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ENTREPRENEURSHIP First Semester, AY 2019-2020 HANDOUT NUMBER ONE Intro to Entrepreneurship Defining the Entrepreneur The Oxford English Dictionary defines an entrepreneur as ‘a person who attempts to profit by risk and initiative’. But this definition, while emphasizing risk and initiative, could cover a wide range of professions. The notion of entrepreneur has been crafted over many centuries, starting with Cantillon (1755), and has seen many different emphases. Over 200 years ago Jean-Baptiste Say, the French economist, said: ‘entrepreneurs shift economic resources from an area of lower productivity into an area of higher productivity and greater yield’ (1803). There are two generally accepted explanations of where entrepreneurial opportunities come from – the Schumpeterian view and the Kirznerian view. In the Schumpeterian view, opportunities emerge out of the entrepreneurs’ internal disposition to initiate or create change. In his classic work The Theory of Economic Development (1911), Joseph Schumpeter said that entrepreneurs introduce to the market innovations in the form of new products, new processes, new markets, and new organizations. They are the innovators who ‘shock’ and disturb the economic equilibrium during times of uncertainty, change, and technological upheaval. He argued that in a developing economy, an innovation prompts a new business to replace the old which he called as creative destruction. With Schumpeter the emphasis is on independent firm formation by entrepreneurs leading to this ‘creative destruction’. By way of contrast, Israel Kirzner’s view emphasizes opportunity recognition and implies that entrepreneurial profits are secured on the basis of knowledge and information gaps that arise between people in the market – called information asymmetry. It consists of not only not knowing a given piece of information but also of not knowing that one does not know it: no consideration of the information – positive or negative – even enters the economic actor’s mind. Sheer ignorance is the basis for uncertainty; economic actors neither know nor anticipate the future perfectly due to their incapacity to foresee every datum in that future. Furthermore, the entrepreneur, in seeking his own profit, is essential to correcting mistakes in the structure of prices and remedying the sheer ignorance and error exhibited by some economic actors. His profits derive from the services he performs in detecting and eliminating arbitrage opportunities, thereby allowing supply and demand for a given good to meet. In this view, entrepreneurs are alert, discovering opportunities by acting as an arbitrageur or a price adjuster in the marketplace. Schumpeterian and Kirznerian approaches seem to be used by entrepreneurs – they both create and spot opportunities – and a few studies tell us when, how and by whom these approaches might be used (e.g. Craig and Johnson, 2006; Samuelsson and Davidsson, 2009). Indeed, Kirzner (2009) himself concluded that both approaches are needed to understand the nature of dynamic market processes. Reconciling these views, we can say that entrepreneurs create value by exploiting some form of change – either shifting resources or, more directly, improving productivity. They can create this change themselves or spot it happening. Entrepreneurs can exploit change in technology, materials, prices or demographics. They provide an essential source of new ideas and experimentation that would otherwise remain untapped in the economy (Acs and Audretsch, 2005). We call this process innovation and this is an essential tool for entrepreneurs and one that creates wealth for an economy. Page 1 of 6 Prepared by Mr. Dandreb James L. Arro, LPT

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TABLE 1. The Antecedence of Modern Entrepreneurship DATE AUTHOR CONCEPT OF ENTREPRENEUR 1755 Cantillon Introduced the concept of entrepreneur from ‘entreprendre’ (ability to take charge) 1803, 1817 Say Emphasized the ability of the entrepreneur to ‘marshal’ resources in order to respond to unfulfilled opportunities. 1871 Menger Noted the ability of entrepreneurs to distinguish between ‘economic goods’ – those with a market or exchange value – and all others. 1893 Ely and Hess Attributed to entrepreneurs the ability to take integrated action in the enterprise as a whole, combining roles in capital, labour, enterprise and entrepreneur. 1911, 1928, Schumpeter Envisioned that entrepreneurs proactively ‘created’ opportunity 1942 using ‘innovative combinations’ which often included ‘creative destruction’ of passive or lethargic economic markets 1921 Knight Suggested that entrepreneurs were concerned with ‘efficiency’ in the use of economic factors by continually reducing waste, increasing savings and thereby creating value, emphasizing their ability to cope with risk and uncertainty effectively and implicitly understanding the opportunity risk-reward relationship. 1948, Hayek Continued the Austrian tradition of analytical entrepreneurs, 1952, 1967 attributing to them capabilities of discovery and action, recognizing the existence of information asymmetry which they could exploit 1973, 1979, Kirzner Attributed to entrepreneurs a sense of ‘alertness’ to identify 1997, 1999, opportunities and exploit them accordingly. 2009 1974 Drucker Attributed to entrepreneurs the capacity to ‘foresee’ market trends and make a timely response. 1975, 1984, Shapero Attributed a ‘judgement’ ability to entrepreneurs to identify ‘credible 1985 opportunities’ depending on two critical antecedents – perceptions of ‘desirability’ and ‘feasibility’ from both personal and social viewpoints With the world of entrepreneurship constantly evolving, new terms have been coined to fit an entrepreneur’s field of expertise. 1. Megaentrepreneurs – bigtime entrepreneurs who are willing to absorb huge risks using enormous amounts of capital in their business ventures 2. Technopreneurs – an entrepreneur who puts technology at the core of his or her business model 3. Social Entrepreneur – one who takes advantage of the country’s social problems and turn them to profitable institutions with the intention of helping the disadvantaged community rather than making a profit 4. Intrapreneur – an entrepreneur in a large company or corporation who is tasked o think, establish, and run a new big idea or project. Intrapreneurs are usually the project managers or the business development managers of a company. 5. Extrapreneurs – an intrapreneur who not only chooses to apply her/his talents to her/his own organization, but also applies those talents externally to other organizations and then brings those experiences back internally. (Definition by Michele DeStefano, Law Professor) 6. Microentrepreneurs – entrepreneurs who engage in micro or small businesses as an alternative to formal employment due to inadequate funds or skills

Page 2 of 6 Prepared by Mr. Dandreb James L. Arro, LPT www.deejaywrites.com | [email protected] | fb.com/deejaywrites | instagram: @deejaywrites

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What is Entrepreneurship? Entrepreneurship is a proactive process of developing a business venture to make a profit. It involves: (1) seeking opportunities for a market; (2) establishing and operating a business out of the opportunity; and, (3) assessing its risks and rewards through close monitoring of the operations. Professor Howard Stevenson, the godfather of entrepreneurship studies at Harvard Business School formulated a working definition for entrepreneurship as the pursuit of opportunity beyond resources controlled. Pursuit implies a singular, relentless focus. Entrepreneurs often perceive a short window of opportunity. They need to show tangible progress to attract resources, and the mere passage of time consumes limited cash balances. Consequently, entrepreneurs have a sense of urgency that is seldom seen in established companies, where any opportunity is part of a portfolio and resources are more readily available. Opportunity implies an offering that is novel in one or more of four ways. The opportunity may entail: 1) pioneering a truly innovative product; 2) devising a new business model; 3) creating a better or cheaper version of an existing product; or 4) targeting an existing product to new sets of customers. These opportunity types are not mutually exclusive. Beyond resources controlled implies resource constraints. At a new venture’s outset, its founders control only their own human, social, and financial capital. Many entrepreneurs bootstrap: they keep expenditures to a bare minimum while investing only their own time and, as necessary, their personal funds. Benefits of Entrepreneurship 1. Entrepreneurship produces more jobs that equate to an increase in national income. 2. Entrepreneurship amplifies economic activities of different sectors of society. 3. Entrepreneurship introduces new and innovative products and services. 4. Entrepreneurship improves people’s living standards. 5. Entrepreneurship disperses the economic power and creates equality. 6. Entrepreneurship controls the local wealth and balances regional development. 7. Entrepreneurship reduces social conflicts and political unrests. 8. Entrepreneurship elicits economic independence and capital formation. Common and Core Competencies in Entrepreneurship 1. Proactive. Entrepreneurs are reactive than passive. They address issues, problems, and challenges before they come rather than when they already happen. 2. Agents of Change. Entrepreneurs are innovation champions. They see opportunities in hopeless and complex situations. 3. Risk takers. Without risk, entrepreneurs will not achieve success. By taking risk, entrepreneurs do not just grab opportunities; they have to take into consideration potential threats they may encounter. 4. Have a sharp eye for opportunities. Entrepreneurs have a talent for recognizing an opportunity. They know how to assess the net cause and effect of an opportunity and decide intelligently if a venture should be considered or not. 5. Sociable. Soft skills allow entrepreneurs to establish the relationship with people. 6. Networkers. A networker knows the key people to connect with. 7. Decisive. Entrepreneurs do not settle for gray areas or unclear solutions. They do not leave an issue unsolved with a disposition. 8. Balanced. Entrepreneurs have minds balanced between analytical and creative. Page 3 of 6 Prepared by Mr. Dandreb James L. Arro, LPT www.deejaywrites.com | [email protected] | fb.com/deejaywrites | instagram: @deejaywrites

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