Entrepreneurial activity is often supported by political leaders believing in free markets, championed by social groups, reinforced by infrastructure at universities, embraced by venture capitalists, and is integrated into local, state, and federal governments. The term “entrepreneur” could refer to anyone who starts a business; however, in this blog post, I prefer to use a narrower definition to mean somebody who offers an innovative solution to a problem without regard to resources currently controlled.
Entrepreneurship requires different strategies from those utilized by established businesses. This posts seeks to define what an entrepreneur is, discusses key concepts for success, and explore the budding realm of social entrepreneurship. Social entrepreneurship, in particular, is a situation that has profound impacts on sustainability issues. Additionally, environmental sustainability can be a crucial component of an entrepreneurial process.
An entrepreneur is an individual who undertakes personal economic risk to create a new organization that will exploit new technology or innovative processes to generate value; thus, entrepreneurship is a process of creating a new organization that generates value. Entrepreneurship is a dynamic process of vision, change, and creation. Essential ingredients include the willingness to take calculated risks, formulating an effective venture team, generating the needed resources, building a solid business plan, and recognizing opportunity where others see chaos, contradiction, and confusion. In addition to firm creation, entrepreneurs create new knowledge, form new institutions and industries, and promote public-private partnerships and social businesses. Celebrated contemporary examples of entrepreneurs abound with the likes of those who started Apple, Google, and Alibaba in China.
Researchers have attempted to explain the growth in entrepreneurship. Some researchers believe there is a new segment of individuals within society who are drawn to entrepreneurship by displacement from unemployment or due to their attitudes about the traditional employment system. Broken social contracts between companies and employees may further explain this growth in interest; for example, employees working with large organizations may come to realize that they are not as secure as they once thought. Thus, they may tend to want to work with smaller organizations and have more influence. Also, immigration policy may be a factor; immigrants may have difficulty securing employment and start their own firms simply to secure an income. Thus, we may have an “entrepreneurial class” of people in the United States.
Research has delved into certain myths about entrepreneurs. For example, entrepreneurs are often viewed as antisocial. This myth is dispelled by the fact that successful entrepreneurs have wide networks and use them to gain resources to support business growth. Another myth is that entrepreneurs are mostly young; however, this idea is not supported by data. In fact, most entrepreneurs are older and experienced. Entrepreneurs are viewed as having world-changing ideas; however, most new businesses are designed around mundane ideas or products that solve problems. Finally, the belief that most funds come from venture capital is a myth. As it turns out, most funding is from “the three f’s – friends, family, and fools.”
Table: Number of Firms, Number of Establishments, Employment, Annual Payroll, and Estimated Receipts by Enterprise Employment Size for the United States and States, Totals: 2012
|ENTERPRISE EMPLOYMENT SIZE||NUMBER OF FIRMS||NUMBER OF ESTABLISHMENTS||EMPLOYMENT|
Despite these myths, this area in business has continued to grow (see above table). The United States had 27,281,452 small businesses and start-ups in 2008-2009; however, 21,351,320 of these businesses did not employ people. Of the remaining 5,930,132 firms, 3,617,764 (61 percent) had one to four employees whereas only 18,469 (0.3 percent) had 500 or more employees. These data show a shift towards small business growth. The above table shows data from 2012, the latest year available.
With such variability and risk, there is an expectation of high failure rates; however, the data are clear that firm deaths for those with less than 20 employees are fewer than births (1,734,000 deaths vs. 1,945,000 births from 2006 to 2007). In fact, the number of deaths of firms with 500-plus employees is greater than births (356,000 deaths versus 229,000 births). This trend has been consistent over a number of years.
In the United States, citizens value entrepreneurs and hold them in high esteem, especially when they succeed. Culture, receptiveness of the capital markets, and public policy are among the macro conditions impacting them. Micro explanations of success or failure include family traits and personality. Some research shows that an entrepreneur’s tolerance for ambiguity defines his or her ability to be successful as an entrepreneur. Psychologists correlate entrepreneurial success with the amount of risk a person is willing to assume and to characteristics such as self-efficacy, the need for achievement and/or control, and a tolerance for ambiguity. Others point to expertise or mentoring or to the entrepreneur’s intentions and related attitudes.
These macro and micro conditions all contribute to the success of a venture; however, recent thinking is that success is largely based on engagement in venture seeking (i.e., looking for opportunities and finding ways to develop them). Successful entrepreneurs have a unique ability to identify and exploit opportunities. This constant searching is what leads to a person finding viable opportunities and producing a successful venture, the subject of the next section.
Adapted from: Daniel S. Fogel (2016). Strategic Sustainability: A Natural Environmental Lens on Organizations and Management. New York, New York: Routledge: 294-300.