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Differentiating Entrepreneurs From Small Business Owners

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DOI: 10.2307/258448

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Differentiating Entrepreneurs from Small Business Owners: A Conceptualization
Author(s): James W. Carland, Frank Hoy, William R. Boulton, Jo Ann C. Carland
Source: The Academy of Management Review, Vol. 9, No. 2 (Apr., 1984), pp. 354-359
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/258448
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?Academy of Management Review, 1984, Vol. 9, No. 2, 354-359.

DifferentiatingEntrepreneursfrom
Small Business Owners:
A Conceptualization
JAMES W. CARLAND
Western Carolina University
FRANK HOY
WILLIAM R. BOULTON
University of Georgia
JO ANN C. CARLAND
Western Carolina University

The literature of small business and entrepreneurship is explored. It is es-

tablished that, although there is an overlap between entrepreneurialfirms
and small business firms, they are different entities. Using the 1934 work
of Schumpeter and recognizing the additions to the field of current writers,
a conceptual framework is established for the differentiation of entrepre-
neurs from small business owners.

Schumpeter (1934) was among the first to identify small business ownership and management. The
the entrepreneuras an entity worthy of study, distinct small business sector has receivedattention in the eco-
from business owners and managers. He described nomic and management literature because of its sig-
entrepreneurs as individuals whose function was to nificance to the economy. The Small Business Ad-
carry out new combinations of means of production. ministration (U.S. Government Printing Office,
To Schumpeter, this function was fundamental to 1982) has compiled a list of statisticsthat dramatically
economic development. Entrepreneurs, therefore, demonstrate the impact of small business on the na-
warranted study independent of capitalists and busi- tion's economy:
ness managers. Today there continues to be an im- 1. There are 14.7 million businesses in the United
plicit assumption that the entrepreneur contributes States, of which 3.2 million are farms.
disproportionately to the economy of a nation, yet 2. Approximately 99.7 percent of these businesses are
little has been done to isolate this individual for fur- considered small by the SBA's size standards for
ther analysis. Extending the theory of Schumpeter, loan applicants.
3. The small businesses identified above account for:
who argued that an entrepreneurwas distinguishable 38 percent of the gross national product; 44 per-
both by type and by conduct, two conceptualizations cent of the gross business product; and 47 percent
are proposed in this paper: one for differentiating of total U.S. business employment.
entrepreneurs from small business owner/managers 4. The small business sector identified above ac-
and the second for differentiating entrepreneurial counted for the vast majority of the net new jobs
created by business between 1969 and 1976.
ventures from small businesses.
Although there is no uniform definition of a small
Entrepreneurship: The Contribution firm, the statistics above relate to businesses that fall
within SBA guidelines as being small. The Small
Because the definition of entrepreneurshipdenotes Business Act states that "a small business concern
the creation of some combination that did not pre- shall be deemed to be one which is independently
viously exist, entrepreneurship often is equated with owned and operated and which is not dominant in
354
its field of operation" (U.S. Small Business Admin- not be a trait. Martin(1982)believesthat capitalrisk
istration, 1978, p. 121.1). is a function of the investor. Further, Brockhaus
As the SBA statistics demonstrate, small business (1980) cast doubt on the validityof the risk taking
researchis justified because of sheer numbers. It must propensityas an entrepreneurial characteristicwith
be noted that small firms are treated as a separate his descriptivework. Brockhausfound no statistical
sector, not because they are cohesive and homoge- differencein the riskpreferencepatternsof a group
neous, but because there are certain common man- of entrepreneurs and a groupof managers.It should
agement limitations due to extremely limited re- be noted that Brockhausused the establishmentof
sources as compared with the "deep pockets" of re- a businessas the criterionfor inclusionof the par-
sources of larger corporate organizations. Research ticipantsin the entrepreneurgroup. Omittingbusi-
often is directed toward the implications of public ness ownershipas a designationof entrepreneurship
policy developments or the impact of environmen- permitsboththe inclusionof corporateentrepreneurs
tal variables on the small business sector (Chilton & andthe eliminationof the riskbearingcharacteristic.
Weidenbaum, 1982; Goodman, 1981; Legler & Hoy, However,many writershave assertedand continue
1982; Robinson, 1982). to assertthat riskbearingis a primefactorin the en-
Although small business is a significant segment trepreneurialcharacterand function (McClelland,
of the American economy, the entrepreneurial por-
1961;Palmer,1971;Timmons,1978;Welsh& White,
tion of that segment may wield a disproportionate
1981).
influence. If entrepreneurship can be viewed as in-
Numerousnormativeanddescriptivestudieshave
corporating innovation and growth, the most fertile
supportedvarioussets of personalitycharacteristics
ground for management research may be entrepre- of entrepreneurship. Brockhaus(1982)has presented
neurs and entrepreneurialventures. Entrepreneurship
an excellenthistoricoverviewof the definitionsof
has been found to extend beyond small businesses:
entrepreneurs.Perhapsthe most importantfactor
some large corporations have been described as en-
from a societalperspectiveis the characteristic
of in-
gaging in entrepreneurial behavior (Ronstadt, 1982,
novation. Schumpeter(1934) believedthat innova-
Schollhammer, 1982, Shils, 1982). Additionally, a
tion was the centralcharacteristicof the entrepre-
person who owns an enterprise is not necessarily an
neurialendeavor.His emphasison this point is re-
entrepreneur (Martin, 1982). Clearly, an overlap ex-
vealedin his declarationthat one behavesas an en-
ists of entrepreneurship with the small business sec-
trepreneuronly when carrying out innovations.
tor. The concern of this paper is: If entrepreneurs
McClelland(1961)statedthat energeticand/or novel
exist as entities distinct from small and large organi-
instrumentalactivity was a key factor in entrepre-
zations and if entrepreneurialactivity is a fundamen-
neurialactivity.Martin(1982)stressedthatentrepre-
tal contributor to economic development, on what
neurialcreativityis differentfromliteraryor artistic
bases may entrepreneurs be separated from nonen-
creativityin that the entrepreneurdoes not innovate
trepreneurialmanagers in order for the phenomenon
by creatingideasbut by exploitingthe valueof ideas.
of entrepreneurship to be studied and understood?
Table 1 displaysa samplingof entrepreneurial char-
Literature Review: The "Entrepreneur" acteristicsappearingin the literature.
The characteristicslistedin Table 1 representatti-
One of the earliest definitions of an entrepreneur tudes and behaviorsthat may be manifestedby en-
was that of Cantillion (circa 1700) who described the trepreneurs.Demographiccharacteristicssuch as
individual as a rational decision maker who assumed birthorder,sex, or maritalstatushavebeenexamined
the risk and provided management for the firm (Kil- in certainof the studies cited and in variousother
by, 1971). Schumpeter (1934) credited Mill (1848) investigations(Vaught& Hoy, 1981).Theyhavebeen
with bringing the term into general use among econ- excludedfromthe presentconceptualization because
omists. Mill, also, believed that the key factor in dis- of the inabilityof a prospectiveentrepreneur to alter
tinguishing a manager from an entrepreneurwas the those variablesin orderto increasehis/her probabil-
bearing of risk. Schumpeter, however, countered that ity of success.
risk bearing was inherent in ownership and that en- Schein's (1974) work on careeranchorsclarifies
trepreneurs, the combiners, were not necessarily some of the differencesin individualapproachesto
owners; therefore, the risk bearing propensity would careers. In studyingM.I.T. graduates'careers, he
355
 Table 1
Characteristics of Entrepreneurs

Date A uthor(s) Characteristic(s) Normative Empirical

1848 Mill Riskbearing x
1917 Weber Source of formal authority x
1934 Schumpeter Innovation, initiative x
1954 Sutton Desire for responsibility x
1959 Hartman Source of formal authority x
1961 McClelland Risk taking, need for achievement x
1963 Davids Ambition; desire for independence; responsibility; self-confidence x
1964 Pickle Drive/mental; human relations; communication ability; technical knowledge x
1971 Palmer Risk measurement x
1971 Hornaday & Aboud Need for achievement; autonomy; aggression; power; recognition; innovative/
independent x
1973 Winter Need for power x
1974 Borland Internal locus of control x
1974 Liles Need for achievement x
1977 Gasse Personal value orientation x
1978 Timmons Drive/self-confidence; goal oriented moderated risk taker; internal locus of
control; creativity/innovation x x
1980 Sexton Energetic/ambitious, positive reaction to setbacks x
1981 Welsh & White Need to control; responsibility seeker; self-confidence/drive; challenge taker;
moderate risk taker x
1982 Dunkelberg & Cooper Growth oriented; independence oriented; craftsman oriented x

found that five types of job directions were prevalent. Vesper's continuum is the great diversity of sources
He described these as career anchors that included from which the authors cited in Table 1 derived the
managerial competence, technical/functional com- identified characteristics. Those citations that are in-
petence, security need, independence need, and crea- dicated in Table 1 as normative are generally anec-
tivity. The entrepreneursmade up his creative group. dotal, describing either the authors' personal impres-
The group concerned with creativity is the most in- sions or conclusions drawn from reading the works
teresting in that it contains the entrepreneurs. Four of others. The empirical studies draw from quite di-
of these men are successful in that they have been able
to launch enterprises which have succeeded and have verse samples. McClelland's (1961) entrepreneurs
brought to their founders either fame or fortune or were in fact business executives representing various
both. The kinds of activities vary greatly-but they functional specialities: general management, sales
all have in common that they are clear extensions of and marketing, finance, engineering, and personnel.
the person and his identity is heavily involved in the
vehicle which is created (1974, p. 19). Senior marketing managers were found to have the
It is difficult to sketch a profile of an entrepreneur highest need for achievement. More frequently, sam-
from the attitudinal and behavioral characteristics ples of small business owners are chosen for study
listed in Table 1. It may be more appropriate to ac- (Hornaday & Aboud, 1971; Pickle, 1964). The as-
cept Vesper's (1980) view of a continuum along which sumption underlying these selections is that the en-
several "types" of entrepreneursexist. The question trepreneur was the individual who brought the re-
then becomes: Which characteristics and what level sources together and initiated the venture. Success-
of intensity do the entrepreneurs possess at various ful entrepreneurs are defined as those whose enter-
points on the continuum? Vesper described the en- prises have survived some period of time, perhaps
trepreneuras an individual but implied that he or she two years. The question then is: Are the characteris-
could be found working with others in larger orga- tics listed in Table 1 those of entrepreneurs, of small
nizations. His first type, the "Solo Self-Employed business owners, or of some mixture that may or may
Individual," is essentially what is treated here as the not be capable of demonstrating the entrepreneurial
small business owner/operator, but not truly an en- function of economic development?
trepreneurin the Schumpeterian sense because a new
combination is not created. The Entrepreneurial Venture
A major obstacle preventing the attribution of A considerable body of literature has been built
characteristics to entrepreneurs in firms along up treating the stages of organizational development
356
(Vozikis, 1979). This growth-orientation, in and of Schumpeter's criteria represent evidence of inno-
itself, would represent an entrepreneurial character- vative strategies or innovative strategic postures. The
istic to some scholars (Dunkelberg & Cooper, 1982). criteria also emphasize the behavior of a firm con-
Yet, as Vesper (1980) has pointed out in his con- sistent with its own best interests. This perspective
tinuum of venture types, many business owners never is congruent with the development and pursuit of a
intend for their businesses to grow beyond what they distinctive competence prescribed by Vesper (1980)
consider to be a controllable size. It is necessary to as a requirement for an entrepreneurial venture.
go beyond the notion of corporate life cycles and
stages to conceive of an entrepreneurial venture. A Conceptual Distinction Between
Glueck (1980) distinguished between entrepreneu- Small Business and Entrepreneurship
rial ventures and what he termed family business ven-
tures by focusing on strategic practices. Strategic From the foregoing discussion, it can be seen that,
management in Glueck's family business must em- although there is considerable overlap between small
phasize preferences and needs of the family as op- business and entrepreneurship, the concepts are not
posed to those of the business. When in conflict, the the same. All new ventures are not entrepreneurial
needs of the family will override those of the busi- in nature. Entrepreneurialfirms may begin at any size
ness. Glueck cited the oft observed family business level, but key on growth over time. Some new small
strategies to remain independent and to provide out- firms may grow, but many will remain small busi-
lets for family investment and careers for family nesses for their organizational lifetimes.
members as an example of conflict. In contrast, an The critical factor proposed here to distinguish en-
entrepreneurial strategist would opt for pursuit of trepreneurs from nonentrepreneurialmanagers and,
growth and maintenance of the firm's distinctive in particular, small business owners is innovation.
competence through obtaining the best personnel The entrepreneuris characterizedby a preference for
available. Glueck's distinction is that strategic prac- creatingactivity, manifested by some innovative com-
tices oriented toward the best interests of the firm bination of resources for profit. Drawing further on
are observed in entrepreneurial ventures. the characteristicsoutlined in Table 1, it is suggested
An entrepreneurialventure can be identified by the that analyses of prospective entrepreneurial charac-
strategic behavior of the firms. Schumpeter (1934) teristics examine such traits as need for achievement
suggested that five categories of behavior can be ob- (perhaps more appropriately labeled goal-orienta-
served that are characteristic of an entrepreneurial tion), internal locus of control, need for indepen-
venture. These categories, listed below, are supported dence, need for responsibility, and need for power.
by Vesper (1980) and can be used as the basis for clas- Although a risk taking propensity is mentioned fre-
sification criteria. quently in the literature, Schumpeter noted that it is
1. Introductionof new goods inherent in ownership rather than entrepreneurship.
2. Introductionof new methods of production Further, Brockhaus (1980) supported Schumpeter
3. Openingof new markets with empirical results demonstrating that risk taking
4. Openingof new sourcesof supply
5. Industrialreorganization behavior cannot be used as a distinguishing charac-
Because of the ambiguity of criterion 4, it is not teristic of entrepreneurship.
employed in this study. If any one of the remaining From this analysis, it is suggested that many pub-
four criteria is observed in a firm's strategic actions, lished studies may be misleading in their conclusions.
then that firm can be classified as an entrepreneurial Economic theorists propose that the entrepreneur is
venture. These criteria do permit the classification essential to economic development (Schumpeter,
of a new small traditional firm as entrepreneurial if 1934; Williams, 1981). Yet studies of entrepreneur-
that firm represents an original entry into a market. ship neglect to distinguish adequately between entre-
Again, the determining factor would be whether or- preneurs and other business managers, primarily
ganizational activity in any of the four criteria re- small business owners. Erroneous descriptions of en-
sulted in a new combination, indicating innovative trepreneurs can jeopardize investigations in a vari-
behavior. Additionally, these criteria permit medium ety of ways. Specifically, analyses of how entrepre-
and large firms to be classified either as entrepre- neurs make their fundamental contributions to eco-
neurial ventures themselves or as the instigators of nomic development cannot draw sound conclusions
entrepreneurial ventures. if the case studies are not entrepreneurial.
357
 To guide future studies, the following definitions Small business owner: A small business owner is
are proposed to distinguish among the entities dis- an individual who establishes and manages a busi-
cussed in the paper: ness for the principal purpose of furthering personal
Small business venture: A small business venture goals. The business must be the primary source of
is any business that is independently owned and op- income and will consume the majority of one's time
erated, not dominant in its field, and does not engage and resources. The owner perceives the business as
in any new marketing or innovative practices. an extension of his or her personality, intricately
Entrepreneurial venture: An entreprenuerial ven- bound with family needs and desires.
Entrepreneur: An entrepreneur is an individual
ture is one that engages in at least one of Schum-
who establishes and manages a business for the prin-
peter's four categories of behavior: that is, the prin- cipal purposes of profit and growth. The entrepre-
cipal goals of an entrepreneurial venture are profit- neur is characterized principally by innovative be-
ability and growth and the business is characterized havior and will employ strategic management prac-
by innovative strategic practices. tices in the business.
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James Carland is Assistant Professor of Management,

School of Business, Western Carolina University.

Frank Hoy is Associate Professor of Management in the

College of Business Administration and Director of Re-
search and Experiential Education in the Small Business
Development Center, University of Georgia.

William Boulton is Associate Professor of Management in

the College of Business Administration, University of
Georgia.

Jo Ann Carland is Assistant Professor of Management in

the School of Business, Western Carolina University.

359

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