Entrepreneurship

“Co-founder” redirects here. For someone who cultivatesa startup, see Startup company § Co-founders.

Entrepreneurship has traditionally been defined as

American entrepreneur, television host and media executiveOprah Winfrey receiving the Presidential Medal of Freedomfrom US President Barack Obama in 2013.

British entrepreneur Sir Richard Branson in 2008.

the process of designing, launching and running a new

Finnish entrepreneur Armi Ratia (1912–1979), founder of theMarimekko textile and home decorating company.

business, which typically begins as a small business, suchas a startup company, offering a product, process or ser-vice for sale or hire.[1] It has been defined as the "...ca-pacity and willingness to develop, organize, and managea business venture along with any of its risks in orderto make a profit.”[2] While definitions of entrepreneur-ship typically focus on the launching and running of busi-nesses, due to the high risks involved in launching a start-up, a significant proportion of businesses have to close,due to a "...lack of funding, bad business decisions, aneconomic crisis -- or a combination of all of these”[3] ordue to lack of market demand. In the 2000s, the defini-tion of “entrepreneurship” has been expanded to explainhow and why some individuals (or teams) identify oppor-tunities, evaluate them as viable, and then decide to ex-ploit them, whereas others do not,[4] and, in turn, how en-trepreneurs use these opportunities to develop new prod-ucts or services, launch new firms or even new industriesand create wealth.[5]

Traditionally, an entrepreneur has been defined as “aperson who organizes and manages any enterprise, es-pecially a business, usually with considerable initiativeand risk".[6] Rather than working as an employee, anentrepreneur runs a small business and assumes all therisk and reward of a given business venture, idea, orgood or service offered for sale. The entrepreneuris commonly seen as a business leader and innovatorof new ideas and business processes.”[7] Entrepreneurstend to be good at perceiving new business opportu-nities and they often exhibit positive biases in their

1

2 1 HISTORY

perception (i.e., a bias towards finding new possibili-ties and seeing unmet market needs) and a pro-risk-taking attitude that makes them more likely to exploit theopportunity.[8][9]“Entrepreneurial spirit is characterizedby innovation and risk-taking.”[2] While entrepreneur-ship is often associated with new, small, for-profit start-ups, entrepreneurial behavior can be seen in small-,medium- and large-sized firms, new and established firmsand in for-profit and not-for-profit organizations, includ-ing voluntary sector groups, charitable organizations andgovernment.[10] For example, in the 2000s, the field ofsocial entrepreneurship has been identified, in which en-trepreneurs combine business activities with humanitar-ian, environmental or community goals.An entrepreneur is typically in control of a commer-cial undertaking, directing the factors of production–thehuman, financial and material resources–that are requiredto exploit a business opportunity. They act as themanagerand oversee the launch and growth of an enterprise. En-trepreneurship is the process by which an individual (orteam) identifies a business opportunity and acquires anddeploys the necessary resources required for its exploita-tion. The exploitation of entrepreneurial opportunitiesmay include actions such as developing a business plan,hiring the human resources, acquiring financial and ma-terial resources, providing leadership, and being respon-sible for the venture’s success or failure.[11] EconomistJoseph Schumpeter (1883–1950) stated that the role ofthe entrepreneur in the economy is "creative destruc-tion"–launching innovations that simultaneously destroyold industries while ushering in new industries and ap-proaches. For Schumpeter, the changes and “dynamicdisequilibrium brought on by the innovating entrepreneur... [are] the ‘norm’ of a healthy economy.”[12]

Entrepreneurship typically operates within anentrepreneurship ecosystem which often includesgovernment programs and services that promote en-trepreneurship and support entrepreneurs and start-ups;non-governmental organizations such as small businessassociations and organizations that offer advice and men-toring to entrepreneurs (e.g., through entrepreneurshipcenters or websites); small business advocacy organiza-tions that lobby the government for increased supportfor entrepreneurship programs and more small business-friendly laws and regulations; entrepreneurship resourcesand facilities (e.g., business incubators and seed ac-celerators); entrepreneurship education and trainingprograms offered by schools, colleges and universities;and financing (e.g., bank loans, venture capital financing,angel investing, and government and private foundationgrants). The strongest entrepreneurship ecosystemsare those found in top entrepreneurship hubs such asSilicon Valley, New York City, Boston, Singapore andother such locations where there are clusters of leadinghigh-tech firms, top research universities, and venturecapitalists.[13] In the 2010s, entrepreneurship can bestudied in college or university as part of the disciplines

of management or business administration.

Left to right, Eric Schmidt, Sergey Brin and Larry Page ofGoogle,which is cited as an example of entrepreneurship and disruptiveinnovation.[14] As of the 2010s, Google is a huge corporation, butin the late 1990s, it started out as an entrepreneurial venture in agarage.

1 History

1.1 Historical usage

Emil Jellinek-Mercedes (1853–1918), pictured at the steeringwheel of his car, was a European entrepreneur who designedthe engine for the first modern car.

Entrepreneur ( i/ˌɒntrəprəˈnɜːr/), is a loanword fromFrench.[15] First used in 1723, today the term en-trepreneur implies qualities of leadership, initiative, andinnovation in new venture design. Economist Robert Re-ich has called team-building, leadership, and manage-ment ability essential qualities for the entrepreneur.[16][17]Historically the study of entrepreneurship reaches backto the work in the late 17th and early 18th centuries ofRichard Cantillon and Adam Smith, which was founda-tional to classical economics.

1.3 Historical barriers 3

1.2 Joseph Schumpeter

In the 20th century, entrepreneurship was studied byJoseph Schumpeter in the 1930s and other Austrianeconomists such as Carl Menger, Ludwig von Mises andFriedrich von Hayek. The term “entrepreneurship” wascoined around the 1920s, while the loan from Frenchof the word entrepreneur dates to the 1850s. Accord-ing to Schumpeter, an entrepreneur is willing and ableto convert a new idea or invention into a successfulinnovation.[18] Entrepreneurship employs what Schum-peter called “the gale of creative destruction" to replacein whole or in part inferior offerings across markets andindustries, simultaneously creating new products and newbusiness models. Thus, creative destruction is largely re-sponsible for long-term economic growth. The idea thatentrepreneurship leads to economic growth is an interpre-tation of the residual in endogenous growth theory andas such continues to be debated in academic economics.An alternate description by Israel Kirzner suggests thatthe majority of innovations may be incremental improve-ments such as the replacement of paper with plastic in theconstruction of a drinking straw that require no specialqualities.For Schumpeter, entrepreneurship resulted in new indus-tries and in new combinations of currently existing in-puts. Schumpeter’s initial example of this was the com-bination of a steam engine and then current wagon mak-ing technologies to produce the horseless carriage. In thiscase the innovation, the car, was transformational, but didnot require the development of dramatic new technology.It did not immediately replace the horse-drawn carriage,but in time, incremental improvements reduced the costand improved the technology, leading to the modern autoindustry. Despite Schumpeter’s early 20th-century con-tributions, traditional microeconomic theory did not for-mally consider the entrepreneur in its theoretical frame-works (instead assuming that resources would find eachother through a price system). In this treatment, the en-trepreneur was an implied but unspecified actor, consis-tent with the concept of the entrepreneur being the agentof x-efficiency.For Schumpeter, the entrepreneur did not bear risk: thecapitalist did. Schumpeter believed that the equilibriumideal was imperfect Schumpeter (1934) demonstratedthat changing environment continuously provides new in-formation about the optimum allocation of resources toenhance profitability some individuals acquire the newinformation before others, recombine the resources togain an entrepreneurial profit. Schumpeter was of theopinion that entrepreneurs shift the Production PossibilityCurve to a higher level using innovations.[19]

Initially, economists made the first attempt to study theentrepreneurship concept in depth[20] Richard Cantil-lon (1680-1734) considered the entrepreneur to be arisk taker who deliberately allocates resources to ex-ploit opportunities in order to maximize the financial

return.[21][22] Cantillon emphasized the willingness ofthe entrepreneur to assume risk and to deal with uncer-tainty. Thus, he draws attention to the function of theentrepreneur, and distinguishes clearly between the func-tion of the entrepreneur and the owner who provides themoney.[21][23] Alfred Marshall viewed the entrepreneuras a multi-tasking capitalist. He observed that in theequilibrium of a completely competitive market, therewas no spot for “entrepreneurs” as an economic activitycreator.[24]

1.3 Historical barriers

Dating back to the time of the medieval guilds in Ger-many, a craftsperson required special permission to oper-ate as an entrepreneur was the small proof of competence(Kleiner Befähigungsnachweis), which restricted trainingof apprentices to craftspeople who held a Meister cer-tificate. This institution was introduced in 1908 after aperiod of so-called freedom of trade (Gewerbefreiheit,introduced in 1871) in the German Reich. However,proof of competence was not required to start a busi-ness. In 1935 and in 1953, greater proof of competencewas reintroduced (Großer Befähigungsnachweis Kuhlen-beck), which required craftspeople to obtain a Meisterapprentice-training certificate before being permitted toset up a new business.[25]

1.4 2000s

In 2012, Ambassador-at-Large for Global Women’s IssuesMelanne Verveer greets participants in an African Women’s En-trepreneurship Program at the State Department in Washington,D.C.

In the 2000s, “entrepreneurship” has been extended fromits origins in for-profit businesses to include social en-trepreneurship, in which business goals are sought along-side social, environmental or humanitarian goals, andeven the concept of the political entrepreneur. En-trepreneurship within an existing firm or large organiza-tion has been referred to as intrapreneurship and may in-clude corporate ventures where large entities “spin off”subsidiary organizations.[26]

4 2 DEFINITION

Entrepreneurs are leaders willing to take risk and exerciseinitiative, taking advantage of market opportunities byplanning, organizing, and deploying resources,[27] oftenby innovating to create new or improving existing prod-ucts or services.[28] In the 2000s, the term “entrepreneur-ship” has been extended to include a specific mindset (seealso entrepreneurial mindset) resulting in entrepreneurialinitiatives, e.g. in the form of social entrepreneurship,political entrepreneurship, or knowledge entrepreneur-ship.According to Paul Reynolds, founder of the Global En-trepreneurship Monitor, “by the time they reach their re-tirement years, half of all working men in the UnitedStates probably have a period of self-employment of oneor more years; one in four may have engaged in self-employment for six or more years. Participating in a newbusiness creation is a common activity among U.S. work-ers over the course of their careers.”[29] In recent years,entrepreneurship has been claimed as a major driver ofeconomic growth in both the United States and WesternEurope.Entrepreneurial activities differ substantially dependingon the type of organization and creativity involved.Entrepreneurship ranges in scale from solo, part-timeprojects to large-scale undertakings that involve a teamand which may create many jobs. Many “high value” en-trepreneurial ventures seek venture capital or angel fund-ing (seed money) in order to raise capital for buildingand expanding the business.[30] Many organizations ex-ist to support would-be entrepreneurs, including special-ized government agencies, business incubators (whichmay be for-profit, non-profit, or operated by a collegeor university), science parks, and Non-governmental or-ganizations, which include a range of organizations in-cluding not-for-profits, charities, foundations and busi-ness advocacy groups (e.g., Chambers of Commerce).Beginning in 2008, an annual "Global EntrepreneurshipWeek" event aimed at “exposing people to the benefitsof entrepreneurship” and getting them to “participate inentrepreneurial-related activities” was launched.

2 Definition

The term entrepreneur is defined as an individual who or-ganizes or operates a business or businesses. Credit forcoining this term generally goes to the French economistJean-Baptiste Say. However, the Irish-French economistRichard Cantillon defined the term first[31] in his Essaisur la Nature du Commerce en Général, or Essay on theN-ature of Trade in General, a bookWilliam Stanley Jevonsconsidered the “cradle of political economy”.[32] Cantil-lon used the term differently; biographer Anthony Breernoted that Cantillon saw the entrepreneur as a risk-takerwhile Say considered the entrepreneur a “planner”. Can-tillon defined the term as a personwho pays a certain pricefor a product and resells it at an uncertain price: “making

Sean John Combs is an American record producer, rapper andentrepreneur.

decisions about obtaining and using the resources whileconsequently admitting the risk of enterprise.” The wordfirst appeared in the French dictionary entitled “Diction-naire Universel de Commerce” compiled by Jacques desBruslons and published in 1723.[33]

2.1 Relationship between small businessand entrepreneurship

The term “entrepreneur” is often conflated with the term"small business" or used interchangeably with this term.While most entrepreneurial ventures start out as a smallbusiness, not all small businesses are entrepreneurial inthe strict sense of the term. Many small businesses aresole proprietor operations consisting solely of the owner,or they have a small number of employees, and many ofthese small businesses offer an existing product, processor service, and they do not aim at growth. In contrast, en-trepreneurial ventures offer an innovative product, pro-cess or service, and the entrepreneur typically aims toscale up the company by adding employees, seeking in-ternational sales, and so on, a process which is financedby venture capital and angel investments. Successful en-trepreneurs have the ability to lead a business in a pos-itive direction by proper planning, to adapt to chang-ing environments and understand their own strengths andweakness.[34]

3.1 Risk-taking 5

2.2 Ethnic entrepreneurship

The term ethnic entrepreneurship refers to self-employed, business owners who belong to racial orethnic minority groups in the United States and Europe.A long tradition of academic research explores theexperiences and strategies of ethnic entrepreneurs asthey strive to integrate economically into mainstreamUS or European society. Classic cases include Jewishmerchants and tradespeople in large U.S. cities in the19th and early 20th centuries as well as Chinese andJapanese small business owners (restaurants, farmers,shop clerks) on the West Coast.[35]

In the 2010s, ethnic entrepreneurship has been studiedin the case of Cuban business owners in Miami, Indianmotel owners in the U.S. and Chinese business own-ers in Chinatowns across the United States. While en-trepreneurship offers these groups many opportunitiesfor economic advancement, self-employment, and busi-ness ownership in the United States remain unevenly dis-tributed along racial/ethnic lines.[36] Despite numeroussuccess stories of Asian entrepreneurs, a recent statisticalanalysis of U.S. census data shows that whites are morelikely than Asians, African-Americans, and Latinos to beself-employed in high prestige, lucrative industries.[36]

2.3 Institutional entrepreneur

The USA-born British economist Edith Penrose has high-lighted the collective nature of entrepreneurship. Shementions that in modern organizations, human resourcesneed to be combined in order to better capture and createbusiness opportunities.[37] The sociologist Paul DiMag-gio (1988:14) has expanded this view to say that “new in-stitutions arise when organized actors with sufficient re-sources [institutional entrepreneurs] see in them an op-portunity to realize interests that they value highly”.[38]The notion has been widely applied.[39][40][41][42]

3 Entrepreneurial behaviours

The entrepreneur is commonly seen as an innovator —a designer of new ideas and business processes.[44] Man-agement skill and strong team building abilities are oftenperceived as essential leadership attributes for successfulentrepreneurs.[45] Political economist Robert Reich con-siders leadership, management ability, and team-buildingto be essential qualities of an entrepreneur.[46][47]

3.1 Risk-taking

Theorists Frank Knight[48] and Peter Drucker defined en-trepreneurship in terms of risk-taking. The entrepreneuris willing to put his or her career and financial security onthe line and take risks in the name of an idea, spending

British entrepreneur Karren Brady has an estimated net worth of$123 million[43]

Dell Women’s Entrepreneur Network event in New York City,May 2013

time as well as capital on an uncertain venture. Knightclassified three types of uncertainty:

• Risk, which is measurable statistically (such as theprobability of drawing a red color ball from a jarcontaining 5 red balls and 5 white balls)

• Ambiguity, which is hard to measure statistically(such as the probability of drawing a red ball froma jar containing 5 red balls but an unknown numberof white balls)

• True uncertainty or Knightian uncertainty, which isimpossible to estimate or predict statistically (suchas the probability of drawing a red ball from a jarwhose contents are entirely unknown)

Entrepreneurship is often associated with true uncer-tainty, particularly when it involves the creation of a novelgood or service, for a market that did not previously ex-ist, rather than when a venture creates an incrementalimprovement to an existing product or service. A 2014study at ETH Zürich found that compared with typicalmanagers, entrepreneurs showed higher decision-making

6 4 PSYCHOLOGICAL MAKE-UP

efficiency, and a stronger activation in regions of fron-topolar cortex (FPC) previously associated with explo-rative choice.[49]

3.2 Strategies

Strategies that entrepreneurs may use include:

• Innovation[50] of new products, services or processes

• Continuous Process Improvement (CPI)[50]

• Use of technology[50]

• Development of future products and services[50]

• Optimized talent management[50]

3.3 Designing individual/opportunitynexus

According to Shane and Venkataraman, entrepreneur-ship comprises both “enterprising individuals” and “en-trepreneurial opportunities”, and researchers should studythe nature of the individuals who respond to these oppor-tunities when others do not, the opportunities themselvesand the nexus between individuals and opportunities.[51]On the other hand, Reynolds et al.[52] argue that indi-viduals are motivated to engage in entrepreneurial en-deavors driven mainly by necessity or opportunity, thatis, individuals pursue entrepreneurship primarily owingto survival needs, or because, they identify business op-portunities that satisfy their need for achievement. Forexample, higher economic inequality tends to increaseentrepreneurship rates at the individual level. How-ever, most of it is often based on necessity rather thanopportunity.[53]

3.4 Opportunity perception and biases

The ability of entrepreneurs to innovate relates to innatetraits, including extroversion and a proclivity for risk-taking. According to Joseph Schumpeter, the capabilitiesof innovating, introducing new technologies, increasingefficiency and productivity, or generating new products orservices, are characteristic qualities of entrepreneurs.[54]Also, many scholars maintain that entrepreneurship is amatter of genes, and that it is not everyone who can bean entrepreneur.[55] Some people may be able to use “aninnate ability” or quasi-statistical sense to gauge publicopinion[56] and market demand for new products or ser-vices. Entrepreneurs tend to have the ability to see un-met market needs and underserved markets. While someentrepreneurs assume they can sense and figure out whatothers are thinking, the mass media plays a crucial rolein shaping views and demand.[57] Ramoglou argues that

entrepreneurs are not that distinctive and that it is essen-tially poor conceptualizations of “non-entrepreneurs” thatmaintain laudatory portraits of “entrepreneurs” as excep-tional innovators or leaders [58][59]

3.5 Styles

Differences in entrepreneurial organizations often par-tially reflect their founders’ heterogenous identities.Fauchart and Gruber have classified entrepreneurs intothree main types: Darwinians, Communitarians, andMissionaries. These types of entrepreneurs diverge infundamental ways in their self-views, social motivations,and patterns of new firm creation.[60]

3.5.1 Links to sea piracy

Research from 2014 found links between entrepreneur-ship and historical sea piracy. In this context, theclaim is made for a non-moral approach to looking atthe history of piracy as a source of inspiration for en-trepreneurship education[61] as well as for research inentrepreneurship[62] and business model generation.[63]

4 Psychological make-up

Apple co-founder and longtime leader Steve Jobs, pictured in2010. Jobs led the introduction of many innovations in the com-puter, smartphone and digital music industry.

Stanford University economist Edward Lazear found ina 2005 study that variety in education and work experi-ence was the most important trait that distinguished en-trepreneurs from non-entrepreneurs[64] A 2013 study byUschi Backes-Gellner of the University of Zurich andPetra Moog of the University of Siegen in Germanyfound that a diverse social network was also important

7

in distinguishing students who would go on to becomeentrepreneurs[65][66]

Studies show that the psychological propensities for maleand female entrepreneurs are more similar than differ-ent. Empirical studies suggest that female entrepreneurspossess strong negotiating skills and consensus-formingabilities.[16] Asa Hansson, who looked at empirical ev-idence from Sweden, found that the probability of be-coming self-employed decreases with age for women, butincreases with age for men.[67] She also found that mar-riage increased the probability of a person becoming anentrepreneur.[67]

Jesper Sørensen wrote that significant influences onthe decision to become an entrepreneur are workplacepeers and social composition. Sørensen discovered acorrelation between working with former entrepreneursand how often these individuals become entrepreneursthemselves, compared to those who did not work withentrepreneurs.[68] Social composition can influence en-trepreneurialism in peers by demonstrating the possibilityfor success, stimulating a “He can do it, why can't I?" at-titude. As Sørensen stated, “When you meet others whohave gone out on their own, it doesn't seem that crazy.”[69]

Entrepreneurs may also be driven to entrepreneurship bypast experiences. If they have faced multiple work stop-pages or have been unemployed in the past the probabilityof them becoming an entrepreneur increases[67] Per Cat-tell’s personality framework, both personality traits andattitudes are thoroughly investigated by psychologists.However, in case of entrepreneurship research, these no-tions are employed by academics too, but vaguely. Ac-cording to Cattell, personality is a system that is relatedto the environment. He further adds that the systemseeks explanation to the complex transactions conductedby both - traits and attitudes. This is because both of thembring about change and growth in a person. Personality isthat which informs what an individual will do when facedwith a given situation. A person’s response is triggered byhis/her personality and the situation that is faced.[70]

Innovative entrepreneurs may be more likely to expe-rience what psychologist Mihaly Csikszentmihalyi callsflow. “Flow” occurs when an individual forgets about theoutside world due to being thoroughly engaged in a pro-cess or activity. Csikszentmihalyi suggested that break-through innovations tend to occur at the hands of individ-uals in that state.[71] Other research has concluded that astrong internal motivation is a vital ingredient for break-through innovation.[72] Flow can be compared to MariaMontessori's concept of normalization, a state that in-cludes a child’s capacity for joyful and lengthy periodsof intense concentration.[73] Csikszentmihalyi acknowl-edged that Montessori’s prepared environment offers chil-dren opportunities to achieve flow.[74] Thus quality andtype of early education may influence entrepreneurial ca-pability.

5 Communication

Entrepreneurs need to be strong communicators to lead and in-spire their team and convince investors to fund their venture. Pic-tured is Adeo Ressi giving a speech.

Entrepreneurs need to practice effective communicationboth within their firm and with external partners and in-vestors, in order to launch and growth a venture and en-able it to survive. An entrepreneur needs a communi-cation system that links the staff of her firm and con-nects the firm to outside firms and clients. Entrepreneursshould be charismatic leaders, so they can communicatea vision effectively to their team and help to create astrong team. Communicating a vision to followers maybe well the most important act of the transformationalleader.[75] Compelling visions provide employees with asense of purpose and encourage commitment. Accordingto Baum et al.[76] Kouzes and Posner [77] the vision mustbe communicated through written statements and throughin-person communication. Entrepreneurial leaders mustspeak and listen to effectively articulate their vision toothers.[78]

Communication is pivotal in the role of entrepreneur-ship, because it enables leaders to convince poten-tial investors, partners and employees about the fea-sibility of a venture.[79] Entrepreneurs need to com-municate effectively to shareholders.[80]Nonverbal ele-ments in speech such as the tone of voice, the lookin the sender’s eyes, body language, hand gestures,and state of emotions are also important communica-tion tools. The Communication Accommodation The-ory posits that throughout communication, people will at-tempt to accommodate or adjust their method of speak-ing to others.[81] Face Negotiation Theory describes howpeople from different cultures manage conflict negotia-tion in order to maintain "face".[82] Hugh Rank’s “inten-sify and downplay” communications model can be usedby entrepreneurs who are developing a new product or

8 8 FINANCING

service. Rank argues that entrepreneurs need to be ableto intensify the advantages of their new product or serviceand downplay the disadvantages, in order to persuade oth-ers to support their venture.[83]

6 Educational effects

Michelacci and Schivardi[84] a pair of researchers whobelieve that identifying and comparing the relationshipsbetween an entrepreneur’s earnings and education levelwould determine the rate and level of success. Theirstudy focused on two education levels, college degree andpost-graduate degree. WhileMichelacci and Schivardi donot specifically determine characteristics or traits for suc-cessful entrepreneurs, they do believe that there is a directrelationship between education and success, noting thathaving a college degree does contribute to advancementin the workforce.Michelacci and Schivardi state there has been a rise inthe number of self-employed people with a baccalaure-ate degree. However, their findings also show that thosewho are self-employed and possess a graduate degreehas remained consistent throughout time at about 33 per-cent. They briefly mention those famous entrepreneurs,like Steve Jobs and Mark Zuckerberg who were collegedropouts, but they call these cases all but exceptional, asit is a pattern that many entrepreneurs view formal edu-cation as costly, mainly because of the time that needs tobe spent on it. Michelacci and Schivardi believe that inorder for an individual to reach full success they need tohave education beyond high school. Their research showsthat the higher the education level the greater the success.The reason is that college gives people additional skillsthat can be used within their business and to operate on ahigher level than someone who only “runs” it.

7 Project entrepreneurship

Project entrepreneurs are individuals who are engagedin the repeated assembly or creation of temporaryorganizations.[85] These are organizations that have lim-ited livespans which are devoted to producing a singu-lar objective or goal and get disbanded rapidly whenthe project ends. Industries where project-based en-terprises are widespread include: sound recording, filmproduction, software development, television production,new media and construction.[86] What makes project-entrepreneurs distinctive from a theoretical standpoint isthat they have to “rewire” these temporary ventures andmodify them to suit the needs of new project opportu-nities that emerge. A project entrepreneur who used acertain approach and team for one project may have tomodify the business model and/or team for a subsequentproject.

Project entrepreneurs are exposed repeatedly to problemsand tasks typical of the entrepreneurial process.[87] In-deed, project-entrepreneurs face two critical challengesthat invariably characterize the creation of a new ven-ture: locating the right opportunity to launch the projectventure and assembling the most appropriate team to ex-ploit that opportunity effectively. Resolving the first chal-lenge requires project-entrepreneurs to access an exten-sive range of information needed to seize new investmentopportunities. Resolving the second challenge requiresassembling a collaborative team that has to fit well withthe particular challenges of the project, and has to func-tion almost immediately to reduce the risk that perfor-mance might be adversely affected.Another type of project entrepreneurship involves en-trepreneurs working with business students to get analyt-ical work done on their ideas.

8 Financing

8.1 Bootstrapping

Sri Lanka entrepreneur Anoka Abeyrathne at a TV news confer-ence.

Entrepreneurs may attempt to "bootstrap-finance" theirstart-up rather than seeking external investors. One of thereasons that some entrepreneurs prefer to “bootstrap” isthat obtaining equity financing requires the entrepreneurto provide ownership shares to the investors. If the start-up becomes successful later on, these early equity financ-ing deals could provide a windfall for the investors and ahuge loss for the entrepreneur. As well, if investors havea significant stake in the company, they may be able toexert influence on company strategy, CEO choice, and soon.One consensus definition of bootstrapping sees it as “acollection of methods used to minimize the amount ofoutside debt and equity financing needed from banksand investors”.[88] Most commonly, entrepreneurs engag-ing in bootstrapping incur personal credit-card debt, butthey may utilize a wide variety of methods. While boot-strapping involves increased risk for entrepreneurs, the

9

absence of any other stakeholder gives the entrepreneurmore freedom to develop the company. Many success-ful companies - including Dell Computer and Facebook- started by bootstrapping.Types of bootstrapping include:[89]

• Owner financing

• Sweat equity

• Minimization of accounts payable (e.g., delaying billpayment)

• Joint utilization

• Minimizing inventory

• Subsidy finance

• Personal debt

8.2 External financing

Many businesses need more capital than can be providedby the owners themselves, and in this case, a range ofoptions is available including:

• Angel investors

• Venture capital investors.

• Crowdfunding

• Hedge funds

• Alternative asset management

• Line of credit or other loans

Some of these sources provide not only funds, but alsofinancial oversight, accountability for carrying out tasksand meeting milestones, and in the case of angel investorsand venture capital, business contacts, mentoring and ex-perience. Many external financing sources provide fi-nancing in return for an equity stake in an entrepreneur’scompany.

8.3 Effect of taxes

Entrepreneurs are faced with liquidity constraints andoften lack the necessary credit needed to borrow largeamounts of money to finance their venture.[90] Becauseof this, many studies have been done on the effects oftaxes on entrepreneurs. The studies fall into two camps:the first camp finds that taxes help and the second arguesthat taxes hurt entrepreneurship.Cesaire Assah Meh found that corporate taxes createan incentive to become an entrepreneur to avoid double

taxation.[90] Donald Bruce and John Deskins found lit-erature suggesting that a higher corporate tax rate mayreduce a state’s share of entrepreneurs.[91] They alsofound that states with an inheritance or estate tax tend tohave lower entrepreneurship rates when using a tax-basedmeasure.[91] But another study found that states with amore progressive personal income tax have a higher per-centage of sole proprietors in their workforce.[92] Ulti-mately, many studies find that the effect of taxes on theprobability of becoming an entrepreneur is small. DonaldBruce and Mohammed Mohsin found that it would takea 50 percentage point drop in the top tax rate to producea one percent change in entrepreneurial activity [93]

9 Predictors of success

Factors that may predict entrepreneurial success includethe following:[94]

Methods

• Establishing strategies for the firm, including growthand survival strategies

• Maintaining the human resources (recruiting and re-taining talented employees and executives)

• Ensuring the availability of required materials (e.g.,raw resources used in manufacturing, computerchips, etc.)

• Using that the firm has one or more uniquecompetitive advantages

• Ensuring good organizational design, soundgovernance and organizational coordination

• Congruency with the culture of the society [95]

Market

• Business-to-business (B2B) or business-to-consumer (B2C) models can be used

• High growth market

• Target customers or markets that are untapped ormissed by others

Industry

• Growing industry

• High technology impact on the industry

• High capital intensity

• Small average incumbent firm size

10 11 REFERENCES

Team

• Large, gender-diverse and racially diverse teamwitha range of talents, rather than an individual en-trepreneur

• Graduate degrees• Management experience prior to start-up• Work experience in the start-up industry• Employed full-time prior to new venture, as opposedto unemployed

• Prior entrepreneurial experience• Full-time involvement in the new venture• Motivated by a range of goals, not just profit• Number and diversity of team members’ social tiesand breadth of their business networks

Company

• Written business plan• Focus on a unified, connected product line or serviceline

• Competition based on a dimension other than price(e.g., quality or service)

• Early, frequent, intense and well-targeted marketing• Tight financial controls• Sufficient start-up and growth capital• Corporation model, not sole proprietorship

Status

• Wealth can enable an entrepreneur to cover start-upcosts and deal with cash flow challenges

• Dominant race, ethnicity, or gender in a sociallystratified culture [96]

10 See also• List of entrepreneurs• Business opportunity• Corporate social entrepreneurship• Entrepreneurship ecosystem• University spin-off• Spiral of silence• Small Business Administration• Business administration• Innovation

11 References[1] AK Yetisen; LR Volpatti; AF Coskun; S Cho; E Kam-

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[95] Scott A. Shane (1 October 2008). “7”. The Illusions ofEntrepreneurship: The Costly Myths That Entrepreneurs,Investors, and Policy Makers Live By. Yale UniversityPress. ISBN 0-300-15006-7.

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12 Further reading

• Blackburn, Robert (2008). “Small Business andEntrepreneurship”. doi:10.4135/9781446263433.ISBN 9781412934374.* Bowman, Erik (July2011). Entrepreneur Training Manual, ThirdEdition: Certified Entrepreneur Workbook. GuanziInstitute Press. ISBN 978-0-9837862-9-0.

• Deakins, D.; Freel, M. S. (2009). “Entrepreneurialactivity, the economy and the importance of smallfirms”. Entrepreneurship and small firms. McGraw-Hill Education. ISBN 978-0-07-712162-4.

• Dana, Leo Paul 2010, “Nunavik, Arctic Quebec:Where Co-operatives Supplement Entrepreneur-ship,” Global Business and Economics Review 12(1/2), January 2010, pp. 42–71.

• Duening, Thomas N.; Hisrich, Robert A.; Lechter,Michael A. (21 October 2009). Technology En-trepreneurship: Creating, Capturing, and ProtectingValue. Academic Press. ISBN 978-0-08-092288-1.

• Entrepreneurship Resources: http://www.entrepreneurship.org/

• Entrepreneurship Lesson Plan http://www.econedlink.org/teacher-lesson/228s

• Foo, M.D. (2011). “Emotions and entrepreneurialopportunity evaluation”. Entrepreneurship Theoryand Practice. 35 (2): 375–393.

• James W. Halloran. (2014). Your Small BusinessAdventure: Finding Your Niche and Growing a Suc-cessful Business. ALA/Huron Street Press. ISBN978-1-937589-44-8.

• Leitão, João; Baptista, Rui (10 June 2009). PublicPolicies for Fostering Entrepreneurship: A Euro-pean Perspective. Springer Science Business Media.ISBN 978-1-4419-0249-8.

• Lundstrom, Anders; Stevenson, Lois A. (30 March2005). Entrepreneurship Policy: Theory and Prac-tice. Springer. ISBN 978-0-387-24140-1.

• Minniti, M.; Moren, L. (2010). “Entrepreneurialtypes and economic growth”. Journal ofBusiness Venturing. 25 (3): 305–314.doi:10.1016/j.jbusvent.2008.10.002.

14 12 FURTHER READING

• Shane, S.; Venkataraman, S. (2000). “The Promiseof Entrepreneurship as A Field of Research”.Academy of Management Review. 25 (1): 217–226.doi:10.5465/amr.2000.2791611. JSTOR 259271.

• Shane, S. (2013). “The genetics of en-trepreneurial performance”. InternationalSmall Business Journal. 31 (5): 473–495.doi:10.1177/0266242613485767.

• Sobel, Russell S. (2008). “Entrepreneurship”. InDavid R. Henderson (ed.). Concise Encyclopediaof Economics (2nd ed.). Indianapolis: Library ofEconomics and Liberty. ISBN 978-0-86597-665-8. OCLC 237794267.Swedberg, Richard (1998).Entrepreneurship: The Social Science View. Stock-holm University.

• Zahra, Shaker A. (2009). “A typology of social en-trepreneurs: Motives, search processes and ethicalchallenges”. Journal of Business Venturing. 24 (5):519–532. doi:10.1016/j.jbusvent.2008.04.007.

• Zhang, S.X.; Cueto, J. (2015). “The Study of Biasin Entrepreneurship”. Entrepreneurship Theory andPractice: n/a. doi:10.1111/etap.12212.

15

13 Text and image sources, contributors, and licenses

13.1 Text• Entrepreneurship Source: https://en.wikipedia.org/wiki/Entrepreneurship?oldid=737378033 Contributors: Kku, Dori, Ahoerstemeier,

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• File:Ambassador_Verveer_Greets_African_Womens_Entrepreneurship_Program_Participants.jpg Source: https://upload.wikimedia.org/wikipedia/commons/d/d8/Ambassador_Verveer_Greets_African_Womens_Entrepreneurship_Program_Participants.jpgLicense: Public domain Contributors: Ambassador Verveer Greets African Women’s Entrepreneurship Program Participants Original artist:U.S. Department of State from United States

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