The Entrepreneur - Small Business Advancement National Center

General Framework for Public Education of
Entrepreneurs
by Jan Laubscher 1
Today’s society seems to be marked by increasing poverty and an apparently unequal
allocation of opportunities. – While the first point is undoubtedly a fact, the second one is not
necessarily true. Common problems concerning opportunities are a lack of perception and
the belief in being able to pursue them.
One way to engage these problems is educating people in entrepreneurship.
To be an entrepreneur does not necessarily mean to become a reckless business man. It
means instead to be fulfilled with the fundamental volition to satisfy the needs of others and,
in doing so, to ensure one’s own financial liberty.
Therefore, entrepreneurs possess the will and ability to innovate given patterns, the
awareness for risk combined with the readiness to bear it, the sense for the future
development of people’s needs, and of course a good pinch of entrepreneurial spirit. Fields of
deployment can be found everywhere within our society.
Introduction
All over the world, leaders and academics are talking about the importance of
entrepreneurship and having entrepreneurs in our society. They state that the economic and
cultural soil has to be prepared for entrepreneurs, that we have to cultivate and foster them.
(Richtermeyer, et al., 2005)
Jan Laubscher holds a degree in business and engineering (Diplom-Wirtschaftsingenieur)
from the University of Karlsruhe (TH), Germany. For his thesis he analyzed the effectiveness
of support programs for entrepreneurship by the federal government of Germany. Besides his
studies he worked for four years at the Interdisciplinary Institute for Entrepreneurship
Karlsruhe. Currently, he is taking part in the Master of Business, Entrepreneurship and
Technology (MBET) program at the University of Waterloo, Canada. Please address all
correspondence electronically to Jan.Laubscher@iep.uni-karlsruhe.de.
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But:
What is an entrepreneur?
And:
What is so special about her or him?
And even more important:
Why should we spend money to educate and train such individuals?
This paper will provide answers to these questions and illustrate ways to achieve the goal to
foster entrepreneurship.
The Entrepreneur – Who or What Is That?
Historically, the term entrepreneur goes back to the 16 th century. It is first used in France for
an adventurer that hires mercenaries and offers his services for a wide variety of aims
(Fallgatter, 2002). Later it is also used for men of action that conclude contracts for official
tasks, implement new agricultural techniques, invest their own money in new industries and
also for leaders of military expeditions (Malek, et al., 2004).
Cantillon (1931) is the first one who uses the term to describe a specific sort of economic
participant in 1755. In his understanding of society there are three different categories of
people:
Landowners,
Wage earners, and
Entrepreneurs.
As for him entrepreneurs are the ones that induce economic balance by bringing together
demand and offer; it is the ability to handle uncertain income which makes them unique. An
interesting thing about Cantillon’s definition is that he explicitly included beggars and thieves
in categories of people as they live exactly in such an environment of uncertainty.
Following Cantillon many different concepts concerning the meaning of the word
entrepreneur were evolved.
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Table 1: Change of Understanding of the Term Entrepreneur over Time.
Time Author Definition
Late 18 th century Richard Cantillon Bearer of risk and uncertainty
Anne Robert,
Jaques Turgot
Adam Smith
Investor, whose income is based on
profit, not on interest
Capitalist – self-interest driven user of
capital
19 th century Jean Baptist Say Carrier of information and coordinator
Early 20 th century Joseph Schumpeter Creative destroyer
John M. Keynes
Owner and decision-maker under
uncertainty
Late 20 th century David McClelland Energetic person who takes risks
Peter Drucker
Israel M. Kirzner
Albert Shapero
Seizer of business opportunities
Resourceful opportunist and information
broker
Person who shows initiative, organizes
social and economic contexts and is able
to accept the risk of failure
Although, these concepts evolved in different times and settings, all of them generally can be
categorized in five groups; according to the function respectively role the entrepreneur plays
in the society. Table 2 shows those different entrepreneurial aspects and the most important
and prevailing academic proponents.
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Table 2: The Five Aspects of an Entrepreneur and their Academic Proponents.
Function
Academic Proponents
Innovator Schumpeter (1993), Fallgater (2001), Werner (2004), Aff (2006)
Founder Werner (2004), Aff (2006)
Opportunist von Mises (1940), Kirzner (1973), Freiling (2006)
Risk-bearer Liles (1974), McGrath (1999), Malek (2004), Kollmann (2005),
Jacobson (2006), Bröckling (2007)
Fulfiller of needs von Mises (1940), Werner (2004)
The Five Aspects of an Entrepreneur – What Makes
Her/Him so Special?
Innovator – Capability and Will to Innovate
In his role as innovator the entrepreneur evokes economic processes of change. He is driven
by the wish to create something new and change existing patterns. For Schumpeter (1993)
this is the most important driver of modern economy: the innovative destruction. Although,
Schumpeter focuses on economic aspects, this also applies to other fields, especially for
social problems. Thus, the entrepreneur makes an invaluable contribution to the progress of
civilization overall by overcoming antiquated structures and pushing new ideas.
Founder – Founder of a Company
The economic understanding of founder is based on establishing her or his own economic
base by founding a new organization; and, therefore, having the freedom of will and decision.
Thus, it is closely linked to the risk-bearer concept as the risk of failure with all its
implications always comes along with economic independence. On the other hand, this
independence is what allows the entrepreneur to do what has to be done to fulfil his role as
innovator and opportunist. Unlike employees or so called intrapreneurs – heteronomous
entrepreneurs inside companies – which are incorporated in usually very rigid structures, the
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eal entrepreneur disposes of all opportunities he needs to grasp by being responsible only to
her-/himself and her/his conscience (Aff, 2006/07).
Opportunist – Perceptual Capacity for Arbitrage
Economic opportunism means being aware of all opportunities and use each as good as
possible (Torsvik, 2000). For an entrepreneur this awareness is a crucial skill. Kirzner (1973)
even goes one step further and defines this alertness – the ability to make spontaneous
discoveries without purposefully looking for them – as the most unique capability of the
entrepreneur. For her or him the real entrepreneurial act is not seizing opportunities but
finding them.
“Entrepreneurship does not consist of grasping a free ten dollar bill which one has
already discovered to be resting in one’s hand, it consists in realizing that it is in
one’s hand and that is available for the grasping.”
Israel M. Kirzner (1973)
Therefore, the entrepreneur
finds not yet used opportunities and systematically unlocks them, or
even generates such opportunities by activating latent demands (Freiling, 2006).
In economic terms, by doing so the entrepreneur balances offer and demand in the market.
Risk-Bearer – Risk Awareness and Readiness to Bear It
“I lack the fear gene. That’s what mad entrepreneurship possible for me.”
Rhonda Kallman (Mansueto Ventures LLC, 2004)
Although, entrepreneurs obviously have to have a higher readiness to assume risk Koch, et al.
(2001), and Jacobson (2006) show that this is not the case. In fact, entrepreneurs seem to
have a medium readiness to bear risk. But as they possess the ability to assess and control risk
better than average, they are able to take risks others judge as to high just because they know
that this is not true. Positively linked to success, this ability seems to be another important
one for these special individuals (Jacobson, 2006). Not for nothing, risk usually goes hand in
hand with opportunity.
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In addition, entrepreneurs tend to accept failure far better than the average. McGrath (1999)
calls this the principle of Falling Forward and explains that this not only includes
anticipating and using the negative but also the positive impacts of making failures.
“One reason why failure offers benefits is because it is often easier to pinpoint why
failure has occurred that to explain a success, making failure analysis a powerful
mechanism for resolving uncertainty.”
Sim B. Sitkin (McGrath, 1999)
Fulfiller of Needs – Anticipation Based Will to Satisfy Customer Needs
Without customers any business is foredoomed. It is not the company owners or managers
who make the decision to be successful, but the customers through their purchase behaviour
(Von Mises, 1980). Thus, being a real entrepreneur always means to navigate as close to the
real demand as possible. But this not just means to know what the market was or is about but
more important what it will be about. Anticipating future trends and demands is perhaps the
most important aspect of an entrepreneur as he can be as good as possible in all other aspects;
without customers his business has absolutely no chance to flourish – and survive (Werner,
2004).
The Entrepreneur in Summary
It is not one or two of these aspects but the combination of all of those in her/his person is
what makes the entrepreneur so special and what makes him different from all other sorts of
business leaders (Pleitner, 2001).
Impact of Entrepreneurship
After knowing what an entrepreneur is, it is important to find out why we, as a society, need
such individuals. History and science document several reasons to do so. Following are the
most important and obvious ones.
Influence of Entrepreneurship on Economic Growth and Public Welfare
In fact, countries with a more positive attitude towards entrepreneurship across their citizens
tend to have higher economic growth rates and lower unemployment rates, both of which
result in increased public welfare. In their research paper for the Organisation for Economic
Co-operation and Development (OECD) Audretsch, et al., (2001) show that this is not just
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coincidence but a distinct result of an increasing entrepreneurial activity. Thus, fostering
entrepreneurship education is a long term investment in future economic growth of the whole
society. Figure 1 shows different ways of how these effects can emerge and how they are
interconnected to each other (Carrer, et al., 2003). It also shows some of the initial factors for
entrepreneurship already discussed above and, in anticipation of the following chapter, points
out opportunities to positively influence the willingness to be entrepreneurial in our society.
Figure 1: Framework for Linking Entrepreneurship to Economic Growth (Carrer, et al., 2003).
Level of
Analysis
Conditions for
Entrepreneurship
Crucial Elements of
Entrepreneurship
Impact of
Entrepreneurship
Individual
level
Psychological
endowments
Culture
institutions
Attitudes
Skills
Actions
Self-realization
Personal wealth
Firm
level
Business culture
incentives
Start-ups
Entry into new markets
Innovations
Firm performance
Macro
level
Culture
institutions
Variety
Competition
Selection
Competitiveness
Economic growth
Social Entrepreneurship
Profit orientation of businesses seldom results in satisfaction of basic needs in developing
countries. This is because making profit, unfortunately, is often connected to more luxury
goods as to basic needs (Simons, et al., 1987). On the other hand, donation based
organisations often have to deal with managerial and organisational inefficiencies
(Perlmutter, 1995). The new entrepreneur combines both – the efficiency of a profit based
venture and the urge to feel useful respectively being recognized and acknowledged for what
one does.
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Social entrepreneurship:
Using entrepreneurial spirit and efficiency of the private
industry to solve social problems (Müller, 2009).
The best known organisation in this field today certainly is the Grameen Bank, respectively
Grameen Foundation, founded by Dr. Muhammad Yunus 1983. Launching his idea into a
business not only made Dr. Yunus an entrepreneur himself but with the money he has been
lending to his customers thousands and thousands others more. The impact of this
revolutionary concept not just consisted of financial independence of former poor people but
also of a movement towards collaboration and mutual aid all over Bangladesh – and after
being granted the Nobel Peace Prize in 2006 all over the world (Martin, et al., 2007).
Another very successful example is the SEKEM Initiative founded by Dr. Ibrahim Abouleish
1977 in Egypt with its “vision of sustainable human development” (Sekem Group, 2006).
Social entrepreneurship, as a result of enabling and encouraging people to implement their
own innovative solutions for daily problems, is a major pillar of recent improvement of living
conditions in developing countries (Seelos, et al., 2004, and Dees, 1998).
“Furthermore, we might as well take advantage of this explosion of social
entrepreneurship. These are some of the smartest and most creative people in the
country. Even if we don’t know how to reduce poverty, it’s probably worth investing
in these people and letting them figure it out. – They won’t stop bugging us until we
do.”
(Brooks, 2008)
Educating Entrepreneurs
So, we know now what entrepreneurs are and that this category of people is so beneficial for
society. But how do we encourage people to act entrepreneurial, how do we train and educate
them?
This chapter will briefly explain a five step approach to make sure that all five aspects
indentified in the first part come together in one person.
1. Sensitising and Encouragement
The very first step consists of making people aware that there are such opportunities to be
independent and economic autonomous. This cannot happen too early – as children are
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generally open-minded and receptive, workshops or even entrepreneurship classes would be
very efficient. However, not only children are eligible for such awareness trainings. Anyway,
the goal of such courses must not be pushing participants into something they do not want but
making them aware of opportunities. Furthermore, such courses should show that developing
one’s own initiative is always helpful regardless what the future will be.
2. Assistance during Idea Generation Phase
Giving people the knowledge how to access and use their creative potential will also enable
them to generate new ideas. There are many different techniques to do so, for example
brainstorming, brainwriting, and synectics (Couch, 1993). In addition, it is important to show
that even ideas that are regarded as crazy at the beginning of the day can be a solution at the
end of it. Far too many people tend to judge and refuse such an idea right away without
giving the thought-process a real chance to evolve. This does not mean that every thought
should be executed blindly, but that it is important to be open in mind for unusual solutions.
3. Imparting Knowledge of Marketing Tools and Comprehension of
Entrepreneurial Intuition
After having developed a scope of ideas one should be able to identify the needs of the
people he wants to target with his business. A good understanding and feeling for the specific
market segment is inevitable for such an attempt. Therefore, trainings about the application of
different marketing tools and even more important about proper interpreting the results
should be given.
4. Training of Ability to Identify and Assess Risk
Risk in business can never be avoided completely but increasing the understanding of risk
makes it less intimidating. Having said this, it is inevitable to show prospective entrepreneurs
typical risk patterns in business and ways to recognize them. This will improve their courage
to engage risk in a proactive way what again results in more control over the situation –
entrepreneurial risk management (McGrath, 1999). In addition, it is important to show people
that failure is an often required learning method to be able to be successful and, therefore,
definitely not bad in general (Ofman, 2009).
5. Qualifying for Business
The phase to build the basic business tools, for example fundamental accounting, business
management, and how to write a realistic business plan and execute it, is the last topic which
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has to be covered. There are many different approaches and offers on the market covering
this. However, it is important to choose a practical and tailored method with appropriate case
studies. Although, one would not think so in the first moment, these skills are also important
for social entrepreneurs – perhaps even more than to others, as they usually act in a very
small financial scope. Furthermore, failure in their case often has a serious impact on their
environment – economically, socially, and ecologically.
Conclusions
The entrepreneur – who or what is that? An innovator who is able to change existing
patterns and solve social problems?
A founder who creates opportunities?
An opportunist who understands and forms
the market?
A risk-bearer with a distinctive economic
calculus?
A fulfiller of needs who is driven by the will
to satisfy current and future needs of people?
The entrepreneur is not just part of one of these categories – he combines all these
characteristics in his own person.
Education and training entrepreneurs is not like teaching mathematics or history. The process
is more based on making aware of opportunities, strengthening self-confidence, and setting
the stage for people to develop and flourish their abilities. Thus, entrepreneurship education
programs should be structured around following framework:
1. Sensitising and encouragement to create the necessary awareness.
2. Assistance during idea generation phase to help developing the basic business idea.
3. Imparting knowledge of marketing tools and comprehension of entrepreneurial
intuition to enable the understanding of potential customers, their needs, and the
market segment in general.
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4. Training of ability to identify and assess risk to ensure proper risk management and
foster the readiness to bear risks.
5. Qualifying for business to provide basic business tools and support developing
necessary skills.
The positive influence of entrepreneurs on economy and society has been known since the
18 th century and is still valid. Today, the trend to social entrepreneurship has an
unprecedented chance to sustainably change the shape of our world. Therefore, fostering
entrepreneurship education and giving people the required opportunities to unfold their
entrepreneurial will and ability are not just investments in individuals but in the welfare of
the whole society.
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