Entrepreneurship Theories & Concepts: All About Creating a Winning Business

Entrepreneurship is the process of starting and running a new business with the goal of making a profit. It requires a combination of vision, creativity, perseverance, adaptability, business acumen, and willingness to taking risks. It typically involves identifying a commercial opportunity, developing a business model, secure funding, assembling a team, and bring a product or service to market.

An entrepreneur is a person who spots an opportunity and creates a new business around it, bearing most of the risks and also enjoying most of the rewards.

Entrepreneurship Traits: Traits and characteristics of an enterprising person.

Here are more concepts, definitions, types, and academic theories related to Entrepreneurship.

Definition of Entrepreneurship

Entrepreneurs are defined by their actions (not the size of organization they work for*). They create and/or exploit change for profit, by innovating, accepting risk & moving resources to areas of higher return.

An intrapreneur is a salaried employee in a larger company & the profits & risks of their work go to their employer.

Setting up an Enterprise involves a bit of many things – creativity, originality, idea generation, design thinking, adaptability, reflection, problem solving, innovation, expression, communication, practical action.

Definition of Entrepreneurship

Entrepreneurship as a field of business, seeks to understand how opportunities to create something new (e.g.: new products or services, new markets, new production processes or raw materials, new ways of organising existing technologies) arise and are discovered or created by specific individuals, who then use various means to exploit or develop them, thus producing a wide range of effects. (Shane and Venkataraman, 2000). It emerges out of the intersection of inspiration and activation.

Howard Stevenson, the godfather of entrepreneurship studies at Harvard Business School defines entrepreneurship as “the pursuit of opportunity beyond resources controlled”.

Eisenmann (2013) breaks down and analyses this definition in his article Entrepreneurship: A Working Definition.

Entrepreneurship: A Working Definition by Thomas R. Eisenmann (Harvard Business Review Journal)

What/Who is an entrepreneur?

Barriers and Triggers to Entrepreneurship

Push Factors (situational)

Unemployment, Disagreements, ‘Misfit’, No other option

Pull Factors (psychological)

Independence, Recognition, Personal development, Wealth

Barriers to start-up (situational & psychological)

Need for regular income, Fear of loss of capital, No capital, Risk averse, Doubts about ability

Startup Capital

Financial Capital, Human Capital, Social Capital

Types & Forms of Entrepreneurship

There are a number of different types of entrepreneurship; we will be looking at some of these closer in the following weeks.

• Social entrepreneurship is where entrepreneurial ventures are driven by solving social or cultural issues, as opposed to financial gain or profit;
• Green entrepreneurship is where environmental problems are explored to result in a net positive impact on the natural environment using sustainable processes;
• Digital entrepreneurship is where digital products and services that are created are marketed, delivered and supported online;
• Intrapreneurship is the application of enterprise behaviours, attributes and skills within an existing micro or small business, corporate or public-sector organisation.

Typical Forms of Entrepreneurs

There are different forms of Entrepreneurs, different Entrepreneurial contexts, different start-up motives and business aims.

Typical Forms of Entrepreneurs include:

• Purposeful
• Intrapreneurs
• Serial
• Exploiters
• Opportunity
• Inventors
• Necessity
• Speculators
• Meet a Gap
• Social Entrepreneurs

Entrepreneurial Characteristics

Timmons et al (1977) suggest that there are 14 entrepreneurial characteristics of successful entrepreneurs. Whilst few entrepreneurs are likely to possess the complete set, strengths in one might compensate for weaknesses in others. 

• Drive and energy                 
• Tolerance of ambiguity       
• Moderate risk taking            
• Use of feedback                     
• Use of resources                  
• Internal locus of control 
• Money as a measure not merely an end
• High initiative and personal responsibility
• Continuous pragmatic problem solving
• Self-confidence
• Low fear of failure
• Long-term involvement
• Clear goal setting
• Self-imposed standards

Reference: Timmons, J. A., Smollen, J. E., & Dingee, A. L. M. (1977).New  Venture  Creation.Irwin: Homewood, III
Lumsdaine and Binks (2007) Entrepreneurship from Creativity to Innovation and make notes on the historical context of entrepreneurship, the entrepreneur and entrepreneurial activity.

Entrepreneurial Creativity and Innovation

• Creativity and innovation are intertwined
• Understand the entrepreneurial/innovative economy
• Explore entrepreneurship and innovation as individuals and teams

The Impact of Entrepreneurial Innovation

To be successful, innovation needs to be valuable (Hisrich and Kearney, 2014). For example, innovations by the likes of Thomas Edison, Larry Page, Mark Zuckerberg, Stephanie Kwolek.

Creativity describes an idea which is both novel and useful. Without creativity, there would be no innovation.

Creativity can: develop, Modify, or Combine.

• Creativity is the building block of innovation
• The movement away from existing practice
• The creation of something new or advanced with the intention of creating a benefit- meeting the needs and wants of consumers
• Creativity can lead to inventions but it must be commercially valuable to be an innovation

(Informed by Hisrich and Kearney, 2014)

Conditions for Creativity to Flourish

• Open-mindedness and objectiveness
• Perseverance and dedication to continuously seek and produce ideas
• An ability to put existing or new ideas together in creative ways
• Drive and ability to overcome obstacles
• Moderate risk taker
• Intrinsic motivation
• Internal locus of control
• Desire to achieve and grow
• Driven by growth and development

(Hisrich and Kearney, 2014:29)

The Innovation Process

• Idea Generation
• Selection of most viable idea
• Turning idea into reality
• Implementation

Creativity can lead to incremental or radical innovations.

• Radical Innovation – quick, drastic and shock impact
• Incremental Innovation – steady, progressive and over time

Most of the Theory that exists on this topic tells us:

• Creativity and Innovation is not possible without people who have aquired competences, motivation, and curiosity Hisrich and Kearney, 2014: 25
• Management must allow freedom for creativity and innovation to avoid professional burn-out and keep its business innovative (Noworol et al., 2017)
• Creativity creates opportunity in the global environment and can lead to competitive advantage (see Virgin case study in Hisrich and Kearney, 2014: 24)

Entrepreneur Stories

Elon Musk

• Had a series of jobs before ‘making it’
• A graduate of engineering and physics disciplines
• Learnt a lot from books
• Sells PayPal in 2002 and looks for opportunities
• Uses his skills and experience to build an electric car
• Tesla was born, named after the inventor- Nikon Tesla.

Blake Mycoskie

• Philanthropist
• First business was EZ Laundry
• Founder of TOMS (Shoes for Better Tomorrows)
• Social Entrepreneur

Cher Wang

• Worked in the technology sector
• Co-founder of VIA Technologies and HTC Corporation
• Philanthropist

Dame Anita Roddick

• Founded Body Shop
• Wanted to offer natural products to all
• Human rights campaigner

Gordon Roddick and John Bird

• Founders of The Big Issue
• Human rights campaigners
• Social Entrepreneurs

Useful YouTube Clips

• Guy Kawasaki: The Art of Innovation
  https://www.youtube.com/watch?v=Mtjatz9r-Vc&t=313s
• Giovanni Corazza: Creative thinking – how to get out of the box and generate ideas
  https://www.youtube.com/watch?v=bEusrD8g-dM
• Sir Ken Robinson: Do schools kill creativity?
  

Case Studies

Monkey Music (Case Study)

• 1. What were Angie’s motivations in starting up Monkey Music?
• 2. How did she keep the costs of starting the business down?
• 3. How much of a risk did she face in starting and the growing the business?

Theories of Entrepreneurship

1. Innovation Theory: Entrepreneur is basically an innovator who introduces new combinations.
2. Need for Achievement Theory: The entrepreneur does things to satisfy the inner feeling of personal accomplishment.
3. Status Withdrawal Theory: People turn to entrepreneurship to get respect of the society.
4. Theory of Social Change: Industrial growth depends upon rationalised use of technology, money and productivity and are driven by ethical values.
5. Theory of Social Behaviour: Supply of entrepreneurs depends on social, political and economic structure.
6. Theory of Leadership: Entrepreneurship is a function of managerial skills and leadership.
7. Theory of Model Personality: Cultural values and social sanctions determine the supply of entrepreneurs.
8. Theory of Systematic Innovation: Entrepreneurship is a multidisciplinary area that requires analysis of changes and opportunities.

Personality Theory: Trait Theory Of Entrepreneurship

The Trait Theory of Entrepreneurship suggests that entrepreneurs posses certain traits or characteristics of personality like creativity, self confidence, risk taking, imagination, perseverance, etc., which enables them to generate new ideas and create a new venture.

An entrepreneur is a person who is able to coordinate the various factors of production such as land, labour, capital, enterprise, and is able to generate a profit through his skills. So, an entrepreneur is endowed with certain traits such as ability to take risk, drive, creativity, perseverance, etc.

For example, some people are inherently good at doing small talk and building relationships, which can be a good thing for an entrepreneur.

Risk tolerance, need for achievement, internal locus of control, innovativeness, entrepreneurial alertness are important personality attributes whereas education, knowledge, experience, are important human capital attributes required for entrepreneurial orientation.

Entrepreneurial Character Traits

• Need for Independence
• Need for achievement
• Internal locus of control
• Drive and determination
• Creative and Innovative
• Moderate risk-taking

Criticisms of Trait approach

• Traits are not stable & can change
• Measuring personality traits requires subjective judgements
• Measurement tends to ignore cultural, environmental and contextual influences
• The role of education, learning & training is often overlooked
• Issues such as age, sex, race, social class & education can be ignored

References

Rauch, A., 2014. Predictions of entrepreneurial behavior: A personality approach. In Handbook of research on small business and entrepreneurship. Edward Elgar Publishing.

Personality Traits of Entrepreneurs: A Review of Recent Literature

The Herrmann Whole Brain Model

The Hermann Whole Brain model describes people’s thinking preferences.

It identifies 4 hemispheres of different thinking styles.

• The Rational Self.
• The Experimental Self.
• The Safekeeping Self.
• The Feeling Self.

Video : Whole Brain Thinking. Intuitively, which quadrant do you think dominates in your case?

Open Hemispheric Dominance Test

There is no evidence for an individual’s preference for one hemisphere over another.

Six Thinking Hats: Edward de Bono

People see things differently due to their different thinking styles. This also applies to how they see opportunities & view problems.

The technique uses 6 imaginary hats. Each hat is a specific colour & represents a specific type of thinking. When you put one of the hats, you are only allowed to think in that specific way.

The idea is to look your way through each hat looking at the situation, opportunity or problem, with a different mindset.

Video : What is 6 Thinking Hats?

This technique can be used along with other techniques such as SCAMPER, Reverse Brainstorming & Star Busting.

DeBono’s thinking hats

• White hat: The white hat is about data and information It is used to record information that is currently available and to identify further information that may be needed.
• Red hat: The red hat is associated with feelings, intuition, and emotion. The red hat allows people to put forward feelings without justification or prejudice.
• Yellow hat: The yellow hat is for a positive view of things It looks for benefits in a situation. This hat encourages a positive view even in people who are always critical
• Black hat: The black hat relates to caution. It is used for critical judgement. Sometimes it is easy to overuse the black hat
• Green hat: The green hat is for creative thinking and generating new ideas. This is your creative thinking cap.
• Blue hat: The blue hat is about process control. It is used for thinking about thinking. The blue hat asks for summaries, conclusions and decisions.

AULIVE creativity test

Persistence: Drive to find better solutions when good ones already exist

Abstraction: Ability to abstract from ideas

Connection: Ability to find connections between apparently unconnected things

Complexity: Ability to manipulate large quantities of information

Perspective: Ability to shift perspective on a situation

Paradox: Ability to work with contradictory statements

Boldness: Confidence to push boundaries beyond accepted conventions

Curiosity: Desire to change things others see as the norm

http://www.testmycreativity.com/

More Theories

• Get Test: General Enterprise Tendency (GET) test
• Test of Creativity
• Scamper / Starbursting Technique

Value Proposition Canvas: Developed by Alexander Osterwalder, this tool helps businesses identify the products or services that meet the needs and expectations of their target customers.

Business Canvas Model: Developed by Alexander Osterwalder, this tool helps businesses define their business model and identify the key components needed to create and deliver value to their customers.

Business Plan: A business plan outlines a company’s objectives, strategies, and tactics to achieve those objectives. Read more on the importance of a Business Plan and how to prepare one.

Elevator Pitch: An elevator pitch is a concise overview of a business idea, product, service, or project that can be communicated in the time it takes to ride an elevator with someone, usually 30 seconds to two minutes.

• Start-up Costing
• Costing/ Break-Even
• Profit and Loss Statement
• Forecast Balance Sheet
• Cashflow Forecasts
• Sales Forescast

Entrepreneurship in UK

Social Enterprise and Social Entrepreneurship

Over the decades, human activity has resulted in high CO2 concentrations in the atmosphere, large-scale ecological degradation & extinction of species, increased frequency & intensity of extreme weather events (Heat Waves, Wildfires, Glacier Bursts, Flooding), and a host of other environmental issues (rising sea levels, melting of glaciers, dead zones in oceans, deforestation, species extinction).

This impact is primarily borne by vulnerable & poor communities. Poor, Marginalized & Vulnerable populations pay a disproportionately higher price due to Climate Change.

There are various reasons for that:

Collusion between Business & Government. Lack of Regulations to mandate & enforce change. Unfettered Corporate Influence in Government Policies (Lobbying, Corporate Corruption). For example, Exxon knew as early as the 1970’s that burning of Fossil Fuels had a major impact on Climate Change. Yet, it lobbied for stalling regulations, funded “research” aimed at denying Climate Change. Greenwashing.

Rising Inequality (Transfer of wealth from poor to rich, from individuals to corporates). Highest concentration of wealth by few individuals / corporates in history. Millions lost their jobs & incomes during the pandemic, while the wealth of Billionaires soared. Overbilling of retail consumers by electricity distribution company in Mumbai during the pandemic.

The Business Case For Sustainability

The transition to a low-carbon economy is inevitable. The cost of natural resources is bound to go up exponentially as they become more scarce and difficult to mine. This, in turn, will exert pressure on businesses.

It will throw up enormous opportunities for those who can develop the required Technologies, & Innovate around Business Models. Business Models that imbibe principles of the Circular Economy will help alleviate this.

The term “Social Enterprise” describes the purpose of a business, not its legal form. It is defined as “a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximize profit for shareholders and owners”.

Social Enterprises aim to make a profit, but rather than keep all the profits, they reinvest or donate all them to create a positive social change.

Social Enterprises too sell their Products & Services in the open market. Their Profits are either reinvested into the business or in the local communities.

Through this, they help tackle Social problems, provide Training & Employment, & provide opportunities for the marginalized & vulnerable populations.

What are social enterprises?

Social Enterprises need to fulfill the following criteria :

• Have a clear social or environmental mission set out in its governing documents.
• Generate the majority of its income through trade.
• Reinvest the majority of its profit.
• Be autonomous of the state.
• Be majority controlled in the interests of the social mission.
• Be accountable and transparent

Social Entrepreneurship is the process of recognizing & pursuing opportunities to create Social Value. Social entrepreneurs are innovative, resourceful, and results oriented change agents. They draw upon the best thinking in both the business and nonprofit worlds to develop strategies that maximize their social impact.

Characteristics of Social Entrepreneurs: Contentment, Community roots, Empathy, Creative, Prior Work Experience, Global Exposure, Education.

These entrepreneurial leaders operate in all kinds of organizations: large and small; new and old; religious and secular; nonprofit, for-profit, and hybrid.

“A history of Microfinance – Mohammed Yunus”

Exercises:

• Think of a few Social Entrepreneurs. What about them appeals to you?
• Think of a few Social issues in your neighbourhood. How could Social Entrepreneurs solve those?

Entrepreneurial Change Agents that seek to embed ethical, ecological and good corporate governance into their activities are also Social Entrepreneurs – called Environmental or Ecopreneurship.

Social Entrepreneurship focuses on Sustainable Strategies that generate both Social & Commercial Value.

Sustainable Entrepreneurs

Characteristics of Sustainable Entrepreneurs:

• Economic : the Core Business Model is commercial robust.
• Technological : Technology is a driving force behind the development of the Enterprise.
• Social : they partner with local Communities, help build Capacity & improve Lives.
• Environmental : they encompass a wide range of Environmental issues such as Air Pollution, Waste, Biodiversity, Soil Pollution &
• Fertility, preserving Natural Resources, & Water Pollution.
• Value : their development is tied to creation of a Value Based Society that helps reduce Social Conflict.
• Learning : the Enterprise should create a structure that facilitates learning & knowledge transfer, & encouraging sustainable innovation.

How to be a Sustainable Entrepreneur? – Part 1

Sustainable entrepreneurs are concerned with Profit, People and the planet. This has been termed as the Triple Bottom line. The Triple Bottom Line aims to measure the Financial, Social & Environmental performance of the company over time.

How to be a Sustainable Entrepreneur? – Part 3

“How to run a Social Enterprise?”

Checklist for a Social Enterprise:

• Have a strong Vision & Mission for the company.
• Treat your employees Fairly.
• Shift from Throughput to Circular Economy.
• Avoiding future liabilities … eg, avoiding shifting production offshore or polluting the ground / air / water.
• Conduct business ethically.
• Avoid generation of waste.
• Be profitable / able to sustain the business.
• Think beyond the business, all areas that the business may affect.
• Use regenerative electricity.
• Involve the community.
• Triple Bottom Line

Sustainable Development Goals (United Nations)

Useful Links & Suggested Reading

• Burns, P., 2016/2021. Entrepreneurship and small business: Startup, growth and maturity
• Heyworth-Thomas, E.M., and Jones, R. (2019) Social Enterprise: bridging the gap between the statutory and third sector. The International Journal of Entrepreneurship and Innovation. 20(2):80-89.
• Hisrich, R.D., and Kearney, C. (2014). Managing Innovation and Entrepreneurship, Sage, UK.
• Riddley-Duff, R., and Bull, M. (2016) Understanding Social Enterprise: theory and practice. London, Sage.
• Jones, R., Morish, S., Deacon, J., and Miles, M. Entrepreneurial Marketing in Small Enterprises, in Blackburn, R., De Clercq, D., and Heinonen, J. (2018). The SAGE Handbook of Small Business and Entrepreneurship, Sage, UK.
• Noworol, C., Žarczyński, Z., Fafrowicz, M., and Marek, T. Impact Of Professional Burnout On Creativity And Innovation, in Schaufeli, W.B., Maslach, C., and Marek, T. (2017). Professional Burnout: Recent Developments in Theory and Research.

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