This is a comprehensive summary of the Essentials of Entrepreneurship course. I mention many examples and explain everything in detail. I've also included some of the literature in the summary and there are lots of images in it.
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Essentials of entrepreneurship
Lecture 1: Entrepreneurial opportunities
Classic views on entrepreneurship
Economic systems consists of three agents:
1. The landowners → no fixed income which are the capitalists and who are financially
independent.
2. Hireling, wage workers → fixed income because hired by the landowners
3. Entrepreneurs → involved in arbitrage but it involves uncertainty which cannot be insured →
they can identify the market inefficiency because of the arbitrage to make the market more
efficient and they are willing to take risks to match market and solution better.
The entrepreneur is the central economic actor. By engaging in arbitrage and bearing risk, the
entrepreneurial class has an equilibrating function within the economic system. This is the view by
Richard Cantillo where his view is a bit myopic in one aspect which is that he excluded the
landowners and the laborers from economic uncertainty.
Jean-Baptiste Say says that the production process requires 3 operations:
1. Theoretical knowledge construction
2. The application of the knowledge → entrepreneur
3. Execution
Entrepreneurs are coordinators, modern leaders and managers. They take different roles within the
economy at the same time. So they must have different qualities. The successful entrepreneur needs a
rare combination of qualities and experiences. This results in the fact that the number of competitors is
limited.
Alfred Marshall says that entrepreneurs drive the production and distribution process. They coordinate
supply and demand on the market, capital and labor within the firm. He also sees the entrepreneurship
as provision of innovations and progress. Here, the entrepreneur his general ability depends on family
background, education and innate ability but also on specialized abilities and the natural leader of men.
Joseph Schumpeter says that entrepreneurship is an innovation as an endogenous process. Any
technological or innovation change comes from entrepreneurs who are willing to take risks and who
want to go for new and innovative ideas. They are the prime mover of the economic system.
Entrepreneurs create new equilibriums like creative destruction which means that you destroy
something that already happens to create something new. Entrepreneurs should have a special type of
knowledge, knowing where to look for knowledge (alertness). Entrepreneurs have great self-efficacy,
internal locus of control, tolerance for ambiguity and a need for achievement, in comparison to non-
entrepreneurs.
Frank Knight days that there is a distinction between uncertainty and risks. Entrepreneurs are held
responsible for economic progress. Here, the essence of the entrepreneur’s position is his
responsibility for direction and control whenever uncertainty is involved. The entrepreneurial ability is
the high degree of self-confidence, the power to judge personal qualities to those of other individuals,
to act on one’s own opinion, to have leadership and intellectual capacity.
Israel Kirzner studies at the Austrian School of economics where the motivations, judgements and
actions of individual actors are central. He mentions that the entrepreneur requires no special ability or
personality to carry out his function. He believes entrepreneurship requires a special type of
knowledge where you must know where you look for knowledge which is called alertness.
Entrepreneurs are the persons in the economy who are alert to discover and exploit profit
opportunities. Alertness is thus necessary to better match between supply and demand.
Defining an entrepreneur
An entrepreneur has functions, roles, personality, competence, behavior and performance:
, 1. Functions: innovation, risk taking and judgement in project selection
2. Role: founder of firms, owner-manager, partner and salaried chief executive
3. Personality: self-confident (imaginative and pragmatic) and takes a distinctive view of the
world.
4. Competence: good judgement, can see the bigger picture, looks for the hidden snag and has
basic business skills.
5. Behavior: Takes responsibility, makes timely decisions and motivates colleagues.
6. Performance: Success is typically measured by wealth accumulation and reputation, although
the quality of lifestyle may also be a factor. Success also reflects the availability of
opportunities, good luck and appropriate personality and competence.
An entrepreneur has great self-efficacy, more internal locus of control, greater tolerance for ambiguity
and a higher need for achievement. An entrepreneur can also weigh the expected value over the costs,
consider concerning costs, has prior knowledge, can transfer knowledge, is optimistic and has social
ties with resource providers.
Technological, political, regulatory and demographic changes and new and different information
makes sure that economies are in constant disequilibrium. Information is not known to all parties at all
times and there are asymmetries of information and beliefs across time and space. There are also
different assumptions about the accuracy of resource value. This all creates new market opportunities
where exploitation of market inefficiencies mean new means-ends relationships which denotes the
actual causal relationship between x and y.
If entrepreneurship can be taught it is important to teach the following points:
1. Shift from psychological characteristics towards behavioral aspects (what does he/she do?)
2. Avoids misconceptions around how successful products get built. Most innovative products
built on several incremental innovations and failures.
3. Increase the emphasis on context and entrepreneurial activities. A startup is something
completely different than an established company. Existing management theories are also not
also necessarily valid.
Alvarez & Barney have made a distinction between opportunity discovery and creation.
Discovery Creation
Opportunities - Objective phenomena - Subjective phenomena
- Exists independently of entrepreneurs - Does not exist independently of
- Exogenous shocks: Exogenous shocks entrepreneurs.
are unexpected or unpredictable - Endogenous process that is
events that occur outside an industry separate from, and independent
or country, but can have a dramatic of, economic forces.
effect on the performance or markets
within an industry or country.
Decision - Risky but there is enough information - Uncertain because there is not
making to anticipate outcomes. enough information to
anticipate outcomes.
Action - You need a comprehensive business - Iterative learning process
plan. where there is a lot of
interaction with the market.
.For opportunity evaluation, it is necessary to carefully investigate market needs for problems or
needs. You can then for example find a different solution of a better/cheaper/faster option for an
already existing solution. The size and duration depend on the nature of the opportunity. The size and
duration of the opportunity is long if:
- The expected demand is large.
- The profit margins are high.
- The technology life cycle is young
, - The density of the competition is not too high
- The cost of capital is low.
By adjusting the initial vision, you can also recognize new opportunities. Opportunity evaluation may,
or may not result in new ventures. It is for example important to obtain the necessary resources in time
to exploit the opportunity. Exploitation/development processes are cyclical and iterative. There must
be several evaluations at different stages of the development process.
The key take-aways are that entrepreneurship has been the object of economic analysis since
economics existed. It can be explained in terms of behavioral, cognitive and contextual factors as well
as innate abilities such as alertness. Two important views on entrepreneurship are discovery or
creation which both conceptualize entrepreneurial opportunities, decisions and actions differently. The
entrepreneurial process is an iterative and recursive process of recognition, evaluation and
exploitation.
Lecture 2: Entrepreneurial method
In a scientific method, you do a organized, systematic, data-based, critical and objective inquiry into a
specific problem to make specific decisions. You put a systematic and organized effort into
investigating a problem and you make
use of a series of steps designed and
executed to find answers to the issues.
In the entrepreneurial method, there is a
strong resemblance with the scientific
research methods where you perform
several steps. Here, you remember
customer discovery and validation. You
also make use of the lean startup method. The entrepreneurial method is based on in-depth case studies
and qualitative research. It provides more insight in how entrepreneurs make decisions and take action.
Entrepreneurs and stakeholders often co-create new opportunities themselves. This method also helps
understand how entrepreneurs reason about specific problems in transforming an ideas into a
sustainable firm.
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