HBA20c - Entrepreneurship and Business Planning - Summary 23/24
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Vak
Entrepreneurship and Business Planning
Instelling
Katholieke Universiteit Leuven (KU Leuven)
Boek
Entrepreneurship
HBA20c - Entrepreneurship and Business Planning - Summary 23/24: class notes + additional info from the book "Entrepreneurship: Successfully Launching New Ventures"
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Introduction to entrepreneurship
Entrepreneurship is the process by which individuals purse opportunities without regard to the
resources they currently control, for the purpose of exploiting future goods and services.
1. In essence, it’s the art of turning an idea into a business.
a. The entrepreneur assembles and integrates all the resources needed (i.e.
money, people, business model, strategy) to transform an invention/idea into a
viable business.
2. The word entrepreneur derives from the French word “entreprendre”, which means “to
undertake”.
a. In the early 16th century, the French men who organised and led military
expeditions were referred to as “entrepreneurs”.
b. After 1700, the term was applied to other types of adventures, mainly civil
engineering.
There are several types of entrepreneurship:
1. What’s the outcome of the entrepreneurial activity?
a. Innovative vs replicative.
2. What motivates the entrepreneur?
a. Opportunity vs necessity entrepreneurship.
i. In the West, we tend to be opportunity entrepreneurs.
ii. In poorer countries, people will start their own business as a necessity
to survive.
3. What’s the employment status of the entrepreneur?
a. Self-employed vs employee: entrepreneurship vs intrapreneurship.
i. An entrepreneur is self-employed, while an intrapreneur is working for
a company.
4. Does the entrepreneurial activity increases the size of the pie, or just the
entrepreneur’s share of the pie?
a. Productive vs unproductive entrepreneurship (ex : lobbying, crime).
Entrepreneurship can be analysed at different levels:
1. Individual level:
a. Entrepreneurs and their characteristics, strategies and achievements.
2. Firm level:
a. Firms and their size, technology they produce, managerial style and outcomes.
3. Regional and national level:
a. Relationship between entrepreneurial activities, public policy and economic
growth.
, Entrepreneurship vs small businesses
There’s a difference between entrepreneurship and small businesses:
1. Entrepreneurship research often focuses on small businesses and startups, but
innovative companies may also be regarded as entrepreneurs regardless of their size.
2. Therefore, an expanded definition of entrepreneurship encompasses people both in
small businesses and big companies, acknowledging their movement from one status
to another.
Self-employed Employee
Entrepreneurial Schumpeterian Intrapreneurs
entrepreneurs
Managerial Managerial business owners Executive managers
(ex: VCs)
a. In the entrepreneurial context, a self-employed person is the traditional
entrepreneur, called a Schumpeterian entrepreneur.
i. He was a member of the Austrian school of economics, composed of all
kinds of economists who moved from Austria to the US but stuck
together and developed a particular view on the economy in the
classical approach to economics: the government shouldn’t interfere in
the economy (opposite to the neoclassical approach, where the
government should interfere whenever there are distortions, such as
market failures, monopolies, externalities, etc).
Therefore, entrepreneurship arises when an entrepreneur employs an entrepreneurial
opportunity.
1. Entrepreneurship involves the nexus of two elements:
a. The presence of lucrative opportunities.
b. The presence of enterprising individuals.
Entrepreneur vs capitalist
There’s a difference between an entrepreneur and a capitalist.
1. Schumpeter suggests that the role of entrepreneurs can be separated from the role of
the capitalist.
a. The entrepreneur identifies opportunities in the economy, while the capitalist
bears the risk.
2. Others view risk-bearing as a key characteristic of entrepreneurship.
a. Capital markets provide a low level of capital to entrepreneurs due to moral
hazard and adverse selection, so entrepreneurs will self-finance and bear the
risk of failure.
i. Moral hazard is due to asymmetric information between two parties,
resulting in a change in the behaviour of one party after an agreement
has been concluded.
ii. Adverse selection occurs when asymmetric information is exploited.
, b. This view is consistent with empirical evidence on liquidity constraints as a
barrier to entrepreneurship.
Elements of entrepreneurship
Theory suggests that there are 3 key elements of entrepreneurship:
1. Existence of entrepreneurial opportunities.
a. They’re essentially profit-making opportunities, and come in many forms (ex:
new products, materials, technology, processes, organisation, etc).
2. Discovery of entrepreneurial opportunities.
3. Exploitation of entrepreneurial opportunities.
a. An opportunity will be exploited only if there’s a perceived positive expected
value from doing so, which is influenced by many factors at the individual
level (ex: opportunity cost, financial resources, network, education, experience,
personality) and economic/environmental level (ex: demand, competition, cost
of capital, technology lifecycle).
Motivation to become an entrepreneur
The neoclassical perspective on entrepreneurship emphasises the role of risk preference.
1. What determines who becomes an entrepreneur is their individual attributes, not
information about opportunities.
a. Everyone can recognise opportunities, and perfect competition doesn’t allow
people to recognise opportunities that others don’t see.
2. The existence of entrepreneurs emerges from the assumption that people differ in
terms of their risk preference.
a. Those who are more risk-taking become entrepreneurs, while the more risk-
averse become employees.
Other perspectives emphasise the role of asymmetric information about opportunities.
1. What determines who becomes an entrepreneur is information about opportunities, not
their individual attributes.
a. These opportunities exist for many reasons:
i. Economies operate in a constant state of transition from equilibrium to
disequilibrium, so it allows people to think at a margin.
ii. Information on market price movements is imperfectly distributed.
iii. Individuals have different beliefs about the relative value of resources.
2. For this, there are two schools of thought:
a. The cultural cognitive school believes that opportunities are subjective,
dependent on the culture in which you are.
i. Hence, distinctive cultural knowledge is the basis for achieving a
sustainable competitive advantage.
b. The sociopolitical school believes that opportunities are objective, and they
just need to be explored.
, i. Competitive advantage stems from insights gained through social
relationships, providing new information or allowing for the
reinterpretation of existing data.
Nonetheless, there’s still much to learn about what really motivates entrepreneurs.
1. Better control for entrepreneurial opportunities?
2. High need for achievement?
3. Risk-taking?
Policy-makers and entrepreneurship
Policy-makers believe that entrepreneurship promotes economic growth.
1. At the individual level, research looks for whether and how entrepreneurs outperform
non-entrepreneurs in self-realisation and personal wealth.
2. At the firm level, research looks for how size, R&D, managerial style and other factors
affect firm performance.
3. At the regional/national level, research looks for how entrepreneurship affects
economic growth.
Public policy may help individuals identify entrepreneurial opportunities, through:
1. Education (general, STEM, entrepreneurship).
a. Almost all universities have a class on entrepreneurship.
2. Patent system.
a. It guarantees protection for inventions.
And can also encourage individuals to exploit opportunities they’ve identified, through:
1. Entrepreneurship education.
2. Financial assistance, research grants.
3. Health insurance.
4. Bankruptcy laws.
Corporate entrepreneurship
Corporate entrepreneurship (or intrapreneurship) is the orientation of an established firm
towards entrepreneurship.
1. All firms fall along a continuum, ranging from highly conservative to highly
entrepreneurial.
Conservative Entrepreneurial
“wait and see” approach Proactive
Less innovative Innovative
Risk averse Risk taker
a. The position of a firm on this continuum is known as its entrepreneurial
intensity.
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