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Instructor Manual for
Entrepreneurship and Small Business 4th Edition
Prepared by Michael Schaper, Thierry Volery, Paull Weber and Kate Lewis
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© John Wiley & Sons Australia, Ltd 2014 1
Chapter 1 - Entrepreneurship: definition and evolution
Review questions
- What are the key elements of entrepreneurship?
Much of the argument over the definition of entrepreneurship revolves around the factors considered necessary for entrepreneurship to occur. As depicted in Figure 1.1, five factors
have been commonly cited for entrepreneurship to take place: an individual (the
entrepreneur), a market opportunity, adequate resources, a business organisation and a favourable environment. These five factors are considered contingencies — something that must be present in the phenomenon but can materialise in many different ways. The entrepreneur is responsible for bringing these contingencies together to create new value.
- The entrepreneur: Researchers have hypothesised a number of factors that influence the
way opportunities are recognised and exploited by entrepreneurs. Among these, four have been identified as especially important: the active search of opportunities, entrepreneurial alertness, prior knowledge and social networks.
- Opportunities: In broad terms, an opportunity can be defined as a situation in which a new
product, service or process can be introduced and sold at greater than its cost of production. But ‘opportunities’ describe a range of phenomena that begin unformed and become more developed through time. In its most elemental form, what may later be called an opportunity may appear as imprecisely-defined market needs, or unemployed resources or capacities. The former type of opportunities could be called market-pulled opportunities, whereas the latter could be called market-pushed opportunities.
- Resources: Having distilled an opportunity, would-be entrepreneurs must be willing and
capable of marshalling resources to pursue the opportunity, and to transform their idea into an organisation. A resource is any thing or quality that is useful. The resource-based theory recognises six types of resources: financial, physical, human, technological, social and organisational. Entrepreneurs may use time-relevant language or symbols (e.g.polished business plans, stories or fancy facilities) to create an image of success that will encourage providers to commit resources to the venture. In this way, some resources (e.g.social) are leveraged to obtain others (e.g. financial).
- Organisation: Many different types of organisational arrangements exist for the
exploitation of entrepreneurial opportunities. Although most media attention and research in entrepreneurship has focused on new independent start-ups, other possible types of organisational structures include corporate ventures, franchises, joint ventures and business acquisitions. This indicates that entrepreneurship can take place in very diverse environments and there are many ways to become an entrepreneur. 2 / 3
Chapter 1: Entrepreneurship: definition and evolution © John Wiley & Sons Australia, Ltd 2014 2
- Environment: The environment plays a critical role in entrepreneurship. Entrepreneurs
operate in an environment that can be more or less rich in opportunities, and where several conditions influence the pursuit of these opportunities. For example, opportunities can emerge because of market inefficiencies that result from information asymmetry across time and geography, or as a result of political, regulatory, social or demographic changes.Two important dimensions of the environment are important to consider: the community (population density and relationship) at the micro-level and the society (values, culture, government) at the macro-level.
- What are the critical stages in the process of new venture formation?
The first stage is the discovery of an opportunity. Central to the process of new venture formation is the founding individual. Whether the entrepreneur is perceived as a hard-headed risk bearer, a man apart, or a visionary, he or she is overwhelmingly perceived to be different in important ways from the non entrepreneur (e.g. the manager), and many believe these differences lie in the psychological traits and background of the entrepreneur. However, entrepreneurs do not operate in a vacuum; they respond to their environments. A conducive political, economic, social and infrastructure environment facilitates the emergence of new business ventures. The initiation of new ventures requires the combination of the right individual at the right place.
The second stage is the evaluation of the opportunity. After having identified a promising opportunity, the actual decision to attempt to launch the venture arises from a clear intention and this implies action. In new venture formation, intention is a conscious state of mind that directs attention toward the goal of establishing the new organisation. With the expression of intention the hopeful entrepreneur takes some concrete steps to evaluate the business opportunity and to gather resources in order to launch the venture. Such steps can include the formulation of strategy, the development of a prototype, market research, the identification of potential partners, and the drafting of a business plan. While gathering resources, the nascent entrepreneur is seeking, receiving and processing information to decide whether to proceed or abandon the attempt.
The third stage is the exploitation of the opportunity. Just as the would-be entrepreneur must decide to attempt to found a business, would-be entrepreneurs must finally decide whether to proceed or abandon the attempt. The decision may be triggered by a specific event, or simply by the accumulated weight of confirming and disconfirming information. Although some precipitating events (e.g. a dismissal, job frustration, graduation, inheritance) may trigger the launch of the business venture, it is often the passion of the individual – sustained ultimately by the motivation — that pushes the entrepreneur to ‘take the plunge’.
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