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Chapter 10 – The Entrepreneurial Environment -- Entrepreneurship and Innovation Toolkit

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  • Chapter 10 – The Entrepreneurial Environment

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    Entrepreneurs adopt the ways of the adept and adapt to a changing environment. Actually, entrepreneurs are more entrepreneurs, because they are forever entering into new territory. – Jarod Kintz

    Entrepreneurship rests on a theory of economy and society. The theory sees change as normal and indeed as healthy. And it sees the major task in society—and especially in the economy—as doing something different rather than doing better what is already being done. That is basically what Say, two hundred years ago, meant when he coined the term entrepreneur. It was intended as a manifesto and as a declaration of dissent: the entrepreneur upsets and disorganizes. As Joseph Schumpeter formulated it, his task is “creative destruction. – Peter Drucker

     

    Learning Objectives

    After completing this chapter you will be able to

    • Explain what an entrepreneurial ecosystem is as a form of complex adaptive system while explaining its relevance to the study of entrepreneurship
    • Describe various entrepreneurship concepts, such as intrapreneurship and social entrepreneurship, while explaining their relevance to the study of entrepreneurship

    Overview

    In this chapter several entrepreneurship topics are introduced, including: entrepreneurial ecosystems, intrapreneurship, social entrepreneurship, Indigenous entrepreneurship, community-based entrepreneurship, and family business. This overview of just a few of the branches of entrepreneurship thought and research is intended to provide the reader with an idea of the breadth of this field of study. There are many other categories of entrepreneurship, from women entrepreneurs to technology entrepreneurs, which provide interesting and important study topics.

    The Entrepreneurial Environment

    Entrepreneurial Ecosystems

    An entrepreneurial ecosystem might be viewed as a complex adaptive system that can be compared to a natural ecosystem, like a forest. This complexity theory perspective can help us better understand the nature of an entrepreneurial ecosystem.

    A forest is a complex adaptive system made up of many, many different elements, including the plants and animals that live in it or otherwise influence how it works. Those many different elements behave autonomously from each other in most ways; but as they do what is necessary to ensure their own survival—and as they attempt to thrive—the end result of their collective behaviours is a forest that exists in a somewhat stable state of being.

    The forest is in a somewhat stable state because it is ever evolving and changing to some degree as variables change. Changing variables include new insect species that move in and out, new plants that try to establish roots there, and similar changes that regularly happen to cause some change, but that don’t necessarily change the fundamental nature of the forest.

    Sometimes, however, a parameter change occurs when something more substantial happens, like a forest fire. When a fire burns down the plants and chases many of the animals away, the forest fundamentally changes to a very different state (the change from the first state to a new and very different one is called bifurcation).

    An entrepreneurial ecosystem is similar in that the nature of entrepreneurship—thriving or not—across a geographic region remains in a somewhat stable state of being even though it is made up of a complex network of independent elements that continually adapt to the organizational environments in which they operate; it is a complex adaptive system. The variable changes, including new leaders that replace the old ones, new rules and regulations, and entrepreneurial support systems that come and go do not necessarily change the fundamental nature of the entrepreneurial ecosystem (although the residents of the region might actually want substantial change leading to a more vibrant economic situation). A parameter change, however, might cause a bifurcation that leaves the system in a very different state—maybe one where entrepreneurship thrives and prosperity prevails much more than it did before. The introduction of a major new project that, in turn, spawns new spin-off businesses and gives the region a needed economic boost, and maybe even leaves it with a new entrepreneurial culture, is an example of a parameter change.

    In a more formal sense, an entrepreneurial ecosystem can be described as

    a set of interconnected entrepreneurial actors (both potential and existing), entrepreneurial organisations (e.g. firms, venture capitalists, business angels, banks), institutions (universities, public sector agencies, financial bodies) and entrepreneurial processes (e.g. the business birth rate, numbers of high growth firms, levels of ‘blockbuster entrepreneurship’, number of serial entrepreneurs, degree of sell-out mentality within firms and levels of entrepreneurial ambition) which formally and informally coalesce to connect, mediate and govern the performance within the local entrepreneurial environment (Mason & Brown, 2014, p. 5).

    Definitions of entrepreneurial ecosystems can include the suppliers, customers and others that any particular firm in that ecosystem directly interacts with as well as other individuals, firms, and organizations that the firm might not directly interact with, but that play a role in shaping the ecosystem. While framing it as an innovation ecosystem rather than an entrepreneurial ecosystem, Matthews and Brueggemann (2015) described an internal ecosystem as a company’s activities that are independent of other companies and an external ecosystem that includes all of the other actors that the company is dependent upon in some way.

    While some researchers have studied how entrepreneurial ecosystems can generate geographic clusters of technology-based ventures, like in Silicon Valley (Cohen, 2006) or how these ecosystems can facilitate growth in entrepreneurship in cities and similarly defined regions (Neck, Meyer, Cohen, & Corbett, 2004), Mason and Brown (2014) suggest that even traditional industries can “provide the platform to create dynamic, high-value-added entrepreneurial ecosystems” (p. 19).

    Types of Entrepreneurship

    Intrapreneurship

    According to Martiarena (2013) “the recognition of intrapreneurial activities has widened the notion of entrepreneurship by incorporating entrepreneurial activities undertaken within established organisations to the usual view of entrepreneurship as new independent business creation.” (p. 27). Intrapreneurship, then, is a form of entrepreneurship that occurs within existing organizations, but intrapreneurs are generally considered to be “significantly more risk-averse than entrepreneurs, earn lower incomes, perceive less business opportunities in the short term and do not consider that they have enough skills to succeed in setting up a business” (Martiarena, 2013, p. 33).

    Merriam-Webster (n.d.) defines an intrepreneur as “a corporate executive who develops new enterprises within the corporation” (Intrapreneur, n.d.); however some might consider some employees who are not corporate executives to also be intrapreneurs if they demonstrate entrepreneurial behaviour within the company they work for.

    Social Entrepreneurship

    Social entrepreneurship involves employing the principles of entrepreneurship to create organizations that address social issues.

    Martin and Osberg (2007) defined a social entrepreneur as an individual who

    targets an unfortunate but stable equilibrium that causes the neglect, marginalization, or suffering of a segment of humanity; who brings to bear on this situation his or her inspiration, direct action, creativity, courage, and fortitude; and who aims for and ultimately affects the establishment of a new stable equilibrium that secures permanent benefit for the targeted group and society at large. (p. 39)

    Martin and Osberg’s (2007) definition encompasses for-profit and not-for-profit organizations created by these entrepreneurs and also some government initiatives, but it excludes entities that exist solely to provide social services and groups formed to engage in social activism.

    An idealized definition of social entrepreneurship developed by Dees (2001) is informative in that it supports Martin and Osberg’s (2007) definition while complementing it with a set of criteria against which organizations can be assessed to determine whether they are socially entrepreneurial.

    Social entrepreneurs play the role of change agents in the social sector, by

    • adopting a mission to create and sustain social value (not just private value)
    • recognizing and relentlessly pursuing new opportunities to serve that mission
    • engaging in a process of continuous innovation, adaptation, and learning
    • acting boldly without being limited by resources currently in hand
    • exhibiting heightened accountability to the constituencies served and for the outcomes created (Dees, 2001, p. 4)

    Social entrepreneurs “use their skills not only to create profitable business ventures, but also to achieve social and environmental goals for the common good” (Zimmerer & Scarborough, 2008, p. 25). They are “people who start businesses so that they can create innovative solutions to society’s most vexing problems, see themselves as change agents for society” (Scarborough, Wilson, & Zimmer, 2009, p. 745).

    Social entrepreneurship

    • addresses social problems or needs that are unmet by private markets or governments
    • is motivated primarily by social benefit
    • generally works with—not against—market forces (Brooks, 2009, p. 4)

    A social entrepreneur might

    • start a new product or service
    • expand an existing product or service
    • expand an existing activity for a new group of people
    • expand an existing activity to a new geographic area
    • merge with an existing business (Brooks, 2009, p. 8)

    What social entrepreneurship is not: it is not anti-business:

    • Many social entrepreneurs came from the commercial business world.
    • Sometimes commercial and nonprofit missions align for mutual benefit.
    • The difference between it and commercial entrepreneurship is not greed.
    • There is no evidence commercial entrepreneurs are especially greedy—they are more likely to be goal-obsessed than money-obsessed.
    • Social entrepreneurs are also commercial entrepreneurs.
    • Social entrepreneurs do not only run non-profits.
    • Social entrepreneurship can occur in any sector and with any legal status. (Brooks, 2009, pp. 16-17)

    The social entrepreneurship zone:

    Figure-11.jpg

    From Swanson and Zhang (2010, 2011, 2012)

    Figure 7 – The Social Entrepreneurship Zone (Illustration by Lee A. Swanson)

    Aboriginal (Indigenous) Entrepreneurship

    Swanson and Zhang (2014) described a range of perspectives on what Indigenous entrepreneurship means and what implications it holds for social and economic development for Indigenous people.

    Indigenous entrepreneurship might simply be entrepreneurship carried out by Indigenous people (Peredo & Anderson, 2006), but it can also refer to the common situation where Indigenous entrepreneurs—sometimes through community-based enterprises—start businesses that are largely intended to preserve and promote their culture and values (Anderson, Dana, & Dana, 2006; Christie & Honig, 2006; Swanson & Zhang, 2011). Dana and Anderson (2007) expanded upon that notion when they described Indigenous entrepreneurship as follows:

    There is rich heterogeneity among Indigenous peoples, and some of their cultural values are often incompatible with the basic assumptions of mainstream theories. Indigenous entrepreneurship often has non-economic explanatory variables. Some Indigenous communities’ economies display elements of egalitarianism, sharing and communal activity. Indigenous entrepreneurship is usually environmentally sustainable; this often allows Indigenous people to rely on immediate available resources and, consequently, work in Indigenous communities is often irregular. Social organization among Indigenous peoples is often based on kinship ties, not necessarily created in response to market needs. (p. 601)

    Lindsay (2005) described Indigenous entrepreneurship as something even more complex:

    Significant cultural pressures are placed on Indigenous entrepreneurs. These pressures will manifest themselves in new venture creation and development behavior that involve the community at a range of levels that contribute toward self-determination while incorporating heritage, and where cultural values are an inextricable part of the very fabric of these ventures. Thus, the Indigenous “team” involved in new venture creation and development may involve not only the entrepreneur and the business’ entrepreneurial team but also the entrepreneur’s family, extended family, and/or the community. Thus, in Indigenous businesses, there are more stakeholders involved than with non-Indigenous businesses. For this reason, Indigenous businesses can be regarded as more complex than non-Indigenous businesses and this complexity needs to be reflected in defining entrepreneurship from an Indigenous perspective. (p. 2)

    Community-Based Enterprises and Community-Based Entrepreneurship

    Peredo and Chrisman (2006) described community-based enterprises (CBEs) as emerging from “a process in which the community acts entrepreneurially to create and operate a new enterprise embedded in its existing social structure” (p. 310). CBEs emerge when a community works collaboratively to “create or identify a market opportunity and organize themselves in order to respond to it” (p. 315). These ventures “are managed and governed to pursue the economic and social goals of a community in a manner that is meant to yield sustainable individual and group benefits over the short and long term” (p. 310). CBEs are positioned in a sector of the economy that is not dominated by a profit motive, often because there is little profit to be made, or by government. As illustrated in the next paragraphs, they also serve what we can refer to as the social commons.

    Modern societies are comprised of three distinct, but overlapping sectors (Mook, Quarter, & Richmond, 2007; Quarter, Mook, & Armstrong, 2009; Quarter, Mook, & Ryan, 2010). Businesses operating in the private sector primarily strive to generate profits for their owners by providing goods and services in response to market demands. “While this sector provides jobs, innovation, and overall wealth, it is not suited to addressing most social problems because there is usually no profit to be made by doing so” (Swanson & Zhang, 2012, p. 177). The public sector redistributes the money it collects in taxes to provide public goods and to serve needs not met by the private sector. “While this sector provides defence, public safety, education and a range of other public needs and social services, it has limited capacity to recognize and solve all social needs” (Swanson & Zhang, 2012, p. 177). The remaining sector—referred to by a variety of names including the third sector, the citizens’ sector, the voluntary sector, the non-profit sector, and more recently by Mintzberg, the plural sector (Mintzberg, 2013; Mintzberg & Azevedo, 2012)—is comprised of organizations that deliver goods and services the other sectors do not provide and are either owned by their members (with limited or no potential for individuals or small groups to gain a controlling interest in the organization) or not owned by any individuals, governments, businesses, other organizations, or any particular entity at all.

    Bollier (2002) used the term the commons to distinguish the collaborative community-based concern for particular kinds of resources from the management interests in resources assumed by the markets and governments. He pointed out that “people have interests apart from those of government and markets” (p. 12). One of his categories of the commons is the social commons, which involves “pursuing a shared mission as a social or civic organism” (p. 12). The social commons is comprised of community members who contribute energy and resources as they work together to create value.

    Scholars have studied CBEs’ role in promoting socio-economic development in developing countries (Manyara & Jones, 2007; Torri, 2010) and some have conceptualized Indigenous entrepreneurship as based on a community-based orientation (Kerins & Jordan, 2010; Peredo & Anderson, 2006; Peredo, Anderson, Galbraith, Honig, & Dana, 2004). Social enterprises are sometimes considered to be a form of CBE (Leadbeater, 1997); however, Somerville and McElwee (2011) interpreted Peredo and Chrisman’s (2006) work to mean that a CBE is “a special kind of community enterprise where the community itself is the enterprise and is also the entrepreneur. Consequently, a CBE is an enterprise whose social base (the social structure of the community) lies in the CBE itself” (Somerville & McElwee, 2011, p. 320). This interpretation might distinguish CBEs from some types of social enterprises.

    Some scholars refer to CBEs as being owned by the community while others indicate they can be owned by individuals or groups of people on behalf of the communities they serve. Lehman and Lento (1992) referred to “owners and managers” (p. 70) of CBEs when they argued that the value generated by these types of enterprises often benefit neighbouring residents and businesses more so than the direct owners.

    While CBEs in the form of cooperatives have proven to be both prominent and resilient in many parts of the world (Birchall & Hammond Ketilson, 2009), there are also other forms of community-based or mutually owned enterprises as described by Woodin, Crook, and Carpentier (2010). They identified five general models of community-based or mutual ownership while explaining that new models continue to develop.

    CBEs involved with housing developments, energy production initiatives, financial services, retail and wholesale trade, health care and social services, education, and other types of activities is relatively well documented (Woodin et al., 2010). There are also examples of symphony orchestras (Boyle, 2003) and other arts organizations that are community-based, sometimes through direct community ownership. Examples of community-owned sports franchises in Canada include the Saskatchewan Roughriders (Saskatchewan Roughrider Football Club Inc., 2012), Edmonton Eskimos (Edmonton Eskimos, 2011), and Winnipeg Blue Bombers (Winnipeg Blue Bombers, 2012) of the Canadian Football League. The Green Bay Packers, a professional American football team in the United States is also community-owned (Green Bay Packers, 2012). In the association football (soccer) world, the Victoria Highlanders’ F. C. (Dheensaw, 2011) and F. C. Barcelona (Schoenfeld, 2000) are examples of community-owned teams.

    The Role of Community-Based Enterprises

    According to Gates (1999), the free enterprise system that has dominated the economic landscape of many developed countries since the end of the Cold War has often proven to be insensitive to the needs of communities. “The result is to endanger sustainability across five overlapping domains: fiscal, constitutional, civil, social and environmental” (p. 437). He suggested that the policy environment should be adjusted to encourage more connection between people and the results from the investments they make. With a revised capitalist goal to improve societal well-being rather than the current imperative to maximize financial returns with little or no regard for the associated public outcomes, the current and growing divide between our richest and poorest should narrow and we should end up with a more sustainable economic system.

    Gates (1999) suggested that one approach to establishing a closer connection between people and the effects from their investments is to re-engineer capitalism in a way that encourages a shift in ownership types toward more members of society directly and collectively owning elements of the organizations that affect their lives through the social, environmental, and other impacts they have. CBEs appear to be one form of organization that can fulfill part of the role advocated by Gates (1999).

    Community context plays an important role in how entrepreneurial processes evolve and in their resulting outcomes. According to Hindle (2010), to understand the community context requires an “examination of the nature and interrelationship of three generic institutional components of any community: physical resources, human resources and property rights, and three generic human factors: human resources, social networks and the ability to span boundaries” (p. 599). When communities face social and economic challenges, some are able to mobilize physical and human resources, particularly when these communities “are rich in social capital and are able to learn from collective experiences” (Ring, Peredo, & Chrisman, 2010, p. 5). Communities within this context are often equipped to identify opportunities and capitalize on them. This can give rise to CBEs that can contribute to capacity building in their communities (Peredo & Chrisman, 2006).

    Community Capacity Building through Community-Based Enterprises

    Similar to entrepreneurial capacity in that it refers to evaluating and capitalizing upon the potential to create value (Hindle, 2007), community capacity “is the interaction of human capital, organizational resources, and social capital existing within a given community that can be leveraged to solve collective problems and improve or maintain the well-being of a given community” (Chaskin, 2001, p. 295). Borch et al. (2008) indicated that CBEs play a community-capacity-building role when they mobilize physical, financial, organizational and human resources. Their role in organizing “voluntary efforts and other non-market resources” (p. 120) is also of particular importance in this regard.

    Economists have generally suggested that for-profit, privately held organizations occupy different market segments than publicly funded and community-based organizations. For-profit entities normally seek markets that are easiest to access and profit from, but their activities in these markets do not necessarily generate social return beyond that provided by increased employment and the services that are funded by the taxes they pay. On the other hand, publicly funded and community-based organizations generally serve a different market segment focused on generating some sort of social return (Abzug & Webb, 1999).

    For-profit entities are usually subject to significant influence from the suppliers of the capital used to support the organization’s operations. Sometimes these supply-side stakeholders have little interest in the service or product delivered provided that it generates an adequate financial return for them. CBEs and not-for-profit organizations primarily answer to demand-side stakeholders who might use the products or services these organizations deliver or who will benefit from their provision. This can mean that CBEs play an important role in building community capacity when their demand-side stakeholders turn to them when “for-profit organizations fail to provide products and services that stakeholders trust; and where they provide insufficient quantity or quality, and government provision fails to compensate for this market failure” (Abzug & Webb, 1999, p. 421).

    One major difference between for-profit and CBEs and not-for-profit organizations is in the distribution of the accounting profit. Unlike for-profits, CBEs and non-profits generally do not distribute profits to equity holders and they enjoy some competitive advantages, including tax exemptions and the ability to receive private donations (Sloan, 2000). Transparency in reporting financial returns is especially important in community-held entities. These entities must report to a vast group of stakeholders who evaluate the organization’s success based on social return as well as financial efficiency (De Alwis, 2012).

    CBEs can also represent an extension of the private sector that plays an important role in supporting them (Abzug & Webb, 1999). In the case of the Lloydminster Bobcats, the private sector supported the team by providing volunteers, advertising dollars, financial resources, and management and board expertise because it believed the team made the community more attractive. The team provided a form of entertainment that could help attract private sector employees to the community and retain them after they arrived.

    Family Businesses

    Chua, Chrisman, and Steier (2003) reported that “family-owned firms account for a large percentage of the economic activities in the United States and Canada. Estimates run from 40 to 60 percent of the U.S. gross national product (Neubauer & Lank, 1998), in addition to employment for up to six million Canadians (Deloitte & Touche, 1999). Their influence is likely even larger elsewhere” (p. 331). Besides the significant component of Canadian and other economies that are made up of family-owned businesses, these entities might be distinct from other forms of entrepreneurship in several ways. While more research is required to better understand the distinctions, family businesses might be characterized by the unique influences family members have on how their firms operate and by the distinctive challenges they face that make them behave and perform differently than other categories of businesses (Chua et al., 2003).

    One of the unique and most important challenges faced by family businesses is managing succession so that leadership can be transferred to future generations to preserve family ownership while maintaining family harmony. This is particularly important as the survival rate of family businesses decline as new generations take over (Davis & Harveston, 1998).

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