Entrepreneurs And Entrepreneurship In A Business Commerce Essay

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"The entrepreneurial 'Heffalump' is a variegated sort of animal, which appears in different habitats and in different forms...... So it is not surprising that there is disagreement about the nature of the beast" (Wilken, 1979).

Indeed, Wilken depicted 'Entrepreneurs' in business world as a 'Heffalump'- a mythical animal character in a popular children's fiction. Though throughout the history economists and business scholars managed to know about the Entrepreneurs' role in economic development and growth, still a complete sense of understanding the 'Entrepreneurs' and their behaviours is due. Developed nations enjoy a wide flood of 'Entrepreneurs' and the good they bring to the economy, while developing and third world countries still lack this element despite being connected in a globalized world.

The definitive history of Entrepreneurship over the timeline comprises the inputs from the scholars of multiple disciplines of social sciences from different point of views, interpretation, definitions and conclusions to gestate this somehow abstruse concept and still it widely varies in different society and economy to deem as applicable.

Figure 1: Main contributors to entrepreneurship in economic theory

Source: Idis, R. (2003). "Entrepreneurship and Economic Transition", Tinbergen Institute Discussion Paper, Amsterdam, p-5.

It is not until 18th century, when the theoretical explanation began to take shape. Richard Cantillon, a French economist was the first to coin the phrase 'Entrepreneur'. The word 'Entrepreneur' in English is a loanword from French, which means 'one who under takes'.

Over the next century, many economists and scholars from other social sciences provided the theoretical definitions. British economist John Stuart Mill, unlike Adam Smith and David Ricardo, stressed the importance of Entrepreneur in economic growth, where as Smith and Ricardo just bannered 'Entrepreneurship' under trivial 'Business Management' (Schumpeter, 1951).

From early 19th century to the mid 20th century, Alfred Marshall did much to mould the neo-classical economic thought. Marshall, without describing precisely the functions of entrepreneurs, rather portrayed the roles such as coordinator, innovator and arbitrageur (Baretto, 1998).

Joseph Schumpeter, a famous Austrian Economist, has significantly and radically contributed with a new insight on 'Entrepreneurship' in his book, "The Theory of Economic Development" (1934). Schumpeter successfully identified the keyword 'Innovation' that distinguishes an Entrepreneur. He explained in his theory of business cycle that, economic boom occurs when surge of innovators swarm in an economy, followed by imitators. So, the Innovators must be a leader, Schumpeter emphasized. This is well predicted concerning the economies of this 21st century. But, Schumpeter had overlooked the key factor 'risk-taking' as entrepreneurs must exercise and also the individual role in entrepreneurship.

Frank Knight, in his book "Risk, Uncertainty and Profit" (1921), introduced 'uncertainty' in entrepreneur's endeavors. According to Knight, Entrepreneurs bear the brunt of uncertainty in order to make profit in an economy. He distinguishes the others from the Entrepreneurs in this regard. Israel Kirzner, a modern neo-classical economist, depicted Entrepreneur in his book 'Competition and Entrepreneurship' (1973) - as an arbitrageur and the one who is vigilant to profitable opportunities in the wake. The term 'uncertainty' is left out of the concept along with the role as a manager or coordinator in production process. Binks and Vale (1990) summarised three historical categories of entrepreneurial theory: the reactive entrepreneur as an agent of adjustment in the market economy (by Kirzner); the innovative entrepreneurs causing economic change, (by Schumpeter); and the entrepreneur causing incremental, gradual change through management of enterprise (by Leibenstein).

Hebert and Link (1988) acknowledged classification of entrepreneurial theory consisting of twelve discrete characteristics within the literature of economic history, as shown in Table 1.

Static Definitions

Dynamic Definitions

The person who supplies financial capital


A manager or superintendent


The owner of an enterprise


An employer's if factors of production

Leading an industry

Organising economic resources



Allocating resources

Table 1: Static and Dynamic definitions of Entrepreneur.

Bolton and Thompson (2003) provide what is possibly the most complete definition: "A person who habitually creates and innovates to build something of recognised value around perceived opportunities."

All the definitions presented by the economists and scholars have somehow arguably failed to put a recognizable colour on 'Entrepreneur' or 'Entrepreneurship' to date. Entrepreneurs are not actually economic Heffalump, rather Homo-sapiens who traverse lands on this earth for fortune. But, Entrepreneurs have certain traits that other people from different disciplines of business lack. Schumpeter (1934) rightly recognized one of the key traits, 'Innovation'. He predicted as well; new innovation, new idea, new method of production and new form of Organization cause 'Creative-destruction', which makes old approaches, methods and norms obsolete. This 21st century really echoes that by adding 'fierce risk taker', 'techno-enabled', 'opportunist' - along with other traits to the entrepreneurs.

However, this researcher recognizes a new division in the definition of 'Entrepreneurship" apart from the theoretically existing types. Entrepreneurs can be defined in two groups_

1. Low-profile Entrepreneurs: are those who follow the contemporary tracks of business, taking absorbable risk and have appropriate perception of impact of such undertakings in future course. Best example can be put as - one opening a retail shop in local area after assessing the market needs, competitions and deploy resources to maximize profit, or a manager of an established organization looking for market growth by exercising expertise.

2. High-Profile Entrepreneurs: are those who innovate and radicalize an idea(s), take enormous risk, discharge and harness necessary existing resources to translate the idea(s) into action without assessing in-depth the impact (Return on Investment, market growth rate etc.) of such discourse in future. They are absolutely the agents of Creative Destruction. Most of the off shoots from 'Silicon Valley' fall in this category.

As this century passes by, the definitions of Entrepreneurship will much twist and turn, reacting to the influential forces - ever changing Technology and Geo-political and business environment.

1.3 Traits of an Entrepreneur

"How can we know the dancer from the dances?" (Yeats, 1956)

Gartner (1988) posited the same question as poet Yeats, regarding the true nature of Entrepreneur among others. In his book, "Who is an Entrepreneur? Is the wrong question", Gartner expressed that; definitions of Entrepreneur cannot lead us to understand the Entrepreneurship phenomenon. Rather the trait approach and behavioural approach, as he proposed, be used to unveil the true characteristics of an Entrepreneur. Gartner also argued the notion that, Entrepreneurship is a creation of Organization, proposed by Vesper (1982) that leads to a very fundamental problem of reasoning, "How does an Organization come into existence"? (Herbert and Link, 1988; Shapero and Shokol, 1987). Empirical research shows that (Brockhaus, 1980; Sexton and Kent, 1981), it is not possible to differentiate Entrepreneur from general population or certain profession by evaluating certain psychological traits.

Certain traits of an Entrepreneur prescribed by the various 'Entrepreneurship' theorists as - Confident, Innovative, Hardworking, Leadership, Opportunist, Uncertainty Bearer, Risk taker and so on, reflect on other profession as well. An employed manager of a large Investment Bank possesses the same traits more or less. Jenks (1950) and Kilby (1971) realized this problematic approach and strongly criticized the research on personality profiles of the entrepreneurs, rather suggested the study of behaviour and psychology of Entrepreneurs.

In this context, it is imperative to know, 'What drives Entrepreneur to be an Entrepreneur?'- the answer won't be an easy one. If we take so many drivers, it will rather remain ambiguous. Granovetter (1985) realised that one's network relationship and access to external knowledge may be an important determinant of the capability to create value and achieve personal goals; The exposure to knowledgeable others may be particularly important for 'would be entrepreneurs' (Davidsson and Honig 2003).

A recent research has found positive effect of one's educational level on the likelihood to perceive entrepreneurial opportunities in terms of deciding to start a venture (Arenius and De Clercq 2005). Another research suggested that the likelihood of being an emerging entrepreneur increases steadily when individual has higher level of education (Arenius and Minniti 2005).

Moreover, Entrepreneurial traits vary in geographical location, societal structure, knowledge foundation and citizenship liberty. Developed nations (USA and Western European countries) have a long legacy of Entrepreneurs and have successfully managed to integrate this phenomenon in to their culture, politics and economics throughout an unbroken span of time. A poll conducted by IFOP in 2005 presents that, Around 76% of French youth prefer Government service, where as in a survey of 'Junior Achievement' in the following year, 2006, showed that, in USA, hot bed for Entrepreneurs, 70% of the teenagers prefer to start their own business in future. [1] 

To distinguish the Traits of Entrepreneur from others, this researcher has identified the following Traits following the trails of other scholastics in this subject. It can be best described -

An Entrepreneur is a Prudent person with the commonsense of Business world.

An entrepreneur is basically Futurist, who can foresee the trend of business; he intends to go for.

An Entrepreneur is the Anticipator of needs and Creator of needs that are left unorganized.

An Entrepreneur is an Innovator of ideas, plan, product and service.

An Entrepreneur is a Passionate Risk taker, who deploys all his resources at his disposal for maximum yield.

An Entrepreneur possesses certain tools at his disposal to gain own competitive advantage, i.e. - technology, knowledge, keen observation, rich network, mentors, venture capitalist etc.

An entrepreneur is a Rational Opportunist, who can exploit when he finds such.

An Entrepreneur Monetizes his opportunity, innovation, ideas and all the procedures he/she takes risk for. This is the key trait of an entrepreneur.

1.4 Economic and Social functions and role of Entrepreneurs

Much of the developed nations have been overwhelmed by the Entrepreneurship phenomenon, contributed in the realm of their economy and society. In a report published by the U.S. Small Business Administration's Office of Advocacy in Sep, 2009 shows the following data about Small Business [2] ,

SME Represent 99.7% of all employer firms.

Employ just over half of all private sector employees.

Pay 44% of total U.S. private payroll.

Generate 64% (net) of new jobs over the past 15 years.

Create more than 50% of the nonfarm private gross domestic product (GDP).

Hire 40% of high tech workers, such as scientists, engineers, and computer programmers.

Are 52% home-based and 2 percent franchises.

Produce 13 times more patents per employee than large patenting firms.

Moreover, every year entrepreneurs start more than 600,000 in the United States on an average in spite of being the epicenter of recent Financial Crisis, the report showed.

Sluis and Pragg (2007) believe that the relationship between entrepreneurship and the levels of value added (unlike growth of value added) has been little studied and is not very insightful since value added is type of size measure. Thus, the contribution of entrepreneurial firms (often small) to value added will be lower than other firms. However, Robbins et al. (2000) provide direct support of the relatively large contribution of entrepreneurial firms to value added growth. Brouwer et al. (2005) support the result that the productivity of small firms increases faster than of large firms.

The economist Schumpeter (1934) saw innovation as fundamental to the entrepreneurial process while Drucker (1985) took the idea further by adding that innovation was the central task of the entrepreneur. Policy makers, business leaders and academics have long been convinced of the gravity of entrepreneurs to economic opulence based on wealth creation and innovation (Harding, 2006). "It seems to be taken for granted in the literature that, even if entrepreneurs are not in complete control of our economic destiny, they influence its direction as few, if any, others are able to do" (Baumol 1993).

There are various inter-related reasons why there is this concern in the role of entrepreneurs. Entrepreneurs have certain characteristics and motivations that make them agents of change and development in an economy (Kirzner, 1973). While the contexts in which entrepreneurs can be found differ and while entrepreneurial activity is diverse and complex, it is nevertheless the case that the "genus" entrepreneur is different to the general population. In addition, entrepreneurship has a role in generating endogenous economic growth (Romer 1990; Aghion & Howitt 1992). While entrepreneurs are themselves not engines of economic growth, the process of entrepreneurship, i.e. the process by which know-how and ideas are translated into commercial products and processes, acts as a catalyst to wealth creation through innovation. This has clear policy implications since, by means of investment in the innovation process or system; this catalytic role can be maximized. Finally, there are several guises of entrepreneur that extend their role as change agents beyond economic wealth creation to social and environmental change.

1.5 Franchise and Start-up: two sides of the coin

Franchise and Start-up are the main propellers of the 'Entrepreneurship' engine. It's quite imperative to know about these two modes of Business.

1.5.1 Franchise:

Different writers have defined Franchising in different ways the reason for doing so is that Franchising covers different aspects of business which are different in nature. So everyone has their own view point. "Franchising can best be described as a system of distribution whereby one party (the franchisor) grants to a second party (the franchisee) the right to distribute products, or perform services, and to operate a business in accordance with an established marketing system." (Hall and Dixon, 1991)

Franchising has led increasingly to its presence in debates spanning a number of disciplinary fields including management, marketing, economics, sociology, psychology, law and entrepreneurship (Stanworth and Curran, 1983). As a form of business, franchising continues to gain acceptance and importance in the provision of services, jobs and self employment; according to British Franchise Association/Nat West (2004) and PricewaterhouseCoopers (2004).

Franchise has some good advantage over Start-up. Because, a Franchisee doesn't find himself in the swirl of Uncertainty, Consumer's suspicion, Extensive Marketing Campaign, High risk on investment and so on, when backed by the Franchisor's Good will, Brand image, Knowledge of the market, Marketing campaign, Ready set of knowledgeable consumers and management help along with other expediencies.

But, there are some sceptical views as well. Price (1996) identified 16 UK franchise companies as having been operational between 1984 and 1995 of only 36% of which remained in existence at the end of that period. Stanworth and Purdy (1999) tracked entries from the two principal UK Franchise directories in 1995 and found that 66.3% of an initial 704 separate entries survived the following 2 years.

Again, optimistic report, like this one negates the worries, "You are five times more likely to succeed as franchisee than if you start a comparable business independently" (The British Franchise Association 1996). According to Hoy (1994), the dark side of the franchising is not a fable. It exists for very legitimate reasons. Entrepreneurship theories make such a dark side predictable. According to Business Franchise Magazine's April 2008 issue, the food and beverage sector in the UK is worth around £30 billion a year, having growth rate around 4.3%. A handsome portion of this growth is contributed by the franchise sector [3] .

Famous International Franchise brands in UK are- McDonalds, Subway, KFC, Pizza-hut, Cartridge world, Starbucks, Costa with many local successful franchise.

1.5.2 Start-up

The word 'Start-up' resonance 'Silicon valley', California and the dot-com-bubble in late 90's. Any business from scratch and out of creative brain can be called 'Start-up'. But it rather means with dexterity, any technological firms or high-tech firms having exceptional growth rate.

"Investors are generally more attracted to these new firms, as they are distinguished by their risk / reward profile and scalability. In other words, they have lower seed costs, higher risk and more return on investment opportunities. The successes of new firms tend to be more scalable than an established company that can potentially grow rapidly with limited capital investment, labour or land" as the lucrativeness of high-tech start-ups is described in the Wikipedia [4] .

Majority funding in high-tech start-ups comes from venture capitalist and other keen and experienced investors. Most of the successful high-tech start-ups end up in 'merger and acquisition'. But the most inspiring thing is, usually the former founder(s) of this type of high-tech start-ups jumps to initiate another start-up with new ideas. Those are called 'Serial- Entrepreneurs'. "Serial entrepreneurs thrive on the excitement of starting a business from scratch, taking an idea to market and making it happen [5] ". (European Venture Capital Journal)

The 'Economist' reported that, up to 75% of the value of US public companies based on their 'intellectual property', up from 40% in 1980 [6] . 'Patenting' of ideas is truly vital for all the dot-com entrepreneurs and high-tech start-ups for intellectual property protection.

Some very well known high-tech start-ups, even to the far corners of the world, are - Google, Microsoft, Apple, Sun Micro system, Oracle, Dell, e-bay, Amazon along with new names - Netflix, Lovefilms, Lastfm, Gumtree and many more. Moneywise, high-tech start-ups are more lucrative than Franchise. Last Fm- a UK based High-tech start-up, providing internet based radio site, was sold at $280 million to another firm in 2007, shortly after initiation in 2002.

1.6 Conclusion

The above review on literature on Entrepreneurship and the two modes of business for the entrepreneurs evidently shed a light on the nature of Entrepreneur and the possibilities to choose among the two modes - Franchise and Start-up. Though, entrepreneurship is somehow a distinct quality of personality of an entrepreneur; other external factors such as - source of capital funding, experience, economic condition of a country, consumer society, existing infrastructure and ease of doing business etc. influence an Entrepreneur to choose whether to start with a 'Franchise' idea or to build up business from scratch with new idea(s). But, as this Globalized world is moving at very fast pace and Technology almost controls every major public and private interests, the scholastic and academic stance towards Entrepreneur and Entrepreneurship is likely to shift over time in future. The research objective is to strike a perfect balance, if possible; considering the issues in the past and present of Entrepreneurship, thus somehow illuminating the path to the future Entrepreneurs in UK.