Leadership and Entrepreneurship - Essay Example

Entrepreneurship is an act of creating value by seizing opportunity and utilizing human, social and financial resources (Pfeifer, 2003). It involves a certain amount of risk taking on the part of an entrepreneur. Entrepreneurship has also been defined as ““the process whereby individuals become aware of business ownership as an option or viable alternative, develop ideas for business, learn the process of becoming an entrepreneur and undertake the initiation and development of a business” (Stevenson cited by Chigunta, 2002). It has also been defined as “a multidimensional concept encompassing the firm’s actions relating to product-market and technological innovation, risk taking and proactiveness” (Kellermans & Eddleston, 2006). Thus an entrepreneur is a person who is prepared for new challenges, face adversities, take risk and achieve profits by identifying opportunities and utilizing the resources available. Leadership has been defined as “natural and learned ability, skill and personal characteristics to conduct interpersonal relations, which influence people to take desired actions (Eric, n.d.). Thus effective leadership requires accomplishment and influencing. Leadership requires trust and commitment of others, which they can achieve through their own behavior and integrity. Leaders create and deal with change; leadership requires vision, direction, strategies, motivation and inspiring. While both entrepreneurship and leadership have certain traits in common, not all of the leadership traits are necessary in an entrepreneur. Entrepreneurship to a large extent relies on leadership. Jong and Hartog (2003) have reviewed various definitions of leadership and conclude that three main elements: ‘group’, ‘influence’ and ‘goal’ make a leader. These three elements are related to an entrepreneur who can influence his co-workers with the intermediate goal of enhancing their innovative behavior in order to improve the number and quality of innovations and eventually firm performance. Entrepreneurial attitude can be measured in terms of achievement, innovation, personal control, self esteem, and opportunity recognition (Lindsay, 2005). Lindsay further clarifies that innovation includes recognizing and acting upon business activities in new and unique ways. Achievement can be associated with business start-up and growth results, while self-esteem includes self-confidence. Personal control involves individual perceptions of control and influence over business affairs. Creativity is one of key characteristics of entrepreneurial and part of the innovation process. An entrepreneur must have a perceived sense of self-esteem and competence. Innovativeness is the focal point of entrepreneurship and an essential entrepreneurial characteristic. Thus entrepreneurship means motivation, passionate vision, and the need for achievement is the driving force behind entrepreneurial behavior (Koh, 1996). Entrepreneurship is a continuous learning process but at the root it requires visionary leadership. Sam Walton the founder of Wal-Mart is an outstanding example of an entrepreneur. He was ranked among the top ten entrepreneurs of the 20th century by the Wall Street Journal (WSJ). Walton transformed Wal-Mart from a start-up company in 1960 to the world’s largest retailer in the new millennium and the success is attributed to his unique entrepreneurial abilities and visionary leadership (ICMR, 2003). He revolutionized the global retailing industry by opening large stores offering convenience and very competitive prices. This was also a service to society as the purchasing power of the people increased. He had the confidence in his capabilities and knew exactly how to move ahead. He had the propensity to take risks and open one store after the other. He was innovative in the store formats and marketing strategies. At a time when competitors like K-mart were apprehensive to invest in IT, he was innovative and automated his system and linked all his stores together. He was strategic and had a logical, analytical thinking process which is the reason Wal-Mart has reached so many countries of the world today. He demonstrated that leadership is essential even for entrepreneurial success. No firm, be it an SME or a large one, can move ahead without the right leadership. While there are different approaches to leadership the trait theory is what determines an entrepreneur. The trait theory attempts to identify the personal characteristics that explain why certain individuals succeed as leaders and others do not (Knes, 2006). It takes into account the personality of the leader. The trait approach presumes that a person is a born leader. Hence these innate personality or characteristics are an integral part of leadership. This also implies that a leader can be a successful entrepreneur although not all the qualities of a leader are essential in an entrepreneur. Research further suggested that a few traits were consistent in born leaders and these include intelligence, self-confidence, determination, integrity and sociability. All of these are required in an entrepreneur. According to the style approach leadership is a transactional event and interactive. It occurs between the leader and his followers and is not the result of the innate characteristics. In the situational approach according to the situational requirements the leadership has to be demonstrated (Working Futures, 2005). Again, depending upon the situation, an individual can be a leader in one situation and the follower in another. This is not required to be an entrepreneur. Autocratic leadership does not involve the participants and there is no sense of membership amongst the members. The strength of a leader lies in his ability to inspire others to give their best. For instance, there is always a resistance to change in the face of environmental pressure and uncertainty when it is caused by the organization culture, says Schein (Lakomski, 2001). A leader plays a crucial role in such cases where he has to inspire them to understand and accept the vision or the corporate goals. These characteristics are not necessary to be a successful entrepreneur. Kellermans and Eddleston (2006) found that corporate entrepreneurship was essential to family firm survival, growth and profitability. Entrepreneurial activities can revitalize a firm’s business by changing its competitive profile or by emphasizing innovation. Technological innovation drives entrepreneurship. Entrepreneurs should be able to anticipate, embrace and induce change. Research suggests that the fastest growing family firms have been those that have been found to pursue first-to-market and early follower market timing strategies. This again suggests that visionary leadership is essential along with opportunity recognition. The authors also found that first generation family business is based on innovative ideas but after a few years they lose their entrepreneurial momentum. It is obvious that these entrepreneurs lack leadership and motivation which are essential for the survival of entrepreneurial ventures. In small firms an entrepreneur can provide both leadership and management (Jong and Hartog, 2003). Marc Demarquette was a management consultant in London but an accident changed his life. He loved chocolates and he decided to turn his love for chocolates into a business by opening a high quality artisan chocolate shop (Bridge, 2006). This brings out the entrepreneurial quality of opportunity recognition. Having attended culinary school in Paris and having worked with a master chocolatier in the Alps proved to be a motivator. This implies Marc was self-motivated. Confidence on his own abilities urged him to obtain a £40,000 bank loan from Lloyds TSB and within four months he had opened a shop called Demarquette in South West London. He had the risk-taking ability and the confidence to surge ahead. Within six months of starting the business he had used up all the loan money but he had already begun to fund the business from the cash flow. This demonstrates the enthusiasm and the zeal that an entrepreneur has to get the business going. He set up a production facility and employed a chocolatier to help him. He applied innovative marketing techniques and started approaching hotels and the corporate clients who give chocolates as gifts to their clients. He also started monthly tasting events at his shop. So far the venture required entrepreneurial abilities but as his market developed, he had to increase production, add staff and this is where the leadership becomes important in SME. Demarquette was asked by Fortnum & Mason to create a range of 16 bespoke chocolates. With this offer, Marc had to give up his idea of opening another shop. This decision requires personal control. He realized that the volume that are being produced for Fortnum & Mason was equivalent to a second shop. This means an entrepreneur needs to be calculative and not just jump blindly. He is cognizant of the business environment around him. Marc was sincere and dedicated as he worked for more than twelve hours. His sincere efforts have fetched him serious enquiries from overseas all of whom want a dedicated range of chocolates. He has a sense of purpose – a goal towards which he marches. The test as a leader comes now when he has a sizeable number of staff and he knows that the project is no more his alone. His passions are fuelled but his leadership abilities have to be demonstrated now. As a leader he has to steer the entire staff towards achieving his own goals, meeting targets and keeping schedules. He cannot do this alone and to receive the support of the staff he needs to motivate them. Developing and inspiring a shared vision requires leadership because it has to be realistic and credible (Nahata, 2001). If the vision is shared, the individuals can find their own roles, which contribute to their personal and professional growth. The strength of a leader lies in his ability to inspire others to give their best. In an entrepreneurial set up the entrepreneur as the leader plans, motivates, creates and innovates. Thus it is evident that any entrepreneurial venture in the beginning may require more of entrepreneurial qualities like risk-taking, self-confidence, innovative, sincerity, hard-working, and self-motivated but as the business picks up momentum, the approach has to differ. This has been in the case of Sam Walton as well as Marc Demarquette. They have to inspire the staff to share the vision and this requires leadership. Leadership is a demanding job with tremendous pressures and serious responsibilities to be shouldered (Nicholson, 1998). Leaders may not be intellectual geniuses but they are not ordinary people. This is exactly what both these entrepreneurs have demonstrated when they started their ventures. Visionary leadership is at the root of success for entrepreneurs. Entrepreneurs have to be leaders or they can be called entrepreneurial leaders. While the trait theory applies to entrepreneurs, the situational approach to leadership is also essential to be a successful entrepreneur. An entrepreneur must know how to deal with sudden changes in the business environment and be capable of handling crisis. It can thus be concluded that even in the beginning of a venture an entrepreneur requires the a clear vision, goal, the ability and motivation – all of which are the essential requirements of a leader. Thus the two are integrated and difficult to segregate. References: Chigunta, M. (2002). Youth Entrepreneurship: Meeting the Key Policy Challenges. Available from: http://www.fabi.it/giovani/congresso/DOCUMENTI/entrepren.pdf [Accessed 24 may 2008] Bridge, R. (2006). Our first six months in business. Available from: http://business.timesonline.co.uk/tol/business/entrepreneur/article649747.ece [Accessed 26 May 2008] Eric (n.d.). Leadership for Excellence. Available from: http://eric.uoregon.edu/pdf/samples/SL/SL.intro.pdf [Accessed 24 may 2008] ICMR (2003). Sam Walton - Entrepreneur of the Century. Available from: http://www.icmrindia.org/casestudies/catalogue/Leadership%20and%20Entrepreneurship/LDEN022.htm; [Accessed 25 May 2008] Jong, J & Hartog, D. (2003). Leadership as a determinant of innovative behaviour. SCientific AnaLysis of Entrepreneurship and SMEs. Available from: http://www.entrepreneurship-sme.eu/pdf-ez/H200303.pdf [Accessed 25 May 2008] Kellermans, F. W. & Eddleston, K. A. (2006). Corporate Entrepreneurship in Family Firms: A Family Perspective. ENTREPRENEURSHIP THEORY and PRACTICE. November 2006. pp. 809-830 Knes, M. (2006). LEADERSHIP. Available from http://www.referenceforbusiness.com/encyclopedia/Kor-Man/Leadership.html [Accessed 24 may 2008] Koh, H. C. (1996) "Testing hypotheses of entrepreneurial characteristics: a study of Hong Kong MBA students." Journal of Managerial Psychology 11.n3 (March 1996): 12(14). British Council Journals Database. Gale Lakomski, G. (2001). Organizational change, leadership and learning: culture as cognitive process, The International Journal of Educational Management, 15/2 [2001] 68-77 Lindsay, N. J. (2005). Toward A Cultural Model of Indigenous Entrepreneurial Attitude. 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