The Heart of Entrepreneurship

Online Resource

“It’s much easier and safer for companies to stay with the familiar than to explore the unknown,” assert the authors of this article. Staying with the familiar may have its dangers, however, in today’s fast-changing world. An injection of entrepreneurship, by which creative people are encouraged to strike out and come up with new products or services, may become important to the financial health of organizations.

Here the reader is offered an anatomy of entrepreneurship. The article describes the entrepreneur’s thought pattern in asking and finding answers to these questions: Where is the opportunity? How do I capitalize on it? What resources do I need? How do I gain control over them? What structure is best? The authors combine contrasts of the entrepreneur’s state of mind with that of the “administrator,” whose object is to husband resources and reduce risks.

Suddenly entrepreneurship is in vogue. If only our nation’s businesses—large and small—could become more entrepreneurial, the thinking goes, we would improve our productivity and compete more effectively in the world marketplace.

But what does entrepreneurial mean? Managers describe entrepreneurship with such terms as innovative, flexible, dynamic, risk taking, creative, and growth oriented. The popular press, on the other hand, often defines the term as starting and operating new ventures. That view is reinforced by the enticing success of such upstarts as Apple Computer, Domino’s Pizza, and Lotus Development.

Neither approach to a definition of entrepreneurship is precise or prescriptive enough for managers who wish to be more entrepreneurial. Everybody wants to be innovative, flexible, and creative. But for every Apple, Domino’s, and Lotus, there are thousands of new restaurants, clothing stores, and consulting firms that presumably have tried to be innovative, to grow, and to show other characteristics that are entrepreneurial in the dynamic sense—but have failed.

As for the idea of equating the beginning stages of a business with entrepreneurship, note a 1983 study by McKinsey & Company on behalf of the American Business Conference. It concluded that many mature, medium-sized companies, having annual sales of $25 million to $1 billion, consistently develop new products and markets and also grow at rates far exceeding national averages.¹ Moreover, we’re all aware of many of the largest corporations—IBM, 3M, and Hewlett-Packard are just a few of the best known—that make a practice of innovating, taking risks, and showing creativity. And they continue to expand.

So the question for the would-be entrepreneur is: How can I make innovation, flexibility, and creativity operational? To help this person discover some answers, we must first look at entrepreneurial behavior.

At the outset we should discard the notion that entrepreneurship is an all-or-none trait that some people or organizations possess and others don’t. Rather, we suggest viewing entrepreneurship in the context of a range of behavior. To simplify our analysis, it is useful to view managerial behavior in terms of extremes.

At one extreme is what we might call the promoter type of manager, who feels confident of his or her ability to seize opportunity. This manager expects surprises and expects not only to adjust to change but also to capitalize on it and make things happen. At the other extreme is the trustee type, who feels threatened by change and the unknown and whose inclination is to rely on the status quo. To the trustee type, predictability fosters effective management of existing resources while unpredictability endangers them.

Most people, of course, fall somewhere between the extremes. But it’s safe to say that as managers move closer to the promoter end of the scale they become more entrepreneurial, and as they move toward the trustee end of the scale they become less so (or, perhaps, more administrative).

When it comes to their own self-interest, the natural tendency of most people is toward the promoter end of the behavior spectrum; they know where their interests lie and pursue them aggressively. A person’s most valuable assets are intelligence, energy, and experience—not money or other material things—which are well suited to the promoter role.

A close relationship exists between opportunity and individual needs. To be an entrepreneurial opportunity, a prospect must meet two tests: it must represent a desirable future state, involving growth or at least change; and the individual must believe it is possible to reach that state. This relationship often identifies four groups, which we show in Exhibit.