Entrepreneurship Origin and Risks of Entrepreneurship - Essay Example

Entrepreneurship Table of Contents Introduction 3 Entrepreneurship: Origin 3 Outcomes of Entrepreneurship 4 Novice and Habitual Entrepreneurs 6 Risksof Entrepreneurship 7 Advantages of Entrepreneurship 9 Conclusion 11 References 13 Introduction Entrepreneurship defines an individual’s ability to create innovative ideas by breaking out of the paradigm of traditional thinking. An entrepreneur can start a new business with a completely new business strategy which has never been tried before, or they can take decisions involving high risks. Their innovative thinking often leads to development of new products, new strategies and even a completely new industry. Entrepreneurs are the evolutionary force of the global economy. An organization run by an entrepreneurial approach often turns out to be a market leader and other companies try to copy them. However, an innovative idea may not always yield fruitful result, because with every new and unorthodox idea comes a risk of failure and rejection by the society. Particularly in an unorthodox approach taken by a novice entrepreneur the risk of failure remains quite high, so the traditional practitioners often avoid their ideas, whereas in case of a habitual entrepreneur whose decision making is less risky than a novice and should be encouraged. In light of this debate several views and evidences have been put forward in this essay. It includes contrasting views of several authors of several university journals, articles and publications which are backed up by some real life examples in the past. Entrepreneurship: Origin Morrison and his team suggested that entrepreneurship is stimulated by a person’s background, social and cultural environment. An entrepreneurial person is driven to take an innovative and risk bearing step by the motivation of changing the current social or economic structure (Morrison, 2006). However Kirzner (1979) argued that, the willingness to develop a new enterprise and to move forward against severe uncertainty is deeply rooted with an individual’s spirit. He is bound to be an entrepreneur regardless of what his environment and social structure dictates (Kirzner, I. 1979). A more profound argument was placed by Hofstede (2001), that the cultural attribute are largely responsible for the mental programming of an individual. The attributes include, the social environment in which a child grows, his relation with others in the neighbourhood or at work, the economic condition of the society and also the financial status of his family (Hofstede, 2001). Outcomes of Entrepreneurship The origin of entrepreneurial spirit may be ambiguous, but its impact in the society and the economy is farfetched. A lot of economist believed that entrepreneurship is vital for the development of a new start up enterprise and also important in revitalizing and existing business. Corporate entrepreneurship is development of new business activities and incorporation of new ideas in a business or in an organization. The top management or existing practitioners of a company realizes that implementing new ideas are necessary to the company’s growth. Entrepreneurial approach and growth of an organization are proportional to each other. However, the outcome of entrepreneurship is different in different levels of maturity of the entrepreneurs. The impact of the actions of a habitual entrepreneur is quite different than that of a novice entrepreneur (Ucbasaran, Westhead and Wright, 2006). The human capital difference between a novice and a habitual entrepreneur makes the novice to go through the learning process from the ground level, whereas a habitual entrepreneur has already gone through the learning process in his past and thus can implement his past learnings in his current venture. Audretsch and Thurik (2004) mentioned that the entrepreneurial individuals create new ideas and bring about change in the organization, which not only leads to the organizational growth but also is responsible for the growth of the economy as a whole, because a growing company creates more job opportunities, contributes to the GDP growth and is also responsible for knowledge spill-over (Audretsch, and Thurik, 2004). Wingwon (2012) believed that an entrepreneurial employee in an organization often takes risk bearing decisions and is motivated to create something new and innovative. Presence of such employees leads to development of new products and services, new changes in the business activities, focus towards a proactive approach, so the current practitioners should help these employees either by supporting them in their innovative venture or by providing cooperative work environment and motivation (Wingwon, 2012). On the contrary, an entrepreneur, particularly someone who is a novice and does not have any prior entrepreneurial exposure, also brings a high degree of risk in the organization. Their activities involve decision making which are often based on intuitions rather than calculations. However, the habitual entrepreneurs design their innovation based on new product development and it is done keeping in mind the customer needs and their behavioural pattern. This does not mean that all the decisions made by experienced entrepreneurs are fruitful; in several cases the new product is struck down with rejection. Several business decisions, taken by habitual entrepreneurs have failed, like when IKEA decided to launch its furniture line up in Japan, it failed miserbly. (Hasegawa, 2006). Some of the major merger or acquisition decisions did not end up as expected. The acquisition of Motorola by Google did not provide much yield as expected and thus Google sold Motorola back to Lenovo (Guglielmo, 2014). The failed merger between Chrysler and Ford is a classic example of entrepreneurial failure (Flint, 2003). Several practitioners fear the risk of downturn and avoid encouraging innovation and entrepreneurship. Incorporating innovative ideas in to an organization’s current structure is often met with several barriers. In order to create the business environment that is compatible with entrepreneurship, an organization needs to go through certain changes. These include fiscal policies; structural policies and organization also need to have a new look at the tax design, financial market, bankruptcy laws and labour market. These changes can act as a burden to the organization and the entrepreneurial activities may get hampered. Accepting a new ideas from a novice entrepreneur and implementing it in the existing business may bring financial loss to the company due to high risk of failure involved, so the organizational practitioners should not accept innovative ideas of the novice entrepreneurs blindly without accessing its prospects. (Martins, 2004). Novice and Habitual Entrepreneurs Gordon and his colleagues explained that entrepreneurs approach can be broadly divided in to novice and habitual entrepreneurs. Although both of them share the same innovative spirit, but there are certain differences in their behaviour and method of operation. A novice entrepreneur lacks the vision of the market, thus they make important decisions based of intuitions and their focus is often based on the product or service, excepting end user. On the other hand the habitual entrepreneurs recognize and prioritize market opportunities quite well, and use it as a leverage to launch their products in the market. Habitual entrepreneurs are more experienced than the novice entrepreneurs, which gives them an advantage in making proper judgements. Moreover, the habitual entrepreneurs are more motivated towards growing their venture, this leads habitual entrepreneurs to keep coming up with innovative ideas one after other. They are more focused on consumers’ needs and market opportunities than just simply pushing a new product to the market. The study may show that habitual and novice entrepreneurs have different behaviours, but universally both of them are driven by the same pursuit of opportunity (Gordon, Davidson and Steffens, 2009). The habitual entrepreneurs like Larry Page, Steve Jobs, and Mark Zuckerberg, all of them have visions based on the market opportunities and they all try to improve their venture on a continual basis. Novice entrepreneurs on the other hand often stop after their first success as they lack motivation for growth. Risks of Entrepreneurship Risk of entrepreneurial approach may be more in case of a novice entrepreneur but nonetheless it is present universally. Entrepreneurship can only push a company to great heights if the associated risks are recognized and avoided. The risks involved are as follows: a) Market Risks b) Risk of competition c) Operational risk d) Financial risk e) Risks involving people (Conner, 2014). Market Risks: Several innovative ideas do not appeal to the consumer market and they often lead the organization to bankruptcy. There is no thumb rule to predict whether a product will be successful or not. The launch of Zune by Microsoft was an utter failure, because it could not appeal to the consumer market like Apple’s iPod did (Segan, 2011). This risk can be mitigated by constant improvement of a product launched in the market. The initial set back should not be considered as a failure and entrepreneurs should learn from their mistakes so that they can recognize the problems and eventually fix it. Risk of Competition: Just like one entrepreneur is trying to push his idea in the market or to implement it in his organization, several others are also doing the same. This creates a high level of competition in the market which often turns into a corporate war, where one company tries to suppress the other. In order to avoid being the victim, one ways is to go for the “first mover” approach, where the first company to come up with an innovative idea usually gains the consumer’s preference. However, it can also mean that in case of failure the company will be perceived as a failure, which will impact its next products. The safer way is to make sure that the marketing approach is customer centric and not product centric. The company must design a product keeping in mind how it will create value for the customers and enrich their lives. The marketing communication is also crucial because it creates a perception in consumer’s minds regarding the company and its products. Dealing with a competitive environment requires prior market knowledge and experience, which a novice entrepreneur lacks, so their venture in a highly competitive market often fails. They often fail to create a proper marketing communication as they lack the knowledge of consumer’s mind set. Their communication eventually fails to break the clutter as well as fails to create brand recall. (Spulber, 2009) Operational Risks: Operational risks involve failure of a particular technology or failure of a particular project due to lack of research. Introducing a new product in the market, that is based on a new technology, comes with a risk of incompatibility with the consumer market. The only way to avoid this risk is by completely mastering the technology that the company is working on before launching the final product in the market. Financial Risk: Incorporating a new idea or launching a new product requires financial support. New start-ups are often completely dependent on third party investors, whereas an entrepreneurial employee is at the mercy of the higher management to grant him financial support. Organizations are often risk aversive and avoid investing in untested ideas, as there are chances that the company may face severe losses in case the idea fails. Risks involving people: People with entrepreneurial spirit often think out of the box and their ideas do not match with other colleagues or even with the management as a whole. They are mostly unpredictable and their actions are perceived as irrational, so in some cases their ideas are abandoned by their colleagues. Moreover, in most of the cases the employees are not able to connect with the new innovative idea that they are supposed to work on; this can happen either because the idea is completely new to them or may be because they perceive the risks to extremely high. Novice entrepreneurs who never had any exposure in people management often end up misusing the work force, as a result the fellow employees or subordinate lack confidence in his decisions. These risks act as barriers to entrepreneurship and often lead to severe turmoil in the organization. The failure of a newly launched product can tarnish the brand image of a company. The large amount of financial capital invested in the research and development of a completely new idea can go to waste, putting the company at a financial loss. Moreover, incorporation of a new idea within an organization, which is supposed to make the firm run smoother than before, may actually cause dispute among the employees if they are uncomfortable with the new idea. Thus, the practitioners should proceed with caution while supporting a new entrepreneurial idea, and they should also avoid incorporating new ideas which may lead to the company’s downturn. Advantages of Entrepreneurship Praag and Versloot (2007) in their studies have described the practical advantages of Entrepreneurship. Entrepreneurship has been responsible for the global economic growth for quite some time. It has been observed in their study that the higher growths of start up companies are directly proportional to rise in employment in a country, as they grow at a faster rate. In the long run, this company creates even more employment due to the rise of competitiveness in the market. A rise of a new company often causes development of other complementary firms, which leads to more job opportunities. The study also showed that the employees in a new start-up firm are more satisfied with their jobs and work profile, than those of established firms (Praag and Versloot, 2007). The quality of innovations in an organization with an entrepreneurial approach is quite higher than traditional firms. Although both of them invest almost same capital in research and development, however entrepreneurial firms produce innovations at a cost efficient way. Commercialization of innovation is much higher in entrepreneurial firms, which lead to higher and faster revenue generation. Entrepreneurial companies and traditional companies, both contribute equally to innovativeness, but the entrepreneurial firms are have completely different goals and objectives than traditional firms. Moreover entrepreneurial firms grow at a must faster rate than the traditional firms. The contribution of an entrepreneurial start up company to the GDP of a nation may be less than an established traditional firm, but since the growth rates of an entrepreneurial firm is much faster than the traditional firms; hence they can compete with a traditional firm in a much shorter time. The study also shows that the productivity of labour of an entrepreneurial firm is much higher and the overseas trading which contributes to the GDP is also seen to grow at a faster rate (Ekmekcioglu, 2014). An entrepreneurial approach of an experienced entrepreneur often leads to the growth of an economy, as it contributes to the new product development and innovativeness in the industry and also calculated risk taking, which has less chance of failure. It creates new trends and changes the consumers’ perception about the industry. It is one of the key elements of creating new scope for employment and also acts as a determinant of social and cultural development (Landström and Lohrke, 2012). Entrepreneurial firms often contribute to charity and take part to help uplift the local businesses. Success of one entrepreneurial firm encourages other entrepreneurs to trust their own innovative ideas and this in turn leads to rise of several other new firms which cumulatively contribute to the growth of the society and economy as a whole. Thus, the practitioners should encourage the rise of entrepreneurship and guide the novice entrepreneurs so that they gain the necessary knowledge to take the right decisions. Thus the novice entrepreneurs will eventually be able to run their venture successfully, which will lead to organizational as well as economic development (Praag and Versloot). Conclusion The entrepreneurial approach comes with both risk of a company’s down turn and the opportunity of high growth and revolution in the industry. Most of the risk of failure and opportunity of growth is dependent on the maturity of the entrepreneur. Novice entrepreneurs always carry a risk taking attitude based, which is hardly based on market surveys or consumer behaviour pattern, as a result the failure of their venture is quite high. Whereas the habitual entrepreneurs mostly take calculated risks and think out of the box, while staying on the grounds of rationality, which significantly increases their chance of success. An entrepreneurial approach allows an individual, whether be it novice or experienced, to think outside the traditional boundaries which allow them to develop products and services which revolutionize the respective industries. The practitioners must not make their decision about entrepreneurial approach just by looking at the surface results. Entrepreneurship can be fruitful for a company if it is guided and managed properly by the organization. The practitioners should thus guide the novice entrepreneurs and carefully measure the risks involved before implementing their ideas. The development of new commodities should be based on proper study and market experience. Decisions based on intuitions should be avoided. Competition among several entrepreneurial firms should be taken seriously and the company should constantly keep on innovating to sustain in the market. The practitioners should help and support habitual entrepreneurial employees to pursue their venture and they should also encourage implementation of new ideas of novice entrepreneurs only after proper evaluation. References Audretsch, D. and Thurik, R., 2004. A model of entrepreneurial economy. International Journal of Entrepreneurship of Education, 2, pp.143–166. Conner, C., 2014. How To Take Smart Risks As An Entrepreneur. [online] Available at: [Accessed 10 November 2014] Ekmekcioglu, E., 2014. The Impact of Entrepreneurship on Economic Growth. [online] Available at:[Accessed 10 November 2014] Flint, J. 2003. Chryslers Marketing Mistakes. [online] Available at:< http://www.forbes.com/2003/08/05/cz_jf_0805flint.html > Gordon, S., Davidson, P. and Steffens, P. 2009. Novice vs. Habitual Entrepreneurship: Differences in Motivations, Actions And Expectations. AGSE International Entrepreneurship Research Exchange. February. 4-6. Guglielmo, C., 2014. Google, Saying It Wants To Focus on Android, Smart Devices, Sells Motorola To Lenovo For $2.91 Billion. [online] Available at: [Accessed 10 November 2014] Hasegawa, Y. W., 2006. Sweden’s IKEA back in Japan after 20-year hiatus. [online] Available at:< http://www.japantimes.co.jp/news/2006/04/25/business/swedens-ikea-back-in-japan-after-20-year-hiatus/#.VGMbxTSUej9 > [Accessed 10 November 2014] Hofstede, G., 2001. Cultures Consequences, Comparing Values, Behaviors, Institutions, and Organizations Across Nations. Sage Publications. CA Kirzner, I. 1979. Perception, opportunity and profit. University of Chicago Press. Chicago Landström, H. and Lohrke, F.T., 2012. Intellectual Roots Of Entrepreneurship Research, Edward Elgar Publishing Ltd. U.K. Martins, S., 2004. Barriers to entrepreneurship and business creation. European commission European Social fund. November. pp.19-22. Morrison, A., 2006. A contextualisation of entrepreneurship. International Journal of Entrepreneurial Behaviour & Research. 12(4). pp.192-209 Praag, M. and Versloot, P., 2007. What is the value of entrepreneurship? A review of recent research. Small Business Economics An Entrepreneurship Journal. September. pp.2-5. Segan, S., 2011. Why the Zune Couldnt Touch the iPod Touch. [online] Available at: [Accessed 10 November 2014] Spulber, D. F., 2009. Competition among entrepreneurs. Industrial and Corporate Change, 19(1). 25–50. Ucbasaran, D., Westhead, P. and Wright, M., 2006. Habitual Entrepreneurs. Edwards Elgar Publishing. Cheltenham. Wingwon, B., 2012. Effects of Entrepreneurship, Organization Capability, Strategic Decision Making and Innovation toward the Competitive Advantage of SMEs Enterprises. Journal of Management and Sustainability. 2(1). pp.138-144. Read More