18/10/2020

Entrepreneurship
Wk-3-4
Process and Process
Theories of
Entrepreneurship

Dr. Mutahir

What Is An Entrepreneur?
DEFINITIONS
• Entrepreneur is any person that
continuously seeks and acts upon
opportunities for economic and or social
ENTREPRENEUR gains through applying the principle of
creative problem solving.
A vision-driven individual who
assumes significant personal and • Entrepreneurship is a mindset and
financial risk to start or expand a practice of looking and acting upon
business. opportunities for economic and or social
benefits through innovation and risk
taking.

Who is an Entrepreneur? Who is an Entrepreneur?

Situational more than personality Manager’s Opportunities
Future Goals
Change Status Quo
Flexibility Ability

Age
Distribution
Satisfied
for
Starting
Possible Entrepreneur manager
Company

Perceived
Capability
Frustrated Classic
20 25 30 35 40 45 Blocked manager bureaucrat
Age

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Who are entrepreneurs? What is Entrepreneurship?

ENTREPRENEURSHIP IS BEING IN CHARGE OF TRANSFORMING “CAN DO” INTO “DONE”
YOUR OWN DESTINY. IT IS THE JOURNEY AND
• Common traits • Common traits EXPERIENCE OF TURNING YOUR DREAMS
CREATING AN MARSHALLING RESOURCES
EXCITING NEW IN A CREATIVE WAY IN ORDER
– Original thinkers – Self employed parents INTO REALITY TO
FUTURE
– Risk takers – Firstborns ENTREPRENEURSHIP BY TAKING INITIATE CHANGE
– Take responsibility for IS ACTION LOOKING AT
– Between 30-50 years old TODAY THE WORLD
own actions THE ENGINE THAT
ENTREPRENEURSHIP IS MORE THAN STARTING
– Well educated – 80% TURNS IDEAS INTO WITH AN
– Feel competent and A NEW BUSINESS, IT IS A WAY OF LIVING WITH
have college degree and SOLUTIONS OPPORTUNITY-
capable THINKING BIG AN ATTITUDE, FACING ALL SITUATIONS AS ORIENTED
1/3 have a graduate BRINING OPPORTUNITIES TO LEARN, DISCOVER, CREATE,
– Set high goals and YOUR
AND DOING MINDSET
enjoy working level degree THE EXPLORE, AND MAKE THE WORLD A BETTER
STAYING
VERSION PLACE.
UNEXPECTED
toward them OF THE
GROUNDED WITH
WORLD TO IMPROVING YOURSELF BY A 30,000-FOOT
ENTREPRENEURSHIP IS THE
DIFFERENCE BETWEEN IMPROVING THE WORLD PERSPECTIVE
LIFE RECOGNIZING AND ITS PEOPLE AROUND
AN OPPORTUNITY AND ACTING ON IT
YOU.

What Is An Entrepreneur? Entrepreneurship

• Entrepreneurship: a way of thinking,
reasoning, and acting that is:
ENTREPRENEURSHIP – opportunity obsessed
– holistic in approach
The pursuit of opportunity through
– and leadership balanced
innovation, creativity and hard
work
without regard for (This definition of entrepreneurship has evolved over the past two
decades from research at Babson College and the Harvard Business
the resources currently controlled. School and has recently been enhanced by Stephen Spinelli, Jr., and
John H. Muller, Jr., Term Chair at Babson College.)

WHY ENTREPRENEURSHIP? THINK ENTREPRENEURIAL!

• What matters
• Opportunities and support are available most is who
• Create self employment owns the cup!
• Promote innovation
• Build communities
• Alleviate psycho-social problems and
delinquency
• Youth Unemployment is High
• Help to Create Wealth and Contribute to the
Economy 12

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Development of Entrepreneurship Evolution of entrepreneurship

• Earliest Period- Marco Polo time Focus Definitions

• Middle Ages- Theater,

Architectural Works 1850 - 1870 Economics Entrepreneurship as a market function – an
entrepreneur has an ability to identify profit
• 17th Century- Mississippi opportunity
Company
1890 - 1920 Economics Entrepreneurship as a market function – an
• 18th Century- Edison & entrepreneur as instability creator and creative
Whitney destruction

• 19th & 20th Centuries

1950 - 1970 Behavioral sciences Entrepreneurs as individual with
– Organize/Operate particular
– Innovation attributes and behaviors
1985 - Management Entrepreneurship as a process

Modified from Landström (2004) 16

The Entrepreneurial Process

(Timmons, 2000)
The Entrepreneurial Process
Communication
Eval., Review, Analysis
Opportunity Resources & Feedback
Business Plan
Fits and Gaps
Ambiguity
Exogenous Forces
Creativity
Leadership
Team
Uncertainty Capital
Implementation Strategy
Market Formulati
Forces
on
Founder

The Entrepreneurial Process The Entrepreneurial Process

Three Part Process The Entrepreneurial Process Consists of Four Steps

Step 1: Deciding to become an entrepreneur.
Step 2: Developing successful business ideas.

Planning Step 3: Moving from an idea to an entrepreneurial firm.

Step 4: Managing and growing the entrepreneurial firm.

Luck Strategy

Copyright ©2012 Pearson Education, Inc.

1-20
publishing as Prentice Hall

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Steps in the Entrepreneurial Steps in the Entrepreneurial

Process Process
1. Discovery: The stage
in which the
1. Discovery entrepreneur
2. Concept generates ideas,
Development recognizes
opportunities, and
Innovation
3. Resourcing studies the market
4. Actualization
5. Harvesting Opportunity

Steps in the Entrepreneurial

Discovery Process
2. Concept Development:
– Develop a business plan: a
detailed proposal describing
Consider consumer
needs and wants
the business idea
Consider your
hobbies or skills

Code of ethics
Executive summary

Mission Statement
We thrive in an environment of academic excellence where students are prepared to
Conduct Surveys and meet and exceed their future challenges. We recognize each student's worth and
questionnaires – test the develop life- long learners who make positive contributions to our changing society.
Study demographics
market

Steps in the Entrepreneurial

Concept Development
Process
– Choose business location 3. Resourcing: The
– Will a patent or trademark be required? stage in which the
entrepreneur identifies
and acquires the
financial, human, and
capital resources
needed for the venture
startup, etc

Start-up resources

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Steps in the Entrepreneurial

Resourcing
Process
Apply for loans, 4. Actualization: The
grants and
assistance stage in which
the entrepreneur
Identify potential operates the business
investors and utilizes resources
to achieve its
goals/objectives.
$$ Grand Opening $$

Hire Day-to-Day Operations

employees

Steps in the Entrepreneurial

Process
5. Harvesting: The
stage in which the Theories of
entrepreneur decides on
venture’s
future growth,
Entrepreneur
development, or
demise
Consider adding locations or providing different
ship
products/services
What is your 5-year or 10-year plan?
Will you go public?

Development of Entrepreneurship Development of

Theories Entrepreneurship Theories
• Carl Menger (1871) – The entrepreneur acts as an
• Adam Smith (1776) – An entrepreneur is a person economicinto products and services.
agent who transforms resources
who acts as agent in transforming demand into These transformation process gives added value to the
supply. output.
• Joseph Aloysius Schumpeter (1934) – The entrepreneur is
• Jean Baptiste Say (1803) – An entrepreneur is a an innovator. The economy moves through leaps and
person who shifts resources from an area of low bounds because of the innovations. This process is known as
productivity to higher productivity. “creative destruction”
• Alfred Marshall (1936) – The process of entrepreneurship
• John Stuart Mill (1848) – An entrepreneur is a development is evolutionary. The entrepreneur is
prime mover in the private enterprise. The responsible for the evolution of sole proprietorships into a
entrepreneur is the fourth factor of production. public company.

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Development of Islamic Entrepreneurship

Entrepreneurship Theories • Discussion on Islamic entrepreneurship is
based on the following main topics:
• Ibnu Khaldun (Abdul Rahman Mohamed
Khaldun)
The entrepreneur is seen –
as a knowledgeable – Integration
individual and is instrumental in the development – Human nature
of a city-state where enterprises emerge.
– Motivation
• David C. McLelland (1951) – The entrepreneur
person with a high need forisachievement.
a This – Islamic business and entrepreneurs
need for achievement is the foundation of the – Islamic economic system
entrepreneurship process. – Guidelines
– Exemplary conducts

Classification of Entrepreneurship
Theories 01-Economic theories
• Entrepreneurship and economic development are
The theories can be categorized as under-
interdependent. Economic development takes place when
a country' real rational income increases overall period of
1. Economic theories • time wherein the role of entrepreneurs is an integral part
Mark Casson – The demand for entrepreneurship stems
2. Psychological theories from the need to adjust to the change. The supply of
3. Sociological theories entrepreneurs is limited due to scarcity of requisite
personal qualities. Identifying the potential entrepreneurs
•
4. Cultural theories/ Anthropological theories is crucial.
Leibenstein – Role of an entrepreneur is
5. Integrated theories – A) input completion – improving the efficiency of available
resources
– B) Gap filling – arbitrage function

ECONOMIC THEORIES Harvard School Theory

• Schumpeter’s Theory of Innovation Schumpeter’s • Entrepreneurship is a purposeful activity that
theory initiates, maintains or develops a profit
of entrepreneurship is a pioneering work of economic
oriented business in interaction with the
development. development in his sense, implies that
carrying out of new combination of entrepreneurship is
internal situation of the business or with the
basically a creative activity. economic, political & social circumstances
1. The introduction
• Entrepreneur of new that
is a catalyst goods,disrupts
that is the
theone with which
stationery surrounding the business.
consumers are not yet familiar, of a new quality.
circular flow of the economy by innovations.
2. The introduction of new method of production • Two activities –
3. The opening of new market – 1. organizational or coordination
4. The conquest of new source of supply of raw material
5. The carrying out of new organization – 2. sensitivity to the environmental changes

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02-Psychological Theories Psychological Theories cont..

• Psychological theories centre's around the psychological Maslow & Alderfer:
characteristics of the individual in a society. Psychological
• Maslow’s need hierarchy theory: Human beings have
characteristics affect the supply of entrepreneurs in the
five basic levels of needs such as
• society.
– 1. Physiological – survival needs
• McClelland – theory
• Theory of personal resourcefulnes – 2. Safety & security – security, stability, insurance, etc
The root of entrepreneurial process can be traced to the – 3. Social – affiliation, belongingness
initiative taken by some individuals to go beyond the – 4. Esteem – egoistic needs- respect, recognition, etc
• existing way of life.
– 5. Self actualization – realizing one’s potential fully
Supply of entrepreneurship depends on two factors
– Cognitive function: emotions, inner feelings, thoughts,
motivations
– Human aspect: will to power, excel, achieve, change,
innovate

Theory of religious beliefs

03-Sociological theories
• Weber: Religious beliefs exogenously drive entrepreneurial spirit
• Sociological Theories :Explain how sociological through encouraging or discouraging intensive occupational pursuit,
factors accelerate the growth of entrepreneurs. accumulation of assets, etc.
• Few religions like hinduism, buddhism, Islam do not encourage
• The forces of custom, values, the rigidity or entrepreneurship.
flexibility of changing social status, acceptance of • He emphasized that entrepreneurial energies are exogenous
new ideas, freedom to exercise intellectual supplied by means of religious beliefs
• Spirit of Capitalism is encouraged only when ‘Capitalism’ as an
curiosity are determined by socio-cultural values economic system in which economic freedom and private
which act as channels for economic action that enterprise are glorified, so also the entrepreneurial culture.
gives birth to entrepreneurship • Adventurous Spirit- Weber also made a distinction between spirit of
capitalism and adventurous spirit. According to him, the former is
• Theory of religious beliefs influenced by the strict discipline whereas the latter is affected by
• Theory of social change free force of impulse. Entrepreneurship culture is influenced by
both these factors.

Theory of Social Change 04-CULTURAL THEORIES

• Everett E. Hagen, in his theory of social change states how
traditional society transforms into technical advanced
• society • Advocates of cultural theories point out that entrepreneurship is
The theory states that the entrepreneur’s creativity as the key the product of culture.
• element of social transformation and economic growth. • Entrepreneurial talents come from cultural values and cultural
system embedded into the cultural environment.
Interrelationship among physical environment, social structure,
personality and culture plays an important part in transformation of • Hoeselitz’s Theory :Hoeselitz explains that the supply of
• society entrepreneurship is governed by cultural factors, and culturally
• Economic Growth is a product of social change and political change : minority groups are the spark-plugs of entrepreneurial and
According to Hagen, most of the economic theories of • economic development.
underdevelopment are inadequate. He rejected the idea that the In many countries, entrepreneurs have emerged from a particular
solution to economic development lies in imitating western socio-economic class.
technology. •
He emphasized the role of culturally marginally groups like Jews
and
• the Greeks in medieval Europe, the Chinese in South Africa and
Indian in east Africa in promoting economic development.

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Cultural theories cont.. DRUCKER ON ENTREPRENEURSHIP

• Thomas Cohram: • Peter F. Drucker: an entrepreneur is one who always searches for
change, responds to it and exploits it as an opportunity.”
• Cultural values, role expectations & role sanctions play • He laid emphasis on two important factors – innovation and
an imp role in process of entrepreneurship
resource- that led to emergence of entrepreneurship.
development. • Innovation is the real hub of entrepreneurship which creates
• Entrepreneurs are seen as representing society’s resource. A thing is regarded as resource when its economic value is
‘model’ personality rather than as deviant or super recognized.
normal individuals. • Entrepreneurship is not confined to big businesses and economic
institutions, it is equally important to small business and non-
• It is moulded by prevailing child rearing practices, economic institutions.
educational practices & culture. • Entrepreneurship behavior rather than personality trait is more
• Entrepreneurs own attitude towards his occupation important to enhance entrepreneurship
and the role expectations held by sanctioning groups • The foundation of entrepreneurship lies in concept and theory
rather than in intuition.
are determined by society’s values.

Drucker contd… 05-Integrated approach

• Thus, Drucker has given his views that “an • Udai Pareek and T.V.Rao: Few sequential
entrepreneur need not be a capitalist or an propositions lead to entrepreneurship:
– Need for motive – main thrust behind action
owner. A banker who mobilizes other’s
– long term involvement & reinforcement in action
money and allocates it in areas of higher yield – Resources – cognition, social & material inputs
is very much an entrepreneur though he is not – Socio-political system which reinforces the
the owner of the money. individual
needs to establish, develop, maintain or expand his
• business activity
This approach tries to synthesize psychological &
sociological theories.

Summary of different theories

Theories Content

Questions
Casson (Economic) Need for bringing out change
Leibenstein (economic) Gap filling
Harvard (economic) Purposeful & profit oriented activity
Schumpeter (economic) Innovations
McClelland (psychological) Need for achievement
Maslow & Alderfer(psychological) Need hierarchy
Weber (social) Religion
Hegen Social change & disadvantaged groups
Cochran (cultural) Role expectations & social sanctions
Hoselitz Cultural factors
Drucker Innovations
Pareek & Rao Integrated approach