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CHAPTER 2
THE ENTREPRENEUR
CHAPTER OVERVIEW
This chapter discusses the confusion concerning the term entrepreneurship,
factors which influence someone to become an entrepreneur, and the advantages and
disadvantages of entrepreneurship.
LEARNING OBJECTIVES

To realize there is no consensus concerning the definition of entrepreneur.

To understand the decision to become an entrepreneur is influenced by many
factors.

To comprehend the advantages and disadvantages of entrepreneurship.
CHAPTER OUTLINE
I.
What Is Entrepreneurship?
A.
The Definition
1.
Peter Drucker noted that although the term entrepreneur has been
used for 200 years, there has been total confusion over the
definition.
2.
One of the earliest references to the term has been traced to
Cantillon’s work in 1734.
3.
Cantillon said entrepreneurship was self-employment with an
uncertain future.
4.
In the early 1900s, Joseph Schumpter described an entrepreneur as
a person who carries out new combinations (new products,
processes, markets, etc.).
5.
Schumpter is known for his concept of “creative destruction,”
which states that entrepreneurs are a force for change.
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6.
B.
C.
II.
Entrepreneurship has also been described as a process that involves
inputs, an opportunity, an individual, an organization, risk, and
resources.
The Entrepreneurial Process
1.
The entrepreneurial process is common in the U.S. where each
year about 4% of the adult population is actively involved in trying
to start a new business.
2.
“Flashes of genius” are rare.
3.
You do not have to have a great idea if you execute it better than
anyone else.
Types of Entrepreneurial Activities
1.
The classic entrepreneur is one who develops a new idea and
builds a business around the new concept.
2.
Entrepreneurs may also start new businesses based on existing
concepts—e.g., opening a convenience food store.
3.
An entrepreneur may buy an existing business without any plans to
change company operations.
Factors of Entrepreneurship
A.
Scholars have debated the origins of entrepreneurial behavior.
B.
One recent study has identified four spheres of influence--the individual,
the ethnocultural environment, the circumstances in society, and a
combination of those factors.
C.
The Individual
1.
Peter Drucker believes that anybody from any organization can
learn to be an entrepreneur.
2.
Others disagree because they believe entrepreneurs have a special
personality that cannot be taught.
3.
There is also a concern about cause and effect. (Does success as
an entrepreneur change some of your personality traits?)
4.
Vocational counselors consider personality in helping people
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decide on a career choice so it is likely personality does influence
entrepreneurial decisions.
5.
One study found personality “is a core antecedent of
entrepreneurship.”
6.
A Passion for the Business
7.
8.
9.
10.
a.
The entrepreneur must have more than a casual interest in
the business.
b.
This emotional commitment is necessary to overcome the
obstacles and hurdles that are likely to occur.
Tenacity Despite Failure
a.
The entrepreneur must be persistent.
b.
Many successful entrepreneurs, including Henry Ford and
Walt Disney, failed several times before they became
successful.
Confidence
a.
Entrepreneurs are confident in their abilities and the
business concept.
b.
This confidence is often based on an in-depth knowledge of
the market and the industry.
Self-Determination
a.
Most entrepreneurs have an internal locus of control,
believing that they are responsible for their own success or
failure.
b.
Entrepreneurs act out of choice; they are never victims of
fate.
Management of Risk
a.
Contrary to popular belief, entrepreneurs do not take high
risks.
b.
Entrepreneurs define risk early in the process and minimize
those risks.
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c.
11.
12.
13.
14.
15.
16.
Entrepreneurs see risk differently than others.
Changes are Opportunities
a.
Entrepreneurs see change as normal and necessary.
b.
They search for change, respond to it, and exploit it as an
opportunity.
A Tolerance for Ambiguity
a.
The life of an entrepreneur is very unstructured.
b.
The successful entrepreneur feels comfortable with this
uncertainty.
Initiative and a Need for Achievement
a.
Entrepreneurs act on their ideas.
b.
Entrepreneurs take action because they have a high need
for achievement.
Detail-Orientation and Perfectionism
a.
Entrepreneurs are often perfectionists.
b.
The attention to detail and need for perfection result in a
quality product or service.
Perception of Passing Time
a.
Entrepreneurs often appear to be impatient.
b.
Because of their time-orientation, they may seem to have a
“hurry-up” attitude.
Creativity
a.
Entrepreneurs have the ability to recognize opportunities
that other people do not see.
b.
Nolan Bushnell believes that entrepreneurs must know
what the customers want before the customers know they
want it and before they know it is possible.
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17.
18.
19.
D.
The Big Picture
a.
Entrepreneurs often see things in a holistic sense.
b.
One study of successful owners of manufacturing firms
found that they “scanned the environment” more often than
less successful entrepreneurs.
Motivating Factors
a.
Money is not usually the primary motivating factor.
b.
The need for achievement and the desire for independence
are more important than money.
c.
Other motivating factors include the opportunity to use
skills and abilities, to gain control over one’s life, to build
something for the family, and to live how and where one
chooses.
d.
Other studies have identified motivating factors such as the
need for recognition, a need for tangible rewards, and a
need to satisfy expectations.
Self-efficacy
a.
Self-efficacy has been defined as a person’s belief in his or
her capability to perform a task.
b.
If one believes he would be successful as an entrepreneur,
he is more likely to pursue it as a career option.
c.
A theory called Self Thought Leadership states that people
develop functional and dysfunctional habits in the ways
they think.
d.
The way a person thinks influences their choices and selfefficacy.
Cultural Influences
1.
The effect of culture on entrepreneurial tendencies is not
completely clear because individuals from different cultural groups
do not all become entrepreneurs for the same reason.
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E.
F.
IV.
2.
Different cultures have varying values and beliefs, which affect the
tendency toward entrepreneurship.
3.
Culture also affects the image or status of the entrepreneur.
Circumstances in Society
1.
Workers who are laid off may be pushed toward self-employment.
2.
Immigrants may become entrepreneurs if their skills do not meet
the needs of employers.
3.
These actions are considered adaptive-response behaviors.
A Combination of Factors
1.
The individual, the culture, and society’s circumstances combine to
affect the tendency toward self-employment.
2.
Because outside factors appear to influence entrepreneurship, some
people suggest that we should concentrate on nurturing the
entrepreneurial spirit in children.
Advantages and Disadvantages of Entrepreneurship
A.
B.
Advantages
1.
Autonomy and the freedom to make decisions is one of the major
advantages.
2.
The challenge of the startup and the feeling of achievement is
exhilarating.
3.
Entrepreneurs feel they have more personal control over their
financial situation than if they were employed by someone else.
Disadvantages
1.
Personal sacrifices may include long work hours, a strain on family
relationships, and a high level of stress.
2.
The entrepreneur has a large burden of responsibility and must be a
jack of all trades.
3.
There is little margin for error because the entrepreneur usually
operates on a thin financial cushion.
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SUGGESTED RESPONSES TO DISCUSSION QUESTIONS
1.
Why is there no easy way to define “entrepreneur?”
There is no easy way to define entrepreneur because there are many types of
activities that may or may not be considered entrepreneurial. The classic
entrepreneur is one who develops a new product or idea and builds a business
around the new concept. Most agree that this person is an entrepreneur.
However, there are also individuals who start new businesses based on old
concepts (a new convenience food store), and individuals who buy existing
businesses without any plans to change company operations. Because these
endeavors take less creativity than the classic entrepreneurial situation, not
everyone considers them entrepreneurial.
2.
Do you believe that entrepreneurs are born with special characteristics, or is it
possible to teach someone to be an entrepreneur?
Students are likely to differ in their responses to this question. After considering
all opinions, the instructor may want to point out that it is easier to teach “small
business management” (a set of business skills) than entrepreneurship.
3.
Do you have any of the characteristics of successful entrepreneurs? Which of the
characteristics do you not have?
Students are usually truthful in answering this question. Many state that they are
definitely not entrepreneurial. Others will identify several traits of successful
entrepreneurs. For the characteristics that they do not possess, consideration
should be given as to how this might affect their success.
4.
Identify some of the advantages and disadvantages of being an entrepreneur.
Which advantage would be the most important to you? Which disadvantage do
you feel is the greatest obstacle?
Advantages include autonomy, the challenge of a start-up, and financial control.
Most students are likely to identify autonomy and the ability to be your own boss
as the most important. The greatest disadvantages most often mentioned are
personal sacrifices and the risk of failure.
5.
What are the factors in the decision to become an entrepreneur?
There are four spheres of influence on the decision to become an entrepreneur.
They are the individual or self, the ethnocultural environment, the circumstances
in society, and a combination of these factors.
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LINK TO THE BUSINESS PLAN
It is extremely important to impress upon the students that not everyone will be happy as
an entrepreneur. Because of the long hours and the sacrifices that must be made, it is not
an occupation that everyone will like. For this reason, many business plan websites begin
with entrepreneurial personality tests. Some of the websites listed below will provide this
information. Students must realize that successful entrepreneurs are generally confident
in their abilities, persistent, feel comfortable in unstructured, ambiguous situations, and
have a high need for achievement. For an entrepreneur, an assessment of himself or
herself is essential before assessing the potential business idea.
Before completing the business plan, the entrepreneur should consider:
Are you willing to work long hours for little pay in the early years of the
business?
Are you persistent or do you give up easily?
Do you feel comfortable in situations where the rules are vague?
Do you prefer new situations or familiar situations?
Have you demonstrated a need to achieve in other situations?
HELPFUL WEBSITES
www.nefe.org
This site of the National Endowment for Financial Literacy has wonderful information
(including articles and a PowerPoint presentation) for aspiring entrepreneurs. These
features can be retrieved by going to the nefe.org site, click on “welcome,” then click on
“search,” and type “entrepreneur.”
www.sba.gov/starting_business/startup/entrepreneurialtest.html
The Small Business Administration has an interactive website that features an
entrepreneurial personality test. Students will receive their total score indicating
entrepreneurial potential.
http://bhswk.hbs.edu
Harvard Business School has many online articles for aspiring entrepreneurs. These
articles include “Lesson of Successful Entrepreneurs,” “A Litmus Test for
Entrepreneurs,” and “Want to be an Entrepreneur?” These articles can be found by going
to the above website and clicking on “Entrepreneurship.”
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