Entrepreneurship and innovation are important in all areas of business and play a crucial role in the economy, and understanding the relationship between entrepreneurship and innovation is essential for identifying new opportunities, allocating resources effectively, and achieving sustainable competitive advantage.
Therefore, it is necessary that decision-makers comprehend the key concepts of entrepreneurship and innovation and be capable to apply this knowledge successfully to create solutions to consumer, market, environmental and social problems. This post goal is to provide students the scope to develop and improve their skills and knowledge in the land of entrepreneurship and innovation.
The unit includes the following topics:
- Corporate intrapreneurs,
- innovation and creativity,
- entrepreneurial startups,
- I.T. Systems for innovation,
- funding and financing, decisions for startups,
- capital structure strategy and succession planning.
The economy is constantly changing and entrepreneurs and enterprise creators and agents of change, entrepreneurs are important in our economy and society. They can switch the road we live and work. If successful, their revolutions may improve our standard of living, create social change and contribute to economic growth.
When new products enter the market and new services are offered. Entrepreneurship, theories, and research remain important to the development of the entrepreneurship field. In the following sections, we will discuss the different types of entrepreneurship and key theories of entrepreneurship.
Definition of an entrepreneur
Entrepreneurship can be defined as a system that seeks to comprehend how opportunities are discovered, built, and exploited by whom and with what consequences. an entrepreneur is a separate or a group that creates a new product, institution, market, and or set of possibilities.
Traditional entrepreneurship focuses on earning rewards by managing projects and accepting and managing the associated uncertainty. They create ventures with the goal of making a profit, and they measure performance by the profits they generate.
Social entrepreneurship focuses on finding innovative solutions to social and environmental problems. Social entrepreneurs create ventures to tackle social problems and bring about social change. And they measure performance by advancing social and environmental goals.
While both traditional and social entrepreneurship involves taking charge of some projects that will deliver valuable benefits and bring them to completion to the market. The main variety lies in its main motive.
A theory is a set of interrelated propositions, ideas, and definitions that interpret or predicts events or situations by specifying relationships among variables. A principle presents a systematic path of understanding events, attitudes, and situations. In this unit, we will look at theories that explain entrepreneurship behavior.
Even though it can be argued that theories may be incomplete, poorly developed based on limited information and bias to fit our needs, we still use them to guide behavior.
Theories are important because they enable us to see things from new angles and perspectives, understand more fully the relationship between entrepreneurship and innovation, and make informed decisions about allocative efficiency.
Several theories exist, but all of them fall into one of the five main categories:
- Economic entrepreneurship theories,
- Psychological entrepreneurship theories,
- Sociological entrepreneurship theories,
- Anthropological entrepreneurship theories,
- And opportunity based entrepreneurship theories.
Joseph Schumpeter, one of the most influential economists of the 20th century, considered that creativity or innovation is the key factor in any entrepreneur’s field of specialization. Schumpeter holds an entrepreneur as having one of the major characteristics innovation, foresight, and creativity, entrepreneurship as innovation and not imitation.
Schumpeter’s innovator as an economic and social chief does not attention much to economic profits. And the only pleasure he gets is from being an innovator and being a server to his society. Schumpeter’s entrepreneur is an innovator in the entrepreneurship battlefield.
The thought of innovation improvement follows one or more of the five functions below:
- The conquest of a new source of supply or raw material.
- The introduction of new goods and services.
- The opening of a new market.
- The introduction of a new method of production.
- The carrying out of a new organization.
In Schumpeter’s tenet, the entrepreneur moves the economy out of the static equilibrium. Schumpeter hardly refused the process of accumulation as the ladder to social power and social control.
But he thinks the sure mainspring of the system of the entrepreneurial function is the powerful will to assert economic leadership. The delight of carrying through innovations is the primary purpose, the acquisition of social power, an assistant to it. The entrepreneur is not perforce the one who invents new combinations, but the one who identifies how these new combinations can be driven in production.
This line of reasoning implies that a business owner is recked as an entrepreneur only if he is carrying out new combinations. The entrepreneur moves the economic process out of the static equilibrium by forming new products or production manners, thereby rendering others obsolete. This is the method of creative destruction, forming uncertainty which Schumpeter saw as the driving force behind the economic improvement.
Uncertainty – Bearing Theory and Krizner’s “Alert” Entrepreneurship
Frank Hineman Knight, an economist, bloomed the uncertainty-bearing concept in the 1920s to interpret the phenomenon of entrepreneurship. Following Knight, the main act of the entrepreneur is to assume the doubt related to these events, thereby shielding all other stakeholders versus the entrepreneur, i.e., the entrepreneur exercises judgment over these unparalleled situations, the doubt in the economy and functions as an insurance agent.
The true uncertainty in organized life is the uncertainty in an estimate of human capacity, which is always a capacity to meet uncertainty, Knight recognizes the distinction between risk and uncertainty. He argued that the presence of economic profit signaled the presence of uncertainty. Therefore, profit is the entrepreneur’s payment for bearing this type of risk. To gain a positive profit, the entrepreneur carries out three duties.
- They initiate useful changes or innovations,
- They adapt to changes in the economic environment.
- They assume the consequences of uncertainty related to the company.
Kirzner’s Alert entrepreneur: Kirzner’s definition of an entrepreneur
Kirzner’s theory of the market process helps explain how economies tend to move toward equilibrium and how entrepreneurialism helps serve that function.
Kerzner argues that the economy is in a constant state of disequilibrium due to shocks constantly hitting the economy. Kerzner’s analysis of entrepreneurship identifies disequilibrium that can only be corrected to equilibrium by alert entrepreneurs who produce and exchange goods and services.
But the emphasis is on the exchange of opportunities and the process that comes mainly from this part. He postulates that entrepreneurial progress does not depend on a great man, but it does depend on many great men, many players in the business arena.
Biological and Marshall’s Theory of Entrepreneurship
Several academic theories of gender differences offer explanations based on deeply seated cultural or even biological differences between men and women. For example, virtual shows evidence of gender difference in entrepreneurship, both at the micro and macro level.
It found that female and male entrepreneurs differ significantly with respect to a range of aspects, including self-perception, time investments, startup capital, and H.R.M., and that most of these differences can be attributed to indirect effects. While some evidence has been found for direct gender effects.
Marshall’s Theory of Entrepreneurship
Marshall’s theory of entrepreneurship holds land, labor, capital, and organizations as the four factors of production and considered entrepreneurship as the driving factor. That brings these four factors together.
He argued that the characteristics of a successful entrepreneur depend not only on the understanding of the industry, good leadership, foresight on demand and supply changes, and the willingness to act in such a risky environment. But on the economic conditions in which they attempt their ventures.
Other Entrepreneurship Theories
The social enterprise school
Entrepreneurship is viewed as a social enterprise initiative. This refers to any organization in any sector that uses earned income strategies to pursue a double bottom line or a triple bottom line, either alone or as part of a mixed revenue stream. As a social sector business that includes charitable contributions and public sector subsidies.
Social enterprise school centers on earned income activity by nonprofits. But also covers market-based accomplishments to social problems, as well as businesses that generate profit that is donated to a social venture or purpose.
Schultz argues that entrepreneurship is closely connected to situations of disequilibrium. And that entrepreneurship is the caliber to deal with these situations. imbalance agents are acting sub-optimally and can reallocate their provisions to gain a higher level of satisfaction.
Entrepreneurship is the ability to coordinate this reallocation effectively, and it follows that agents have different degrees of entrepreneurial ability.
Richard Cantillon was the first of the major economic thinkers to define entrepreneurship as an agent who buys means of production at certain prices to combine them into new products.
This theory does not view the entrepreneur as a production factor as such, but as an agent that takes on the risk and thereby equilibrates supply and demand in the economy. In a neoclassical framework, this function reassembles that of the optimizing residual claimant, for example, the business owner who rents the labor and capital from workers and landowners in a world of uncertain demand or production.
Sociological Theories of Entrepreneurship
The sociology of entrepreneurship analyzes the social context, process, and effects of entrepreneurial activity. Research in the sociology of entrepreneurship tends to differ from related work and economic theories as sociology theories on entrepreneurship do not follow simple patterns.
Sociology of entrepreneurship is a study of the relationship between group characteristics and the development of the business activity. Ruth and Lounsbury examined the theoretical presuppositions of the field and placed special emphasis on the contribution of Max Weber, who study to provide a useful approach to understanding the context, process, and effects of entrepreneurial activity.
How a venture starts and whether others are recruited to enter into the effort can have lasting consequences for its performance and survival. Enterprises can be formed because of teams. Three principles underlying team formation may be a distinguished choice based on homophily, the purpose of choice, and choice constrained by context or opportunity structure.
Homophily refers to the tendency of people to associate with others like themselves, such as choosing others on the basis of gender or ethnicity. The purposive choice reflects people’s tendencies to choose others who possess valuable skills such as education or experience.
Finally, Opportunity Structures sets a context within which the first two principles operate. Founders cannot choose someone who they have not met or have no way to reach, such as a person who works in another organization or lives in another city.
Entrepreneurship has a psychological contract involving a give and takes transactional relationship in the form of teamwork involving two or more individuals who jointly establish a business in which they have an equity financial interest.
These individuals are present during the pre-startup phase of the firm before it begins making its goods or services available to the market.
Jean-Baptiste Say’s Law
The French economist, Jean-Baptiste Say, is best known for Say’s Law of Markets, which states that the production of goods creates its own demand. In 1803, Jean-Baptiste explained his theory. It is worthwhile to remark that a product is no sooner created than it from that instance affords a market for other products to the full extent of its own value.
This scene suggests that the key to economic growth is not rising demand, but increasing production. Entrepreneurs produce goods and services with the aim of selling them. This production creates employment and in return workers earn wages and entrepreneurs earn income profit. Therefore, the production has increased the wealth and leads to demand for other goods and services.
He argued it was irrational to hoard money because he is most anxious to sell it immediately, lest its value should diminish in his hands, i.e., inflation may reduce the value of cash. This principle assumes that markets are clear and that businessmen yield goods that are demanded by the market.
During this era, several recent innovations, businesses, and inventions were created to satisfy the growing consumer market and demand for technological innovation. Examples of innovations include heavy steel machinery and railroads.
Creativity is a concept which we often come across in our everyday situations, we hear of creative people admiring creative objects of art or creative books. Yet despite our almost innate understanding of what it means to be creative, there is much confusion about the nature of creativity.
Creativity is defined as the capacity to produce new ideas, insights, inventions, products, or artistic objects that are unique, useful, and of value to others. Creativity helps individuals, communities and society alike tackle the new challenges that constantly confront them.
Theories in Creativity
Torrance argued that creativity is the process of becoming sensitive to problems, deficiencies, gaps in knowledge, missing elements, disharmony, and so on. Identifying the difficulty, searching for solutions, making guesses or formulating hypotheses about the deficiencies, testing and retesting them, and finally communicating the results.
Torrance pointed out that we have been able to survive with static goals and concepts, changes occurring so rapidly that we cannot survive. If we insist on thinking and living in static terms. We must accept the creative challenge. Many researchers have developed models to explain creativity and the creative thinking process. Creative people can develop new ways to carry out tasks, solve problems and achieve goals and objectives.
Entrepreneurs need to understand that creative thinking means looking at something in a new way and the ability to produce original work and ideas. Thinking outside the box.
Wertheimer, Maslow, Rickards and Gilliam
Wertheimer suggested that creative thinking involved breaking down and restructuring our knowledge about something to gain new insights into its nature. Understanding our own cognitive model of fact may therefore be a significant determinant of our skill to think creatively.
Creativity is something that occurs when we can organize our thoughts in such a way that readily leads to a different and even better understanding of the subject or situation we are considering. Maslow argued that humans have five basic needs. Psychological, safety, social, esteem, and self-actualization must be met for them to thrive and reach maximum potential.
Maslow thought of creativity as having two levels. Primary creativity is the source of new discovery, real novelty, or ideas that depart from what exists at a given point in time. Secondary creativity is a characteristic possessed by many scientists in their collective search for discovery, achieved by working alongside other people, extending the work of previous researches, and exercising prudence and caution in their claims about new insights or ideas.
He envisioned creativity as an aspect of human nature that was to be found universally in all human beings.
Rickards defines creativity as the personal discovery process, partially unconscious, which leads to new and relevant insights. Rickards also advocates a view of creativity as a universal human process, resulting in the escape from assumptions and the discovery of new and meaningful perspectives, or as an escape from mental stubbornness. In broad terms, he believes creativity is to do with the personal and internal restructuring.
Gilliam defines creativity as a process of discovering what has not been considered the act of making new connections. More simply, creativity can be thought of as the production of novel and useful ideas in any domain.
As a result, organizations are eager to find methods for enhancing an individual’s ability to generate ideas. Any of the definitions seem to agree. Creativity involves an in-depth thought of a subject and an ability to come up with new and different viewpoints. However, any definition of creativity is complicated because the idea is multifaceted.
Creativity in Organisations
Logical thinking progresses in order of steps, each one dependent on the last. This new knowledge is merely an extension of what we already know rather than being truly new. Over the past few decades, creativity has occurred a highly fashionable theme in both the academic and business worlds.
That is not to say creativity did not exist before, but its importance to the continued success of an organization had yet to be recognized.
Proctor pointed out that mindset is a condition where an individual is sensitized to some part of the information available at the expense of other parts.
Entrepreneurs need to be mindful of the current mindset to avoid blocking creativity. There can only be one way to do it properly. This is what we have always done. Things are not that bad. Why change?
Creativity in Management
Creativity in management is important, as highlighted by James March because organizations face many problems, which only have a few solutions to identify and solve many of the problems that arise in business, it is necessary to challenge the problem-solving capabilities of those in charge.
In many cases, the creative process, which is used to approach problems, must be restructured and redeveloped to produce new ideas and perspectives. Rogers stated that unless a company is progressing all the time, it is in fact moving backward. It is quite impossible to maintain the status quo.
Attempting to do things in the identical way as they have always been done in the past can lead to niceties in a business environment that is experiencing fast cultural, economic, or technological change.
Creativity and Competition
The rapid growth of competition in business and industry is often quoted as a reason for wanting to understand more about the creative process. Creativity enables the entrepreneur to act on these opportunities in a way that can result in a competitive advantage in an organization.
One of the key aspects of any organization, success or failure, is its ability to stay ahead of the competition in a rapidly changing environment. The modern business, with its emphasis on competition, building larger markets, strategic planning, team working, etc., has created the need for new problem solving and decision-making strategies.
Cummings also noted that numerous commentators have argued that enhancing the creative performance of employees is a necessary step if organizations are able to achieve a competitive advantage.
The correct mindset is the most crucial factor in successful entrepreneurship. Mindset is traditionally known as a set of attitudes held by someone, that determines the path that will be chosen. It is important in entrepreneurship as what path is chosen can ultimately determine whether entrepreneurship succeeds or fails.
Research has shown that mindset is not set and there is a possibility for change. Stanford University psychologist Carole Duke proposed that there are two types of mindsets.
- Fixed mindset is the held assumption that people’s talents and abilities are set, traits unchangeable and therefore seek to avoid challenges, failures or looking bad in front of family, friends or strangers.
- Growth mindset is the held assumption that their abilities can be developed through dedication, effort and hard work and therefore seek to enhance their qualities despite the possibilities of challenges or failures which may only inspire them to learn and try again.
Both types of mindsets are important in entrepreneurship. A fixed mindset that succeeds in entrepreneurship is based on luck. But those that have a fixed mindset attuned to entrepreneurship need to shift to a growth mindset to move past the fear of challenges or failure and instead learn from them and achieve success, no matter how many failures may occur.