ADM2313 – The Entrepreneurial Society

Entrepreneurship: Introduction

There are many definitions of entrepreneurship

- Entrepreneurship is by definition the creation of new organizations.
- The pursuit of opportunity without regard to the resource currently under one’s control.
- Entrepreneurship is a mind set or way of thinking.

Approaches to Entrepreneurship
- Economic writers and theorists: the economic approach
- The psychological characteristics school or entrepreneurial personality approach
- Social-behavioural approach

Main Theorists:

Australian School: Views developed from economics of information

Kirzner: Entrepreneur has no special knowledge, but recognises opportunities before others –
could simply be a market trader, anyone could have the abilities required.
- Someone who is alert to profitable opportunities for exchange/trade.
- The possession of additional knowledge provides opportunities for creative discoveries.

Schumpeter: by contrast, Schumpeter’s entrepreneur is a special person. The person is an

innovator.
- Brings about change through the introduction of new products/processes
- He or she develops new technology, where kirznerian operates on opportunities that
arise from technology
- Cycle of creative destruction
o In a stable economic environment, the entrepreneur estimates the profit of his
new product/process
o The launch of the venture is a shocker
o It creates new possibilities which threaten existing products
o Entrepreneurship of this kind destroys as it creates and creates as it destroys.
o The success of the new venture encourages imitators
o Stimulates the introduction by other entrepreneurs of a range of new
complementary activities
Knight: The entrepreneur is an individual who is prepared to undertake risk and the reward –
profit- is the return for bearing uncertainty, which is uninsurable risk.
- Risk vs Uncertainty
o Risk exists when we have uncertain outcomes, but those outcomes can be
predicted with probability
o Uncertainty exists when probability cannot be calculated
Shackle: Entrepreneur is someone who is creative and imaginative. Whereas kirzner perceives
opportunities, Shackle imagines opportunities.
- Creativity is an important factor.
- A host of factors influence person’s ability to be creative: personal background,
education, attitudes.
Hayek: View is in Austrian tradition, that information asymmetries create difference in
knowledge held by individuals.

Casson: Entrepreneur will have different skills from others, allowing them to make judgements,
and coordinate resources.
- Require command over resources, and have personal wealth.
o Without capital, it would be a barrier to success.

Summary Table
Writer Key Role Additional Inisghts
Kirzner Alert to opportunity Entrepreneur’s key ability is
‘creative’ alertness
Schumpeter Innovator Entrepreneur as ‘hero’ figure
Knight Risk Taker Profit is reward for risk-
taking
Casson Organizer of resources Key influence of the
environment

Key Components of Successful Entrepreneurs

- Proactivity: initiative and assertiveness
- Achievement Orientation: ability to see and act on opportunities
- Commitment to others

Opportunity Recognition
- Economics of Information: Divergent imperfect information held by individuals which
entrepreneurs can exploit (Australian School)
- Entrepreneur undertakes a discovery process which reveals opportunities
- Shane (2000) suggests opportunities will be discovered by entreprenuers based on
information that they already possess.
Effectuation
- Effectuation theory is an alternative approach to opportunity recognition
- More resource-based view – the entrepreneur has self belief and will realize
opportunities with limited

Personality-Key Characteristics - Psychological Approach

- Entrepreneurs have key psychological attributes or “traits”
o High need for achievement
o High internal locus of control
 o Calculated risk taker
o Creativity and innovative
o Ambiguity tolerance
o Need for autonomy
o Self-efficacy and decision making abilities
Locus of Control
- Like to be in charge of their environment and their own destiny.
Meredith at al Five Core Traits
1. Self-Confidence
2. Risk-Taking activity
3. Flexibility
4. Need for achievement
5. Strong desire to be independent
Criticisms of Personality Characteristics Approach
- It is inappropriate to search for a significant trait
- It ignores environmental factors that may be more important than personality
- It comprises an essentially static analysis approach to the dynamic process of
entrepreneurship
- It ignores the role of learning, preparation and serendipity

Psychological Trait Approach

- The idea of a milited supply of potential entepreneurs has been criticised
- Many special “entrepreneurial: abilities and skills could be applied to successful
managers.
Identifying

Social- Behavourial Approach

- Theories of social marginality, people who are displaced or dislocated
- Enreprenuerials typologiesL craftsmen versus opportunistic entrepreneurs
- Family background, position
- Educational backgrpound
- Gender, womens enterprise
- Ethnic minority