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Are Small Business owners entrepreneurs

To answer this challenging question, one must compare both entrepreneurs to small business managers or owners and entrepreneurial ventures to small businesses. One must also ascertain the meanings of the terms, entrepreneur and small business owner. The definition of an entrepreneur is a commonly argued point, with several definitions having been given by many different people. The dictionary gives an entrepreneur as ‘A person who engages in business enterprise, usually with some personal financial risk`. Under this definition, a small business owner could definitely be classed as an entrepreneur, as anyone who runs and owns their own business is taking risks with their finances every day of trading. However, this definition does not go into enough depth and only takes into account one trait of the entrepreneur’s personality and behavioural patterns, which, according to most other sources, does not give the whole picture.

Risk-taking is one of the main characteristics attributed to entrepreneurs, one cannot introduce brand new ideas and practices into the workplace without bearing an element of risk, as one cannot be assured of the success of the innovative idea until it has actually been put into place. Mill (1848), the man credited with bringing the term entrepreneur into

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general use among economists, believed that risk-taking was the key distinguishing factor between business managers/owners and entrepreneurs. Managers are unlikely to take risks with their business (especially in small, family run businesses) as they strive for security and stability whilst entrepreneurs have to take risks to seize opportunities and maintain the rapid growth rate that entrepreneurial ventures must maintain. However, Schumpeter (1934) who was one of the first to study and define the entrepreneur as a different kind of business person claimed that risk-taking was not so much a major trait to entrepreneurs, rather that taking risks is a natural consequence of business ownership. This has been supported by Martin (1982) who believes that risk-taking is ‘the function of the investor` – not necessarily the entrepreneur himself – and further backed up by Brockhaus (1980).

Brockhaus, in his research, found that the risk preference patterns of an entrepreneur to be statistically no different from that of a manager. Schumpeter instead claimed that innovation was the key factor in ascertaining the difference between an entrepreneur and an ordinary business person. By this, he meant that an entrepreneur goes about their business and becomes successful by creating new ways of carrying out established processes. For example finding new methods of production or service. McDonalds can be seen to be an entrepreneurial business, as when it started, there were no other burger chains that pre-cooked their burgers to allow for rapid service, and they can therefore be described as the pioneers of ‘Fast Food`. Carland, Hoy and Boulton explored this theory to a greater degree and suggested that “An entrepreneur does not innovate by creating ideas, but by exploiting the value of ideas”. When we apply Schumpeter’s theory to a small business owner, we can see that they do not fall into the same category as your typical businessman, who tends to stick to tried and tested formulae.

For example, the small village shop owner is creating no new methods of operating, neither is a franchisee (although the franchise may be innovative, the actual franchisee will be sticking to a set of guidlines or rules and using pre-set methods of supply and service). Schumpeter (1934) also suggested that an entrepreneurial venture can be identified by its strategic behaviour, namely five specific categories of behaviour common in all entrepreneurial businesses. These characteristics are supported by Vesper (1980) and can now be used as the basis for classification criteria, they are: 1. Introduction of new goods 2. Introduction of new methods of production 3. Opening of new markets 4. Opening of new sources of supply 5. Industrial Reorganisation If any of these criteria can be found in a firm’s business strategy, then it may be classified as an entrepreneurial venture. Using these criteria, it is possible that a small business could be classed as entrepreneurial. For example, if a flower selling shop opens in a small town or village where previously no flower shop has existed, then that venture can be said to be entrepreneurial, as it introducing new goods (locally) and possibly opening new markets.

Another point to be considered when comparing entrepreneurial ventures with small businesses is that of growth. It is essential for an entrepreneurial venture to grow rapidly to capitalise on the niche it has found in the market before other like-minded opportunists seek to join them, therefore your ideal venture will have a high growth rate, aiming to achieve maximum potential profits. If this growth rate is maintained, the company/venture can become quite a large venture, for example, take Richard Branson’s Virgin Group, with sales of well over US$1 billion world-wide. Although entrepreneurs are commonly referred to as individuals (typically Richard Branson, Bill Gates or Mr. Amstrad) they will have many people working for them (and will keep employing more whilst successful). As Richard Branson said in his video, the most important thing in the Virgin group is the people working in it. An entrepreneur, although will probably start out on his own, soon builds up an organisation to cope with the ever-increasing workload.

A small business on the other hand, will nearly always have fewer than 100 employees and almost certainly will be operated from a single establishment that is the only business outlet. The Small Business Administration defines small businesses in the Small Business Act as “one which is independently owned and operated and which is not dominant in its field of operation” Vesper suggested that most small business owners do not intend to allow their ventures to grow beyond a certain size which would make the company unmanageable in their eyes, as these businesses have either little or no growth, they can be described as stagnant.

Gleuck (1980) carried out research in family-run and owned small businesses and concluded that the strategies within such a business are more orientated around providing an opportunity for family investment and employment rather than a strict profit-orientated approach. He also suggested that such a business has a strong preference for independence and as such, control. In contrast to this, according to Gleuck, if an entrepreneur, were running the same business, he or she would strive for maximum profit and efficiency, even at the cost of family employment if necessary. Below is a table showing the differences between small business managers/owners and entrepreneurs. It goes some way to explaining the ingrained reasons a person exists as an entrepreneur or not using sociology and psychology.

THE RANDOM ‘LAISSEZ-FAIRE` OF HOW ENTREPRENEURS EMERGE THE ‘SOCIAL ENGINEERING` VIEW, HOW SMALL BUSINESSES EMERGE FORMATION OF BASIC MOTIVATION Assumed to be ‘in born` and determined relatively early in life. Assumed to be the result of a wide range of influences through life (including class, family, education, career, etc.). INFLUENCES DURING ADULT LIFE ON DESIRE TO BECOME AN ENTREPRENEUR Desire comes from within. Is a response to personality. Is the result of interaction with others. ACQUISITION OF NEW BUSINESS IDEAS Explained by chance, fortune and fate as well as the given personality trait. Explained as an ongoing process with a degree of pattern and predictability according to the knowledge of both the individual and the range of social situations he finds himself in. EXPLANATION OF THE BUSINESS ENTRY DECISION Seen as an individual and personal event: the new entrepreneur is ‘born not made` with an almost ‘subconscious search` for the right opportunity. Can be explained in terms of group interaction and pattern of life.

ASSOCIATED INTERVENTIONIST PHILOSOPHY BY GOVERNMENT Because entrepreneurship involves ‘natural selection` then external intervention seen as essentially marginal. Activity is therefore best directed toward removing assumed environmental obstacles such as taxation. Belief that social intervention can activate the individual and environment to desired ends. One overlap that arises when comparing small business owners to entrepreneurs, is that of time. There could be a situation when a small business owner, once set up and succeeding financially, may decide to expand his business. Initially this business owner is just a simple manager/owner, but over time he will develop the characteristics of an entrepreneur. This could be regarded as a change from being cautious and sedentary to being a risk taker and dynamic – an entrepreneur. From this example, it can be seen how complicated the situation is and as can be seen from all the research and examples that although the terms entrepreneur and small businessman overlap, they are not one and the same.

A small business owner is not driven by a need for achievement (Liles – 1974), nor does he continually strive for growth and expansion or diversification of his business. As opposed to this, the small business owner is less inspired and motivated by his or her personality to continually take risks with the aim of ever-increasing profits. The major differences between the two types of businesspeople spring from their personalities, although there are similarities (need for independence and authority, sense of responsibility and self-confidence), the differences are more significant and have a greater effect upon the way that they go about their enterprises.

Bibliography:

 Carland, Carland, Hoy & Boulton – “Who becomes an entrepreneur, Is a question worth asking.” · Carland, Carland, Hoy & Boulton – “Differentiating Entrepreneurs from Small Business Owners: A Conceptualisation.” · Lecture Notes – Luke Pittaway · www.virgin.co.uk – Richard Bransons’ Biography · Kuratko D.F & Hodgetts R.M. – Entrepreneurship – A Contemporary Approach (Fourth Edition, Dryden Press Entrepreneurship Series) · Kilby P – Entrepreneurship and economic development (1971) · Hournaday J.A & Aboud J. – Characteristics of successful entrepreneurs (1971) · Glueck W.F. – Business policy and strategic management (1980)

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