Entrepreneurship as a Behavioral Phenomenon

Many have expressed dissatisfaction with the limited analytical utility of the traditional definitions of entrepreneurship and their focus on either economic functions or personality traits.  An instructive alternative was provided by Howard Stevenson of Harvard Business School in his 1983 note on “A Perspective on Entrepreneurship” in which he examined entrepreneurship as an approach to managing an enterprise based on a fundamental strategy of identifying and pursuing opportunities in the firm’s external environment without feeling limited by the actual resources that the firm currently has under its own control.  In order to understand how this “entrepreneurial behavior” works it is useful to compare the mindset and corresponding actions of “promoters” and “trustees” with respect to certain key dimensions of managerial activity.  A promoter is someone who is comfortable assuming the risks and challenges of pursuing new business opportunities regardless of whether or not he or she currently controls the resources necessary for the pursuit to have a reasonable chance of success.  On the other hand, the trustee falls at the opposite end of the spectrum and is continuously focused on efficient management and utilization of the firm’s existing resources.

Contrasts between the behaviors of promoters and trustees can be seen along several different dimensions of managerial activity and Stevenson described the following defining characteristics of the management philosophy of companies that can legitimately be classified as “entrepreneurial”:

• Strategy is driven by the perception of opportunities available in the environment and is not constrained by concerns relating to a current lack of control over the resources necessary to pursue the identified opportunities.
• Once opportunities have been identified and the decision has been made to pursue them, actions will be taken quickly following consultation with a limited group of constituencies.
• Resources are committed to the pursuit of new opportunities in stages and each commitment is limited to the minimum amount of resources necessary at each stage or decision point in order to manage exposure and permit rapid withdrawal and redeployment of the resources.
• When resources are needed to pursue an opportunity it is sufficient to borrow, lease or license those resources to complete the immediate action and defer acquisition of full control over such resources until the expense of the investment is justified.
• The optimal organizational structure is flat with minimal hierarchy and multiple direct information networks.
• The reward philosophy is value-driven, performance based and team-oriented.

As with many other aspects of the study of entrepreneurship there is no genuine agreement that entrepreneurs consistently apply some universal set of management principles to their pursuit of opportunities and innovation.  In fact, it is difficult, if not impossible, to clearly and definitively analyze and explain the decision process of an entrepreneur that embarks on a path toward innovation.  However, Stevenson does provide prospective entrepreneur-managers with some tangible guidelines. 

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.