Entrepreneurship. New Ways of Founding a Startup

Table of Contents

Executive Summary

Table of Contents

List of Abbreviations

List of Figures

List of Tables

1 Introduction

2 Existing Knowledge
2.1 Concept of Entrepreneurship
2.1.1 Derivation
2.1.2 Delimitation to other terms
2.1.3 Definition
2.2 Concept of Startup
2.3 Business foundations in Germany

3 Research question and objectives

4 Structure and methodology
4.1 Data collection
4.2 Timescale
4.3 Resources

References

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: Founder rates in Germany 2002-2014.

Figure 2: Foundations by sector.

List of Tables

Table 1: Top 10 startup projects in freelancer field.

1 Introduction

Each year numerous founders dare with their business ideas the way to independence. For that they found startups. These new small businesses stand for an atmosphere of departure, innovation and growth. Also each business foundation is associated to uncertainties and risks. Nevertheless, according to recent data from the KFW Bank approximately 915,000 people have taken the risk in 2014 just in Germany. That's 47,000 people more than in 2013. The German economy benefits from strong startup activities, because these startups and innovative company founders representing the middle class of the future. They are essential for a sustainable economic development for Germany. These young, not yet established companies play a critical role in expanding an economy because they are challenging the already established players and putting them constant under pressure to increase efficiency potential. Furthermore, the new ideas of the entrepreneurs contribute to the technology renewal of a country and thereby to the improvement in the competitiveness of Germany.^[1] Besides that, startups are important drivers for the job market. In 2013 approximately 419,000 equivalent full-time jobs were created by new companies.^[2] All this leads to more added value, growth and prosperity. Therefore it could be argued startups are the engines of the economy. For this reason, economies try to create a founder-friendly climate by improving the legal, economic, political, social and cultural conditions for entrepreneurs. According to the German Startup Monitor 2014 founder in Germany evaluate the conditions with unsufficient.^[3] Even in an international comparison, Germany has a relatively poor ranking. It is measured by the so-called TEA rate (Total early-stage entrepreneurial Activity), what expresses the percentage of individuals aged 18-64 who are either a nascent entrepreneur or owner-manager of a new business.^[4] Among the innovation-based economies, Germany has a TEA rate of 5.27 percent (EU average 7.8 percent) while the United States has a TEA rate of 13.81 percent.^[5] That shows at present Germany cannot be regarded as a founder country. However, in order to keep a leading position in the world economy Germany needs more entrepreneurs and therefore the federal government has to improve the framework conditions for entrepreneurs.

2 Existing Knowledge

The word entrepreneur has almost a mystical ring. For many persons, it triggers mental images of Silicon Valley technology startups like Facebook and Twitter along with vivid thoughts of the huge fame and vast wealth of these entrepreneurs. Similarly, most of the people interpret the term entrepreneurship as meaning what entrepreneurs do or mix it up with terms like management, leadership and foundation of an enterprise. That shows that many similar vague words coexist and makes it necessary to clearly distinguish the almost overlapping terms in order to avoid confusion.

2.1 Concept of Entrepreneurship

2.1.1 Derivation

The term entrepreneurship is derived from the Latin verb “prehendere” and can be roughly translated as “take action”. In the French language exists a further reference with the verb “entreprendre”.^[6] According to Fallgartner in the 16th century in French by the term entrepreneur was meant a soldier of fortune. Since the 18th century the concept of the entrepreneur is attributed to the Irish Richard Cantillon. With the term he meant someone who runs a business and carries the risk of profit and loss by their own. Since then, the concept of the entrepreneur is closely linked to business practices.^[7]

2.1.2 Delimitation to other terms

In German, the term entrepreneurship is often translated as Unternehmertum. The authors Hering and Vincenti also use both terms as synonymous with the reason that a limitation of the term "entrepreneur" in the context of business foundation was unnecessary and would create confusion. They recommend using the term company founder in this context. The concept of businessman (Unternehmer) is aimed more to the ownership position and management functions of such persons while the term entrepreneur the innovative and dynamic element represents.^[8] This is also the view of Peter F. Drucker.^[9]

A closer examination of the concept of leadership and management shows that leadership and management are components of entrepreneurship. However, this is related to a specific context. Leadership is the proactive and creative basic orientation of entrepreneurship and sets out the framework to be completed by the management. Leadership relates to that area of entrepreneurship that recognizes business potentials, develops and promotes innovation and creates new visions. Management uses this preparatory work and refined this in example by formulating objectives and strategies. Also it is responsible for implementation of the defined objectives. That makes clear leadership and management is an integrated unit that has to be matched.^[10]

Finally, it is necessary to distinguish entrepreneurship to the terms business foundation and business administration. According to Nathusius the concept of business foundation describes a process in which an individual gets an occupational independence.^[11] This autonomy implies that the relevant person is no longer bound to superior’s instructions and their livelihood is based on income generation through economic activity.^[12] Entrepreneurship includes the two cases and complements these, among other things by team foundations and corporate venturing. Corporate venturing means entrepreneurship in principle may also refer to salaried workers. In addition, entrepreneurship can also be present if the activity is not fully used to secure the livelihood.^[13]

2.1.3 Definition

Over time, the definition of entrepreneur and entrepreneurship has experienced an extensive transformation. For Knight the entrepreneur was primarily a carrier of uncertainty.^[14] In contrast Schumpeters image of an entrepreneurs was marked by his innovative behavior and the concept of "creative destruction" of market balance.^[15] Similarly is the view of Professor Faltin who became much attention for his bestseller “Brain versus Capital”. Accordingly to the book, entrepreneurship is a dynamic process that does not invent anything, but rearranged and transferred existing conceptual business models into innovation. In this regard, Professor Faltin refers often to business foundations.^[16] Nowadays Entrepreneurship refers to an exploiting of entrepreneurial opportunities as well as the creative entrepreneurial process in an organization.^[17] Basically, it can be noted, in the literature no consistent understanding of the term entrepreneurship exists and some authors represent the opinion that entrepreneurship is not yet conclusively defined and it is generally difficult to define.^[18] Often the term is linked to startups and small business foundations.

2.2 Concept of Startup

Most people using the term startup and small business foundation as synonymous but they have to be distinguished. Startup founder are entrepreneurs. They look for market gaps, develop new technologies, create new business models and optimize supply chains. In contrast the founders of small businesses often start out of necessity or because of lack of alternative sources of income.^[19] However, science and practice have very different interpretations and definitions of the term startup. Most definitions say, that a startup has to be highly innovative related to their business model or technology. A similar definition uses the DSM (Deutscher Startup Monitor). In order to be considered as a startup a young company has to fulfill the first and at least one out of the two other following conditions.

[...]

^[1] {Metzger, Dr. Georg, KfW Bankengruppe 2015 #6}, p. 2.

^[2] {BMWI Bundesministerium für Wirtschaft und Energie 2014 #16}

^[3] {Ripsas 2014 #7}, p. 16.

^[4] {Singer 2014 #8}, p. 24.

^[5] {Singer 2014 #8}, p. 35.

^[6] {Freiling 2006 #3}, p. 11.

^[7] {Fallgatter 2002 #4}, p. 12.

^[8] {Hering 2005 #1}, p. 154ff.

^[9] {Drucker 1985 #5}, p. 24f.

^[10] {Hinterhuber 2004 #9}, p. 20.

^[11] {Nathusius 2003 #10}, p. 177.

^[12] {Hering 2005 #1}, p. 7.

^[13] {Freiling 2006 #3}, p. 24.

^[14] {Knight 2009 #14}

^[15] {Schumpeter 1952 #13}

^[16] {Faltin 2012 #12}

^[17] {Kollmann #11}

^[18] {De 2005 #2}, p. 17.

^[19] {Ripsas 2014 #7}, p. 4.