Role of Uncertainty and Imperfect Information In Entrepreneurship

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 current lack of certainty in future event, outcome or scenario 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 in the success of a business owner (Hirsch, Peters and Shepherd, 2009).

The main objective of carrying out this study is to understand role of uncertainty and risk in success of entrepreneurs as there has always been a controversy as these dimensions can be fruitful or disastrous for entrepreneur. In order to understand and make strong argument on this topic, extensive literature review over the same has been undertaken. Thus, various books, journals and online material has been reviewed and examined to carryout critical study. Various aspects of entrepreneurship such as definition, driving forces, types of entrepreneur, risk and uncertainty relevance and insufficient information handling have been covered in order to create insightful information. The study reveals that entrepreneurship covers appearance of three basic ideas/activities including focus on individual, economic factors and functioning of institutions. In the first activity i.e. individual focus, the entrepreneurial actions is considered as an attribute of human such as taking risk, willingness to face uncertainty, 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 entrepreneur. The report reveals that risk and uncertainty cannot be detached from entrepreneurship function and awareness of different situations and ability to make strong predictions can assist owners to take sustainable decisions for long term profitability. However, inadequate information may sometime change the situations as opportunities to businesses become disasters.

LITERATURE REVIEW

In common parlance, entrepreneur can be termed as owner of business who strongly influences the business around the world across countries. It is essential to understand profile of entrepreneur, a character which can be put in a center to a business enterprise. The person who starts up new business, takes risks for the purpose of making profits by identifying different opportunities is known as entrepreneur. Thus, he/she is the person who manages essential/crucial resources in a business which is retrieved from different sources on a power to persuade those who hold them. Littunen, (2000) also recognized entrepreneur as a leader who takes risk or works in a situation of uncertainty for exploiting business opportunities. Thus, 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, 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 appearance of three basic ideas/activities including focus on individual, economic factors and functioning of institutions. In the first activity i.e. individual focus, the entrepreneurial actions is considered as an attribute of human such as taking risk, willingness to face uncertainty, desire for recognition and achievement. The second idea focuses on environmental and economic aspect which motivates and enforces entrepreneurship. It may include dimensions of markets, drastic change of technology and dynamics of demographic structure in particular society. Another important factor includes 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, labor resources can be replaced with capital resources by installation of automatic machines (Kuratko, 2005).  However, contrary to this Smith and Chimucheka, (2014) provided that it is general tendency to presume that the entrepreneurial event is money but in fact non 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 prerequisite for an entrepreneur. Nevertheless, in practical world, it is difficult to even think about starting up a venture without initial capital requirements. Thus, critical resource required for 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 labor and technological. However, non financial resources are more critical because without a unique business idea, a person cannot become successful entrepreneur.

Shane and Venkataraman, (2000) investigated the major dimensions of entrepreneurship and identified risk and uncertainty as the key dimensions. He studied economic theory of entrepreneurs and revealed that entrepreneurs assume risk in most uncertain environments. As owner’s income, wealth, status, image is dependent on the outcomes of their decisions in uncertain situations therefore; the results may be both positive and negative. In similar fashion, several arguments have been made where some people assume risk and uncertain situations as opportunity whereas other found it threatening elements. He further concluded that innovative and creative are few of the characteristics of entrepreneurs therefore, they can find opportunity in risky situations as all people cannot do so (Shane and Venkataraman,  2000). Nonetheless, risky situations 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 the situations.

A distinction was made between strategic and non strategic risk by carrying out empirical research on 900 managers/owners by (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 of 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 entrepreneur to take decisions without rationality as no other option is left. Thus, it can be said that being aware of uncertainty can assist business owner to get opportunity whereas in general sense uncertainty always is a threatening element for entrepreneur (Brewster, Sparrow and Vernon., 2007).

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

In entrepreneurship, uncertain climate can be seen as crucial factor for entrepreneur which is directly associated with decision making in different business situations. Stokes and Wilson, (2010) revealed in his 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, study of Armstrong, (2014) revealed that self identity of an entrepreneur play important role in decision making of owners because entrepreneurial behavior is boosted by this which is exposed to catalytic effect of social identity. He carried out parallel analysis on 600 entrepreneurs which started their new venture in situation of uncertainty. The study revealed that even in the uncertain situations, those people who make strong perditions win the race of social identity and it also contributes in sustained decision making in dynamic era. Thus, people having all qualities of successful entrepreneurship can find opportunities in the dodgy situations as a result of uncertainty (Armstrong, 2014).

Entrepreneurship and risk both goes hand by hand and hence aids in attaining results which is been visional by entrepreneur. An entrepreneur must possess the factor of taking risk 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 in gaining different sort of learning to entrepreneur from whom his/her experiences gets improved. Apart from risk, uncertainty is another aspect which supports entrepreneur in gaining varied set of opportunities that lies in the market (Smith and Chimucheka, 2014). In this context, Hirsch, Peters and Shepherd, (2009) commented that decision making is one of the key practice of entrepreneur which helps him\her in leading towards the end results in an effectual manner. However, if decisions are made by taking risk, this leads to uncertainty in which outcomes of the decision are not known to any of the party. Through this practice, entrepreneur is able to gain opportunities that lie within the market place or within company (Hirsch, Peters and Shepherd, 2009).

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

Moreover, Brewster, Sparrow and Vernon, (2007) commented that entrepreneur must be aware of uncertainty as it helps in using scare resources in an effectual manner. Also it aids in managing varied situation in an effectual manner from which ultimate aims and objectives of the firm get attained (Brewster, Sparrow and Vernon, 2007). In addition to it, Stokes and Wilson, (2010) stated that uncertainty aids entrepreneur in evaluating information in a manner so that best results can be attained. Also, it supports in enhancing the skills of critical analysis from which they can able to make appropriate decision. Furthermore, 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 company and may even results into adverse situation (Naldi and et.al., 2007).  But, Anderson and Jack, (2008) stated in this context that entrepreneur must focus on the consequences of the decisions that been taken by them in order to ensure that varied situation can be managed. With this, opportunities can be attained along with boosting of monetary results (Anderson and Jack, 2008).

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 certain extent because modern era possess high extent of rivalry. In order to get rid of the high rivalry, entrepreneur 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 uniqueness creativity can either leads to huge success or it may leads to failure. It is right up to great extent because it is the customer who ensures whether creative products or services will be succeeding or not. Under this, iPhone is one of the great examples which signify that entrepreneur 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 Amazon auction (Littunen, 2000). Considering this, it can be state that creativity is one of the factor 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 supports a lot in managing varied situation and issues that prevailing within the business and hence aids in boosting the success rate of the company. With the help of innovation, entrepreneur is able to lead towards the path of success and it somewhere helps him in meeting his goals (Armstrong, 2009).

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

CONCLUSION

With the help of this report, it can be state that entrepreneurship is one of the key elements of any economy as it acts as an economic engine which drives 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 set 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 vision, ideas and philosophy of entrepreneur are some of the major non physical resources which plays a significant role in using physical resources in most optimal manner. Also, it act as a guidelines that supports in moving effectually toward the end results in 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 aids in addressing opportunities that lies in different market place. Also, it helps in attaining business objectives in an effectual manner and hence aids in gaining learning from it. Beside this, uncertainty must be aware by entrepreneur as it helps in developing effectual strategies and tactics. This supports in 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. Beside 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 organization also. Hence, it can be state that entrepreneur is taking risk and developing opportunities from it. However, it is evident from this study that success is not ensured at every steps of entrepreneur because there are various factors that underpins success.

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