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Role of Uncertainty and Imperfect Information In Entrepreneurship

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Introduction

For any economy, entrepreneurship is very important because it is regarded as a driver of economic growth. In the present era, poverty eradication, economic growth and job enhancement have become major areas around which the agenda of contemporary conferences, global meetings, summits and discussions revolve (Armstrong, 2009). Entrepreneurship can be seen as the process of discovering and assessing new business opportunities for achieving personal objectives. Gone are the days when entrepreneurs had a single goal of profit earning because traditional definitions state that the major objective of an entrepreneur is to earn profit or drive growth. Today, entrepreneurs may have several objectives including social recognition, personal satisfaction and wealth maximization. However, still, entrepreneurs are recognized for their willingness to earn unexpected profits as they operate in the situations of risk and uncertainty.

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Risk and uncertainty are closely related to each other as they have many similarities but they do have differences too. Both risk and uncertainty are based on the current lack of certainty in future events, outcomes or scenarios and both include upside and downside potential. In addition to this, both are defined by probabilities and their distributions (Armstrong, 2009). Along with this, there are some differences in both as risk is more subjective than uncertainty as in risky situations more chances to get opportunities can be found. Unlike uncertainty, risk involves exposure to the impact of potential customers. Thus, risk and uncertainty are fundamental dimensions of entrepreneurship which contribute to the success of a business owner (Hirsch, Peters and Shepherd, 2009).

The main objective of carrying out this study is to understand the role of uncertainty and risk in the success of entrepreneurs as there has always been a controversy as these dimensions can be fruitful or disastrous for entrepreneurs. In order to understand and make a strong argument on this topic, an extensive literature review over the same has been undertaken. Thus, various books, journals and online material have been reviewed and examined to carry out critical study. Various aspects of entrepreneurship such as definition, driving forces, types of entrepreneurs, risk and uncertainty relevance and insufficient information handling have been covered in order to create insightful information. The study reveals that entrepreneurship covers the appearance of three basic ideas/activities including a focus on individual, economic factors and the functioning of institutions. In the first activity i.e. individual focus, entrepreneurial actions are considered as an attribute of humans such as taking risks, willingness to face uncertainty, and desire for recognition and achievement.

The study also makes an attempt to understand critical resources to a business including financial and non-financial of which non-financial was found more significant to become an entrepreneur. The report reveals that risk and uncertainty cannot be detached from entrepreneurship function and awareness of different situations and the ability to make strong predictions can assist owners to make sustainable decisions for long-term profitability. However, inadequate information may sometimes change the situation as opportunities for businesses become disasters.

LITERATURE REVIEW

In common parlance, an entrepreneur can be termed as the owner of a business who strongly influences business around the world across countries. It is essential to understand the profile of an entrepreneur, a character which can be put at the centre of a business enterprise. The person who starts up a new business and takes risks for the purpose of making profits by identifying different opportunities is known as an entrepreneur. Thus, he/she is the person who manages essential/crucial resources in a business which are retrieved from different sources with the power to persuade those who hold them. Littunen, (2000) also recognized an entrepreneur as a leader who takes risks or works in a situation of uncertainty for exploiting business opportunities. Thus, an entrepreneur can be seen as a personality with leadership skills to lead the business. Nonetheless, it is not necessary for a business owner to have leadership or management skills. Therefore, businesses may have different persons for carrying out, managing and leading business (Littunen, 2000).

According to Cramer and et.al., (2002) entrepreneurship is a process of discovering, assessing, and exploiting opportunities for new/innovative products, services, ideas and production processes. Furthermore, this function involves coining up new products and markets that did not exist previously.  He further described that entrepreneurship includes the appearance of three basic ideas/activities including a focus on individual, economic factors and the functioning of institutions. In the first activity i.e. individual focus, entrepreneurial actions are considered as an attribute of humans such as taking risks, willingness to face uncertainty, and desire for recognition and achievement. The second idea focuses on the environmental and economic aspects which motivate and enforce entrepreneurship. It may include dimensions of markets, drastic changes in technology and dynamics of demographic structure in a particular society. Another important factor includes the functioning of institutes (Cramer and et.al., 2002).

Kuratko, (2005)  studied the critical resources required by entrepreneurs and stated that money is the most crucial factor in setting up a new venture because other resources can be replaced by financial resources. For example, labour resources can be replaced with capital resources by the installation of automatic machines (Kuratko, 2005).  However, contrary to this Smith and Chimucheka, (2014) provided that it is a general tendency to presume that the entrepreneurial event is money but in fact financial resources are more crucial for starting up a new business. He provided that critical resources typically require insights, judgments and patience (Smith and Chimucheka, 2014). Thus, it can be said that ownership of financial resources is not a prerequisite for an entrepreneur. Nevertheless, in the practical world, it is difficult to even think about starting up a venture without initial capital requirements. Thus, critical resources required for the new entity can be categorized into financial and non-financial resources.  Financial resources are required at early stages in the form of money for acquiring other resources such as labour and technology. However, non-financial resources are more critical because without a unique business idea, a person cannot become a successful entrepreneur.

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Shane and Venkataraman, (2000) investigated the major dimensions of entrepreneurship and identified risk and uncertainty as the key dimensions. He studied the economic theory of entrepreneurs and revealed that entrepreneurs assume risk in the most uncertain environments. As owners’ income, wealth, status, and image are dependent on the outcomes of their decisions in uncertain situations therefore; the results may be both positive and negative. In a similar fashion, several arguments have been made where some people assume risk and uncertain situations as opportunities whereas others find them threatening elements. He further concluded that innovation and creativity are few of the characteristics of entrepreneurs therefore, they can find opportunities in risky situations as all people cannot do so (Shane and Venkataraman,  2000). Nonetheless, risky situations do not always provide the opportunity to entrepreneur by decision making. There are certain tools available which can be used by owners for appropriate judgments but they are not necessarily correct in all situations.

A distinction was made between strategic and non-strategic risk by carrying out empirical research on 900 managers/owners (Brewster, Sparrow and Vernon., 2007) They provided that strategic risk in business covers rivalry and trust aspect of business whereas non-strategic risk covers the terms of ambiguity aversion. The study illuminated the fact that most entrepreneurs were willing to assume strategic risk instead of non-strategic. Managers and owners believed that rivalry and trust can be surveyed or predicted easily whereas ambiguous business situations stimulate entrepreneurs to take decisions without rationality as no other option is left. Thus, it can be said that being aware of uncertainty can assist business owners in getting opportunities whereas in a general sense uncertainty always is a threatening element for entrepreneurs (Brewster, Sparrow and Vernon., 2007).

Entrepreneurs are idea generators and therefore, they get used to uncertainty because of the lack of other alternatives.  Uncertainty is a situation where the probability of happening of a thing/event cannot be identified therefore, uncertainty is considered more dangerous than risky situations. In a similar context, Cramer and et.al., (2002) provided that an entrepreneur is a recipient of profit because of the concept of uncertainty. He also stated that business owners get the profit because of bearing costs for uncertainty. Thus, due to this concept, the nature of entrepreneurs has turned to speculative over time. Hence, the opportunity for profit and growth arises out of uncertainty surrounding change (Cramer and et.al., 2002).

In entrepreneurship, an uncertain climate can be seen as a crucial factor for entrepreneurs which is directly associated with decision making in different business situations. Stokes and Wilson, (2010) revealed in their research that turning a decision to be correct or wrong in uncertain situations is just a matter of chance as prediction is not possible in uncertainty (Stokes and Wilson, 2010). Nonetheless, contrary to this, the study of Armstrong, (2014) revealed that self-identity of an entrepreneur plays an important role in the decision making of owners because entrepreneurial behaviour is boosted by this which is exposed to the catalytic effect of social identity. He carried out a parallel analysis on 600 entrepreneurs who started their new venture in situation of uncertainty. The study revealed that even in uncertain situations, those people who make strong perditions win the race of social identity and it also contributes to sustained decision-making in a dynamic era. Thus, people having all the qualities of successful entrepreneurship can find opportunities in dodgy situations as a result of uncertainty (Armstrong, 2014).

Entrepreneurship and risk both go hand in hand and hence aid in attaining results which are been visional by entrepreneurs. An entrepreneur must possess the factor of taking risks of varied nature in order to become successful in their field. In the study of Smith and Chimucheka,  (2014) it has been stated that risk is a part of business which helps in leading towards the goals in an effectual manner. Also, it supports gaining different sorts of learning for entrepreneurs from whom his/her experiences get improved. Apart from risk, uncertainty is another aspect which supports entrepreneurs in gaining a varied set of opportunities that lie in the market (Smith and Chimucheka, 2014). In this context, Hirsch, Peters and Shepherd, (2009) commented that decision-making is one of the key practices of entrepreneurs which helps her in leading towards the end results in an effectual manner. However, if decisions are made by taking risks, this leads to uncertainty in which the outcomes of the decision are not known to any of the parties. Through this practice, the entrepreneur is able to gain opportunities that lie within the marketplace or within the company (Hirsch, Peters and Shepherd, 2009).

In favour of this statement, Stewart and Roth, (2001) stated that Steve Jobs had taken the risk of developing a high-performance Smartphone which can aid in conducting varied activities. However, there was no similar concept at that time in the market and hence made the decision to launch the iPhone, one of the performances Smartphones time, in the year 2007. it was a huge uncertainty for the company but it certainly supported attaining a high market share of the Smartphone industry (Stewart and Roth, 2001). Hence, it can be stated based on this discussion that the decision of Steve Jobs to launch Smartphones was uncertain but it has certainly supported the company in gaining varied opportunities that lie in the market place. Also, it supported boosting its profit extremely along with conquering the highest market share.

Moreover, Brewster, Sparrow and Vernon, (2007) commented that entrepreneurs must be aware of uncertainty as it helps in using scarce resources in an effectual manner. Also, it aids in managing varied situations in an effectual manner from which the ultimate aims and objectives of the firm are attained (Brewster, Sparrow and Vernon, 2007). In addition to it, Stokes and Wilson, (2010) stated that uncertainty aids entrepreneurs in evaluating information in a manner so that best results can be attained. Also, it supports enhancing the skills of critical analysis from which they can able to make appropriate decisions. Furthermore, the entrepreneur is able to handle imperfect information if he/she is well known with uncertainty (Stokes and Wilson, 2010).   However, Naldi and et.al, (2007) argued that uncertainty is the thing which cannot be identified and pointed out at every time and hence it may affect the results. Therefore, it may affect the profitability of the company and may even result in adverse situations (Naldi and et.al., 2007).  But, Anderson and Jack, (2008) stated in this context that entrepreneurs must focus on the consequences of the decisions that have been taken by them in order to ensure that varied situations can be managed. With this, opportunities can be attained along with boosting of monetary results (Anderson and Jack, 2008).

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In addition to it, Hughes, Ginnett and Curphy, (2006) stated in their work that entrepreneur must be creative in order to attain the objectives in an effectual manner. It is correct up to a certain extent because the modern era possesses a high extent of rivalry. In order to get rid of the high rivalry, entrepreneurs must incorporate creative aspects in varied fields. This is so required uniqueness certainly attracts success (Hughes, Ginnett and Curphy, 2006). However, thoughts of Littunen, (2000) in this context are that unique creativity can either lead to huge success or it may lead to failure. It is right up to a great extent because it is the customer who ensures whether creative products or services will succeed or not. Under this, the iPhone is one of the great examples which signify that entrepreneurs must be creative in order to attain huge success. But on the other hand, Jeff Bezos, founder of Amazon, failed with its innovative idea of an Amazon auction (Littunen, 2000). Considering this, it can be stated that creativity is one of the factors that must be present in the attribute and personality of entrepreneurship but it is sure that it won’t work every time. However, Armstrong, (2009) commented that creativity and innovative approach support a lot in managing the varied situations and issues that prevail within the business and hence aid in boosting the success rate of the company. With the help of innovation, the entrepreneur is able to lead towards the path of success and it somewhere helps him in meeting his goals (Armstrong, 2009).

Apart from creativity, originality is another aspects of entrepreneurship that need to be focused on with a motive to sustain in the market effectually. In this context, Gold, Thorpe and Mumford, (2010) stated that being original means being authentic with the work and also not practising unethical activity. In his view, being original is one of the key qualities of the entrepreneur which supports in development ethical image. From this approach, the company also gains benefits in terms of high brand image and ethical business practices (Gold, Thorpe and Mumford, 2010). However, Stewart and Roth, (2001) commented that there is high rivalry within the market and one needs to adhere to the needs and wants of customers also in order to ensure high sustainability. For this purpose, entrepreneurs need to follow trends and adopt the same in business with a motive to attain a high amount of attention from the customers. In this scenario, entrepreneurs must deviate from remaining original because earning profit and sustaining in the market are other aspects of entrepreneurship which need to be followed in an effectual manner (Stewart and Roth, 2001). Based on this argument, it can be stated that entrepreneurs must remain original and ethical but they must adapt to trends and make appropriate strategies in this context so that effectual results can be attained through it. Hence, it can be articulated that entrepreneurs must be well known with uncertainty as it helps address opportunities to boost profit and market share. Moreover, they need to be creative and original with a motive to attain the mentioned objectives appropriately. However, it is effectual that entrepreneurs must possess other qualities also so that they can lead in an effectual manner.

CONCLUSION

With the help of this report, it can be stated that entrepreneurship is one of the key elements of any economy as it acts as an economic engine which drives the economy to the path of poverty alleviation, growth, employment opportunities and high return on investment. It is a prime fact that entrepreneurs are directly associated with economic growth and it helps in gaining varied opportunities. However, entrepreneur requires varied sets of resources under the head of physical and non-physical which aid in leading towards the goals in a desired manner. It is articulated that the vision, ideas and philosophy of entrepreneurs are some of the major non-physical resources which play a significant role in using physical resources in the most optimal manner. Also, it acts as a guideline that supports moving effectually toward the end results in a more effectual manner.

However, there are varied factors that affect the entrepreneurship and it majorly involves risk and uncertainty. With the help of this study, it is articulated that risk is one of the key factors that aid in addressing opportunities that lie in different marketplaces. Also, it helps in attaining business objectives in an effectual manner and hence aids in gaining learning from it. Besides this, uncertainty must be aware by entrepreneurs as it helps in developing effectual strategies and tactics. This supports handling issues and also aids in attaining business objectives in an effectual manner. Additionally, it is also articulated that risk and uncertainty boost the learning of the entrepreneur from which they are able to lead in an effectual manner. Besides this, it develops critical thinking and high analytic power from which success can be attained. Moreover, it supports in identifying the imperfect information through which entrepreneurs is able to safeguard themselves and their organizations. Hence, it can be stated that the entrepreneur is taking risks and developing opportunities from it. However, it is evident from this study that success is not ensured at every step of entrepreneurship because there are various factors that underpin success.

In addition, creativity, originality and innovation are a few of the other factors that need to be followed by the entrepreneur with a motive to attain success. With the help, the company is able to sustain itself in the market in an effectual manner and also to attain the high amount of efficiency. However, it is also sound from this study that entrepreneurs must remain original and ethical but they must adapt to trends and make appropriate strategies in this context so that effectual results can be attained through it. However, it is effectual that entrepreneurs must possess other qualities also so that they can lead in an effectual manner.

REFERENCES

  • Anderson, A. R. and Jack, S. L., 2008. Role typologies for enterprising education: the professional artisan? Journal of Small Business and Enterprise Development. 15(2).
  • Cramer, J. S. and et.al., 2002. Low-risk aversion encourages the choice for entrepreneurship: an empirical test of a truism. Journal of economic behaviour & organization. 48(1).
  • Kuratko, D. F., 2005. The emergence of entrepreneurship education: Development, trends, and challenges. Entrepreneurship theory and practice. 29(5).
  • Littunen, H., 2000. Entrepreneurship and the characteristics of the entrepreneurial personality. International Journal of Entrepreneurial Behavior & Research. 6(6).
  • Naldi, L. and et.al., 2007. Entrepreneurial orientation, risk-taking, and performance in family firms. Family business review. 20(1).
  • Shane, S. and Venkataraman, S., 2000. The promise of entrepreneurship as a field of research. Academy of Management Review. 25(1).
  • Smith, W. and Chimucheka, T., 2014. Entrepreneurship, Economic Growth and Entrepreneurship Theories. Mediterranean Journal of Social Sciences. 5(14).
  • Stewart Jr, W. H. and Roth, P. L., 2001. Risk propensity differences between entrepreneurs and managers: a meta-analytic review. Journal of Applied Psychology. 86(1).
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