The nature and development of
1 entrepreneurship
Cecile Nieuwenhuizen
LEARNING OUTCOMES
After completion of this chapter, you should be able to
identify the contribution of entrepreneurs to the economy
describe the development of entrepreneurship theory
identify the research trends in entrepreneurship
determine what is involved in the orientation of entrepreneurs
discuss and define the concept of entrepreneurship
differentiate between entrepreneurial and small business ventures
describe the entrepreneurial process
explain the domains of entrepreneurship, leadership and management
evaluate the impetus of entrepreneurship in the economy.
1.1 Introduction
According to Schumpeter, the entrepreneur is the true hero of society, is central to value creation,
drives capital markets and is the heart of economic evolution. What distinguishes entrepreneurs
from the masses, and even from innovative individuals, is that they act on opportunities and
create something new, thereby driving economic evolution (Schumpeter in Mishra & Zachary
2011: 4).
The need to do something better at a lower cost or with a bigger profit can be found particularly
in successful entrepreneurs. Motivation to perform will predict who will do better as an
entrepreneur. There is no doubt that motivation to perform is an important individual and
national resource. It encourages people to set challenging objectives for improved performance,
to pay attention to feedback and how they are doing, to accept personal responsibility and to
innovate to do something better. Motivation to perform leads enterprises to investigate how to do
things better.
According to the Global Competitiveness Report 2011–2012 (Schwab 2011), competitiveness is
“the set of institutions, policies, and factors that determine the level of productivity of a country”.
The level of income per citizen is to a large extent determined by the competitiveness of an
economy, which has a direct impact on the employment levels in a country. In the analysis of the
determining factors of the competitiveness of a country “business sophistication” and
“innovation” are two pillars of competitiveness that distinguish innovation-driven economies
(highly competitive countries) from factor-driven (low-income countries) and efficiency-driven
ones (low- to medium-income countries) (Schwab 2010: 11).
,Innovation-driven economies include countries such as Japan, Switzerland, Sweden, the US and
Finland, with Switzerland, Singapore and Sweden in the top three places of the overall rankings
of countries included in the competitive report (Schwab 2011: 16). Efficiency-driven economies
include Russia, Brazil, India, China and South Africa, the so called BRICS countries. Factor-
driven economies include Iran, Egypt, Angola and Pakistan.
Innovation, entrepreneurship, performance of organisations and the state of the economy of a
country are closely linked, and play important and interactive roles in its performance. The total
of all organisations in a country determines the state of its economy. As entrepreneurs play an
important role in most businesses, they contribute significantly to employment, job creation and
wealth creation (Bell, Callaghan, Demick & Scharf 2004: 1).
Owing to the central importance of entrepreneurship and innovation to wealth creation of
individuals and countries, and as an introduction to entrepreneurship as a field of study, this
chapter describes the entrepreneur, the orientation of the entrepreneur and entrepreneurial
ventures. The entrepreneurial process – including the identification of opportunities,
development of a business plan, identification and application of resources, and the start-up and
management of the business – is introduced and forms the basis of this book. To conclude, the
development of entrepreneurship as a science and the impetus it gives to the economy is
addressed.
1.2 Entrepreneurs in perspective
Entrepreneurs are the core and essence of any economy. Without entrepreneurs there would be
no business, and without business there would be no government, as there would be nobody to
pay taxes to finance it. It is as basic as that. Trade unions would not have a raison d’être, as
without employers there would be no employees to represent. Economic development can be
directly attributed to the level of entrepreneurial activity in a country, and entrepreneurial
businesses ensure growth in the economy (Schumpeter 1934; Bird 1989), and yet even though
entrepreneurs are the primary source of the welfare of communities and nations, they are often
underrated, unappreciated and over-burdened. No enterprise, however large or small, could exist
without an origin – the entrepreneur who initiated the first and possibly the smallest of
enterprises. No enterprise started off as a huge, successful corporation. All started small, most
with very limited resources of which entrepreneurship is the most significant and important. The
majority of successful entrepreneurs are not the villains or greedy capitalists they are often made
out to be. On the contrary, they are the people who identified an opportunity and had a vision,
and were innovative enough to create something by resourcefully accessing and combining
resources that others did not visualise or could not do.
Think of our own South African economy and the contribution of a few of our most prominent
entrepreneurs over the years:
Barney Barnato arrived penniless from Britain in 1873, and became the millionaire owner
of Barnato Diamond Company within 10 years.
, Ernest Oppenheimer, the diamond and gold mining entrepreneur, was originally from
Germany. He came to South Africa via London in 1901 at age 22 as buyer for a diamond
brokerage firm, took over De Beers and established the Anglo American Corporation in
1917.
Anton Rupert, who had to discontinue his studies due to lack of funds, started his own
cigarette manufacturing business with the equivalent of R15 000 in 1941, and money that
he personally raised from door-to-door sales of shares in his unknown company. When he
passed away in 2006, he had personal assets in excess of R17 billion and ownership of
the international Remgro luxury-goods group of companies.
Sol Kerzner was the creator of Sun International, the most successful hotel group in the
country with luxury resorts all over the world.
Christo Wiese, with a controlling stake in and the founder of Pepkor (which has more
than 6000 Pep Stores globally), bought Shoprite Checkers for R1m in 1979. The group
presently employs in excess of 150 000 people. In 2013 Wiese was worth more than
R100 billion.
Richard Maponya who started as a teacher, built his retail empire including general
stores, car dealerships and filling stations in the 1950s to 1970s, and in 2007 opened
Maponya Mall, one of the largest shopping centres in the country, in Soweto.
Patrice Motsepe, a qualified lawyer, is the billionaire founder and executive chairman of
African Rainbow Minerals. In 2013 he donated half his wealth to improve the lives of the
poor.
Herman Mashaba, founder of Black Like Me hair-care products, started his business in
1985 and is today the chairman of Lephatsi Investments, which operates in the mining,
construction and logistics sectors.
Pam Golding, who started her property company in 1976 with virtually no capital and
one sales agent is today the head of a multimillion rand business, which has more than
300 branches and 186 franchises, and employs 3000 people in several countries.
The RMB Holdings trio, GT Ferreira, Laurie Dippenaar and Paul Harris, founded Rand
Consolidated Investments in 1977, which today includes First Rand Bank and the
insurance companies Momentum and Southern Life.
These are only a few examples of many successful and well-known South African entrepreneurs,
and proof of the potential and valuable contribution of entrepreneurs to the economy of the
country.
Equally important and very prolific are also the multitude of lesser-known entrepreneurs who
enrich the daily lives of their shareholders, employees and the public – the users of their products
and services. Primarily, they all started small with virtually nothing. It took all of them time to
build their extensive enterprises from a mere idea to a great corporation. All had what it took to
become successful entrepreneurs. They all have invigorating and exciting stories to tell, but
certainly also had their own struggles, trials and problems. One thing is sure – none of them
became great and successful overnight, although this often seems so to the uninformed observer.
They all worked hard, persevered, overcame disillusionment and failure, learned from their
mistakes, believed in what they worked for and, above all, remained enthusiastic about their
enterprises.
, Most entrepreneurial activity takes place in small, medium and micro enterprises (SMMEs),
which form 97.5 per cent of all businesses in South Africa. SMMEs generate 35 per cent of the
gross domestic product (GDP), contribute 43 per cent of the total value of salaries and wages
paid in South Africa, and employ 55 per cent of all formal private-sector employees.
As an introduction to entrepreneurship as a field of study, this chapter describes the entrepreneur,
the orientation of the entrepreneur and how this person differs from a small-business owner.
1.3 The development of entrepreneurship
theory
The progress in entrepreneurship research and our understanding of entrepreneurs can be divided
into five periods, according to Fillion (1991). In a study of the trends in entrepreneurship, Fillion
coined the development as a movement from entrepreneurship to entreprenology and the
emergence of a new discipline. Although the periods and development of the theory are not
clearly defined, Fillion’s work provides what is probably the best perspective on the field. The
remainder of this section is, to a great extent, a summary of Fillion’s paper. (All the references to
authors cited in this section can be sourced from the original article.)
People working in the field of entrepreneurship are convinced that there is a remarkable level of
confusion surrounding the definition of an entrepreneur. We prefer the term “difference”.
Researchers tend to perceive and define entrepreneurs using the premises of their own
disciplines. Taken from this standpoint, the confusion is perhaps not as great as people would
have us believe, because similarities in the perception of the entrepreneur emerge within each
discipline. For example, the economists have associated entrepreneurs with innovation, whereas
the behaviourists have concentrated on the creative and intuitive characteristics of entrepreneurs.
We will look more closely at these two standpoints in the following subsections.
1.3.1 The economists
First, we must qualify the popular belief that entrepreneurship originated from the science of
economics alone. A careful reading of the first two authors usually identified as the pioneers in
the field, Cantillon (1755) and Say (1803, 1815, 1816, 1839), reveals that they were interested
not only in the economy but also in the managerial aspects of enterprises, business development
and business management. Cantillon was a banker who would be described as a venture
capitalist today. His writings reveal a man seeking business opportunities, with a concern for
shrewd, economic management and obtaining optimal yields on invested capital.
An examination of the origin and development of the term “entrepreneur”, reveals that it
acquired its current meaning in the 17th century. Although the term was used before Cantillon
used it, it is clear, as Schumpeter (1934) pointed out, that Cantillon was the first to offer a clear
conception of the entrepreneurial function as a whole.
1 entrepreneurship
Cecile Nieuwenhuizen
LEARNING OUTCOMES
After completion of this chapter, you should be able to
identify the contribution of entrepreneurs to the economy
describe the development of entrepreneurship theory
identify the research trends in entrepreneurship
determine what is involved in the orientation of entrepreneurs
discuss and define the concept of entrepreneurship
differentiate between entrepreneurial and small business ventures
describe the entrepreneurial process
explain the domains of entrepreneurship, leadership and management
evaluate the impetus of entrepreneurship in the economy.
1.1 Introduction
According to Schumpeter, the entrepreneur is the true hero of society, is central to value creation,
drives capital markets and is the heart of economic evolution. What distinguishes entrepreneurs
from the masses, and even from innovative individuals, is that they act on opportunities and
create something new, thereby driving economic evolution (Schumpeter in Mishra & Zachary
2011: 4).
The need to do something better at a lower cost or with a bigger profit can be found particularly
in successful entrepreneurs. Motivation to perform will predict who will do better as an
entrepreneur. There is no doubt that motivation to perform is an important individual and
national resource. It encourages people to set challenging objectives for improved performance,
to pay attention to feedback and how they are doing, to accept personal responsibility and to
innovate to do something better. Motivation to perform leads enterprises to investigate how to do
things better.
According to the Global Competitiveness Report 2011–2012 (Schwab 2011), competitiveness is
“the set of institutions, policies, and factors that determine the level of productivity of a country”.
The level of income per citizen is to a large extent determined by the competitiveness of an
economy, which has a direct impact on the employment levels in a country. In the analysis of the
determining factors of the competitiveness of a country “business sophistication” and
“innovation” are two pillars of competitiveness that distinguish innovation-driven economies
(highly competitive countries) from factor-driven (low-income countries) and efficiency-driven
ones (low- to medium-income countries) (Schwab 2010: 11).
,Innovation-driven economies include countries such as Japan, Switzerland, Sweden, the US and
Finland, with Switzerland, Singapore and Sweden in the top three places of the overall rankings
of countries included in the competitive report (Schwab 2011: 16). Efficiency-driven economies
include Russia, Brazil, India, China and South Africa, the so called BRICS countries. Factor-
driven economies include Iran, Egypt, Angola and Pakistan.
Innovation, entrepreneurship, performance of organisations and the state of the economy of a
country are closely linked, and play important and interactive roles in its performance. The total
of all organisations in a country determines the state of its economy. As entrepreneurs play an
important role in most businesses, they contribute significantly to employment, job creation and
wealth creation (Bell, Callaghan, Demick & Scharf 2004: 1).
Owing to the central importance of entrepreneurship and innovation to wealth creation of
individuals and countries, and as an introduction to entrepreneurship as a field of study, this
chapter describes the entrepreneur, the orientation of the entrepreneur and entrepreneurial
ventures. The entrepreneurial process – including the identification of opportunities,
development of a business plan, identification and application of resources, and the start-up and
management of the business – is introduced and forms the basis of this book. To conclude, the
development of entrepreneurship as a science and the impetus it gives to the economy is
addressed.
1.2 Entrepreneurs in perspective
Entrepreneurs are the core and essence of any economy. Without entrepreneurs there would be
no business, and without business there would be no government, as there would be nobody to
pay taxes to finance it. It is as basic as that. Trade unions would not have a raison d’être, as
without employers there would be no employees to represent. Economic development can be
directly attributed to the level of entrepreneurial activity in a country, and entrepreneurial
businesses ensure growth in the economy (Schumpeter 1934; Bird 1989), and yet even though
entrepreneurs are the primary source of the welfare of communities and nations, they are often
underrated, unappreciated and over-burdened. No enterprise, however large or small, could exist
without an origin – the entrepreneur who initiated the first and possibly the smallest of
enterprises. No enterprise started off as a huge, successful corporation. All started small, most
with very limited resources of which entrepreneurship is the most significant and important. The
majority of successful entrepreneurs are not the villains or greedy capitalists they are often made
out to be. On the contrary, they are the people who identified an opportunity and had a vision,
and were innovative enough to create something by resourcefully accessing and combining
resources that others did not visualise or could not do.
Think of our own South African economy and the contribution of a few of our most prominent
entrepreneurs over the years:
Barney Barnato arrived penniless from Britain in 1873, and became the millionaire owner
of Barnato Diamond Company within 10 years.
, Ernest Oppenheimer, the diamond and gold mining entrepreneur, was originally from
Germany. He came to South Africa via London in 1901 at age 22 as buyer for a diamond
brokerage firm, took over De Beers and established the Anglo American Corporation in
1917.
Anton Rupert, who had to discontinue his studies due to lack of funds, started his own
cigarette manufacturing business with the equivalent of R15 000 in 1941, and money that
he personally raised from door-to-door sales of shares in his unknown company. When he
passed away in 2006, he had personal assets in excess of R17 billion and ownership of
the international Remgro luxury-goods group of companies.
Sol Kerzner was the creator of Sun International, the most successful hotel group in the
country with luxury resorts all over the world.
Christo Wiese, with a controlling stake in and the founder of Pepkor (which has more
than 6000 Pep Stores globally), bought Shoprite Checkers for R1m in 1979. The group
presently employs in excess of 150 000 people. In 2013 Wiese was worth more than
R100 billion.
Richard Maponya who started as a teacher, built his retail empire including general
stores, car dealerships and filling stations in the 1950s to 1970s, and in 2007 opened
Maponya Mall, one of the largest shopping centres in the country, in Soweto.
Patrice Motsepe, a qualified lawyer, is the billionaire founder and executive chairman of
African Rainbow Minerals. In 2013 he donated half his wealth to improve the lives of the
poor.
Herman Mashaba, founder of Black Like Me hair-care products, started his business in
1985 and is today the chairman of Lephatsi Investments, which operates in the mining,
construction and logistics sectors.
Pam Golding, who started her property company in 1976 with virtually no capital and
one sales agent is today the head of a multimillion rand business, which has more than
300 branches and 186 franchises, and employs 3000 people in several countries.
The RMB Holdings trio, GT Ferreira, Laurie Dippenaar and Paul Harris, founded Rand
Consolidated Investments in 1977, which today includes First Rand Bank and the
insurance companies Momentum and Southern Life.
These are only a few examples of many successful and well-known South African entrepreneurs,
and proof of the potential and valuable contribution of entrepreneurs to the economy of the
country.
Equally important and very prolific are also the multitude of lesser-known entrepreneurs who
enrich the daily lives of their shareholders, employees and the public – the users of their products
and services. Primarily, they all started small with virtually nothing. It took all of them time to
build their extensive enterprises from a mere idea to a great corporation. All had what it took to
become successful entrepreneurs. They all have invigorating and exciting stories to tell, but
certainly also had their own struggles, trials and problems. One thing is sure – none of them
became great and successful overnight, although this often seems so to the uninformed observer.
They all worked hard, persevered, overcame disillusionment and failure, learned from their
mistakes, believed in what they worked for and, above all, remained enthusiastic about their
enterprises.
, Most entrepreneurial activity takes place in small, medium and micro enterprises (SMMEs),
which form 97.5 per cent of all businesses in South Africa. SMMEs generate 35 per cent of the
gross domestic product (GDP), contribute 43 per cent of the total value of salaries and wages
paid in South Africa, and employ 55 per cent of all formal private-sector employees.
As an introduction to entrepreneurship as a field of study, this chapter describes the entrepreneur,
the orientation of the entrepreneur and how this person differs from a small-business owner.
1.3 The development of entrepreneurship
theory
The progress in entrepreneurship research and our understanding of entrepreneurs can be divided
into five periods, according to Fillion (1991). In a study of the trends in entrepreneurship, Fillion
coined the development as a movement from entrepreneurship to entreprenology and the
emergence of a new discipline. Although the periods and development of the theory are not
clearly defined, Fillion’s work provides what is probably the best perspective on the field. The
remainder of this section is, to a great extent, a summary of Fillion’s paper. (All the references to
authors cited in this section can be sourced from the original article.)
People working in the field of entrepreneurship are convinced that there is a remarkable level of
confusion surrounding the definition of an entrepreneur. We prefer the term “difference”.
Researchers tend to perceive and define entrepreneurs using the premises of their own
disciplines. Taken from this standpoint, the confusion is perhaps not as great as people would
have us believe, because similarities in the perception of the entrepreneur emerge within each
discipline. For example, the economists have associated entrepreneurs with innovation, whereas
the behaviourists have concentrated on the creative and intuitive characteristics of entrepreneurs.
We will look more closely at these two standpoints in the following subsections.
1.3.1 The economists
First, we must qualify the popular belief that entrepreneurship originated from the science of
economics alone. A careful reading of the first two authors usually identified as the pioneers in
the field, Cantillon (1755) and Say (1803, 1815, 1816, 1839), reveals that they were interested
not only in the economy but also in the managerial aspects of enterprises, business development
and business management. Cantillon was a banker who would be described as a venture
capitalist today. His writings reveal a man seeking business opportunities, with a concern for
shrewd, economic management and obtaining optimal yields on invested capital.
An examination of the origin and development of the term “entrepreneur”, reveals that it
acquired its current meaning in the 17th century. Although the term was used before Cantillon
used it, it is clear, as Schumpeter (1934) pointed out, that Cantillon was the first to offer a clear
conception of the entrepreneurial function as a whole.
