Entrepreneurship – Just What Is It?

Few topics in the business area have attracted more attention than “entrepreneurship” among researchers and journalists.  Since emerging companies are generally thought of at entrepreneurial ventures it is important for us to have a working definition of entrepreneurship.  The Global Entrepreneurship Monitor (“GEM”), a partnership between London Business School and Babson College that administers a comprehensive research program to produce annual assessments of national levels of entrepreneurial activity, broadly defines entrepreneurship to include “… any attempt at new business or new venture creation, such as self-employment, a new business organization, or the expansion of an existing business, by an individual, teams of individuals, or established businesses”.  In his 1986 book, Entrepreneurship, J.G. Burch noted that entrepreneurship was the “initiation of change” and the “process of giving birth to a new business.”  Burch also listed the following categories of innovations that tend to be the specific byproducts of entrepreneurial activities: 

  1. Introduction of a new product or service that is an improvement in the quality of an existing product or service.
  2. Introduction of a new process or method that increases productivity.
  3. The opening of a new market, particularly an export market in a new territory.
  4. The conquest of a new source of supply of raw materials, half-manufactured products or alternative materials.
  5. The creation of a new organization.

It is generally assumed that entrepreneurship is a voluntary choice and, in fact, the GEM research  confirms that it is more likely than not that persons start a new business in order to take advantage of a perceived business opportunity, so-called “opportunity entrepreneurship”.  However, entrepreneurs also appear for other reasons including no better choices for work, so-called “necessity entrepreneurship.”  Differences in the incidence of entrepreneurial activity can be seen one looks at different characteristics such as age, education, industry and location and there are also significant variations among nations with respect to the level of risk (and possibility of failure) that persons are willing to assume before they start a new business.  Finally, it is no surprise that the likelihood of success for an entrepreneur will be impacted by factors such as the availability of capital and skilled personnel, governmental policies, and the communications and transportation infrastructure.

Why has entrepreneurship become such a popular path in the United States and in other developed countries?  Several factors have come into play, including the following:

  • Advances in technology that allowed smaller firms to take advantage of economies of scale that previously were only available to larger firms;
  • The ability of smaller firms, because of their size, to be more flexible and responsive to market changes;
  • Implementation of government policies calculated to encourage entrepreneurial activities and behavior;
  • Support from governments and other economic units that established procurement programs to assist small businesses;
  • High employment rates in the 1980s, which caused some workers to choose an entrepreneurial path rather than retrain for placement in an unsteady job market; and
  • Changes in typical career patterns away from expectations of long-term employment with large firms in a single occupation toward a “flexible” labor force.

Food for thought . . . People who think of themselves as entrepreneurs sometimes don’t take the time to understand how or why they ended up doing what they are trying to do.  In fact, taking a comment to step back and contemplate is sometimes seen as anti-entrepreneurial since it isn’t spontaneous, proactive or creative.  Nonetheless, founders and senior managers of an emerging company that seems to be fighting battles everywhere should consider what is driving their entrepreneurship . . . creating a new process or method, discovering and penetrating a new market, leveraging economies of scale and flexibility, etc.

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