Who is an entrepreneur? What does entrepreneurship constitute? Knowledge of influences on the incidence of entrepreneurship and entrepreneur performance is useful in many ways. In this article, we examine 3 broad categories that define the entrepreneur and entrepreneurship.
INTRODUCTION TO SMALL BUSINESS AND ENTREPRENEURSHIP
During the past three decades, a considerable amount of research has been carried out on entrepreneurship. One reason for a heightened interest in the subject has been the appreciation of the role of entrepreneurship, incidence of entrepreneurship and/or identity success factors. Evidence from studies on entrepreneurship shows that entrepreneurs are not randomly drawn from the population; they tend to have certain backgrounds and orientations.
Knowledge of influences on the incidence of entrepreneur and entrepreneurship performance is useful in many ways. Those who aspire to the entrepreneurial career would find it helpful to know how their qualities compared with those of people who lead various types of business: the small business owner manager; the fast growth, high potential business; failures; the family business; etc.
Some institutions, such as enterprise development organizations, venture capitalists and banks would like to know how to distinguish between marginal firms (created as an alternative to employment) and those with high grow potential. Planners are interested in employment potentials of different types of firms, sectors, and locations.
1.2 Who is an Entrepreneur?
Before venturing into further discussion on the entrepreneur and entrepreneurship, we need to understand the meaning of the term ‘entrepreneur’ and distinguish it from related concepts.
Read more on 5 comprehensive and modern definitions of the entrepreneur and entrepreneurship.
Entrepreneur and Entrepreneurship
There is no clear consensus among entrepreneurship specialists on the definition of the word entrepreneurship. However, most definitions lay at two levels. At the first level, the term is often used loosely to encapsulate all business owners. On the other hand, it may be used quite narrowly to refer to a subset of business owners, and at this level, the problem is to identify the distinguishing features.
The term ‘entrepreneur’ was used for the first time in economic theory by Richard Cantillon, a Frenchman, in the late 18th century. He saw the entrepreneur as somebody who innovates, invests and takes risks. However, it is John Baptiste who, in the early 19th century, first made a clear distinction between the capitalist and the entrepreneur. The usage of the term becomes increasingly regular in the second half of the 19th century. This was because while many capitalists had liquidity surpluses which they tried to invest, entrepreneurs provided interesting opportunities. Also, the industrial revolution had caused severe competition, therefore forcing capitalists to look for ways to innovate.
In the early 20th century, Joseph Schumpeter presented what has been credited as the most significant meaning of the term ‘entrepreneur’. He saw the essence of entrepreneurship as innovative behavior.
The essence of entrepreneurship lies in the perception and exploitation of new opportunities, it always has to do with bringing about a different use of national resources in that they withdraw from their traditional employ and subject them to new combinations (Schumpeter, 1934).
Schumpeter identified five ‘types’ of new combinations, consisting of introduction of one or a combination of the following: a new product (or venture), method of production, market, source of materials or inputs, and organization.
While some people would treat small business owner-managers and entrepreneurs as synonymous, the bulk of the entrepreneurship specialists attempt to draw a distinction between them. This distinction is central to an understanding of the meaning of ‘entrepreneur’. We proceed to look at the definitions of these terms with a view to delineating the differences among them.
Small Business Owner-Manager
A small business owner-manager is one that manages a small firm or venture. There is no single agreed upon definition of the small firm. “Small business” is usually defined using a combination of quantitative and qualitative criteria, including: number of employees; total assets; share capital; number of shareholders; market share; composition of management; degree of formalization; etc. Some of the common definitions are as explained below.
A small business is a firm with the following features: (1) its share of the market is relatively small, (2) capital is supplied and ownership is held by an individual or one community, but markets need not be local (American Committee for Economic Development, 1972).
Economically a small firm has a relatively small share of the market. Managerially, it is administered by its owners or part owners in a personalized way, rather than by means of a formalized management structure. Financially, it is independent in the sense that it does not form part of a large enterprise and owner-managers are free from outside control in taking their principal decisions (Bolton Committee, UK, 1971).
Carland et al have offered a definition of a small venture, which purposefully distinguishes it from the ‘entrepreneurial venture’. A small business venture is any business that is independently owned and operated, not dominant in its field, and does not engage in any new marketing or innovative practices (Carland et al, 1984). Along with the definition of a small, non-entrepreneur venture, Carland et al offered an often quoted definition of the manager of such a firm, the small business owner-manager.
A small business owner-manager is an individual who owns and manages a business for the principal purpose of furthering personal goals. The business must be the primary source of income and will consume the majority of one’s time and resources. The owner-manager perceives the business as an extension of his or her personality, intricately bound with family needs and desires (Carland et al, 1984).
Relentless pursuit of opportunities without regard to the resources held (Stevenson et al, 1989; Stevenson and Sahlman, 1994). Entrepreneurial behavior is opportunistic, value – driven value adding, risk accepting, creative activity where ideas take the form of organizational birth, growth, or transformation (Bird, 1989).
Entrepreneurship is the process of creating something different with value by devoting the necessary time and efforts assuming the accompanying financial, psychic, and social risks, and receiving rewards of momentary and personal satisfaction and independence (Hisrich and Peters, 1995).
Read more on 14 issues to address in introducing a creative entrepreneurial culture.
Entrepreneur is a term drawn from and closely related to the entrepreneur. It refers to an individual who operates in an entrepreneurial way, from within an established organization rather than by founding or building up his or her own firm. Some have referred to him as ‘administrative entrepreneur’.
The entrepreneur need not be a chief executive; it is sufficient for him or her to operate in an entrepreneurial way. Therefore, different kinds of managers with or without shares in the organizations in which they work may be entrepreneurs. Hisrich and Peters describe the qualities of the entrepreneur by contrasting entrepreneurship culture from corporate culture.
It is clear that the definitions of ‘entrepreneur’ are not similar. However, there are certain qualities and/or functions which explicitly or implicitly, feature in most of them. As Hisrich and Peters (1995) noted, each definition contains similar notions, such as newness and different perspective. Failing to agree on a single definition, entrepreneurship specialists have resorted to drawing up lists of qualities and /or functions which typify the entrepreneur. Invariably, these lists include a combination of the following characteristics: innovative; opportunistic; ideas people; proactive, imaginative; change makers. One need not possess all of these to qualify as an entrepreneur.
The list has not resolved the need to distinguish the entrepreneurs from other groups of people, such as managers, professionals, academics, public servants, or politicians. Even the great ancient rulers may have possessed a great deal of these qualities. As noted before, managers and other administrators have been sorted out as ‘entrepreneurs’ what about the rest?
The word ‘entrepreneur’ evolved as is still mainly used in reference to economic activities in the context of a firm. It is specifically used to refer to that group of founders and more generally owner-managers who behave in an entrepreneurial way. The problem that remains now is that while the qualities mentioned above may distinguish entrepreneurs from other businessmen, they are insufficient to clearly separate them from some individuals in other walks of life. In another part of this post, we will review efforts made to understand the unique characteristics that are shared by entrepreneurs.
There have been debates as to whether one remains an entrepreneur after he/she ceases to behave entrepreneurially. One school of thought is of the opinion that entrepreneurs are entrepreneurs when organizing new ventures and remain owner-managers when the business ‘gets going’ (Schumpeter, 1934). Another school of thought thinks that if professors, doctors and army officers retain their titles even after retirement, there is no reason why the successful entrepreneurs should not retain theirs.
However, while the title ‘entrepreneur’ is based purely on behavior, the former descriptors are based on formal training, qualifications or awards. It appears more logical to consider a person as an entrepreneur when and as long as they behave in an entrepreneurial way.
We may categorize the usage of the term entrepreneurship in three broad connotations: entrepreneurs as owner-managers, entrepreneurs as a particular category of owner-managers; or entrepreneurs as people who display particular behaviors in any endeavor or organization. These are amplified below.
Entrepreneurs as owner-managers
In one sense, the term is used in reference to someone who sets up and/or independently runs his own business. For the most part, this is still the daily use of the term entrepreneur. Going by this definition, entrepreneurs are to be found principally in small firms, since businesses that develop beyond the owner-managed phase cease to be entrepreneurial firms (Hudson and McArthur 1994). Within this view, one can make a distinction between entrepreneurs (those who have already set up or acquire businesses) and latent entrepreneurs (those who are positively disposed to the career or intent of setting up businesses) .
Entrepreneurs as a special category of owner-managers
Some people hold the view that most business owners are not entrepreneurial. They are simply cloning an existing well proven form of enterprise and many people simply prefer to do their own job. Two dimensions – the owner-managers’ motives and their behaviors – have been used to make this distinction. Entrepreneurs are seen as those owner-managers whose motive for being in business are profits and growth as opposed to mere survival or independence (Carland et al 1984; Hisrich and Peters 1995).
It is acknowledged that entrepreneurship in this sense is a continuous variable; owner-managers have varying levels of this quality. It is the minority, who display disproportionately high levels of the quality that are identified with entrepreneurship (Schumpeter 1934). In this view also, firms that develop beyond the owner-manager phase cease to be entrepreneurial.
Entrepreneurs as people who display specific behaviors anywhere
In this sense, entrepreneurs are people who display the special (entrepreneurial) types of behaviors- initiating, value creating, transforming, opportunism, strategic practices, innovation and pro-activeness in any organization or field of endeavor. Schumpeter (1934) and McClelland (1961) defined it in reference to anyone who exercises control over production that is not just for personal consumption. Pinchot (1985), Drucker (1985), Hisrich and Peeters (1995) and Jennings (1997) among others, did not restrict the term to any field of endeavor.
When exhibited by non owner-managers in either business or non-business organizations, entrepreneurship as defined in this sense is also referred to as entrepreneurship (Pinchot 1985; Jennings et al 1994; Hisrich and Peters 1995). As is the case with business entrepreneurs, it is agreed that all people display some amount of these behaviors. Entrepreneurs tend to display more of these compared to others.
These three broad categorizations are neither mutually exclusive nor exhaustive of all definitions that have been proposed. This simple classification is however helpful in making a critical examination of the literature, particularly, as we shall see later, in relating the concept of entrepreneurship to the Africa context. It also shows the fluidity of the term and the difficulty of having a single definition of what constitutes entrepreneurship.