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Entrepreneurs are the talk of the business town at this very moment. But, who exactly is an entrepreneur and more importantly, what is it about him that makes him so famous in the world today? Let us take a closer look at an entrepreneur and his world!
An entrepreneur actually is a person who makes life easier for the world community at large.
Schumpeter (1965) defined "entrepreneurs as individuals, who exploit market opportunity through technical and/or organizational innovation." He sees an opportunity which others do not fully recognize, in order to meet an unsatisfied demand or to radically improve the performance of an existing business."
It began when an entrepreneur empathized with a problem faced by an individual which could be addressed by introducing a particular product or service. The earliest companies in the world were started by entrepreneurs who saw this need and created a vision for fulfilling that need. Next, they took the risks associated with starting a company and then finally producing and releasing a product to solve that particular problem of the individual. Eventually, in the long run, companies established by entrepreneurs add to the competitive spirit of the economy. In doing so, they force the existing firms to compete with the ideas and methods of newer firms and to come up with efficient business strategies. Thus, having stated how an entrepreneur was brought into existence, it can now be established that not only are entrepreneurs the people who possess the vision to introduce innovative products, but also the ones who ensure that the market is updated at all times, at times also creating new markets along the process. In a way they form an interlink between the masses and the business world. This makes them the core element of the business sector.
This work performed by an entrepreneur is together clubbed as entrepreneurship. It can be defined 'in terms of value creation by identifying opportunities for new products and services and realizing them through new firm formation, then it is the process of transforming identification to realization of opportunities that forms part of the entrepreneur's learning experience.'
Reference Mitra (2011)
The natural course of this essay takes us to an interesting point where we know that an entrepreneur introduces a product based on a need. However, there are two vital aspects of this task. Firstly, there is no empirical result which can ascertain his decision to introduce a product which has never before been released. In effect, this makes entrepreneurship an intuitive task. The decision to go ahead with a particular product is to a large extent backed by his instinct that the product will indeed be accepted in the market. The entrepreneur thus, makes an uncertain but intuitive decision of giving a product the green signal. Secondly, the probability of the product being accepted in the market is very high when the product is creativity personified, that is, it is a product which hasn't yet found a place in market. It could be a modification of an existing product or better still, a whole new product created by the entrepreneur. So it is visible now that uncertainty and creativity are two primary elements of entrepreneurship.
Frank Knight, threw some light on the uncertainty aspect of entrepreneurship. His theory states that uncertainty is distinguishable from risk. He says that risk is measureable, whereas, uncertainty is not calculable as it relies on probability which cannot be measured. It is uncertainty that is distinguished from risk that provides a return to the entrepreneur. In other words, an entrepreneur's income (residual income) i.e. profits, is a product of uncertainty and not risk. This implies that if an entrepreneur wants to earn a profit it is a given that he needs to willingly bear uncertainty. Thus entrepreneurs are distinguished between non entrepreneurs in their willingness to bear uncertainty in order to gain profit.
Milliken went ahead and gave three types of uncertainty. His three types of uncertainty can be simplified into three questions asked by a prospective actor about his or her relationship to the environment: (1) What's happening out there? (state uncertainty), (2) How will it impact me? (effect uncertainty), and (3) What am I going to do about it? (response uncertainty).
Let us consider an example of a product introduced under uncertainty. Apple introduced iPod at a time when nothing like it was ever heard of. There were some Mp3 players and portable CD players in the market at the time. But, IPod was entirely a different product. The probable success or failure of iPod could not be calculated. With thick clouds of uncertainty, Apple released iPod! Lo and behold! After the first few months of gradual acceptance, iPod hit a golden run. It revolutionised the market for audio players and electronic goods at large. However, it must be noted that the decision to introduce iPod was indeed an uncertain one which eventually garnered great profits for the company and gave it a niche status. Thus knight's theory stands true that it was uncertainty that reaped profits for late Steve Jobs.
The evaluation of Knight's theory of uncertainty reveals that it has some loopholes as well. His theory explicitly arises out of partial knowledge. . "The essence of the situation is action according to opinion, of greater or less foundation and value, neither entire ignorance nor complete and perfect information, but partial knowledge"[p. 1991. This can be viewed negatively as partial knowledge backfires. Also, it appears as though Knight has paid too much attention to 'uncertainty' and neglected other functions of the entrepreneur which are also instrumental in him earning profits. He has also not accounted for differences and asymmetries that emerge between different companies. It is not rational for an entrepreneur to release his product under strict uncertainty. Surely, he does undertake a considerable market research prior to taking a decision about introducing the product. However, the presence of uncertainty is definitely a hard hitting aspect of an entrepreneur's job.
In contrast to Knight's theory about the willingness to bear uncertainty, Joseph Schumpeter in his theory argues that entrepreneurs' function lies in an innovative act of creating a new combination. Believing that the potential for new combination is abundant and at times obvious, Schumpeter delineates entrepreneur from non-entrepreneur not by difference in knowledge or perception but by performance of innovative act itself.
The history of entrepreneurship reflects its uncertain nature. Several examples such as introduction of Nano Car by TATA Motors in India, " Mc Maharaja" which is a burger introduced by McDonalds in the Indian market, HD TV show that all these products began from an atmosphere of uncertainty. Nothing is certain, surely not the performance of a new product or service in today's volatile markets. In the past, uncertainty would rise from the fact that the market were rigid and unwilling to open up. Today, the same uncertainty exists, but with a different nature. The uncertainty phenomenon today arises from the ever changing tastes and preferences of the public. This puts in added pressure on the product performance. Thus, uncertainty can indeed not be separated from entrepreneurship. In fact, it is practically engrained in it.
As established above, the second aspect of entrepreneurship deals with creativity. Being creative is seeing the same thing as the world, but thinking of something differently. Creativity refers to the ability or power to create or to bring something new into existence, to invest into a new form and to produce using imaginative skill.
Some theoretical work on creativity gives insight into understanding the concept. According to Weisberg (1999), "knowledge and creativity are two competing positions that are positively related." Creativity is in a way an application of knowledge. As opposed to this, the person theory of creativity suggests that creativity is a reflection of an individual's personality. Some traits are culturally determined while other traits are more emotionally determined. These different traits serve as an inspiration for creativity. On account of this, individual personality differences result in a heterogeneous mix of creativity. Stress also plays a very important role in creativity. A person with low arousal has high creativity and person with high arousal tends to have low creativity.
The more we define our creativity by identifying with specific sets of values, meanings, beliefs and symbols, the more our creativity will be focused and limited; the more we define our creativity by focusing on how values, meanings, beliefs and symbols are formed, the greater the chance that our creativity will become less restricted. Normally highly creative people tend to be highly focused. But too much knowledge also sometimes restricts creativity.
Planning improves a person's genic idea, a person with futuristic thinking, is seen to be more creative.
Entrepreneurship would have been non -existent if it weren't for creativity, to the extent that creativity is often used as the middle name for entrepreneurship. The main aim of an entrepreneur's job is to "create" new products and thereby discover new opportunities. An entrepreneur ought to have a creative product or service in order to be successful. In the early days of entrepreneurship, creativity was grossly ignored. It wasn't believed to be a requisite quality for an entrepreneur. That notion was corrected eventually. It was then accepted that creativity is an essential ingredient for an entrepreneur to make a fortune. Entrepreneurship creativity has been known as the generation and implementation of novel appropriate ideas to acquire new ventures (Amabile 1997). Intuition can also been viewed as more business competency which influences the ability of creativity.Also for an entrepreneur to understand creativity he must think of personal attributes like person , place or product.
Talking of creativity, probably the most creative idea to have come up in the last decade is that of facebook! Truly, Mark Zuckerberg came with the brainwave of the century when he thought of starting "The Facebook". The creative genius that he was, he thought there was a way to socially and virtually connect people across the world. The idea of facebook is not as much inspired by need as it is inspired by creativity. It is indeed a shining illustration and reinstates what creativity can do to an entrepreneur. Needless to mention, that Mark is now a millionaire.
Intuition can be viewed as a core business competency which is influenced by the ability to be creative. There are also a number of other contributing internal and external factors that impact creativity: entrepreneurial creativity requires a combination of intrinsic motivation and certain kinds of extrinsic motivation - a motivational synergy that results when strong levels of personal interest and involvement are combined with the promise of rewards that confirm competence, support skill development, and enable future achievement (Amabile 1997:18). Entrepreneurship has played a major role in fostering economic growth and also in generating employment. Along this process, the impact of creativity has been substantial. Entrepreneurial creativity, however, exists before, during and after the lifetime of a particular business since it is shaped in part by the social world and by the individual decision maker (Fillis and Rentschler 2006).
Uncertainty and creativity are in effect interlinked. Both together define an entrepreneur. The relationship between the two can be expressed in the following manner. An entrepreneur introduces a new product with creativity and then releases it under some uncertainty. The idea thus begins with creativity and then gets linked with uncertainty.
Creativity can be used to deal with the ambiguity and uncertainty in decision-making by matching the nonlinear responses of the entrepreneur to that of the business world. Uncertainty has not tended to be modelled in investigations of creativity and social networks, although it is very much part of an entrepreneur's environment (Perry-Smith and Shalley 2003). However, within new product development processes, it does receive attention in terms of moves to reduce it in order to secure the desired commercial effects. Creativity can also contribute to dealing with ambiguity. While uncertainty refers to a lack of information, ambiguity refers to the existence of multiple and conflicting interpretations regarding an organisational situation (Kijkuit and van den Ende 2007):
Creativity when practiced by the entrepreneur is called creative action. It is impossible for an entrepreneur to sustain his position in the market if his product is just like many others in the market. There is only room for the product which is different. Consumers today, are not willing to buy anything that is outdated. Thus an entrepreneur has to ensure that his product satisfies the need appropriately and also is up to date. It is this challenge that necessitates creative action. For instance, Apple had launched iPhone 2G. Then, they upgraded it to iPhone 3G, then to 3GS, then 4G , then 4GS and finally 5 as they know they need to change with time. This shows Apple's persistent creative action in keeping up with the latest technology as the company is aware that if it fails to keep up with the world, it will lose its control over the market. Having entered a particular market, for an entrepreneur to maintain the position of his enterprise, he ought to keep up his creative action.
It is widely said and people are made to believe that opportunities don't come knocking to your doorstep and more so if you are an entrepreneur. An entrepreneur has to seize an opportunity before some other entrepreneur finds it. Once again for this as well, he needs to put at work his creative talent. Also such kind of creativity normally comes out of a person when there is a problem being considered and due to which the entrepreneurs keep getting solutions for the problem and then idea is being generated related to the problem and finally creativity then plays a major role and it gives an opportunity to an entrepreneur. But it's not always when a problem is being seen an entrepreneur finds the solution for it is not always certain as many times the entrepreneurial action leads to failure.
As said by Schumpeter that innovation is a necessity as people demand different products as the time changes hence creativity and opportunity plays a major role during that time and creative becomes necessity for an entrepreneur without which he would not be successful. Creativity, problem solving and intuition interact in order to produce an appropriate strategic vision for the entrepreneurially led organisation (Markley 1988).
Mainly entrepreneurial learning is the process by which an entrepreneur acquires knowledge related to the business by exploiting opportunities This learning of Entrepreneur is socially embedded and provides the entrepreneur with human and social knowledge resources. The main reason for entrepreneurial learning is constructing the ambiguous and individualised realistic ideas for an entrepreneur.it is also a way by which entrepreneur develop knowledge and skills and make a business model .Hence forth for entrepreneurship learning is very essential for all the entrepreneurs as without which uncertainty might be created instantly. Also entrepreneurial learning is a key mechanism for innovation, as through which new opportunities would be discovered.
After having discussed the concepts of uncertainty, creativity and their interlink and relationship with entrepreneurship, it will also be insightful to discuss the economic theories of entrepreneurship. Economic theories overall tell us that entrepreneurship takes a birds eye view of human action. These theories explicitly tell us how an entrepreneur should allocate his resources in order to maximise his output. These all points are essential for an entrepreneur. Also there are mainly two kinds of historical theories which have been used they are the Classical and Neo Classical theories. And then later new modern economic theories were introduced regarding innovation as the key aspect.
As an economic system, in his book The Wealth of Nations in 1776, Adam Smith perceived capitalists as owner-managers who combined the basic resources of land, labour, and capital into successful enterprises. The classical capitalistic economic system, based on the concept of private ownership of property, assumed the creation and distribution of wealth through the exchange of goods and services through open, uncontrolled markets open to all buyers and sellers. In the late 19th Century, Leon Walras (1874) and Alfred Marshall (1890), separately, developed similar models of capitalist economics that incorporated a logical framework capable of mathematical analysis (Kirchhoff, 1997). The key concept of the new models was that markets consist of many buyers and many sellers who interact so as to ensure that supply equals demand. This Neoclassical theory was designed to show that capitalism characterized by perfect markets and unfettered by outside interference - distributes wealth among buyers and sellers and creates wealth in the process.
Joseph Schumpeter (1934), one of its early critics, saw innovation as the key for creating new demand for goods and services and entrepreneurs as owner-managers who started new, independent businesses to exploit innovation. To Schumpeter, an entrepreneur was a person who destroyed existing economic order by introducing new products and services, by creating new forms of organization, or by exploiting new raw materials.
A classic example of all that is discussed above in the essay would be to consider the introduction of automatic cars by General Motors back in 1940s. It was a time when cars were not even seen world over but inspite of that, General Motors possessed the creative vision to innovate and develop the first ever automatic car of the world. As this was a new concept, it was a big risk on the part of General Motors to launch a car of such a high standard. Very obviously then, the uncertainty surrounding this newly made automatic car was enormous. However, their creative action proved fruitful and their vision was rewarded as today, the entire western world is seen zooming around in automatic cars. If this is not enough, to remain ahead of their rivals, the big car companies of BMW, Mercedes Benz are continuously introducing new features through creative action to maintain their position among the top bracket for car buyers.
Entrepreneurs are evidently the most dynamic members of an economy. As we have seen, they are the ones who bring exciting new products and services to the market, create new demand which facilitates further supply and thereby further production and better returns to factors of production. All this in turn keeps the economy on its toes. Further, the less productive firms of the economy are induced to enhance their productivity and performance and thereby improve the quality of products in the market. All this, the entrepreneur does under strict uncertainty with heavy dependence on his instinct.