What is Entrepreneurship? Definitions and Processes

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What is entrepreneurship? Executive Summary Entrepreneurship has been defined as the process of creating value by bringing together a unique package of resources to exploit an opportunity (Stevenson, Roberts, and Grousbeck 1989). It results not only in the creation of new, growth oriented firms, but in the strategic renewal of existing firms (Morris and Kuratko 2001). The process includes the set of activities necessary to identify an opportunity, define a business concept, assess and acquire the necessary resources, and then manage and harvest the venture. This piece discusses some of the problems caused by researchers’ inability to agree on a definition of entrepreneurship. It also attempts to characterise the entrepreneurial process, and discusses further problems attempting to produce a general model of entrepreneurship. Finally, it reviews the concept of entrepreneurial marketing as a better understood theory, which can be more rigorously applied to marketing contexts than the other theories of entrepreneurship. Introduction All researchers recognize the importance of definitions, but entrepreneurship scholars have been embroiled in a never ending debate over the definition of an entrepreneur (Bygrave and Hofer, 1991). In the absence of a universally accepted definition of an entrepreneur, every researcher has been forced to state clearly what is meant when the term is used, and this has created similar problems, and a similar range of outcomes, in trying to define entrepreneurship.

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Indeed, since scholars have been unable to agree on a definition of an “entrepreneur” since Schumpeter (1950) first stated the importance of entrepreneurship, it would be safe to say that this work will not find a comprehensive definition either. Instead, this piece will look at the importance of entrepreneurship in several different contexts. Various observers have suggested that entrepreneurship is the principal agent of change operating from within an economic system (Timmons 2000). Such change comes in the form of new combinations of resources, or innovations, which eventually displace existing products and processes. Schumpeter (1950) used the term “creative destruction” to describe the continual disruption of economic equilibrium brought on by entrepreneurial activity. An entrepreneurial perspective is reflected in Sony founder Akio Morito’s conclusion that “the nature of business is to make your own product obsolete” (Morris and Sexton 1996). Entrepreneurship has also been viewed as an organisational orientation exhibiting three underlying dimensions: innovativeness, calculated risk-taking, and proactiveness (Covin and Slevin 1994). Innovativeness refers to the seeking of creative, unusual, or novel solutions to problems and needs. Calculated risk-taking involves the willingness to commit significant resources to opportunities that have a reasonable chance of costly failure, but also creative attempts to mitigate, leverage or share the various risks. Finally, proactiveness is making things happen through whatever means are necessary.

The more innovative, risk taking, and proactive the activities of the firm, the more entrepreneurial the firm can be said to be, thus entrepreneurship is not an either-or determination, but a question of degree. Lumpkin and Dess (1996) noted that a firm’s entrepreneurial orientation can be characterized by various combinations of these underlying dimensions. A growing body of evidence suggests the more successful firms over time are the ones that engage in higher levels of entrepreneurial activity. A positive relationship between entrepreneurial orientation and a number of measures of organizational performance has been substantiated in the work of Covin and Slevin (1994), Morris and Sexton (1996), and others.

Indeed, entrepreneurial orientation is a longer-term perspective that often entails intermediate failures. Stevenson et al. (1989) argue that the need for entrepreneurship is greatest when firms face diminishing opportunity streams, as well as rapid changes in technology, consumer needs, social values, and political roles. The same is true when firms are confronted with short decision windows, unpredictable resource needs, lack of long-term control over the environment, increased resource specialization, rapid resource obsolescence, and employee demands for independence. Entrepreneurial Events and the Entrepreneurial Process An Entrepreneurial Event involves the creation of a new organization to pursue an opportunity (Bygrave and Hofer, 1991). The Entrepreneurial Process involves all the functions, activities, and actions associated with the perceiving of opportunities and the creation of organizations to pursue them. Consider the examples of the entrepreneurship shown by easyJet, one of Europe’s leading low-cost airlines.

When the European Union liberalised air travel in the 1990s, a host of new entrants flocked in, with over 80 new airlines entering the market in 1995 and 1996 alone (Sull, 2004). The liberalisation and creation of new firms were all entrepreneurial events. When he founded easyJet, Stelios Haji-Ioannou was betting that European consumers would flock to low-price airlines and that he could quickly build a brand that would allow easyJet to capture a significant percentage of new customers. He focused his attention on a series of low-cost experiments in marketing, advertising and public relations to attract customers and build brand awareness. His entrepreneurial process around the low cost model meant that, whilst 17 of the 56 airlines that entered the market in 1995, for example, went bankrupt in their first year because they ran out of money (Sull, 2004), easyJet’s low cost approach meant it was able to survive long enough to attain profitability. As such, based on these definitions and this example, it is then possible to define an entrepreneur as follows: an entrepreneur is someone who perceives an opportunity and creates an organization to pursue it. Note that this definition is deliberately vague because, as discussed above, a rigid definition of an entrepreneur is only possible under rigid circumstances. Hopefully, in the second part of this report, the interview data will identify the specific entrepreneurial event, and enable a stronger definition of entrepreneurship in that context. In a similar fashion, for now it may be useful to shift focus from “the characteristics and functions of the entrepreneur” and the myriad definitions of what constitutes an entrepreneur, and to focus, instead, on the nature and characteristics of the “entrepreneurial process”. The entrepreneurial process is at the heart of defining entrepreneurship as, if researchers could develop a model or theory to explain entrepreneurial processes, they would have the key that unlocks the mystery of entrepreneurship. Such a model or theory must be deterministic, in the sense that a given set of antecedents results in a single, specific outcome (Bygrave and Hofer, 1991). Unfortunately, such a model doesn’t exist, as if it did it would be able to predict the exact outcome of every decision taken in the economy, thus enabling perfect controlled economic growth. However, despite the inability of researchers to define the entrepreneurial process, some of the important characteristics of the entrepreneurial process have been defined.

The process is always initiated by an act of human volition, involving both a change of state and a discontinuity. It occurs at the level of the individual firm and is a holistic and dynamic process, which is entirely unique to the situation. Finally, it involves numerous antecedent variables, and its outcomes are extremely sensitive to the initial conditions of these variables (Morris and Kuratko, 2001). Taken together, these characteristics create a set of parameters and criteria that will have to be met by any model of entrepreneurship. The Impossibility of Modelling Entrepreneurship The characteristics of the entrepreneurial process are extremely, but it is important to recognise that first and foremost, the essence of entrepreneurship is the entrepreneur (Gartner, 1988). So any attempt to model entrepreneurship must recognize the importance of choice and free will, ruling out mathematical approaches, because of the randomness inherent in conscious human action (Shane and Venkataraman, 2000). The act of becoming an entrepreneur involves changing the external environment from a state without the entrepreneurial venture, to another with the venture in place, representing a basic discontinuity in the competitive structure of the industry involved. Sometimes it even involves the creation of the industry itself; resulting in both the venture, and the industry of which it is a part, evolving rapidly over a short space of time. Regardless of the state of the industry at the time, entrepreneurship is inherently unique, since no other industry or competitive situation will be exactly like it or evolve in exactly the same way. However, the example of Sir Richard Branson, the billionaire entrepreneur and founder of the Virgin Group, an empire of 200 companies in industries as diverse as air and rail travel, mobile phones, finance, insurance, beverages, hotel, Internet, and modeling ventures, spanning 30 countries, shows that a successful entrepreneurial style can span several industries His latest entrepreneurial activities included lobbying the Canadian government to speed up number portability for mobile phones and pushing his solution to high oil prices by building a $2 billion oil refinery and taking Virgin into the field of oil exploration: an industry which no one believed could be made ‘entrepreneurial’ (Business Week Online, 2005). However, the entire entrepreneurial process is incredibly sensitive to a multitude of antecedent variables: the number, strength, and positioning of competitors; the resources, positioning, and strategy of the venture; the size, growth, and needs of current and future customers, etc. In total, these specifications are more than enough to make it impossible for anyone to produce a conclusive model of entrepreneurship through social sciences; and yet truly successful entrepreneurs, like Branson, are able to read, influence and control these variables in a multitude of industries.

Despite this, any theory of entrepreneurship must be rooted in the social sciences, such as anthropology, psychology, sociology, economics, and politics, because these are the sciences that describe the key variables that underlie the process of venture creation (Stevenson et al, 1989). Entrepreneurial Marketing The term “entrepreneurial marketing” has been used in various ways, and often somewhat loosely (Kotler 2001). It has been most frequently associated with marketing activities in firms which are small and resource constrained, and therefore must rely on creative and often unsophisticated marketing tactics that make heavy use of personal networks. Alternatively, the term has been employed to describe the unplanned, non-linear, visionary marketing actions of the entrepreneur. Leading universities, including Stanford and Harvard in the USA, have built entrepreneurial marketing courses around the act of market creation by high growth, high-technology firms (Shane and Venkataraman, 2000). Entrepreneurial marketing as a theory is of particular relevance to people working purely in the marketing industry, as they will need to have the most dynamic and unique strategies available to them in order to succeed in the modern, competitive context. Indeed, Kotler (2001) suggests that effective marketing today requires different strategies at different stages and makes a distinction between “entrepreneurial marketing” or guerrilla, grassroots marketing in the early stages of company development, and “intrapreneurial marketing” or creative, non-formulaic marketing in the later stages. In spite of these various uses of the term, as with the rest of entrepreneurial theory, a consistent definition has not been agreed upon, nor have the underlying components been rigorously specified. Entrepreneurial marketing is often proposed as an integrative construct for conceptualizing marketing in an era of change, complexity, chaos, contradiction, and diminishing resources, and one that will manifest itself differently as companies age and grow (Morris, Schindehutte and LaForge, 2002). It fuses key aspects of recent developments in marketing thought and practice with those in the entrepreneurship area into one theoretical model. Entrepreneurial marketing is defined, again loosely, as “the proactive identification and exploitation of opportunities for acquiring and retaining profitable customers through innovative approaches to risk management, resource leveraging and value creation” (Morris, Schindehutte and LaForge, 2002). Entrepreneurial marketing represents an opportunistic perspective wherein the marketer proactively seeks novel ways to create value for desired customers and build customer equity.

The marketer is not constrained by resources currently controlled, and product/market innovation represents the core marketing responsibility and the key means to sustainable competitive advantage. However, while many researchers have attempted to distinguish entrepreneurial marketing, in reality a continuum exists from a more responsive, risk avoidant, control-oriented approach to one that is highly entrepreneurial.

Hence, a spectrum of marketing approaches exists, with the differences lying in the concepts of ‘frequency’ and ‘degree’ (Kotler, 2001) For instance, while both approaches to marketing might exhibit an element of innovation or resource leveraging, entrepreneurial marketing implies innovation or leveraging efforts that are more frequent and that represent greater departures from current norms or standards (Morris, Schindehutte and LaForge, 2002). A company’s position on this spectrum is context specific, reflecting the firm’s particular circumstances and environment. The context for entrepreneurial marketing is more fragmented, dynamic, hostile and/or emerging markets where the marketer must act as innovator and change agent. Indeed, it is fair to conclude that an entrepreneur starting a new venture in the field of marketing would be forced to market said venture using entrepreneurial marketing This conclusion is consistent with empirical evidence suggesting entrepreneurial actions become especially relevant under conditions of environmental turbulence (Davis, Morris and Allen 1992). Alternatively, the context for traditional marketing is more stable or established markets, where the marketer has a known brand, and is principally concerned with the efficiency and effectiveness of the marketing mix. These differences also suggest that an entrepreneurial marketing approach requires changes not only in behaviour, but in the underlying attitudes held by those responsible for marketing activities. Engaging in actions that are innovative, entail risks, or are more proactive implies that managers understand and have a positive affect towards such behaviours, and that they develop skills sets to support these activities ((Morris, Schindehutte and LaForge, 2002). Thus, entrepreneurial marketing is more than simply an examination of the role of marketing in entrepreneurship or the role of entrepreneurship in marketing. It entails a shift from the use of the word “entrepreneurial” as an adjective (Lodish et al. 2001), or as the marketing efforts of an entrepreneurial company, to entrepreneurial marketing as a central concept that integrates the two disciplines of marketing and entrepreneurship. It represents an alternative approach to marketing under certain conditions. Conclusion Despite prolonged efforts, over a number of years, researchers have been unable to provide a rigorous definition of entrepreneurs or entrepreneurship.

This is part of the allure of entrepreneurs, and helps explain why so many successful entrepreneurs, such as Bill Gates and Richard Branson, are admired and held up as role models. However, despite this inability to define entrepreneurship, several academics have identified characteristics of the entrepreneurial process which, combined with knowledge of the entrepreneurial event, can help define individual examples of entrepreneurship, although even these characteristics are of limited use in attempts to model the process. The concept of entrepreneurial marketing is also of great use in defining the role of entrepreneurship in marketing, and new marketing organisations, and, when combined with knowledge of the individual entrepreneurial process and event, should facilitate a description of the entrepreneurship encountered in this case. References:

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