Chapter 1 – Economic Growth and
Technology Entrepreneur
1.1 THE ENTREPRENEUR’S CHALLENGE
Entrepreneurs are people who identify and pursue solutions among problems, possibilities among needs,
and opportunities among challenges. Entrepreneurship is focused on the creation of a new enterprise
that serves society and make a positive change. Entrepreneurs seek to achieve a certain goal by starting
an organization that will address the needs of society and the market place. They are prepared to
respond to a challenge to overcome obstacles and build a business. For an entrepreneur, a challenge is a
call to respond to a difficult task and the commitment to undertake the required enterprise. Typically,
entrepreneurs create a novel response to an opportunity by recombining people, concepts and
technologies into an original solution.
Opportunities are favorable junctures of circumstances with a good chance for success or
progress. Attractive opportunities combine good timing with realistic solutions that address important
problems in favorable contexts. It is the job of the entrepreneur to locate new ideas, to determine
whether they are actual opportunities, and, if so, to put them into action.
Challenge = a call to respond to a difficult task and the commitment to undertake the required
enterprise.
Opportunity = favorable juncture of circumstances with a good chance for success or progress.
Entrepreneurship = the nexus of enterprising individuals and promising opportunities, or the
identification and exploitation of previously unexploited opportunities.
Four steps to starting a business
1. The founding team or individual has the necessary skills or acquired them.
2. The team members identify the opportunity that attracts them and matches their skills. They
create a solution to match the opportunity.
3. They acquire the financial and physical resources necessary to launch the business by locating
investors and partners.
4. They complete an arrangement or contract with their partners, with investors, and within the
founder team to launch the business and share the ownership and wealth created.
1.2 THE ENTREPRENEUR
The entrepreneur is a bold, imaginative deviator from established business methods and practices, who
constantly seeks the opportunity to commercialize new products, technologies, processes and
arrangements. Entrepreneurs thrive in response to challenges and look for unconventional solutions.
They apply creativity, create visions, build stories that explain their visions and then act to be part of the
solution. They forge new paths and risk failure, but persistently seek success.
Members of the entrepreneurial team must exhibit leadership qualities. Leadership within an
organization enables the organization to adapt and change as circumstances require. A real measure of
leadership is the ability to acquire needed new skills as the situation changes. Moreover,
entrepreneurship is an attitude and capability that diffuses beyond the founding team to all members of
an organization.
Leadership = the ability to create, change or transform organizations.
,Members of an entrepreneurial team decide whether to act as entrepreneurs based on seven factors.
Good entrepreneurs tend to seek (1)independence, (2)financial success, (3)self-realization, (4)validation
of achievement, and (5)innovation, while (6)fulfilling leadership roles. At the same time, potential
entrepreneurs evaluate the negative factors associated with an opportunity, (1)risk for potential loss of
income and wealth and (2)work effort and stress.
Context can have an important effect on whether or not someone becomes an entrepreneur. On an
individual level, people act as self-employed entrepreneurs when that career path is felt to be better
than employment by an existing firm.
U = f (Y, I, W, R, O)
where
U = utility W = work effort
Y = income R = risk
I = independence O = other working conditions
It must be assumed that income depends on turn on ability. People will have an incentive to become
entrepreneurs when the most satisfaction (utility) is obtained from the entrepreneurial activity.
Entrepreneurship pays off due to higher expected income and independence when reasonable levels of
risk and work effort are required. Potential entrepreneurs must be careful to do an honest assessment of
their motivation and skills. Many entrepreneurs overweigh the benefits of independence and income,
and underestimate the work effort required.
EA = (Y + I) – (W + R)
where
EA = entrepreneurial attractiveness
And Y, I, W and R = 1 – 5
Entrepreneurs are multitalented individuals who leverage their capabilities and interests to pursue a
particular opportunity, almost always with the help of a team. The decision is to pursue an
entrepreneurial path and a particular opportunity is determined by weighing benefits against downsides.
1.3 ECONOMICS AND THE FIRM
Economics = study of the production, distribution, and consumption of goods and services.
Economic system = system for the production and distribution of goods and services.
Society operating at its vest, works through entrepreneurs effectively managing its material,
environmental, and human resources to achieve widespread prosperity. Entrepreneurs are the people
who arrange novel organizations or solutions to social and economic problems. They are the people who
make our economic system thrive. Given the limitations of nature and the unlimited desires of humans,
economic systems are schemes for (1) administering scarcities and (2) improving the system to increase
the abundance of goods and services. A nation is wealthier when it has more of these goods and
services. Nations strive to secure more prosperity by organizing to achieve a more effective and efficient
economic system. It is entrepreneurs who organize and initiate that change.
Productivity = quantity of goods and services produced from the sum of all inputs.
Natural capital = those features of nature that are directly or indirectly utilized or are potentially
utilizable in human, social and economic systems.
Financial capital = financial assets which allow entrepreneurs to purchase what they need to produce
goods and services.
,The inputs into the economy are natural capital, financial capital, and intellectual capital. The outputs are
desired benefits or outcomes and the undesired waste. An appropriate goal is to maximize the beneficial
outputs and minimize the undesired waste. Because of the nature of ecologies, natural capital may be
subject to irreversible change at certain thresholds of use or impact.
Intellectual capital = the talents, knowledge and creativity of its people, the efficacy of its management
systems and the effectiveness of its customer and supplier relations.
Human capital (HC) = combined knowledge, skill, and ability of the company’s
employees .
Organizational capital (OC) = hardware, software, databases, methods, patents and
management methods of the organization that support the human capital.
Social capital (SC) = quality of relationships with a firm’s suppliers, allies, partners and
customers.
The economy consists of the summation of all organizations, for-profit as well as nonprofit and
governmental, that provide beneficial outputs for society. Entrepreneurs constantly form new
organizations or enterprises to meet social and economic needs. The purpose of a firm is to establish an
objective/mission and carry it out for the benefit of the customer. A firm exists as a group of people
because it can operate more effectively and efficiently than a set of individuals acting separately.
Furthermore, a firm creates conditions under which people can work more effectively than they could on
their own. Thus, firms exist to coordinate and motivate people’s economic activity. A firm is more
effective because (1) it has lower transaction costs and (2) the necessary skills and talent are gathered
together in effective, collaborative work.
The transformation of inputs into desired outputs is based primarily on the intellectual capital
and the entrepreneurial capital of the firm.
Entrepreneurial capital (EC) = combination of entrepreneurial competence and entrepreneurial
commitment
Entrepreneurial competence = ability (1) to recognize and envision taking advantage of an opportunity
and (2) to access and manage the necessary resources to actually take advantage of the opportunity.
Entrepreneurial commitment = dedication of time and energy necessary to bring the enterprise to
initiation and fruition.
Both commitment and competence are required to provide significant entrepreneurial capital.
EC = Ecomp x Ecomm
The accretion of knowledge and experience over time leads to increased competence as people
mature. However, commitment of energy and time may decline when people become less interested in
or available for the necessary entrepreneurial competence activities. Both commitment and competence
are qualities of the leadership team, and they may be complementary qualities shared among the team
members.
To transform inputs into outputs, the firm also acts to develop, attract, and retain intellectual
capital. The firm develops and uses intellectual capital to build the strengths of the firm and to provide
the desired products. Intellectual capital can be thought of as the sum of knowledge assets of an
organization. This knowledge is embodied in talent, know-how, and skill of the members of an
organization. Thus, a firm needs to attract and retain the best people for its requirements. Knowledge is
one of the few assets that grows when shared. By organizing around intellectual capital, a new firm
strives to leverage it, usually through collaboration, development and sharing. The intellectual capital of
a firm is used to transform raw material into something more valuable.
, The firm’s actions are based on its knowledge of its customer, its product, and its markets. The
firm must identify and understand its customers, its competitors, and their values and behavior.
(1)A firm is clear about its mission and purpose. (2)The firm must know and understand its customers,
suppliers and competitors. (3)A firm’s intellectual capital is understood, renewed, and enhanced as
feasible. (4)The firm must understand is environment or context, which is set by society, the market, and
the technology available to it. This is the theory of a firm’s business.
One way to look at the future of a firm is as a competition among its stakeholders. Flexibility and
leanness mostly benefit from the firm’s shareowners. Placing a high value on talent gives more power to
the workers. Customers stand to gain power as competitors vie for their attention. A good reputation
means the firms needs to look after its community and society. The entrepreneur in the new firm strives
to build a firm that serves all its stakeholders well.
1.4 CREATIVE DESTRUCTION
Dynamic capitalism is the process of wealth creation characterized by the dynamics of new, creative
firms forming and growing and old, large firms declining and failing. In this model, it is disequilibrium –
the disruption of existing markets by new entries – that makes capitalism lead to wealth creation. New
firms are formed by entrepreneurs to exploit and commercialize new products and services, thus
creating new demand and wealth. This renewal and revitalization of industry leads to a life cycle of
formation, growth, and decline of firms.
Joseph Schumpeter described the process of new entrepreneurial firms and waves of change as
creative destruction. He argued that the economy is in a perpetual state of dynamic disequilibrium.
Entrepreneurs upend the established order, unleashing a gale of destruction that forces incumbents to
adapt or die. Schumpeter argued that the concept of perfect competition is irrelevant because it is
focused entirely on market (price) competition, when the focus should be on technological competition.
Creative destruction incessantly revolutionizes the economic structure from within, destroying the old
structure and creating a new one. Entrepreneurs match ideas for change with opportunity. These
changes include the adoption of new and better (or cheaper) sources of input supplies, the opening of
new markets, and the introduction of more profitable forms of business organization.
The profit of the new firm is key to economic growth and progress. By introducing a new and
valuable product, the innovator obtains temporary monopoly power until rivals figure out how to mimic
the innovation. Economic progress is reflected in productivity growth, which provides for increases in
people’s standard of living. Rising output per worker comes from two sources: (1) new technology and
(2) smarter way so doing work.
1.5 INNOVATION AND TECHNOLOGY
Little doubt now exists that the economy is driven by firms that capitalize on change, technology and
challenge. New technologies are often a source of disequilibrium or discontinuity, and Schumpeter’s
theory was based on disruptive or “radical” innovation. Technology includes devices, artifacts, processes,
tools, methods, and materials that can be applied to industrial and commercial purpose.
Modern entrepreneurial firms breed a constant flow of high-impact products that create value and
stimulate economic growth by bringing new methods, technologies and ideas to the global market place.
Population growth and a worldwide rising middle class, combined with tightening energy
supplies and fears of climate changes, have prompted a move toward socially and environmentally
responsible business. The goal is to provide housing, transportation and energy systems that use less
energy and emit less pollution and carbon dioxide. The concept is to use knowledge and innovation to
create and implement sustainable energy systems and to increase resource productivity.
, A clean energy system would consist of a mixture of energy generation, transmission, and
utilization in ways that best use natural resources and minimize environmental impacts. By clean and
green we mean a system based on conservation, best uses of natural resources, and minimizing
environmental impacts.
Technology entrepreneurship is based upon intellectual capital. Today’s successful firms don’t
focus primarily on managing physical assets, rather they manage knowledge and intellectual capital. For
many firms, intellectual capital is the organization’s most important asset, more valuable than its other
physical and financial assets. This intellectual property appropriately applied, will determine success or
failure.
While innovation and intellectual property are critical, a dynamic economy ultimately rests on
the actions of entrepreneurs who assume and accept the benefits and risks of an initiative. Three factors
make up entrepreneurial action:
1. A person or group who is responsible for the enterprise.
2. The purposeful enterprise.
3. Initiation and growth of the enterprise.
The purposeful enterprise may be a new firm organized for a suitable and attractive purpose or a new
unit within or separated from an existing business corporation. Furthermore, the organization may be
based on radical innovation, incremental changes, imitation, or rent-seeking behavior.
Radical innovation = the entrepreneur engages in an innovative activity that result in novel methods,
processes, and products.
Incremental changes = emphasizes the founding and management of a business that builds upon and
improves an existing product or service.
Imitation = founded by an entrepreneur who is involved in the rapid dissemination of an innovative idea
or process. This person or group finds a novel innovation and transfers it to another environment, region
or country.
Rent-seeking behavior = focuses on the use of regulation, standards, or laws to appropriate some of the
value of a monopoly that is generated somewhere in the economy.
Chapter 2 – Opportunity and the Concept
Summary
The identification and evaluation of opportunities is one of the entrepreneurs most important tasks.
Good opportunities address important market needs. Examining social, technological, and economic
trends can led to the identification of emerging needs. The choice of an opportunity and the decision to
act is a critical juncture in the life of an entrepreneur.
2.1 OPPORTUNITY IDENTIFICATION
The first role of an entrepreneur is to identify and select an appropriate opportunity. Effective
entrepreneurs often find that opportunity identification is a creative process that relates a need to the
methods, means, or services that solve the problem. They recognize and pursue opportunities that are
based on meeting a need in the market place, solving a problem, or filing a niche within a reasonable
time.
Opportunity = timely and favorable juncture of circumstances providing a good chance for a successful
venture.
