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Differentiating Entrepreneurs from Small Business Owners: A ConceptualizationAuthor(s): James W. Carland, Frank Hoy, William R. Boulton, Jo Ann C. CarlandSource: The Academy of Management Review, Vol. 9, No. 2 (Apr., 1984), pp. 354-359Published by: Academy of ManagementStable URL: http://www.jstor.org/stable/258448Accessed: 01/04/2010 10:57

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?Academy of Management Review, 1984, Vol. 9, No. 2, 354-359.

DifferentiatingEntrepreneursr o mS m a l l Business Owners :

A ConceptualizationJAMES W. CARLANDWestern Carolina UniversityFRANK HOYWILLIAM R. BOULTONUniversity of GeorgiaJO ANN C. CARLANDWestern Carolina University

The literature of small business and entrepreneurship is explored. It is es-tablished that, although there is an overlap between entrepreneurialfirmsand small business firms, they are different entities. Using the 1934 workof Schumpeterand recognizing the additions to the field of current writers,a conceptual framework is established for the differentiation of entrepre-neurs from small business owners.

Schumpeter(1934) was among the first to identifythe entrepreneuras an entityworthyof study, distinctfrom business owners and managers. He describedentrepreneurs as individuals whose function was tocarry out new combinations of means of production.To Schumpeter, this function was fundamental toeconomic development. Entrepreneurs, therefore,warrantedstudy independent of capitalists and busi-ness managers. Today there continues to be an im-plicit assumption that the entrepreneurcontributesdisproportionately to the economy of a nation, yetlittle has been done to isolate this individual for fur-ther analysis. Extending the theory of Schumpeter,who arguedthat an entrepreneurwas distinguishableboth by type and by conduct, two conceptualizationsare proposed in this paper: one for differentiatingentrepreneursfrom small business owner/managersand the second for differentiating entrepreneurialventures from small businesses.

Entrepreneurship:The ContributionBecausethe definition of entrepreneurshipdenotesthe creation of some combination that did not pre-viously exist, entrepreneurshipoften is equated with

small business ownership and management. Thesmall business sector has receivedattention in the eco-nomic and management literaturebecause of its sig-nificance to the economy. The Small Business Ad-ministration (U.S. Government Printing Office,1982) has compiled a list of statisticsthat dramaticallydemonstrate the impact of small business on the na-tion's economy:1. There are 14.7 million businesses in the UnitedStates, of which 3.2 million are farms.2. Approximately 99.7 percentof these businessesareconsidered small by the SBA's size standards forloan applicants.3. The small businesses identified above account for:38 percent of the gross national product; 44 per-

cent of the gross business product; and 47 percentof total U.S. business employment.4. The small business sector identified above ac-counted for the vast majority of the net new jobscreated by business between 1969 and 1976.Although there is no uniform definition of a smallfirm, the statistics above relate to businesses that fallwithin SBA guidelines as being small. The SmallBusiness Act states that "a small business concern

shall be deemed to be one which is independentlyowned and operated and which is not dominant in354


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its field of operation" (U.S. Small Business Admin-istration, 1978, p. 121.1).As the SBA statistics demonstrate, small businessresearch s justified because of sheernumbers.It mustbe noted that small firms are treated as a separatesector, not because they are cohesive and homoge-neous, but because there are certain common man-agement limitations due to extremely limited re-sources as compared with the "deep pockets" of re-sources of largercorporate organizations. Researchoften is directed toward the implications of publicpolicy developments or the impact of environmen-tal variables on the small business sector (Chilton &Weidenbaum, 1982;Goodman, 1981; Legler & Hoy,1982; Robinson, 1982).Although small business is a significant segmentof the American economy, the entrepreneurialpor-tion of that segment may wield a disproportionateinfluence. If entrepreneurshipcan be viewed as in-corporating innovation and growth, the most fertileground for management research may be entrepre-neursand entrepreneurialventures.Entrepreneurshiphas been found to extend beyond small businesses:some large corporations have been described as en-gaging in entrepreneurialbehavior (Ronstadt, 1982,Schollhammer, 1982, Shils, 1982). Additionally, aperson who owns an enterprise is not necessarily anentrepreneur(Martin, 1982). Clearly, an overlap ex-ists of entrepreneurship with the small business sec-tor. The concern of this paper is: If entrepreneursexist as entities distinct from small and large organi-zations and if entrepreneurialactivity is a fundamen-tal contributor to economic development, on whatbases may entrepreneursbe separated from nonen-trepreneurialmanagersin order for the phenomenonof entrepreneurship to be studied and understood?Literature Review: The "Entrepreneur"One of the earliest definitions of an entrepreneur

was that of Cantillion (circa 1700)who described theindividual as a rational decision makerwho assumedthe risk and provided management for the firm (Kil-by, 1971). Schumpeter (1934) credited Mill (1848)with bringing the term into general use among econ-omists. Mill, also, believed that the key factor in dis-tinguishing a manager from an entrepreneurwas thebearing of risk. Schumpeter,however, counteredthatrisk bearing was inherent in ownership and that en-trepreneurs, the combiners, were not necessarilyowners; therefore, the risk bearingpropensity would

notbea trait.Martin 1982)believes hatcapitalriskis a function of the investor.Further,Brockhaus(1980)cast doubt on the validityof the risktakingpropensityas an entrepreneurialharacteristicwithhisdescriptivework.Brockhaus ound no statisticaldifference n the riskpreference atternsof a groupof entrepreneursnd a groupof managers. t shouldbe noted that Brockhausused the establishment fa businessas the criterion or inclusionof the par-ticipants n the entrepreneurroup.Omittingbusi-nessownership s a designation f entrepreneurshippermitsboth theinclusion f corporatentrepreneursand theelimination f theriskbearing haracteristic.However,many writershaveassertedandcontinueto assert hatriskbearings a prime actor n the en-trepreneurial haracterand function(McClelland,1961;Palmer,1971;Timmons,1978;Welsh&White,1981).Numerousnormative nddescriptivetudieshavesupportedvarioussets of personality haracteristicsof entrepreneurship.rockhaus1982)haspresentedan excellenthistoricoverviewof the definitionsofentrepreneurs.Perhapsthe most important actorfroma societalperspectives thecharacteristicf in-novation.Schumpeter1934)believedthat innova-tion was the centralcharacteristic f the entrepre-neurialendeavor.His emphasison this point is re-vealed n his declarationhatone behavesas an en-trepreneuronly when carryingout innovations.McClelland1961)stated hatenergetic nd/ornovelinstrumental ctivitywas a key factor in entrepre-neurialactivity.Martin 1982) tressedhatentrepre-neurial reativity s different rom iterary rartisticcreativityn thattheentrepreneuroesnot innovatebycreatingdeasbutbyexploitinghevalueof ideas.Table1displaysa samplingof entrepreneurialhar-acteristicsappearing n the literature.Thecharacteristicsisted nTable1represent tti-tudes andbehaviors hatmaybe manifestedby en-trepreneurs.Demographiccharacteristics uch asbirthorder, ex,ormarital tatushavebeenexaminedin certainof the studiescited and in variousotherinvestigationsVaught&Hoy, 1981).Theyhavebeenexcluded romthepresent onceptualizationecauseof theinabilityof aprospectiventrepreneuro alterthosevariables n order o increasehis/herprobabil-ity of success.Schein's(1974)workon careeranchorsclarifiessome of the differencesn individualapproachesocareers.In studyingM.I.T. graduates'careers, he

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Table 1Characteristics of EntrepreneursDate Author(s) Characteristic(s) Normative Empirical1848 Mill Riskbearing x1917 Weber Source of formal authority x1934 Schumpeter Innovation, initiative x1954 Sutton Desire for responsibility x1959 Hartman Source of formal authority x1961 McClelland Risk taking, need for achievement x1963 Davids Ambition; desire for independence; responsibility; self-confidence x1964 Pickle Drive/mental; human relations; communication ability; technical knowledge x1971 Palmer Risk measurement x1971 Hornaday & Aboud Need for achievement; autonomy; aggression; power; recognition; innovative/independent x1973 Winter Need for power x1974 Borland Internal locus of control x1974 Liles Need for achievement x1977 Gasse Personal value orientation x1978 Timmons Drive/self-confidence; goal oriented moderated risk taker; internal locus ofcontrol; creativity/innovation x x1980 Sexton Energetic/ambitious, positive reaction to setbacks x1981 Welsh & White Need to control; responsibility seeker; self-confidence/drive; challenge taker;moderate risk taker x1982 Dunkelberg & Cooper Growth oriented; independence oriented; craftsman oriented x

found that five types of job directions were prevalent.He described these as career anchors that includedmanagerial competence, technical/functional com-petence, securityneed, independence need, and crea-tivity. The entrepreneursmade up his creativegroup.The group concerned with creativity is the most in-teresting in that it contains the entrepreneurs. Fourof these men are successful in that they have been ableto launch enterprises which have succeeded and havebrought to their founders either fame or fortune orboth. The kinds of activities vary greatly-but they

all have in common that they are clear extensions ofthe person and his identity is heavily involved in thevehicle which is created (1974, p. 19).It is difficult to sketch a profile of an entrepreneurfrom the attitudinal and behavioral characteristicslisted in Table 1. It may be more appropriate to ac-cept Vesper's(1980)view of a continuumalong whichseveral "types" of entrepreneursexist. The questionthen becomes: Which characteristicsand what levelof intensity do the entrepreneurspossess at variouspoints on the continuum? Vesper described the en-trepreneuras an individual but implied that he or shecould be found working with others in larger orga-nizations. His first type, the "Solo Self-EmployedIndividual," is essentially what is treated here as thesmall business owner/operator, but not truly an en-trepreneur n the Schumpeteriansense because a newcombination is not created.

A major obstacle preventing the attribution ofcharacteristics to entrepreneurs in firms along

Vesper's continuum is the great diversity of sourcesfrom which the authors cited in Table 1 derived theidentified characteristics.Those citations that are in-dicated in Table 1 as normative are generally anec-dotal, describing eitherthe authors' personal impres-sions or conclusions drawn from reading the worksof others. The empirical studies draw from quite di-verse samples. McClelland's (1961) entrepreneurswere in fact business executives representing variousfunctional specialities: general management, salesand marketing, finance, engineering, and personnel.Senior marketing managers were found to have thehighest need for achievement. More frequently, sam-ples of small business owners are chosen for study(Hornaday & Aboud, 1971; Pickle, 1964). The as-sumption underlying these selections is that the en-trepreneur was the individual who brought the re-sources together and initiated the venture. Success-ful entrepreneursare defined as those whose enter-prises have survived some period of time, perhapstwo years. The question then is: Are the characteris-tics listed in Table 1 those of entrepreneurs, of smallbusinessowners, or of some mixturethat may or maynot be capable of demonstrating the entrepreneurialfunction of economic development?

The Entrepreneurial VentureA considerable body of literature has been builtup treating the stages of organizational development

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(Vozikis, 1979). This growth-orientation, in and ofitself, would representan entrepreneurialcharacter-istic to some scholars (Dunkelberg& Cooper, 1982).Yet, as Vesper (1980) has pointed out in his con-tinuum of venturetypes, many business owners neverintend for their businesses to grow beyond what theyconsider to be a controllable size. It is necessary togo beyond the notion of corporate life cycles andstages to conceive of an entrepreneurial venture.Glueck (1980) distinguished between entrepreneu-rial ventures and what he termedfamilybusinessven-tures by focusing on strategic practices. Strategicmanagement in Glueck's family business must em-phasize preferences and needs of the family as op-posed to those of the business. When in conflict, theneeds of the family will override those of the busi-ness. Glueck cited the oft observed family businessstrategiesto remain independentand to provide out-lets for family investment and careers for familymembers as an example of conflict. In contrast, anentrepreneurial strategist would opt for pursuit ofgrowth and maintenance of the firm's distinctivecompetence through obtaining the best personnelavailable. Glueck's distinction is that strategic prac-tices oriented toward the best interests of the firmare observed in entrepreneurial ventures.An entrepreneurialventurecan be identified by thestrategic behavior of the firms. Schumpeter (1934)suggested that five categories of behavior can be ob-served that are characteristic of an entrepreneurialventure.These categories, listed below, are supportedby Vesper (1980)and can be used as the basis for clas-sification criteria.1. Introduction f new goods2. Introduction f new methodsof production3. Openingof new markets4. Openingof new sourcesof supply5. Industrial eorganizationBecause of the ambiguity of criterion 4, it is notemployed in this study. If any one of the remainingfour criteriais observed in a firm's strategic actions,then that firm can be classified as an entrepreneurialventure. These criteria do permit the classificationof a new small traditional firm as entrepreneurial ifthat firm represents an original entry into a market.Again, the determining factor would be whether or-ganizational activity in any of the four criteria re-sulted in a new combination, indicating innovativebehavior. Additionally, these criteriapermit mediumand large firms to be classified either as entrepre-neurial ventures themselves or as the instigators ofentrepreneurial ventures.

Schumpeter's criteria representevidence of inno-vative strategiesor innovative strategic postures. Thecriteria also emphasize the behavior of a firm con-sistent with its own best interests. This perspectiveis congruent with the development and pursuit of adistinctive competence prescribedby Vesper (1980)as a requirement for an entrepreneurialventure.

A Conceptual Distinction BetweenSmall Business and EntrepreneurshipFrom the foregoing discussion, it can be seen that,although there is considerable overlap between small

business and entrepreneurship,the concepts are notthe same. All new ventures are not entrepreneurialin nature.Entrepreneurial irmsmay beginat any sizelevel, but key on growth over time. Some new smallfirms may grow, but many will remain small busi-nesses for their organizational lifetimes.The critical factor proposed here to distinguishen-trepreneursfrom nonentrepreneurialmanagersand,in particular, small business owners is innovation.The entrepreneur s characterizedby a preferenceforcreating activity, manifested by some innovativecom-bination of resources for profit. Drawing further onthe characteristicsoutlined in Table 1, it is suggestedthat analyses of prospective entrepreneurialcharac-teristics examine such traits as need for achievement(perhaps more appropriately labeled goal-orienta-tion), internal locus of control, need for indepen-dence, need for responsibility, and need for power.Although a risk taking propensity is mentioned fre-quently in the literature, Schumpeter noted that it isinherent in ownership rather than entrepreneurship.Further, Brockhaus (1980) supported Schumpeterwith empiricalresults demonstrating that risk takingbehavior cannot be used as a distinguishing charac-teristic of entrepreneurship.From this analysis, it is suggested that many pub-lished studies may be misleadingin theirconclusions.Economic theorists propose that the entrepreneur isessential to economic development (Schumpeter,1934; Williams, 1981). Yet studies of entrepreneur-ship neglect to distinguish adequatelybetween entre-preneurs and other business managers, primarilysmall business owners. Erroneousdescriptions of en-trepreneurscan jeopardize investigations in a vari-ety of ways. Specifically, analyses of how entrepre-neurs make their fundamental contributions to eco-nomic development cannot draw sound conclusionsif the case studies are not entrepreneurial.

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To guide future studies, the following definitionsare proposed to distinguish among the entities dis-cussed in the paper:

Small business venture: A small business ventureis any business that is independently owned and op-erated, not dominant in its field, and does not engagein any new marketing or innovative practices.

Entrepreneurialventure: An entreprenuerial ven-ture is one that engages in at least one of Schum-peter's four categories of behavior: that is, the prin-cipal goals of an entrepreneurial venture are profit-ability and growth and the business is characterizedby innovative strategic practices.

Small business owner: A small business owner isan individual who establishes and manages a busi-ness for the principal purpose of furthering personalgoals. The business must be the primary source ofincome and will consume the majority of one's timeand resources. The owner perceives the business asan extension of his or her personality, intricatelybound with family needs and desires.Entrepreneur: An entrepreneur is an individualwho establishes and manages a business for the prin-cipal purposes of profit and growth. The entrepre-neur is characterized principally by innovative be-havior and will employ strategic management prac-tices in the business.References

Borland, C. Locus of control, need for achievement and entre-preneurship. Unpublished doctoral dissertation, University ofTexas at Austin, 1974.Brockhaus, R. H. Risk taking propensityof entrepreneurs.Acad-emy of Management Journal, 1980, 23(3), 509-520.Brockhaus, R. H. The psychology of the entrepreneur. In C. A.Kent, D. L. Sexton, & K. H. Vesper (Eds.), Encyclopedia ofentrepreneurship.Englewood Cliffs, N.J.: Prentice-Hall, 1982,39-57.Chilton, K. W., & Weidenbaum, M. L. Government regulation:The small business burden.Journal of Small Business Manage-ment, 1982, 20(1), 4-10.Davids, L. E. Characteristicsof small businessfounders in Texasand Georgia. Athens, Ga.: Bureau of Business Research, Uni-versity of Georgia, June 1963.Dunkelberg, W. C., & Cooper A. C. Entrepreneurialtypologies.

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Welsh, J. A., & White, J. F. Converging on characteristics of en-trepreneurs. In K. H. Vesper (Ed.), Frontiers of entrepreneur-ship research. Wellesley, Mass.: Babson Center for Entrepre-neurial Studies, 1981, 504-515.

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Winter, D. G. The power motive. New York: Free Press, 1973.James Carland is Assistant Professor of Management,School of Business, WesternCarolina University.Frank Hoy is Associate Professor of Management in theCollege of Business Administration and Director of Re-search and Experiential Education in the Small BusinessDevelopment Center, University of Georgia.William Boulton is Associate Professor of Management inthe College of Business Administration, University ofGeorgia.Jo Ann Carlandis Assistant Professor of Management inthe School of Business, Western Carolina University.

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