David and Goliath 1 David and Goliath Entrepreneurship

David and Goliath 1: David and Goliath Entrepreneurship and Small Business

‘We now stand on the threshold of a new age - the age of revolution. In our minds, we know the new age has already arrived: in our bellies, we’re not sure we like it. For we know it is going to be an age of upheaval, of tumult, of fortunes made and unmade at head-snapping speed. For change has changed. No longer is it additive. No longer does it move in a straight line. In the twenty first century, change is discontinuous, abrupt, seditious. ’ Gary Hamel 1: David and Goliath Entrepreneurship and Small Business

Entrepreneurs use innovation to exploit or create change and opportunity for the purpose of making profit. They do this by shifting resources from an area of lower productivity into an area of higher productivity and greater yield, accepting a high degree of risk and uncertainty in doing so.

‘We learned the importance of ignoring conventional wisdom and doing things our way. . It’s fun to do things that people don’t think are possible or likely. Its also exciting to achieve the unexpected. ’ Michael Dell

Managers, Owner-managers & Entrepreneurs Owner-managers Managers Entrepreneurs

The antecedence of modern entrepreneurship Cantillon (1755) Introduced the concept of entrepreneur from ‘entreprendre’ (ability to take charge) 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Jean Baptist Say (1803, 1815) Emphasised the ability of the entrepreneur to ‘marshal’ resources in order to respond to unfulfilled opportunities 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Ely and Hess (1983) Attributed to entrepreneurs the ability to take integrated action in the enterprise as a whole, combining roles in capital, labour, enterprise and entrepreneur 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Schumpeter (1911/1934, 1928) Envisioned that entrepreneurs proactively ‘created’ opportunity using ‘innovative combinations’ which often included ‘creative destruction’ of passive or lethargic economic markets 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Knight (1921) Suggested that entrepreneurs were concerned with the ‘efficiency’ in economic factors by continually reducing waste, increasing savings and thereby creating value, implicitly understanding the opportunity-risk-reward relationship 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Hayek (1948, 1952, 1967) Continued the Austrian tradition of analytical entrepreneurs giving them capabilities of discovery and action, recognising the existence of information asymmetry which they could exploit 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Shapero (1975, 1984, 1985) Attributed a ‘judgement’ ability to entrepreneurs to identify ‘credible opportunities’ depending on two critical antecedents – perceptions of ‘desirability’ and ‘feasibility’ from both personal and social viewpoints 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Drucker (1974) Attributed to entrepreneurs a sense to ‘foresee’ market trends and make a timely response 1: David and Goliath Entrepreneurship and Small Business

The antecedence of modern entrepreneurship Kirzner (1973, 1979, 1997, 1999) Attributed to entrepreneurs a sense of ‘alertness’ to identify opportunities and exploit them accordingly 1: David and Goliath Entrepreneurship and Small Business

SME Definitions Micro Small Medium Max. employees 9 49 249 Max. turnover (euros) - 7 m 40 m Max. total assets (euros) - 5 m 27 m

Characteristics of Small Firms • • • Most are very small Strong influence of owner-manager (+ family) Short-term horizons Short of cash Raising finance a major problem Local orientation Little influence on market Scope of activity limited Over reliance on small number of customers

Lifestyle Firms • Provides ‘comfort level’ of activity • Provides acceptable income • Routine, tactical management

Growth Firms • Set up to grow • Rapid change • Risky • Strategic management

Characteristics of Growth Firms • Strong influence of entrepreneur (+ family) • Operates in uncertain, risky environment - Personal implications of failure important influence - Strongly intuitive, but self reliant and confident - Good at resolving conflict and ambiguity • Sees opportunities and pursues them - Uses innovation to create competitive advantage - Short-term, incremental approach to decisions - Flexible, adaptive, emergent approach to strategy • Relationship based approach to management

‘I am often asked what it is to be an entrepreneur and there is no simple answer. It is clear that successful entrepreneurs are vital for a healthy, vibrant and competitive economy. If you look around you, most of the largest companies have their foundations in one or two individuals who have the determination to turn a vision into reality. ’ Richard Branson

Global Entrepreneurship Monitor ECONOMIC GROWTH LEVEL OF ENTREPRENEURIAL ACTIVITY Entrepreneurial Opportunity Capacity Demography 1: David and Goliath Education Economic Infrastructure Culture Entrepreneurship and Small Business

Economists’ perspectives on entrepreneurship Industrial economist’s perspective: Growth of SMEs is explained by attractiveness of market entry into an industry because of its profitability, growth, the barriers to entry and its concentration 1: David and Goliath Entrepreneurship and Small Business

Economists’ perspectives on entrepreneurship Labour market economist’s perspective: Analysis of the factors influencing individuals to set up an SME 1: David and Goliath Entrepreneurship and Small Business

Focus of Evolutionary Theory E L W E G D O N K N O TI A V O N N I 1: David and Goliath Entrepreneurship and Small Business

Focus of Evolutionary Theory E L OW KN E G D CHANGE A V O N O TI N N I 1: David and Goliath Entrepreneurship and Small Business

Evolutionary Theory Why entrepreneurship encourages growth: 1. It encourages competition by increasing the number of enterprises. 2. It is a mechanism for ‘knowledge spillovers’ – transmission of knowledge from its point of origin to other individuals or organizations. 3. It generates diversity and variety among enterprises in any location. 1: David and Goliath Entrepreneurship and Small Business

Opportunity, innovation and entrepreneurship 1: David and Goliath Entrepreneurship and Small Business

Innovation and Competitive Advantage Frequency of Innovation High Increasing competitive advantage Low High Degree of Innovation 1: David and Goliath Entrepreneurship and Small Business

Adaptor v Innovator • • • Adaptor Employs a disciplined, • precise, methodical approach Is concerned with solving, • rather than finding, problems Attempts to refine current • practises Tends to be means • orientated Is capable of extended detail • work Is sensitive to group • cohesion and cooperation 1: David and Goliath Innovator Approaches task from unusual angles Discovers problems and avenues of solutions Questions basic assumptions related to current practices Has little regard for means; is more interested in ends Has little tolerance for routine work No need for consensus; often is insensitive to others Entrepreneurship and Small Business

Creativity, Invention, Opportunity and Entrepreneurship ENTREPRENEURIAL ENVIRONMENT INVENTION Ability to spot OPPORTUNITIES Ability to be CREATIVE INNOVATION SUCCESS 1: David and Goliath Entrepreneurship and Small Business

Invention and Entrepreneurship Hi STRUGGLER INNOVATOR STAGNATOR COPIER Creativity / Invention Lo Hi Opportunity perception / Entrepreneurship 1: David and Goliath Entrepreneurship and Small Business

Schumpter’s Innovations • Introduction of a new or improved good • Introduction of a new process • Opening of a new market • Identification of a new source of supply of raw materials • Creation of new types of industrial organization

Drucker’s Sources of Opportunity • • The unexpected The incongruity The inadequacy in underlying processes The changes in industry or market structure PLUS • Demographic changes • Changes in perception, mood or meaning • New knowledge

Why? Deliveries unreliable Sales are falling Why? Lost best Why? salesperson Why? Quality is suspect Why? Price not Why? competitive 1: David and Goliath Production bottlenecks Why? Transport problems Why? Inadequate rewards Why? Inadequate checking Why? Materials not Why? consistent We use ‘cost Why? plus’ pricing Entrepreneurship and Small Business

Heroes and Super-heroes 1: David and Goliath Entrepreneurship and Small Business

Influences on Owner-managers and Entrepreneurs Personal characteristics and traits Culture of society Antecedent influences Situational factors

Managerial Typologies Owner-manager Type of business Lifestyle firm, often trade or craft based. Will not grow Entrepreneur Growth firm. Pursuit of growth & personal wealth important Manager Manages business for others. organization similar to large firm Type of manager

Personality Characteristics: Methodological Problems • Not stable over time • Requires subjective judgements • Measures tend to ignore cultural and environmental influences • The role of education, learning, training is often overlooked • Issues such as age, sex, race, social class can be overlooked

Characteristics of Owner-Managers • The need for independence • The need for achievement • Internal locus of control • Measured risk takers

Danger Signs for Owner- Managers • Need for personal control • Unwilling or unable to delegate • Can distrust subordinates • Needs applause and recognition

Characteristics of Entrepreneurial Owners • • Opportunistic Innovative Self confident (or delusional? ) Self motivated and restless Proactive and decisive Vision and flair (creating an image) Willing to take even greater risks

‘I have always lived my life by thriving on opportunity and adventure. Some of the best ideas come out of the blue, and you have to keep an open mind to see their virtue. ’ Richard Branson

Antecedent influences on Start-ups • Education • Employment and unemployment • Family • Immigration