Definitions of Entrepreneurship

Few topics in the business area have attracted more attention among academics and journalists than “entrepreneurship”.  From an economic perspective, “entrepreneurship” is generally conceptualized as the creation of a new business and the bearing of the risk associated with that business in exchange for profits to be derived from the exploitation of opportunities in the marketplace (e.g., demands of consumers that are not currently being satisfied).  Defined in this manner, entrepreneurship can take a variety of different forms.  One of the most famous types of entrepreneurship, one that has also become closely aligned with conceptualizations of various forms of entrepreneurship, is Schumpeter’s “creative destruction”.  In Schumpeter’s view, the entrepreneur is driven by innovation, which can take the form of a totally new product or process or an innovative change to existing products or processes, which ultimately “destroy”, or render obsolete, products and processes that have been used in the past.  While entrepreneurship is often discussed in the context of policies for encouraging and supporting small businesses, Graham observed that entrepreneurship differs from small business in four critical ways: amount of wealth creation, speed of wealth accumulation, risk and innovation.[1]

Entrepreneurship is widely celebrated as an engine for progress that brings growth to the economy, makes the marketplace more competitive, makes individual firms more productive through technological change and creates jobs and added value and welfare for members of society.  However, while entrepreneurship is generally lauded for the positive impacts and benefits it has provided to society, it is also true that entrepreneurial activities can have negative consequences such as environmental degradation or unequal distribution of wealth.[2]  Recognizing this situation, there have been calls among researchers for entrepreneurial skills and processes to be applied to mitigate and resolve some of the problems that entrepreneurs may have created, an idea which provides the foundation for ecopreneurship, social entrepreneurship and sustainable entrepreneurship.[3]  For example, Hall et al. argued that “entrepreneurship may be a panacea for many social and environmental concerns” and Pacheco et al. asserted that entrepreneurs can be an important force for social and ecological sustainability.[4]

Research regarding “entrepreneurship” has been made challenging by the absence of a consistent definition of the term across the universe of studies on the topic.[5]  According to Stokes et al., the concept of entrepreneurship has existed for centuries and has been important to the development of modern economic and social life.[6]  The term itself has been linked to the French word “entreprendre”, which means “to undertake” or “to do something”, and early definitions and descriptions of the concept can be found in works of economists going back as far as the 18th century (e.g., Cantillon, Adam Smith, Say, John Stuart Mill, and Hermann).[7]  For example, one of the first uses of the term “entrepreneur” has been attributed to Cantillon, who wrote in the 18th century about individuals who bought materials and means of production at prices that enabled them to combine them into a new product.[8]

Many researchers have focused on the economic function served by the entrepreneur.  For example, one of the earliest definitions of entrepreneurship focused on merchants who were willing to assume the risks of purchasing items at certain prices while there was uncertainty about the prices at which those items could eventually be resold.  Later definitions began to focus on the risks and challenges associated with combining various factors of production to generate outputs that would be made available for sale in constantly changing markets.  Schumpeter was one of the first to include innovation in the definition of entrepreneurship and believed strongly that the proper role of the entrepreneur was creating and responding to economic discontinuities. Others involved in the study of entrepreneurship focus on the personality traits and life experiences of the entrepreneur in an attempt to generate lists of common entrepreneurial characteristics—propensity for “risk taking”, need for achievement and childhood deprivation. While these studies are interesting they have generally been far from conclusive and often have generated conflicting results.

Gartner surveyed the landscape of the attempts to define entrepreneurship and concluded that finding a common definition of the entrepreneur remains “elusive”.[9]  Garner quoted an observation made by Cole in 1969: “My own personal experience was that for ten years we ran a research center in entrepreneurial history, for ten years we tried to define the entrepreneur.  We never succeeded.  Each of us had some notion of it—what he thought was, for his purposes, a useful definition.  And I don’t think you’re going to get farther than that”.[10]  Garder also pointed out that Borkchuas and Horwitz, who reviewed the literature on the psychology of the entrepreneur in the mid-1980s, struck a similar note when they reported: “The literature appears to support the argument that there is no generic definition of the entrepreneur, or if there is we do not have the psychological instruments to discover it at this time.  Most of the attempts to distinguish between entrepreneurs and small business owners or managers have discovered no significant differentiating features”.[11]  Gartner also counseled against the so-called “trait approach” that focuses on identifying “entrepreneurs”[12] and argued that the study of new venture creation must take into account the interaction among several variables or dimensions including not only the personal characteristics of the individual entrepreneur but also competitive entry strategies, “push” and “pull” factors and the actions taken by the entrepreneur during the new venture creation process.[13]  Other researchers, including Schumpeter, have added the availability of prospective entrepreneurs with the requisite entrepreneurial orientation (e.g., self-reliance, self-confidence and perseverance) as a prerequisite to effective new venture creation.[14]

Acknowledging the lack of a universally accepted definition of entrepreneurship, Hessels did comment that “[t]here seems to be agreement . . . that entrepreneurship involves the creation of something new”.[15]  For Gartner, that “something new” was a “new organization” and he suggested that the most fruitful path for studying entrepreneurship was to view it as a process that includes a series of behaviors and activities intended to create organizations.[16]  Davidsson et al. referred to entrepreneurship as “the creation of new economic activity” that occurs both through the creation of new ventures and new economic activity of established firms.[17]  Use of the concept of “creation of new economic activity” includes not only the creation of new organizations championed by Gartner but also recognition and exploitation of opportunities, conversion of new ideas into innovations and even imitative behavior that is new to a firm.[18]  It is not necessary that the same person or entity that discovered an opportunity actually exploit that opportunity and entrepreneurship should be defined broadly enough to include the sale of opportunities to others.  For that matter, discovery of a new technology should not be a prerequisite to entrepreneurship with respect to that opportunity and the concept of entrepreneurship should include actions taken to interpret the capabilities of the technology so as to identify applications of the technology that eventually become the foundation of opportunities.

All of the foregoing was taken into account by Shane and Venkataraman when they defined entrepreneurship as “the process by which ‘opportunities to create future goods and services are discovered, evaluated and exploited’”.[19]  A few years later, Shane, working with Eckhardt, elaborated on the previous definition by describing entrepreneurship as a business process that encompassed several stages and activities including the identification and appraisal of opportunities, the choice to whether to exploit or sell the opportunities, efforts to acquire resources needed to exploit the opportunities, the development of an appropriate strategy for exploiting the opportunity, and the design of the new project or business model relating to the exploitation of the opportunity.[20]  Shane et al. highlighted several key points that followed from using these definitions.[21]  For example, the definition does not require that the entrepreneur be a firm founder or business owner, a common assumption in the research relating to entrepreneurship, and allows for the fact that new and innovative ideas for goods and services can come from anywhere in the organizational hierarchy and not just from the top, such as sales managers who develop new ways to market products and services to target markets.[22]  In addition, it calls for interpreting entrepreneurship as a “process” rather than a one-time event, action or decision.  For example, the decision to form and organize a new firm, while important, is just one of a series of actions that must be taken in order to effectively discover, evaluate and exploit an opportunity.  Finally, the definition recognizes that entrepreneurship is based on “creativity”, which can include not only uncovering new ideas and knowledge but also arranging resources in ways that have not been done before.  There is no minimum threshold of “creativity’ that must be met in order for an activity to qualify as “entrepreneurship” and, as Shane et al. pointed out, “the degree of creativity involved in entrepreneurship varies across the types of resource recombination that occurs”.[23]

Later, Oviatt and McDougall acknowledged and added to definition the definition offered by Shane and Venkataraman in the context of their effort to describe “international entrepreneurship” by referring to entrepreneurship as “the discovery, enactment, evaluation, and exploitation of opportunities . . . to create future goods and services”.[24] According to Harper, the opportunities associated with entrepreneurship may call for development of new markets, new products, new methods of production and management, the discovery of new inputs, the establishment of new businesses and the creation and design of new organizational forms.[25]

Majid and Koe observed that Stokes et al. separated the various definitions of entrepreneurship into three categories: purposes, behaviors and outcomes.[26]  The first category included definitions that focused on “what entrepreneurs do”, in other words the activities and processes of entrepreneurship such as “creating something new”[27], “pursuing opportunities”[28], and “discovering, creating and exploiting opportunity for future goods and services”.[29]  The second category focused on “who are entrepreneurs” and included definitions that provided insights into the specific behaviors of individuals who engage in entrepreneurial activities such as “competitive and drive market process”[30] and “creative and innovative”.[31]  The third category focused on “what entrepreneurs produced”, such as creating new organizations.[32]

The Global Entrepreneurship Monitor (“GEM”), a partnership between London Business School and Babson College that has been administering a comprehensive research program since 1999 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”.[33]  J.G. Burch, who has written extensively on the subject, has referred to entrepreneurship as the “initiation of change” and the “process of giving birth to a new business.”[34]  Burch has also developed a list of the following categories of innovations that tend to be the specific byproducts of entrepreneurial activities: introduction of a new product or service that is an improvement in the quality of an existing product or service; introduction of a new process or method that increases productivity; the opening of a new market, particularly an export market in a new territory; the conquest of a new source of supply of raw materials, half-manufactured products or alternative materials; and the creation of a new organization.

Finally, Acs and Szerb, who created the Global Entrepreneurship Development Index, argued that (“. . . [w]hile a generally accepted definition of entrepreneurship is lacking there is agreement that the concept comprises numerous dimensions . . . [t]he most common features of the various definitions involve unique traits, risk taking, opportunity recognition, motivation and exploitation, and innovation” (citations omitted)).”[35]  They believed that it was important to distinguish entrepreneurship from small businesses, self-employment, craftsmanship and “usual businesses” and defined entrepreneurship as “a dynamic interaction or entrepreneurial attitudes, entrepreneurial activity, and entrepreneurial aspiration that vary across stages of economic development”.[36]  They also emphasized that entrepreneurship included not only individual variables but institutional and environmental variables as well and that consideration must be given to quality of entrepreneurial activity as reflected in the aspirations and skills of entrepreneurs with respect to commercializing innovative products and technologies, building a global business and creating organizations that significantly contribute to higher employment.

This post is part of the Sustainable Entrepreneurship Project’s extensive materials on Entrepreneurship and Sustainability and Entrepreneurship.

Notes

[1] S. Graham, What Is Sustainable Entrepreneurship? (September 16, 2010),

http://ezinearticles.com/?What-Is-Sustainable-Entrepreneurship?&id=5045492

[2] See, e.g., B. Cohen and M. Winn, “Market Imperfections, Opportunity and Sustainable Entrepreneruship”, Journal of Business Venturing, 22(1) (2007), 29; and T. Dean and J. McMullen, “Toward a Theory of Sustainable Entrepreneurship: Reducing Environmental Degradation through Entrepreneurial Action”, Journal of Business Venturing, 22(1) (2007), 50.

[3] J. Hall, G. Daneke and M. Lenox, Sustainable Development and Entrepreneurship: Past Contributions and Future Directions, Journal of Business Venturing, 25(5) (2010), 439; K. Hockerts and R. Wüstenhagen, “Greening Goliaths Versus Emerging Davids: Theorizing about The Role of Incumbents and New Entrants in Sustainable Entrepreneurship”, Journal of Business Venturing, 25(5) (2010), 481; I. O’Neil and D. Ucbasaran, Sustainable Entrepreneurship and Career Transitions: The Role of Individual Identity. Conference proceedings in 8th International AGSE Entrepreneurship Research Exchange Conference, February 1-4, 2011, Swinburne University of Technology, Melbourne, Australia; B. Parrish, “Sustainability-Driven Entrepreneurship: Principles of Organization Design”, Journal of Business Venturing, 25(5) (2010), 510; and F. Tilley and W. Young, “Sustainability Entrepreneurs: Could They Be the True Wealth Generators of the Future?”, Green Management International, 55 (2009), 79.

[4] I. Majid and W-L. Koe, “Sustainable Entrepreneurship (SE): A Revised Model Based on Triple Bottom Line (TBL)”, International Journal of Academic Research in Business and Social Sciences, 2(6) (June 2012), 293, 296 (citing J. Hall, G. Daneke and M. Lenox, Sustainable Development and Entrepreneurship: Past Contributions and Future Directions, Journal of Business Venturing, 25(5) (2010), 439, 440; and D. Pacheco, T. Dean and D. Payne, “Escaping the Green Prison: Entrepreneurship and the Creation of Opportunities for Sustainable Development”, Journal of Business Venturing, 25(5) (2010), 464).

[5] S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review, 13 (2003), 257-279, 274.

[6] D. Stokes, N. Wilson and M. Mador, Entrepreneurship (Hampshire, UK: South-Western Cengage Learning, 2010).

[7] J. Veciana, “Entrepreneurship as a Scientific Research Program” in A. Cuervo, D. Ribeiro and S. Roig (Eds.), Entrepreneurship: Concepts, Theory and Perspective (Berlin, Heidelberg: Springer-Verlag, 2007), 23.

[8] F. Tilley and Young, “Sustainability Entrepreneurs — Could they be the True Wealth Generators of the Future?”, Greener Management International, 55 (2009), 79 (citing P. Hisrich and M. Peters, Entrepreneurship (International Edition) (Boston: Irwin McGraw-Hill, 1998)).

[9] W. Gartner, “’Who is an Entrepreneur?’ Is the Wrong Question”, American Journal of Small Business, Spring 1988, 11-32, 11 (citing, among others, A. Carsrud, K. Olm and G. Eddy, “Entrepreneurship: Research in quest of a paradigm”, in D. Sexton and R. Smilor (Ed.), The Art and Science of Entrepreneurship (Cambridge, MA: Ballinger, 1985); and D. Sexton and R. Smilor, “Introduction” in D. Sexton and R. Smilor (Ed.), The Art and Science of Entrepreneurship (Cambridge, MA: Ballinger, 1985))

[10] Id. (quoting A. Cole, “Definition of Entrepreneurship” in J. Komives (Ed.), Karl A. Bostrom Seminar in the Study of Enterprise (Milwaukee, WI: Center for Venture Management, 1969), 10-22, 17)

[11] Id. (quoting R. Brockhaus and P. Horwitz, “The Psychology of the Entrepreneur” in D. Sexton and R. Smilor (Ed.), The Art and Science of Entrepreneurship (Cambridge, MA: Ballinger, 1985), 42-43)

[12] Id. at 26.

[13] W. Gartner, “A conceptual framework for describing the phenomenon of new venture creation”, Academy of Management Review, 10(4) (1985), 696–706.

[14]  S. Mueller and A. Thomas, “Culture and Entrepreneurial Potential: A Nine Country Study of Locus of Control and Innovativeness”, Journal of Business Venturing, 16 (2000), 51-75, 53-54, 62 (citing J. Schumpeter, The theory of economic development (Cambridge, MA: Harvard University Press, 1934, 132).

[15] J. Hessels, International Entrepreneurship: An Introduction, Framework and Research Agenda (Zoetermeer, The Netherlands: Scientific Analysis of Entrepreneurship and SMEs, 2008), 6 (citing P. Reynolds, N. Bosma, E. Autio, S. Hunt, N. De Bono, I. Servais, P. Lopez-Garcia and N. Chin, “Global Entrepreneurship Monitor: Data Collection Design and Implementation 1998-2003”, Small Business Economics, 24(3) (2005), 205-231).

[16] W. Gartner, “’Who is an Entrepreneur?’ Is the Wrong Question”, American Journal of Small Business, Spring 1988, 11-32, 26.  Gardner argued that all of the different studies of entrepreneurship that can be identified in the field actually begin with the creation of new organizations including research on “psychological characteristics of entrepreneurs, sociological explanations of entrepreneurial cultures, economic and demographic explanations of entrepreneurial locations, etc.”.   Id.

[17] P. Davidsson, F. Delmar and J. Wiklund, “Entrepreneurship as Growth; Growth as Entrepreneurship” in P. Davidsson, F. Delmar and J. Wiklund (Eds), Entrepreneurship and the Growth of Firms (Cheltenham, UK: Edward Elgar Publisher, 2006), 21-38, 27.

[18] J. Hessels, International Entrepreneurship: An Introduction, Framework and Research Agenda (Zoetermeer, The Netherlands: Scientific Analysis of Entrepreneurship and SMEs, 2008), 6.

[19] S. Shane and S. Venkataraman, “The promise of entrepreneurship as a field of research”, Academy of Management Review, 25(1) (2000), 217-226, 218 (as cited in S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review, 13 (2003), 257-279, 259).

[20] J. Eckhardt and S. Shane, “Opportunities and entrepreneurship”, Journal of Management, 29 (2003), 333.

[21] S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review, 13 (2003), 257-279, 259.

[22] See, e.g., D. McClelland, The achieving society (Princeton, NJ: Van Nostrand, 1961) and I. Kirzner, Competition and Entrepreneurship (Chicago, IL: University of Chicago Press, 1973).

[23] S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review, 13 (2003), 257-279, 259.

[24] B. Oviatt and P. McDougall, “Defining International Entrepreneurship and Modeling the Speed of Internationalization”, Entrepreneurship Theory and Practice, 29(5) (2005), 537-553, 540.

[25] D. Harper, Foundations of Entrepreneurship and Economic Development (New York. Routledge, 2003).

[26] I. Majid and W-L. Koe, “Sustainable Entrepreneurship (SE): A Revised Model Based on Triple Bottom Line (TBL)”, International Journal of Academic Research in Business and Social Sciences, 2(6) (June 2012), 293, 295 (citing D. Stokes, N. Wilson and M. Mador, Entrepreneurship (Hampshire, UK: South-Western Cengage Learning, 2010)).

[27] R. Hisrich and M. Peters, Entrepreneurship (5th ed.) (London: McGraw Hill, 2002).

[28] H. Stevenson and J. Jarillo, A Paradigm of Entrepreneurship: Entrepreneurial Management. Strategic Management Journal: Special Edition Corporate Entrepreneurship, 11 (1990), 17.

[29] S. Venkataraman, “The Distinctive Domain of Entrepreneurship Research” in J. Katz and R. Brockhaus (Eds.), Advances in Entrepreneurship, Firm Emergence and Growth (Greenwich, CT: JAI Press, 1996), 119.

[30] I. Kizner, Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973).

[31] J. Schumpeter, The Theory of Economic Development (Cambridge, MA: Harvard University Press, 1934).

[32] W. Gartner, “Who is an Entrepreneur? Is the Wrong Question”, American Journal of Small Business, 12(4) (1988), 11.

[33]  For further discussion of the GEM, see “Research in Entrepreneurship” in “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).

[34] J.G. Burch, Entrepreneurship (New York: John Wiley & Sons, 1986).

[35]  Z. Acs and L. Szerb, “The Global Entrepreneurship and Development Index (GEDI)” (Paper presented at Summer Conference 2010 on “Opening Up Innovation: Strategy, Organization and Technology”, Imperial College London Business School, June 2010).  For further discussion of the GEDI, see “Research in Entrepreneurship” in “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).

[36]  Id.

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