APT 3083 Week 01 Wickham

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APT 3083 – STRATEGIC ENTREPREURSHIP

The Nature of Entrepreneurship

week 01

Mohammad nizamuddin bin abdul rahim

Fakulti keusahawanan & perniagaan





week 01

W hat is entrepreneurship?

Entrepreneurship

Entrepreneur was an individual commissioned to undertake a particular

commercial project by someone with money to invest.

Origin lies in 17th century France :

Entrepreneurial Entrepreneurial process

Concepts derived:

W hat the entrepreneur

does

Is an adjective describing

how the entrepreneurundertakes what they do – particular style to whatentrepreneurs do.

In which the

entrepreneur engages isthe means throughwhich new value iscreated as a result of theproject – entrepreneurial venture





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W hat is entrepreneurship?

Entrepreneurs:

Has economic & social dimension

Is an individual who lives & functions within a social setting

Are not characterized by every action they take, but by a

particular set of actions aimed at the creation of new wealth

with their ventures.

W ealth creation

is a generalmanagerialactivity

Characterized by

a particularapproach towealth creation

Can be considered as:

A manager

undertaking an

activity – i.e. in termsof the particular tasks they perform & theway they undertakethem

An agent of economic

change – i.e. in terms

of the effects they have on economicsystems & the changesthey drive

An individual – i.e. in

terms of their

psychology, personality & personalcharacteristics





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The entrepreneur perspectives

The entrepreneur’s tasks

• Owning organizations

• founding new

organizations• bringing innovations to

market• identification of market

opportunity • application of expertise• provision of leadership• the entrepreneur as

manager

The role of entrepreneur The entrepreneur as aperson

• Combination of

economic factors

• providing marketefficiency

• accepting risk • maximizing investors’

returns• processing of market

information

• The ‘great person’

• social misfit

• personality type• personality trait• social development

approaches• cognitive approaches





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• founding new




manager


Ownership lies with those who invest in the business & own its shares – the principals – whereas the actualrunning is delegated to professional managers or agents.

Entrepreneur owns & manage their own business – dual

roles.

BUT!!! many people are also recognized as entrepreneur

even if they do not own the venture they are managing.





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• Owning organizations• Founding new




manager


General perception – entrepreneur as someone who has

established a new business organization.

Entrepreneur is recognized as the person who undertakesthe task of bringing together the different elements of theorganization (people, property, productive resources, etc.)& giving them a separate legal identity.

BUT!!! They are also entrepreneurs who ‘buy into’

organizations, develop them, or absorb them into existingorganizations.

Entrepreneurs make major changes in their

organizational world.


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• Founding new




manager


Innovation is a crucial part of the entrepreneurial process.

Innovation as fundamental to the entrepreneurial process

of wealth creation.

Innovations encompasses any new way of doing

something so that value is created.

It can mean a new product or service, and can also include

new way of delivering an existing product or service, new

methods of informing the customer about a product & promoting it to them, new ways of organizing the company,or even new approaches to managing relationship with otherorganizations.

Innovation is doing something in a way which is new, different & better.




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• Founding new


market• identification of

market opportunity• application of expertise• provision of leadership• the entrepreneur as

manager


An opportunity is a gap in a market where the potential

exists to do something better & thereby to create value.

If they are to be exploited, they must actively sought out.

Entrepreneurs must constantly scan the business

landscape watching for the gaps left by existing players inthe marketplace.

Having identified them, the entrepreneur must pursue them

with a suitable innovation.

The real value is created when that opportunity is exploited

by something new which fills the market gap.




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• Founding new




manager


Entrepreneur are characterized by the way they bring

some sort of expertise to their jobs.

They have a special ability in deciding how to allocate

scarce resources in situation where information is limited.




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• Founding new




manager


One special skill that entrepreneurs would seem to

contribute to their ventures is leadership.

In order to drive their innovation to market, they have to

lead other people, both from within their organization & from people outside such as investors, customers & suppliers..

Leadership is an important factor in entrepreneurial

success & it is often a skill that is exhibited well by theentrepreneur.





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• Founding new




manager


It would seem that entrepreneurs take on no task that is

fundamentally different from the tasks performed by

ordinary managers at some time or other.

Entrepreneur is a manager!

To distinct entrepreneur from an ‘ordinary manager’, it

must be in terms of what the entrepreneur manages, how they manage, their effectiveness and the effect they haveas a manager.





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The entrepreneur’s tasks The role of entrepreneur The entrepreneur as aperson

• Combination of

economic factors




information

3 primary economic

factors: the raw materials that nature offers up, the

physical & mental labor that people provide, andcapital.

Value is created by

combining these 3 thingsin a way which satisfieshuman needs.

Innovation is simply finding new

combinations of economic factors.

Entrepreneurship as a kind of 4th

factor which acts on the other 3 tocombine them in productive ways.





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• Combination of

economic factors




information

The most efficient

economic systems is onein which unimpeded

markets determine theprice at which goods arebought & sold.

Efficient means that

resources are distributedin an optimal way, that isthe satisfaction thatpeople can gain fromthem is maximized .

Entrepreneurs provide efficiency

by creating a competitive marketand being willing to accept a

lower profit themselves and offerthe goods at a lower price.





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• Combination of

economic factors


• accepting risk• maximizing investors’


information

The lack of knowledge

about the future is calleduncertainty. If we know

the likelihood of variouspossibilities thenuncertainty becomesrisk.

Entrepreneur accept risk

on behalf of otherpeople. They provide aservice by taking this risk off people’s hands.

Entrepreneurs are good at

managing the situations whererisk is high; that is, when faced

with a situation of highuncertainty they are able to keeptheir heads, to continue tocommunicate effectively, & tocarry on making effectivedecisions.





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• Combination of

economic factors




information

The role of entrepreneurs

is one of maximizing thereturns that shareholders

get from theirinvestments.

They create & run

organizations which generate long-term

profits on behalf of theinvestors that are higherthan would otherwisehave been the case.

Entrepreneurship takes into

account the interests of a widevariety of stakeholders groups, not

just those of investors.



• Combination of

economic factors




information



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Entrepreneurs keep an

eye out for informationthat is not beingexploited.

B y taking advantage of

this information, they make markets moreefficient & are rewardedout of the revenues

generated.

E

ntrepreneurs are informationprocessors is which in turnpursue opportunities & providecompetitive efficiency..

This information is

information aboutopportunities.




• social misfit

• personality type• personality trait• social development




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Entrepreneurs are often

regarded as a ‘great

person’.

Entrepreneurs can

certainly be inspiring, &

may provide motivatingrole models.




• social misfit•

personality type• personality trait• social development




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Entrepreneurs are social misfits at heart.

As a result the entrepreneur is driven to create his or her ownsituation.

It is this that provides the motivation to innovate &

build new organizations.

Someone is an entrepreneur for an essentially negative reason;

they are unable to fit into existing social situations.

Often they relate their inability to fit into the established firm as a factor in

driving them to start their own venture.

Many entrepreneurs achieved success after comparatively

unhappy & lackluster careers working as professionalmanagers.









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Entrepreneurs are often characterized by privation & hardship

which left the person with a lack of self-esteem, a feeling of insecurity & a repressed desire for control.

It provides not only a means of economic survival but also anactivity which enables a reaction against anxiety left by psychological scars.

This leads to rebellious & ‘deviant’ behavior which limits the

person’s ability to fit into established organizations.

Entrepreneurial activity is a way of coming to terms with this.









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There is a common impression that entrepreneurs tend to be

flamboyant extroverts who are spontaneous in their approach& rely on instinct rather than calculation.

E.g., introverts are just as likely to be entrepreneurs as are

extroverts.

Detailed studies, however, have shown that all types of

personality perform equally well as entrepreneurs.

Personality type, as measured by personality test does not

correlate strongly with entrepreneurial performance &

success.









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David McClelland identified a “need for achievement” as the

fundamental driving trait in the personality of successfulentrepreneurs.

Other factors which have also been viewed as important

include:

• the need for autonomy • the need to be in control of a situation• a desire to face risk

• creativity • a need for independence• the desire to show leadership qualities.









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Entrepreneurs are not born, they are made.

A number of factors are seen as significant to the social

development of entrepreneurs. In general, they fall into one of the three broad categories:

• innate – factors such as intelligence, creativity, personality,motivation, personal ambition, etc.

• acquired – learning, training, experience in ‘incubator’

organizations, mentoring, existence of motivating rolemodels, etc.• social - birth order, experiences in family life, socio-

economic group & parental occupation, society & culture,economic conditions, etc.

f









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Cognitive science is the branch of psychology that attempts to

develop an understanding of how we as humans obtain & process information & use it to make sense of the world.

Th N t f E t hi





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Entrepreneurship: a style of management

An entrepreneur is a manager. They are someone who manages in an

entrepreneurial way. Entrepreneurial management is characterized by threefeatures:

A focus on change A focus on opportunity Organization-wide management

Entrepreneurs aremanagers of change

They bring people.

Money, ideas & resources together to

build new organizations& to change existingones.

Entrepreneurs areattuned to opportunity.

They constantly seek the

possibility of doingsomething differently &

better. They innovate tocreate value.

Entrepreneurs are more

interested in pursuingopportunity.

The entrepreneurs manages with aneye to the entire organization.

They benchmark themselves against

organizational objectives.

Th N t f E t hi



APT 3083–

STRATEGIC ENTREPREURSHIP


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Entrepreneurship: a style of management

Entrepreneurial managers as venturers

Entrepreneurs as a manager who is willing to venture to create change & to

pursue opportunity rather than just to maintain the status quo & conserveresources.

The effective entrepreneur does all these things when appropriate.

There are times when the status quo is worth sustaining, & times when it is

unwise to expose resources.

Part of the skill of the effective entrepreneur is knowing when not to venture.

However, when the time is right, the entrepreneurial manager is willing to step

forward.

Th N t f E t hi



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The human dimension: leadership, power & motivation

One characteristic that distinguishes entrepreneurs from their more conventional

colleagues it would likely be found not in their strategies or analytical insights butin the human dimensions; the way in which they use leadership & power & theirability to motivate those around them.

Leadership

Power

Motivation

The power to focus & direct the

organization

The ability to influence the course of

action within the organization

The process of encouraging an

individual to take particular coursesof action

Self motivation

• why am I doing this? • Learning from mistakes • Enjoying the rewards

Motivation of others

• understanding personal drives • Setting goals • Offering support • Using rewards



Types of Entrepreneur

Copyright © 2011 by Mohammad Nizamuddin bin Abdul Rahim, UMK

T f E t l if i t



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Types of Entrepreneur – classifying entrepreneurs

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Two main approaches in entrepreneurs classification

Entrepreneurs themselves Entrepreneurs ventures

Nascent entrepreneurs

Those planning to start

up an initial venture

Singular entrepreneurs

Those running a singlebusiness

At an early stage of

venture developmentwhen they are stillactively learning arereferred to as novice entrepreneurs.

Opportunist entrepreneurs Craftsmen

W

ho were interested inmaximizing their returnsfrom short-term deals

W

ho attempted to make aliving by privately sellingtheir trade or products.

Were not so much interested

in profits as in being able toearn a stable living from theirspecialist skills.

Types of Entrepreneur classifying entrepreneurs



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Nascent entrepreneurs Singular entrepreneurs

Opportunist entrepreneurs Craftsmen

G rowth-orientated I ndependence-

orientated

I ncome-orientated E xpansion-

orientated

Who pursued

opportunities to

maximize thepotential of theirventure.

Whose main

ambition was to

work for themselves. Preferred stability to

growth; willing tolimit the scope of their ventures

Whose main aim is

to secure a steady

income

Who take the risk of

expanding their

business & face thechallenge of changing their rolefrom being craftoperators to beingmanagers of craft

operators




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C antillon

entrepreneur

I ndustry-maker A dministrative

entrepreneur

S mall business

owner

Frederick Webster (1977)




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C antillon

entrepreneur


entrepreneur

S mall business

owner

Brings people, money & materials together to create an entirely new organizations;


The ‘classic’ type of entrepreneur, who identifies an unexploited opportunity & then

innovates in order to pursue it




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C antillon

entrepreneur


entrepreneur

S mall business

owner

Goes beyond merely creating a new firm


Their innovation is of such importance that a whole industry is created on the back of it

They develop not only new products, but also a whole technology to produce them




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C antillon

entrepreneur


entrepreneur

S mall business

owner

A manager who operates within an established firm but does so in an entrepreneurial

fashion


Usually occupying the chief executive or a senior managerial role, they are called upon to

be innovative & to provide dynamism & leadership to the organization, particularly when itis facing a period of change

Administrative entrepreneurs are often referred to as intrapreneurs.




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C antillon

entrepreneur


entrepreneur

S mall business

owner

Is an entrepreneur who takes responsibility for owning & running their own venture


The business may be small because it is in an early stage of growth, or the owner may

actually wish to limit the size of their business because they are satisfied that it gives them a

reasonably secure income & control over their life




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Further classifies entrepreneurial venture by the ratio of the amount that is expected to be

received as a result of the venture’s success (the perceived payoff) & the number of investorsinvolved (the principals) .

Large payoff: many participants – i.e. a major venture with the risk spread widely over a

large number of investors.


Small payoff: few participants – i.e. a limited venture with the risk taken on by a few key

investors only.

Large payoff: few participants – i.e. a major venture with the risk taken on by a few key

investors.




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Gambler

Landau’s (1982) classification of entrepreneurial types

Entrepreneur

Consolidator Dreamer

Risk bearing

Innovativeness

L ow

L ow

H igh

H igh




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Gambler


Entrepreneur


Risk bearing

Innovativeness

L ow

L ow

H igh

H igh Gambler is the entrepreneur

characterized by a low degree of innovation & a high level of risk.

The gamble, of course, arises from the

fact that without a significantinnovation, the entrepreneur is taking abig chance in being better able todeliver value than existing players in

the market.




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Gambler


Entrepreneur


Risk bearing

Innovativeness

L ow

L ow

H igh

H igh Consolidator is the entrepreneur who

develops a venture based on low levelsof both innovation & risk.

This consolidates in that it is really, at

best, a marginal improvement on whatexisting players are doing. Althoughrisk are low, so too must be expectedreturns.




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Gambler


Entrepreneur


Risk bearing

Innovativeness

L ow

L ow

H igh

H igh Dreamer is the entrepreneur who

attempts to combine a high level of innovativeness with low risk.

All entrepreneurs would love to operate

here. However, the dream cannot berealized as all innovation, by its nature,introduces risk. The more significant & hence potentially valuable, the

innovation, the greater the risk of theunknown.




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Gambler


Entrepreneur


Risk bearing

Innovativeness

L ow

L ow

H igh

H igh Entrepreneur combines a high level of

innovativeness with high risk.

This is where true entrepreneurs

operate. They must accept risk, but by understanding their innovation & why it appeals to the market, they minimize& manage the risks.




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Technology-based entrepreneurs


Jones-Evan (1995) – fourfold categorizations:

- Are specially important in modern business as it is they who are taking

advantage of new scientific developments, especially in the areas of IT,biotechnology & engineering science, & offering their benefits to the wider world.Investors are attracted by the high growth potential of their ventures.

‘R esearch’ technical entrepreneur

‘P roducer’ technical entrepreneur

‘U ser’ technical entrepreneur

‘O pportunist’ technical entrepreneur

P ure research entrepreneur

R esearch-producer entrepreneur




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Those whose incubation has been in

research environment.

W ho have been based in academic

research environments & whohave not had significantcommercial experience

W ho while working in an

academic or industrial researchenvironment have had exposureto commercial decision making




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Those whose incubation has

included an exposure to decisionmaking in a commercial settingalong with experience intechnological development




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‘ U ser’ technical entrepreneur



R esearch-producer entrepreneur An individual whose main experience has

been commercially based but hasinvolved contact with, & the developmentof knowledge about, a technical

development. This may be because they have been employed in its marketing orsales, or perhaps in procuring thattechnology for a business.




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‘ O pportunist’ technical entrepreneur


R esearch-producer entrepreneur One who has no previous exposure to

technology but has seen a commercialopportunity in relation to it & has

pursued that with a new venture. Thistype of entrepreneur may call upon a general technical knowledge base & arekeen to develop an understanding of thenew technology & what it offers.




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The approach to classifying technical entrepreneurs is useful for two key reasons:

‘ R esearch’ technical entrepreneur




W hile in command of the technical aspects of

what they are doing, may need support withthe commercial management of their

ventures.

May call upon dedicated technical experts to

underpin their commercial moves.

Reason 1

Reason 2

I

t enables investors to judge the managerial balance of the ventures to which they are calledupon to commit themselves. An investor seeks not only a good idea, but also one that has aclear market potential & is backed by a managerial team that can not only invent but alsodeliver that invention to the customer profitably.




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Wai-Sum Siu (1996) identifies 5 types of entrepreneur in China

S enior citizen W orkaholics S wingers I dealists H igh-flyers

Assessment based on:

-Employment - managerial - financial - technical; and- strategic

criteria




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Undertakes a venture to keep occupied during their retirement.

The business is small & based on personal expertise.

It is privately funded & has no long-term strategic ambitions.




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Are also retired nut show more ambition for their ventures than do senior citizens

They often possess administrative experience & their business are bigger, drawing

on a wider range of technical skills

Strategic goals may be explicit & employees may be invited to make a personal

investment in the future of the venture




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Are younger entrepreneurs who aim to make a living from making deals

They may have only limited industrial & technical experience & rely on networks of personal contact

Their ventures may be moderately large, but they tend not to have long-term

strategic goals.

T

he main aim is to maximize short-term profits.Fund is provided through retained earnings, family contributions & personal loans




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Are also younger entrepreneurs who run moderate-sized ventures

Their motivation is based less on short-term profit & more on the sense of achievement & independence that running their own venture gives them

They serve a variety of end markets & their ventures may be based on high-

technology products

F

inancing is through retained profits, family contributions & private investment




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Are motivated in much the same way as idealists

Their ventures are much larger, reflecting success in the marketplace

A variety of products are offered

Corporate goals & strategy tend to be much more explicit than in the idealist’s

venture

Investment is drawn from a wider variety of sources, including institutional &

international agencies

Types of Entrepreneur – serial & portfolio entrepreneurship



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Entrepreneurs are driven by a desire for autonomy, prestige & a sense of

achievement, as much as, if not more than, by a desire to make money.

This is most evident in that group of entrepreneurs who, having led one business

success, move on to start another.

Such entrepreneurs, called serial entrepreneurs (sometimes referred to as habitual

entrepreneurs), gain their rewards from the establishment & building of businesses, not theirlong-term management.

Serial entrepreneurs, as well as being interested in the start-up & early growth phase of theventure, may also have particular decision-making expertise in these areas of businessdevelopment, & therefore gain their personal competitive advantage in relation to managingthis stage.

An entrepreneur who can point to a record of success will also be a more attractive

proposition to an investor than one who cannot.

The capital generated from an initial venture (retained profits or money made through its

sales) may provide a source of funds to start up a new venture.




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The establishment of additional ventures may also reflect the strategic concerns of

the entrepreneur.

It may be that the competitive advantage gained in the initial business can be

successfully transferred to a subsequent one.

Further, several businesses may be a way of diluting risk.

Management buyouts & buy-ins are fruitful area for serial entrepreneurs.

Serial entrepreneurs may be sub-divided into two types:

W ho start new businesses in sequence, only

running one at any time.

S equential entrepreneursP ortfolio entrepreneurs

Those who run several businesses

simultaneously.




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Serial entrepreneurs might be classified in the following way:

Those who undertake subsequent ventures because of a forced exit from anearlier one.

O pportunist serial entrepreneurs

D efensive serial entrepreneurs

Those who undertake serial

entrepreneurship because creating anumber of businesses is fundamentalto the strategy they are pursuing.

G roup-creating serial entrepreneurs

Need not be because of failure, but might be because the venture was sold, or floated on

the stock market to pay off venture capital investment.

Those who undertake subsequent ventures because they perceive the opportunity for

financial gain, perhaps on a short-term entry-exit basis.

Deal-making serials use acquisition

as a major part of gaining the new

businesses.

Organic serials start new businesses

from scratch & grow them.

Types of Entrepreneur – entrepreneurship & small business management: a

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distinction

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Distinction:

- Serve different economic functions

-Pursue & create new opportunities differently - fulfill the ambitions of their founder & managers in different ways

Usually based on a significant innovation

Innovation

Entrepreneurial venture

Usually involved in delivering an

established product or service.

3 essential characteristics which distinguish them:

Small business

Usually based on a significantly new way

of doing something It is not doing anything essentially in a

global sense


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Usually has a great deal more potential for

growth

Potential for growth


Operates within an established industry & is

unique only in terms of its locality.


Small business

It is limited in its growth potential by

competitors in adjacent localities.Operates within a given market

Creates its own market


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distinction

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Strategic objectives:

- Growth targets- Market development- market share

- market position

Strategic objectives


Objectives


Small business


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distinction

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End of lesson 01

APT 3083 Week 01 Wickham

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