Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

OFFICE OF THE VICE- PRESIDENT FOR BRANCHES AND SATELLITE CAMPUSES
TAGUIG BRANCH

MODULE 12 – THE ENTREPRENEURIAL REASONING

OVERVIEW:

Think Like an Entrepreneur: Effectual vs Causal Reasoning

Causal Reasoning is based on having a goal and defining what means and choices can be
made. The opposite, Effectual Reasoning, involves being given the means and choices and
defining what the goal is.

COURSE OBJECTIVES:

After successfully completing the module, you should be able to:

1. Explain the entrepreneurial reasoning

2. Interpret the different myths about entrepreneurship
3. Differentiate Entrepreneur as Innovator, Promoter and Administrator

COURSE MATERIALS:

Entrepreneur as Innovator, Promoter, and Administrator

ENTREPRENUER AS INNOVATOR
The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and
business/or procedures. Entrepreneurs play a key role in any economy, using the skills and
initiative necessary to anticipate needs and bringing good new ideas to market.

Why Entrepreneur is regarded as Innovator?

Joseph A. Schumpeter, for the first time in 1934, assigned a crucial role of „innovation‟ to the
entrepreneur in his magnum opus „Theory of Economic Development.‟ Schumpeter considered
economic development as a discrete dynamic change brought by entrepreneur by instituting new
combinations of factors of production which he called „innovation‟.
In other words, entrepreneur is, according to Schumpeter, a „creative destructor‟ who creates or
causes a dynamic disequilibrium in the economy by taking innovation to commercialization by
embedding it in an environment where it did not exist previously.
Schumpeter also made a distinction between an inventor and an innovator. An inventor is one
who discovers new methods and new materials. And, an innovator utilizes inventions and
discoveries in order to make new combinations. Schumpeter argued that the entrepreneur may
or may not be the inventor, and similarly, the entrepreneur may or may not be the supplier of
capital.
The basic difference between the inventor and innovator is that the former produces idea, the
latter gets that idea converted into reality. This difference is similar to the difference between
„discovery‟ and „exploitation.‟ Discovery is fruition of insight and exploitation is the realization of
the potential value of discovered idea or insight. In a sense, innovation is an invention that is
replicated and commercially used at large-scale to solve a particular problem.

ENTREPRENUER AS PROMOTER
The role of an entrepreneur is of an initiator and a promoter. He must possess expert knowledge
of product, market conditions and practical aspects in order to run and promote a business. He is
got a crucial role to play in order to make the business successful. He should be an imaginative
thinker and should have proper knowledge of the ideal form of business.
Once the entrepreneur launches a business and it proves to be a profit oriented business, he
may decide to leave it, give up the ownership rights and give it in the hands of others to run it.
Many entrepreneurs have been found doing so due to the coming of new opportunities and more
profit oriented lines of business. His main duty is to take care of the business in the initial stages.
An entrepreneur has got, many responsibilities like the ability to seize an opportunity, .to
innovate, explore the aspects of profitable business, to complete legal formalities, raise funds
and last but not the least manage the business. He may face many problems while promoting
the business. Sometimes, long-run implicated decisions have to be taken. He is required to
undertake various things. Above all, innovation and risk bearing are the two elements of
entrepreneurship.
He is the one who collects the total demand and degree of competition for the proposed product.
He collects the preferences of the consumers regarding design, colour, size and shape. After
going through the research, he finally finds out the saleability of the proposed product. He even
has to take proper decisions regarding the promotional techniques. He can launch a business
after fulfilling various formalities.

ENTREPRENUER AS ADMINISTRATOR
The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and
business/or procedures. Entrepreneurs play a key role in any economy, using the skills and
initiative necessary to anticipate needs and bringing good new ideas to market.

ENTREPRENUERSHIP CLASSIFICATION:

1. Administrative Entrepreneurship 7. Public Entrepreneurship

2. Opportunistic Entrepreneurship 8. Individual Entrepreneurship
3. Acquisitive Entrepreneurship 9. Mass Entrepreneurship
4. Incubative Entrepreneurship

5. Imitative Entrepreneurship
6. Private Entrepreneurship

1. Administrative Entrepreneurship
The entrepreneurial activity under this category is centered around administrative techniques
and functions.
It gives a new option to handle prevailing or future situations in a more effective way that
provides advantages and a competitive edge.
Total Quality Management, job redesigning, new techniques of doing things, participative
management or management by consensus are a few of the examples of administrative
entrepreneurship that increase overall organizational efficiency and that nukes the firm
successful and sustainable in the competitive market environment.

2. Opportunistic Entrepreneurship
There is a proverb “Hit! while the iron is hot”. It is the best exhibit of the characteristic of this
category of entrepreneurship.
Environmental changes always offer new opportunities. But everybody is not equally capable of
identifying and to utilize that opportunity on time.
The entrepreneurship that identifies, exploits and executes the opportunity in the first hand
regarded as opportunistic entrepreneurship.
3. Acquisitive Entrepreneurship
The entrepreneurship that learns from other competencies is called acquisitive entrepreneurship.
It acquires something new of value front, the competitive environment or achieves the
competitors‟ technical capacities. It keeps entrepreneurship sustainable in a competitive
environment. The failure never restraints them from acquisition but motivates them further to
discover such a thing with a new visitor.
4. Incubative Entrepreneurship
This category of entrepreneurship generates and nurses new ideas and ventures within the
organization. It productively executes them and ensures material gain for the organization. They
pursue and help to get differentiated technologies to promote creations and innovations
Microsoft, Nokia, etc. always incubates new varieties types of product and creates product
differentiation in the market.

5. Imitative Entrepreneurship
The entrepreneurship that imitates a good or service operating in the market under a franchise
agreement is the imitative entrepreneurship. It is the medium that spread technology over the
world. It adopts an existing technology in countries over the world. It also adopts an existing
technology with minor modifications appropriate to the local condition.

6. Private Entrepreneurship
The entrepreneurship that is initiated under the private sector is private entrepreneurship.
The government gives various support services through private and public concerns that encourage
private initiative in taking entrepreneurial ventures.
A layer and mutual relationship between private and public sectors would make economic
development speedy and balanced.

7. Public Entrepreneurship
The entrepreneurship that is undertaken by the government through its various development
agencies is defined as public entrepreneurship.
All countries, developed or underdeveloped, take a public initiative in venture ideas to fulfill the
initial deficiency of private entrepreneurs.

8. Individual Entrepreneurship
The entrepreneurship that is undertaken by an individual or a family with his initiative is called
individual entrepreneurship.

9. Mass Entrepreneurship
This type of entrepreneurship emerges in an economy where a favorable climate of motivation
and encouragement exists for developing a wide range of entrepreneurship among general
mass is mass entrepreneurship. It increases small and medium enterprises in a country.

Hans Schollhammer (1980) has classified entrepreneurship into five categories such as
administrative, opportunistic, acquisitive, incubative and imitative entrepreneurship.
But with the change of time Entrepreneurship definition has changed and classification has
increased.

10 MYTHS ABOUT ENTREPRENUERSHIP

In his book, How to Start and Operate a Business: Winning the Entrepreneurial Game, author
David Rye lists and debunks a number of myths as follows:

Myth No. 1: Entrepreneurs Are High Risk Takers

Entrepreneurs, Rye states, are often thought of in terms of the risk they assume. Even the
dictionary describes an entrepreneur as one who assumes business risks. However, like all
prudent businesspeople, entrepreneurs know that taking high risks is a gamble. Entrepreneurs
are neither high nor low risk takers. They prefer situations in which they can influence the
outcome, and they like challenges if they believe the odds are in their favor.
They seldom act until they have assessed all the risks associated with an endeavor, and they
have an innate ability to make sense out of complexity. These are traits that carry them on to
success where others fail. Knowing which businesses to start and which to avoid is the first step
towards success.

Myth No. 2: Entrepreneurs Are Born

Many people, Rye says, believe that entrepreneurs possess innate, genetic talents. However,
experts generally agree that most entrepreneurs were not born; they learned to become
entrepreneurs. The recent proliferation of college and university courses on the subject supports
this point. Entrepreneurship is currently being successfully taught.
Starting your own company is not an easy decision and you must understand that it will change
your life in many ways.

Myth No. 3: Entrepreneurs Are Mainly Motivated to Get Rich

Any successful entrepreneur, argues Rye, will tell you that starting a business is not a get-
richquick alternative. New businesses usually take from one to three years to turn a profit. In the
meantime, you‟re considered to be doing well if you break even. During the business start-up
stage, entrepreneurs do not buy anything they do not need, such as fancy cars. Most drive junk
cars and use their surplus money to pay off debt or reinvest it in the business. Their focus is on
creating a company with a strong financial base for future expansion.
Myth No. 4: Entrepreneurs Give Little Attention to Their Personal Life
All successful entrepreneurs, Rye says, work long hours, which cuts into their personal life.
However, long working hours are not unique to entrepreneurs. Many corporate managers and
executives work well beyond the average 40-hour workweek. The primary difference between
the entrepreneur and his or her corporate counterpart is schedule control.
In the corporate world, you may not have control over your schedule. If some higher-level
manager calls a Saturday meeting, you‟ve got no choice but to be there. Entrepreneurs don‟t
mind working 60- to 70-hour weeks, but they will do everything they can to preserve their private
time. They schedule important meetings during the week so that they can have weekends off for
their personal life, which is very important to them.
Myth No. 5: Entrepreneurs Are Often High-Tech Wizards
We are all aware, says Rye, of a few high-tech entrepreneurial wizards who have made it. Media
attention overplays the success of these few high-tech entrepreneurs. Only a small percentage
of today‟s personal businesses are considered high tech, and what was considered high tech
just a few years ago is not considered high tech by today‟s standards.
It takes high profit margins, not high tech, to make it as an entrepreneur. One has only to look at
the recent problems that have plagued the computer industry to understand this basic principle.
High-tech personal computers did very well when they made high profit margins. The industry
then went into a nosedive when profits fell.

Myth No. 6: Entrepreneurs Are Loners and Introverts

Initially, Rye says, entrepreneurs might work alone on a business idea by tinkering in the solitude
of their garage or garden.

Myth No. 7: Entrepreneurs Are Job Hoppers

A recent study of successful entrepreneurs, notes Rye, showed that most of them worked for a
large corporation for a number of years before they started their own business. In every
instance, they used the corporate structure to learn everything they could about the business
they intended to establish before they started their own. Entrepreneurs are not job hoppers.

Myth No. 8: Entrepreneurs Finance Their Business with Venture Capital

Entrepreneurs, Rye says, know that venture capital money is one of the most expensive forms of
funding they can get. Consequently, they will avoid venture capitalists, using them only as a last
resort. Most entrepreneurs fund their business from personal savings, or by borrowing from
friends or lending institutions.

Myth No. 9: Entrepreneurs Are Often Ruthless or Deceptive

Rye thinks that some people believe that to make it as an entrepreneur, you have to be
deceptive and step on anybody who gets in your way. On the contrary, this mode of operation
doesn‟t work for the entrepreneur. The truly ruthless or deceptive entrepreneur will often alienate
others and be forced to waste time and energy repairing relationships with employees,
customers, and suppliers, or simply fail.

Myth No. 10: Entrepreneurs Have Limited Dedication

Rye says it is a myth that entrepreneurs are not dedicated to any one thing. But he adds that
dedication is an attribute that all successful entrepreneurs exhibit. They are dedicated to
becoming their own boss. To this end, they‟ll work like a dog to make their business succeed.
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