Warwick Business School

Key learning objectives  Discuss what is entrepreneurship  Examine Baumol’s typology

Warwick Business School What is entrepreneurship?  Derived from the French = ‘undertaking’  Would you like you to get in your groups, come to the front to get some paper & spend 10 minutes discussing/writing up the key factors underlying entrepreneurship. At the end of this I will pick 1 or 2 groups to discuss with us all what their thoughts are  You can chose any one or up to three ‘units of analysis’ for your exploration of entrepreneurship: the entrepreneur; the entrepreneurial firm; entrepreneurship in society

Warwick Business School Exercise 2: What does it take to be an entrepreneur?  You have been given an entrepreneurial test developed by Human Factors International, a business-psychology consultancy  It suggests that can you determine your entrepreneurial propensity  For each of the five groups of statements choose the one that best describes what would be most important to you as an entrepreneur

Warwick Business School A Working with other like-minded individuals3 B Making a big effort to get the company structure right2 C Willing to work seven days a week4 D Realising that technical excellence is the key to success1 E Getting some qualifications before starting your business3 F Only starting the business with all the finance in place2 G Keeping your existing job until your business is established1 H Seeing work as relaxation4 I Making sure you have a social life as well1 J Be willing to sell your house and car to start your business4 K Taking your time to make all the important decisions2 L Plan your exit strategy from the beginning3 M Not selling more than the company can deliver2 N Making sure the product is perfect before getting sales1 O Be willing to fire people who perform badly4 P Developing business plans to make strategic decisions3 Q Always involving colleagues in decisions2 R Only aiming for the highest quality1 S Be willing to sacrifice family life to build the business4 T Realising that all that matters in business is making money3

Warwick Business School Scores  Score of 5 to 9: EXPERT Not so attracted by personal risk or by commercial challenge. Sees value in getting processes right and focuses on achieving high- quality work. Prefers functional role using technical knowledge and expertise.  Score of 10 to 14: CORPORATE Interested in developing a business within a structured context. Achieves this by energising groups in organisations. Willing to take business risks rather than personal risks. Looks for challenges in medium to large organisations.  Score of 15 to 18: ENTERPRISER Seeks excitement from making things happen. Finds personal risk-taking exciting but prefers to share risks and rewards with others. Focuses energy on achieving goals but maintains reasonable work/leisure balance. Dislikes routine and constantly seeks challenges.  Score of 19 to 20: STRONGLY ENTREPRENEURIAL Enjoys starting own businesses and devotes all energy and time to make things happen, often at the expense of family, possessions and reputation. Restless and often dissatisfied with what is achieved but very resilient and able to pick up and start again. Sees work as relaxation.

Warwick Business School Baumol’s (Simpson’s) Typology  Pro ductive entrepreneurship (maximises individual (private) and social benefits)  Unproductive entrepreneurship (maximises individual (private) but not necessarily social benefits)  Destructive entrepreneurship (maximises individual but not social benefits)

Warwick Business School Implications of Baumol’s typology  What is important is the ‘rules of the game’ (e.g. tax incentives, ease of setting up a business) rather than supply of entrepreneurs  The entrepreneurs are always with us: it is just that people shift between productive, unproductive or destructive entrepreneurship depending on the nature of incentives they face  Soviet Russia and Peru (de Soto, 1990)

Warwick Business School Defining the entrepreneur  No agreed definition of the entrepreneur  Casson (1982) defines an entrepreneur as ‘someone who specialises in making judgemental decisions about the co- ordination of scarce resources’ (p. 23).  Fundamental to the entrepreneur is the presence of uncertainty: if everything is known there is no need for the entrepreneur  Theorists generally agree that arbitrage (differences in prices) is important: Temporal arbitrage (differences in prices between two time periods) Spatial arbitrage (differences in prices between two locations)

Warwick Business School Conclusions  There is no agreed definition of what entrepreneurship is (more next lecture)  Baumol’s typology suggests type of entrepreneur is dependent on rules of the game  Implication is that incentives are more important than the supply of entrepreneurs