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MS3024 New Venture Creation Week 2 Opportunity, innovation and entrepreneurship.

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Presentation on theme: "MS3024 New Venture Creation Week 2 Opportunity, innovation and entrepreneurship."— Presentation transcript:

1 MS3024 New Venture Creation Week 2 Opportunity, innovation and entrepreneurship

2 What is Entrepreneurship? “ a person who sets up a business or businesses, taking on greater financial risks in order to do so”. New Oxford Dictionary of English

3 Definitions of Entrepreneurship Many definitions… “A businessman going about the ordinary business of life”. - Marshall 1890 “To destroy the existing economic equilibrium in an act of creative destruction... and to profit from the new order”. - Schumpeter 1934 “..the bearer of uninsurable risk..” - Say 1861

4 Definitions of Entrepreneurship “Entrepreneurship is by definition the creation of new organisations.” - Vesper “The pursuit of opportunity without regard to the resources currently under one’s control”. -Timmons “The creation of a new business, the management of a small business or the strategic reorientation of an existing business….leading to significant business growth and wealth creation”. - Chrisman

5 Definitions of Entrepreneurship “Entrepreneurship, rigorously defined, refers to the creation of a new economic entity centred on a novel product or service or, at the very least, one which differs significantly from products or services offered elsewhere in the market place.” - Curran and Stanworth

6 Three Approaches to Entrepreneurship Economic theories - Role of the entrepreneur in economic development. Psychological trait approach - Personality characteristics of the entrepreneur. Social behaviourial approach - Influence of the social environment.

7 Economic Theories Organiser of factors of production - Say, Cantillon Ability to spot opportunity – Kirzner Innovator, agent of change - Schumpeter Risk taker - Knight Organiser of resources - Casson Creativity – Shackle

8 Economic Theories “ Entrepreneur” is conspicuous by its absence in economic theory. Emphasis is on the capitalist employer who co-ordinates different factors of production: land, labour and capital. Contributions of economic writers who see that the entrepreneur has a significant role in a growing economy have recently been recognised.

9 Economic Theories Austrian School included different views but generally accepts that the entrepreneur is seen as crucial to economic development and a catalyst for dynamic change in an economy.

10 Economic Theories Kirzner The Entrepreneur anyone who is alert to profitable opportunities for exchange. Acts as the middleman who facilitates exchange. Has additional knowledge which enables the recognition and exploitation of an opportunity, which can be a creative discovery.

11 Implications of Kirzner Anyone can be an entrepreneur. There are no barriers to perception, what matters is noticing an opportunity. A competitive threat can emerge from anywhere and outsiders may be quicker to recognise opportunities. Opportunities occur at every level, a successful economy will need a great many entrepreneurs.

12 Economic Theories Schumpeter The entrepreneur is a special person who brings change. Is an innovator - but may find it difficult to establish a new innovative small firm. Is concerned with the development of new technologies and processes (not adjustment as Kirzner) - the creation and operation on a grand scale.

13 Schumpeter Entrepreneurship is temporary as technological advance and change could be carried out by teams operating in large organisations. The small firm faces disadvantages in research and development (R&D). R & D is expensive, has long lead times, teams in large firms can feed off one another’s ideas.

14 Schumpeter Entrepreneurs Are the creators of change: he causes change (Kirzner does not explain where change comes from in the economy but accepts it as a fact). Have “a vision”, the impulse to fight to prove oneself, the joy of creating and getting things done.

15 Schumpeter Cycle of creative destruction In a stable economic environment, the entrepreneur estimates the profit of his new product/process. The launch of the venture is a shock. It creates new possibilities which threaten existing products.

16 Schumpeter Entrepreneurship of this kind destroys as it creates and creates as it destroys. The success of the new venture encourages imitators. Stimulates the introduction by other entrepreneurs of a range of new complementary activities.

17 Schumpeter A period of boom, increasing prosperity ensues. However the disruption makes the planning of new enterprises impossible. The economy sinks into a recession until a new pattern incorporating the previous innovations is established. The economy is stabilised ready for the next generation of entrepreneurs.

18 Implications of Schumpeter The Entrepreneur Is an exceptional person, producing radical ways of thinking. May have difficulty finding support and finance as other people don’t understand this new way thinking. Produces creative destruction - the new framework makes the old inappropriate.

19 Psychological Trait Approach Ideal type High need for Achievment – McClelland Self confidence and high internal locus of control – Brockhaus Risk-taker (calculated/moderate) – Meredith Need for independence – Walker

20 Psychological Trait Approach Ambiguity tolerance - Schere Creativity and innovative - McMullan and Long Entrepreneurs as deviants - Kets de Vries

21 Locus of Control Internal locus of control - Individuals who believe themselves to be in control of their own destiny External locus of control - People who believe that their lives are dominated by chance events outside their own control or powerful people i.e. “fate” controls their destiny.

22 Internal Locus of Control Successful entrepreneurs have higher internal locus of control than unsuccessful entrepreneurs (Brockhaus). Successful entrepreneurs believe they can and must control their own destiny. Entrepreneurs with internal locus of control are likely to take medium risks (Julian et al.)

23 Psychological Trait Approach Identifies personality characteristics or traits. Entrepreneurs have innate abilities not possessed by others. Suggests that the supply of potential entrepreneurs is limited, thus there is little to be gained from direct intervention to encourage entrepreneurship.

24 Psychological Trait Approach The idea of a limited supply of potential entrepreneurs has been criticised. Many special “entrepreneurial” abilities and skills could be applied to successful managers.

25 Identifying Constellations of Traits Characteristics can be acquired or innate (Timmons): Acquired: Need for achievement, locus of control, take responsibility. Innate : High energy, emotional stability, conceptual, vision, capacity to inspire.

26 Critiques of the Trait Approach Chell, Delmar Criticisms: Inappropriate to search for a significant single trait. Ignores environmental factors. Static analysis approach (entrepreneurship is a dynamic process). Ignores the role of learning, preparation and serendipity.

27 Social Behaviourial Approach Theories of social marginality, people who are displaced or dislocated – Shapero Entrepreneurial typologies: craftsmen versus opportunistic entrepreneurs- Smith Family background, position – Mancuso Educational Background - Curran

28 Social Behaviourial Approach Gender, women’s enterprise - Rosa et al., Shaw et al. Ethinc minority enterprise - Jones and McEvoy, Ram and Deakins Networks and role models - Aldrich and Zimmer

29 The Social Marginality Model Those who perceive a mismatch between their personal attributes and the role they hold in employment, will be sufficiently motivated to change or reconstruct their employment circumstances. Self-employment may be the way to create a better match, e.g. people who do not fit into a large organisation.

30 The Social Marginality Model Examples Political and religious refugees e.g. asylum seekers. Immigrant ethnic minorities. Workers made redundant. Domestic displacements: women who leave employment to raise a family.

31 Limitation of Social Marginality Forces of displacement only, are not enough to prompt someone to start a business. Theory does not explain why entrepreneurship participation rates vary by region, gender and ethnic minority groups.

32 Limitation of Social Marginality Characteristics of the population - are some more entrepreneurial? E.g. high level of start-ups and successful firms in the South-East of England. The environment and infrastructure are important e.g. efficient networks contribute to entrepreneurial behaviour and success.

33 Three approaches to Entrepreneurship These approaches help to explain various facets of entrepreneurship but if we take the definition offered by Timmons: “The pursuit of opportunity without regard to the resources currently under one’s control.” It is what entrepreneurs do that matters.

34 Most desirable characteristics Commitment and determination. Opportunity obsession. Tolerance of risk. Creativity, self reliance, ability to adapt. Motivation to excel. Leadership.

35 Desirable characteristics Energy and health Intelligence Capacity to inspire Values

36 Undesirable characteristics Invulnerability - where is leads to unacceptable risk. Being matcho. Being anti-authoritarian. Impulsiveness. Outer control. Perfectionist - to the extent where commercialism doesn’t prevail. Know it all.

37 Entrepreneurship as a career Entrepreneurship can be viewed as embarking on a journey, the destination is the creation of a one or more successful businesses. The journey will be different for everyone: “ Entrepreneurship is risky mainly because so few entrepreneurs know what they are doing”, (Drucker).

38 Entrepreneurship Can be a successful career by creating businesses e.g. serial, portfolio and habitual entrepreneurs. But it is a journey filled with unexpected challenges. The path selected can never be the same for everyone.

39 Entrepreneurship “ Would you tell me please which way I ought to go from here”? “That depends a good deal on where you want to get to”, said the Cat. “I don’t much care where”, said Alice. “Then it doesn’t matter which way you go”, said the Cat. - Alice Adventures in Wonderland, Lewis Carroll.

40 Reasons for starting a business Pull influences Desire for independence. Exploit an opportunity. Turn hobby or previous work experience into a business. Financial incentive.

41 Reasons for starting a business Push influences Redundancy. Unemployment or the threat of it. Disagreement with employer.

42 Entrepreneurship - can we learn it? Learning about entrepreneurship requires one to: Develop personal attributes. Learn and apply business and management skills in a small business context. Access and apply industry specific knowledge. Understand and learn how to use the business support network. Meet and learn from entrepreneurs.

43 Conclusions The theories of entrepreneurship help us to understand different aspects of entrepreneurial characteristics, but...... Although some aspects of entrepreneurship are innate there is much that can be learnt e.g. how to evaluate economically, launch, manage and harvest a business. The environment is also important e.g. the existence of a supportive business environment and culture can stimulate entrepreneurship.

44 Adaptor v Innovator Adaptor Employs a disciplined, precise, methodical approach Is concerned with solving, rather than finding, problems – mobile phonemobile phone Attempts to refine current practises Tends to be means orientated Is capable of extended detail work Is sensitive to group cohesion and cooperation 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business Innovator Approaches task from unusual angles Discovers problems and avenues of solutions Questions basic assumptions related to current practices – the carcar Has little regard for means; is more interested in ends Has little tolerance for routine work No need for consensus; often is insensitive to others

45 Creativity, Invention, Opportunity and Entrepreneurship 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business INVENTION INNOVATION SUCCESS

46 Creativity, Invention, Opportunity and Entrepreneurship 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business Ability to be CREATIVE INVENTION INNOVATION SUCCESS

47 Creativity, Invention, Opportunity and Entrepreneurship 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business Ability to be CREATIVE Ability to spot OPPORTUNITIES INVENTION INNOVATION SUCCESS

48 Creativity, Invention, Opportunity and Entrepreneurship 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business Ability to be CREATIVE Ability to spot OPPORTUNITIES INVENTION INNOVATION SUCCESS ENTREPRENEURIAL ENVIRONMENT

49 Creativity, Invention, Opportunity and Entrepreneurship 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business Ability to be CREATIVE Ability to spot OPPORTUNITIES OPPORTUNITIES INVENTION INNOVATION SUCCESS ENTREPRENEURIAL ENVIRONMENT

50 Invention and Entrepreneurship 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business STRUGGLER COPIER INNOVATOR STAGNATOR Creativity / Invention Opportunity perception / Entrepreneurship Hi Lo Hi

51 Who is an entrepreneur? Definitions from Lecture 1 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

52 Entrepreneurs 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business Entrepreneurs use innovation to exploit or create change and opportunity for the purpose of making profit. They do this by shifting resources from an area of lower productivity into an area of higher productivity and greater yield, accepting a high degree of risk and uncertainty in doing so.

53 Which One is the Entrepreneur? 1. Larry has invented a new widget. He sees a great business opportunity and decides to launch a new company to make and market his invention. Is Larry an entrepreneur? 2.This time, Larry works for the ACME corporation which decides to make and market Larry’s new invention. Larry will be the product manager. Is Larry an entrepreneur? 3.This time, Larry is on his own again and he decides to make one for his friend Joan. She loves it and sees an opportunity to go into business. Larry is not interested but gives her his blessings. Larry just wants a royalty if she ever sells any. So Joan takes it and starts up a new company to make and market the invention. Is Larry an entrepreneur? Is Joan an entrepreneur? 4.This time, Larry encourages Joan to go into business with his new invention and pay him a royalty. So Joan takes it and starts up a new company to make and market the invention. Is Larry an entrepreneur? Is Joan an entrepreneur? 5.This time, Joan works for a large company. With Larry’s encouragement, she takes his invention to her boss, Steve. He decides to launch the product and puts Joan in charge of the project. They agree to pay a royalty to Larry. Is Larry an entrepreneur? Is Joan an entrepreneur? 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

54 Which One is the Entrepreneur? 5.This time, Joan works for a large company. With Larry’s encouragement, she takes his invention to her boss, Steve. He decides to launch the product and puts Joan in charge of the project. They agree to pay a royalty to Larry. Is Larry an entrepreneur? Is Joan an entrepreneur? 6.Larry has invented a new widget. He sees a great business opportunity and decides to launch a new company to make and market his invention. Is Larry an entrepreneur? Is Joan an entrepreneur? Is Steve an entrepreneur? 7.This time Steve assigns Bill in product development to look at the product and investigate the feasibility. Bill reports that it looks good so Steve puts Bill in charge of the project and Joan under him. Is Larry an entrepreneur? Is Joan an entrepreneur? Is Steve an entrepreneur? Is Bill an entrepreneur? 8.This time, Steve decides to launch the product through a new subsidiary. They put Joan in charge of the project as CEO of the new subsidiary. Is Larry an entrepreneur? Is Joan an entrepreneur? Is Steve an entrepreneur? 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

55 Schumpeter’s Innovations Introduction of a new or improved good Introduction of a new process Opening of a new market Identification of a new source of supply of raw materials Creation of new types of industrial organisation 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

56 Drucker’s Sources of Opportunity The unexpected The incongruity The inadequacy in underlying processes The changes in industry or market structure PLUS Demographic changes Changes in perception, mood or meaning New knowledge 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

57 Drucker’s 5 Stage to Innovation 1.Analyse opportunities, internal and external. Innovate for NOW - timing is everything. 2.Innovation is conceptual and perceptual, so look at financial implications and analyse whether it meets the opportunity. 3.Keep innovation simple - KISS! 4.Start small, take an incremental approach. 5.Aim at leadership and dominate the competition as soon as possible. 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

58 Innovation and size SMEs produce their fair share of innovations and do it more efficiently than large firms Small and large firms have advantages in producing different types of innovation SMEs tend to innovate in sectors where resources, in particular capital, are less important Innovation is not entirely related to firm size - it also relates to business activity, industry, nature of innovation and type of company 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

59 Innovation and location There is evidence of innovative clusters Geographical proximity facilitates the process of knowledge transfer Geographical Clusters of small firms share ‘collective learning’ either through conscious or unconscious mechanismsconscious 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

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61 The Aberdeen context Oil and Gas Science and Technology 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business

62 Innovation and You The assignment Group report (30%) in the form of a business plan for the start-up of University Year Books Group presentation about the key concepts of that plan (10%) Elements of a business plan and how to write one – Wednesday 18 th October special session with SIE Regional Business Adviser, Simon Fraser Background document BookBuilderBookBuilder – General sections if you want to come preparedcome prepared 3: Opportunity, Innovation and Entrepreneurship Entrepreneurship and Small Business


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