What do we know about entrepreneurship and commercialization? 4 March 2015 Hans Landström SKJ Centre for Entrepreneurship Lund University, Sweden hans.landstrom@fek.lu.se Different knowledge focus (Stevenson & Jarillo, 1990) What happens on the market when the entrepreneur acts? the market Who is the entrepreneur? and Why do they act? the individual How is entrepreneurship developed? the process 1
Three eras of entrepreneurship research 1870-1940 1940-1970 1970 - Economics Era Social Science Management - Knightian view Era Studies Era - Schumpeterian view - Historical/ - Kirznerian (Austrian) view sociologist view - Psychologist/ sociologist view 1870 1900 1950 2000 Schumpeterian tradition 1st edition 1912, 2nd edition 1926, English edition 1934 (based on 2nd edition), but the 1st and 2nd editions are different. Chapter 2 The fundamental phenomenon of economic development 1. The basic assumption was that economic growth resulted from, not only labor and capital, but innovations or new combinations. 2. Innovations in the form of new products, new production methods, new raw material, new markets, and new organizational structure in industry. 3. Pioneers and swarms of entrepreneurs. 2
Schumpeter Mark I and Mark II The Theory of Economic Capital, Socialism and Development (1934; 1912) Democracy (1942) Industry characteristics Similarities Less concentrated markets. More oligopolistic and monopolistic markets. Low entry barriers. High entry barriers. Large number of small firms Economies of scale. Innovations are central to economic development. Entrepreneurship is a function that is delimited in time. The capitalist assumes the risk. Differences Focus on the individual. Focus on the function. Only first degree A lower requirement on innovations are counted. innovation level. Kirznerian tradition The entrepreneurial function involves: (a) the coordination of information, which is based on identifying the gap between supply and demand, and (b) acting as the broker between supply and demand, making it possible to earn money from the difference. Thus, the entrepreneur tries to discover profit opportunities (entrepreneurial alertness) and helps to restore equilibrium on the market by acting on these opportunities. 3
How is entrepreneurship defined economics view? What happens on the market when the entrepreneur acts? a market focus Schumpeterian definition (1934) The entrepreneur is an innovator introducing new combinations of resources, creating a disequilibrium on the market. Prod A Schumpeter Kirzner Prod B Kirznerian definition (1973) Entrepreneurs are alert to identify and act upon profit-making opportunities based on an identification of the gap between supply and demand. From economic to social science Around the Second World War The economic science focused more and more strongly on equilibrium models and models in economics became increasingly mathematic oriented. Baumol (1968) made clear that within the framework of market equilibrium, there was no room for the entrepreneurial function. Entrepreneurship and economics have never been good travelling companions. 4
Three eras of entrepreneurship research 1870-1940 1940-1970 1970 - Economics Era Social Science Management - Knightian view Era Studies Era - Schumpeterian view - Historical/ - Kirznerian (Austrian) view sociologist view - Psychologist/ sociologist view 1870 1900 1950 2000 David McClelland: The Achieving Society (1961) Research question: Why do certain societies develop more dynamically than others? Hypothesis: The values that prevail in a given society, particularly with regard to the need for achievement (nach), are of vital importance for the economic development of the society. Result: Economically better developed nations are characterized by lower focus on institutional norms, and greater focus on openness towards other people and a higher nach in society. Entrepreneur: Major driving force in the development transform a country s level of achievement to economic growth. Characteristics: nach, moderate risk taker, self-confidence, individual problem solving, etc. 5
Socio-demographical characteristics Parents occupation Education Experience (industry experience and start-up experience) Gender and age Situation in life (windows of opportunities) Alternative possibilities (revenues) Ethnicity Individual traits Needs for achievement (nach) Acceptance of risk and uncertainty Internal locus of control and self efficacy Seeking for independence Creativity and initiative power Over-optimistic and future orientation Determination and persistence Action orientation 6
How is entrepreneurship defined behavioural sciences view? Who is the entrepreneur? and Why do they act? a individual focus The great person definition The entrepreneur has an intuitive ability a sixth sense and inborn traits and instincts. Psychological trait definition The entrepreneur is driven by some unique values, attitudes, needs and traits (e.g. nach, LOC, creativity, persistence, etc.). Leadership definition Entrepreneurs are leaders of people: entrepreneurs have the ability to adapt their style to the need of the people. Three eras of entrepreneurship research 1870-1940 1940-1970 1970 - Economics Era Social Science Management - Knightian view Era Studies Era - Schumpeterian view - Historical/ - Kirznerian (Austrian) view sociologist view - Psychologist/ sociologist view 1870 1900 1950 2000 7
The environment during the 1950s and 1960s Schumpeter (1942) what we have got to accept is that the large-scale establishment has come to be the most powerful engine of progress. (p 106) Galbraith (1967) Argued that innovative activities as well as improvements in products and processes were most effeciently carried out in the context of large corporations. Therefore, economic policy should focus on large corporations. The 1960s and 1970s: Decades of creative destruction Introduction of institutional reforms, e.g. tax laws, Bayh-Dole Act, etc. Technological breakthroughs, e.g. DNA, microprocessor, etc. Globalization of the economy. Twin oil crises (1973/1979), and an uncertainty about large companies possibilities to create jobs. Change in mentality ( small is beautiful ). Political support (Thatcher and Reagan). Changes in society Entrepreneurship and Small Business Research 8
David Birch: The Job Generation Process (1979) The majority of new jobs were created with 20 or less employees often independent and young firms (thus, it was not the large firms that created new jobs). The report (54 pages) was sold in twelve copies, but its influence was enormous (among policy-makers as well as research community). Considerable debate, but many of the findings have proved very robust and have been verified in many later studies (Storey, Kirchhoff, Reynolds, Davidsson). William Gartner: Heterogeneity and behavioural orientation Entrepreneurship as a heterogeneous phenomenon There are many different kinds of entrepreneurs, there are many different ways of starting a business, many different kinds of environments, and many kinds of start-ups. (Gartner, 1985) Behavioural orientation in entrepreneurship research Systematic shift from an interest in the entrepreneur as an individual (entrepreneurial traits) to contextual and processual aspects. (Gartner, 1988) 9
The Entrepreneurial Process: Four approaches 1. Activitiy-based approach 2. Business platform approach Paul Reynolds Magnus Klofsten 3. Causation and effectuation 4. Evolutionary approach approach Saras Sarasvathy Howard Aldrich The entrepreneurial process Development of business idea Idea Business Business Business opportunity model plan New venture Careerchoice Decision to start a new venture Development of a new venture 10
Next lecture on the 18 March a more detailed presentation of the entrepreneurial process, business planning and business models. Sankataran Venkataraman and Scott Shane: The domain of entrepreneurship Entrepreneurship is a scholarly field that seeks to understand how opportunities to bring into existence future goods and services are discovered, created, and exploited, by whom, and with what consequences. (Academy of Management Review, 2000) 1. Definition discussion 2. Focus on opportunities 11
How is entrepreneurship defined management studies view? How is entrepreneurship developed a process focus Firm creation Entrepreneurship is the creation of organizations, the process by which new organizations come into existence (Gartner, 1988). Opportunities Entrepreneurship investigates how and why some individuals (or teams) identify opportunities, evaluate them as viable, and then decide to exploit them, whereas others do not, and, in turn, how these opportunities result in product, firm, industry and wealth creation (Brush et al., 2003; Shane and Venkataraman, 2000). External sources of new ideas Sources New markets emerges New technologies are created Political decisions/regulations Deregulations of systems Changes in consumer behaviour Sudden events Changes in business models Examples Mobile phone industry (end of the 1990s) Digital photography/functional food Changes within EU Financial markets in Sweden during the 1980s Music industry (CD web loading) (in the 2000s)/Health 9/11 Amazon.com 12
Individual differences (Ardichivilli et al., 2001) Education Experience Individual experience Work experience Earlier knowledge - market - customers need Entrepreneurial alertness Network (strong vs weak ties) BOR Perception of successful business ideas (Baron and Ensley, 2006) Novice entrepreneurs (first time) How novel the idea is Idea based on new technology Superiority of product/service Potential to change the industry Intuition or gut feeling Thus, focus on: Newness and uniqueness of their product or service, and gut feeling belief in its potential. Experienced entrepreneurs Solving a customer s problems Ability to generate positive cash flow Speed of revenue generation Manageable risk Other in their network with whom to develop the venture Thus, focus on: Factors and conditions related to the start and the running of the venture. 13
Business opportunity register 1. Short description of the idea 2. Trends on which the idea are based 3. Key information (e.g. customers, technical solutions) 4. Problems that may occur in the development of the idea 5. Competition (alternative solutions) 6. Sources for more information (individuals, web-pages, books) 7. Timing? 2-3 pages for each business opportunity Conclusion Who is the entrepreneur? and Why do they act? the individual How is entrepreneurship developed? the process What happens on the market when the entrepreneur acts? the market 14