THEORY SESSION 1: WHAT IS ENTREPRENEURSHIP
The field of entrepreneurship as a field of academic study is still relatively new. To begin our journey in
discovering the theory of entrepreneurship we first have to ask ourselves what entrepreneurship actually is.
Given the broadness of the concept of entrepreneurship attempts to define entrepreneurship can be found
wide and far. Next to this entrepreneurial theory has come bounds and leaps since its inception and has
created a solid footing as a legitimate field of study in academia
Learning goals
a) What is entrepreneurship
Entrepreneurship is the pursuit of creating, managing, and scaling a business by taking calculated risks, and
being innovative. Entrepreneurship involves combining resources, skills, and vision to bring forth new products,
services, or solutions that meet market demands and create value.
Its a mindset. It has 2 elements : opportunities recognition and exploitation
Recognition is based on the knowledge you have
b) What is the history of entrepreneurship as a field of study
In the past entrepreneurship wasn’t looked upon, even in the romans they didn’t get social status
The relative rewards to different types of entrepreneurial activity have in fact varied dramatically from one
time and place to another and that this seems to have had profound effects on patterns of entrepreneurial
behaviour.
c) How does entrepreneurship compare or differ to other fields of study in the business sciences
Much entrepreneurship research still uses contexts that are easy to operationalize and to observe like the
business context, and that fit into the model of the enterprising individual, as apparent in a recent stocktaking
of entrepreneurship studies. Therefore, the article leaves out a review of the business context, that is, a review
of how industry and markets impact on entrepreneurship (Table 1). Instead, it concentrates on other contexts,
namely social, spatial, and institutional ones, in order to illustrate the multiplicity of contexts (Steyaert & Katz,
2004), linkages between the various nonbusiness contexts as well as their impact on entrepreneurship
NOTES FROM CLASS
Adam smith proofed, 5 specialist are better than 5 general.
Producers have to guess what we like for mass production. (high demand)
Large production is cheaper, if we all want the same thing.
Small businesses can grow in the small spots that large production miss, because they cannot specialize.
Is facebook or X, productive, unproductive or destructive? (for a society as a whole)
Why a force for good: connection, information sharing, less loneliness
Why a force for unproductive: time waist, takes away from production
Why a force for destructive: addiction, privacy, false information
You have also time context (given societal changes over time), spatiel context (the space where you are,
entrepreneurship is seen different), demographic context (male vs female context for instance).
,1. Baumol, W. J. (1996). Entrepreneurship: Productive, unproductive, and destructive. Journal of Business
Venturing, 11(1), 3-22.
This implies that policy can influence the allocation of entrepreneurship more effectively than it can influence
its supply.
Here I shall proceed on the basis of historical illustrations encompassing all the main economic periods and
places (ancient Rome, medieval China, Dark Age Europe, the Later Middle Ages, etc.) that the economic
historians almost universally single out for the light they shed on the process of innovation and its diffusion.
These will be used to show that the relative rewards to different types of entrepreneurial activity have in fact
varied dramatically from one time and place to another and that this seems to have had profound effects on
patterns of entrepreneurial behaviour.
PROPOSITION 1. The rules of the game that determine the relative payoffs to different entrepreneurial
activities do change dramatically from one time and place to another.
PROPOSITION 2. Entrepreneurial behaviour changes direction from one economy to another in a manner that
corresponds to the variations in the rules of the game.
PROPOSITION 3. The allocation of entrepreneurship between productive and unproductive activities, though by
no means the only pertinent influence, can have a profound effect on the innovativeness of the economy and
the degree of dissemination of its technological discoveries.
The rules of the game (structure of payoffs in economy) can then be a critical influence helping to determine
whether entrepreneurship will be allocated predominantly to activities that are productive or unproductive
and even destructive.
My earlier discussion cited ancient Rome and its empire as a case in which the rules did not favor productive
entrepreneurship.
Today, unproductive entrepreneurship takes many forms. Rent seeking, often via activities such as litigation
and takeovers, and tax evasion and avoidance efforts seem now to constitute the prime threat to productive
entrepreneurship.
Thus clear guidance for policy is provided by the main hypothesis (propositions 1-3) that the rules of the game
that specify the relative payoffs to different entrepreneurial activities play a key role in determining whether
entrepreneurship will be allocated in productive or unproductive directions and that this can significantly affect
the vigor of the economy's productivity growth.
,2. Shane, S., & Venkataraman, S. (2000). The promise of entrepreneurship as a field of research. Academy of
management review, 25(1), 217-226.
DEFENITION OF ENTREPENEURSHIP
We define the field of entrepreneurship as the scholarly examination of how, by whom, and with what effects
opportunities to create future goods and services are discovered, evaluated, and exploited. Consequently, the
field involves the study of sources of opportunities; the processes of discovery, evaluation, and exploitation of
opportunities; and the set of individuals who discover, evaluate, and exploit them.
In equilibrium models, entrepreneurial opportunities either do not exist or are assumed to be randomly
distributed across the population. Because people in equilibrium models cannot discover opportunities that
differ in value from those discovered by others, who becomes an entrepreneur in these models depends solely
on the attributes of people.
THE EXISTENCE, DISCOVERY AND EXPLOITATION OF ENTREPENEURAL OPPORTUNITIES
• Existence
Entrepreneurial opportunities are those situations in which new goods, services, raw materials, and organizing
methods can be introduced and sold at greater than their cost of production.
three different categories of opportunities: (1) the creation of new information, as occurs with the invention of
new technologies; (2) the exploitation of market inefficiencies that result from information asym metry, as
occurs across time and geography; and (3) the reaction to shifts in the relative costs and benefits of alternative
uses for resources, as occurs with political, regulatory, or demo graphic changes.
An entrepreneurial discovery occurs when someone makes the conjecture that a set of resources is not put to
its "best use"
• Discovery
Although an opportunity for entrepreneurial profit might exist, an individual can earn this profit only if he or
she recognizes that the opportunity exists and has value. Given that an asymmetry of beliefs is a precondition
for the existence of entrepreneurial opportunities, all opportunities must not be obvious to everyone all of the
time.
Why do some people and not others discover particular entrepreneurial opportunities:
(1) the possession of the prior information necessary to identify an opportunity and
(2) the cognitive properties necessary to value it.
1- Human beings all possess different stocks of information, and these stocks of information influence their
ability to recognize particular opportunities. People specialize in information because specialized information is
more useful than general information for most activities.
2- People vary in their abilities to combine existing concepts and information into new ideas. Visualizing these
relationships is difficult.
• Exploitation
Subsequent to the discovery of an opportunity, a potential entrepreneur must decide to exploit the
opportunity. Why, when, and how. do some people and not others exploit the opportunities that they
discover?
o Nature of the opportunity (expected value profit > cost) high demand makes it easier
o Individual differences -> (greater finance, previous exp, willingness risk, optimism etc)
, 3. Welter, F. (2011). Contextualizing entrepreneurship—conceptual challenges and ways forward.
Entrepreneurship theory and Practice, 35(1), 165-184.
context is important for understanding when, how, and why entrepreneurship happens and who becomes
involved.
Omnibus context refers to a broad perspective, drawing attention to who, what, when, where, and why.
• Who (refers to who enters entrepreneurship and which ventures are created)
• Where (refers to the locations where entrepreneurship’s happens
o Business
o Social
o Spatial
o Institutional
• When (temporal and historical contexts)
Context on a higher level of analysis (the political and economic system) interacts with the phenomenon on
lower level (opportunities identified by the entrepreneur) and results in a context-specific outcome
THE SOCIAL CONTEXT: TOWARDS HOUsEHOLD AND FAMILY EMBEDDEDNESS
- The Social Network Perspective
Networks can provide financial capital, information, potential employees and emotional support
- Household and Family Contexts
Impact on opportunity recognition, entry into entrepreneurship and enterprise development
THE SPATIAL CONTEXT: BRIDGING BETWEEN SOCIAL AND INSTITUTIONAL CONTEXT
- Diversity of Spatial Contexts
Links between location, ethnic culture, and the country framework. Socio-spatial context can be either a
liability, an asset or be irrelevant
- Gender Aspects of Spatial Context
Woman are more likely to operate from home, limiting their growth potential
THE INSTITUTIONAL CONTEXT: INCLUDING THE SOCIETAL DIMENSION
Institutional framework = rules of the game.
Formal institutions – laws and regulations for market entry or exit or private property regulations.
-> Changes in technology, political forces and regulation in opportunity existence
Informal institutions – norms and attitudes of society – influence opportunity recognition and exploitation. ->
woman
The field of entrepreneurship as a field of academic study is still relatively new. To begin our journey in
discovering the theory of entrepreneurship we first have to ask ourselves what entrepreneurship actually is.
Given the broadness of the concept of entrepreneurship attempts to define entrepreneurship can be found
wide and far. Next to this entrepreneurial theory has come bounds and leaps since its inception and has
created a solid footing as a legitimate field of study in academia
Learning goals
a) What is entrepreneurship
Entrepreneurship is the pursuit of creating, managing, and scaling a business by taking calculated risks, and
being innovative. Entrepreneurship involves combining resources, skills, and vision to bring forth new products,
services, or solutions that meet market demands and create value.
Its a mindset. It has 2 elements : opportunities recognition and exploitation
Recognition is based on the knowledge you have
b) What is the history of entrepreneurship as a field of study
In the past entrepreneurship wasn’t looked upon, even in the romans they didn’t get social status
The relative rewards to different types of entrepreneurial activity have in fact varied dramatically from one
time and place to another and that this seems to have had profound effects on patterns of entrepreneurial
behaviour.
c) How does entrepreneurship compare or differ to other fields of study in the business sciences
Much entrepreneurship research still uses contexts that are easy to operationalize and to observe like the
business context, and that fit into the model of the enterprising individual, as apparent in a recent stocktaking
of entrepreneurship studies. Therefore, the article leaves out a review of the business context, that is, a review
of how industry and markets impact on entrepreneurship (Table 1). Instead, it concentrates on other contexts,
namely social, spatial, and institutional ones, in order to illustrate the multiplicity of contexts (Steyaert & Katz,
2004), linkages between the various nonbusiness contexts as well as their impact on entrepreneurship
NOTES FROM CLASS
Adam smith proofed, 5 specialist are better than 5 general.
Producers have to guess what we like for mass production. (high demand)
Large production is cheaper, if we all want the same thing.
Small businesses can grow in the small spots that large production miss, because they cannot specialize.
Is facebook or X, productive, unproductive or destructive? (for a society as a whole)
Why a force for good: connection, information sharing, less loneliness
Why a force for unproductive: time waist, takes away from production
Why a force for destructive: addiction, privacy, false information
You have also time context (given societal changes over time), spatiel context (the space where you are,
entrepreneurship is seen different), demographic context (male vs female context for instance).
,1. Baumol, W. J. (1996). Entrepreneurship: Productive, unproductive, and destructive. Journal of Business
Venturing, 11(1), 3-22.
This implies that policy can influence the allocation of entrepreneurship more effectively than it can influence
its supply.
Here I shall proceed on the basis of historical illustrations encompassing all the main economic periods and
places (ancient Rome, medieval China, Dark Age Europe, the Later Middle Ages, etc.) that the economic
historians almost universally single out for the light they shed on the process of innovation and its diffusion.
These will be used to show that the relative rewards to different types of entrepreneurial activity have in fact
varied dramatically from one time and place to another and that this seems to have had profound effects on
patterns of entrepreneurial behaviour.
PROPOSITION 1. The rules of the game that determine the relative payoffs to different entrepreneurial
activities do change dramatically from one time and place to another.
PROPOSITION 2. Entrepreneurial behaviour changes direction from one economy to another in a manner that
corresponds to the variations in the rules of the game.
PROPOSITION 3. The allocation of entrepreneurship between productive and unproductive activities, though by
no means the only pertinent influence, can have a profound effect on the innovativeness of the economy and
the degree of dissemination of its technological discoveries.
The rules of the game (structure of payoffs in economy) can then be a critical influence helping to determine
whether entrepreneurship will be allocated predominantly to activities that are productive or unproductive
and even destructive.
My earlier discussion cited ancient Rome and its empire as a case in which the rules did not favor productive
entrepreneurship.
Today, unproductive entrepreneurship takes many forms. Rent seeking, often via activities such as litigation
and takeovers, and tax evasion and avoidance efforts seem now to constitute the prime threat to productive
entrepreneurship.
Thus clear guidance for policy is provided by the main hypothesis (propositions 1-3) that the rules of the game
that specify the relative payoffs to different entrepreneurial activities play a key role in determining whether
entrepreneurship will be allocated in productive or unproductive directions and that this can significantly affect
the vigor of the economy's productivity growth.
,2. Shane, S., & Venkataraman, S. (2000). The promise of entrepreneurship as a field of research. Academy of
management review, 25(1), 217-226.
DEFENITION OF ENTREPENEURSHIP
We define the field of entrepreneurship as the scholarly examination of how, by whom, and with what effects
opportunities to create future goods and services are discovered, evaluated, and exploited. Consequently, the
field involves the study of sources of opportunities; the processes of discovery, evaluation, and exploitation of
opportunities; and the set of individuals who discover, evaluate, and exploit them.
In equilibrium models, entrepreneurial opportunities either do not exist or are assumed to be randomly
distributed across the population. Because people in equilibrium models cannot discover opportunities that
differ in value from those discovered by others, who becomes an entrepreneur in these models depends solely
on the attributes of people.
THE EXISTENCE, DISCOVERY AND EXPLOITATION OF ENTREPENEURAL OPPORTUNITIES
• Existence
Entrepreneurial opportunities are those situations in which new goods, services, raw materials, and organizing
methods can be introduced and sold at greater than their cost of production.
three different categories of opportunities: (1) the creation of new information, as occurs with the invention of
new technologies; (2) the exploitation of market inefficiencies that result from information asym metry, as
occurs across time and geography; and (3) the reaction to shifts in the relative costs and benefits of alternative
uses for resources, as occurs with political, regulatory, or demo graphic changes.
An entrepreneurial discovery occurs when someone makes the conjecture that a set of resources is not put to
its "best use"
• Discovery
Although an opportunity for entrepreneurial profit might exist, an individual can earn this profit only if he or
she recognizes that the opportunity exists and has value. Given that an asymmetry of beliefs is a precondition
for the existence of entrepreneurial opportunities, all opportunities must not be obvious to everyone all of the
time.
Why do some people and not others discover particular entrepreneurial opportunities:
(1) the possession of the prior information necessary to identify an opportunity and
(2) the cognitive properties necessary to value it.
1- Human beings all possess different stocks of information, and these stocks of information influence their
ability to recognize particular opportunities. People specialize in information because specialized information is
more useful than general information for most activities.
2- People vary in their abilities to combine existing concepts and information into new ideas. Visualizing these
relationships is difficult.
• Exploitation
Subsequent to the discovery of an opportunity, a potential entrepreneur must decide to exploit the
opportunity. Why, when, and how. do some people and not others exploit the opportunities that they
discover?
o Nature of the opportunity (expected value profit > cost) high demand makes it easier
o Individual differences -> (greater finance, previous exp, willingness risk, optimism etc)
, 3. Welter, F. (2011). Contextualizing entrepreneurship—conceptual challenges and ways forward.
Entrepreneurship theory and Practice, 35(1), 165-184.
context is important for understanding when, how, and why entrepreneurship happens and who becomes
involved.
Omnibus context refers to a broad perspective, drawing attention to who, what, when, where, and why.
• Who (refers to who enters entrepreneurship and which ventures are created)
• Where (refers to the locations where entrepreneurship’s happens
o Business
o Social
o Spatial
o Institutional
• When (temporal and historical contexts)
Context on a higher level of analysis (the political and economic system) interacts with the phenomenon on
lower level (opportunities identified by the entrepreneur) and results in a context-specific outcome
THE SOCIAL CONTEXT: TOWARDS HOUsEHOLD AND FAMILY EMBEDDEDNESS
- The Social Network Perspective
Networks can provide financial capital, information, potential employees and emotional support
- Household and Family Contexts
Impact on opportunity recognition, entry into entrepreneurship and enterprise development
THE SPATIAL CONTEXT: BRIDGING BETWEEN SOCIAL AND INSTITUTIONAL CONTEXT
- Diversity of Spatial Contexts
Links between location, ethnic culture, and the country framework. Socio-spatial context can be either a
liability, an asset or be irrelevant
- Gender Aspects of Spatial Context
Woman are more likely to operate from home, limiting their growth potential
THE INSTITUTIONAL CONTEXT: INCLUDING THE SOCIETAL DIMENSION
Institutional framework = rules of the game.
Formal institutions – laws and regulations for market entry or exit or private property regulations.
-> Changes in technology, political forces and regulation in opportunity existence
Informal institutions – norms and attitudes of society – influence opportunity recognition and exploitation. ->
woman
