Entrepreneurial Education’s Effects on Rural Economic Development
Theresa Cyr
Entrepreneurs and the small businesses they create are economic stimulators. Through proper training techniques, society can create entrepreneurs that will develop small businesses and maximize the economic potential of an area, particularly rural areas. These are the basic tenets that this paper is designed to prove. This empirical study will show that educational programs, entrepreneurial behavior, and the effects of small business on economic development are directly and causally related.
In 1994, the Center for Entrepreneurial Leadership of the Ewing Marion Kauffman Foundation commissioned a national survey conducted by Gallup to determine public opinion about entrepreneurship and small business in the United States. The telephone survey of 1406 people revealed that Americans are showing increasing interest in small business and entrepreneurial opportunities. The survey indicated that small business is viewed positively, more positively than large corporations. Seventy-three percent of the general public surveyed and 59 percent of the high school students indicated that they would rather be small business owners than managers in large corporations. Eighty-nine percent of small business owners preferred working in small businesses. Seventy-four percent of the general public surveyed identified a positive feature of small business. For 33 percent this feature was personal service. Fifty-six percent of surveyed high school students cited small business as having positive features. Again the highest ranking feature was customer and personal service, cited by 24 percent. Among small business owners, 88 percent identified a positive feature of small business. Fifty percent of this group identified this positive feature as the economic opportunity and freedom it gave people who own and manage the business. This increased interest in entrepreneurial activities will increase the demand for educational programs in entrepreneurship and will shine the spotlight on entrepreneurial and small business activities. This increased awareness on entrepreneurship creates the perfect opportunity to stimulate economic growth by properly training individuals and giving them the tools necessary to start and grow successful businesses, thereby cutting the risk of business failure.
"Few things are more important for the economic growth and adaptation of modern market economies as the entrepreneurial engine, the new firms that create new jobs, new products, and new growth," states Paul D. Reynolds in his 1996 Participation in the Entrepreneurial Process: Estimate for U.S. Households. Reynolds projected that 7 percent of households in the United States (totaling over 6.8 million) include one or more persons involved in a start-up business. Also, about eighteen million households include one or more business owners. Clearly these statistics show that entrepreneurism has become an acceptable career option for United States citizens. In fact, 37 percent of American households (or 35 million) include some type of entrepreneurial experience, either successful or failed. This is a conservative estimate that does not include the employees of start-ups and small businesses. Reynolds also states that "it is now clear that participation in new and small business sectors is a central feature of the U.S. experience; one in three households are involved." The National Survey of Entrepreneurship and Small Business cited that 77 percent of the general public surveyed and 57 percent of the students surveyed knew someone who ran a small business. Two-thirds of the public and students indicated that this person was a friend or relative.
What is an entrepreneur? What is this popular phenomenon called entrepreneurism? The American Heritage Dictionary defines an entrepreneur as "a person who organizes, operates, and assumes the risk of business ventures, especially an impresario [manager]." The common definition is a person who starts and grows a business. There are many variations of this definition and many types of entrepreneurs, but all entrepreneurs have some common characteristics. Entrepreneurs must be somewhat comfortable with taking and assuming risks, impassioned with the dream they are pursuing, know where to get help and when they need it, and be receptive to change as their surrounding environment changes. An entrepreneur’s character is usually obsessive, focused, articulate, and resourceful. They are also typically charismatic leaders and tend to be introspective with excellent listening skills. These are just a few traits that nearly all entrepreneurs possess.
This "entrepreneurial behavior" begins in childhood by raising kids with more confidence, awareness, and a responsibility to the community. This is often a behavioral definition of an entrepreneur. To understand entrpreneurship’s role in economic growth, another section of this project, the definition I will be using is well stated by the Global Entrepreneurship Monitor. Entrepreneurship in this regard is "any attempt to create a new business enterprise or to expand an existing business by an individual, a team of individuals, or an established business."
The study of entrepreneurism must not be limited to the definition of an entrepreneur. Part of this study should include the small business itself and the reasons for starting such a venture. One reason for the large number of entrepreneurial activities is the high level of interest among the general public and high school students. The general public, students, and current small business owners surveyed in the National Survey of Entrepreneurship and Small Business all cited freedom and achievement as the prime motivators for starting a new venture. Small business owners cited being their own boss, building something for their families, using their skills and abilities, and overcoming a challenge as the prime reasons for initiating a start-up. Only 47 percent of the respondents cited earning money as a reason for starting their business. The general public and students surveyed generated roughly the same results, with the exception that a higher percentage of high school students cited financial gains as a reason for starting a business.
Many small business owners and managers stated that starting a small business was more difficult that they anticipated. Challenges the small businesspeople cited included competition, controlling costs, obtaining financing, and handling government regulation and red tape, which was cited as the most unexpected challenge. Surveyed members of the general public and student population cited financial difficulties as the greatest challenge. Members of these two groups also cited competition as a greater challenge than the small business owners did and government regulation as less of a challenge than the small business owners did. Fifty percent of the public and 69 percent of students surveyed wanted to start their own businesses. Most members of the general public and the small business owners and managers would encourage others to start small businesses. In contrast, most students surveyed would encourage people to wait a while before starting their own small business. This encouragement to wait could be caused by a feeling of unpreparedness and a lack of education among the group of high school students surveyed.
Entrepreneurial education and training is a very intriguing and undiscovered topic. While it is not absolutely necessary for an individual to obtain entrepreneurial training to be successful, obtaining an entrepreneurial education can serve as a tremendous advantage to increasing the chances of success as an entrepreneur. There are great strides to be made towards the goal of educating people to become entrepreneurs. The keys to success in education are desire and interest. Desire is definitely apparent in America today. According to the National Survey of Entrepreneurship and Small Business, conducted in 1994, 50% of the general public and 69% of high school students surveyed indicated an interest in starting a small business. This same survey included an eight question quiz on basic questions related to entrepreneurship and small business. The general public scored 50% on this quiz, and the high school students scored only 44%. Most high school students and members of the general public surveyed rated their own knowledge of small business and entrepreneurship as either poor or very poor. Both these groups and the group of small business owners surveyed felt that entrepreneurship and the principles of starting businesses should be taught in the schools to enhance the knowledge base about entrepreneurship in the general population.
This survey provides three basic messages for entrepreneurial education. First, it illustrates that there are substantial deficiencies in entrepreneurial knowledge among the general population and high school students. Secondly, it indicates a clear recognition among these groups that true entrepreneurial education is needed. Third is that both the general population and the high school students surveyed indicated a strong interest in entrepreneurship. Entrepreneurial education will serve as an important tool to prepare Americans for the economic challenges and opportunities of the future.
Small business will be the dominant source of economic growth for the United States in the 21st century. This growth will chiefly come from an increase in the number of jobs available and an innovation in the products and services offered. Between 1990 and 1995 small businesses, in this case each with less than twenty employees, created 4.3 million jobs. Marilyn L. Kourilsky, PhD., said, "Our country’s economic growth will hinge on our ability to create new jobs through entrepreneurship. Successful entrepreneurship, in turn, will require will-trained aspiring entrepreneurs willing to take the helm of venture creation."
Entrepreneurial education must create a change in mental orientation from the "take-a-job" mentality to the "make-a-job" mentality. Today’s education system prepares its students to take-a-job upon completion of the training. If a student wants to venture into the virtues of the make-a-job mentality he or she can only do so through the powers of observation. This puts several would-be entrepreneurs at a disadvantage. Without proper mentors, they will never see the lessons of entrepreneurship and consequently may never realize their entrepreneurial dreams. Even though students are interested in pursuing entrepreneurial activities, most will never become entrepreneurs because they don’t know how to even begin to find the opportunities that match their interests and desires and will lead to entrepreneurial success. Effective entrepreneurial education is absolutely essential to help these youths create successful businesses from their unharnessed interests, abilities, and dreams.
Three attributes are extremely important in entrepreneurship education: the ability to identify or recognize a market opportunity and the ability to generate a business idea, service or product that seizes that opportunity, the ability to marshal and commit resources to pursue that opportunity while facing the prospect of risk, and the ability to create an operating business organization that implements the opportunity-motivated business idea.
The majority of current entrepreneurial education programs do not focus on teaching these three principles. Instead they focus on the general principles of management that are required to maintain a business. These general management principles are definitely necessary for the entrepreneurial student, but these topics need to be preceded by instruction of how to recognize business opportunities, gather the necessary resources, and start the business. Only in the implementation phase of business creation do the management principles become important to budding entrepreneurs. If a student does not learn the first three major principles of entrepreneurship, their entrepreneurial training serves only as inadequate preparation for their future as entrepreneurs.
One major program that defies this norm is the Center for Entrepreneurial Studies at Babson University in Boston. While the Center’s curriculum still teaches the basics of management as part of the coursework required to obtain a degree, elective courses are available that teach the process of understanding entrepreneurs, finding opportunities, and converting those opportunities into successful ventures. Other courses teach general business management techniques and financing principles, all from an entrepreneurial viewpoint. Students are also shown positive entrepreneurial role models to emulate and are given the task of working on entrepreneurial projects in the field, which gives students a hands-on approach to entrepreneurism.
Currently many entrepreneurial training programs focus on a practical approach, also called the experiential approach, instead of traditional classroom instruction to teach students to be entrepreneurs. These programs often employ experiential learning techniques, such as encouraging students to run a business on campus over the course of the semester. While students enjoy this foray into practical learning, it still does not teach them how to become entrepreneurs because they it still does not teach them the three foundational principles guiding entrepreneurship and their entrepreneurial success.
"Opportunity recognition is the cornerstone of the entrepreneurship process."
This is the first step of a successful entrepreneur. After this opportunity is recognized, the next step is for the entrepreneur to find and devote the resources necessary to turn this opportunity into a viable opportunity. These resources will include both personal resources and external resources and will have to be found in the presence of risk. The last step is to create the business. This final step is complete when the entrepreneur turns all of the gathered resources into what is needed to turn the viable opportunity into a viable venture. These are the skills that most entrepreneurial programs currently lack, yet they are the keys to success for entrepreneurs. Teaching these three principles of entrepreneurism should be the focus of developing entrepreneurial training and educational programs.
The Entrepreneurship Implementation and Support Pyramid (see exhibit A) visually shows where the focus of entrepreneurial training and education should be. It contains three segments or layers: the initiator, the development team, and the constituency.
At the top of the pyramid is the initiator. The initiator is the one who possesses the ability to identify the successful market opportunities and the passion and skills to, in the presence of risk, lead the pursuit of those opportunities. The initiator is the true entrepreneur and exhibits entrepreneurship. Initiators can see the opportunity, grasp it, and then turn it into a successful venture. Initiators are characterized by their tenacity, rational risk-taking, comfort with day-to-day ambiguity, and ability to leverage their divergent thinking into the creation of new businesses. 25% of kindergartners exhibit these traits, but only 3% of high school graduates do. This also indicates that the educational system does not nurture the basic entrepreneurial qualities, but rather discourages students who possess these traits to develop them further.
The middle layer of the pyramid is the development team. The development team is the group of individuals recruited by the initiator to help move the newly formed venture through the phases of growth. The development team is not composed of initiators, but each member of the team has some affinity for the initiator and his or her entrepreneurial vision. The development team focuses on the general management functions such as human resource management, marketing, finance, sales, and operations. The team uses these functions of general management to grow the venture from infancy into a viable business. The development team does exhibit some entrepreneurial behavior, and it is not uncommon for people on the development team to become initiators after they have served on a team that successfully grew another initiator’s opportunity into a reality. The development team is the current focus for most educational programs. Business management programs often train individuals to be active participants at the development level. This level also attracts some people from programs that are focused on the modern educational practices of groupthink and cooperative learning.
The constituency serves as the bottom level of the pyramid, providing a base for the entire entrepreneurial pyramid. This level attracts the broadest population. Constituency members have a vested interest and feel as if they are stakeholders in the entrepreneurial venture. They engage in different activities than either the initiators or the development team and espouse entrepreneurism. Students of economic education are drawn to the constituency level of the pyramid because it reinforces a commitment to entrepreneurism and free market systems.
The pyramid shows that entrepreneurial education should focus on the initiator. 70% of American youth are initiator oriented, but many do develop their potential in this area because the needed instruction is very difficult to find. Most entrepreneurial programs do not address initiator-oriented education. Those that mention it do not delve into the primary entrepreneurial principles and are thus ineffective. Entrepreneurial education should focused on the initiator and the entrepreneurship that flows from the initiator level for it to be truly successful in producing entrepreneurs. Unless individuals are taught how to recognize and develop opportunities, the initiators will not be able to initiate new businesses because they simply will not recognize them. Some initiators will be successful in developing ventures, but the potential of the entrepreneurial market will not be reached unless individuals learn how to recognize opportunity instead of blindly ignoring it.
New business ventures, the foundation of entrepreneurism, play a significant role in economic growth in the United States. While Fortune 500 companies have lost more than 5 million jobs since 1980, the U.S. has actually increased its job market by more than 34 million new jobs. Small business, those with less than 500 employees, employ 53% of private workforce and account for 55 % of all innovations.
Start-ups are a major source of new jobs, play a critical role in GDP growth, aid in restructuring economic sectors, and are a significant and viable career option for many. "A country’s rate of economic development is critically linked to the level of entrepreneurial activity." The level of this activity reflects the perception of the availability of start-up opportunities and the public’s motivation and ability to pursue these opportunities.
The GEM initiative, created in late 1997 as a joint research venture between Babson College and London Business School, first studied entrepreneurism and its relation to economic growth. It is a research project designed "to establish the role and impact of the entrepreneurial sector on economic growth." The first year was spent collecting data on precursors to national entrepreneurial activity, the levels of entrepreneurial activity, and on the consequences of that activity. Data was collected in Canada, France, Germany, Italy, Japan, U.K., U.S., Denmark, Finland, and Israel.
There is a strong correlation between entrepreneurial start-up rates, growth in the national GDP and the employment rate. This correlation is graphically illustrated in exhibit 2 (Figure 3 in GEM).
The U.S. has many advantages that will sustain economic growth through entrepreneurial activity. They are: anticipated sustained population growth for the next 25 years, high numbers of women starting businesses, large numbers of the population in the "correct" age range to start an entrepreneurial venture, high income diversity with a lot of wealthy households, widespread political and social acceptance of this income diversity, a substantial and well established post-secondary education system, national acceptance of entrepreneurial career options, and widespread inclination to identify and capitalize on opportunities. Because of these the U.S. entrepreneurial sector is in very good shape. The country’s major focus should be on sustaining these advantages.
One of the most intriguing factors that currently sustain entrepreneurial growth is the percentage of women involved in entrepreneurial ventures. Women now account for 40 percent of all business owners. This is a huge statistic considering that 25 years ago women accounted for only four percent of business owners. Within the next few years, women will command a substantial portion of available capital for new ventures and are viewed by many as the entrepreneurial future. This trend is could be starting to flatten according to recent survey results. A recent survey among American high school students (both male and female) indicated that while both genders are aware of their entrepreneurial knowledge deficiencies, the female students are most aware of the deficit, which could be discouraging them from pursuing entrepreneurial careers. While there was a strong interest among the female students, it was not as strong as the entrepreneurial interests of the male students. One perceived reason for this difference is that the female students lose self-confidence because they are so perceptive of their lack of entrepreneurial knowledge. Another reason for this difference could be cultural or societal influences. Programs have been initiated to combat this mentality among the female students. These programs are designed to teach the female students about entrepreneurism and increase their self-esteem and self-confidence in their entrepreneurial abilities. One major difference between the two genders is the remarkable number of female students who believe that successful entrepreneurial ventures should positively contribute to the surrounding community. This was cited as another possible deterrent for female entrepreneurs. Due to male overconfidence, the females may still have a higher success rate than the males in entrepreneurial ventures, but the number of possible entrepreneurs is lower than optimal because the young women do not view themselves as capable of being successful. In the future, it will be important to continue the entrepreneurial education programs aimed at women to continue the trend of an increase in the number of female entrepreneurs.
The U.S. has several opportunities to enhance its entrepreneurial activities. The first of these is to expand entrepreneurial education and training. "Entrepreneurship education is strong and getting stronger in business schools across the country, but it needs to proliferate outside of the business domain." Of those 25-34 years old, only 27 percent completed college. Only 16% of college students major in business subjects, and not all of these students elect to take courses in entrepreneurship. This means that the number of individuals in the U.S. exposed to high-level entrepreneurship education is relatively small. If the U.S. is to continue to grow through entrepreneurial ventures, entrepreneurial education must be expanded and made available to more students. Students in disciplines other than business will be exposed to many different opportunities and ideas and need to know how to discern which opportunities have commercial potential. The best vehicle for this education is more collaboration between departments, which can be difficult due to problems with scheduling, faculty work loads, funding, credit allocations, and other problems common to higher education. There also needs to be more education at the primary and secondary levels. At the primary level, entrepreneurial concepts could be integrated throughout the curriculum. Students at the secondary level could take courses that address entrepreneurship and basic economic concepts and issues. This would allow those individuals who do not pursue college degrees to have some entrepreneurial education before beginning in the world of work. This education is especially important because everyone can become and entrepreneur. It is extremely important to provide at least a basic instruction to ensure that all the future entrepreneurs have the minimum level of knowledge and skills necessary to start and manage a business.
The next opportunity to enhance the U. S. system is to offer government assistance programs. While government assistance programs exist for entrepreneurial assistance, they often compete with each other. This leads to confusion for the entrepreneur and inefficiency in the system. Another enhancement would be for the government to simplify the compliance pressures on entrepreneurial ventures. Again this would improve efficiency and would help ventures be successful through the first critical parts of their lives. Simplification of compliance procedures would save time and labor costs at the birth of the venture, which would increase survival chances of the new ventures.
Government interventions were also mentioned in the National Survey of Entrepreneurship and Small Business. Member of the general public favored government pricing controls, especially in situation where production costs did not increase the production costs of an item. Small business owners did not share this view over government price controls. This difference is probably because of a difference in the knowledge base about competitive markets. Again, education in entrepreneurship and economics is a very important component to help the public understand entrepreneurism and its environment. General consensus among the public and the business owners participating in the survey cited too much government regulation on small business. The majority of students surveyed indicated that they thought that the current government regulation on small business was adequate and not excessive. Half of the students and members of the general public surveyed felt that the government overtaxed business. Two-thirds of the small business owners surveyed felt that the government overtaxed businesses.
The U.S. should also respond to structural shifts to enhance entrepreneurism in the U.S. All business activity in this country occurs in an institutional context, which includes government regulations and policies, and the education and legal systems. While no one can truly predict shifts in the economic base, the government could develop regulations to create an infrastructure that would facilitate more business activity. This objective could also be accomplished by adapting existing procedures as long as the facilitation of business activity is efficient and possible. This is especially important to areas where the resources to compensate for readjustment are scarce.
Another factor the U.S. could use to enhance its entrepreneurial base is to increase the availability of financing in the seed stage of new business development. This problem is different for different industries or different geographic regions. The amount of funding available may not need to be increased, but there is definitely a current problem with the knowledge of where to get the funding. Obtaining funding can drain an entrepreneur’s time and resources significantly, especially when the entrepreneur must endure a large amount of bureaucratic red tape in the process of trying to fund their venture.
The last step the U.S. could take in its efforts to enhance the entrepreneurial structure would be to focus on successful role models. While the national media focuses on entrepreneurs and their ventures quite frequently, it is also important for smaller regions to focus on their entrepreneurs. Any region that wants to stimulate entrepreneurial growth needs to promote recognition of its successful entrepreneurs. Promoting entrepreneurism through the stories of successful entrepreneurs entices others to turn their ideas into ventures and promotes the acceptance of entrepreneurship as a career option.
Entrepreneurship is a major contributor to modern market economies. As change and adaptation continue at an increasing rate, understanding the mechanisms associated with the implementation and growth of new firms is becoming more important. While the U.S. is advanced in entrepreneurism, it is also complacent. There is no accurate count of entrepreneurial ventures within the country. This lack of data means that there is not reliable source to measure the impact of or the response to policy changes as they occur. Resultingly, policy changes are made in a vacuum without anyone knowing the impacts of the changes.
Another certain thing is that entrepreneurism is on the verge of many major changes. The information age has substantially increased the number of resources available to entrepreneurs. Innovations like the Internet have created opportunities for change and growth in the management of small businesses. The Internet makes it possible for entrepreneurs to grow their businesses on a global scale without incurring the expenses generated from opening multiple business locations. The Internet, through distance education, also allows individuals access to entrepreneurial education that may not otherwise have been available to them. Managing an upstart company now requires a very broad and diverse set of skills. Entrepreneurs don’t necessarily depend on their educational background, financial stability, or some semblance in an order of things before they begin. The best education possible is having an open and flexible mindset and getting the best education possible. The common link between education and entrepreneurship is communication. Both written and verbal communication in either a public or a private setting are important to the success of any business. Successful entrepreneurs will also find a way to hire the best and brightest available employees, allow them the freedom to make decisions and live with the consequences of their decisions. These employees will be made to feel as much a part of the business and will be expected to be as enthusiastic about the business as the business’s entrepreneurial owner. This could be the ultimate key to success for the entrepreneur.
Applying the above findings to the rural environment is a very challenging project. No research has been performed to apply the findings, and as a result, any projections are speculations and are as variable as entrepreneurial success itself. There is no standard guaranteeing the success of failure of entrepreneurial ventures. The rural environment is ripe with possibilities. The population of rural areas easily lends itself to entrepreneurial activity. Typically rural areas do not have large local businesses to employ the labor force. These individuals will be inclined to start their own ventures, given the opportunity and the ideas. These entrepreneurial ventures form a small business base in the area, which helps stimulate the economy because the wealth stays in the local area instead of being exported to a major metropolitan headquarters of a large company. Rural workers are also usually dedicated to the work they do and the companies they work for. This added dedication can help small business succeed and grow to be very prosperous for the owners. Once small business becomes a viable option in an area, others are interested in starting ventures to create successful opportunities of their own. Clearly, rural areas are a small business breeding ground.
In conclusion, entrepreneurism is a phenomenon that is gaining popularity in the United States. It is one of the best ways to grow an economy because it creates the base for the economy. The biggest reason the U.S. is not experiencing more entrepreneurism is because of a lack of education about entrepreneurial activity at all levels in the educational system. With a properly designed entrepreneurial curriculum in place in American schools, the number of entrepreneurs would increase dramatically and the economic health of the country would also increase. Small business has the greatest capacity to affect employment factors, the GDP, and the overall economic health of the nation. Americans are interested in entrepreneurism and in starting and growing their own businesses. Once the educational structure is in place the economic gains will begin, establishing the U.S. as an economic superpower for a long time to come. Applying all of these factors to the rural economy shows how lucrative the small business industry can be for rural economies. Education is the key to this phenomenon because when an educated population has a better chance for success in a rural area than someone who can not recognize the opportunities available to them.
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