The origins of entrepreneurship

Entrepreneurship refers to the process of creating a new enterprise and bearing any of its risks with the view of making a profit.

It is an act of:

1. Seeking investment and production opportunity
2. Developing
3. Managing a business venture

To:

• Undertake production function
• Arrange inputs like land, labour, material and capital
• Introduce new techniques and products
• Identify new sources for the enterprise

16th century – 19th century

Whilst evidence of basic trade can be traced back to as early as 17,000 BC ¹, the modern concept of entrepreneurship first emerged in the sixteenth century (according to economic historian Fritz Redlich (1892–1978)), when German military officers regularly recruited mercenaries for armed expeditions throughout Europe. In Redlich's view, these recruiters exhibited many of the qualities of the modern business entrepreneur, demonstrating a willingness to take great risks in travelling into hostile territories and embarking on dangerous military campaigns.²

Entrepreneur word origin

"Entrepreneur comes from the French word 'entreprendre' – to undertake; which is also the origin of the English word 'enterprise'."

The Franco-Irish economist Richard Cantillon (1680–1734) first introduced the word entrepreneur, who coined the term in his landmark essay on the Nature of Commerce in General. Although Cantillon wrote the book just before his death in 1734, it was not published until 1755. In the early nineteenth-century French political economist Jean-Baptiste Say (1767–1832) was among the first to argue that the entrepreneur played an indispensable role in promoting economic growth. ²

19th Century

Entrepreneurship found its home in modern capitalism in 19th century America.

Factors included:

• National identity, rooted in qualities of personal freedom, independence, and a strong work ethic
• Readily available raw material, large geographical size and rapidly expanding population provided resources and potential markets
• Federal government imposed few regulations on private businesses. ²

Andrew Carnegie

Scottish born steel magnate (1835–1919)

The epitome of the "self-made man."

• Rose from humble origins to become one of the wealthiest and most powerful businessmen in America. At age 16 he began working as a messenger for a telegraph office, becoming superintendent before age 20.
• He embodied many essential entrepreneurial characteristics. At age 35 he purchased his first steel mill in Braddock Pennsylvania.
• Hardworking, friendly, dedicated, intelligent and ambitious. At age 57 he formed the Carnegie Steel Company which soon became the profitable corporate entity in the world.
• Dedicate to self-improvement and strove to educate himself on a range of subjects. In many ways, the story of Carnegie's success is representative of the entrepreneurial ideal. ² At age 66 he sold his steel holdings and devoted the rest of his life to philanthropic pursuits.

20th Century

More sophisticated theories of entrepreneurship were developed.

Austrian economist Joseph Schumpeter (1883 – 1950) argued that entrepreneurial characteristics such as creativity, initiative and risk-taking were key to technological innovation and economic growth. He emphasised the importance of the role of the individual who had "Unternehmergeist" (Entrepreneurial Spirit).

American economist Frank H. Knight (1885–1972) believed risk was calculated and controlled and that a successful entrepreneur paid careful attention to the laws of probability. ²

Are people 'born' as entrepreneurs?

No, another economist, Austrian-born Peter Drucker (1909–2005), believed that the characteristics of the successful entrepreneur were traits most people could study and learn to adopt.

Recent Trends

In the late twentieth century, the corporation's rise caused a drop in the importance of the individual entrepreneur. Joseph Schumpeter had predicted this shift almost a century earlier; that the advancement of entrepreneurship, especially its role in making corporations more systematic and efficient, would reduce the power of the individual to act with the decisiveness and boldness characteristic of the entrepreneur.

Schumpeter argued that the eventual result would be corporatism, a bureaucratic system composed of diverse, politically organised groups that would assume responsibility for the management of certain sectors of the economy. At the same time, the corporate manager or director would replace the traditional figure of the entrepreneur. ²

Why is motivation important?

Your performance is dependent on your ability and willingness to perform.

Ability

• Education
• experience
• skill

Willingness

• Perform depending on the level of motivation

It is one of the fundamental factors required for an entrepreneur to promote their ideas.

Why is it required?

Motivation is required when becoming an entrepreneur due to the following:

1. Tough competition
2. Unfavourable environment
3. Public demand
4. Increase productivity
5. Enhance creativity

Tough competition

An entrepreneur will face tough competition to sustain and make a mark in this global market. To cope with this competition, motivation is required at every turn.

Unfavourable environment

Nobody knows what the future holds. It is important to take care of the current economy and prepare for the worst situations of deteriorating economic conditions. For this, motivation and optimism are essential.

To create public demand

The market runs by the people and for the people. To run a business profitably, it is required to create a public demand for your product or service in the market and attract as many customers as possible. To do this in the right way, motivation is required.

To increase productivity

It is very important to take care of the quality of the product and the profit. People will always prefer a product which is cost-efficient and of good quality. So, motivation is required to increase productivity.

To enhance creativity

The market always wants something new and different. If everyone offers the same product without any variation, there is no point in preferring one brand. To be sustainable, one must be innovative. Add some new features to the existing products and services and make them more user friendly on a considerable budget. This all requires motivation.

What motivates entrepreneurs?

The 6Cs that motivate entrepreneurs to establish their own business are as follows:

1. Creativity
   Running a business is all about being more creative and having the independence to make discoveries. For example, testing a new website design, launching a new marketing scheme, creating inventive items that solve a known issue differently, creating new advertising campaigns, etc.
2. Change
   Entrepreneurs frequently want change, not only change, but they also want to be the bearers of change. They are solution givers and want to interrupt the status quo. They have a vision like “I want to assemble the world’s information” or “I want to put an AC at every desk”, and they attempt to make this change. In this attempt, some succeed, and some fail.
3. Challenge
   Some people love challenges and opt to start a new business as it is very challenging to handle big problems. These people find a typical job in a big corporate boring and not challenging enough.
4. Control
   Some people tend to start a business because they do not want to be pushed around and work for a product/company in which they have no way to shape their destiny. They want to be their boss, have their own time, own pace, location of their choice, and employees of their choice and have a progressive role in deciding the company's direction.
5. Curiosity
   Successful entrepreneurs are always anxious and ask − “what if we do X this way?” They want to have more than one option to do work and choose the best one from them. They want to understand the customer’s perceptions, points of view, markets and competitors. They are frequently anxious to see how their theory works, like “people want to do A with B”. In this aspect, they cannot be differentiated from a scientist trying to prove his theorem.
6. Cash
   Last but not least is cash. Many non-entrepreneurs have a misconception that cash is always the priority for entrepreneurs but this is not true. If this were the case, then there is no reason for an Ellison or Gates to keep expanding their business aggressively after they have made more than a billion dollars.

What are the results?

• Heavy industrialisation
• Self-employment
• Creating new jobs
• Economic growth
• Proper social benefit.

Heavy industrialization

Tremendous growth can be seen in industrialization. Example: Companies like TISCO and TELCO have been set up and are flourishing.

Self-employment

A typical person gets a chance to make a difference and set a new standard of industrial growth. Example: Entrepreneurs like Dhirubhai Ambani and Azim Premji are born.

Creating new jobs

More entrepreneurship leads to more job openings. More job openings lead to more employment opportunities.

Economic growth

When there is growth in an individual’s economy, there is a growth in the company’s economy, which results in the growth of that particular area and country. Example: Emergence of smart cities concept.

Proper social benefit

When a country’s economy grows or increases, more advanced and proper social benefits are provided to the general public, like the construction of roads, schools, hospitals, colleges, etc.

Why would someone do this?

• Be your own boss: You make your own decisions. You choose who to do business with, what you do, how long you work, what you get paid and when you take vacations.
• More money: Entrepreneurship offers a greater possibility of achieving significant financial rewards.
• Control of the process: It allows you to be involved in the whole operation of the business. From concept to design and creation, from sales to business operations and customer response.
• Status: Offers the prestige of being the person in charge.
• Equity: Allows you to build equity, which can be kept, sold, or passed on to the next generation.
• Making a difference: Creates an opportunity for you to contribute. Most new entrepreneurs help their local economy. A few, through their innovations, contribute to society as a whole.

Types of businesses

Small businesses represent the overwhelming majority of entrepreneurial ventures. A small business could be any company, restaurant, or retail store launched by a founder without any intention of growing the business into a chain, franchise, or conglomerate. Small business entrepreneurs usually invest their own money to get their companies off the ground, and they only make money if the business succeeds.

Scalable startups are less common than small businesses, though they attract a lot of media attention. These businesses begin on a very small scale, often as just the seeds of an idea. This is then nurtured and scaled, typically through the involvement of outside investors, until it becomes something much larger. Many silicon valley tech companies fall under this model; they begin in an attic, garage, or home office before eventually scaling into large corporate headquarters.

Sometimes, entrepreneurs work within the context of large companies. Imagine that you work at a large auto manufacturing company. Through careful market research, you realize there is a high demand for motorcycles. Your company has many of the technologies and processes in place to branch into motorcycle production. You go to your boss and ask for the funding to launch a brand-new motorcycle division, and you are approved. This is an example of what the large company entrepreneurship model might look like in practice

Social entrepreneurship seeks innovative solutions to community-based problems. According to Investopedia, social entrepreneurs “are willing to take on the risk and effort to create positive societal changes through their initiatives.” In other words, a social entrepreneur launches an organization that’s fundamentally about enacting positive social change, not merely generating profits. The social change in question may pertain to environmental conservation, racial justice, or philanthropic activity in an underserved community.

Analyse yourself using a SWOT analysis.

Reflect on the following questions.

• What are your strengths and weaknesses?
• What are some opportunities and threats to your future?

Write your answers down.