ME 492 ENTREPRNEURSHIP DEVELOPMENT AND MANAGEMENT

Stephen H.M. Aikins Department of Agricultural Engineering College of Engineering, KNUST, Kumasi
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Entrepreneurship & Free Enterprise

What is Entrepreneurship? Entrepreneurship is the practice of starting

new organisations or revitalizing mature organisations, particularly new businesses generally in response to identified opportunities.
Entrepreneurship is often a difficult

undertaking, as a vast majority of new businesses fail.

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Entrepreneurship
Entrepreneurial activities are substantially

different depending on the type of organisation that is being started.

Entrepreneurship ranges in scale from solo

projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities.

Entrepreneurship
Many "high-profile" entrepreneurial ventures

seek venture capital or angel funding in order to raise capital to build the business.
Angel investors generally seek returns of 20-

30% and more extensive involvement in the business.

Entrepreneurship
Many kinds of organisations now exist to

support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NonGovernmental Organisations (NGOs).

History of Entrepreneurship
The understanding of entrepreneurship owes

much to the work of economist Joseph Schumpeter and some Austrian Economists, etc.

History of Entrepreneurship
Entrepreneurs do things that are not

generally done in the ordinary sense of business (Schumpeter, 1934).

Entrepreneurship is one of the four

mainstream economic factors: land, labour, capital and entrepreneurship.

History of Entrepreneurship
The word entrepreneurship derived from the 17th century French

entreprendre,
refers to individuals who were undertakers

meaning those who undertook the risk of new enterprise.

History of Entrepreneurship
They were contractors who bore the risks

of profit or loss, and many early entrepreneurs were soldiers of fortune, adventurers, builders, merchants, and incidentally, funeral directors.
How the term undertaker became

associated with funerals is a mystery, but there is considerable body of literature on entrepreneurship.
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History of Entrepreneurship
Early references to the entreprendeur in the

14th century spoke about tax contractors individuals who paid a fixed sum of money to a government for license to collect taxes in their region.
Tax entreprendeurs bore the risk of

collecting individual taxes.

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History of Entrepreneurship
If they collected more than the sum paid for

their licenses, they made profits and kept the excess.

If they failed to collect enough to match the

cost of their licenses, government officials, who already had their money from license fees, could care less.

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History of Entrepreneurship
Economics & Entrepreneurship
Richard Cantillon, a French economist of

Irish descent, is credited with giving the concept of entrepreneurship a central role in economics.

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Richard Cantillon
Cantillon described an entrepreneur as a

person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using resources while consequently assuming the risk of enterprise.

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Economics and Entrepreneurship

A critical point in Cantillons argument was

that entrepreneurs consciously make decisions about resource allocations.

Consequently, astute entrepreneurs would

always seek the best opportunities for using resources for their highest commercial yields.

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Economics and Entrepreneurship

Cantillon played out his theory in real life,

becoming a wealthy arbitrageur investing in European ventures, dealing in monetary exchange, and controlling commodities, such as farm produce, to auction in high-demand markets.
His vision is illustrated for farm produce in

Figure 1.
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Investment

Transformation

Profit or loss

Entrepreneur buys farm produce at certain prices

Entrepreneur repacks and transports farm produce to market

Entrepreneur sells food produce in city at uncertain prices

Figure 1: Cantillons Early View of Entrepreneurial Behaviour

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Economics and Entrepreneurship

Adam Smith spoke of the enterpriser in his

1776 Wealth of Nations as an individual who undertook the formation of an organisation for commercial purposes.

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Adam Smith
He thereby ascribed to the entrepreneur the

role of industrialist, but he also viewed the entrepreneur as a person with unusual foresight who could recognize potential demand for goods and services.

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Economics and Entrepreneurship

In Smiths view, entrepreneurs reacted to

economic change, thereby becoming the economic agents who transformed demand into supply.

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Economics and Entrepreneurship

French economist Jean Baptiste Say, in his

1803 Trait dconomie politique (translated into English in 1845 as A Treatise on Political Economy), described an entrepreneur as one who possessed certain arts and skills of creating new economic enterprises, yet a person who had exceptional insight into societys needs and was able to fulfil them.
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Economics and Entrepreneurship

Say, therefore, combined the economic risk

taker of Cantillon and the industrial manager of Smith into an unusual character.

Says entrepreneur influenced society by

creating new enterprises and at the same time was influenced by society to recognise needs and fulfil them through astute management of resources.
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Economics and Entrepreneurship

In 1848, British economist John Stuart Mill

elaborated on the necessity of entrepreneurship in private enterprise.

The term entrepreneur subsequently

became common as a description of business founders, and the fourth factor of economic endeavour was entrenched in economic literature as encompassing the ultimate ownership of commercial enterprise.
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Economics and Entrepreneurship

Mills work, however, was among the last of

the early economic studies in Britain or France that recognised entrepreneurship as central to economic theory.
For the greater part of the next hundred

years, British and French economists were more concerned with models of macroeconomics, and most of these were reduced to precise mathematical formulae.
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Economics and Entrepreneurship

The human side of enterprise the role of the

adventurer or risk-taking entrepreneur was left for history.

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Economics and Entrepreneurship

During that time however, there was an

important movement in Austria that subsequently influenced our 20th century concept of entrepreneurship.
Carl Menger (1840 1871) established the

subjectivist perspective of economics in his 1871 Principles of Economics.

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Economics and Entrepreneurship

In Mengers view, economic change does not

arise from circumstances but from an individuals awareness and understanding of those circumstances.
The entrepreneur becomes, therefore, the

change agent who transforms resources into useful goods and services, often creating circumstances that lead to industrial growth.
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Economics and Entrepreneurship

Menger envisioned a causal chain of events

whereby resources having no direct use in terms of fulfilling human needs were transformed into highly valued products that directly fulfilled human needs; this is the classic theory of production.
However, Menger saw the entrepreneur as

an astute individual who could envision this transformation and create the means to implement it.
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Economics and Entrepreneurship

Menger assigned priority numbers to different

events (or circumstances) in this chain so that a high priority event would have a low number (e.g. 1) and would be an ultimate end use to satisfy a human need such as providing consumers with baked loaves of bread.

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Economics and Entrepreneurship

At the other extreme, Menger assigned a low

priority event with a high number (e.g. 8) and this might represent a raw material needed to create the number 1 event; fields of unharvested wheat would have a low priority.
The entrepreneur, in Mengers view, was able

to see both extremes and conceive of ways to transform the unharvested wheat into fresh bread.
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Economics and Entrepreneurship

Joseph Schumpeter (1883-1950), an

Austrian Economist, described entrepreneurship as a force of creative destruction whereby established ways of doing things are destroyed by the creation of new and better ways to get things done.

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Economics and Entrepreneurship

Entrepreneurship is often a subtle force,

challenging the order of society through marginally small changes, but in Schumpeters view, it can be extraordinarily powerful, like the transformation of crude oil into an energy resource.

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Economics and Entrepreneurship

Schumpeter described entrepreneurship

as a process and entrepreneurs as innovators who use the process to shatter the status quo through new combinations of resources and new methods and commerce.

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Entrepreneurship
According to Schumpeter, the entrepreneur seeks to

reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products.
Entrepreneurship, as defined, essentially consists in

doing things that are not generally done in the ordinary course of business routine.
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Entrepreneurship
Schumpeter did not equate entrepreneurs

with inventors, suggesting instead that an inventor might only create a new product, whereas an entrepreneur will gather resources, organise talent, and provide leadership to make it a commercial success.

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Entrepreneurship
This viewpoint was mirrored by Peter Drucker (1909-2005),

who described the entrepreneurial role as one of gathering and using resources, but he added that resources, to produce results, must be allocated to opportunities rather than to problems.
In Druckers view, entrepreneurship occurs when resources are

redirected to progressive opportunities, not used to ensure administrative efficiency.

This redirection of resources distinguishes the entrepreneurial

role from that of the traditional management role, a distinction that Henry Ford made in his decisions.

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Entrepreneurship: Robert Ronstadts Def.

Entrepreneurship is the dynamic process of

creating incremental wealth. This wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment of providing value for some product or service.
The product or service itself may or may not be

new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources.
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Who is an Entrepreneur?
Is the local fuel station owner an entrepreneur?

The (Estate Agent) realtor, the butcher, the franchise

computer retailer? Are there entrepreneurs in corporations? In schools? In government?

There are no short answers to these questions, and

there are no formal guidelines for classifying entrepreneurs. There is no entrepreneurial licensing procedure and no evidence of professional status.
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Who is an Entrepreneur?
An entrepreneur is an innovator or

developer who recognizes and seizes opportunities; converts these opportunities into workable/marketable ideas; adds value through time, effort, money, or skills; assumes the risks of the competitive marketplace to implement these ideas; and realizes the rewards from these efforts.
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Corporate Entrepreneurship
Corporate Entrepreneurship, sometimes

referred to as intrapreneurship, is concerned with innovation that leads to new corporate divisions or subsidiary ventures in established, larger firms.

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Who is an Intrapreneurship?
Intrapreneurship refers to entrepreneurial

activities that receive organisational sanction and resource commitments for the purpose of innovative results.

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What Makes Someone an Entrepreneur?

Who can become an entrepreneur? There is no one definitive profile. Successful entrepreneurs come in various ages,

income levels, gender, and race.

They differ in education and experience. But

research indicates that most successful entrepreneurs share certain personal attributes, including: creativity, dedication, determination, flexibility, leadership, passion, self-confidence, and smarts.
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What Makes Someone an Entrepreneur?

Dedication is what motivates the

entrepreneur to work hard, 12 hours a day or more, even seven days a week, especially in the beginning, to get the endeavour off the ground.
Planning and ideas must be joined by hard

work to succeed.
Dedication makes it happen.
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What Makes Someone an Entrepreneur?

Determination is the extremely strong desire to

achieve success.
It includes persistence and the ability to bounce back

after rough times.

It persuades the entrepreneur to make the 10th phone

call, after nine have yielded nothing.

For the true entrepreneur, money is not the

motivation. Success is the motivator; money is the reward.

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Characteristics of Successful Entrepreneurs

Self-confident and optimistic Able to take calculated risk Respond positively to challenges Energetic and diligent Creative, need to achieve Dynamic leader

Flexible and able to adapt

Knowledgeable of markets

Responsive to suggestions
Take initiatives

Able to get along well with others Resourceful and persevering Independent minded Versatile knowledge Perceptive with foresight Responsive to criticism

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What is a Small Business?

A Small Business is one that does not

dominate its industry, has less than $10 million in annual sales, and has fewer than 1,000 employees.

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What is a Family Enterprise?

Family enterprises are locally owned and

operated, often by one person called a sole proprietor.

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What are Personal Service Firms?

Personal Service Firms rely crucially on

unique skills of their founders or key employees. In most instances, the business is the person, and succession is unlikely unless a son or daughter develops comparable skills.

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What is a Franchise?
A Franchise is a business system created

by a contract between a parent company, called the franchisor, and the acquiring business owner, called the franchisee, giving the acquiring owner the right to sell goods or services, to use certain products, names, or brands, or to manufacture certain products.

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What is a Franchise?
A Franchise is any arrangement in which

the owner of a trademark, trade name, or copyright has licensed others to use it to sell goods or services.

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THE END

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