Tuesday, December 2, 2014

Misconceptions about Entrepreneurship

Muhammad Shafique

Entrepreneurship was identified by Joseph Schumpeter about a century ago as the fundamental source of economic development and growth. It essentially pertains to the creation of new value by doing something new or doing something old in a new way in a certain locale or realm. Due to its practical nature, entrepreneurship is often studied side by side with innovation. Simply put, entrepreneurship is the process of value creation through innovation.

Entrepreneurship and innovation have gained increasing attention in scientific as well as policy and management circles during the past few decades. Consequently, an international movement backed by governments and universities is underway in order to promote these. This includes development of precise measures of performance in these areas. For instance, a Global Innovation Index has been developed to help gauge and compare the performance of different nations on these accounts. Pakistan currently ranks 134 among 143 countries on the list.

Notwithstanding the obviousness of their significance, it is imperative to highlight the importance of entrepreneurship and innovation and create awareness about them. Accordingly, the Global Entrepreneurship Week is celebrated in November every year. The discussions in this regard suggest that there exist many misconceptions in Pakistan about the notion of entrepreneurship, particularly about social entrepreneurship. A few of these misconceptions are discussed and addressed as follows.

1. Entrepreneurship only concerns the creation of a new business venture. Admittedly, entrepreneurship as an academic field has historically concerned itself with the study of new business ventures. However, this specificity has been driven mainly by the fact that these entities are clearly identifiable as an object of scientific inquiry on the one hand and involve the economic risks arising out of financial investment, on the other. This does not mean that entrepreneurship is only limited to the creation and management of new business enterprises. In fact, in the broader scientific domain of economics and management of innovation, entrepreneurship is considered a phenomenon that involves the creation and implementation of a new idea in any sphere of human life. For instance, creation and implementation of new ideas within existing organizations is studied under the caption of "intrapreneurship".

2. The scale of venture is one of the most important determinants of its value (and esteem). Culturally, we tend to attach esteem to the scale. For instance, we tend to attach more social value (and respect) to a shoe factory owner than the shoemaker who makes shoes with hands, to a restaurant owner than the mobile vendor who prepares food at home and sells it on cart, and so on. The fact of the matter is that learning and organic growth are the key to solid entrepreneurial success. Let's not forget that the iconic entrepreneurial company Apple Inc. emerged from experimentation and manufacturing in a garage.

3. Financial capital is the most critical resource for entrepreneurship. We often tend to recommend the practice of entrepreneurship for the unemployed and we tend to think that money is all they need to start and run a business venture. Consequently, we waste a lot of public money in the loan schemes in which government predetermines the kind of businesses allowed in the scheme. The fact of the matter is that entrepreneurship starts with the identification of a genuine and pressing problem or need and it often needs intimate knowledge and involvement of would-be entrepreneur in a certain locale or realm. Entrepreneurship sprouts from an idea and bred by the passion and commitment to it from its germination to culmination; it is not a crown that can be crafted by one and worn by other.

History suggests that time is the greatest part of the investment an entrepreneur makes. Unfortunately, we admire the idea of time value of money proposed by financial scientists but we seem to have forgotten the age-old wisdom of value of time as a resource that can be invested for a return in future. Good news is that those who are supposedly most in need of entrepreneurship are rich in this resource and we all know that resources can be creatively substituted for one another.

It is also generally believed that entrepreneurship is a solo sport. In fact, it is the opposite. Entrepreneurs often need the advice and resources that are either not available in resource markets or they cannot afford to pay for it. Entrepreneurs often acquire such support from close personal relationships created and nurtured over a long period of time. Such portfolio of relationships constitute the social capital of the entrepreneur. However, one must hasten to caution that it has very little to do, if anything, with the 'friends' and 'links' on social media of present time.

4. Novelty is a necessary and sufficient condition for the success of an entrepreneurial initiative. Admittedly, newness of the idea is the precondition for innovation and corresponding entrepreneurial initiative but this fact is often overemphasized. Newness remains newness only to the extent till others can see, appreciate, and possibly imitate it. It is not the newness of the idea that is the source of value of innovation, it is the effectiveness of the idea in solving some important problem and the sustainability of its distinctiveness in the long-run.

5. Inventor is an entrepreneur and government must sponsor the inventors to commercialize their inventions. Entrepreneur is an individual or group who translate an invention into innovation by promoting and stimulating its adoption by customers (users). Entrepreneur does not have to be an inventor. Neither all inventors are entrepreneurs nor all entrepreneurs are inventors. What entrepreneur does is match a sizeable problem with a solution, identify and reach as many users as possible in an effective and efficient manner, arrange needed resources through relationships and incentives, and sustain the process by continuous improvement of the solution according to the changing needs and demands of customers.

6. Social entrepreneurship is about charitable use of one's own resources and cannot be pursued as a career. Admittedly, entrepreneurship has been studied largely from economic perspective but this does not mean that entrepreneurship is only confined to economic value and for-profit initiatives. Entrepreneurs get economic as well as non-economic rewards by targeting societal problem and mobilizing resources to solve those problems. Bill Gates is an entrepreneur not only as the founder of Microsoft as a business enterprise but also as the founder of Gates Foundation. Both the ventures are entrepreneurial ventures. It is not only the money he invested in both ventures that makes him entrepreneur or his initiatives as the entrepreneurial ventures. It is because he aimed at and helped solve important human problems and created purposeful employment for self and others in the process.

Social entrepreneurship is obviously concerned with not-for-profit initiatives but this does not mean a for-loss venture or charitable use of one's resources. It may provide full employment and career path to the entrepreneur as well as others. The difference between a business venture and social venture primarily concerns the choice of 'customers'. In the former case, the entrepreneurs aim at needs and problems faced by those who are able and willing to pay for the solutions. In the latter case, they choose the needs and problems of those who may not be able or willing to pay for the solution. Thus, social entrepreneurs create a conduit for diversion of resources for public good which includes building bridges between selected islands of haves and have-nots. Therefore, in business as well as social ventures, economic and social value is created through employment and mobilization of resources.

To conclude, entrepreneurship involves creativity, courage, resourcefulness, and persistence to take the initiative for creating new value in a locale or realm. It is characterized by a peculiar way of living the life of purpose and contribution. The greatest rewards of entrepreneurship are self-determination and self-fulfillment. Entrepreneurs make great contribution to the society not only because they create fruitful 'employment' for themselves but also for others while helping solve societal problems. Entrepreneurs are truly the leaders because they lead themselves and engage others meaningfully. They are important contributors to the stability and sustainability of the socio-economic system. Due to their contributions, they certainly deserve our respect, if not our gratitude.

The writer is a doctoral fellow in economics and management of innovation and technological change at Maastricht University, The Netherlands, and a faculty member at Faculty of Management Sciences, International Islamic University Islamabad, Pakistan.