Week 5: Entrepreneurship, Creativity + Adjustment Dr Christopher Pokarier EB202 Introduction to Business!
Entrepreneurship concept What is `entrepreneurship?! A number of definitions and descriptions! Typically focuses on decision making under uncertainty and the risk, insight and creativity involved! Several distinct schools of thought on entrepreneurship
Entrepreneurship!
Entrepreneurship as risk-taking! Risk-taking is a significant factor which differentiates being in business to being employed.! In business, costs come before revenues! The owners of a business are the residual claimants to any residual surplus (profits) after all costs are met and revenues received.! Market forces can be compel risk taking and reward it well promoting innovation and economic dynamism! Frank Knight studied entrepreneurship from a risk perspective
BUT modern capitalism shares risk! Financial markets price and distribute risk making entrepreneurship much easier! Issuing shares raises capital (like bank loans) but shares risk with others! This can reduce the personal financial risks for entrepreneurs! We need to understand entrepreneurship then as more than just financial risk-taking! Although many business people still bear risks (eg. to reputation) even if the financial risks are shared
Entrepreneurship as innovation! Joseph Schumpeter was a leading Austrian economist who firmly established academic interest in entrepreneurship! He focused on the economic consequences of entrepreneurship, especially innovation &saw innovation (in technologies, products, processes, production, marketing etc) as disturbing markets causing market disequilibrium! Creative destruction concept - influential in late 1990s Japan! Schumpeter also looked at the social foundations of entrepreneurship
Entrepreneurship as arbitrage! This view sees entrepreneurs as identifying and taking advantage of market imperfections! Eg. An entrepreneur might buy a commodity or product in one location and sell it in another at a profit owing to price or exchange differentials! Arbitrage in its purest form, involving simultaneous buy and sell contracts, is actually risk free and takes advantage of those price differentials (but clearly is entrepreneurial)! This entrepreneurship brings markets closer to equilibrium! Arbitrage view associated with Leibenstein, Kirzner
Entrepreneurship as discovery! Kirzner describes entrepreneurial alertness to profit opportunities in imperfect markets
Mark Casson s approach! Casson is a leading British scholar of entrepreneurship! Focuses on decision making under uncertainty- judgemental decision making! Considers senior management and not just owner-founders of businesses! This fits the significant role of leading management in restructuring Western firms from the top down in the 1980s & 1990s
Intrapreneurship! intrapreneurship is a more recent popular term to describe risk-taking and innovation inside a company! That is, it covers entrepreneurship by employees! It is often applied to Japanese firms where much innovation has come from middle and lower ranks of the company rather than from top management or owners
Market niche strategy! Expertise & sufficient demand can make narrow specialization a success
Successful entrepreneurs! Either had a hunger success and tried (and often failed) at many ventures! OR had deep experience (and love for) a particular industry or activity! Eg. Lonely Planet publications created by a couple (The Wheelers) who loved travel! Billabong created by surfers! Burton Snowboards created by Jim Burton who loves riding
Networks & entrepreneurship! Deep & broad interaction bring ideas, expertise, finance and effort together
Sociology of Entrepreneurship When do entrepreneurs emerge?! in social contexts that support risk-taking, failure, social mobility, and business in general! Sometimes when people have supporting social networks eg. Old school connections etc reducing risk! Sometimes when people have little other option after war, migrants who can t have regular careers, or groups who are prejudiced agains! Eg. Jews in Europe, Chinese in Southeast Asia, Quakers in England
Creativity! In mature economies & industries innovation + design are vital for success
Creativity in modern business! creativity + innovation + design advantages are vital! Old industrial command & control management style is conflict with such needs! Organisations become flatter less top-down! More outsourcing, free agents, free contracting between boutique specialist firms! Some nations, cities, regions, may have cultural advantages
Adjustment! Competition, technological change, & systemic shocks create losers + winners
Creative Destruction! Entrepreneurship creates new businesses and brings new value to customers & society! But this success can make other industries less competitive (eg. export success causes a rising currency and rising domestic labour costs)! International competition compounds the impacts on the losers of market competition! Social and political challenge to support the victims of economic adjustment
The SILLY can SUCCEED! If the market wants it.. East Bar in Stockholm
New Money & Bling! Some will question the taste and morality of the new wealthy
Moral critiques of commerce! Savonarola (1452-1498) decried materialistic immorality & got burnt for it in Florence
Successful entrepreneurs! Create demand for other services (such as yachting supplies!)
Fear Not Failure! If you can t afford the cruiser you can still fish off the rocks! There are many material rewards for commercial success BUT! Many entrepreneurs continue to live simply and to work hard! & failures are often happy!
Philanthropy! Copenhagen Opera House, mostly funded by Mr Moller, owner of Maersk shipping
entrepreneurial outside business! In politics, charities, or perhaps in catching an entrepreneur for marriage!