Defining EntrepreneurshipPaul Di-Masi
There has been a great deal of attention paid to the subject of entrepreneurship over the past few years, stemming primarily from the discovery by economic analysts that small firms contri-bute considerably to economic growth and vitality. Moreover, many people have chosen entrepreneurial careers because doing so seems to offer greater eco-nomic and psychological rewards than does the large company route. Programmes, such as the TKMPK strive to identify potential entrepreneurs from within the target group of unemployed graduates and, to a certain extent, teach entrepreneurship.
Yet, despite all of the discussion and attention paid to this issue, two fundamental questions remain unanswered: What is entrepreneurship? and Can you measure it? Clearly, in the context of TKMPK participant selection, these are two questions that need answering!
Peter Kilby once compared entrepreneurship to the imaginary animal, the Heffa-lump:
It is a large and important animal which has been hunted by many individuals using various ingenious trapping devices ... All who claim to have caught sight of him report that he is enormous, but they disagree on his particulari-ties. Not having explored his current habitat with sufficient care, some hunters have used as bait their own favourite dishes and have then tried to persuade people that what they caught was a Heffalump. However, very few are convinced, and the search goes on (Kilby, Hunting the Heffalump: Entrepre-neurship and Economic Development, 1971).
What is Entrepreneurship?
Many definitions of entrepreneurship can be found in the literature describing business processes. The earliest definition of entrepreneurship, dating from the eighteenth century, used it as an economic term describing the process of bearing the risk of buying at certain prices and selling at uncertain prices. Other, later commentators broadened the definition to include the concept of bringing together the factors of production. This definition led others to question whether there was any unique entrepreneurial function or whether it was simply a form of management. Early this century, the concept of innovation was added to the definition of entrepreneur-ship. This innovation could be process innovation, market innovation, product innovation, factor innovation, and even organisational innovation. Later definitions described entrepreneurship as involving the creation of new enterprises and that the entrepreneur is the founder.
Considerable effort has also gone into trying to understand the psychological and sociological wellsprings of entrepreneurship. These studies have noted some common characteristics among entrepreneurs with respect to need for achievement, perceived locus of control, orientation toward intuitive rather than sensate thinking, and risk-taking propensity. In addition, many have commented upon the common, but not universal, thread of childhood deprivation, minority group membership and early adolescent economic experiences as ty-pifying the entrepreneur.
At first glance then, we may have the beginnings of a definition of entrepreneurship. However, detailed study of both the literature and actual examples of entrepreneurship tend to make a definition more difficult, if not impossible.
Consider, for example, the degree to which entrepreneurship is synonymous with 'bearing risk', 'innovation', or even founding a com-pany. Each of the terms described above focuses upon some aspect of some entrepreneurs, but if one has to be the founder to be an entrepreneur, then neither Thomas Watson of IBM nor Rey Kroc of McDonald's will qualify; yet few would seriously argue that these individuals were not entrepreneurs.
Although risk bearing is an important element of entrepreneurial behaviour, many entrepreneurs have succeeded by avoiding risk where possible and seeking others to bear the risk. As one extremely successful entre-preneur has said; 'My idea of risk and reward is for me to get the reward and others to take the risks'.
Creativity is often not a prerequisite for entrepreneurship either. Many successful entrepreneurs have been good at copying others and they qualify as innovators and creators only by stretching the definition beyond elastic limits.
There are similarly many questions about what the psychological and social traits of entrepreneurs are. The same traits shared by two individuals can often lead to vast different results: successful and unsuccessful entrepreneurs can share the characteristics commonly identified. As well, the studies of the life paths of entrepreneurs often show decreasing 'entrepreneurship' following success, which tends to disprove the centrality of character or personality traits as a sufficient basis for defining entrepreneurship.
So, we are left with a range of factors and behaviours which identify entrepreneurship in some individuals. All of the above tends to reinforce the view that it is difficult, if not impossible to define what an entrepreneur is, and that the word itself can be best used in the past tense to describe a successful business person.
Despite the above, there is remains a powerful impulse, particularly amongst enterprise development practitioners, to measure entrepreneurship in some way. These measurement attempts can range from simple checklists through to complex and detailed computer programmes. This need for a definition and measure of entrepreneurship is because, however defined, the entrepreneur is the key to the successful launch of any business.
He or she is the person who perceives the market opportunity and then has the motivation, drive and ability to mobilise resources to meet it. The major characteristics of entrepreneurs that have been listed by many commentators include the following.
- Self confident and multi-skilled. The person who can 'make the prod-uct, market it and count the money, but above all they have the confidence that lets them move comfortably through unchartered waters'.
- Confident in the face of difficulties and discouraging circumstances.
- Innovative skills. Not an 'inventor' in the traditional sense but one who is able to carve out a new niche in the market place, often invisible to others.
- Results-orientated. To make be successful requires the drive that only comes from setting goals and targets and getting pleasure from achieving them.
- A risk-taker. To succeed means taking measured risks. Often the successful entrepreneur exhibits an incremental approach to risk taking, at each stage exposing him/herself to only a limited, measured amount of personal risk and moving from one stage to another as each decision is proved.
- Total commitment. Hard work, energy and single-mindedness are essential elements in the entrepreneurial profile.
However, two warnings need to be attached to this partial list of entrepreneurial qualities.
- Firstly, selecting individuals for enterprise development training by such a set of attitudes and skills in no way guarantees business success.
- Secondly, the entrepreneurial characteristics required to launch a business successfully are often not those required for growth and even more frequently not those required to manage it once it grows to any size. The role of the entrepreneur needs to change with the business as it develops and grows, but all too often he or she is not able to make the transition.
Visionaries and Managers
In new and emerging businesses, the person who starts the business is often an entrepreneur; a visionary.
The visionary who starts a business with a fresh idea -- to make something better or less expensively, to make it in a new way or to satisfy a unique need -- is often not primarily interested in making money. The visionary wants to do something that no one else has done because they can, because it is interesting and exciting, and because it may be meeting a need. Once the business begins to have some success, then the nature of the processes needed change.
At this stage, the infant business experiences its first set of challenges:
- How does the visionary entrepreneur transfer the skills and the inspiration that made the little enterprise a success into something larger?
- How does the business deal with cash flow constraints?
- How does it obtain the legitimacy necessary to enable it to borrow?
Often, the visionary is not interested in these issues. Visionaries are notoriously poor at supervising staff, negotiating with investors, or training successors. The business now needs a professional management focus, which calls on a different set of skills, to manage and sustain growth, that are distinct from the skills necessary to start an enterprise and promote a vision.
Applying management skills allows the adolescent enterprise continues to do well, but the business culture begins to change. The emphasis of management is structure, policies, procedures and the bottom line, that is profitability. Then the business reaches the next challenge: the maturing enterprise now requires a management structure or governance to create checks and balances and to ensure that the management focus does not become too powerful and overwhelm the entrepreneurship necessary to create rapid growth and access new markets.
Businesses in emerging industries go through these three stages characterised by vision, management, and governance. Upon developing into an institutionalised company with appropriate governance structures, the business encounters a new set of challenges that are common to all industries:
- How does the business preserve its vision?
- How does it balance growth, risk, and profitability?
- How does it establish a governance system that holds management accountable without undermining its independence and flexibility?
This business development cycle described above is common amongst successful businesses. The cycle itself raises the issue of what to focus on when attempting to select a business idea to take part in a programme such as the TKMPK. The real danger for those involved in selection activities is that of selecting entrepreneurial qualities over managerial skills. This may thereby condemn the business to uneven growth, poor management and ultimate failure, as the enterprise does not respond adequately to new market and trading conditions. A further danger is attempting to select people over ideas.
The focus of any predicative element in the selection process, therefore, needs to be on a balance of both entrepreneurial and managerial qualities. And the major determinant in selecting a participant for business management training must remain the business idea itself.