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Sunday, August 7, 2011

Differences between entrepreneur and other Small business Owner




Assignment Topic: Differences between entrepreneur and other Small business Owner



          Submitted by                                                                                
          Baral Abita                                                                               
Abstract

The report studied how entrepreneurs might differ from other small business owner, in relation to their personality and psychological characters, factors of motivation, aspiration, management styles and practices. The author has differentiated small business owner and entrepreneur, using   different personality and psychological characterises, motivation theories, different factors of aspiration and approaches and styles of management practise.    
























Table of Contents


Bibliography












1.      Introduction


The entrepreneur is an individual who survives and functions in a social setting (Wickham, 2004). Entrepreneurs are only characterised with particular set of action which aimed in formation and creation of new wealth and assets in ventures. Wealth creation is a common activity of small business owner. Entrepreneurship are characterised by some particular medium to creation of wealth. The entrepreneur can be considered as: responsible manager for undertaking an activity; an agent of economic changes, who bring changes in economic system; an individual with different psychology, personality and personal characteristics (including strategy and style) (Wickham, 2004). 

All these three perspectives represent different features of entrepreneurs. Each perspective differentiates entrepreneurs from other small business owners who are involved in creation of wealth; sustain status quo and family life (Wickham’2004). Further the aspects of motivation, aspiration and management styles and approach differentiate entrepreneurs from small business owners.

a.      Who are entrepreneurs?


An individual who assumes to organize, manage, direct and undertakes the risk of a business is an entrepreneur. An entrepreneur is an innovator or developer who identifies and grabs opportunities; translates those opportunities into practicable/ marketable ideas; adds values all the way through time, attempt, money, or skill; undertakes the risks of existing and possible future competitive marketplace to apply the ideas; and understand the rewards from the world (K. Donald F & H. Richard M, 2001). An individuals who are activating, who undertake risks in term of equity, time and career commitment for providing value for some product or service are entrepreneurs (Ronstadt). According to (K. Donald F & H. Richard M, 2001) entrepreneur is not only limited with creation of business; they are individual who distinguish the opportunities where others may see disarray, confusion or chaos; have willingness and aspirations  to take risk; convert the environmental threat into opportunities; are competitive and creative. For example:  Denis O’ Berin is an Irish entrepreneur who failed many businesses, but with his innovative idea he undertakes risk and starts more business.

b.       Who are small businesses Owners?


An individual who sets up and organizes a business for the key principle of profit and growth is small business owner. The business has to be principal foundation of income and will consume the common of one’s time and resources. The small business owner recognizes the business as an expansion of his or her individuality character, intricately surrounded with family wants, requirements, needs and desires (Krueger, 2002).

It can be said that entrepreneurs are small business owner but small business owner may not be entrepreneurs.  In other word, entrepreneurs are/or (start as) small business owners, but the reverse is not necessarily true. Basically running and managing a franchise which sells burgers and sandwiches does not represent a person as an entrepreneur. Both entrepreneurs and small business owner are risk taker, creative, innovative and opportunities taker. However the level these aspects may be different in entrepreneur and small business owner (DuBrin, 2008).  


2.      Different between entrepreneurs and small business owners in personality and psychological factors:


Risk taking: The key attributes of entrepreneurs are supervision, control and risk taking. The phase of risk taking is high in entrepreneurs comparing to small business owners. High risk taking is the main distinguishing feature between small business owners and entrepreneurs (Mill, 1948).



                                                                                                                                                                                                                    High                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Lolo
 Low                                                                                                       Low                                                        High                                                     

Gambler                      Entrepreneurs                                                                                                                                                                                                           Small business          Dreamer
Owner
 









Fig. 1 Show the different level of risk taking and innovation of small business owners and entrepreneur

Innovation: The variety of innovation consist of developing new products or service in new and existing market, new methods of production and new forms of organization in new and existing market; recognizing new market and discovering new sources of supply for new and existing market (Schumpeter, 1934). The task of innovation is another distinctive factor between small business owners and entrepreneurs. Small business owners usually don’t have innovation or future plan to extend their business; they want their business to run only for certain period of life therefore they always remain small business owner over their life (Schumpeter, 1934).  Kitzner (1982) assumes that identification of market opportunities is the characteristic of entrepreneurs.

Problem solving: Small business owners are unfair in recognizing their key problems, as the problem of small business are related to internal environment within organization; they are only worried about regular problems which might generate tunnel vision. While entrepreneurs faced multiple of challenge as they make an effort to implement new thoughts and ideas to resolve problem in innovative and creative style.

Value: One main distinguishing feature which differentiates entrepreneurs from small business owners is value. The personal values of entrepreneurs are high desires of attainment and achievement and high internal locus of control. While, personal values of small business owners are to reach personal goal such as lifestyle, status and family life. Gasse (1982) identifies two poles named: entrepreneur’s poles and small business owner’s pole. Small business owners’ principles approaches tend to be more associated with more complicated method of thoughts than entrepreneurial principles which is straightforward cognitive configuration and common (Krueger, 2002).

Welsh and white (1981) recognize even the personal features of entrepreneurs differs from small business owners. Control and direct, proactive, self confident, a sense of urgent, positive, optimist, high internal locus of control, realism, attraction to challenging project, allow needs for status, risk taking, high vision,  etc are personal features of entrepreneurs . And the personal characteristics of small business owner are pessimistic, external locus of control, low risk taker, reactive, focus only on present, short term vision, etc (Welsh and White,1981).

3.      Motivation


Motivation is the degree to which an individual wants and chooses to certain specific behaviours (Mitchell, 1982). Different theories of motivation such as need theory, goal theory can be used to differentiate the motivation factors for entrepreneurs and small business owner.

a.      Need Theory


According to need theory, entrepreneurs generate a business because they wish to satisfy achievement needs. Entrepreneurs are independently responsible for solving problem, setting goals and for getting success all the way through their individual hard work;  desires to standardized and delightful for their achievements (Lownes-Jackson, 2004). According to Maslow’s hierarchy of needs theory (1970), needs of an individual shifts from one stage to next stage only after lower needs have been fulfilled. Consequently after significant satisfaction of basic physiological needs the small business owners will pursue for safety, social, self esteem and finally self actualization needs. Research carry out by Swayne and Tucker (1973) point out that entrepreneurs seems to powerfully motivate by self esteem and self actualization and have comparatively low requirement for social and safety needs (Lownes-Jackson, 2004). In case of small business owners the reverse is true.

Following needs theory concerning the motivation factors for small business owner continue from physiological needs and end up with self esteem needs, which satisfy their basic need of achievement and consists of all present aspect and lifelong live hood. While motivation factors for entrepreneurs begin with new venture, new business and acceptance of new challenge and risk taking, even though they are financially well off (Lownes-Jackson, 2004). Entrepreneurs carry on to struggle for self actualization all the way through new, existing and stimulating ventures. Furthermore, David McClelland (1987) have devoted that entrepreneur have higher needs for achievement and higher need for affiliation.

b.      Goal Theory


Goal theory believed entrepreneur set off business because they desire to pursue aim and attained a long term vision and goal. And goals of entrepreneurs are considerably associated with independence, self determined, personal development, innovation, concerned of new venture, requirements to achieve new and challenging goals, etc (university of Toronto, 1990). While goals of small business owner are considerably related to their basic needs and dreams. Furthermore, the quantitative goals which entrepreneurs has for every result are considerably related to their matching result, both at the same time longitudinally and enlargement of architectural; while the small business owners’ quantitative goal are related to daily life which are making wealth and status quo and are concluded with family wants (Baum, Locke, and Smith, 2001).

The individual motivation factors in particular relation to entrepreneurs and small business owners vary in many ways. The small business owners possibly take their business instrumentally as medium to facilitate them to attain non- business goals (such as status, lifestyle, etc.) and viewed their business as fundamental of their lives. But entrepreneurs take their business with eventual purpose of entrepreneurship; for the creation of clear, attainable, measureable, time-able and appropriate business objective (Timmons et al 1987; Stanworth and Curran, 1973; Brokhaus, 1980).

4.      Aspiration


“The Personal aspiration is described as individual passionate, devotion to sustainability and their desire to set out the expectation from their contributing time and efforts” (William Pasmore, 2010).

According Burns and Dewhurst (1996) personal aspiration of entrepreneurs can be characteristics as doers; sweat; overextending; venturing alone and style and grace which are differentiate entrepreneurs from small business owners.

a.      Doers


Doers are the person who does the things of their own. The aspiration of entrepreneurs as a doer are the inner belief which drive to business; internal desire to achieve; challenging goals, aim, vision and mission; the nature of accepting challenges and obstacles; and overcoming it. Small business owner aspirations as doers are drives to business for wealth creation, maintenance status quo, life style and leisure (Burns and Dewhurst, 1996).

b.      Sweat


The entrepreneurs view ‘work as hobby and hobby as work’. Hard working nature and commitment; perseverance and single- mindedness; internal locus of ‘controlled’; leisure and lifestyle, are aspiration factors of entrepreneurs which comes under sweat. Small business owners’ aspiration is lifestyle. They work to maintain good status quo and sufficient money to run family (Burns and Dewhurst, 1996).

c.       Overcoming


Overcoming represent how entrepreneurs view about ‘success and failure’. Entrepreneurs view failure as a learning experience; they learn quickly from failures; consider positive and negative side of any outcomes and look for feedback. Small business owners also learn from failure but it may be difficult for them to overcome failure because they are low risk taker.  The nature of learning from failure and success both and looking forward for opportunities in success and failure; differentiate entrepreneurs from small business owners (Burns and Dewhurst, 1996).

d.       Venturing alone


‘A one can do attitude’ of entrepreneurs are aspiration which inspire them to take calculate risk; to make long term strategic planning, goal and vision orientation. The high level of long term goals and inner willingness to achieve those goals are source of aspiration for entrepreneurs. The source of aspiration for small business owner is also their goal, but goals are short term, the business want to survive until lifetime and it limit with status quo in small market and finance (Burns and Dewhurst, 1996).

5.      Business management style and practices


Entrepreneurs and small business owners differ from each other in business management style and practices. According to (Wickham, 2004) innovation, growth potential and strategic purpose are the distinctive features of management style of entrepreneurs which differentiate entrepreneurs from small business owners.

A lot of the research has revealed that the management style of small business owners is generally autocratic, egocentric, selfish, impulsive and often unpredictable and irregular (Beaver 2003:65). Very often small business owners view their business as field of complete authority and power. The small business owners develop their style of management from specific identities and structures of interface within organizations as well as pressure of outer environment (Simon Down, 2010). According to Carter and Jones-Evans (2006) most of the small businesses face major strategic and structural weakness. Generally, small business owners do not have the managerial abilities and talents which are necessary to build up and implement a strategy. The process of making strategy of small business owner is classically ad hoc and informal.

According to Wickham (2004) entrepreneurs usually go beyond the small business owners in objectives which have strategic objectives related to things such as:
Growth target: Year-on-years increases in sales, profits and financials targets;
Market development: activities actually to create and stimulate the growth and shaping of firm’s market (for example, through advertising and promotion);
Market share: the proportion of the market the business serves; and
Market position: maintaining the firm’s position in its market relative to competitors.

While, the small business have short period objective, the strategic objective of small business owner is to survive. For example: The strategic objective of coffee shop owner in corner of O’Connell street is to survive, and strategic objective of Londis owner who is an entrepreneur is to develop new market, increase market share and market position.

a.      Characteristics of management style


According to (Wickham, 2004) entrepreneurial management style is characteristics by four features:

·         A focus of change

Entrepreneurs are managers of change.  An entrepreneur tends to change the world; they do not set down the world in the same state as they found it. They bring human, money, wealth, information, ideas and resources collectively to construct new organization and to modify existing ones. Entrepreneurs are different from small business owners whose main interest is in maintaining the status quo by satisfying the recognized organization, saving it and continuing its market place and positions. For example: The owner fast food restaurant in Adelaide Road concern about how to generate profit, owner really does not care about other world expect his own business and family, while entrepreneur Richard Branson who own Virgin airline is concern about how he can create more value in new and existing organization. Because of his management style which focuses on change he brings up Virgin with such innovative and massive success. 

·         A focus of opportunity

Entrepreneurs are familiar to opportunities. They continuously look for the prospect of undertaking things a bit in a different and better way. They have capacity to convert the environmental threat to new opportunities. They innovate and come up with different view to create new venture. Entrepreneurs are more concerned in chasing and pursuing opportunity than they are in conversing and taking resource which is shown in fig 2.

Entrepreneurs represent resources and capitals to risk; and also create resources and capitals to work by extending them to limit so that resources can offer a high-quality return. This style of management where entrepreneurs focus to seek opportunity make entrepreneurs different from small business owners who often considered themselves more responsible and dependable for protecting resources than for using them to pursue opportunities, which are presented in their organizations.

·         Organization wide management

Entrepreneurs manage with a judgment to the complete organization, rather than focusing on some of it aspects. They standardized themselves next to corporate vision, mission objectives and aim of organization. However, other functional areas of organization such as marketing, finance, operations management, etc are also equally important to entrepreneur. Entrepreneur observes these functions as a part of overall business which plays an important role, rather than inaccessible activities. These styles of management where entrepreneurs focus on wide management of organization distinguish entrepreneurs from small business owners. Small business owner standardized their sole objective in profit making to cover their expenses and improve status quo.

·         Entrepreneurs’ manager as ventures

In short, the entrepreneur is a manger who has eager to venture: to make change, pursue and seek opportunity rather than to limit self in the status quo and conserve resources. No doubt, the successful entrepreneur does all these when suitable time come. When time is right, the entrepreneur will have willing to step forward.

Fig. 2 different style and approaches of management
                Small Business owner                                                   Entrepreneurial

                                                                          Scope                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Objectives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Focus                                                                                                                                                                                                       
Part of Business
Maintain status quo
Reserve Resources
Whole Organization
Create Change
Pursue Opportunity
 











b.      Innovative Management Styles and Approaches


The managing style of entrepreneur aims at pursuing change and driving change. Entrepreneur management is strategic management which is management of whole organization in a competitive environment. Entrepreneur approached management style as sources of innovative opportunities. Innovative opportunity of management style of entrepreneurs can be followed within and outside the enterprises.

Drucker (1985) explained the innovative management styles within and outside organization are the styles which entrepreneurs followed. The innovative styles of management differentiate entrepreneurs from small business owners.

·         The unexpected Small business owners are less expose to unexpected event because they are low risk taker. Therefore, they do not recognize opportunity from unexpected success and failure. Entrepreneurs are ready to faced contingency scenario, therefore they even expect unexpected event and are ready to face those event, which help them to innovate opportunity. 

·         Innovation based on process need - From weak connection in a particular process, small business owner tends to be hopeless but entrepreneurs innovate an opportunity is which is available to the person or company that supply the mislaid link.

·         Changes in industry or market structure – The entrepreneurs find opportunity for an innovative product, goods, service or business approach in changing management with basis of the company or market changes. Whereas small business owner start blaming to other when change occurs. For example: In economic crisis of world, most of small business owners are blaming to government and leader rather than judging opportunities.

·         Demographics Entrepreneurs posse’s management skills which can create opportunities even in small demographic changes of their target market. Small business owners fail to recognize this opportunity. For example: small groceries shop focus only on  traditional demographics and put only tradition items, but entrepreneur ventures such as Tesco create innovative opportunities and focus on attracting each customer by putting variety of goods.

·         Changes in perception, mood and meaning- Entrepreneurs find innovative opportunities in changes in general perceptions, approaches, moods, values and living style of people. While small business owner find crisis in it. 

·         New knowledge – scientific and non scientific knowledge can create innovative opportunities for developing new products and new markets within an organization in mind of entrepreneurs. But for small business owner it may bring pressure in mind, about how to implement those knowledge.

6.      Conclusion


“In real world, most of the people find no difference between entrepreneurs and a small business owner”. The question is: ‘are all small business owners always entrepreneurs?’ If they are why these two different terms are used? Carland et al. (1988) posited that small business owners and entrepreneurs are different. According to Carland et al (1988) term of venture strategy in relation to growth and innovation of entrepreneurship can be distinguished from small business ownership. The entrepreneurs are differentiated from small business owner based on different personality traits and behavioural preferences, motivation factor, aspiration factor and different style and approach of management.

 



Word count: 3148 (excluding bibliography)



References

            
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