In this essay, I will use differing perspectives, ideologies and concepts to lead to an understanding of what entrepreneurship actually is and how entrepreneurs identify business opportunities. There are three main perspectives to define Entrepreneurship, each looking at an entrepreneur’s role in the business community. These are broken down into the following categories – Economic perspective, Personality trait perspective, and Process perspective. The first perspective is the Economic perspective, summarised by four theorists. I have chosen to outline the ideas of these theorists and explain them.
Schumpeter’s theory was that entrepreneurs used a method called ‘Creative Destruction’ (SCHUMPETER, 1947, P81-87) The theory of this is to find a creative way of doing a task – by bettering it, inventing a new product/idea, making the previous way obsolete, and creating a new market for an innovation. This forced the ‘new method’ to the fore by using a, better, faster or stronger method. This means that organizations have to adapt accordingly or be left behind. Schumpeter’s’ theory suggests that the entrepreneur is creative and has the ability to think up a brand new idea. The theory is defined as ‘To destroy in idea and reconfigure it in a better way’ (SCHUMPETER, 1947, P81-87)
In contrast to this theory, Kirzner (1930-) theorised that to become an entrepreneur you had to possess a certain ‘Alertness’ and be able to identify gaps in the market they are targeting. This is described as ‘the knowledge of where to find market data’ (KIRZNER, 1973, P 67). He also theorised that an entrepreneur had to be able to use their level of knowledge and identification skills to make the most of opportunities which are out there for the taking; the theory is based on the idea that business opportunities are always there, but the entrepreneur has to use their skills, to identify them, and make them work. (KIRZNER, 1973)
The third main theorist is Knight (1885-1992) Knight’s theory is named ‘Risk, uncertainty and profit’. Risk is defined as the potential of loss. The theory suggests that risk is always known, therefore can be calculated. Uncertainty is not known, nor are we able to calculate it. Profit is the end product (Imagine risk as being a monetary gamble on a roulette wheel. The entire ‘risk’ is the stake gambled, whether it be £10, £20 or £100 – from this, the ‘uncertainty’ is that, in theory, we do not know exactly where the ball will land)
Casson (1945- ) has put forward a modern theory of Entrepreneurialism which combines the theories of Schumpeter, Kirzner, and Knight. Cassons’ definition of an entrepreneur is ‘someone who specialises in taking judgemental decisions about the coordination of scarce resources’ (CASSON, 2003) The term ‘Scarce resources’ has a number of interpretations, from acquiring knowledge of rocket science, to acquiring and dealing with precious metals. His theory suggests that entrepreneurialism is ongoing, as long as opportunities for co-ordination exist. Opportunities exist as long as information exists, and that opportunities are gained from new information. The entrepreneur is an organiser who has the skills to organise, manipulate or control resources accordingly to achieve a set goal; they have an aptitude for decision making.
These theories are all based on the idea that the entrepreneur starts on a Macro level, working from the top down. They take into account all the environmental factors involved in the entrepreneurial goals. This perspective suggests that entrepreneurs influence the market with their creative ideas and processes, using these opportunities to take the market forward, leading the way and making the market more efficient; creating and realising new ideas; innovating. As the entrepreneur succeeds, they sell their ideas on, creating income, jobs, and new skill sectors.
They then start looking for the next new venture, to exploit another new market. To the contrary, the problem with this perspective is that it tends to make individual outstanding entrepreneurs pale into significance as theories are based on a grand scale; the entrepreneur becomes one of many in a macro level, meaning significant ideas seem small scale compared to the ideas of multinational corporate entities.
There is a second perspective on Entrepreneurs is that their success is based on personality traits. This perspective starts from a Micro level (namely the Entrepreneurs psychological makeup) and builds from this into a grand and successful implementation of what an entrepreneur should be; a stereotype of an entrepreneur – i.e. Steve Jobs or Bill Gates. From this theory, an entrepreneur is summarised as a risk taker with need for achievement. They are perceived to be competitive, creative, optimistic, and self-governing. Entrepreneurs are expected to be heavily influenced by age, social circumstances, background, religion and education. This theory is based on general ideas of well-known entrepreneurial stereotypes. The major flaw with this theory is that, with stereotyping, it does not always fit. It is impossible to identify one single profile that all entrepreneurs possess. Some have many similar traits; some have none yet are successful.
(BARON.R AND SHANE.S, 2008) introduce the idea that entrepreneurs use a perspective called the process perspective. This theory raises questions of what an entrepreneur actually IS and that they are defined by behaviour. This modern theory dictates that entrepreneurialism may be an acquired skill. It is actually suggested that it is possible to learn to be an entrepreneur, and that an Apprenticeship with a successful entrepreneur may lead to the student becoming an entrepreneur themselves. (TIMMONS, JA. SPINELLI, S. 2006)