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Entrepreneurism

ENTREPRENEURISM

"[An] entrepreneur is a person who habitually creates and innovates to build something of recognized value around perceived opportunities" (Kotelnikov Internet article). This "recognized value" should incorporate social and ethical concerns, as well as economic ones. There are moral dimensions to all forms of entrepreneurship.

Conceptual Distinctions

Entrepreneurs include both scientists seeking to advance research and engineers seeking new design opportunities. Entrepreneurship is not the same as invention. Alexander Graham Bell obtained a broad patent that included the transmission of speech, but he was not an entrepreneur—others took his patent and used it to create a corporate giant (Carlson 1994). Thomas Edison, in contrast, supervised invention, manufacturing, and marketing of a new electric lighting system (Hughes 1983); therefore, he is both inventor and entrepreneur. Classic theorists and economists also have developed and expressed their own opinions concerning entrepreneurship and its influence on economic development. In 1928, economist Joseph Schumpeter stated that the "essence of entrepreneurship lies in the perception and exploitation of new opportunities in the realm of business ... it always has to do with bringing about a different use of national resources in that they are withdrawn from their traditional employ and subjected to new combinations" (Filion 1997, p. 3).

Entrepreneurs must promote their ideas relentlessly. They have, however, an obligation to be honest with themselves and others about their prospects.

Unethical Entrepreneurship

In the early twenty-first century, America watched companies such as Enron and WorldCom collapse. Enron was formed by the merger of Houston Natural Gas, a regional pipeline company, and InterNorth, a Nebraska-based pipeline owner, which was organized by Kenneth Lay in 1985. The beginnings of Enron's downfall can be traced to the late 1980s: When federal regulations allowed gas prices to fluctuate naturally, Enron saw this as an opportunity to add gas trading to its list of business endeavors. Then beginning in the mid-1990s, "Enron tried to duplicate its initial success at energy trading in new fields—coal, paper, plastics, metals and even Internet bandwidth. Many of these ventures went badly wrong, so executives turned to the tried-and-true method of big business—hide the problem and hope that everything gets better" (Maass 2002, pp. 6–7) Maass then notes that "Enron hid its mounting losses and skyrocketing debt, both in little-examined nooks and crannies of official statements and in off-the-record partnerships run by Enron executives. By hiding debt in the partnerships, Enron's official bottom line continued to look healthy—while executives raked in millions in fees for administering them" (Maass 2002, pp. 6–7). Enron lied to its own employees and shareholders, many of whom were left with virtually worthless stock. Joe Lieberman, Senator from Connecticut, commented that "Enron has become a grand metaphor for the real human problems that profit pressure can produce when it goes to gross extremes because it is unchecked by personal principles or business ethics" (Lieberman 2002). WorldCom, an entrepreneurial telecommunications company, masked losses by clever, but dishonest accounting schemes.

The environment in which new companies enter may be responsible for the ethics dilemmas companies encounter. Arthur Levitt, former SEC chairman, states "fierce competition in the marketplace is healthy, but we've seen that the corporate race to beat analyst projections can breed disdain for investors' interests and the law" (Lieberman Internet site). Jennifer Lawston also writes that "the entrepreneurial world—particularly the high-tech entrepreneurial world—is living through a time of high temptation. The devil on one shoulder tells you to make the numbers and set projections to make investors feel good, the angel on the other says to tell the story like it really is" (Lawston 2003 Internet article).

Entrepreneurship requires truth-telling—to investors and the public. The Enron and WordCom cases illustrate the consequences of lying. Entrepreneurs also need to be honest with themselves.

The history of dot-com company failures reveals the dangers of self-delusion. Peter Coy suggests thinking of "dot-com startups not as companies but as hypotheses—economic hypotheses about commercial methods that needed to be tested with real money in the real world. Nobody was forced to fund the experiments, but plenty of people who hoped to get rich quickly were happy to thrust money into the hands of entrepreneurs such as Walker, Jeff Bezos of Amazon, Tim Koogle of Yahoo!, and Candice Carpenter of iVillage, a Website for women" (Coy Internet article). The dot-coms suffered from confirmation bias (Gorman 1992)—they believed that because their stock was rising, their hypothesis was right, and the old economic laws did not apply to their situation.

Doing Well by Doing Good

Entrepreneurs are pioneers who open new territory. C.K. Prahalad and Allen Hammond (2002) have used a pyramid metaphor to describe the global market. Tier 1 consists of roughly 100 million people whose earnings are greater than $20,000 per year. Tier 2 consists of the poor in developed countries and Tier 3 consists of the rising middle class in the developing world, amounting to approximately 1.75 billion people whose earnings fall between $2,000 and $20,000 per year. Tier 4 includes the majority of the Earth's population, about 4 billion people earning less than $2,000 per year. As one goes down the pyramid, the proportions of people in each tier shift from the developed to the developing world.

In Development As Freedom Amartya Sen (1999) argues that "economic unfreedom, in the form of extreme poverty, can make a person helpless prey in the violation of other kinds of freedom" (p. 8). Sen believes the development of a competitive market system in poverty-stricken countries will, in time, improve the economic condition, which will in turn create numerous freedoms for their inhabitants.

The Tier 4 market therefore represents a new frontier that most established businesses shun—where an entrepreneur could make a profit while improving the quality of life. In 1969 Karsanbhai Patel, a factory chemist dissatisfied with his job and low income, decided to create and manufacture an affordable detergent for the Tier 4 market in India. Patel mixed a powder and began selling it to neighboring towns on his bicycle. Distributors eventually showed an interest in the product, and Patel's product spread nationwide.

Patel created a cottage industry that allowed individuals from Tier 4 markets to make money manufacturing and selling his product, but this cottage industry structure meant he did not have to pay his employees benefits. His efforts inspired Hindustan Lever Limited, the former leaders in market share, to enter this Tier 4 territory, thereby providing Tier 4 consumers with a choice between products.

Another example of an entrepreneur who wanted to benefit women around the world and also make a profit is Mary Ann Leeper. She bought the rights to a prototype female condom, but modified it, figured out how to manufacture it, and made it available on a global basis. Leeper created the Female Health Company, which "has focused its marketing efforts on establishing a presence in major world markets and building relationships with key world health agencies and programs. The female condom has been introduced in Japan, Africa, Latin America, the United Kingdom, the United States and Europe. ("The Female Health Company Biography: Mary Ann Leeper" Internet article). The female condom has been "hailed as a way of giving women increased power to protect themselves from sexually transmitted diseases" (Baille 2001).

Entrepreneurs have the ability to choose whether ethics will be a priority in their fledgling companies. Ben Cohen, a founder of Ben & Jerry's Ice Cream wrote in 1976 that "Business has a responsibility to give back to the community from which it draws its support" (Mead 2001). Cohen and Jerry Greenfield developed what they called a values-led company, which for them "meant a commitment to employees, the Vermont community, and social causes in general" (Mead 2001). In 1985 Cohen and Greenfield established the Ben & Jerry's Foundation to help disadvantaged groups, social change organizations, and environmentalists, donating 7.5 percent of the company's annual pre-tax profits. Ben & Jerry's became a subsidiary of Unilever, a multinational corporation that is also the parent company of HLL and is dedicated to measuring success via a triple bottom-line, in which environmental and social progress is just as important as financial gain (Gorman, Mehalik, and Werhane 2000).

Conclusions

For scientists and engineers, entrepreneurship represents an opportunity to discover and even create markets (Gorman and Mehalik 2002). Attention to social and ethical impacts will actually increase the likelihood that an innovation will be accepted.

The entrepreneur needs to:

  • Be truthful with potential customers and investors.
  • Consider whether a new technology is more likely to benefit or harm the global environment.
  • Consider the impact of a new technology on the Tier 4 market. Will it increase the gap between rich and poor, or give the poor the opportunity to improve their situation?
  • Measure progress using social and environmental metrics, as well as economic.

MICHAEL E. GORMAN
EMILY LYNN BRUMM

SEE ALSO Business Ethics; Management: Models; Technological Innovation; Work.

BIBLIOGRAPHY

Ahmad, Pia Sabharwal, et al. (2004). Hindustan Lever Limited (HLL) and Project Sting: Case A. Charlottesville: Univer-sity of Virginia Darden School. This case-study, and others below, are available as Darden School publications; see www.darden.edu.

Carlson, W. Bernard. (1994). Entrepreneurship in the Early Development of the Telephone: How did William Orton and Gardiner Hubbard Conceptualize This New Technol-ogy? Business and Economic History 23(2): 161–192.

Gorman, Michael E. (1992). Simulating Science: Heuristics, Mental Models and Technoscientific Thinking. Bloomington: Indiana University Press. Describes when confirmation is and isn't a bias.

Gorman, Michael E., Matthew M. Mehalik. (2002). "Turn-ing Good into Gold: A Comparative Study of Two Envir-onmental Invention Networks." Science Technology and Human Values, 27(4): 499–529. This paper provides an STS framework for entrepreneurs in science and technology.

Gorman, Michael E., Matthew M. Mehalik, and Patricia Werhane. (2000). Ethical and Environmental Challenges to Engineering. Englewood Cliffs, NJ: Prentice-Hall. This book contains case-studies of engineers and businesses that encountered ethical dilemmas while they were conducting entrepreneurial activities.

Hughes, Thomas P. (1983). Networks of Power: Electrification in Western Society: 1880–1930. Baltimore: Johns Hopkins University Press.

Mead, Jenny, Robert J. Sack, and Patricia H. Werhane. (2001). "Ben & Jerry's Homemade, Inc. (A): Acquisition Suitors At The Door." Publication E-0225. Charlottes-ville: University of Virginia Darden School Foundation.

Prahalad, C.K., and Allen Hammond. (2002). "Serving the World's Poor, Profitably," Harvard Business Review 80(9): 48–57.

Sen, Amartya K. (1999). Development as Freedom. New York: Oxford University Press.

INTERNET RESOURCES

Baille, Andrea. "Women Offer to Participate in Female Condom Study." Canoe. Available from http://www.canoe.ca/Health0110/26_condom-cp.html.

Coy, Peter. "Rise & Fall." Cornell Magazine. Cornell University. Available from http://cornell-magazine.cornell.edu/Archive/2001mayjun/RiseFall.html.

"The Female Health Company Biography: Mary Ann Leeper." Availiable from http://www.femalehealth.com/Press-ReleasesAug99toCurrent/PressReleaseBiography7.19.2000.htm

Filion, Louis Jacques. (1997). "From Entrepreneurship to Entreprenology." Availiable from http://www.usasbe.org/knowledge/proceedings/1997/P207Filion.PDF.

Kotelnikov, Vadim. (2004). "The Entrepreneur: The Key Personality, Environmental and Action Factors. Available from http://www.1000ventures.com/business_guide/crosscuttings/entrepreneur_main.html.

Lawston, Jennifer. (2003). "Ethics and the Entrepreneur." USA Today. Available from http://www.usatoday.com/money/jobcenter/2003-01-03-entre-ethics_x.htm.

Lieberman, Joe (2002). "Business Ethics in the Post-Enron Era: What Government Can Do And What Business Must Do." 1 April 2002. Available from http://www.southerninstitute.org/Resources-GoodBusiness-Content(1).htm.

Maass, Alan, and Todd Chretien. (2002). "A Tale of Greed, Deceit, and Power Politics." Socialist Worker Online. Available from http://www.socialistworker.org/2002-1/390/390_06_EnronTaleOfGreed.shtml.

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