Introduction to Entrepreneurship, 8e
Donald F. Kuratko
Chapter 1
The Revolutionary Impact of
Entrepreneurship
Ho Man Kit, Raymond
LLB(Peking U) MA(CUHK) EdD
2009 South-Western, a part of Cengage Learning.
All rights reserved.
Chapter Objectives
1.
2.
3.
4.
5.
6.
7.
To examine the historical development of
entrepreneurship
To explore and debunk the myths of
entrepreneurship
To define and explore the major schools of
entrepreneurial thought
To explain the process approaches to the study of
entrepreneurship
To set forth a comprehensive definition of
entrepreneurship
To examine the Entrepreneurial Revolution taking
place today
To illustrate todays entrepreneurial environment
2009 South-Western, a part of Cengage Learning. All rights reserved.
12
EntrepreneursChallenging the
Unknown
Entrepreneurs
Recognize opportunities where
others see chaos or confusion
Are aggressive catalysts for
change within the marketplace
Challenge the unknown and
continuously create the future
2009 South-Western, a part of Cengage Learning. All rights reserved.
13
Entrepreneurs versus
Small Business Owners: A Distinction
Small Businesses Owners
Manage their businesses by expecting stable sales,
profits, and growth
Entrepreneurs
Focus their efforts on innovation, profitability and
sustainable growth
2009 South-Western, a part of Cengage Learning. All rights reserved.
14
Entrepreneurship: A Mindset
Entrepreneurship is more than the mere
creation of business:
Seeking opportunities
Taking risks beyond security
Having the tenacity to push an idea through to reality
Entrepreneurship is an integrated concept
that permeates an individuals business in
an innovative manner.
2009 South-Western, a part of Cengage Learning. All rights reserved.
15
The Evolution of Entrepreneurship
Entrepreneur is derived from the French
entreprendre, meaning to undertake.
The entrepreneur is one who undertakes to organize,
manage, and assume the risks of a business.
Although no single definition of entrepreneur exists
and no one profile can represent todays entrepreneur,
research is providing an increasingly sharper focus on
the subject.
2009 South-Western, a part of Cengage Learning. All rights reserved.
16
A Summary Description
of Entrepreneurship
Entrepreneurship (Robert C. Ronstadt)
The dynamic process of creating incremental wealth.
This wealth is created by individuals who assume
major risks in terms of equity, time, and/or career
commitment of providing value for a product or
service.
The product or service itself may or may not be new
or unique but the entrepreneur must somehow infuse
value by securing and allocating the necessary skills
and resources.
2009 South-Western, a part of Cengage Learning. All rights reserved.
17
An Integrated Definition
Entrepreneurship
A dynamic process of vision, change, and creation.
Requires an application of energy and passion towards the
creation and implementation of new ideas and creative
solutions.
Essential ingredients include:
The willingness to take calculated risksin terms of time,
equity, or career.
The ability to formulate an effective venture team; the creative
skill to marshal needed resources.
The fundamental skills of building a solid business plan.
The vision to recognize opportunity where others see chaos,
contradiction, and confusion.
2009 South-Western, a part of Cengage Learning. All rights reserved.
18
The Myths of Entrepreneurship
Myth 1: Entrepreneurs Are Doers, Not Thinkers
Myth 2: Entrepreneurs Are Born, Not Made
Myth 3: Entrepreneurs Are Always Inventors
Myth 4: Entrepreneurs Are Academic and Social Misfits
Myth 5: Entrepreneurs Must Fit the Profile
Myth 6: All Entrepreneurs Need Is Money
Myth 7: All Entrepreneurs Need Is Luck
Myth 8: Ignorance Is Bliss For Entrepreneurs
Myth 9: Entrepreneurs Seek Success But Experience
High Failure Rates
Myth 10:
(Gamblers)
Entrepreneurs Are Extreme Risk Takers
2009 South-Western, a part of Cengage Learning. All rights reserved.
19
Figure
1.1
Entrepreneurial Schools-of-Thought Approach
2009 South-Western, a part of Cengage Learning. All rights reserved.
110
Macro View: External Locus of Control
The Environmental School of Thought
Considers the external factors that affect a potential
entrepreneurs lifestyle.
The Financial/Capital School of Thought
Based on the capital-seeking processthe search for
seed and growth capital.
The Displacement School of Thought
Alienation drives entrepreneurial pursuits
Political displacement (laws, policies, and regulations)
Cultural displacement (preclusion of social groups)
Economic displacement (economic variations)
2009 South-Western, a part of Cengage Learning. All rights reserved.
111
Table
1.1
Financial Analysis Emphasis
Venture Stage
Financial Consideration
Decision
Start-up or
acquisition
Seed capital
Venture capital sources
Proceed or abandon
Ongoing
Cash management
Investments
Financial analysis and
evaluation
Maintain, increase, or
reduce size
Decline or
succession
Profit question
Corporate buyout
Succession question
Sell, retire, or dissolve
operations
2009 South-Western, a part of Cengage Learning. All rights reserved.
112
Micro View: Internal Locus of Control
(contd)
The Entrepreneurial Trait School of Thought
Focuses on identifying traits common to successful
entrepreneurs.
Achievement, creativity, determination, and technical
knowledge
The Venture Opportunity School of Thought
Focuses on the opportunity aspect of venture
developmentthe search for idea sources, the
development of concepts, and the implementation of
venture opportunities.
Corridor principle: New pathways or opportunities will arise
that lead entrepreneurs in different directions.
2009 South-Western, a part of Cengage Learning. All rights reserved.
113
Table
Definitions And Criteria Of One Approach To The
Micro View
1.2
Entrepreneurial
Model
Definition
Measures
Questions
Great Person
Extraordinary Achievers
Personal principles
Personal histories
Experiences
What principles do you have?
What are your
achievements?
Psychological
Characteristics
Founder
Control over the means
of production
Locus of control
Tolerance of ambiguity
Need for achievement
What are your values?
Classical
People who make innovations
bearing risk and uncertainty
Creative destruction
Decision making
Ability to see opportunities
Creativity
What are the opportunities?
What is your vision?
How do you respond?
Management
Creating value through
the recognition of business
opportunity, the management
of risk taking . . . through the
communicative and management
skills to mobilize . . .
Expertise
Technical knowledge
Technical plans
What are your plans?
What are your capabilities?
What are your credentials?
Leadership
Social architect
Promotion and protection
of values
Attitudes, styles
Management of people
How do you manage people?
Intrapreneurship
Those who pull together
to promote innovation
Decision making
How do you change and
adapt?
Source: Adapted from J. Barton Cunningham and Joe Lischeron, Defining
Entrepreneurship, Journal of Small Business Management (January 1991): 56.
2009 South-Western, a part of Cengage Learning. All rights reserved.
114
Micro View (contd)
The Strategic Formulation School of
Thought
Emphasizes the planning process in successful
venture development.
Ronstadts View
Strategic formulation is a leveraging of unique
elements:
Unique Marketsmountain gap strategies
Unique Peoplegreat chef strategies
Unique Productsbetter widget strategies
Unique Resourceswater well strategies
2009 South-Western, a part of Cengage Learning. All rights reserved.
115
Process Approaches to Entrepreneurship
Integrative Approach
Built around the concepts of inputs to the
entrepreneurial process and outcomes from the
entrepreneurial process.
Focuses on the entrepreneurial process itself and
identifies five key elements that contribute to the
process.
Provides a comprehensive picture regarding the
nature of entrepreneurship that can be applied at
different levels.
2009 South-Western, a part of Cengage Learning. All rights reserved.
116
Figure
An Integrative Model of Entrepreneurial Inputs
and Outcomes
1.2
Source: Michael H. Morris, P. Lewis, and Donald L. Sexton, Reconceptualizing Entrepreneurship:
An Input-Output Perspective, SAM Advanced Management Journal 59, no.1 (Winter 1994): 2131.
2009 South-Western, a part of Cengage Learning. All rights reserved.
117
Process Approaches (contd)
Entrepreneurial Assessment Approach
Stresses making assessments qualitatively,
quantitatively, strategically, and ethically in regard to
the entrepreneur, the venture, and the environment
Multidimensional Approach
Views entrepreneurship as a complex,
multidimensional framework that emphasizes the
individual, the environment, the organization, and the
venture process.
2009 South-Western, a part of Cengage Learning. All rights reserved.
118
Figure
1.3
Entrepreneurial Assessment Approach
Source: Robert C. Ronstadt, Entrepreneurship (Dover, MA: Lord Publishing Co., 1984), 39.
2009 South-Western, a part of Cengage Learning. All rights reserved.
119
Our Entrepreneurial Economy
The Environment for Entrepreneurship
Entrepreneurship is the symbol of business
tenacity and achievement.
Entrepreneurs are the pioneers of todays
business successes.
Two perspectives on entrepreneurship:
Statistical: numbers that emphasize the importance of
entrepreneurs to the economy.
Academic: trends in entrepreneurial research and
education.
2009 South-Western, a part of Cengage Learning. All rights reserved.
120
Predominance of New Ventures
in the Economy
Entrepreneurial Activity: Growth in Small
Businesses
New business incorporations average 600,000 per
year over the past decade.
There are over 25 million small businesses; the
number continues to grow 2% annually.
One of every 150 adults participates in the founding of
a new firm each year.
Approximately 600,000 to 800,000 are added each
year.
2009 South-Western, a part of Cengage Learning. All rights reserved.
121
Effects of Entrepreneurship
The Global Entrepreneurship Monitor (GEM)
Provides an annual assessment of the entrepreneurial
environment of 42 countries.
Latest GEM study: the U.S. outranks the rest of the
world in important entrepreneurial support.
Entrepreneurs lead to growth by:
Entering and expanding existing markets.
Creating entirely new markets by offering innovative
products.
Increasing diversity and fostering minority participation
in the economy.
2009 South-Western, a part of Cengage Learning. All rights reserved.
122
Entrepreneurs in the United States
Reasons for the exceptional entrepreneurial
activity in the U.S. include:
A national culture that supports risk taking and
seeking opportunities.
Americans alertness to unexploited economic
opportunity and a low fear of failure.
U.S. leadership in entrepreneurship education at both
the undergraduate and graduate level.
A high percentage of individuals with professional,
technological or business degrees who are likely to
become entrepreneurs.
2009 South-Western, a part of Cengage Learning. All rights reserved.
123
The Age of Gazelles
A Gazelle
A business establishment with at least 20% sales
growth in each year for five years, starting with a base
of at least $100,000 in annual sales.
Gazelles as leaders in innovation:
Produce twice as many product innovations per
employee as do larger firms.
Have been responsible for 55% of the innovations in
362 different industries and 95% of all radical
innovations.
Obtain more patents per sales dollar than do larger
firms.
2009 South-Western, a part of Cengage Learning. All rights reserved.
124
Table
1.3
Mythology Associated with Gazelles
Gazelles are the goal of all entrepreneurs.
Gazelles receive venture capital.
Gazelles were never mice.
Gazelles are high-tech.
Gazelles are global.
Source: NFIB Small Business Policy Guide (Washington, D.C., November 2000), 31.
2009 South-Western, a part of Cengage Learning. All rights reserved.
125
Survival of Gazelles
How many gazelles survive?
The simple answer is none. Sooner or later, all
companies wither and die.
The Common Myth of Failure:
85% of all firms fail in the first yearin actuality, about
half of all start-ups last between 5 and 7 years.
2009 South-Western, a part of Cengage Learning. All rights reserved.
126
Entrepreneurial Firms Impact
Entrepreneurial components of the U.S.
Economy:
1.
Large firms have increased profitability by returning to
their core competencies through restructuring and
downsizing.
2.
New entrepreneurial companies have been
blossoming in new technologies and new markets.
3.
Thousands of smaller firms established by women,
minorities, and immigrants have strengthened the
economy.
2009 South-Western, a part of Cengage Learning. All rights reserved.
127
Entrepreneurial Firms Impact Contd)
Entrepreneurial firms make two
indispensable contributions to an economy:
1.
They are an integral part of the renewal process that
pervades and defines market economies.
2.
They are the essential mechanism by which millions
enter the economic and social mainstream of society.
2009 South-Western, a part of Cengage Learning. All rights reserved.
128
21st Century Trends in Entrepreneurship
Research
Venture
Financing
Corporate
Entrepreneurship
Entrepreneurial
Cognition
Global
Entrepreneurial
Movement
Social
Entrepreneurship
Trends in
Entrepreneurship
Research
Women
and Minority
Entrepreneurs
Entrepreneurial
Education
Family
Businesses
2009 South-Western, a part of Cengage Learning. All rights reserved.
129
21st Century Trends in Entrepreneurship
Research
Major Research Themes:
Venture Financing: venture capital and angel capital financing
and other financing techniques strengthened in the 1990s.
Corporate Entrepreneurship and the need for entrepreneurial
cultures has drawn increased attention.
Social Entrepreneurship has unprecedented strength within the
new generation of entrepreneurs.
Entrepreneurial Cognition is providing new insights into the
psychological aspects of the entrepreneurial process.
Women and Minority Entrepreneurs appear to face obstacles and
difficulties different from those that other entrepreneurs face.
The Global Entrepreneurial Movement is increasing.
2009 South-Western, a part of Cengage Learning. All rights reserved.
130
21st Century Trends (contd)
Major Research Themes (contd):
Family Businesses have become a stronger focus of research.
Entrepreneurial Education has become one of the hottest topics
in business and engineering schools throughout the world.
2009 South-Western, a part of Cengage Learning. All rights reserved.
131
Key Concepts
Entrepreneurship
A process of innovation and new-venture creation
through four major dimensionsindividual,
organizational, environmental, processthat is aided
by collaborative networks in government, education,
and institutions.
Entrepreneur
A catalyst for economic change who uses purposeful
searching, careful planning, and sound judgment
when carrying out the entrepreneurial process.
2009 South-Western, a part of Cengage Learning. All rights reserved.
132
Key Concepts
Entrepreneurial Management
The discipline of entrepreneurial management:
Entrepreneurship is based upon the same principles.
It matters not who or what that the entrepreneur is an
existing large institution or an individual, for-profit business or
a public-service organization, a governmental or nongovernmental institution.
The rules are much the same: things that work and those that
dont are much the same, and so are innovations and where
to look for them.
2009 South-Western, a part of Cengage Learning. All rights reserved.
133
Key Terms and Concepts
better widget strategies
financial/capital school of
corridor principle
displacement school of
thought
entrepreneur
entrepreneurial assessment
approach
entrepreneurial management
Entrepreneurial Revolution
entrepreneurial trait school of
thought
entrepreneurship
environmental school of
thought
external locus of control
2009 South-Western, a part of Cengage Learning. All rights reserved.
thought
gazelle
great chef strategies
internal locus of control
macro view of
entrepreneurship
micro view of
entrepreneurship
mountain gap strategies
strategic formulation school
of thought
venture opportunity school
of thought
water well strategies
134
