts at disassembling the entrepreneurial phenomenon in order to generate laws of business. One of Arthur Cole's intentions, for example, was to integrate the entrepreneurial phenomenon into a general theory of economics; thus he spoke of it as one of several production factors: "Entrepreneurship may be defined in simplest terms," he wrote in Journal of Economic History, 1953, "as the utilization of one productive factor of the other productive factors for the creation of economic goods." Much of Peter Drucker's work related to management, particularly the management of large organizations; not surprisingly he saw entrepreneurship in terms of a methodology of management—and methodologies can be learned.
Another way to look at entrepreneurship is by the study of history on the one hand—how enterprises came to be, with special emphasis on their beginnings—and looking at the reports of entrepreneurs themselves to see what they have to say. The historical approach is very instructive but in a surprising way. First, the actual entrepreneurial experience somewhat de-mystifies the concept (as Drucker did, but for other reasons): entrepreneurs very often stumble across opportunities, follow peculiar interests, or make something useful because they cannot find it. Second, history also highlights intangible aspects of the entrepreneurial personality (the very genes that Drucker dismissed): such individuals tend to be open-minded, curious, inquisitive, innovative, persistent, and energetic by temperament, thus showing many of the characteristics highlighted by the academics. But, fourth, the notion that entrepreneurs are risk-takers is not confirmed: rather, entrepreneurs are risk-averse but good at minimizing risk.
Paul Hawken, himself the founder of two successful businesses, provided a good view of entrepreneurship, from the entrepreneur's perspective, in his book Growing A Business. Hawken looked at many instances of start-ups (including his own companies) and highlighted the interesting mix of personal qualities, leanings, opportunities, the incremental means by which businesses get started, and the characteristics good entrepreneurs exhibit. Hawken made useful distinctions that Peter Drucker apparently overlooked. "Entrepreneurial change," Hawken wrote, "depends on static situations, and these are provided in abundance by government, large corporations, and other institutions, including educational ones. We need both entrepreneurial and institutional behavior. Each feeds on the other. The role of the former is to foment change. The role of the latter is to test that change." The distinction will ring true to anyone engaged in small business—especially those who have taken it up after working in a large organization: change is difficult inside large, bureaucratic structures; it is easier to accomplish in a small firm: no committees need to make an input, no chain of command needs climbing one link after the next … Some examples illustrating the historical view of entrepreneurship:
Sears and Kmart
Sears, Roebuck (according to Sears Archives, http://www.searsarchives.com/history/history1886.htm) began because a railroad station agent in North Redwood, MN had time on his hands and, to fill it, did some minor dealings in lumber and coal. A jeweler in nearby Redwood Falls refused a shipment of watches in 1886. The young Richard Sears, the agent, bought the watches from the seller and sold them to other agents up and down the railroad line. This little venture having been successful, Sears bought more watches. Eventually he started selling the watches in a catalog of his own. The company was then called R.W. Sears Watch Company. Sears needed a watchmaker to support this business and hired another young man, Alvah Roebuck, using an ad in a Chicago paper. One thing led to another. Sears was not the first catalog seller to the then predominantly rural U.S. population. One of his innovations was to make the Sears catalog smaller than that of the dominant Montgomery Ward. Sears argued that, being smaller, the catalog would always end up on top. "Small is beautiful," you might say. Kmart also began small—as a dime-store founded by Sebastian Kresge, a category now equivalent to so-called "dollar stores." Kresge's innovation consisted in exploiting the low-price end of retail goods and concentrating on them.
The "golden arches" had their start because Ray Kroc, McDonald's founder, sold milkshake blenders to drugstores and eateries. In 1954 he discovered that a hamburger seller owned by the MacDonald brothers was far and away the most popular in Southern California and had developed a method for serving customers in record time. Eight milkshake blenders were running at the little shop continuously. He proposed to the brothers that they open several more shops—thinking that he could sell them blenders. The brothers wondered who could open these stores for them. Kroc then said, (according to McDonald's web site, http://www.mcdonalds.com/corp/about/mcd_history_pg1.html) "Well, what about me?" The first golden arches rose a year later in Des Plains, IL. Ray Kroc himself had, by that time, already shown his entrepreneurial spirit by investing his savings and a second-mortgage on his house into the milkshake blender distributorship—which in due time led to his fortune. In this case the desire to sell more blenders resulted in the establishment of a national and now international "fast food" category.
Apple and the Macintosh
Apple began when two Steves, Steve Wozniak, the technical innovator, and Steve Jobs, the entrepreneur, got together to make circuit boards for hobbyists—who, in turn, would use them to make homegrown computers. Thus Apple did not begin as a computer maker. When Jobs attempted to sell these boards to a local computer store, Paul Terrel, the owner, told him to make finished computers and promised to buy 50 of them for $500 each. Financing was a problem, but Jobs, armed with the purchase order from Terrel, managed to persuade a electronics distributor to let him have the components on credit. Thus Apple was born—financed by a sale-in-hand. This history illustrates the limited visions of the start-up enterprise and the effect of tenacious enterprise. Jobs, however, had a vision when, some eight years later, in 1979, he toured Xerox's Palo Alto Research Corporation (PARC) and there saw, for the first time, an experimental visual interface and the computer mouse. Xerox, clearly, was miles ahead of anyone in technological innovation, but the people at Xerox PARC could not persuade their managements to commercialize the ideas already present in physical demonstration. Apple, however, independently developed the concepts and thus created the Macintosh. Visual interfaces became standard after that—and everyone now uses a mouse. This bit of history illustrates Hawken's notion that institutionalization stifles and entrepreneurship creates change.
A classical case of entrepreneurship, mixing a challenge, a creative response, and persistent enterprise is that of Margaret Rudkin, founder of Pepperidge Farm, Inc. Margaret Rudkin moved with her family from New York to a farm in Fairfield, CT where sour gum or "Pepperidge" trees grew—hence Pepperidge Farm. Here one of her young sons developed an allergy to commercial breads laced with preservatives and artificial ingredients. This was the "challenge." The year was 1937. As the Pepperidge Farm web site reports (see http://www.pepperidgefarm.com/history.asp), Rudkin set out not only to bake wholesome bread her child could eat but "the perfect loaf of bread." She succeeded very well—her "creative response." Visitors to the home liked the bread so much they persuaded her to try to sell it. With a few loaves in hand, she approached the local grocer who, with some reluctance, agreed to try to sell them—soon he was asking for more. The business weathered the shortages created by World War II during which Rudkin sometimes suspended production rather than produce inferior product—a sign of her "persistence." On July 4, 1947 the small business suddenly grew quite a lot with the opening of a large modern bakery in Norwalk, CT. The bread was of such quality that it commanded a price of 25 cents a loaf at a time when bread sold for a dime a loaf. The product is still on the shelf everywhere—in testimony to Margaret Rudkin's persevering "enterprise."
THE ENTREPRENEURIAL PERSONALITY
Scholars, psychologists, analysts, and writers continue in efforts to define that elusive something called the "entrepreneurial" personality—but while the results usually include some of the same words (creative, innovative, committed, talented, knowledgeable, self-confident, lucky, persistent, and others), actual entrepreneurs (like actual artists, scientists, discoverers, and leaders in every walk of life) come in a bewildering variety. They may be highly trained or untrained, very knowledgeable or not. What seems certain is that the qualities entrepreneurs exhibit are not likely to be mass producible or the consequence of a well-crafted curriculum. That such people are in many ways outstanding—and in others quite ordinary—is also clear from a study of history. Entrepreneurship, therefore, might simply be called a kind of excellence that appears sharply in organizational life—be it business or some other activity.
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Gergen, David. "The New Engines of Reform." U.S. News & World Report. 20 February 2006.
Hawken, Paul. Growing A Business. Simon & Schuster, 1988.
Kent, Calvin A., Donald L. Sexton, and Karl H. Vesper, eds. Encyclopedia of Entrepreneurship Prentice-Hall, 1982.
Mckeough, Kevin. "Do You Believe in Angels? You Should." Crain's Chicago Business. 2 January 2006.
Nash, Sheryl Nance. "Freedom Through Entrepreneurship: Rohan Hall is teaching others the joy of owning a business." Black Enterprise. March 2006.
Velotti, Jean Paul. "West Babylon Entrepreneur, Environmentalist Developing First Privately-Owned Fuel Station." Long Island Business News. 24 February 2006.
"Women Leading the Way in Startups." Business Week Online. 9 March 2006.
"Entrepreneurship." Encyclopedia of Small Business. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/entrepreneurship
"Entrepreneurship." Encyclopedia of Small Business. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/entrepreneurship
The concept of entrepreneurship and the portrayal of the entrepreneur as leading economic figure, even cultural hero, derive from both the evident nature of the market system and the projected self-image of middle-class business leaders. As with any such concept, its meaning depends on the larger model of which it is a part and its more or less precise relationships to other key figures. Defining the entrepreneur or entrepreneurship deals with a term whose meaning is highly variable in use, and generates serious questions.
The term capitalist could refer to all business people, or to only the suppliers of capital, with the others as managers—the promotional, organizational, and operational decision makers—and with the entrepreneur performing a particular function or role, transcending the others. Even that array of possibilities is rendered further complicated by formulations that treat the entrepreneur as either (1) an active promoter or agent of change; or (2) a passive responder to market signals and to change; and either (1) a creator or (2) finder of opportunities.
A troublesome question is whether entrepreneurship refers (1) to a particular function(s) or (2) to persons. If the answer is persons and not function(s) per se, then the correlative question is whether it refers to a particular group of persons or to an aspect of the behavior of all persons. Some individuals may well undertake more and/or more specialized entrepreneurship. But all individuals undertake one or more of the functions of entrepreneurship that can enter the definition of the term—even if it is a matter of reacting to price and other signals in a creative way.
Further difficulties arise when one tries to distinguish the certain behavior(s) or qualities that constitute entrepreneurship, requiring that one identify what makes any activity or quality “entrepreneurial.” But that effort is a part of the larger and vexing question of the definition of entrepreneur(ship), say, one that does not equate entrepreneurs with business managers as organizers and decision makers.
Two further, interrelated questions are, first, whether the meaning and defense of capitalism involves a system dominated by capitalists and/or entrepreneurs, or a market system of economic agents without such domination, that is, whether capitalism or market economy is the more systemic term; and, second, whether some kind of entrepreneur(ship) has the critical role in all economic systems, i.e., whether only one generic economic system exists and therefore actual economies differ principally in the identity and institutional setting of entrepreneurship.
Several considerations almost invariably enter discussions of entrepreneurship. One consideration is that the entrepreneur is achievement oriented, manifesting the type A personality and always seeking success. The second consideration is that the substantive meaning of achievement is a matter of culture. In market economies, especially capitalist ones, success is achieved through rising in large, important organizational structures, acquisition of wealth, and similar iconic honors. The third consideration concerns the entrepreneur serving as a driving force in the economy, whatever the specifics of its organization and structure. One consideration that often but by no means always enters discussion is the relation of business and governmental entrepreneurs. This relation may take the form of a competition over the use of resources; movement among key leadership positions in private and public sectors; another involves the tendency of entrepreneurs to act up to, if not even beyond, the limits imposed by law.
Definitions typically turn on the incorporation of functions. One definition, centering on coordination, can be close to that of manager or decision maker within the firm; alternatively the usage may turn on the contribution that individual entrepreneurship makes to coordination that is systemic, that is, going beyond the firm to the economic system. In either case, the key element is capability in participating in institutionalized decision making processes specializing in the making of policy.
A second function often ensconced within a definition is that of adventurer, the role of formulating a vision and acting upon it. At its most dramatic, this definition tends to make capitalism a civilized game of power in monetary form. This entrepreneur is not content with finding niches or paths not seen by others, and therefore goes beyond finding to creating them themselves. One definition centers on the heroic role itself. This definition recognizes entrepreneurship as a system-specific honorific channel of achievement motivation and/or a designation of such achievement.
Other definitions that incorporate functions are the management of risk or, more properly, uncertainty; the marshalling, management or analysis, and application of information; serving as the adjudicator of conflicting interests within and between firms; and the identification if not creation of opportunities. Some definitions may combine functions, such as innovation under uncertainty and asymmetrical information. Not all definitions apply equally well to both entrepreneurial function and their application to specific individuals.
The concept of the entrepreneur, whether it be understood to pertain to a class of person or an aspect of all agents’ activity or one function or another, is related to other concepts as well. Innovation can result from entrepreneurial activities in in-house or external research and development generating new technology. Both market structure and the form of competition are both influenced by entrepreneurial activity along technological, strategic, and political lines, and influence the form, direction, and mode of entrepreneurial activity. Although much economic theorizing is static, the introduction of entrepreneurship both opens up a wider range of efficient results and multiple paths of economic growth, and the possibility of multiple efficient results and economic-growth paths amenable to entrepreneurial activity. The realm of entrepreneurship is, moreover, transformed by Canadian-American economist John Kenneth Galbraith’s concept of a new industrial state in which corporate and general economic decision making are expanded from the top levels of corporate managements and a mix of government-business antagonism and quid pro quo relationships to decision making lower down in the corporation, in technological and educational elements, and to a system of more or less joint planning for economic stability. In Galbraith’s conception, the entrepreneur is less heroic but no less important a figure.
Finally, attention should be given to Italian economist Vilfredo Pareto’s theory of the circulation of elites and what may or may not be its modern formulation, the market for corporate control and therein competition between entrepreneurs. An alternative formulation juxtaposes individuals with power to competitive forces.
SEE ALSO Capitalism, State; Enterprise; Socialism; State, The
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Witt, Ulrich. 2003. The Evolving Economy. Northampton, MA: Edward Elgar.
Warren J. Samuels
"Entrepreneurship." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/entrepreneurship-0
"Entrepreneurship." International Encyclopedia of the Social Sciences. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/entrepreneurship-0
In French, to be an entrepreneur is to be "one who undertakes a task or project." Thus, entrepreneurship has come to be defined as the act of risking capital and resources to identify and implement a solution to a problem with the goal of turning a profit. The eighteenth-century Irishman Richard Cantillon first used term entrepreneur in a business context to describe businessmen who bought goods and services only in order to resell them later at a higher price. This idea of risking one's fortune for the possibility of a large but uncertain future gain is still the central meaning of entrepreneurship.
In 1904 the German sociologist Max Weber (1864–1920) described the entrepreneur as a heroic, energetic figure whose "Protestant work ethic" relied on thrift and hard work to make possible economic innovation and growth. The leading economist of entrepreneurship, Austrian Joseph Schumpeter (1883–1950), argued that in every capitalist society great risk-taking entrepreneurs arise who have the vision and energy to create new technologies and industries. But when lesser imitators attempt to recreate the success of these entrepreneurs, the economy becomes glutted with over-investment and eventually collapses into recession. Eventually a new generation of entrepreneurs arises to fuel a new boom in innovation.
The strong tradition of property rights in the United States created an ideal environment for the first great period of U.S. entrepreneurship. Between 1789 to 1932 U.S. entrepreneurship enjoyed its "classical" age. During this time business risk-taking and economic growth occurred largely through the efforts of individual men such as Andrew Carnegie (1835–1919), John D. Rockefeller (1839–1937), Thomas Edison (1847–1931), and Henry Ford (1863–1947). These entrepreneurs and many like them accumulated the capital, identified the opportunities, organized the resources, and crushed their competition to build vast corporate empires. Since 1933 the federal government has played a much larger role in ensuring that pure entrepreneurship doesn't harm the public interest.
To some people, the rise of Bill Gates (1955—) and the Microsoft Corporation in the 1980s represented the birth of a new age of corporate-style entrepreneurship. Some U.S. economists attributed the explosion in new Internet and technology companies in the 1990s both to the emergence of a new class of managers and risk-takers trained to pursue innovation and to economic conditions that created a large pool of investment capital for these entrepreneurs to draw on. But at the close of the twentieth century entrepreneurship means everything from starting a small home-based business to developing and marketing a new product or technology to establishing an entire corporation or industry
See also: Capital, Capitalism, Microsoft, Joseph Schumpeter, Work Ethic
"Entrepreneurship." Gale Encyclopedia of U.S. Economic History. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/entrepreneurship
"Entrepreneurship." Gale Encyclopedia of U.S. Economic History. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/entrepreneurship
The 1980s saw the development of the concept of intrapreneurs; that is, people working alone or in teams who remained employees within the organization or firm for which they worked, but took responsibility for some innovation, costly exercise or risky development, or even for a routine subset of activities, in the expectation of additional personal financial reward for successful ventures and profitable operations. At the extreme, intrapreneurs shade into employees whose earnings depend heavily on bonus and commission payments, or other incentive payments—such as sales personnel.
Theories about entrepreneurial behaviour concern the relative importance of personality traits, social marginality, the ‘artisan’ or ‘craftsman’ orientation to work, sources of risk capital, the economic environment, and institutions. Theories of economic growth do not always attach importance to entrepreneurs. Sociological interest in entrepreneurship has declined steadily with the emergence of monopoly capitalism and the rise of the modern business corporation. However, the American economic sociologist Ronald S. Burt has conducted a number of analyses of envy and entrepreneurial opportunities in competitive environments, notably via the application of concepts derived from network analysis (see Corporate Profits and Cooptation, 1983, and Social Contagion and Innovation, 1988
"entrepreneur." A Dictionary of Sociology. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/social-sciences/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur
"entrepreneur." A Dictionary of Sociology. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur
entrepreneur (än´trəprənûr´) [Fr.,=one who undertakes], person who assumes the organization, management, and risks of a business enterprise. It was first used as a technical economic term by the 18th-century economist Richard Cantillon. To the classical economist of the late 18th cent. the term meant an employer in the character of one who assumes the risk and management of business; an undertaker of economic enterprises, in contrast to the ordinary capitalist, who, strictly speaking, merely owns an enterprise and may choose to take no part in its day-to-day operation. In practice, entrepreneurs were not differentiated from regular capitalists until the 19th cent., when their function developed into that of coordinators of processes necessary to large-scale industry and trade. Joseph Schumpeter and other 20th-century economists considered the entrepreneur's competitive drive for innovation and improvement to have been the motive force behind capitalist development. Richard Arkwright in England and William Cockerill on the Continent were prominent examples of the rising class of entrepreneurial manufacturers during the Industrial Revolution. Henry Ford was a 20th-century American example. The entrepreneur's functions and importance have declined with the growth of the corporation.
See J. Schumpeter, The Theory of Economic Development (1934); J. W. Gough, The Rise of the Entrepreneur (1969); O. F. Collins, The Organization Makers (1970).
"entrepreneur." The Columbia Encyclopedia, 6th ed.. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/reference/encyclopedias-almanacs-transcripts-and-maps/entrepreneur
"entrepreneur." The Columbia Encyclopedia, 6th ed.. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/reference/encyclopedias-almanacs-transcripts-and-maps/entrepreneur
en·tre·pre·neur / ˌäntrəprəˈnoŏr; -ˈnər/ • n. a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so. ∎ a promoter in the entertainment industry. DERIVATIVES: en·tre·pre·neur·i·al adj. en·tre·pre·neur·i·al·ism n.
"entrepreneur." The Oxford Pocket Dictionary of Current English. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur-0
"entrepreneur." The Oxford Pocket Dictionary of Current English. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur-0
"entrepreneur." The Concise Oxford Dictionary of English Etymology. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur-1
"entrepreneur." The Concise Oxford Dictionary of English Etymology. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur-1
"entrepreneur." Oxford Dictionary of Rhymes. . Encyclopedia.com. (August 23, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur
"entrepreneur." Oxford Dictionary of Rhymes. . Retrieved August 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/entrepreneur