Lecture 1 Entrepreneurship- Definitions SMEs Managers

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David and Goliath David and Goliath

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Entrepreneurship Guide

Transcript of Lecture 1 Entrepreneurship- Definitions SMEs Managers

David and GoliathDavid and Goliath

‘We now stand on the threshold of a new age - the age of revolution. In our minds, we know the new age has already arrived: in our bellies, we’re not

sure we like it. For we know it is going to be an age of upheaval, of tumult, of fortunes made and

unmade at head-snapping speed. For change has changed. No longer is it additive. No longer does it move in a straight line. In the twenty first century,

change is discontinuous, abrupt, seditious.’

Gary Hamel

EntrepreneursEntrepreneurs

Entrepreneurs use innovation to exploit or create change and opportunity for the

purpose of making profit.

They do this by shifting resources from an area of lower productivity into an area of higher productivity and greater yield,

accepting a high degree of risk and uncertainty in doing so.

‘We learned the importance of ignoring conventional wisdom and doing things our way....It’s fun to do things that people don’t

think are possible or likely. Its also exciting to achieve the unexpected.’

Michael Dell

Managers, Owner-managers &Managers, Owner-managers &EntrepreneursEntrepreneurs

Owner-managers Managers

Entrepreneurs

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Cantillon (1755)

Introduced the concept of entrepreneur from ‘entreprendre’ (ability to take charge)

Jean Baptist Say (1803, 1815)

Emphasised the ability of the entrepreneur to ‘marshal’ resources in order to respond to

unfulfilled opportunities

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Ely and Hess (1983)

Attributed to entrepreneurs the ability to take integrated action in the enterprise as a

whole, combining roles in capital, labour, enterprise and entrepreneur

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Schumpeter (1911/1934, 1928)

Envisioned that entrepreneurs proactively ‘created’ opportunity using ‘innovative

combinations’ which often included ‘creative destruction’ of passive or lethargic economic

markets

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Knight (1921)

Suggested that entrepreneurs were concerned with the ‘efficiency’ in economic

factors by continually reducing waste, increasing savings and thereby creating

value, implicitly understanding the opportunity-risk-reward relationship

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Hayek (1948, 1952, 1967)

Continued the Austrian tradition of analytical entrepreneurs giving them capabilities of

discovery and action, recognising the existence of information asymmetry which

they could exploit

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Shapero (1975, 1984, 1985)

Attributed a ‘judgement’ ability to entrepreneurs to identify ‘credible

opportunities’ depending on two critical antecedents – perceptions of ‘desirability’

and ‘feasibility’ from both personal and social viewpoints

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Drucker (1974)

Attributed to entrepreneurs a sense to ‘foresee’ market trends and make a timely

response

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

Kirzner (1973, 1979, 1997, 1999)

Attributed to entrepreneurs a sense of ‘alertness’ to identify opportunities and

exploit them accordingly

The antecedence of modern The antecedence of modern entrepreneurshipentrepreneurship

SME DefinitionsSME Definitions

Micro SmallMedium

Max. employees 9 49 249

Max. turnover (euros) - 7m 40m

Max. total assets (euros) - 5m 27m

Characteristics of Small FirmsCharacteristics of Small Firms

• Most are very small• Strong influence of owner-manager (+ family)• Short-term horizons• Short of cash• Raising finance a major problem• Local orientation• Little influence on market• Scope of activity limited• Over reliance on small number of customers

Lifestyle FirmsLifestyle Firms

• Provides ‘comfort level’ of activity

• Provides acceptable income

• Routine, tactical management

• Set up to grow

• Rapid change

• Risky

• Strategic management

Growth Firms

Characteristics of Growth FirmsCharacteristics of Growth Firms• Strong influence of entrepreneur (+ family)

• Operates in uncertain, risky environment - Personal implications of failure important influence - Strongly intuitive, but self reliant and confident - Good at resolving conflict and ambiguity

• Sees opportunities and pursues them - Uses innovation to create competitive advantage - Short-term, incremental approach to decisions - Flexible, adaptive, emergent approach to strategy

• Relationship based approach to management

‘I am often asked what it is to be an entrepreneur and there is no simple answer. It is clear that successful entrepreneurs are vital

for a healthy, vibrant and competitive economy.

If you look around you, most of the largest companies have their foundations in one or

two individuals who have the determination to turn a vision into reality.’

Richard Branson

Global Entrepreneurship MonitorGlobal Entrepreneurship Monitor

ECONOMIC GROWTH

LEVEL OF ENTREPRENEURIAL ACTIVITY

Demography Education CultureEconomic

Infrastructure

EntrepreneurialOpportunity

EntrepreneurialCapacity

Economists’ perspectives on Economists’ perspectives on entrepreneurshipentrepreneurship

Industrial economist’s perspective:

Growth of SMEs is explained by attractiveness of market entry into an industry because of its profitability, growth, the barriers to entry and its concentration

Economists’ perspectives on Economists’ perspectives on entrepreneurshipentrepreneurship

Labour market economist’s perspective:

Analysis of the factors influencing individuals to set up an SME

Focus of Evolutionary TheoryFocus of Evolutionary Theory

KNOWLEDGE

INNOVATION

Focus of Evolutionary TheoryFocus of Evolutionary Theory

KNOWLEDGE

CHANGECHANGE

INNOVATION

Evolutionary TheoryEvolutionary Theory

Why entrepreneurship encourages growth:

1. It encourages competition by increasing the number of enterprises.

2. It is a mechanism for ‘knowledge spill-overs’ – transmission of knowledge from its point of origin to other individuals or organizations.

3. It generates diversity and variety among enterprises in any location.

Opportunity, innovation Opportunity, innovation and entrepreneurshipand entrepreneurship

Innovation and Competitive AdvantageInnovation and Competitive Advantage

Increasing competitive advantage

Frequency of Innovation

Degree of InnovationHighLow

High

Adaptor v InnovatorAdaptor v InnovatorAdaptor

• Employs a disciplined, precise, methodical approach

• Is concerned with solving, rather than finding, problems

• Attempts to refine current practises

• Tends to be means orientated• Is capable of extended detail

work• Is sensitive to group cohesion

and cooperation

Innovator• Approaches task from unusual

angles

• Discovers problems and avenues of solutions

• Questions basic assumptions related to current practices

• Has little regard for means; is more interested in ends

• Has little tolerance for routine work

• No need for consensus; often is insensitive to others

Ability to be CREATIVE

Ability to spot OPPORTUNITIES

INVENTION

INNOVATION

SUCCESS

ENTREPRENEURIAL ENVIRONMENT

Creativity, Invention, Opportunity and Creativity, Invention, Opportunity and EntrepreneurshipEntrepreneurship

Invention and EntrepreneurshipInvention and Entrepreneurship

STRUGGLER

COPIER

INNOVATOR

STAGNATOR

Creativity / Invention

Opportunity perception / Entrepreneurship

Hi

Lo Hi

Schumpter’s InnovationsSchumpter’s Innovations• Introduction of a new or improved good

• Introduction of a new process

• Opening of a new market

• Identification of a new source of supply of raw materials

• Creation of new types of industrial organization

Drucker’s Sources of OpportunityDrucker’s Sources of Opportunity• The unexpected• The incongruity• The inadequacy in underlying processes• The changes in industry or market structure

PLUS• Demographic changes• Changes in perception, mood or meaning• New knowledge

Why? Why?Why? Why?

Deliveriesunreliable Transport

problems

Productionbottlenecks

Quality issuspect

Price notcompetitive

Materials notconsistent

Lost bestsalespersonSales are

falling Inadequatechecking

We use ‘costplus’ pricing

Inadequaterewards

Why?

Why?

Why?

Why?

Why?

Why?

Why?

Why?

Why?Why?

Why?

Heroes and Super-heroesHeroes and Super-heroes

Influences on Owner-managers and Influences on Owner-managers and EntrepreneursEntrepreneurs

Antecedent influences

Personal characteristics and traits

Situational factors

Culture of society

Managerial TypologiesManagerial TypologiesType of manager Type of business

Owner-managerLifestyle firm, often trade or craft based. Will not grow

Entrepreneur

Manager

Growth firm. Pursuit of growth & personal wealth important

Manages business for others. organization similar to large firm

Personality Characteristics: Personality Characteristics: Methodological ProblemsMethodological Problems

• Not stable over time

• Requires subjective judgements

• Measures tend to ignore cultural and environmental influences

• The role of education, learning, training is often overlooked

• Issues such as age, sex, race, social class can be overlooked

Characteristics of Owner-ManagersCharacteristics of Owner-Managers

• The need for independence

• The need for achievement

• Internal locus of control

• Measured risk takers

• Need for personal control

• Unwilling or unable to delegate

• Can distrust subordinates

• Needs applause and recognition

Danger Signs for Owner- ManagersDanger Signs for Owner- Managers

Characteristics of Entrepreneurial Characteristics of Entrepreneurial OwnersOwners

• Opportunistic• Innovative• Self confident (or delusional?)• Self motivated and restless• Proactive and decisive• Vision and flair (creating an image)• Willing to take even greater risks

‘I have always lived my life by thriving on opportunity and adventure. Some of the best ideas come out of the blue, and you have to keep an open mind to see their

virtue.’

Richard Branson

Antecedent influences on Start-upsAntecedent influences on Start-ups

• Education

• Employment and unemployment

• Family

• Immigration