The Importance of Entrepreneurship and Enterprise in the UK - Essay Example

The Importance of Entrepreneurship and Enterprise in the UK The role of entrepreneurship in the development of markets around the world has been considered as crucial. More specifically, it is through entrepreneurship that a series of commercial principles and ethics are applied and it is also through entrepreneurship that the market retains its strength (through communication, innovation and risk as they are used by entrepreneurs). It could be argued here that entrepreneurship cannot guarantee the development of the market involved as the performance of the particular entrepreneurs is depended on a series of parameters which tend to change continuously, however when all appropriate preparation has been made, entrepreneurship can lead to a significant development of the commercial market involved. However, in order to ensure the success of their efforts, entrepreneurs should try to follow strictly the principles of the commercial market avoiding risk in cases that there are no limits for the achievement of a particular plan. The existence of alternative plan of action has to be considered as necessary in order for the entrepreneurship to survive on a long term basis. Introduction Entrepreneurship should be considered as a fundamental activity that helps the market to be developed. However, in order for this activity to lead to positive outcomes it is necessary that the participants (entrepreneurs) follow a specific plan of action which has to be characterized by the thorough analysis of the market, the appropriate design of strategic plan and the rapid reaction to the opportunities appeared. Of course in any case the existence of risk creates a series of uncertainties for any potential entrepreneurship. But if all appropriate steps of action are followed they are little chances for the entrepreneurship to end up to a failure. This paper examines the characteristics of entrepreneurship as a unique commercial activity and tries to identify all the appropriate ‘qualities’ of a good entrepreneur as they can be observed both in the field of theory but also in practice. For this reason, the relevant literature review has been followed with a few examples of successful entrepreneurs in UK as they have been evaluated and awarded in a relevant awarding scheme involving entrepreneurial activities in UK. Entrepreneurship and Enterprise, description and characteristics Entrepreneurship has been defined through a variety of terms in order to respond to the needs of the market as they have been observed by theorists throughout years. At a first level, Thornton (1999, 19) refers to entrepreneurship as ‘the creation of new organizations which occurs as a context-dependent, social and economic process’. On the other hand, in accordance with a definition included in the Webster’s Third New International Dictionary (1961) as it is quoted in Das et al. (1997, 69) entrepreneurship should be considered as the ‘creation of new enterprises’ and the entrepreneur as the ‘organizer of an economic venture, especially one who organizes, owns, manages, and assumes the risk of a business’. From a similar point of view it has been supported that ‘entrepreneurship ceases somewhere during the operation of the ongoing venture ... An expanded view of entrepreneurship should include the entirety of the entrepreneurial experience, that is, behaviours necessary in the operation of the firm, its performance, and the psychological and non-psychological outcomes resulting from firm ownership’ (Naffziger et al., 1994, p. 31, in Cope, 2005, 374). Accordingly, entrepreneurship has been defined as ‘the process of creating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks and receiving the resulting rewards of monetary and personal satisfaction’ (Hisrich and Peters 1992, p.6, in Badger, 2003, 47). All the above definitions have as common point the existence of innovation as a necessary ‘attribute’ of the potential entrepreneur. However, as it can be derived by the description of the entrepreneurial activity as it is analyzed above, innovation is not sufficient for the success in the commercial market. It is necessary that this innovation will be used wisely combined with specific data revealed from a detailed analysis of the particular market and sufficient financial support for the case of unexpected turbulences. From a different point of view Covin et al. (2006, 57) accepts the definition of entrepreneurship given by Miller (1983) according to whom ‘the "entrepreneurial" label is most defensible as a descriptor of established firms when those organizations are simultaneously risk taking, innovative, and proactive with respect to their overall business operations, product offerings and technologies, and interactions with competitors, respectively’. In this context, entrepreneurship should be distinguished from the ‘corporate entrepreneurship’ which has been found to be a series of ‘formal or informal activities aimed at creating new businesses in established companies through product and process innovations and market developments; these activities may take place at the corporate, division (business), functional, or project levels, with the unifying objective of improving a companys competitive position and financial performance’ (Kuratko et al., 2005, 600). Entrepreneurship should be distinguished from the ‘corporate entrepreneurship’ to the extension that it provides to the person involved a great autonomy of decision and action. As of the characteristics of entrepreneurship, these can be derived from its definitions as presented above and involves mainly to the independency, innovation, risk, patience and ambition for success. Entrepreneurship – criteria of evaluation In order to succeed within a market as an entrepreneur, a person needs to obtain specific characteristics. This issue has been examined thoroughly in the literature because of the importance of entrepreneurship to the development of the market in general. From this point of view it has been found (Dennis, 2001, 75) that ‘prospective business owners and those interested in new business success still face at least two critical questions: (1) what are the chances, i.e., the probability, that the owner of a new business will have a profitable (unprofitable) firm? And (2) what are the chances, i.e., the probability, that the owners firm will be sufficiently profitable (unprofitable) to alter the owners financial condition/standing?’ Moreover, in order to identify the ‘personal motives’ that lead to the entrepreneurial activity Thornton (1999, 24) referred to the agency theory which states that ‘governance forms in which the principal and agent are integrated provide greater incentive for entrepreneurship (Jensen & Meckling 1976)’ After studying the above theory, Thornton (1999, 24) came to the conclusion that ‘individuals are less likely to create new ventures if they are employees in professionally managed corporations than if they are independent entrepreneurs; this is because employees have divergent goals from principals and because managers act to promote the security of their own position rather than risk strategies of new venturing’. In accordance with the above theory, the successful entrepreneur should be autonomous, not working for a company trying to develop his own career through a series of plans and innovative projects. The existence of risk in this case should be regarded as unavoidable. More specifically, regarding specifically the issue of risk in entrepreneurship it has been supported that ‘the entrepreneurial function involves primarily risk measurement and risk taking’ (Palmer, 1971, p. 38), and entrepreneur is ‘the ultimate uncertainty and/or risk bearer’ (Leibenstein, 1968) while it could also assumed that ‘this distinction between creating risk and risk-bearing fundamentally distinguishes between entrepreneurs and managers’ (Gasse, 1982, 60). On the other hand, Das et al. (1997, 70) accept the view of McClelland (1961) who suggested that ‘entrepreneurs actually have only a moderate level of risk propensity’; the reason is that ‘people with high need for achievement, such as entrepreneurs, would prefer to undertake tasks that are both challenging and achievable by employing their skills’ (McClelland, 1965)’ in this sense, ‘people with moderate risk propensity are more likely to succeed in creating new businesses’ (Das et al., 1997, 70). In this way, entrepreneur is being distinguished from all other business professionals mostly because of his/ her ‘ability to identify market opportunities and to exploit them for the creation of business ventures; in the traditional neoclassical view, entrepreneurship is the "mystical" element that delivers external shocks to a state of equilibrium in the marketplace by introducing new products and services’ (Crossan et al., 2005, 427). At the same time, entrepreneurship and particular the entrepreneur could be evaluated using the enactment approach in accordance with which ‘individuals are actors who ‘construct, rearrange, single out, and demolish many objective features of their surrounding; in this way opportunities are "enacted" by entrepreneurs rather than simply discovered; in effect, this approach suggests that opportunities are socially constructed, vary across entrepreneurs, and can only be retrospectively recognized’ (Crossan et al., 2005, 429). As the above views suggest, entrepreneurship involves mainly in taking risks and identifying opportunities. On the other hand, Cope (2005, 376) refers to the study of Reuber et al. (1993) who suggested that ‘the learning process within entrepreneurship is essentially dynamic and appears to be continuous throughout the life of a firm, rather than being concentrated in the first few years’. Under these terms, it has been found that the firm’s commercial activities have to be aligned with the entrepreneurs’ visions. The above views are in accordance with those of Kuratko et al. (2005, 704) who found that ‘the process of entrepreneurship is often depicted as fundamentally enabled by three factors: an entrepreneur, an entrepreneurial opportunity, and resources that are acquired and deployed by the entrepreneur in pursuit of that opportunity’. Under these terms, it could be argued that ‘high levels of entrepreneurship can be integral to a healthy social and economic context’ (Baker et al., 2005, 497). The description of the qualities of a successful entrepreneur is not an easy task. For this reason a series of studies have tried to identify the ‘attributes’ of entrepreneurship in terms of ‘personality traits, attitudes, and management behaviours’. This effort, which is presented by Badger et al. (2003, 47) has been developed through the work of Utsch et al. (1999) who investigated the differences between entrepreneurs and managers in East Germany and came to the conclusion that ‘entrepreneurs exhibited greater levels of self-efficacy, higher-order need strength, readiness to change, interest in innovation, Machiavellism (competitive aggression), and need for achievement than did managers (p < 0.05). Managers on the other hand showed higher control rejection (lower autonomy)’ (Badger et al., 2003, 47). However, the above study could be criticized as of the validity of its results mostly because it was conducted within an environment that there was no freedom of planning and action in terms of modern democracy. A series of entrepreneurial actions as presented by Crossan et al. (2005) could help the identification and evaluation of entrepreneurial qualities as they can be observed in many successful entrepreneurs around the world. These actions could be summarized as follows: (1) introducing new goods and services or new qualities of existing goods and services; (2) introducing new methods of production; (3) opening up new markets; (4) utilizing new sources of supply of raw materials or intermediate goods; and (5) defining certain new organizational forms in the industry’ (Crossan et al., 2005, 429). However, it should be noticed that the entrepreneurial qualities can be differentiated across markets or across industrial sectors in accordance with the demands of the particular market but also the personal characteristics and thoughts of the specific entrepreneur. Moreover, the actions suggested to entrepreneurs as listed above are just indicative. This means that there could be many other initiatives and plans that should be appropriate towards the development of a specific entrepreneurial activity. However, the structure of the relevant plan usually depends on the type of entrepreneurial activity engaged, the funds available and the intention for risk Cases of successful entrepreneurs In the annual evaluation of entrepreneurs as presented by the Start-Ups organization, a series of entrepreneurs are being distinguished from the rests of their area and being given awards for their commercial activities. In the list with the 50 top entrepreneurs of 2005 in UK the names of James Murray Wells, Al Gosling and Adam Balon have been listed in the first three places. All entrepreneurs listed in the particular list have been distinguished from the rest entrepreneurs in the UK market as of their ability to identify opportunity, to design an effective strategic plan, to proceed to innovative actions and to generate significant profit. The first of this list, James Murray Wells has used Internet to sell glasses of high quality in low prices. His initiative was welcomed by the UK consumers who bought in 2003 about 22,000 pairs. The specific business after its success has attracted the interest of investors who would like to invest on the specific enterprise as it have many chances to be expanded even more in its market. On the other hand, the second of the list, Al Gosling has used a series of activities characterized by adventure, in order to create a very successful enterprise, the Extreme Group, which also has a TV channel. The team of young entrepreneurs, Adam Balon, Richard Reed and Jon Wright are in the third place with their product, Innocent Drink, to have expanded even more in the UK market. The common characteristic of all entrepreneurs listed in the relevant list is the innovation combined with the passion for success and ability to identify opportunities in the market. When these qualities are combined, the success of the enterprise can be quickly and spectacular as the example of the enterprises listed proves. Conclusion The success of entrepreneurial activities cannot be guaranteed within any market in the international community. At a first level it has been supported by Dennis (2001, 80) that ‘the chances of financial success, measured either in terms of firm profitability or change in personal financial condition are substantially greater than the chances of loss; Break-even, including modest profit and modest loss’. In order to achieve the required result it is necessary to continue the effort despite the possible failures that may follow the start up of the business. In this case, i.e. of the difficulty to be developed since the start up, it is very likely that the entrepreneur will stop his/ her activities trying to identify the reasons of failure. However, the wiser reaction is to keep activating in the market combining the research for the potential failure with the planning for recovery. Moreover, the presentation and the analysis of the conditions related with the entrepreneurial activities in UK market proved that the relevant market is a very competitive one. In order to survive within this market, entrepreneurs should take all appropriate measures ensuring that they will manage to confront any unexpected turbulence. The role of the state in the support of entrepreneurs should be considered as crucial. Recommendations The survival of entrepreneurs in the UK commercial market (as in most commercial markets in the international community) is a challenging task. For this reason, before starting a particular commercial activity, entrepreneurs should examine thoroughly all parameters related with the particular sector. On the other hand, the risk issue is also important. However, the risk undertaken by the entrepreneur should not be extended out of his/ her area of abilities (in financial terms). It should be noticed however that the identification of opportunities in the market is not an easy task; however an extended and detailed market analysis can lead to secure assumptions regarding the potential opportunities in a specific market. At the same time, the evaluation and the use of opportunities identified should be conducted using realistic criteria and not be directed towards the promotion of personal ambitions. In the case of entrepreneur, ambition and risk should be ‘grounded’ and directed to the development of the particular enterprise in its market, in other words they should ‘serve’ the business and not the entrepreneur. It should also be noticed that in many cases ‘a perceived failure to learn among entrepreneurial firms may be associated with the presence of high innovation success rate expectations’. However, it seems that entrepreneurial firms ‘tend to underestimate their actual learning from strategic mistakes’ and this assumption can be supported by the fact that ‘innovation success does not appear to grow commensurately with the number of initiatives pursued’ (Govin et al., 2006, 75). Under the above terms, the successful entrepreneur should have an increased passion for innovation and success combined with the ability to identify potential chances and decide quickly when having to respond to unexpected turbulences. (2709 words) References Badger, B., Chaston, I., Hampson, Y., Sadler-Smith, E. (2003). Managerial Behavior, Entrepreneurial Style and Small Firm Performance. Journal of Small Business Management, 41(1): 47-64 Baker, T., Gedajlovic, E., Lubatkin, M. (2005). A Framework for Comparing Entrepreneurship Processes across Nations. Journal of International Business Studies, 36(5): 492-510 Cope, J. (2005). Toward a Dynamic Learning Perspective of Entrepreneurship. 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