10 ENTREPRENEURSHIP
Creation and Innovation
The term creationimplies a founding and an origin. Therefore, technically speaking, the
purchase of an existing firm or its transfer to new owners does not represent entrepre-
neurship. As one group of authors point out, if founding was the only criterion for
entrepreneurship, then neither Tom Watson of IBM nor Ray Kroc of McDonald’s would
qualify.
It is rare for an organization to change ownership without a change in its man-
agement and resource configuration; however, the degree of change and innovation de-
termines whether entrepreneurship is present. To see how large a change is needed, we
can rely on Schumpeter’s categories of “new combinations.”^19 Is:- A new product or service offered?
- A new method or technology employed?
- A new market targeted and opened?
- A new source of supply of raw materials and resources used?
- A new form of industrial organization created? (This is, perhaps, the rarest of all
innovations.)
Now we can see how Watson and Kroc can reapply for membership in the entrepre-
neur’s club.Control and Deployment of Resources
The foundation for this book is the resource-based theory (or view) of sustained com-
petitive advantage.^20 This theoretical framework originally derives from the viewpoint
of a large corporation.^21 The resource-based theory is the most appropriate to under-
stand new venture creation because it best describes how entrepreneurs themselves build
their businesses from the resources and capabilities they currently possess or can realis-
tically acquire. Successful entrepreneurship is not simply an analytical exercise. Industry
and competitor analysis—the application of the theory of industrial organization eco-
nomics—alone is insufficient. The resource-based theory argues that the choice of which
industry to enter and what business in which to be is not enough to ensure success. The
theory says that the nature and quality of the resources, capabilities, and strategies the
entrepreneur possesses and can acquire can lead to long-term success. In fact, one can
argue that choosing the resources for a firm, configuring these resources into a consis-
tent strategy, and deploying the resources (implementation) are the quintessential entre-
preneurial acts.^22Economic Organization
The term economic organization means an organization whose purpose is to allocate
scarce resources. An economic organization can be a firm, a business unit within a firm,
a network of independent organizations, a social network, or a not-for-profit organiza-
tion (NPO).^23 Though it may seem paradoxical, even governments can create entrepre-
neurial organizations under the right conditions.
The business organization can, of course, pursue gain and growth as its motivations.
In fact, some firms use both profit and size as their main objectives.^24 Other businesses