ISL453U-ENTREPRENEURSHIP
Chapter 1: Entrepreneurial Mindset
Introduction
In an increasingly intense world based on knowledge economy and competitive advantage, entrepreneurs and entrepreneurship need to be more effective and increase their competitive power.
Entrepreneurs must undertake specific responsibilities in society while carrying out their activities. For this reason, the economic activities and social responsibilities of entrepreneurs should not be considered separate from each other.
Definitions and Concepts in Entrepreneurship
Entrepreneurship is an interdisciplinary concept. Therefore, the meaning and use of entrepreneurship vary. It has been defined in various ways as the process of starting a new enterprise. It is also thought that entrepreneurship is simply the creation of employment. Another definition of entrepreneurship is the process of using new and unique factors of production to drive economic growth.
The entrepreneur concept comes from the French word “entreprendre,” which means “to start something, take on something”.
Richard Cantillon an economist is the one who first used the term entrepreneur in theory. According to Cantillon, an entrepreneur specializes in taking risks. Risk-taking is one of the critical characteristics of entrepreneurs.
The definition of an entrepreneur was advanced by Jean Baptise Say after Cantillon. In this definition, it was emphasized that the entrepreneur should have the ability to organize and manage production inputs and take risks.
Knight made a distinction between risk and uncertainty, concluding that risk, a calculable parameter, is insurable, while uncertainty cannot be calculated. According to Knight, entrepreneurial activity leads to balance, not imbalance.
Joseph A. Schumpeter defined entrepreneurship as the process of “creative destruction”. Schumpeter focuses on the innovative aspect of entrepreneurship.
Mises and Kirzner, the entrepreneur is the one who realizes profit opportunities in the process of economic change, meets new needs, and overcomes market disruptions
Entrepreneurship is explained by as the ability to organize the inputs of production and risk-taking features to benefit from emerging opportunities or to create new opportunities. Although this approach emphasizes entrepreneurship’s commercial aspect, it has been understood that non- profit-oriented entrepreneurship exists today. So, the concept of entrepreneurship is explained by focusing on value creation with concepts such as public entrepreneurship, social entrepreneurship, corporate entrepreneurship, and commercial entrepreneurship.
Economic theories explain entrepreneurship with the profit motive, and business theories explain the organizational climate and management features. In addition to these, psychological and sociological theories have made significant contributions to this field, emphasizing non-profit motives while dealing with entrepreneurship. Psychological theories of entrepreneurship try to explain the entrepreneurial personality based on personal characteristics.
Characteristics of Entrepreneurs
Entrepreneurship is an act, and an entrepreneur is the one who does it. It is known that the experiences of entrepreneurs are essential, along with their characteristics. The most important of these experiences are education, age, and work history.
Education
Education is vital for the progress of the entrepreneur. Education plays an essential role in helping entrepreneurs cope with the problems they face. The general education (and experiences) of an entrepreneur can provide problem- solving skills in many different situations.
Age
When examining the relationship of age with the entrepreneurship career process, there are essential factors to consider. These factors are entrepreneurial age and chronological age. Entrepreneurial experience is one of the best predictors of success, especially when the new venture is in the same area.
It also appears that every five years (25, 30, 35, 40, and 45), there is a turning point age at which an individual is more likely to start an entrepreneurial career.
Work History
The work history also plays a role in the eventual success of the venture by influencing the decision to start a new entrepreneurial experience of the new venture’s growth.
The previous technical and industry expertise of the person plays a vital role in this process. Experience is especially important in product or service development, development of production and distribution channels, and financing.
Four essential elements stand out in the explanations made about entrepreneurs’ characteristics. These elements are briefly explained below:
Risk: The entrepreneur has to undertake certain risks in his activities.
Income: Returns are the rewards of being an entrepreneur. The prize here is not profit but creating value. The profit obtained is also an indicator of the level of success. Feelings of independence and personal satisfaction follow value creation and profit.
Effort: A certain amount of time and effort is spent to create a new product/service.
Creation: The product/service subject to design should make sense for both the entrepreneur and the users it is developed for.
There is no full consensus on the profile of a successful entrepreneur. However, some studies suggest that some personal characteristics, such as leadership, ambition and self-confidence, creativity, dedication, determination, and flexibility, are vital for entrepreneurship
Leadership is creating rules and setting goals. It is the capacity to act by seeing that success will be achieved by following the rules.
Ambition is the factor that gets an entrepreneur started and motivated. It gives the entrepreneur the power to persuade others to believe in his vision. Therefore, it enables the entrepreneur to be focused on and understood by other people.
Self-confidence thrives through actions that reduce the level of risk and uncertainty. Expertise also contributes to the formation of self-confidence.
Creativity is the beginning that enables the development of new products, services, or methods for doing business. It is the driving force of innovation and growth. Creativity allows you to get rid of prejudices by continually learning and questioning.
Dedication is the force that motivates the entrepreneur to work tirelessly, especially at the beginning stage. It is necessary to generate a lot of ideas and work hard at all stages.
Determination is an intense desire for success. It also includes stability and the ability to recover after difficult times. Profit is not the primary motivation for a determined entrepreneur. Success is the main motivation; profit is its reward.
Flexibility is the ability to respond quickly to changing market needs and conditions. The entrepreneur’s vision may even change due to market conditions.
Entrepreneurial Thinking
Entrepreneurs usually don’t follow theoretical approaches or concepts. They can often have extraordinary ways of thinking. This way of thinking can be called entrepreneurial thinking or entrepreneurial mindset.
The concept of entrepreneurship can be defined as the set of activities required to seize an opportunity, define a business idea, find the necessary resources, and then start a movement.
Entrepreneurial thinking is a mindset that emphasizes learning to understand the opportunity and take advantage of it depending on the situation. Entrepreneurs in most countries, industries, and markets challenge existing circumstances to create value in innovative and creative ways. This challenge can be seen as specializing in new products, giving expertise to social innovations, or
institutionalizing entrepreneurial activities within systems and processes. The basis of entrepreneurial thinking is the practice of “effective reasoning” instead of “causal reasoning”.
Entrepreneurial thinking generally has four main components. These are risk-taking, pioneering, innovation and creativity, and competitive thinking.
The risk-taking process determinants are real and perceived value, opportunity size, entrepreneur’s skills and goals, and the type of competition. Entrepreneurs should pay attention to market structure, technological change, public regulations, and competition while taking risks.
Pioneering is taking action by making the necessary decisions rather than following others. The entrepreneur should be a pioneer who takes responsibility for the awareness that he is more visionary than his competitors.
Innovation and creativity refer to searching for creative, unconventional, and new solutions to problems and needs. These solutions can emerge as new products and services, using new technologies or production processes.
Competitive thinking is an indispensable element of entrepreneurship. Competition creates a favorable market environment for both businesses and consumers. The competition enables entrepreneurs to produce quality products, work efficiently, and be consumer-oriented to survive in the market. Both establishing a new company and restructuring an existing one can increase economic efficiency. In the organization and processes, companies’ increasing efficiency and innovations are vital. These developments increase the competitiveness of the economy. This process also generates benefits for consumers with more choice and lower prices.
Entrepreneurial Motivation
In the entrepreneurship motivation, literature, the push and pull factors that lead people to entrepreneurship are frequently mentioned. Push factors include increasing family income, dissatisfaction with job, finding a suitable job, and fulfilling responsibilities. Pull factors include the need for independence, self-realization, and increasing status and reputation in society.
Main Motivations Driving People to Become Entrepreneurs
In addition to the desire to make profit, many reasons influence the decision to start a business. The main reasons for owning a business can generally be as follows:
Earning income: Besides the risks of starting a business, the possibility of earning more money pushes people to start a business. Many people think that their earnings will be limited when they work for wages, and start a business to make more money. Once companies reach a certain level, they can provide their owners with more income than they can earn by working for others for many years.
Independence: Entrepreneurs generally do not like taking orders; they prefer to work independently, to be their own boss. Entrepreneurs are free about the decisions they make and bear the consequences of those decisions. The primary motive of starting a business is independence.
Inventions: People who have a new dream or new idea can seek financial benefits from it. They may want to start a business to profit from this new idea. Innovation and creativity are essential for business start-up resources.
Limited opportunities: People who cannot get a job as they want may have to work independently. Also, groups such as retirees and homemakers who aim to provide themselves with additional income can establish a business.
Prestige: People who do not need extra money or have sufficient earnings through other businesses sometimes establish a company to provide them with a reputation. Owning a business gives people social status in the society in which they live. Sometimes just this reason may be the reason for starting a business.
Internal and External Factors That Motivate Entrepreneurship
Entrepreneurial motivations include the internal and external triggers required to be a successful entrepreneur. These drivers can be perseverance, perception, attitude, direction, and intention.
Internally, a person’s inner impulses such as personal satisfaction and self-realization, a strong need for achievement, and independence determine whether a person will become a successful entrepreneur or not. External triggers consist of entrepreneurial culture, supportive government policies, support institutions such as educational institutions and incubators, and access to financial support. These opportunities make it easy for people to pursue entrepreneurship opportunities. Both internal and external factors can simultaneously motivate entrepreneurial action.
Family (External Factor): According to many research results, children encouraged by their parents towards entrepreneurship have more entrepreneurial characteristics than others.
Mentoring (External Factor): Entrepreneurs can develop their business ideas by consulting people who have been successful in business life or whose knowledge they trust. Mentors are a crucial external factor in testing or pivoting the visions of entrepreneurs.
Awareness of opportunities (Internal Factor): Entrepreneurs lookout for profitable opportunities around them. When they find a business opportunity with acceptable risk, they test these business ideas and use their resources in line with this business idea.
Imitation (External Factor): Entrepreneurs develop new production techniques, introduce new products and
services, and establish new businesses. However, some countries’ economic growth processes show that imitation can also be an essential economic development element. Entrepreneurs can also develop business ideas by imitating other successful ideas.
Using Skills (Internal Factor): Many people instinctively consider starting a business based on job skills. Owned skills can be significant sources of business ideas. However, many other people likely have the same abilities and therefore, robust competition on the other side.
Horizontal thinking (Internal Factor): This technique encourages entrepreneurs to look at things differently. Horizontal thinking produces unconventional, creative, and proactive results. For example, it can help think about specific groups of people rather than just thinking about needs and expectations in general. After grouping people among themselves, we can identify some of their possible needs, expectations, and problems.