2.2 The Process of Becoming an Entrepreneur

Colonial and Early America: 1607–1776

The earliest concept of an “entrepreneur” can be traced to this era, from the French entreprendre, which translates as “to do something” or “to undertake.”¹⁸ Jean-Baptiste Say (1767–1832), a French philosopher, economist, and businessman, supported lifting restraints to encourage business growth, a highly liberal view in the late 1700s. “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield,” is a concept attributed to Say, as is the word entrepreneur.¹⁹

Entrepreneurial-minded persons included merchants, landowners, manufacturers in textile-related trades, shipbuilders, explorers, merchants, and world market traders.²⁰ The first immigrants to the British colonies took advantage of several key inventions developed before this era, such as printing, double-entry bookkeeping, and improvements in ship design and navigational instruments. The first North American patent was granted in 1641 by the Massachusetts General Court to Samuel Winslow for a new process for making salt. The entrepreneurial spirit of the early colonists helped shape an economic landscape that lasted for generations. Some notable pioneering inventors and entrepreneurs are shown in Table 2.2 and (Figure 2.13).

Figure 2.13 (a) William Penn founded the Commonwealth of Pennsylvania as a sanctuary for persecuted Quakers. This colony could be considered an early form of social entrepreneurship. Shown is his first draft of The Frame of Government in Pennsylvania. (b) As one of the country’s founders, Benjamin Franklin contributed to the Declaration of Independence. His accomplishments as a printer, writer, postmaster, diplomat, and scientist (he contributed to the understanding of electricity) epitomize serial entrepreneurship. In this painting by Charles Mills, a young Ben Franklin is seen operating a printing press. (credit (a): modification of “William Penn - The First Draft of the Frame of Government - c1681” by University of Pennsylvania/Wikimedia Commons, Public Domain; credit (b): modification of “Franklin the printer” by Library of Congress/Wikimedia Commons, Public Domain)

As entrepreneurship flourished in the American colonies, the economic structure also began to emerge. The prevailing view of economics was associated with the stockpiling of gold and silver. Colonists perceived imports as a reduction of metal wealth—gold and silver money—and felt that exports channeled these metals back to the colonies. To categorize the economic mindset of the time, the Scottish philosopher and economist Adam Smith (1723–1790) wrote An Inquiry into the Nature and Causes of the Wealth of Nations (1776). This influential treatise outlined the concepts of free trade and economic expansion through capitalism, a system in which individuals, people, and companies have the freedom to make decisions and own property as well as benefit from their own efforts, with government playing a secondary role in oversight. This book confirmed Smith as the “father of economics” and modern free trade. Among the most significant concepts that Smith proposed were the “invisible hand” theory of supply and demand in the marketplace; the use of the GDP to measure a country’s level of production and commerce; and the self-interest concept, whereby individuals inadvertently help others as they pursue their own goals.²¹ The ability to gain personally from entrepreneurial activities is a key factor in supporting entrepreneurial behavior. Smith’s concepts continue to influence modern economics and entrepreneurial activity.

The First Industrial Revolution: 1776–1865

As the colonies expanded, so did opportunities and interest in property ownership, manufacturing, inventions, and innovations. An innovation is any new idea, process, or product, or a change to an existing product or process. The understanding and acceptance of innovation developed around 1730, when the economist Richard Cantillon identified the first academic meaning and characteristics of “entrepreneurship” as the “willingness to bear the personal financial risk of a business venture.”²² The First Industrial Revolution was notable for the explosion of inventive activities by the “great inventors,” who pursued entrepreneurial opportunities to meet market needs, demands, and economic incentives.²³

An important thing to keep in mind is that dates of inventions don’t necessarily reflect specific launch dates. Development of these inventions may have been ongoing for years or decades before they were considered market-viable products.

A plethora of inventors and their inventions transformed several industries and economic classes across the growing nation. During this era, the country benefited from inventions that created, expanded, or revolutionized industry and increased wealth and expansion. These revolutionary inventors included Eli Whitney (cotton gin, 1794), Elias Howe (sewing machine, 1845), and Samuel Morse (telegraph, 1830s–1840s) (Figure 2.14). Many other people contributed to these and other inventions.

Figure 2.14 Inventions abounded during the First Industrial Revolution. (a) A US patent was granted to Eli Whitney in 1794 for the cotton gin. (b) This sketch shows Samuel Morse’s telegraph. (c) Elias Howe invented the sewing machine. (credit (a): modification of “Patent for Cotton Gin (1794)” by “Gamaliel”/Wikimedia Commons, Public Domain; credit (b): modification of “Morse telegraph” by Unknown/Wikimedia Commons, Public Domain; credit (c): modification of “Elias Howe Sewing Machine 1846” by Unknown/Wikimedia Commons, Public Domain)

Although he was not an inventor but an industrialist, Andrew Carnegie provides an interesting example. A manufacturer who focused on the value of innovations and how to implement them, Carnegie adopted newly developed techniques to improve steel production. He also was among the first to implement vertical integration, the strategy of gaining control over suppliers of raw materials and distributors of finished products to expand or control the relevant supply chain. He developed a reliable network of suppliers and distributors to support his steel factories. Carnegie also was one of the first magnates to practice philanthropy. He gave away much of his immense fortune to support community and public library systems, concert halls, museums, and scientific research.²⁴

These entrepreneurial pioneers, and many others like them, sought ways to earn a return on investment on an invention and to protect themselves legally through the patent process. A patent is a legal grant of protection for an inventor over the rights, usage, and commercialization of an invention for a set time period.²⁵ An early US patent was issued in 1790 to Samuel Hopkins for his process of making potash as a fertilizer ingredient.²⁶

The innovations of women, African Americans (enslaved or free persons), and other marginalized groups were crucial during this era. As we saw earlier, Sybilla Masters invented a method for grinding corn. She received a patent from the English king in 1715. But because women were not allowed to file for patents or even to own property at that time, the patent was filed in her husband’s name.²⁷ Although the invention of the cotton gin is attributed to Eli Whitney, as we have seen, it may have been based on a design by enslaved African Americans. Social and legal discrimination could limit or conceal the identities of actual inventors, especially if they were women or slaves.²⁸ Most patent applicants and awardees were White men. One exception was Mary Dixon Kies, who in 1809 became the first woman awarded a patent for her process of weaving straw with silk or thread. This was a key innovation for the hat industry, due to an embargo on European goods.²⁹ Likewise, many enslaved people were extremely innovative, but laws and prejudice prevented them from filing independently for patents. Because enslaved people had no rights, many sought patent submissions under their owners’ names but received no recognition or compensation for their efforts.³⁰ It was not until 1820 that an African American, Thomas Jennings, was granted a patent for a process called “dry scouring” for cleaning fabric.³¹ As the successes and failures of inventors and innovations expanded, so did the consumer demand for better-performing products and services. This led to the Second Industrial Revolution.

The Second Industrial Revolution: 1865–1920

Although the First Industrial Revolution had a broad scope and a transformative impact, the Second Industrial Revolution helped shape consumer demand for the latest inventions and innovations developed by small and large businesses. The breakthroughs of this era brought applicable innovations in many fields, from chemistry to engineering to medicine.³²

The nineteenth-century economists Jean-Baptiste Say and John Stuart Mill (1806–1873) refined and popularized Cantillion’s definition of an entrepreneur to capture the spirit of their era. Their definition of “entrepreneur” describes someone who creates value by effectively managing resources for better productivity, and someone who is a financial risk taker.³³

After the US Civil War and into the 1870s, many industries flourished with improvements in production organization (petroleum refinery storage, mass production) and technological systems (electricity and the telephone). Additional inventions included improvements in steel production, chemical dyes, transportation (diesel and gasoline engines, the airplane), assembly-line production, agriculture and food-processing improvements (refrigeration), textiles, and the typewriter (Figure 2.15).³⁴ As entrepreneurial activity, economic prosperity, and productivity demands increased, entrepreneurs and their inventions were highly regarded and sought after, contributing to the belief that the United States was a land of opportunity.

Figure 2.15 (a) The first commercially successful typewriter was produced by Christopher Latham Sholes and Carlos S. Glidden; this is their 1873 prototype model. (b) The Wright brothers are among the best-known pioneers of early flight. In this photo, Orville flies over their air field in 1904. (credit (a): modification of “Sholes typewriter” by George Iles/Wikimedia Commons, Public Domain; credit (b): modification of “1904WrightFlyer” by “DonFB”/Wikimedia Commons, Public Domain)

Interwar and Postwar America: 1920–1975

When World War I began, the US economy was in a recession, with Europeans purchasing US materials for the war. When the United States entered World War I in 1917, an economic boom ensued. Unemployment declined from 7.9 percent in 1914 to 1.4 percent in 1918 as the United States produced goods and equipment necessary to support the war efforts of the nation and its allies.³⁵ From an entrepreneurial perspective, World War I contributed to military-related advancements, communication equipment, and improvements in production processes. The American economic landscape began to shift during this era from small independent companies to big corporations. The smaller businesses in the previous era either dissolved or were absorbed by larger corporations. As the stock market crash of October 1929 and the Great Depression of the 1930s struck worldwide, innovation slowed. Consumer confidence waned as economic confidence and production declined, and unemployment rose.

After World War II ended in 1945, American society shifted from reliance on the traditional entrepreneur as a resource to reliance on large organizations that offered stability and job security. Corporations continued to buy up small firms to standardize innovative, large-scale mass production of goods, services, and jobs. The idea of being an entrepreneur gave way to the idea of the “corporate man” with job security and health benefits offered by big employers. Although entrepreneurship did not totally vanish, its growth slowed tremendously compared with previous years and shifted to corporate entrepreneurship, whereby large corporations funded the development of new ideas, opportunities, or ventures through formal research and development processes that focused on the corporations’ own strategies and goals. Figure 2.16 lists some of the corporations that emerged during this period.

Figure 2.16 Many important corporations developed in the decades after World War I. (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)

As economic views and confidence in how the United States might regain economic prosperity shifted, so did the scholarly meaning of entrepreneurship. One scholar and economist, Joseph Schumpeter (1883–1950), introduced theories and terminology that continue to influence modern entrepreneurial concepts and practices. He originated two critical phrases: entrepreneurial spirit, which is associated with those individuals who are productive self-starters and make things happen, and creative destruction, which he defined as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”³⁶ Schumpeter’s theory that innovation would destroy established corporations to create new ones was not a popularly held or shared view at the time. The thought leaders of this era had different approaches to addressing the rise of corporations as part of the entrepreneurial fabric of the United States. Schumpeter theorized that corporations were better positioned than individuals to support the kinds of research and development that would result in innovations and have economic impact.³⁷ To complement this view, he also proposed the concept that corporate support of entrepreneurs’ visions would result in a sustainable “capitalistic financial system” to support and expand on the free-market system espoused by Adam Smith.³⁸ In contrast, the sociologist and journalist William Whyte (1917–1999) argued that entrepreneurial culture had changed because “American business life had abandoned the old virtues of self-reliance and entrepreneurship in favor of a bureaucratic ‘social ethic’ of loyalty, security and ‘belongingness.’”³⁹

Finally, it is critical to note that the growth of corporations and opportunities expanded beyond the borders of the United States. Corporations faced novel global experiences that supported Schumpeter’s creative destruction theory, as other countries presented new dynamics to address. The annually created Global Entrepreneurship Monitor (GEM) report is a scholarly examination that examines how a group of nineteen countries benefited from venture-capital investments and the factors affecting those investments for entrepreneurial activity. This study addressed the question of entrepreneurial opportunities, entrepreneurial capacity, and entrepreneurial motivation as parts of the engagement within all industries and the direct correlation between venture-capital investment and high-growth startups.⁴⁰ The GEM report is created annually with timely and relevant information related to entrepreneurship and is available at this website: https://www.gemconsortium.org/. This cultural shift in the American entrepreneurial spirit generated new interest in the training and education of workers, ushering in the knowledge economy.

The Knowledge Economy: 1975 to Today

In the mid-1970s, the promises of corporate life began to lose their appeal to entrepreneurial-minded individuals. One change was established corporations’ shift in focus on innovations from research and development departments to internal entrepreneurial activities by intrapreneurs. An intrapreneur is an employee who acts as an entrepreneur within an organization, rather than going solo. Intrapreneurs contribute entrepreneurial ideas, products, and services, using corporate work time and resources, but on a much less formal basis than past corporate contributions to innovation. Quickly evolving advances in technology have touched every industry, and people with tech know-how have become champions. Firms dominating the technological landscape include Apple, Microsoft, 3M, Alphabet (the parent company of Google), IBM, and Oracle. In today’s David-versus-Goliath culture, these companies once were small startups, but now they command seemingly endless resources. New opportunities have arisen in the world of technology for those willing and able to compete with these giants. All companies, large and small, are interested in a more informed and educated workforce with specialized or advanced degrees in entrepreneurship and business administration. The new entrepreneurs are prepared to develop and lead firms that can become startup superstars. Viewed through our current lens, companies like Apple, Microsoft, Google, and others have become the new Goliaths, but in their startup days, these companies were the disruptors that fought to create new industries or reshape previously established ones.

Historically Entrepreneurship, add section - the Technological Economy Today 2022. 

Addvideoyo 1.9 - What does the landscape look like today? in 2022 for the next 10 years?

Stage 1: Startup

In stage 1, startup activities are related to your perceptions about a potential idea, how you develop your idea, and how you might recognize appropriate opportunities. At this stage, the crucial activity is defining the opportunity to develop your concept into a realizable business venture with a strong potential for success. In this stage, you work on developing the idea more thoroughly to determine whether it fits your current and future circumstances and goals. You will also work through exercises to distinguish ideas from viable opportunities. Each of these actions is addressed in greater detail in future chapters. The goal of this section is to introduce concepts for a greater understanding of these stages. Key actions or exercises in this stage include:

• Idea development
• Opportunity recognition
• Identification of a market opportunity
• Research and due diligence, or conducting the necessary research and investigation to make informed decisions that minimize risk, such as ensuring you are not duplicating an idea that already exists

Stage 2: Development

Now that you have confidence in your idea, it is time to develop a structure to determine what type of venture will work best for the idea. In Stage 2, you might select a business model (discussed further in Business Model and Plan) and pull together a team (discussed in Building Networks and Foundations) to make your dream venture a reality. The business model identifies how a business will build revenue, deliver value, and receive compensation for that value. Some examples of business models include monthly subscriptions, pre-sale orders, kiosk sales, and other choices. Entrepreneurial decisions in the development stage include many options to consider, including bootstrapping, starting out with limited funds, receiving venture funding from external sources, licensing to receive royalties on a per-item basis, purchasing another business, inheriting a business, franchising either through the purchase of a franchise or building your company with the goal of eventually creating your own franchise, creating a virtual web-based company, using mobile apps that support your business or connect with other businesses, founding a social venture to support a cause, consulting, or freelancing. Choosing among these options or creating your own unique approach to supporting the success of your business will change your results and success level.

Key activities in this stage include:

• Formulation or refinement of your concept
• Design of business model, plan, goals, launch team, and operational structure
• Creation of prototype product to fit market (sample or model for customer feedback)
• Further research and due diligence, as needed

Stage 3: Resourcing

Using knowledge you gained in the first two stages, in the resource stage, you will evaluate the necessary resources to support your new venture. Resources include financial support; support and selection of a manufacturing location or facility (if you are producing a physical product); personnel talents, knowledge, and skills; possible political and community support; and family support, because the new venture will require time commitments that will cut into time with your family. Fundamentals of Resource Planning discusses obtaining resources in more detail.

The key activities in this stage include:

• Gathering pertinent resources, such human and financial capital, investors, facilities, equipment, and transportation
• Establishing connections, networks, and logistics
• Further research and due diligence, as needed

Stage 4: Market Entry

Market entry—the launch of your venture—is often undertaken in a soft launch, or soft open, within a limited market to minimize exposure to unforeseen challenges. As an entrepreneur, you are presenting your new venture to a specific market to see how well it is received and supported. You might make last-minute adjustments at this stage, but the crucial part is to see how the market reacts to your venture. This is an excellent time to scrutinize all aspects of your business for solutions to unexpected problems and improvements in efficiencies, and to track customer reactions to your venture.

One of your most important responsibilities at this point is managing your cash flow, or the money coming into and going out of a business, as cash is essential for the success of the venture. In the early stages of the venture, you will need large amounts of cash to fund the operational activities, because your sales are not yet guaranteed. Production costs, payroll, supplies, inventory, lease payments, and marketing: All of these expenditures involve cash outflows from your venture as part of the startup costs. A successful business needs available cash as well as customers for its products and services, or it will not survive. Key activities at this stage include:

• Assessing management structure and needs, adjusting as necessary
• Managing cash flow
• Launching the entity
• Monitoring progress
• Further research and due diligence, as needed

Stage 5: Growth

The growth stage includes making decisions that support the future growth of your venture. In the growth stage, your decisions reflect the scalability of your venture. There is a big difference between a small-scale venture and a venture that must handle significant levels of sales. At this point, your organizational structure needs an update. You might need new functional levels, such as a finance department, or a human resources department, or perhaps an assistant manager. Other considerations include the size of your facilities. Is the current size, or capacity, appropriate for the growth of the venture? Other questions relate to the appropriateness of your suppliers or inventory providers. Are quality and delivery time meeting your needs? Is the payment system appropriate for your venture? In this stage, you should also monitor the growth of your venture and make appropriate adjustments. For instance, if your venture is not growing as expected, then you might go back to your business plan and see what adjustments you can make. Key actions in this stage include:

• Managing the venture
• Making key adjustments, as needed
• Further research and due diligence, as needed

Stage 6: Maturity

In the maturity stage, your venture has moved into the maintenance phase of the business life cycle. Entrepreneurs monitor how a venture is growing and developing according to the business plan, and its projections and expectations. Is your venture growing faster or slower than you expected? What milestones has it reached? What changes are needed to continue the success of the venture? How can you address those changes? Are you still able to maintain or meet the needs of the venture?

Depending on your situation, you still will need to take action to support the venture. Even if the venture is operating efficiently and in a predictable manner, external changes could compel you to change your venture, for example, by making improvements to the product or service, finding new target markets, adopting new technologies, or bundling features or offerings to add value to the product.

One of the key points to understand at this stage is that ventures can, and often do, fail. Entrepreneurship is about taking calculated risks to achieve a reward. Sometimes your venture may not turn out how you planned. Keeping an open mind and learning from experience presents new opportunities for either changes to the existing venture or even a new venture. Consider these examples of early entrepreneurial failures by people who later went on to achieve great success:

• Bill Gates’s early Traf-O-Data company failed because the product did not work
• Walt Disney was told he lacked creativity and was fired from a newspaper job
• Steve Jobs was once fired by his own company, Apple
• Milton Hershey started three candy companies before he founded the successful Hersey Company

Key actions of this stage include:

• Strengthening market position
• Awareness and willingness to change
• Reaping return on investment (ROI)

Stage 7: Harvest

At some point, your company may outgrow your dreams, ambitions, or interests. At this stage, you are harvesting or collecting the most return on your investment while planning how to retire or make a transition away from this venture. Many entrepreneurs enjoy the excitement of starting and building a venture but are less interested in the routine aspects of managing a company. In the field of entrepreneurship, the entrepreneurial team creates a venture with the goal of harvesting that venture. Harvesting is the stage when all your hard work and ingenuity are rewarded through a sizable return on the invested money, time, and talents of the startup team, including any investors. During this stage, the entrepreneurial team looks for the best buyer for the venture to achieve both a return on investment and a match for the continued success of the venture. Key actions in this stage include:

• Identifying what the entrepreneurial team, and investors, want out of the venture, their ROI
• Planning for your future: What’s next on your entrepreneurial journey?

Stage 8: Exit

The exit stage is the point at which your venture either has fulfilled its purpose as a harvested success that is passed along to the next generation of business owners or has not met your needs and goals. These two situations give rise to vastly different scenarios. In the harvesting of the venture, you might receive a sizable cash payment, or a combination of cash payment and a minority share of stock in the venture’s buyout. In an exit that reflects the closing of the venture, your option is most likely liquidation of assets, which you would sell to pay off any remaining creditors and investors. In both harvesting and liquidation, the challenge for you as an entrepreneur can be to accept the emotional withdrawal from a venture that has consumed your thoughts, time, and energy. The time has come for you to step out of the picture and allow the venture to be cared for by a new “parent” or to close the venture completely. Key actions in this stage include:

• Exit strategy and plan
• Transition to the next generation of owners

Stage 9: Rebirth

For some entrepreneurs, the excitement of creating a new venture supersedes the financial gain from harvesting a successful venture. The thrill of transforming an idea into a realizable opportunity and then creating a thriving venture is difficult to find elsewhere. In the rebirth phase, the entrepreneur decides to seek out another new venture to begin the process all over again. As an experienced entrepreneur, you can create a new type of venture or develop a new spin-off of your original venture idea. At this point, you have become a serial entrepreneur, an entrepreneur who becomes involved in starting multiple entrepreneurial ventures. Key actions in this stage include:

• Redesigning or creating a new venture
• Bringing in a new entrepreneurial team or the team from the previous venture