Developing the Characteristics of an Entrepreneur - Literature review Example

Entrepreneurship Entrepreneurship Introduction An entrepreneur is a person who generates an idea, through innovation, to start-up a business. An entrepreneur sources business and sustains it (Kirby, 2003). While entrepreneur is responsible for the success or failure of the business, an entrepreneur does not necessarily have to own a business (Wilson & Rosenfeld, 1998). The main concept, idea of entrepreneurship is generation of business idea. An entrepreneur may come up with a business idea, starts up the business and sells it to another person. They are risk takers and innovative (Burns, 2011). Entrepreneurs do not run out of ideas. This paper will talk about social entrepreneur, in terms of entrepreneurship concept, EROS concept, and characteristics. Many people mistake small business managers for entrepreneurs. Both of them can start up a business and manages it. However, evidence shows that this is a misconception as a great difference between an entrepreneur and a manager does exist (Wilson & Rosenfeld, 1998). In view of this, there is need to discuss the nature of entrepreneurship and what differentiates entrepreneurial activity from other management functions (Burns, 2013). There are varying debates on the characteristics of entrepreneurs and the environment that shapes the characteristics of entrepreneurs. Economists define entrepreneur with the functions that they performed. They see entrepreneurs as people who buy country produce from those who bring it or order it to be brought on their account and pay a certain price, and resell wholesale or retail at an uncertain price. In this regard, the role of the entrepreneur is to buy and resell goods for profit. As such, economists view entrepreneurs as people who act as a sole traders and performing all the functions involved in the business; accounting, managing, and sales (Burns, 2011). However, economists do not distinguish entrepreneurs from basic small business managers. There are various differences between entrepreneurs and business managers (Wilson & Rosenfeld, 1998). A small business manager does not have to be creative as he can borrow ideas from other people and start a business. Small business managers can be sole proprietors and the business can be a family business. The differences can also be seen in strategies. Whilst an entrepreneur manages in a state of disequilibrium and the scope can extend to large-scale businesses, the small business manager operates in a state of equilibrium as he can plan in advance and is limited in scope (Burns, 2013). Psychologists and sociologists express a different meaning of entrepreneurship. Besides the functions and the characteristics of an entrepreneur, as well as the environment in which entrepreneurs operate, psychologists and sociologists attempt to fully understand what makes entrepreneurs different from others (Kirby, 2003). Recent entrepreneurial studies focus on the nature of entrepreneurs and how they spot and respond to entrepreneurial opportunities. Whilst the psychologists argue that successful entrepreneurs have inborn or unique qualities that count for their success such as achievement motivation or passion, sociologists argue that entrepreneur characteristics are shaped by the environment (Burns, 2013). Studies show that entrepreneurs learn through engagement with others and training in the environment (Burns, 2013). Through training and experience, they obtain mastery and dominance. However, economists perceive entrepreneurs as ambitious people who would venture into any business as long as there are rewards or pay-offs. Such entrepreneurs would thus not engage in social entrepreneurship which is purely based on satisfaction of community needs rather than profit. While psychologists focus on the need to achieve and locus of control as drivers of entrepreneurship, sociologists, on the other hand, bank on the interplay of the individual and the environment to decide what kind of entrepreneurial activity to engage (Burns, 2011). Entrepreneurs can either change the environment or wait for the environment to direct business course (Carter, 2012). As they engage in business, the motives, values, attitudes, and personal characteristics are shaped by the environment. However, it is conventional that entrepreneurs should be intuitive, opportunistic, risk taker, innovative and creative in order to establish and sustain new ventures (Kirby, 2003). These are basic characteristics that define all entrepreneurs. These entrepreneurial traits lead to creation (emergence) of new ventures. Entrepreneurial mechanisms emerge from these traits through experimentation, reflexivity, organising and sensing (EROS) (Carter, 2012). Entrepreneurship (EROS) Entrepreneurship concerns the creation of new combinations or ventures. It also entails destroying old orders and creating new economic orders such as new firms and new products. It shows how novel structures came to being through EROS mechanism (Carter, 2012). The entrepreneurial activities are crucial for this emergence unlike in small or large businesses which make strategic business plans after scanning the environment and act on them thus directing the company’s future (Wilson & Rosenfeld, 1998). For emergence, the creation of the structures has to be random or something not planned for in advance but necessitated by the circumstances or demands of the market. It thus has no prescience, no scenario planning, or highly visible vision of the future or strategic intent (Carter, 2012). EROS is a trial and error experience with no certainty of the business surviving; some survive and some do not. This emergence process ensures business sustainability in face of dynamic environmental changes including political, economic, social, political, technological and legal or regulatory changes (Wickham, 2004). For example, in the wake of 9/11 terrorist attacks, so many businesses especially airlines were affected and this was beyond their control as there was nothing anybody could do. Entrepreneurs’ in this case had to deal with the problem as it presented itself and find new and immediate solutions. This does not require making comprehensive plans but immediate action and is mostly the day to day work of the entrepreneur as opposed to business managers (Carter, 2012). This is according to the complexity theory of entrepreneurship. The entrepreneurial process, Experimentation, Reflexivity, Organizing, and Sensing (EROS), facilitates approach to sustaining and developing enterprises although the commitment of the founders is called for if the enterprise has to survive and maintain its identity. The emergence of order involves interaction between heterogeneous agents in the system and is characterised by “constant change, mutual dependence between agents, and sensibility to initial conditions (Deakins & Freel, 2009). The first mechanism of emergence is experimentation. It involves trial and error of new activities considered as projects. The entrepreneur may have different ideas for the firm but since these ideas have not been tested, it is difficult to predict outcome. The idea may also emanate from a customer, supplier or management but needs to be shared between these actors so that they can come up with a viable project or the entrepreneur may develop an idea and then let the management team work on it for it to be successful (Deakins & Freel, 2009). For example, in the case of Flight directors, ideas were generated by Argyle and his co-director and then allowed to be developed by teams. In Argyles words, “new ideas for business are conceived and allowed to be developed by teams which form the new advocates to those ideas.” Most entrepreneurs faced with environmental challenges experiment on various ideas and adopt ‘what works’ while discarding what does not work. Sometimes change is driven by an anticipated need by stakeholders hence entrepreneur has to experiment until it works. For example, when Bill Gates spotted an opportunity to follow his dreams, he did not give up since he had not developed software that was required by MIT at the time, instead he came up with software through trial and error and it worked in the end and led to establishment of Microsoft Company. As such creativity and innovation are significant to this process. To be a revolutionary entrepreneur like envisaged by Schumpeter, advance plans are helpful but not essential as the entrepreneur should be able to solve unanticipated problems as they come; they are result of factors beyond firm’s control. Furthermore, the entrepreneur operates in an uncertain world with imperfect information hence he has to use intuition (Deakins & Freel, 2009). The idea is contrasted by other economists who view entrepreneur as moving towards equilibrium with perfect information. While some considers every opportunity as unique hence not predictable using previous activity, others think that some people overlook opportunities hence undertake suboptimal activity (Wickham, 2004). The former recommends alertness in making opportunities and advocates incremental improvements as opposed to radical changes advocated by the later group, hence the entrepreneur need not keep experimenting. However, most business ideas involve experimentation until something that works is invented (Deakins & Freel, 2009). The other entrepreneurial mechanism is reflexivity. It is a process by which individuals constantly assess the relationship between ‘knowledge’ and the ‘ways of doing knowledge. After experimentation and developing something that works, what is left is to put the process into practice by entrenching it in daily practice of the business (Wickham, 2004). New ways of doing things are thus formed and this defines the identity of the business as well as the individual entrepreneur. As such, descriptions of self, the firm and industry keep changing as new ideas come up and new ventures created. For example, the Flight directors in the case mentioned turned from brokers to agency, and continue to change depending on circumstances. This definitely changes the identity of the firm and the entrepreneur as well (Brock & Kim, 2011). Stakeholders will have a new way of looking at the entrepreneur and his business and this is how he/she will be known. Entrepreneurs need to adapt to acquiring new identities over and over if they have to sustain the business (Brock & Kim, 2011). In this case, a complex adaptive system (CAS) is needed whereby rules are changed by agents as experience accumulates to help them change behaviour. This just serves to show how entrepreneurial behaviour is changed by the environment as they adapt to new circumstances. The key challenge, however, is the establishment of unique identity that is neither unfamiliar, nor ambiguous but legitimate (Wilson & Rosenfeld, 1998). Organising is the third stage in the process of emergence. Organizing in EROS mechanism is a space where activities are organised around a dominant logic. This is the way the emergent business organises itself thus describing the roles of each and every agent in the system or business. It is dominated by narratives and power relations and efficiency using this logic arises out of regularity of practice (Wilson & Rosenfeld, 1998). This dominant logic is the organisation structure that describes relationships and interactions within the firm and also division of tasks to ensure the main goal is achieved. Since the structure is formed in an unpredictable environment, it keeps changing as activities of the firm change to adapt behaviour to new changes. Sometimes it is flat, sometimes horizontal or vertical depending on the activity the firm is engaged in and the number of people involved. This structure in a way constrains the behaviour of agents although they may also constrain it (Wilson & Rosenfeld, 1998). The last stage of the entrepreneurial process is sensitivity. This involves responding to the demands of stakeholders hence reshaping the relationships that exist between entrepreneur and other actors. In this case, the entrepreneur is assumed to be competent enough to realise the needs of stakeholders and understand and interpret changes in business conditions both internal and external and act on them in time by effecting changes (Westerberg & Wincent, 2008). Some managers do not act on the change on time or at all hence are not sensitive to people’s needs. However, an entrepreneur needs to have a vision and articulate it clearly so that stakeholders can understand the need for change and support the initiative hence success. Besides, it makes everyone aware of what is needed of them hence successful emergence of new regularities of practice (Westerberg & Wincent, 2008). As seen in the discussion above, the four processes interact to form the entrepreneurial mechanism that produces emergent structures. However, it is only with the commitment of the entrepreneur that such mechanisms can be successful (Lee & Wong, 2006). The influence of the individual entrepreneur is critical in ensuring successful emergence and in shaping the type of business that arises. Also central to the emergence of structures is the relationship of entrepreneur and their environment as it determines success. Relationships with colleagues can hinder or enhance successful emergence hence networking is vital. The emergent pattern forms an ‘attractor’ or organising principle for the firm. In overall, the entrepreneur has the responsibility of ensuring systemic fitness (Lee & Wong, 2006). Characteristics of entrepreneurs In attempts to address the characteristics of entrepreneurs and how they shape and are shaped by the environments, the case of William Henry Bill Gates III will be utilized to bring out these features. Bill Gates is a great entrepreneur and one of the richest men in the world. He owns the largest software business in the world with Paul Allen as his partner. Gates had a passion for computers from an early age although his parents wanted him to pursue a law career. His breakthrough came while at lakeside school when a computer company decided to offer computer time to students. He was only aged 13 but spent much of his time in teletype terminals and even developed a tic-tac-toe program for playing. While at this school, he met Paul Allen his senior who also was passionate about computers and they joined their efforts to manipulate computers until they were suspended from computer lab (Low, 2009). At age 15, he had ventured into business by preparing “traf-o-Data’ to monitor traffic patterns in Seattle and earned a profit. He graduated Lakeside in 1973 and joined Harvard University to pursue law while Allen went to work for Honeywall where Gates joined him in 1974. The real opportunity to exercise his entrepreneurial came when they sighted a popular electronic magazine advert of Altair 8800 mini-computer kits by Micro-Instrumentation and Telemetry Systems (MITS) (Low, 2009). Without any prior experience they applied to develop BASIC software for the company and when it was tested, it worked perfectly. Allen was hired and Gates joined him and both formed the Micro-soft company which they later named Microsoft in 1976. However, MITS was sold in 1977 prompting them to find new alternatives. They moved operations to Bellevue and only had 25 employees (Low, 2009). Gates was the leader as well as spokesperson of the company and relied on the wide network of his mother to grow his business. He thus partnered with IBM to provide operating system for their new computers. Although they did not have a software at the time, he accepted the challenge and bought operating system, licensed it, and adapted it to IBM computers (MS-DOS).The company was incorporated in 1981 with Gates as president and Board chairman and Allen as Vice-president but he resigned in 1983 (Khan, 2009). Gates collaborated with other companies like Apple to provide software and later developed Microsoft Windows in 1985 and went public in 1986. He was very competitive and resilient. He also encouraged employees to be creative by challenging their ideas. He stepped down as president in 2008 to pursue his passion of software architect and philanthropic work. In February 2014, he announced he would step down as chairman and assume the role of technology adviser (Khan, 2009). According to the case study, four types of entrepreneurs emerge depending on the reasons for starting up a business: social, serial/portfolio, lifestyle, family, webprenuers and rural entrepreneurs. The essay focuses on these four types of entrepreneurs because all of them possess different motivations for engaging in the sector they are involved in. The trade model presents entrepreneurs as being driven by the profit motive. Beginning with Cantillon in 1755, the function of the entrepreneur was to buy and resell goods at a profit. In the 18th century, Alfred Marshall redefined the entrepreneur as someone with multiple activities and a risk taker. However, the entrepreneur did not have to create new firms. The idea is contradicted by other studies describing entrepreneurs as reformers who had to create new combinations (Heriot, Jauregui, Huning & Harris, 2014). In this case, entrepreneur exploits an invention, produces new commodities or modifies existing ones, finds new source of raw materials, new distribution channels and reorganises the industry. To achieve this, innovation, creativity and foresight are crucial (McCullough, 1986). This corresponds to the stages of organisational development. Entrepreneurs are always in development and pursuit of a distinctive competence, and this can only mean innovation. Studies support the idea of entrepreneur foresight inherent in their activity through their theory of communities of Practice (CoP) and based on complexity theory. This foresight is a process and not prescience or rational choice (Heriot, Jauregui, Huning & Harris, 2014). Unlike people who view entrepreneurship as individual activity, evidence indicates that entrepreneurship involves multiple agents hence foresight can be improved through learning. The main distinction between small businesses and entrepreneurship is that entrepreneurship is a creative activity and such firms can begin at any size level and grow (McCullough, 1986). They engage in innovative combination of resources for profit hence start-up new ventures. This is characteristic of the serial entrepreneur who starts a venture, grows it and then sells it. Serial entrepreneurs are people who, after starting one venture, inherit or acquire others simultaneously. While moving to new ventures, they give responsibility of running the old business to someone else who is reliable. An example of serial entrepreneur is Omar Hamoui who sold mobile advertising network Admob to Google in 2009 (Heriot, Jauregui, Huning & Harris, 2014). Other entrepreneurial traits include ability to take risks, knowledge of how market functions, marketing skills, business management skills, ability to co-operate, identify business opportunities and grasp profitable opportunities. The serial entrepreneur must have all these traits to be able to develop a new venture constantly. However, ability to take risks as a trait is contested. Risk is inherent in business ownership hence it is not a trait. Evidence shows that there is no statistical difference in risk preference between entrepreneurs and managers (Ainin, Kamarulzaman, Farinda & Azmi, 2010). This innovative characteristic can also fit lifestyle entrepreneurs. An example is Gates who was very innovative, hence development of new products from traffic controllers to MS-DOS, to software manufacturing for different companies and introduction of windows. He never ceases to innovate in order to serve the market and as a passion. By 1983, 30% of world computers were using his software. However, he does not fit in this model as he is driven by passion and not profit. The same can be said of social entrepreneurs who seek to fulfill a need through creativity but they are not profit-making entrepreneurs (Ainin, Kamarulzaman, Farinda & Azmi, 2010). The trade model does not envisage any barriers to entry since the profit motive would drive any entrepreneur to enter anyway. While some studies focus on innovation, others emphasize alertness as a trait so that profitable opportunities do not get missed (Costin, 2012). Entrepreneurship is seen as moving towards and away from equilibrium. Entrepreneurs also engage in ventures they had previous experience with as employer or employee and are either ‘pulled’ into entrepreneurship or ‘pushed’ out of employment or unemployed by rewards. Many studies have supported this stance by using the equilibrium method to explain what pushes people into entrepreneurship (Costin, 2012). As long as the expected reward is above equilibrium, (real wage rate) people will opt for self-employment. However, if one does not have access to capital, then he/she is unqualified to become entrepreneur. Qualification, on the other hand, depends on personal wealth, education, social structure and institutional framework. However, some studies reject this and argue that entrepreneurship is costless hence no opportunity costs are involved in the decision to become entrepreneur (Costin, 2012). Another model that explains the behaviour of entrepreneur is the psychological model. This model stresses on innate traits or personal qualities as drivers of vision. For them, people are not driven by profit opportunities or rewards but by unique qualities which make them successful entrepreneurs. The profit motive has been rejected and the need for achievement (AM) as the driver of vision has been stressed. This drives one to set targets, strive to attain them and also have great desire for feedback. Experts argue that this AM is acquired through child-rearing habits such as high standards of excellence, training on self-reliance, mastery, maternal warmth and low father dominance (Hisrich & Grachev, 1995). Entrepreneur is also perceived as a creative personality driven by the need to achieve. However, for him this AM results from loss of social recognition and relative social blockage hence are pushed into entrepreneurship. This is so for most social entrepreneurs who are driven by AM arising from personal experiences. For example, Muhammud Yunus began the Grameen Bank which is a microcredit movement after a famine experience in 1974 (Hisrich & Grachev, 1995). The locus of control (LOC) is also a driver especially the internal control. Those with internal control think they can control their own destiny by controlling the environment. This is especially so for lifestyle entrepreneurs who are driven by passion and nothing in the environment can bar them from achieving success. In this case, Gates decided to control his destiny by quitting college and beginning his own business of software development against all odds and driven by his passion for computers. This passion is his internal control (Hisrich & Grachev, 1995). Lifestyle entrepreneurs also assume personal risk for the venture but in return they become independent and autonomous. Those with external control wait for environment to control them. Behaviour is thus a result of outside factors beyond their control such as the powerful others, chance and fate. The LOC determines the level of alertness. High alertness is a characteristic of those with internal control hence they can spot a profitable opportunity once they encounter it. Serial entrepreneurs need this alertness to continue fulfilling their ambitious ventures. They also need to believe in other people’s ability to influence events hence cooperate with them for success (Hisrich & Brush, 1986). The sociological model involves shaping of entrepreneur by environmental factors. Entrepreneurs have unique qualities and profit acumen but without social networks, they are unlikely to succeed. Max Weber believed entrepreneurs as driven by protestant ethic (Slavec & Prodan, 2012). This was a belief of Calvinists that hard work is rewarded by salvation and also in pursuit of economic gain and wealth accumulation hence entrepreneurship is a demonstration of their faith. A culture of high moral commitment also drives entrepreneurs. It entails mutual trust, reciprocity and honesty and limits opportunistic behaviour thus decreasing transaction cost and encouraging entrepreneurship. This can be said of social entrepreneurs who are very cooperative and have mutual trust (Slavec & Prodan, 2012). Social entrepreneurs seek to improve the prevailing conditions by altering the present reality and fulfilling social needs (Hisrich & Brush, 1986). Social enterprises as “organisations with primary social objective, whose surpluses are principally reinvested for that purpose in the business or community, rather than being driven by need to maximise profit for shareholders and owners.” The social entrepreneurs who start such kind of ventures are thus not motivated by profit gain but to help communities in need (Hisrich & Brush, 1986). They achieve impact by mobilising networks more effectively than the for-profit organisations. Some respond to personal experiences, others are born into families with values and ethics or have a vocational ethic. They are also good in connecting local to global by reframing local needs as global. This is an attribute that was found in a study on how environmental factors impact entrepreneurs. For example, those with internal LOC can effectively control environmental factors and with training; they gain dominance and mastery. Conclusion In conclusion, entrepreneurship is the creation of new combinations, and the entrepreneur is the individual who comes up with the idea, finds resources to further it and takes responsibility for its failure or success. Entrepreneurship is a process involving the mechanisms of experimentation, reflexivity, organizing and sensitivity. There are various types of entrepreneurs such as the social, lifestyle, serial/portfolio, rural and webprenuers. Whatever type of entrepreneurs, they are driven to engage in such activities by their characteristics as well as environmental influences. Some traits that make successful entrepreneurs are inborn while others are made through learning and experience and with the help of wide social networks. Entrepreneur networks also influences their motives, values, attitudes and personal characteristics. This affects business and economy in that these networks increase resources for the entrepreneur hence chances of success and also achievement motivation (Serarols-Tarres, Padilla-Melendez & Ana Rosa, 2006). As entrepreneur continues in business, the control by powerful others decreases as one gains mastery and becomes independent. The characteristics at start-up of business are thus very different in three or five since environment shapes entrepreneurs. Entrepreneurs should, therefore, develop widespread networks of cooperation with capitalists, customers, suppliers and other entrepreneurs (Serarols-Tarres, Padilla-Melendez & Ana Rosa, 2006). Bibliography Ainin, S., Kamarulzaman, Y., Farinda, A.G. & Azmi, A.C. 2010, "Business and Entrepreneur Characteristics influence on Business Performance of Professional Small Medium Enterprises", Academic Conferences International Limited, Reading, 09, pp. 31. 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