Entrepreneurship Defination and Evloution

12/8/2015
Entrepreneurship -- Definition and

Evolution
Learning Unit 1 (Chapter 1)
Brijesh Sharma, SOMTU, MBA III, Winter 2015
Learning Objectives
1.
2.
3.
4.
Define entrepreneurship
Key elements of entrepreneurship
Process of new venture creation
The role of entrepreneurship in economic growth and
development
5. Entrepreneurial process
6. Common features of entrepreneurship in the Asia-Pacific
region;
7. Entrepreneurship in Nepal
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The World of Entrepreneurs

Welcome to the world of Entrepreneurs !
Entrepreneurship getting popularity as a field of study
Every year American entrepreneurs launch more than 850,000
new businesses (84% doing so for the first time)
These businesses have introduced innovative products, pushed
back technological frontier, created new jobs, opened foreign
markets.
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Entrepreneurial activity in Nepal is growing.
Culture of a community (besides many other factors)
influences how much entrepreneurship there is within it.
Salaried job Versus Entrepreneurship
A community that accords the highest status to those at the top
of organization or those with professional expertise
discourages entrepreneurship.
A culture (or policy) that accords high status to the selfmade individual is more likely to encourage entrepreneurship.
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Defining Entrepreneurship
Earliest Period
a merchant-adventurer who took the active role in trading, bearing all
the physical and emotional risks
Middle Ages
a person who managed large production projects
this individual didnt take any risks but merely managed the project
using the resources provided
17th Century
Richard Cantillon (in the 1700s) defined entrepreneur as one buying at
certain prices and selling at uncertain prices, therefore operating at risk.
18th Century
person with capital was differentiated from the one who needed capital
entrepreneurs were capital users
19th and 20th Century

the notion of an entrepreneur as an innovator was established
The core of Schumpeters definition of entrepreneurship is innovation.
Schumpeter viewed entrepreneurship as a force of creative
destruction
Entrepreneurs carry out new combinations and make old industries
obsolete.
Established ways of doing business are destroyed by creation of new
and better ways to do them.
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Peter Drucker took this concept further and described
entrepreneur as one who:
searches for change, responds to it and exploits change as an
opportunity
Entrepreneurship is defined as purposeful innovation.
To some, the entrepreneur is one who is willing to bear the risk
of a new venture if there is a significant chance for profit.
Entrepreneurs are not investors / risk takers
they take risk but so does anyone engaged in any kind of economic
activity
Entrepreneurs are risk eliminator
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Many simply equate entrepreneurship with starting ones own
(and small) business.
But not every new small business is entrepreneurial or represents
entrepreneurship (?)
Example: A couple who open another restaurant in the city

sidewalk
is new, small and surely takes risk

all they do is what has been done many times before
they gamble on the increasing popularity of eating out
but create neither a new satisfaction nor new customer demand
even though theirs is a new venture, not entrepreneurship
Nor are entrepreneurs capitalists (capital provider)
of course they need capital as do all economic activities
Entrepreneurs always search for change, respond to it and

exploit it as an opportunity
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Existing organizations (not just individuals) can be
entrepreneurial and an enterprise does not need to be new and
small to be entrepreneurial (Corporate Entrepreneurship,
entrepreneurial intensity)
Entrepreneurship is by no means confined solely to economic
institutions (social entrepreneurship)
Entrepreneurs are found in all professions education,
medicine, engineering, government etc.
Entrepreneurship is the process of creating something new
with value by devoting the necessary time and effort, assuming
the accompanying financial, psychic, and social risks and
receiving the resulting rewards of monetary and personal
satisfaction and independence.
Entrepreneurship is the art of turning an idea into a business.
Fred Wilson, Venture Capitalist
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Entrepreneurship is a process of exploiting opportunities that
exist in the environment or that are created through innovation
in an attempt to create value. It often includes the creation and
management of new business ventures by an individual or a
team.
An entrepreneur is the one who creates a new business in the
face of risk and uncertainty for achieving profit and growth
opportunities and assembles the necessary resources to
capitalize on those opportunities.
Entrepreneurship is all about
innovating / initiative taking
upgrading the yield from resources
creating something new (product, process, market, customer etc) and
hence acceptance of risk
changing/adding values (to the entrepreneur and to the audience for
which it is developed)
Identifying opportunities and putting useful ideas into practice
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Types of Entrepreneurship
Entrepreneurship
SME Entrepreneur
Innovation Driven
Entrepreneur
The Key Elements of Entrepreneurship

Five factors have been commonly cited for entrepreneurship to
take place
i.
ii.
iii.
iv.
v.
an individual (the entrepreneur)

a market opportunity
adequate resources
a business organization
a favorable environment
These five factors are considered contingencies something

that must be present in the phenomenon but that can
materialize in may different ways
The entrepreneur is responsible for bringing these
contingencies together to create new value
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Opportunity
Environment
Recognizes
Evaluates
Exploits
Environment
Fit
Focus
The
Entrepr
eneur
Attracts
Combines
Builds
Manages
Organization
Resources
Configuration
Environment

The Entrepreneur
At least one motivated person is required
Entrepreneur searches for change, responds to it, exploit it as
an opportunity
Factors that influence the way opportunities are recognized
and exploited by entrepreneurs:
Active search for opportunity

Entrepreneurial alertness
Prior knowledge
Social networks
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Active search for opportunity
Opportunity recognition preceded by systematic search for opportunity
Observing trends (PEST)
Solving problem (cell phone called the Jitterbug that features large
buttons, easy-to-read texts and a cushion that cups around the ear to
improve sound quality)
Finding gaps in the market place (Daisy Rock Guitars, Fitness for
Women)
Entrepreneurial alertness
Propensity to notice and be sensitive to information about objects,
incidents and pattern of behavior
High alertness brings special sensitivity to unmet needs, problems etc
Alertness Vs Active search

Prior knowledge
People tend to notice information that is related to info they already
know
Prior knowledge creates a knowledge corridor that allows to
recognize certain opportunities but not others
Social networks
Social networks help/influence recognize opportunity, acquire
resources, and develop organization
Social network is the first contacts to validate your hypothesis
Small, tight network Vs Broad, weak network
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Opportunity
A situation in which a new product, service or process can be
introduced and sold at greater than its cost of production.
A favorable set of circumstances that creates a need for a
product, service or business.
Market pulled opportunities: customers may or may not be able to
articulate their needs, interests and problems
Market pushed opportunities: under-utilized resources offer
possibilities to create new value for customers
Additional Info: Opportunity Vs Idea

An opportunity is a favorable set of circumstances that creates
a need for a product, service or business.
An idea is a thought, an impression or a notion that may or
may not meet the criteria of an opportunity.
Identifying and recognizing opportunities is key regardless of
how great the ideas are.
Before getting excited about a business idea, it is crucial to
understand whether the idea fills a need and meets the criteria
for an opportunity.
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Additional Info: Opportunity Vs Idea

Very often, both the terms are used interchangeably
Most entrepreneurs rush to execute their idea without knowing
(testing) if it brings/is an opportunity
Common mistake entrepreneurs: Product/Idea Myopia
Business opportunity = Business Idea x Customers
Qualities of an Opportunity
Durable
(potential to
improve with
time)
Timely
Opportunity
(rather than
just an idea)
Attractive
(early payback,
high margin, low
startup capital)
Anchored in a
product, service, or
business that
creates or adds
value for its buyer
or end user
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12/8/2015

Resources
A resource is anything that is useful
Identify and acquire resources to transform idea into
organization (financial, physical, human, technological, social
and organizational)
Constructing initial resource base is challenging
Liability of Newness creates perceived risk on the part of
potential resource providers
Some resources (e.g. social) are leveraged to obtain other (e.g.
financial)

Organization
Different types of organizational arrangement exist for the
exploitations of entrepreneurial opportunities
Startup is the current buzzword
Besides, corporate ventures, franchises, JV, buying an existing
business are useful
Besides starting own business, there are many ways to
becoming an entrepreneur
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12/8/2015

Environment
Environment plays a critical role in entrepreneurship
Most commonly PEST
Two levels of the environment:
Community level
Number of organizations in an industry (population density)
Strength of relationship
Broader societal level
Cultural norms and values
Government activities and policies
The Process of New Venture Creation

Environment
Community
Political
Economic
Socio-cultural
Opportunity
Individual
Alertness
Knowledge
Social Network
Aspirations
Recognition of Opportunities
Intention
Concentrates steps to
evaluate and shape the
opportunity:
Market research
Gather resources
Business plan
Evaluation of Opportunities
Decision
Found
(triggers > barriers)
or
Abandon
(trigger < barriers)
Exploitation of Opportunities
15
Revenue (Rs.)
12/8/2015
The Entrepreneurial Process
Business Planning
Time
Business Selection (Want Vs. Can)

Feasibility
Assess Opportunity
Ideas Pop Up
Problem Recognition
Entrepreneurships Importance
Joseph Schumpeter in 1934 articulated entrepreneurships
importance in his book The Theory of Economic Development
Entrepreneurs develop new products and technologies that
over time make current products/technologies obsolete
(Creative Destruction)
New products are better and increases consumer demand, thus
stimulating economic activity.
New technology also increases the productivity of all elements
of a society.
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12/8/2015
Economic Impact of
Entrepreneurial Firms
Entrepreneurships
Importance
Impact on Society
Impact on Large Firms
A. Economic Impact of Entrepreneurial Firm
1.
2.
Innovation
Job Creation
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12/8/2015
A. Economic Impact of Entrepreneurial

Firm
1.
Innovation:
Is the process of creating something new.
Is not limited to creating new products and technologies.
Also include:
pricing strategies,
implementing new business processes,
fresh ways of doing things,
radical alliances,
new distribution channels (amazon.com and drone delivery)

Firm
1. Innovation: (contd.)
In US, Small businesses/Entrepreneurial firms:
Are incubators of new ideas, products and services
Create 13 to 14 times more innovations per research employee
than large companies
According to the SBA, small businesses produce13 times more
patents per employee than large firms.
Their patents are twice as likely as large firm patents to be
among the 1 percent most cited.
Small businesses tend to have fewer layers of bureaucracy,
which often allows them to be more responsive to market
forces and able to take advantage of innovations in technology.
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12/8/2015

Firm
2. Job Creation:
In US, Small businesses/Entrepreneurial firms:
Employs 51% of nations private sector work force
Labor intensive and hence creates more jobs than do big
businesses
Are leaders in offering training and advancement opportunities
to workers Study by Small Business Administration
Produce 51% of the countrys private GDP and account for
47% of business sales

Firm
2. Job Creation: (contd.)
The number of small businesses tends to increase during tough
economic times.
According to the SBA, during the recession period between
1990 and 1992, 1,068,124 small businesses closed their doors.
However, 1,085,737 new businesses were created during the
same period, resulting in a net gain of 17,613 businesses.
From 2002 to 2003, there was a net gain of 54,498 small
businesses.
Provide the first job for most new entrants to the labor force.
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12/8/2015
B. Impact on Society
Innovation have dramatic impact on peoples lives.
New products and technologies continue to make our lives
easier, enhance our productivity, improve our health and
whatnot. For example:
Drugs and modern medical science

ICT and its impact
.
.
Some innovations bring controversy as they create moral and

ethical issues
C. Impact on Large Firms

Complement large businesses in a number of ways:
They supply many of the components needed by big
companies.
For example, the U.S. automakers depend on more than 1,700
suppliers to provide them with the parts needed to make their
cars.
While many of the suppliers are large, there are hundreds of
smaller companies that provide a substantial portion of the
8,000 to 12,000 parts that go into each vehicle.
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12/8/2015

Many small firms provide outsourcing services to large
firmsthat is, they hire themselves out to help with special
projects or handle certain business functions.
A large company might contract with a small information
technology firm to manage its Web site or oversee software
upgrades.

Small companies provide another valuable service to large
companies by acting as sales agents for their products.
For example, automobile dealerships, which are generally
small businesses, sell vehicles for the big car makers.
Local sporting goods stores sell athletic shoes made by
industry giants, such as Adidas and Nike.
Your corner shops sell products made by large companies,
such as Coca-Cola and Tuborg.
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12/8/2015
Help Yourself
1. The role of entrepreneurship in economic growth and
development
2. Common features of entrepreneurship in the Asia-Pacific
region;
3. Entrepreneurship in Nepal
Classroom Activity
Case Study
Green Building Material, page 24
22
12/8/2015
Assignment(s)
Write one page reflection on the article When Big Companies
Fall, Entrepreneurship Rises
Due on 8 December 2015
Come prepared for classroom discussion on the article The

Difference between an Entrepreneur and a Small Business
Owner
6 December 2015
End of Unit 1
23

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12/8/2015

Entrepreneurship -- Definition and

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The World of Entrepreneurs

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The World of Entrepreneurs

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The World of Entrepreneurs

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

19th and 20th Century

Entrepreneurship is defined as purposeful innovation.

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Example: A couple who open another restaurant in the city

is new, small and surely takes risk

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Entrepreneurs always search for change, respond to it and

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The Key Elements of Entrepreneurship

an individual (the entrepreneur)

These five factors are considered contingencies something

The Key Elements of Entrepreneurship

The Key Elements of Entrepreneurship

Active search for opportunity

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The Key Elements of Entrepreneurship

The Key Elements of Entrepreneurship

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The Key Elements of Entrepreneurship

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Additional Info: Opportunity Vs Idea

Additional Info: Opportunity Vs Idea

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The Key Elements of Entrepreneurship

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The Key Elements of Entrepreneurship

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The Key Elements of Entrepreneurship

Brijesh Sharma, SOMTU, MBA III, Winter 2015

The Process of New Venture Creation

The Entrepreneurial Process

Business Selection (Want Vs. Can)

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Brijesh Sharma, SOMTU, MBA III, Winter 2015

A. Economic Impact of Entrepreneurial

Brijesh Sharma, SOMTU, MBA III, Winter 2015

A. Economic Impact of Entrepreneurial

A. Economic Impact of Entrepreneurial

Brijesh Sharma, SOMTU, MBA III, Winter 2015

A. Economic Impact of Entrepreneurial

Brijesh Sharma, SOMTU, MBA III, Winter 2015

Drugs and modern medical science