Entrepreneurship is the process of designing, launching and running a
new business, which is often initially a small business. The people
who create these businesses are called entrepreneurs[need quotation
Entrepreneurship has been described as the "capacity and willingness
to develop, organize and manage a business venture along with any of
its risks in order to make a profit". While definitions of
entrepreneurship typically focus on the launching and running of
businesses, due to the high risks involved in launching a start-up, a
significant proportion of start-up businesses have to close due to
"lack of funding, bad business decisions, an economic crisis, lack of
market demand—or a combination of all of these.
2.1 Historical usage
2.2 20th century
2.4 Relationship between small business and entrepreneurship
Uncertainty perception and risk-taking
4.2 "Coachability" and advice taking
4.4 Designing individual/opportunity nexus
4.5 Opportunity perception and biases
4.7.1 Links to sea piracy
5 Psychological makeup
5.3 Global leadership
Entrepreneurship Training and Education
7 Resources and Financing
7.3 Additional financing
7.4 Effect of taxes
8 Predictors of success
9 See also
12 Further reading
Entrepreneurship is the act of being an entrepreneur, or "the owner or
manager of a business enterprise who, by risk and initiative, attempts
to make profits". Entrepreneurs act as managers and oversee the
launch and growth of an enterprise.
Entrepreneurship is the process by
which either an individual or a team identifies a business opportunity
and acquires and deploys the necessary resources required for its
exploitation. Early 19th century French economist Jean-Baptiste Say
provided a broad definition of entrepreneurship, saying that it
"shifts economic resources out of an area of lower and into an area of
higher productivity and greater yield". Entrepreneurs create something
new, something different—they change or transmute values.
Regardless of the firm size, big or small, they can partake in
entrepreneurship opportunities. The opportunity to become an
entrepreneur requires four criteria. First, there must be
opportunities or situations to recombine resources to generate profit.
Second, entrepreneurship requires differences between people, such as
preferential access to certain individuals or the ability to recognize
information about opportunities. Third, taking on risk is a necessary.
Fourth, the entrepreneurial process requires the organization of
people and resources.
The entrepreneur is a factor in and the study of entrepreneurship
reaches back to the work of
Richard Cantillon and
Adam Smith in the
late 17th and early 18th centuries. However, entrepreneurship was
largely ignored theoretically until the late 19th and early 20th
centuries and empirically until a profound resurgence in business and
economics since the late 1970s. In the 20th century, the understanding
of entrepreneurship owes much to the work of economist Joseph
Schumpeter in the 1930s and other Austrian economists such as Carl
Ludwig von Mises
Ludwig von Mises and Friedrich von Hayek. According to
Schumpeter, an entrepreneur is a person who is willing and able to
convert a new idea or invention into a successful innovation.
Entrepreneurship employs what Schumpeter called "the gale of creative
destruction" to replace in whole or in part inferior innovations
across markets and industries, simultaneously creating new products
including new business models. In this way, creative destruction is
largely responsible for the dynamism of industries and long-run
economic growth. The supposition that entrepreneurship leads to
economic growth is an interpretation of the residual in endogenous
growth theory and as such is hotly debated in academic economics. An
alternate description posited by
Israel Kirzner suggests that the
majority of innovations may be much more incremental improvements such
as the replacement of paper with plastic in the making of drinking
The exploitation of entrepreneurial opportunities may include:
Developing a business plan
Hiring the human resources
Acquiring financial and material resources
Being responsible for both the venture's success or failure
Joseph Schumpeter (1883–1950) saw the role of the
entrepreneur in the economy as "creative destruction" – launching
innovations that simultaneously destroy old industries while ushering
in new industries and approaches. For Schumpeter, the changes and
"dynamic disequilibrium brought on by the innovating entrepreneur
[were] the norm of a healthy economy". While entrepreneurship is
often associated with new, small, for-profit start-ups,
entrepreneurial behavior can be seen in small-, medium- and
large-sized firms, new and established firms and in for-profit and
not-for-profit organizations, including voluntary-sector groups,
charitable organizations and government.
Entrepreneurship may operate within an entrepreneurship ecosystem
which often includes:
Government programs and services that promote entrepreneurship and
support entrepreneurs and start-ups
Non-governmental organizations such as small-business associations and
organizations that offer advice and mentoring to entrepreneurs (e.g.
through entrepreneurship centers or websites)
Small-business advocacy organizations that lobby governments for
increased support for entrepreneurship programs and more small
business-friendly laws and regulations
Entrepreneurship resources and facilities (e.g. business incubators
and seed accelerators)
Entrepreneurship education and training programs offered by schools,
colleges and universities
Financing (e.g. bank loans, venture capital financing, angel investing
and government and private foundation grants)[need quotation to
In the 2000s, usage of the term "entrepreneurship" expanded to include
how and why some individuals (or teams) identify opportunities,
evaluate them as viable, and then decide to exploit them. The term
has also been used to discuss how people might use these opportunities
to develop new products or services, launch new firms or industries,
and create wealth. The entrepreneurial process is uncertain
because opportunities can only be identified after they have been
Entrepreneurs tend exhibit positive biases towards finding new
possibilities and seeing unmet market needs, and a tendency towards
risk-taking that makes them more likely to exploit business
Emil Jellinek-Mercedes (1853–1918), here at the steering wheel of
his Phoenix Double-Phaeton, was a European entrepreneur who helped
design the first modern car
"Entrepreneur" (/ˌɒntrəprəˈnɜːr/ ( listen)) is a
loanword from French. The word first appeared in the French dictionary
entitled Dictionnaire Universel de Commerce compiled by Jacques des
Bruslons and published in 1723. Especially in Britain, the term
"adventurer" was often used to denote the same meaning. The study
of entrepreneurship reaches back to the work in the late 17th and
early 18th centuries of Irish-French economist Richard Cantillon,
which was foundational to classical economics. Cantillon defined the
term first in his Essai sur la Nature du Commerce en Général, or
Essay on the Nature of Trade in General, a book William Stanley Jevons
considered the "cradle of political economy". Cantillon
defined the term as a person who pays a certain price for a product
and resells it at an uncertain price, "making decisions about
obtaining and using the resources while consequently admitting the
risk of enterprise". Cantillon considered the entrepreneur to be a
risk taker who deliberately allocates resources to exploit
opportunities in order to maximize the financial return.
Cantillon emphasized the willingness of the entrepreneur to assume the
risk and to deal with uncertainty, thus he drew attention to the
function of the entrepreneur and distinguished between the function of
the entrepreneur and the owner who provided the money.
Jean-Baptiste Say also identified entrepreneurs as a driver for
economic development, emphasizing their role as one of the collecting
factors of production allocating resources from less to fields that
are more productive. Both Say and Cantillon belonged to French school
of thought and known as the physiocrats. 
Dating back to the time of the medieval guilds in Germany, a
craftsperson required special permission to operate as an
entrepreneur, the small proof of competence (Kleiner
Befähigungsnachweis), which restricted training of apprentices to
craftspeople who held a
Meister certificate. This institution was
introduced in 1908 after a period of so-called freedom of trade
(Gewerbefreiheit, introduced in 1871) in the German Reich. However,
proof of competence was not required to start a business. In 1935 and
in 1953, greater proof of competence was reintroduced (Großer
Befähigungsnachweis Kuhlenbeck), which required craftspeople to
Meister apprentice-training certificate before being
permitted to set up a new business.
In the 20th century, entrepreneurship was studied by Joseph Schumpeter
in the 1930s and other Austrian economists such as Carl Menger, Ludwig
von Mises and Friedrich von Hayek. While the loan from French of the
word "entrepreneur" dates to the 1850, the term "entrepreneurship" was
coined around the 1920s. According to Schumpeter, an entrepreneur is
willing and able to convert a new idea or invention into a successful
Entrepreneurship employs what Schumpeter called "the
gale of creative destruction" to replace in whole or in part inferior
offerings across markets and industries, simultaneously creating new
products and new business models, thus creative destruction is largely
responsible for long-term economic growth. The idea that
entrepreneurship leads to economic growth is an interpretation of the
residual in endogenous growth theory[clarification needed] and as such
continues to be debated in academic economics. An alternate
Israel Kirzner suggests that the majority of
innovations may be incremental improvements such as the replacement of
paper with plastic in the construction of a drinking straw that
require no special qualities.
For Schumpeter, entrepreneurship resulted in new industries and in new
combinations of currently existing inputs. Schumpeter's initial
example of this was the combination of a steam engine and then current
wagon making technologies to produce the horseless carriage. In this
case, the innovation (i.e. the car) was transformational, but did not
require the development of dramatic new technology. It did not
immediately replace the horse-drawn carriage, but in time incremental
improvements reduced the cost and improved the technology, leading to
the modern auto industry. Despite Schumpeter's early 20th-century
contributions, the traditional microeconomic theory did not formally
consider the entrepreneur in its theoretical frameworks (instead of
assuming that resources would find each other through a price system).
In this treatment, the entrepreneur was an implied but unspecified
actor, consistent with the concept of the entrepreneur being the agent
For Schumpeter, the entrepreneur did not bear risk: the capitalist
did. Schumpeter believed that the equilibrium was imperfect.
Schumpeter (1934) demonstrated that the changing environment
continuously provides new information about the optimum allocation of
resources to enhance profitability. Some individuals acquire the new
information before others and recombine the resources to gain an
entrepreneurial profit. Schumpeter was of the opinion that
entrepreneurs shift the production possibility curve to a higher level
Initially, economists made the first attempt to study the
entrepreneurship concept in depth.
Alfred Marshall viewed the
entrepreneur as a multi-tasking capitalist and observed that in the
equilibrium of a completely competitive market there was no spot for
"entrepreneurs" as an economic activity creator.
In 2012, Ambassador-at-Large for Global Women's Issues Melanne Verveer
greets participants in an African Women's
Entrepreneurship Program at
State Department in Washington, D.C.
In the 2000s, entrepreneurship has been extended from its origins in
for-profit businesses to include social entrepreneurship, in which
business goals are sought alongside social, environmental or
humanitarian goals and even the concept of the political
entrepreneur.[according to whom?]
Entrepreneurship within an existing
firm or large organization has been referred to as intrapreneurship
and may include corporate ventures where large entities "spin-off"
Entrepreneurs are leaders willing to take risk and exercise
initiative, taking advantage of market opportunities by planning,
organizing and deploying resources, often by innovating to create
new or improving existing products or services. In the 2000s, the
term "entrepreneurship" has been extended to include a specific
mindset resulting in entrepreneurial initiatives, e.g. in the form of
social entrepreneurship, political entrepreneurship or knowledge
According to Paul Reynolds, founder of the Global Entrepreneurship
Monitor, "by the time they reach their retirement years, half of all
working men in the United States probably have a period of
self-employment of one or more years; one in four may have engaged in
self-employment for six or more years. Participating in a new business
creation is a common activity among U.S. workers over the course of
their careers". In recent years, entrepreneurship has been claimed
as a major driver of economic growth in both the United States and
Entrepreneurial activities differ substantially depending on the type
of organization and creativity involved.
Entrepreneurship ranges in
scale from solo, part-time projects to large-scale undertakings that
involve a team and which may create many jobs. Many "high value"
entrepreneurial ventures seek venture capital or angel funding (seed
money) in order to raise capital for building and expanding the
business. Many organizations exist to support would-be
entrepreneurs, including specialized government agencies, business
incubators (which may be for-profit, non-profit, or operated by a
college or university), science parks and non-governmental
organizations, which include a range of organizations including
not-for-profits, charities, foundations and business advocacy groups
(e.g. Chambers of commerce). Beginning in 2008, an annual "Global
Entrepreneurship Week" event aimed at "exposing people to the benefits
of entrepreneurship" and getting them to "participate in
entrepreneurial-related activities" was launched.[who?]
Relationship between small business and entrepreneurship
The term "entrepreneur" is often conflated with the term "small
business" or used interchangeably with this term. While most
entrepreneurial ventures start out as a small business, not all small
businesses are entrepreneurial in the strict sense of the term. Many
small businesses are sole proprietor operations consisting solely of
the owner—or they have a small number of employees—and many of
these small businesses offer an existing product, process or service
and they do not aim at growth. In contrast, entrepreneurial ventures
offer an innovative product, process or service and the entrepreneur
typically aims to scale up the company by adding employees, seeking
international sales and so on, a process which is financed by venture
capital and angel investments. Successful entrepreneurs have the
ability to lead a business in a positive direction by proper planning,
to adapt to changing environments and understand their own strengths
The term "ethnic entrepreneurship" refers to self-employed business
owners who belong to racial or ethnic minority groups in the United
States and Europe. A long tradition of academic research explores the
experiences and strategies of ethnic entrepreneurs as they strive to
integrate economically into mainstream U.S. or European society.
Classic cases include Jewish merchants and tradespeople in large U.S.
cities in the 19th and early 20th centuries as well as Chinese and
Japanese small business owners (restaurants, farmers, shop owners) on
the West Coast. In the 2010s, ethnic entrepreneurship has been
studied in the case of Cuban business owners in Miami, Indian motel
owners of the U.S. and Chinese business owners in Chinatowns across
the United States. While entrepreneurship offers these groups many
opportunities for economic advancement, self-employment and business
ownership in the United States remain unevenly distributed along
racial/ethnic lines. Despite numerous success stories of Asian
entrepreneurs, a recent statistical analysis of U.S. census data shows
that whites are more likely than Asians, African-Americans and Latinos
to be self-employed in high prestige, lucrative industries.
The American-born British economist
Edith Penrose has highlighted the
collective nature of entrepreneurship. She mentions that in modern
organizations, human resources need to be combined in order to better
capture and create business opportunities. The sociologist Paul
DiMaggio (1988:14) has expanded this view to say that "new
institutions arise when organized actors with sufficient resources
[institutional entrepreneurs] see in them an opportunity to realize
interests that they value highly". The notion has been widely
According to Christopher Rea and Nicolai Volland, cultural
entrepreneurship is "practices of individual and collective agency
characterized by mobility between cultural professions and modes of
cultural production", which refers to creative industry activities and
sectors. In their book The
Business of Culture (2015), Rea and Volland
identify three types of cultural entrepreneur: "cultural
personalities", defined as "individuals who buil[d] their own personal
brand of creativity as a cultural authority and leverage it to create
and sustain various cultural enterprises"; "tycoons", defined as
"entrepreneurs who buil[d] substantial clout in the cultural sphere by
forging synergies between their industrial, cultural, political, and
philanthropic interests"; and "collective enterprises", organizations
which may engage in cultural production for profit or not-for-profit
A feminist entrepreneur is an individual who applies feminist values
and approaches through entrepreneurship, with the goal of improving
the quality of life and well-being of girls and women. Many are
doing so by creating "for women, by women" enterprises. Feminist
entrepreneurs are motivated to enter commercial markets by desire to
create wealth and social change, based on the ethics of cooperation,
equality and mutual respect.
Student organizers from the Green Club at Newcomb College Institute
formed a social entrepreneurship organization in 2010.
Main article: Social entrepreneurship
Social entrepreneurship is the use of the by start up companies and
other entrepreneurs to develop, fund and implement solutions to
social, cultural, or environmental issues. This concept may be
applied to a variety of organizations with different sizes, aims, and
beliefs. For-profit entrepreneurs typically measure performance
using business metrics like profit, revenues and increases in stock
prices, but social entrepreneurs are either non-profits or blend
for-profit goals with generating a positive "return to society" and
therefore must use different metrics. Social entrepreneurship
typically attempts to further broad social, cultural, and
environmental goals often associated with the voluntary sector in
areas such as poverty alleviation, health care and community
development. At times, profit-making social enterprises may be
established to support the social or cultural goals of the
organization but not as an end in itself. For example, an organization
that aims to provide housing and employment to the homeless may
operate a restaurant, both to raise money and to provide employment
for the homeless.
A nascent entrepreneur is someone in the process of establishing a
business venture.. In this observation, the nascent entrepreneur
can be seen as pursuing an opportunity, i.e. a possibility to
introduce new services or products, serve new markets, or develop more
efficient production methods in a profitable manner  . But
before such a venture is actually established, the opportunity is just
a venture idea. In other words, the pursued opportunity is
perceptual in nature, propped by the nascent entrepreneur’s personal
beliefs about the feasibility of the venturing outcomes the nascent
entrepreneur seeks to achieve. Its prescience and value
cannot be confirmed ex ante but only gradually, in the context of the
actions that the nascent entrepreneur undertakes towards establishing
the venture,. Ultimately, these actions can lead to a path that
the nascent entrepreneur deems no longer attractive or feasible, or
result in the emergence of a (viable) business. In this sense, over
time, the nascent venture can move towards being discontinued or
towards emerging successfully as an operating entity.
The distinction between the novice, serial and portfolio entrepreneurs
is an example of behavior-based categorization. Other examples are
the (related) studies by, on start-up event sequences. Nascent
entrepreneurship that emphasizes the series of activities involved in
new venture emergence,, rather than the solitary act of
exploiting an opportunity. Such research will help separate
entrepreneurial action into its basic sub-activities and elucidate the
inter- relationships between activities, between an activity (or
sequence of activities) and an individual’s motivation to form an
opportunity belief, and between an activity (or sequence of
activities) and the knowledge needed to form an opportunity belief.
With this research, scholars will be able to begin constructing a
theory of the micro-foundations of entrepreneurial action.
Scholars interested in nascent entrepreneurship tend to focus less on
the single act of opportunity exploitation and more on the series of
actions in new venture emergence,,. Indeed, nascent
entrepreneurs undertake numerous entrepreneurial activities, including
actions that make their businesses more concrete to themselves and
others. For instance, nascent entrepreneurs often look for and
purchase facilities and equipment; seek and obtain nancial backing,
form legal entities, organize teams; and dedicate all their time and
energy to their business
Project entrepreneurs are individuals who are engaged in the repeated
assembly or creation of temporary organizations. These are
organizations that have limited lifespans which are devoted to
producing a singular objective or goal and get disbanded rapidly when
the project ends. Industries where project-based enterprises are
widespread include: sound recording, film production, software
development, television production, new media and construction.
What makes project-entrepreneurs distinctive from a theoretical
standpoint is that they have to "rewire" these temporary ventures and
modify them to suit the needs of new project opportunities that
emerge. A project entrepreneur who used a certain approach and team
for one project may have to modify the business model or team for a
Project entrepreneurs are exposed repeatedly to problems and tasks
typical of the entrepreneurial process. Indeed,
project-entrepreneurs face two critical challenges that invariably
characterize the creation of a new venture: locating the right
opportunity to launch the project venture and assembling the most
appropriate team to exploit that opportunity. Resolving the first
challenge requires project-entrepreneurs to access an extensive range
of information needed to seize new investment opportunities. Resolving
the second challenge requires assembling a collaborative team that has
to fit well with the particular challenges of the project and has to
function almost immediately to reduce the risk that performance might
be adversely affected. Another type of project entrepreneurship
involves entrepreneurs working with business students to get
analytical work done on their ideas.
The term "millennial entrepreneur" refers to a business owner who is
affiliated with the generation that was brought up using digital
technology and mass media—the products of Baby Boomers, those people
born during the 1980s and early 1990s. Also known as Generation Y,
these business owners are well equipped with knowledge of new
technology and new business models and have a strong grasp of its
business applications. There have been many breakthrough businesses
that have come from millennial entrepreneurs such as Mark Zuckerberg,
who created Facebook. Despite the expectation of millennial
success, there have been recent studies that have proven this to not
be the case. The comparison between millennials who are self-employed
and those who are not self-employed shows that the latter is higher.
The reason for this is because they have grown up in a different
generation and attitude than their elders. Some of the barriers to
entry for entrepreneurs are the economy, debt from schooling and the
challenges of regulatory compliance.
The entrepreneur is commonly seen as an innovator—a designer of new
ideas and business processes. Management skills and strong team
building abilities are often perceived as essential leadership
attributes for successful entrepreneurs. Political economist
Robert Reich considers leadership, management ability and
team-building to be essential qualities of an entrepreneur.
Uncertainty perception and risk-taking
Theorists Frank Knight and
Peter Drucker defined entrepreneurship
in terms of risk-taking. The entrepreneur is willing to put his or her
career and financial security on the line and take risks in the name
of an idea, spending time as well as capital on an uncertain venture.
However, entrepreneurs often do not believe that they have taken an
enormous amount of risks because they do not perceive the level of
uncertainty to be as high as other people do. Knight classified three
types of uncertainty:
Risk, which is measurable statistically (such as the probability of
drawing a red color ball from a jar containing five red balls and five
Ambiguity, which is hard to measure statistically (such as the
probability of drawing a red ball from a jar containing five red balls
but an unknown number of white balls)
True uncertainty or Knightian uncertainty, which is impossible to
estimate or predict statistically (such as the probability of drawing
a red ball from a jar whose contents, in terms of numbers of coloured
balls, are entirely unknown)
Malala Yousafzai, a Pakistani activist, social entrepreneur and
Nobel Peace Prize
Nobel Peace Prize winner
Entrepreneurship is often associated with true uncertainty,
particularly when it involves the creation of a novel good or service,
for a market that did not previously exist, rather than when a venture
creates an incremental improvement to an existing product or service.
A 2014 study at ETH Zürich found that compared with typical managers,
entrepreneurs showed higher decision-making efficiency and a stronger
activation in regions of frontopolar cortex (FPC) previously
associated with explorative choice.
"Coachability" and advice taking
The ability of entrepreneurs to work closely with and take advice from
early investors and other partners (i.e. their coachability) has long
been considered a critical factor in entrepreneurial success. At
the same time, economists have argued that entrepreneurs should not
simply act on all advice given to them, even when that advice comes
from well-informed sources, because entrepreneurs possess far deeper
and richer local knowledge about their own firm than any outsider.
Indeed, measures of coachability are not actually predictive of
entrepreneurial success (e.g. measured as success in subsequent
funding rounds, acquisitions, pivots and firm survival). This research
also shows that older and larger founding teams, presumably those with
more subject expertise, are less coachable than younger and smaller
Strategies that entrepreneurs may use include:
Innovation of new products, services or processes
Continuous process improvement (CPI)
Exploration of new business models
Use of technology
Use of business intelligence
Use of economical strategics
Development of future products and services
Optimized talent management
Designing individual/opportunity nexus
According to Shane and Venkataraman, entrepreneurship comprises both
"enterprising individuals" and "entrepreneurial opportunities", so
researchers should study the nature of the individuals who identify
opportunities when others do not, the opportunities themselves and the
nexus between individuals and opportunities. On the other hand,
Reynolds et al. argue that individuals are motivated to engage in
entrepreneurial endeavors driven mainly by necessity or opportunity,
that is individuals pursue entrepreneurship primarily owing to
survival needs, or because they identify business opportunities that
satisfy their need for achievement. For example, higher economic
inequality tends to increase entrepreneurship rates at the individual
level, suggesting that most entrepreneurial behavior is based on
necessity rather than opportunity.
Opportunity perception and biases
The ability of entrepreneurs to innovate relates to innate traits,
including extroversion and a proclivity for risk-taking. According
to Joseph Schumpeter, the capabilities of innovating, introducing new
technologies, increasing efficiency and productivity, or generating
new products or services, are characteristic qualities of
entrepreneurs. One study has found that certain genes affecting
personality may influence the income of self-employed people. Some
people may be able to use[weasel words] "an innate ability" or
quasi-statistical sense to gauge public opinion and market demand
for new products or services. Entrepreneurs tend to have the ability
to see unmet market needs and underserved markets. While some
entrepreneurs assume they can sense and figure out what others are
thinking, the mass media plays a crucial role in shaping views and
demand. Ramoglou argues that entrepreneurs are not that
distinctive and that it is essentially poor conceptualizations of
"non-entrepreneurs" that maintain laudatory portraits of
"entrepreneurs" as exceptional innovators or leaders 
Entrepreneurs are often overconfident, exhibit illusion of control,
when they are opening/expanding business or new products/services.
Differences in entrepreneurial organizations often partially reflect
their founders' heterogenous identities. Fauchart and Gruber have
classified entrepreneurs into three main types: Darwinians,
communitarians and missionaries. These types of entrepreneurs diverge
in fundamental ways in their self-views, social motivations and
patterns of new firm creation.
Entrepreneurs need to practice effective communication both within
their firm and with external partners and investors in order to launch
and growth a venture and enable it to survive. An entrepreneur needs a
communication system that links the staff of her firm and connects the
firm to outside firms and clients. Entrepreneurs should be charismatic
leaders, so they can communicate a vision effectively to their team
and help to create a strong team. Communicating a vision to followers
may be well the most important act of the transformational leader.
Compelling visions provide employees with a sense of purpose and
encourage commitment. According to Baum et al. and Kouzes and
Posner, the vision must be communicated through written statements
and through in-person communication.
Entrepreneurial leaders must
speak and listen to articulate their vision to others.
Communication is pivotal in the role of entrepreneurship because it
enables leaders to convince potential investors, partners and
employees about the feasibility of a venture. Entrepreneurs need
to communicate effectively to shareholders.
Nonverbal elements in
speech such as the tone of voice, the look in the sender's eyes, body
language, hand gestures and state of emotions are also important
communication tools. The
Communication Accommodation Theory posits
that throughout communication people will attempt to accommodate or
adjust their method of speaking to others. Face Negotiation
Theory describes how people from different cultures manage conflict
negotiation in order to maintain "face". Hugh Rank's "intensify
and downplay" communications model can be used by entrepreneurs who
are developing a new product or service. Rank argues that
entrepreneurs need to be able to intensify the advantages of their new
product or service and downplay the disadvantages in order to persuade
others to support their venture.
Links to sea piracy
Research from 2014 found links between entrepreneurship and historical
sea piracy. In this context, the claim is made for a non-moral
approach to looking at the history of piracy as a source of
inspiration for entrepreneurship education as well as for
research in entrepreneurship and business model generation.
Apple co-founder and longtime leader
Steve Jobs (pictured in 2010) led
the introduction of many innovations in the computer, smartphone and
digital music industry
Stanford University economist
Edward Lazear found in a 2005 study that
variety in education and work experience was the most important trait
that distinguished entrepreneurs from non-entrepreneurs A 2013
study by Uschi Backes-Gellner of the
University of Zurich
University of Zurich and Petra
Moog of the
University of Siegen
University of Siegen in Germany found that a diverse
social network was also important in distinguishing students that
would go on to become entrepreneurs.
Studies show that the psychological propensities for male and female
entrepreneurs are more similar than different. Empirical studies
suggest that female entrepreneurs possess strong negotiating skills
and consensus-forming abilities. Asa Hansson, who looked at
empirical evidence from Sweden, found that the probability of becoming
self-employed decreases with age for women, but increases with age for
men. She also found that marriage increased the probability of a
person becoming an entrepreneur.
Jesper Sørensen wrote that significant influences on the decision to
become an entrepreneur are workplace peers and social composition.
Sørensen discovered a correlation between working with former
entrepreneurs and how often these individuals become entrepreneurs
themselves, compared to those who did not work with
entrepreneurs. Social composition can influence
entrepreneurialism in peers by demonstrating the possibility for
success, stimulating a "He can do it, why can't I?" attitude. As
Sørensen stated: "When you meet others who have gone out on their
own, it doesn't seem that crazy".
Entrepreneurs may also be driven to entrepreneurship by past
experiences. If they have faced multiple work stoppages or have been
unemployed in the past, the probability of them becoming an
entrepreneur increases Per Cattell's personality framework, both
personality traits and attitudes are thoroughly investigated by
psychologists. However, in case of entrepreneurship research these
notions are employed by academics too, but vaguely. According to
Cattell, personality is a system that is related to the environment
and further adds that the system seeks explanation to the complex
transactions conducted by both—traits and attitudes. This is because
both of them bring about change and growth in a person. Personality is
that which informs what an individual will do when faced with a given
situation. A person's response is triggered by his/her personality and
the situation that is faced.
Innovative entrepreneurs may be more likely to experience what
Mihaly Csikszentmihalyi calls "flow". "Flow" occurs when
an individual forgets about the outside world due to being thoroughly
engaged in a process or activity. Csikszentmihalyi suggested that
breakthrough innovations tend to occur at the hands of individuals in
that state. Other research has concluded that a strong internal
motivation is a vital ingredient for breakthrough innovation.
Flow can be compared to Maria Montessori's concept of normalization, a
state that includes a child's capacity for joyful and lengthy periods
of intense concentration. Csikszentmihalyi acknowledged that
Montessori's prepared environment offers children opportunities to
achieve flow. Thus quality and type of early education may
influence entrepreneurial capability.
Research on high-risk settings such as oil platforms, investment
banking, medical surgery, aircraft piloting and nuclear power plants
has related distrust to failure avoidance. When non-routine
strategies are needed, distrusting persons perform better while when
routine strategies are needed trusting persons perform better. This
research was extended to entrepreneurial firms by Gudmundsson and
Lechner. They argued that in entrepreneurial firms the threat of
failure is ever present resembling non-routine situations in high-risk
settings. They found that the firms of distrusting entrepreneurs were
more likely to survive than the firms of optimistic or overconfident
entrepreneurs. The reasons were that distrusting entrepreneurs would
emphasize failure avoidance through sensible task selection and more
analysis. Kets de Vries has pointed out that distrusting entrepreneurs
are more alert about their external environment. He concluded
that distrusting entrepreneurs are less likely to discount negative
events and are more likely to engage control mechanisms. Similarly,
Gudmundsson and Lechner found that distrust leads to higher precaution
and therefore increases chances of entrepreneurial firm survival.
Researchers Schoon and Duckworth completed a study in 2012 that could
potentially help identify who may become an entrepreneur at an early
age. They determined that the best measures to identify a young
entrepreneur are family and social status, parental role modeling,
entrepreneurial competencies at age 10, academic attainment at age 10,
generalized self-efficacy, social skills, entrepreneurial intention
and experience of unemployment.
Some scholars have constructed an operational definition of a more
specific subcategory called "Strategic Entrepreneurship". Closely tied
with principles of strategic management, this form of entrepreneurship
is "concerned about growth, creating value for customers and
subsequently creating wealth for owners". A 2011 article for the
Academy of Management provided a three-step, "Input-Process-Output"
model of strategic entrepreneurship. The model's three steps entail
the collection of different resources, the process of orchestrating
them in the necessary manner and the subsequent creation of
competitive advantage, value for customers, wealth and other benefits.
Through the proper use of strategic management/leadership techniques
and the implementation of risk-bearing entrepreneurial thinking, the
strategic entrepreneur is therefore able to align resources to create
value and wealth.
Leadership in entrepreneurship can be defined as "process of social
influence in which one person can enlist the aid and support of others
in the accomplishment of a common task" in "one who undertakes
innovations, finance and business acumen in an effort to transform
innovations into economic goods". This refers to not only the act
of entrepreneurship as managing or starting a business, but how one
manages to do so by these social processes, or leadership skills.
Entrepreneurship in itself can be defined as "the process by which
individuals, teams, or organizations identify and pursue
entrepreneurial opportunities without being immediately constrained by
the resources they currently control". An entrepreneur typically
has a mindset that seeks out potential opportunities during uncertain
times. An entrepreneur must have leadership skills or qualities
to see potential opportunities and act upon them. At the core, an
entrepreneur is a decision maker. Such decisions often affect an
organization as a whole, which is representative of their leadership
amongst the organization.
With the growing global market and increasing technology use
throughout all industries, the core of entrepreneurship and the
decision-making has become an ongoing process rather than isolated
incidents. This becomes knowledge management which is "identifying and
harnessing intellectual assets" for organizations to "build on past
experiences and create new mechanisms for exchanging and creating
knowledge". This belief draws upon a leader's past experiences
that may prove useful. It is a common mantra for one to learn from
their past mistakes, so leaders should take advantage of their
failures for their benefit. This is how one may take their experiences
as a leader for the use in the core of entrepreneurship-decision
The majority of scholarly research done on these topics have been from
North America. Words like "leadership" and "entrepreneurship" do
not always translate well into other cultures and languages. For
example, in North America a leader is often thought to be charismatic,
but German culture frowns on such charisma due to the charisma of Nazi
leader Adolph Hitler. Other cultures, like some European countries,
view the term "leader" negatively, like the French. The
participative leadership style that is encouraged in the United States
is considered disrespectful in many other parts of the world due to
the differences in power distance. Many Asian and Middle Eastern
countries do not have "open door" policies for subordinates and would
never informally approach their managers/bosses. For countries like
that, an authoritarian approach to management and leadership is more
Despite cultural differences, the successes and failures of
entrepreneurs can be traced to how leaders adapt to local
conditions. With the increasingly global business environment a
successful leader must be able to adapt and have insight into other
cultures. To respond to the environment, corporate visions are
becoming transnational in nature, to enable the organization to
operate in or provide services/goods for other cultures.
Entrepreneurship Training and Education
Michelacci and Schivardi are a pair of researchers who believe
that identifying and comparing the relationships between an
entrepreneur's earnings and education level would determine the rate
and level of success. Their study focused on two education levels,
college degree and post-graduate degree. While Michelacci and
Schivardi do not specifically determine characteristics or traits for
successful entrepreneurs, they do believe that there is a direct
relationship between education and success, noting that having a
college degree does contribute to advancement in the workforce.
Michelacci and Schivardi state there has been a rise in the number of
self-employed people with a baccalaureate degree. However, their
findings also show that those who are self-employed and possess a
graduate degree has remained consistent throughout time at about 33
percent. They briefly mention those famous entrepreneurs like Steve
Mark Zuckerberg who were college dropouts, but they call
these cases all but exceptional as it is a pattern that many
entrepreneurs view formal education as costly, mainly because of the
time that needs to be spent on it. Michelacci and Schivardi believe
that in order for an individual to reach the full success they need to
have education beyond high school. Their research shows that the
higher the education level the greater the success. The reason is that
college gives people additional skills that can be used within their
business and to operate on a higher level than someone who only "runs"
Resources and Financing
An entrepreneurial resource is any company-owned asset that has
economic value creating capabilities.
Economic value creating both
tangible and intangible sources are considered as entrepreneurial
resources. Their economic value is generating activities or services
through mobilization by entrepreneurs.
can be divided into two fundamental categories: tangible and
Tangible resources are material sources such as equipment, building,
furniture, land, vehicle, machinery, stock, cash, bond and inventory
that has a physical form and can be quantified. On the contrary,
intangible resources are nonphysical or more challenging to identify
and evaluate, and they possess more value creating capacity such as
human resources including skills and experience in a particular field,
organizational structure of the company, brand name, reputation,
entrepreneurial networks that contribute to promotion and financial
support, know-how, intellectual property including both copyrights,
trademarks and patents.
At least early on, entrepreneurs often "bootstrap-finance" their
start-up rather than seeking external investors from the start. One of
the reasons that some entrepreneurs prefer to "bootstrap" is that
obtaining equity financing requires the entrepreneur to provide
ownership shares to the investors. If the start-up becomes successful
later on, these early equity financing deals could provide a windfall
for the investors and a huge loss for the entrepreneur. If investors
have a significant stake in the company, they may as well be able to
exert influence on company strategy, chief executive officer (CEO)
choice and other important decisions. This is often problematic since
the investor and the founder might have different incentives regarding
the long-term goal of the company. An investor will generally aim for
a profitable exit and therefore promotes a high-valuation sale of the
company or IPO in order to sell their shares. Whereas the entrepreneur
might have philanthropic intentions as their main driving force. Soft
values like this might not go well with the short-term pressure on
yearly and quarterly profits that publicly traded companies often
experience from their owners.
One consensus definition of bootstrapping sees it as "a collection of
methods used to minimize the amount of outside debt and equity
financing needed from banks and investors". The majority of
businesses require less than $10,000 to launch, which means that
personal savings are most often used to start. In addition,
bootstrapping entrepreneurs often incur personal credit-card debt, but
they also can utilize a wide variety of methods. While bootstrapping
involves increased personal financial risk for entrepreneurs, the
absence of any other stakeholder gives the entrepreneur more freedom
to develop the company. Many successful companies, including Dell
Computer and Facebook, started by bootstrapping.
Bootstrapping methods include:
Owner financing, including savings, personal loans and credit card
Working capital management that minimizes accounts receivable
Joint utilization, such as reducing overhead by coworking or using
Increasing accounts payable by delaying payment, or leasing rather
than buying equipment
Lean manufacturing strategies such as minimizing inventory and lean
startup to reduce product development costs
This section includes a list of references, related reading or
external links, but its sources remain unclear because it lacks inline
citations. Please help to improve this section by introducing more
precise citations. (July 2014) (Learn how and when to remove this
Many businesses need more capital than can be provided by the owners
themselves. In this case, a range of options is available including a
wide variety of private and public equity, debt and grants.
Private equity options include:
Venture capital investors
Debt options open to entrepreneurs include:
Loans from banks, financial technology companies and economic
Line of credit
Line of credit also from banks and financial technology companies
Microcredit also known as microloans
Merchant cash advance
Grant options open to entrepreneurs include:
Business plan/business pitch competitions for college
entrepreneurs and others
Innovation Research grants from the U.S. government
Effect of taxes
Entrepreneurs are faced with liquidity constraints and often lack the
necessary credit needed to borrow large amounts of money to finance
their venture. Because of this, many studies have been done on
the effects of taxes on entrepreneurs. The studies fall into two
camps: the first camp finds that taxes help and the second argues that
taxes hurt entrepreneurship.
Cesaire Assah Meh found that corporate taxes create an incentive to
become an entrepreneur to avoid double taxation. Donald Bruce and
John Deskins found literature suggesting that a higher corporate tax
rate may reduce a state's share of entrepreneurs. They also found
that states with an inheritance or estate tax tend to have lower
entrepreneurship rates when using a tax-based measure. However,
another study found that states with a more progressive personal
income tax have a higher percentage of sole proprietors in their
workforce. Ultimately, many studies find that the effect of taxes
on the probability of becoming an entrepreneur is small. Donald Bruce
and Mohammed Mohsin found that it would take a 50 percentage point
drop in the top tax rate to produce a one percent change in
Predictors of success
Entrepreneur Network event in New York City
Factors that may predict entrepreneurial success include the
Establishing strategies for the firm, including growth and survival
Maintaining the human resources (recruiting and retaining talented
employees and executives)
Ensuring the availability of required materials (e.g. raw resources
used in manufacturing, computer chips, etc.)
Ensuring that the firm has one or more unique competitive advantages
Ensuring good organizational design, sound governance and
Congruency with the culture of the society
Business-to-business (B2B) or business-to-consumer (B2C) models can be
High growth market
Target customers or markets that are untapped or missed by others
High technology impact on the industry
High capital intensity
Small average incumbent firm size
Large, gender-diverse and racially diverse team with a range of
talents, rather than an individual entrepreneur
Management experience prior to start-up
Work experience in the start-up industry
Employed full-time prior to new venture as opposed to unemployed
Prior entrepreneurial experience
Full-time involvement in the new venture
Motivated by a range of goals, not just profit
Number and diversity of team members' social ties and breadth of their
Written business plan
Focus on a unified, connected product line or service line
Competition based on a dimension other than price (e.g. quality or
Early, frequent intense and well-targeted marketing
Tight financial controls
Sufficient start-up and growth capital
Corporation model, not sole proprietorship
Wealth can enable an entrepreneur to cover start-up costs and deal
with cash flow challenges
Dominant race, ethnicity or gender in a socially stratified
Wikiversity has learning resources about Entrepreneurship
List of entrepreneurs
Corporate social entrepreneurship
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Private equity and venture capital
Basic investment types
History of private equity and venture capital
Early history of private equity
Private equity in the 1980s
Private equity in the 1990s
Private equity in the 2000s
Terms and concepts
Venture capital financing
Private equity firms and funds
Limited liability company
Publicly traded private equity
Business Development Company
Venture capital trust
Private investment in public equity (PIPE)
Fund of funds
Sovereign wealth funds
Related financial terms
Taxation of private equity and hedge funds
Private equity and venture capital investors
Private equity firms
Venture capital firms
Aspects of capitalism (academic views)
History of capitalist theory
Culture of capitalism
Rule of law
Freedom of association
Labour market flexibility
Social venture capital