Entrepreneurship and Small Business Development - Essay Example

Entrepreneurship and Small Business Development Introduction The project constructs a feasibility study on a new venture creation. The emphasis is on the role of the entrepreneur and the process of applying relevant theories and concepts. “According to intellectuals and business experts, the definition of entrepreneurship is simply the combining of ideas; hard work and adjustment to the changing business market” (More Business 2008). Entrepreneurs use personal initiative and engage in calculated risk-taking, to create new business ventures. This can be achieved by raising resources to apply innovative new ideas that solve problems, meet challenges and satisfy the needs of a clearly defined market. Understanding the importance of how entrepreneurs develop, the circumstances that can encourage or induce entrepreneurship and the beliefs of entrepreneurs could prove helpful both in supporting the existing class of entrepreneurs along with boosting economic growth. The selected business entrepreneur is Steve Jobs, the founder and Chief executive officer of Apple since 1976. By 1980, Apple had released three improved versions of personal computers whose success made this founder a multi millionaire (Crunch Base 2012). An innovative computer pioneer who helped found Apple Computer and returned to the company to bring it a second period of success in the industry. The characteristic that is going to be tested and discussed is the innovation theory. The context will explore innovative entrepreneurship which looks at the development process of an idea into application. Innovation can be defined as “Transformation of a new idea into a new product or service, or an improvement in organization or process” (Heye 2006). The paper is set to describe the entrepreneurial and innovativeness of Steve Jobs while at the same time providing a detailed literature review of the development of small business and the role of innovation in the process. In addition, the paper takes a closer look at the ways employed by Steve Jobs in making Apple a top company in the US and the world in general. Literature Review Innovation and creativity is a concept that enables the entrepreneur to exploit new ideas from concept to completion. This entrepreneurial characteristic implies the discovery, assessment and exploitation of opportunities. In perspective this leads to new products, services or production processes; new strategies and new markets for products and inputs that did not previously exist (Shane and Venkataraman 2000). Similarly product innovation could be a new model in the existing product range or a new product outside the existing range but in a similar field of technology. “Moving the focus to product innovation leads to very different conclusions on how alternative institutional set-ups affect economic performance” (Bengt-Åke Lundvall and Vinding 2004). This demonstrates the advantage of product innovation as it can lead to an increase in profitability for organisation that implements the support of product innovation in their corporate strategy. To thrive in the global economy, entrepreneurs must rise to the challenge of achieving prosperity through increasing innovation. For instance, NESTA’s Innovation Index shows that companies that introduced a new product from 2002 to 2004 saw an average employment growth of 4.4% during the subsequent 3 years compared to 2% for non-innovative businesses (Design Council 2011). Research overtime has developed and shown that since the early work of Schumpeter (1950) the role of an entrepreneur has been linked with innovation. Amabile et al. (1996) define creativity as “the production of novel and useful ideas” (p. 1155), while Heye (2006) refer to innovation refers as “the implementation or transformation of a new idea into a new product or service, or an improvement in organization or process” (p. 253). Stevenson and Gumpert (1985) further indicate that innovation is the “heart of entrepreneurship” (p. 85). Therefore, entrepreneurship is viewed as a prime source of innovation and a competitive advantage. In addition, Hult, Snow and Kandemir (2003) pointed out that the conceptual of innovation is closely connected to entrepreneurship. In order to understand the innovative mindset for a successful entrepreneur, the philosophy should be explored in depth. One of the biggest challenges facing organisations today is to consistently and sustainably innovate. This must be achieved whilst facing global recession, intense competition and demanding dynamic markets. This cannot be achieved by just having innovators however, innovation must be effectively managed and reviewing existing innovation theories can help resolve these complex issues. For instance one of the pioneers of innovation was Austrian economist Joseph Schumpeter (1934) who expressed that innovation was the source of economic expansion; this trend based in the field of economics began looking critically at the role of innovation in growth. Schumpeter introduced the theory of “creative destruction” which describes the transformational process that accompanies spurts of radical innovation. However, well-established and powerful industries are destroyed and new ones are created hence sustaining long-term economic growth. On the basis of Schumpeter’s theory, it can be argued that the innovative ability of entrepreneurs was the driving force of economies, generating growth whilst setting the cycles of economies in motion. However this allowed Keynesian economics to argue that levels of investment were the cause of innovation.  It was not until the 1960s that economists would begin again to search for the source of innovation. The importance of innovation was highlighted by researchers like Abramovitz (1956) and Solow (1957) who were able to demonstrate how little neo-classical economics was able to explain.  Further research shows that soon after scholars continued Schumpeter’s work and through Isard’s general equilibrium model they were able to argue effectively that innovative technological change was a major determinant in increasing industrial output. Schumpeter’s theories formed the basis of the concept of “technology push‟. This concept expresses a new innovation created through R&D and is pushed through production and sales functions onto the market, often without due consideration of whether or not it satisfies a market need or customer desire. On the other hand, research subsequently introduced the concept of “market pull‟, whereby innovation is pulled from an organisation’s R&D, having originated as a result of customer or market demand (1966). Similarly, Schmookler’s research indicated that both “technology push‟ and “market pull” were important sources of innovation as failing to understand the concept would lead to failure in understanding market demand and innovation success. Heye (2006) stresses the importance of the “voice of the customer‟ throughout the innovation process, from the generation of ideas to the evaluation of product prototypes, while the work of Teece (2006) prescribes that both the external and internal environments are important inputs to the innovation process (Heye 2006). In summary, the academic literature highlights that innovation and innovative ideas can come from both the external and internal environment and that for innovation to thrive, an entrepreneur must effectively manage and organise, while implementing effective processes to encourage successful innovation. The element of the innovative mindset that leads to innovation includes five skills in common that successful innovators contain. The first factor is ‘Association’ which expresses making connections. This concept can be applied to entrepreneurs as an advantage as sharing ideas and establishing business relationships with the right people and come the right time it can open windows of opportunity. This includes sharing resources, knowledge and expertise which elevate success to new and higher levels. ‘Questioning’ is a factor that shows the desire to fill in gaps in understanding and creates more knowledge. ‘Observation’ involves seeing opportunities in the market that others do not see. ‘Networking’ with individuals or organizations involves purposeful interaction with people from varied backgrounds and perspectives that drive a broader mindset. Finally, ‘Experimenting’ the act of seeking answers to scenarios of “what if” and exploring all angles in a situation before making decisions and taking a calculated risk (Dyer, Gregersen and Christensen 2011). The Power of Proposition Innovation Today is an age of consumer centricity and consumer analytics and as a result, most companies consult their customers, study their behaviours and identify customer needs and wants before developing a new product and/or service. However, a number of companies still develop products without customer consultation, for instance fashion houses ranging from Prada to Armani develop new products each season thus setting trends that are quickly adopted by others. A proposition defines the benefits that are offered to the customers by a company’s innovative and creative products and services. Creativity and innovativeness of an entrepreneur are beneficial to an organization in that they create a strong differentiation between the company’s products and services and those of competitors. Practical Section The process that was taken to collect the secondary data about the chosen entrepreneur, Steve Jobs included the use of reading articles and journals. The articles and journals gave an in-depth explanation and examples to different views and aspects of different entrepreneurial theories of innovation, whilst relating to motivation and cognition. From the library, various books were used to reference from and research was undertaken into the theory aspect which was essential to draw up conclusions from different sources. The use of the internet was also a main source to collect the secondary data to analyze and explore the history of entrepreneurship dating back to the year of 1700’s. The limitations of collecting the secondary data from the internet were not receiving the full version of the research to gain the full value of the study. This is because many research suppliers offer free portions of their research and then charge expensive fees for their full reports in order to complete the full study. Likewise the information collected from different articles, biographies and websites are all opinions and views which have been written and can be biased to towards Steve Jobs therefore not all information given maybe accurate. Steve Jobs Entrepreneurs and innovators are a dynamic force for economic, industrial, technological and social change. A famous entrepreneur known as Steve Jobs, has transformed the way the world lives, works and plays. Steve Jobs was the co-founder of Apple computer Inc which was founded in 1976. According to Cooke and Schmidt (2012), Jobs’ vision of a “computer for the rest of us” revolutionised the world and made Apple an icon of American business (p. 8). It can be said that Jobs is nearly as iconic as his company logo. Despite the fact that he sometimes could be mean-spirited and abusive to people or rather employees, Steve Jobs has been one of the most outstanding and archetypal entrepreneur who was mercurial, visionary, brilliant and inspirational (Cooke and Schmidt 2012). Steve Jobs was of the belief that innovation was limited by market research and focus groups (Cooke and Schmidt 2012). Many believe that an extensive research is necessary before launching or rather introduction of a new product in the market. When the successful iPad was introduced to the market by Apple, Jobs was asked the type of marketing research he had done to ensure the success of the product. In response, Steve states that none was required. He said, “None. It is not the consumers' job to know what they want. It is hard for consumers to tell you what they want when they have never seen anything remotely like it." A good entrepreneur should be capable to follow their correct instincts and that is where Steve marvelled. Job’s intuition combined with the radar-like feel he had for emerging technologies resulted in the eventual development of what he termed as “insanely great” products (Cooke and Schmidt 2012). Apple has had many blockbuster products in the market including the iPhone, Macintosh, iPod, iTunes and iPads, but it will be wrong to argue that the successful products would have been realized were it that Jobs relied on consumer market research. During the launching ceremony of Macintosh, a reporter with Popular Science enquired of the type of research conducted by Apple to ensure that the computer did not lack a market. In response, Jobs punned, "Did Alexander Graham Bell do any market research before he invented the telephone?" (Crunch Base 2012) Analysis Steve Jobs had a vision to ensure everyone had a computer which sparked the revolution of the PC and established Apple as American business’ icon. Somewhere along the way, the vision that drove Steve was clouded and as a result was cast out of the company he co-founded. Very few people disagree that Jobs distracted the growth and development of Apple yet when he was ousted from Apple, the company lost the spirit of a pioneer and direction in its operations. What followed was a long 10 year period of dipping sales and as a result the company reverted to its old visionary founder for assistance who according to Larsen and Lewis (2007) engineered one of the major revolutions witnessed in the 20th century (p. 144). Steve’s Return In September 1997, Steve Jobs was installed as the interim CEO of Apple when the company was struggling with dropping revenues as well as heavy losses amounting to an estimated $ 1.5 billion (Bengt-Åke and Vinding 2004). Apple was about to lose 25 million customers due to fears of the company’s position and at the same time waging a tag of war between itself and Microsoft over the copying of its features. Jobs succeed to secure a deal with Gates that saw the company revived as well as dropping of the law suit. The deal was labelled ‘remarkable’ since Microsoft came to the rescue of its competitor and future adversary. The first task carried out by Jobs upon his return was to terminate some projects so that profitability of Apple could be increased and by his permanent appointment as CEO in 2000, Apple was back at its highs recording a 30% revenue growth in the same year (Cooke and Schmidt 2012). Steve’s Way Customers do not know what they want – many companies allocate huge amounts of cash, resources and time in the research process of identifying the needs of the consumers and the design of their products (Design Council 2011). Jobs had a different feeling as he preferred to follow his own intuition and designed suitable products that are leading in their respective market segments. He is quoted as saying, “You cannot just ask the customers what they want and try to give that to them. By the time you get it built, they will want something new." Furthermore, Steve believed that focus groups deterred the process of developing products and he is quoted as saying “It is really hard to design products by focus groups. A lot of times, people do not know what they want until you show it to them.” Steve’s disregard to customer research is exhibited in another of his quotes where he says, “It took us three years to build the NEXT computer. If we had given the customer what they said they wanted, we would have built a computer they would have been happy with, a year after we spoke to them – not something they would want now” (Short Case 2011). Innovation is a differentiator – according to Jobs, innovation is the major factor distinguishing a leader from a follower. Jobs focus was always on designing new merchandise by probing the conformist designs. His belief was that innovation makes money. In addition, Steve’s feeling was that “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it.” The loyalty of Apple customers is a parameter associated with innovative success of the company (Short Case 2011). According to Bengt-Åke and Vinding (2004), innovation and creativity can create a strong differentiation between competing companies’ products and services (p. 106). The innovativeness of Steve Jobs in developing the iPod was beneficial to Apple due to its unique features - namely the iTunes and iTunes Store - that it possessed over other similar products from competing companies. This ensured that this product is differentiated from other products and gained a distinct market share that saw the revenue of the company rise from the sale of this “insanely great” product. This demonstrates the advantage of product innovation as it can lead to an increase in profitability for an organisation that implements the support of product innovation in their corporate strategy. Theories and concepts have been developed relating to innovation and creativity. The success of Jobs was heavily dependent on innovation with no customer consultation. Cooper (2001) believed that the voice of the customer was vital in the whole process but as Jobs claims, customers do not know what they need and hence there is no need to talk to them before a new product is developed. In addition, another theory, creative destruction usually involves directing of resources to potential sectors of the economy. Jobs directed resources towards production of what he thought was right but there was no destruction of industries and creation of new ones, instead, innovation was the major undertaking that ensured the success of the company. The theory of market pull also does not apply in this case where the innovation of a company is dependent on R & D resulting from consultation of customers in order to carter for their needs and wants in the development of the product. Apple produces technology-driven products and services and as a result the relevance of the concept of technology push is exhibited. This process involves the creation of new innovative products through R & D and these products are pushed into the existing market with little or no consideration of the customers’ needs and wants. This is typically what Jobs advocated for as he only considered researching on the products offered by other companies and produce a product that his intuition tells him is suitable for the market . This proved to be a success as Apple’s innovative products were pushed into the market, gaining popularity as well as generating huge revenues to the company. Conclusion Apple combines art and technology to design innovative products. A great entrepreneur will always struggle and take huge risks so that the company can remain a leader in the market. Small business entrepreneurs are less innovative and always think of providing customers with products that are already in the market (Larsen and Lewis 2007). This article however brings out a different view of the same as innovation is established as a major factor in organizational growth and development. Today, business institutions are advocating for consumer research before introduction of a new product in the market as a major factor (More Business 2008). Innovation and creativity of an entrepreneur can result in a strong differentiation between the company’s products and services and those of competitors. As a result of this differentiation, a company can gain a significant market share in a specific market segment thus resulting in very high revenues from the sales of these differentiated products and services. The innovativeness and creativity brought about by Jobs created a differentiation of Apple’s products and those of competitors and as a result, the company’s revenue augmented. References Amabile, T.M., Conti, R., Coon, H., Lazenby, J. & Herron, M. (1996) ‘Assessing the work environment for creativity’ The Academy of Management Journal, vol. 39, no. 5, pp. 1154 – 1184. Bengt-Åke, L. & Vinding, A.L. (2004) Product innovation and economic theory – user-producer interaction in the learning economy, in Jesper L. Christensen and Bengt-Ake Lundvall (Eds.). Product Inovation, Interactive Learning and Economic Performance (Research on Technological Innovation, Management and Policy, Volume 8), Emerald Group Publishing Limited, pp. 101-128. Cooke, C.W. & Schmidt, C. (2012) Steve Jobs: Co-founder of Apple, New York, Darren Davis, pp. 8-11. Crunch Base (2012) Steve Jobs, viewed 11 Dec 2012 . Design Council (2011) Design for innovation, viewed 11 Dec 2012 . Dyer, J., Gregersen, H. & Christensen, C.M. (2011) The Innovator's DNA: mastering the five skills of disruptive innovators, United States of America, Harvard Business School Publishing, pp. 54-59. Gaspersz, J.R. (2005) ‘Compete with creativity”, Essay presented at the innovation lecture “Compete with creativity’ of the Dutch Ministry of Economic Affairs, The Hague. Heye, D. (2006) ‘Creativity and innovation: Two key characteristics of the 21st century information professional’ Business Information Review, vol. 23, no. 4, pp. 252 – 257. Larsen, P., & Lewis, A. (2007) How award-winning SMEs manage the barriers to innovation. Creativity and Innovation Management, vol. 16, no. 2, pp. 142 – 151. More Business (2008) What is an entrepreneur? A Definition of Entrepreneurship. Available: http://www.morebusiness.com/business-entrepreneurship. Last accessed 05/12/2012. Shane, S.A. & Venkataraman, S. (2000) ‘The promise of entrepreneurship as a field of research’ Academy of Management Review, vol. 25, pp. 217-226. Short Case Studies, Industry/Sector Analysis, Business Strategy (2011) Steve Jobs - Innovator & Visionary Entrepreneur - What he believed in and his Innovation Strategy (Apple CEO 1997- 2011), viewed 11 Dec 2012 . Read More