Entrepreneurship & Venture Initiation
This article will focus on the process of venture initiation as it relates to the entrepreneurial process. In order to understand the process of initiating a new venture, one has to understand the field of entrepreneurship and the role of the entrepreneur. Entrepreneurship has become an important trend in the United States economy, and many individuals have elected this field as a career of choice. The increase in technology and globalization has changed the way that business is conducted as well as how entrepreneurs are categorized. It is important to understand the environment in which the new concept will operate, and most scholars would suggest providing a conceptual and process framework. Therefore, potential entrepreneurs will need to study the industry in order to develop a strategy.
In order to understand the process of initiating a new venture, one has to understand the field of entrepreneurship and the role of the entrepreneur. Many entrepreneurship scholars agree that the entrepreneurial process is a function of three variables, which are characteristics of the founder(s), the environment, and the business opportunity (Timmons, 1999). Entrepreneurship has become an important part of the United States economy, and many individuals have elected this field as a career of choice. "Entrepreneurship is a phenomenon that continues to excite the imagination of students interested in entering careers in which they must adapt to rapidly changing environments, inventors looking for ways to commercialize their discoveries, government leaders attempting to undertake economic development, and CEOs of large firms seeking to remain competitive in a global marketplace" (Allen, 2006, p. 4). All entrepreneurs believe in the success of their dreams, and expect their ventures to take off and expand.
Webster (1977) classifies the title "entrepreneur" into five different categories. He states that the distinctions between the different categories allow one to understand the different terminology in the field and practice.
Webster's Five Categories of Entrepreneur
The five different categories of entrepreneur include:
- The Cantillon Entrepreneur. Richard Cantillon introduced the term entrepreneur in the early eighteenth century to denote a person who is treated as one of the four factors of production (i.e., land, labor, capital, and the entrepreneur). The entrepreneur is considered the catalyst in the role of innovator, and is responsible for fueling growth in a capitalist economy. Entrepreneurs can be successful and make a profit when they have the ability to create an opportunity in which they have a temporary monopoly to change market products and processes before the competition has an opportunity to dilute industry profits. Many economists do not view the entrepreneur as a real person. Rather, the entrepreneur is seen as a "silent theoretical entity that makes a rational decision, strives for profit maximization as defined by the economists, and assumes managerial and other uninsurable risks in exchange for profits" (Kilby, 1971, p. 2).
- The Industry-Maker. Traditional management research views the entrepreneur as an industry-maker. Someone who builds the nation's economic system, is hard-working and willing to take risks, and invests personal assets. According to this school of thought, the entrepreneur establishes the foundation for an organization, and then builds it into an industry leader.
- The Administrative Entrepreneur. The entrepreneur role is viewed as an executive who establishes a new company, or a reorganization of an existing corporation, and becomes a permanent leader of the management team. Although there are similarities, there is a distinct difference between an industry-maker and an administrative entrepreneur. Administrative entrepreneurs are usually associated with an individual organization (e.g., Henry Ford), whereas industry makers are usually considered manipulators (e.g., Jack Welch) of an entire industry of a large segment of an industry.
- The Small Business Owner/Operator. During Webster's time, small business owners were perceived to be the local merchants, and were tied predominantly to the retail and wholesale industry. Many scholars believe that these vendors were limited in scope in regards to sales, geographical outreach, and profit potential. However, technology, particularly the Internet, has allowed service businesses as well as retail businesses to reach an international market.
- The Independent Entrepreneur. An individual who creates ventures from scratch, and who does not generally commit long-term managerial responsibilities to one venture. These individuals tend to be very creative and get a thrill from developing the business.
All five types can be seen in the system, but they have different roles. Some of the key distinctions between the groups can be reviewed in the table listed below.
Allen's Modern Categories of Entrepreneur
Characteristics Cantillon Entrepreneur Industry Maker Administrative Entrepreneur Small Business Owner Independent Entrepreneur Risk taker X X X X Risk creator X X Operates within business firm framework X X X X Operates within venture framework X Long term management affiliations X X X X Firm/Venture initiator X X X X X Capital Gain incentives X X X Salary/Wage incentives X X Profit incentives X X X X
Source: F. Webster. (1977). Entrepreneurs and ventures: An attempt at classification and clarification. The Academy of Management Review, 2(1), 55
Webster's work was written in the 1970s, and times have changed. As noted with the small business owner category, the increase in technology and globalization have changed the way that business is conducted as well as how entrepreneurs are categorized. Allen's categories (2006) are reflective of how business has been conducted in the twenty-first century. These categories include:
- The Home-Based Entrepreneur. Millions of people operate home-based businesses. Although many of these businesses start out as sole proprietors, many have grown to the point that they can compete against large, well-known businesses. Technology has made it possible for businesses to operate from any location, and home-based businesses are able to tap into resources via the Internet. Home-based businesses are usually the starting point for many businesses.
- The Cyber Entrepreneur. This type of entrepreneur enjoys the fact that he or she is able to run a full-fledged business without a brick-and-mortar location. Cyber entrepreneurs are able to process all of their business transactions with customers, suppliers, and strategic partners over the Internet. In addition, their businesses tend to be digital products and services that do not require a physical infrastructure (e.g., warehouse). Allen's 2012 edition of Launching New Ventures does not list the cyber entrepreneur as its own separate "path to entrepreneurship," as having an online component to one's business has become an essential part of entrepreneurship overall.
- The Serial...
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