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The Entrepreneurship, Its Theories and Networking Essay

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Updated: Jun 19th, 2020

Abstract

As a subject, entrepreneurship is associated with a number of arguments, especially with regards to the origin and exploitation of opportunities. Some people view this concept as a phenomenon that is subject to chance and luck. Others are of the view that entrepreneurs create their own opportunities. Both arguments are true to some extent. However, it is important to note that luck and chance play a minor role in the development of entrepreneurship. The two perspectives acknowledge the importance of commercial networks in facilitating entrepreneurship. The current paper explored the two viewpoints of entrepreneurship using a number of theories. In addition, the importance and relevance of entrepreneurial networks were highlighted. The author illustrated this point using examples of such networks.

Question One: Entrepreneurship Based on Chance or Ability of Entrepreneurs to Create Opportunities

To some extent, the view that entrepreneurship is based on chance is agreeable. However, those opposed to this perspective argue that entrepreneurs actually foment opportunities by engineering situations. The engineered realities increase the chances of finding an opportunity with regards to the activities of the individual. Likewise, this argument holds some truth. In spite of the contradiction between the two points of view, it is apparent that both hold true in theory and in practice (Holcombe, 2003).

The two perspectives help one to determine the origin of opportunities. Consequently, they shed some light on how entrepreneurs are formed. According to Holcombe (2003), entrepreneurship exists when an individual takes action. The action is meant to take advantage of a profitable opportunity. The opportunity must present itself within the economy for the entrepreneur to be able to exploit it effectively (Hsu, 2004).

The argument that entrepreneurship occurs by chance is very limited. The limitations of this perspective are made apparent, considering all the dynamics involved in entrepreneurship. According to Alvarez and Busenitz (2001), three ideas explain the entrepreneurial activity. The first aspect is the individual. To this end, a commercial undertaking is conceived as a phenomenon emanating from a human attribute. Such attributes include, among others, the willingness to face risks. The trait is what distinguishes entrepreneurs from other individuals in society.

The second fundamental aspect underlying entrepreneurship puts emphasis on the environmental and economic factors motivating and enabling entrepreneurial activity (Alvarez & Busenitz, 2001). The factors include, among others, market dimensions, technological changes, and dynamics prevailing in the industry. In essence, these elements are very dynamic and vary considerably from one society to the other. The third aspect of informing entrepreneurial activity focuses on the functioning of institutions. It also addresses the issue of societal values and culture (Alvarez & Busenitz, 2001). A collective analysis of these elements reveals that entrepreneurial activity is primarily a form of human undertaking. In addition, it can be considerably influenced by chance.

The story of Microsoft’s co-founder, Bill Gates, is perhaps one of the classic examples of entrepreneurship by chance. Apart from being exposed to computers at a very tender age (when few people had access to this technology), Gates became innovative with the machines. His innovativeness led to the birth of Microsoft. Apparently, it is likely that if he had been born in Africa at the time, the chances of him becoming an entrepreneur in the computing field would have been very minimal. However, it is essential to note that his human attribute of taking risks led to the development of his entrepreneurial capacity. In addition, the disequilibrium in the market increased his chances of succeeding in the industry (Klyver & Foley, 2012).

The argument that entrepreneurs create opportunities for profit generation is more realistic compared to the earlier two perspectives. According to Holcombe (2003), the entrepreneurship theory proposed by Kirzner lays emphasis on the equilibrating function of capitalism. Kirzner’s framework is based on the economic theory that assumes the market is not in equilibrium. Opportunities for profit do exist in the market. Entrepreneurs discover and then act on them in order to equilibrate the market (Eckhardt & Shane, 2003). However, the theory by Kirzner focuses more on the actions of the entrepreneurs than on the presence of profit opportunities. The market can be viewed as having a fixed stock of these changes. Capitalists must exploit these limited opportunities.

Holcombe (2003) emphasises that new openings for making profits are constantly generated in the economy. Apparently, entrepreneurial opportunities comprise of some of the factors that dis-equilibrate the market. They include those elements that enhance the possibilities of production. More importantly, they entail the opportunities generated by previous entrepreneurial actions.

The discovery and opportunity theory of entrepreneurship, also known as the equilibrium destruction model, also expounds on the role of entrepreneurs in driving the economy. In essence, these individuals not only use the available profit opportunities but also utilise the existing networks. As a result, the capitalists increase the pool of future entrepreneurial opportunities. The objective is achieved when entrepreneurial actions generate openings that are exploited by others.

The development creates a chain of capitalist actions. In other words, by taking advantage of previously unnoticed profit opportunities, new openings are generated. The development allows other entrepreneurs to act. The process cascades throughout the economy, giving rise to more chances of making money. Ultimately, although an entrepreneur may be lucky, it is clear that entrepreneurship is the most prolific source of new capitalist opportunities.

Entrepreneurial chances can be broadly categorised into two groups (Lazear, 2005). Business openings may also emanate from the innovations associated with ‘would-be’ entrepreneurs. The undertakings position the individual as the only one capable of observing the opportunity. For example, if the owners of Xerox were more entrepreneurial, they could have recognised that they were in possession of an idea that could be exploited to give rise to a functional computer interface. Consequently, they could have developed the product for the market or sold the idea. As the original owners of the innovation, the company stood a better chance of exploiting the opportunity presented to it.

On the other hand, some opportunities are offered by the market itself (Lazear, 2005). For instance, one can identify the prospect of buying products from one place and selling them at another for a profit. The first chance is available only to the owner of the idea. In light of this, one may argue that entrepreneurship is based on the ability to create opportunities. However, subsequent prospects are open to everyone. As such, entrepreneurship, in that case, can be facilitated by chance.

Question Two: Creating Valuable Entrepreneurial Networks

Klyver and Foley (2012) provide a working definition of a network. According to Klyver and Foley (2012), networks can be viewed as a set of high-trust relationships. The relationships link an individual or a group into a social collection, either directly or indirectly. The link between these parties is usually defined in relation to the flow of information. Entrepreneurial networks may be formal or informal. The former is comprised of, for instance, accountants, lawyers, banks, and local governments. On their part, informal networks include personal friends, business contacts, and family members.

It is noted that valuable networks are not necessarily created when someone is looking for value. Apparently, a system has to be nurtured with the intent of creating value in the long-run. According to Lazear (2005), the entrepreneurial network theory argues that these systems are the key providers of resources. The resources may range from capital provision to information. Ray Kroc, the founder of McDonald’s, is a good example of an entrepreneur who saw the future potential of valuable entrepreneurial networks. Ray bought an existing restaurant, which had been established by another person. However, he had recognised the potential of the restaurant to expand into new markets. It can be assumed that other people had the networks and data that Ray had. However, his entrepreneurial insight acquired from his previous experiences in the restaurant industry contributed significantly to the success of his venture (Hsu, 2004).

One can develop their own entrepreneurial network before it becomes valuable or useful. They can achieve this by adopting an approach made up of several steps. According to Pages and Garmise (2003), one can initiate a system by focusing on informal associates. For instance, close business associates can be developed and kept in touch. Consequently, close alliances can be established with individuals likely to contribute to one’s strategic endeavours.

One can create networks with formal associates, such as banks. The system can be established by pursuing business, including depositing and borrowing loans from these banks. By adopting this approach, an individual can develop relationships that may not establish value immediately. The value will be created at the appropriate time. In line with the entrepreneurial networking theory, one can expect to derive moral support, financial resources, coaching, knowledge and other benefits from the network.

Question Three: Entrepreneurial Networks and Infrastructure

Local support networks and their associated infrastructure are of great importance to entrepreneurs. They comprise of fellow entrepreneurial groups, where parties can share contacts, ideas, and business opportunities. The proximity of systems facilitates the proliferation of peer-learning experiences between entrepreneurs. The development is critical to the success of business ventures (Honig & Davidsson, 2000).

According to Hsu (2004), entrepreneurs can actually prosper without networks and the associated infrastructure. However, places with strong networks tend to have more entrepreneurs and successful ventures compared to those without. Consequently, entrepreneurial systems and infrastructure facilitate entrepreneurship in the community. According to Bhide (2000), networks are the central component of the entrepreneurial environment. The climate is made up of social, economic, and cultural settings that encourage and nurture the growth of new ventures.

Network infrastructure offers both direct and indirect benefits to the entrepreneurs and to the community at large. For instance, places like Texas, Austin, Washington, and Seattle are characterised by hyped business activities and start-ups. The communities here have nurtured the culture of entrepreneurship infrastructure (Pages & Garmise, 2003). However, other societies with similar demographic attributes exhibit difficulties in generating new businesses. Pages and Garmise (2003) attribute the success of communities to functional physical infrastructure, access to venture capital, and strong universities.

In addition to the availability of internet, proximity and entrepreneurial networks are very important. According to Hsu (2004), the most important aspect of these systems entails the building of relationships. Entrepreneurs seek to build tangible linkages with others involved in starting and growing of businesses. Every individual enters a network with idiosyncratic reasons, the primary one being the desire to learn from peers.

Previously, entrepreneurs had to start and grow businesses on their own. They had to come up with solutions to challenges. However, in the contemporary world, would-be entrepreneurs have access to such resources as books, magazines, and websites. According to Lazear (2005), formal and informal support networks provide entrepreneurs with the most effective and efficient resource, which entails face-to-face and one-on-one networking infrastructure.

Places like “The Meet” found in contemporary entrepreneurial infrastructures are very effective in nurturing entrepreneurs. Consequently, a number of such settings exist in various places all over the world. Some examples of popular entrepreneurial networking infrastructures include the Austin Technology Incubator, which was created in 1989. The aim of the venture was to assist technological start-ups and enhance capacity transfer in universities (Pages & Garmise, 2003). Other systems include The Capital Network (TCN) and Austin Software Council (ASC).

Uncovering places like The Meet in entrepreneurial infrastructures is relatively easy, especially in today’s society. The best method of finding such places is through the use of internet search engines. Numerous business magazines also highlight entrepreneurial networking infrastructures and other associated services. New firms and young entrepreneurs tend to actively involve themselves in these networks. They have less experience compared to their older compatriots. In addition, they lack established organisational forms and routine procedures. They need to interact and learn from their peers directly (Bhide, 2000).

Entrepreneurial networking infrastructure, such as The Meet, will continue to provide young entrepreneurs and other start-ups with opportunities needed to succeed in the market. The entrepreneurs are capable of establishing virtual relationships. In addition, they are able to develop social ties, which promote entrepreneurial culture.

References

Alvarez, S., & Busenitz, L. (2001). The entrepreneurship of resource-based theory. Journal of Management, 27(1), 755-775.

Bhide, A. (2000). The origin and evolution of new businesses. Oxford: Oxford University Press.

Eckhardt, J., & Shane, S. (2003). Opportunities and entrepreneurship. Journal of Management, 29(1), 333-349.

Holcombe, R. (2003). The origins of entrepreneurial opportunities. The Review of Austrian Economics, 16(1), 25-43.

Honig, B., & Davidsson, P. (2000). The role of social and human capital among nascent entrepreneurs. Toronto, Canada: Paper presented at the Annual Meeting of the Academy of Management.

Hsu, D. (2004). What do entrepreneurs pay for venture capital affiliation?. Journal of Finance, 59(1), 1805-1844.

Klyver, K., & Foley, D. (2012). Networking and culture in entrepreneurship. Entrepreneurship & Regional Development, 24(7/8), 561-588.

Lazear, E. (2005). Entrepreneurship. Journal of Labor Economics, 23(1), 649-680.

Pages, E., & Garmise, S. (2003). The power of entrepreneurial networking. Economic Development Journal, 2(3), 20-31.

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