Chapter 7 - Enterprises an Entrepreneurs Flashcards
Canada’s economy depends upon…
millions of (mostly small) business enterprises
The majority of Canadian businesses involve a…
single person, working alone
The majority of Canadian businesses…
have employees less than five
Many small businesses…
- provide majority of private sector jobs
- create more new medium-sized or large businesses
The Canadian business environment is…
dynamic. Many new businesses are created each year and many others disappear. An average of 20,000 net new businesses are created every year
Despite the high chance of failure..
thousands of Canadians remain motivated to Start new enterprises
In studies of entrepreneurial characteristics, three
psychological attributes are widely regarded as
hallmarks of the entrepreneurial personality.
These attributes are:
1) A desire to achieve challenging goals;
2) A belief in one’s own ability to influence affairs;
3) A willingness to tolerate some uncertainty;
Need Theory
In 1961, in che influential book “The Achieving Society”, American psychologist David McClelland laid out
the theory of needs. McClelland suggested that people are driven by one of three motivational needs.
They are; the need for power, the need for affiliation, and the need for achievement. In the short-hand of
academic psychologists, these are commonly referred to as; nPow, nAff, and nAch, respectively.
Need for power (nPow)
Same people are motivated by power, They like co have authority and they
need to be influential. nPow produces a need to lead, People with a high need for power will choose
careers that offer status and prestige, They will be attracted to be senior managers in a large corporation,
senior officers in the military or security organizations, or politicians. In these types of jobs they can command great resources, and wield a great deal of influence.
Need for affiliation (n Aff):
Some people need to have friendly relationships. They are motivated by
interaction with others. nAff produces the need to be liked and held in good regard. People with this
motivation will choose careers chat involve working with others and being team players. They will choose
jebs thac invelye helping or caring. Individuals wich a high nAff might werk as ceachers, health care werkers (docters and nurses), social workers, coaches, religious leaders, ar business related jobs that involve
working iin tears.
Need for achievement (nAch):
Some people are motivated by a sense of personal achievement.
These people like to set, and attain, challenging goals for themselves. nAch produces people who need to
accomplish tasks. People with this type of motivation will choose careers that involve personal achievement, or mastering a task or situation. They might become athletes, intellectuals and scholars, or entrepreneurs and business owners.
Research
consistently shows that entrepreneurs, and people who show other entrepreneurial behaviours, have a very high need for achievement. In subsequent research, McClelland found a number of other characteristics and attitudes of achievement-motivated people
In subsequent research, McClelland found a number of other characteristics and attitudes of achievement-motivated people:
- the sense of achievement is mare important than material or financial reward;
- the accomplishment of the task gives greater personal satisfaction than
receiving praise or recognition;
- financial reward is regarded as a measurement of success, not an end in itself;
- neither security nor status are prime motivators.
A second behaviour frequently observed in entrepreneurs is “internal locus of control”.
- Locus of control refers to the extent to which a
someone believes that they can control
the events that affect them. -Everyone falls
somewhere on a continuum between having an “internal” versus an “external” locus of control. -Internals believe the outcomes in life are influenced by their own behaviour.
They believe that their actions and efforts
help to shape their fate. Entrepreneurial
people are “internals”. - Externals believe that their life is determined by fate, luck, or powerful outside forces. They believe that one person cannot control the various uncertain factors of life.
Relationship between high need for achievement and internal locus of control
- Research has shown that people with a high need for achievement also tend to have an internal locus
of control.” - An individual with an internal locus of control takes responsibility for his or her successes
and failures, attributing outcomes to his or her own ability and effort. - In contrast, an individual with an
external locus of control will equate the outcome to the ease or difficulty of the task, luck, or being in
the right place ac the right time.
What is risk? What is risk aversive vs risk tolerance?
- Risk occurs when you don’t know how things will work out
- People see risk in new situations or in the unknown. When you don’t know what will happen in a given situation, this is a risk. Individuals who are risk averse see new or unknown situations as threatening. Risk tolerant people see new or previously unknown situations as interesting, exciting
and possibly desirable.
Are entrepreneurs risk aversive or risk tolerant?
- McClelland observed that entrepreneurs exhibit moderate risk-taking propensities. - Subsequent studies have supported this tendency in entrepreneurs.
- Being risk tolerant is mot the same as risk-seeking, or boing
careless of the consequences. - Entrepreneurial personalities
are not gamblers. - Because individuals with entrepreneurial
personalities have a need for achievement, they enter into
situations only when they have reasonable expectation of
success. - Because they have an internal locus of control they
will manage their effort and behaviour to influence events
positively. - Entrepreneurs take calculated risks. - A calculated risk is an enterprise undertaken only after the advantages and disadvantages have been carefully considered.
- An entrepreneur will attempt to calculate the probability of various outcomes occurring, and also consider the effects of the best or worse cases
Entrepreneurs often share a number of demographic traits. What are they?
- Research consistently shows that an individual with a parent who runs their own business or is self-employed is much mere likely to run their own business than the general population.
- It has been
suggested that 80% of Canadian small business owners came from a background of family business. - Immigrants, and the children of immigrants, are thought to make excellent entrepreneurs.
- They have organized themselves, often at great social
and emotional case, to pack up their lives and belongings, and leave their homelands.
The research suggests that individuals who grow up with an entrepreneurial family will receive three
types of inheritance.
- Entrepreneurial inheritance: comprises the characteristics and values that are acquired
from exposure to an entrepreneurial parent. - Children will learn to value hard work. They will inherit the
psychological characteristics of self-reliance and the need to accomplish goals. - Vocational inheritance: This means that kids will
observe and learn work- or job-related skills from their parents. - A shop owner may employ her children after school or
over the summer to help run the shop. As a result they will learn about selling, customer service and inventory management. - A third reason why children follow their parents is that entrepreneurial families may be more willing to
provide financial capital. This is known as economic inheritance. - An entrepreneur generally needs
money to get his or her enterprise off the ground. The availability of capital — perhaps on better terms
than is available from a bank - may be critical to an individual’s decision to start their own business. - More than half of Canadian businesses are owned by people over the age of 50.
- Anyone can start a business but in reality is that it takes capital, contacts, and credibility - as well as confidence - to start most businesses,
Immigrants are both “pulled” and “pushed” into entrepreneurial careers. Describe what this means.
- The act of immigrating requires
great self-confidence, a willingness to take reasonable risks to achieve a desired goal, and a high need to
achieve that goal. - Each of these is a highly entrepreneurial attribute. Thus, immigrants may be “pulled”
into an entrepreneurial career by their psychological make-up and personality. - At the same time, immigrants often lack the social networks, the contacts, and the experience and track
record in Canada to secure paid employment working for another. - Thus, no matter how clever or well
educated they may be, immigrants may be “pushed” into starting their own enterprise.
What do you need to start a business?
- Businesses need capital. In the absence of family money, the new enterprise
owner will need to have acquired savings, probably through a decade or two of paid employment, before striking out on his or her own. Research suggests that roughly two-thirds of new enterprises were financed primarily by the entrepreneur’s personal savings. - Entrepreneurs need contacts. The new enterprise owner will need co know suppliers of raw materials, transportation and delivery companies, providers of hardware and software support, legal advisers,
bankers, and accountants. Once again, these sorts of contacts typically come from a decade or two in an
industry, getting to know and trust the people you work with. - Entrepreneurs need credibility. A proven track record in an industry is the best means of securing the help and co-operation of the contacts mentioned above, as well as securing the confidence of potential
customers in the entrepreneur’s target market. - For an achievement oriented, confident young person with an entrepreneurial personality, a few years of
paid employment may be a necessary -Investment in shaping the adds of lacer success, in his or her favour
