Entrepreneurship and small business

Our knowledge of entrepreneurship, like our knowledge of management, comes to us from many different disciplines. Anthropology, sociology, psychology, and economies have all contributed to our understanding of the entrepreneurial phenomenon. However, because of the diversity of approaches to the study of entrepreneurship, there is difficulty in defining just what entrepreneurship is and identifying just who is an entrepreneur.

Even Webster’s dictionaries disagree among themselves. Webster’s New American Dictionary defines an entrepreneur as “one who undertakes an enterprise” or “an employer of workmen.” Webster’s Third International Dictionary offers a more complete definition: an organizer of an economic venture, especially one who organizes, owns, manages, and assumes the risk of a business.” The difference between the definitions is one of scope and emphasis. The first definition is very broad and can include organizing a Little League team or hiring a contractor to fix the roof. The second definition is more useful because it narrows the focus of entrepreneurship to its important qualities; economic activity, ownership, venturing and risk.

Some writers on entrepreneurship, such as economist Joseph Schumpeter, have stressed “Innovation” as being the key factor in entrepreneurship. Innovation, the creation of new products, markets, services, sources of supply, or forms of industrial organization, is viewed as the dynamic force that moves the capitalists system. Entrepreneurs take capital from less productive sectors of the economy and invest it in new, growing, more profitable industries. This “creative destruction” of capital makes the entrepreneur the linchpin of a strong free enterprise economy.

Another key element of entrepreneurship is risk-taking. John Stuart Mill, nineteenth century British economist, saw risk bearing as the distinguishing factor between entrepreneurs and managers. Entrepreneurs stand to lose or gain for their own purse as a result of their own efforts. Managers are merely office holders and they bear none of the risks or liability of loss. Today, however, with employee stock ownership plans, managerial stock option incentives, and large pension fund investments, managers and employees are often important risk-bearers in their organizations.

Sociologists Max Weber offered a significant insight into our understanding of the entrepreneur. To Weber, the entrepreneur was the ultimate source of power and authority in an economic organization. In his analysis of bureaucracy, Weber saw no role for personal power in managerial positions. Only the entrepreneur possesses this. The distinction then between entrepreneur and manager rests on this presumption. However, recent commentators have noted that managers do act entrepreneurial in certain situations. But first, we will examine what makes an entrepreneur from a psychological and sociological perspective. Then the discussion will cover entrepreneurs create new ventures and what entry wedges they employ as competitive strategy. Since many ventures become small businesses, we will offer a managerial perspective of small business operations. The article ends with a look at corporate venturing and the role of innovation in larger firm.

Psychologists have investigated the personality characteristics of entrepreneurs in an attempt to understand why some people become entrepreneurs and others don’t . This is known as the trait approach. Among the traits though to be related to entrepreneurship are: Flexibility, extroversion, independence and aggressiveness. In this section, we examine three traits which investigators have shown to be entrepreneurial; the need for achievement, the internal locus of control, and a tolerance of ambiguity.

The individual with high levels of n-ach is a potential entrepreneur. The person views the economic undertaking as a problem to be solved and enjoys solving problems. Solving the entrepreneurial problem requires setting goals with hard but achievable expectations. The potential entrepreneur also believes that these goals can be achieved by his own efforts –he possesses the skills, abilities and resources. Along the way, the entrepreneur is open and responsive to feedback. This feedback may come from other individuals, organizations, the environment, or even the entrepreneur himself. The entrepreneur uses positive feedback for encouragement and negative feedback for correction. Lastly, the achievement of the goals and the possibility for failure are perceived as moderate risks. The n-ach individual neither plays it safe nor takes unnecessary chances.

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