Section I: Entrepreneurship and supporting institutions: an

analytical approach
Entrepreneurship as an economic force in rural development 1
1
Keynote paper presented at the Seventh FAO/REU International Rural Development Summer
School, Herrsching, Germany, 8-14 September 1994.

T. Petrin

FAO, Regional Office for Europe! Viale delle Terme di Caracalla, 00100 Rome, Italy

Introduction

Rural development is more than ever before linked to entrepreneurship. Institutions and
individuals promoting rural development now see entrepreneurship as a strategic development
intervention that could accelerate the rural development process. Furthermore, institutions and
individuals seem to agree on the urgent need to promote rural enterprises: development agencies
see rural entrepreneurship as an enormous employment potential; politicians see it as the key
strategy to prevent rural unrest; farmers see it as an instrument for improving farm earnings; and
women see it as an employment possibility near their homes which provides autonomy,
independence and a reduced need for social support. To all these groups, however,
entrepreneurship stands as a vehicle to improve the quality of life for individuals, families and
communities and to sustain a healthy economy and environment.

The entrepreneurial orientation to rural development accepts entrepreneurship as the central

force of economic growth and development, without it other factors of development will be
wasted or frittered away. However, the acceptance of entrepreneurship as a central development
force by itself will not lead to rural development and the advancement of rural enterprises. What
is needed in addition is an environment enabling entrepreneurship in rural areas. The existence of
such an environment largely depends on policies promoting rural entrepreneurship. The
effectiveness of such policies in turn depends on a conceptual framework about
entrepreneurship, i.e., what it is and where it comes from.

This paper deals with the following three issues: firstly, it sets out the reasons why promoting
entrepreneurship is a force of economic change that must take place if many rural communities
are to survive; secondly, it deals with what policies are necessary in order to create an
environment in rural areas conducive to entrepreneurship; and thirdly, it considers women and
entrepreneurship.

Entrepreneurship concept

The entrepreneurship concept, what it means and where it comes from, is the foundation for
policies promoting entrepreneurship and the key to understanding the role of entrepreneurship in
development.
What, who and why?

Defining entrepreneurship is not an easy task. There are almost as many definitions of
entrepreneurship as there are scholar books on the subjects (Byrd W.A., 1987, p. 3). To some,
entrepreneurship means primarily innovation, to others it means risk-taking? to others a market
stabilising force and to others still it means starting, owning and managing a small business.
Accordingly, the entrepreneur is then viewed as a person who either creates new combinations of
production factors such as new methods of production, new products, new markets, finds new
sources of supply and new organizational forms; or as a person who is willing to take risks; or a
person who, by exploiting market opportunities, eliminates disequilibrium between aggregate
supply and aggregate demand, or as one who owns and operates a business (Tyson, Petrin,
Rogers, 1994, p. 2-3).

To choose the definition of entrepreneurship most appropriate for the rural area context, it is
important to bear in mind the entrepreneurial skills that will be needed to improve the quality of
life for individuals, families and communities and to sustain a healthy economy and
environment. Taking this into consideration, we will find that each of the traditional definitions
has its own weakness (Tyson, Petrin, Rogers, 1994, p. 4). The first definition leaves little room
for innovations that are not on the technological or organizational cutting edge, such as,
adaptation of older technologies to a developing-country context, or entering into export markets
already tapped by other firms. Defining entrepreneurship as risk-taking neglects other major
elements of what we usually think of as entrepreneurship, such as a well-developed ability to
recognise unexploited market opportunities. Entrepreneurship as a stabilising force limits
entrepreneurship to reading markets disequilibria, while entrepreneurship defined as owning and
operating a business, denies the possibility of entrepreneurial behaviour by non-owners,
employees and managers who have no equity stake in the business. Therefore, the most
appropriate definition of entrepreneurship that would fit into the rural development context,
argued here, is the broader one, the one which defines entrepreneurship as: "a force that
mobilises other resources to meet unmet market demand", "the ability to create and build
something from practically nothing", "the process of creating value by pulling together a unique
package of resources to exploit an opportunity"2.
2
It combines definitions of entrepreneurship by Jones and Sakong, 1980; Timmons, 1989;
Stevenson, et al., 1985.

Entrepreneurship so defined, pertains to any new organization of productive factors and not
exclusively to innovations that are on the technological or organizational cutting edge, it pertains
to entrepreneurial activities both within and outside the organization. Entrepreneurship need not
involve anything new from a global or even national perspective, but rather the adoption of new
forms of business organizations, new technologies and new enterprises producing goods not
previously available at a location (Petrin, 1991). This is why entrepreneurship is considered to be
a prime mover in development and why nations, regions and communities that actively promote
entrepreneurship development, demonstrate much higher growth rates and consequently higher
levels of development than nations, regions and communities whose institutions, politics and
culture hinder entrepreneurship.
An entrepreneurial economy, whether on the national, regional or community level, differs
significantly from a non-entrepreneurial economy in many respects, not only by its economic
structure and its economic vigorousness, but also by the social vitality and quality of life which it
offers with a consequent attractiveness to people. Economic structure is very dynamic and
extremely competitive due to the rapid creation of new firms and the exit of 'old' stagnant and
declining firms. It is populated with rapidly growing firms, gazelles as they are called in the
literature of entrepreneurship. Gazelles are the key to economic development. As described by
Twaalfhoven and Indivers (1993, pp. 3-4), they are run by dynamic entrepreneurs, who manage
and lead their companies not only to remain in the business but to expand it. Dynamic
entrepreneurs look for growth, they do not have only a vision but are also capable of making it
happen. They think and act globally, look for expansion, rely on external resources, seek
professional advice or they work with professional teams. They challenge competitors instead of
avoiding them and take and share risks in a way that leads to success. In this way economic
vitality of a country largely depends on the overall level of entrepreneurial capacity, i.e., on its
ability to create rapidly growing companies, gazelles. Equally important is the speed by which
new small companies are created. These phenomena explain why countries, regions and
communities with a similar number of large and small firms show a completely different
economic vitality.

Economic vitality of a country is no doubt a necessary condition for social vitality. Without it
other important factors that make living attractive in certain areas, such as education, health,
social services, housing, transport facilities, flow of information and so on, cannot be developed
and sustained in the area in the long run.

As evidence suggests, it is false to assume that socially and economically depressed areas will
transform into fast growing areas by injection of external investment funds and external
expertise. Without entrepreneurial capabilities which are well developed or potentially available,
external funds will be wasted on projects that will not provide long term economic growth.
Consequently instead of becoming more and more integrated into other economically and
socially rich areas, such areas will become increasingly isolated, depopulated, poorer and
therefore less and less capable of attracting people who, given other available resources, would
make an impact from a development standpoint.

Entrepreneurial, orientation to rural development, contrary to development based on bringing in

human capital and investment from outside, is based on stimulating local entrepreneurial talent
and subsequent growth of indigenous companies. This in turn would create jobs and add
economic value to a region and community and at the same time keep scarce resources within the
community. To accelerate economic development in rural areas, it is necessary to increase the
supply of entrepreneurs, thus building up the critical mass of first generation entrepreneurs
(Petrin, 1992), who will take risks and engage in the uncertainties of a new venture creation,
create something from practically nothing and create values by pulling together a unique package
of resources to exploit an opportunity. By their example they will stimulate an autonomous
entrepreneurial process, as well as a dynamic entrepreneurship, thereby ensuring continuous
rural development.
It is important to stress that rural entrepreneurship in its substance does not differ from
entrepreneurship in urban areas. Entrepreneurship in rural areas is finding a unique blend of
resources, either inside or outside of agriculture. This can be achieved by widening the base of a
farm business to include all the non-agricultural uses that available resources can be put to or
through any major changes in land use or level of production other than those related solely to
agriculture. Thus, a rural entrepreneur is someone who is prepared to stay in the rural area and
contribute to the creation of local wealth. To some degree, however, the economic goals of an
entrepreneur and the social goals of rural development are more strongly interlinked than in
urban areas. For this reason entrepreneurship in rural areas is usually community based, has
strong extended family linkages and a relatively large impact on a rural community.

Sources of entrepreneurship

From the policy viewpoint? the promotion of entrepreneurship, the understanding where
entrepreneurship comes from3 is as equally important as understanding the concept of
entrepreneurship. It indicates where the governments, national, regional or local, should target
their promotional efforts. If entrepreneurial skills, for example, are innate, active promotion
policies have a small role to play. If instead, only certain entrepreneurial characteristics are
innate, then active promotion policies can contribute to entrepreneurship development in the
community in the region and in the nation, since entrepreneurial skills can be acquired through
training.
3
Empirical research on the sources of entrepreneurship is extensive, particularly within the
discipline of psychology and sociology.

The standard perception is that entrepreneurship is a special personal feature, either a person is,
or is not an entrepreneur. According to this perception entrepreneurial traits, such as the need to
achieve, risk taking propensity4, self-esteem and internal locus of control, creativity and
innovative behaviour, the need for independence, occupational primacy, fixation upon goals and
dominance, are all inborn. Therefore, policies directed specifically towards promoting the
development of entrepreneurship would not help much since chose characteristics cannot be
acquired by training.
4
Risk talking propensity here is understood as the perceived probability of receiving rewards
(personal and financial) as opposed to the perceived probability of incurring a failure
(bankruptcy, loss of family ties).

Another perception is that some cultures or some social groups are more conducive to
entrepreneurial behaviour than others. According to this view, the factors that contribute to the
supply of entrepreneurs are an inheritance of entrepreneurial tradition, family position, social
status, educational background and the level of education. Based on research into the origins of
business owners, it is believed that persons who come from small business owner families, are
more likely to become entrepreneurs than others. Studies of family position of existing
entrepreneurs demonstrate that entrepreneurs are often found among elder children, since
according to the explanation, they are pressed to take more authority and responsibility at earlier
stages than younger members of the family. The outsider group, ethnic minority, or the outsider
individual, the marginal person, who are by a combination of different factors rendered outsiders
in relation to the social groups with whom they normally interact, are both viewed as a
significant source of entrepreneurship. It is claimed that to minorities small business ownership
means escape form marginality (Weber's thesis of outsider groups as a source of economic
activity? Weber, 1987, reprint). Whether educational background influences potential
entrepreneurs or not is a matter of debate. The popular idea of an entrepreneur is that of a totally
self-made man, lacking in formal qualifications. This of course is not in conflict with findings
that entrepreneurs who are better educated are more successful than the less educated ones.
Apparently two things are involved simultaneously: propensity to start an entrepreneurial venture
and skills to run the venture successfully.

The research which tries to explain, by personal traits and/or other social aspects, why certain
individuals become entrepreneurs, has not yet produced convincing results. Consequently, a
widely accepted view is the following: while personal characteristics as well as social aspects
clearly play some role, entrepreneurship and entrepreneurs can also be developed through
conscious action. Development of entrepreneurs and of entrepreneurship can be stimulated
through a set of supporting institutions and through deliberate innovative action which stimulates
changes and fully supports capable individuals or groups. It is argued, that controllable variables
such as a stable system of property rights and freedom of action in the economic sphere,
availability of other inputs in the economy (besides entrepreneurship) as well as education and
training, contribute significantly to the development of entrepreneurship. Therefore, policies and
programmes designed specifically for entrepreneurship promotion, can greatly affect the supply
of entrepreneurs and thus indirectly represent an important source of entrepreneurship.

This view has important implications for entrepreneurship development in rural areas. If
currently entrepreneurial activities in a given rural area are not thriving? one should not jump to
the conclusion that entrepreneurship is something inherently alien to rural areas. While this
feeling could have some legacy due to the slower pace of changes occurring in rural areas
compared to urban ones, proper action can make a lot of difference with respect to
entrepreneurial behaviour of people living in rural areas. Many examples of successful
entrepreneurship confirm this statement and there is no reason why there should not be plenty of
them. By bringing together different capabilities and different experiences in entrepreneurship
development, everyone could enhance his/her own capabilities, motivation and determination in
achieving the goal: attaining a sustainable and healthy rural economy and environment in order
to ensure a high quality of life for individuals, families and communities.

Rural entrepreneurship

Many examples of successful rural entrepreneurship can already be found in literature.

Diversification into non-agricultural uses of available resources such as catering for tourists,
blacksmithing, carpentry, spinning, etc. as well as diversification into activities other than those
solely related to agricultural usage, for example, the use of resources other than land such as
water, woodlands, buildings, available skills and local features, all fit into rural entrepreneurship.
The entrepreneurial combinations of these resources are, for example: tourism, sport and
recreation facilities, professional and technical training, retailing and wholesaling, industrial
applications (engineering, crafts), servicing (consultancy), value added (products from meat,
milk, wood, etc.) and the possibility of off-farm work. Equally entrepreneurial, are new uses of
land that enable a reduction in the intensity of agricultural production, for example, organic
production.

Dynamic rural entrepreneurs can also be found. They are expanding their activities and markets
and they find new markets for their products and services beyond the local boundaries.

To leave general examples of rural entrepreneurship behind, let us look at the real cases. Here
only a few will be mentioned, all illustrating entrepreneurial initiatives, individuals and local
communities from Great Britain. The names of entrepreneurs I have chosen to present here are
not globally known but are no less important because of that. They are very well known to the
communities to which they belong and their initiatives are highly appreciated by the community
members. One of them is Graham-Probin (Johnstone et al., 1990, p. 9), owner of a 110 acre farm
in Malpas, Cheshire, England. By converting a two-storey building into four workshop units, he
created employment opportunities within the community. Another one is John Anderson from
Kirkwhelpington, who created employment opportunities in the local area by restoring traditional
stables into business premises and renting them out to a blacksmith who shoes horses and does
light engineering work for farmers (Johnstone et al., 1990, p. 9-10). Another is the McNamara
family from Canaston Bridge. They responded to the dairy quotas imposed by the Government
by diversification of their land for non-agricultural usage. The family converted 80 acres of land
into an adventure and leisure complex. After three years of investment, amounting to £800 000,
the adventure and leisure facilities were opened in 1987, boasting a range of attractions entirely
unconnected with agriculture, such as: a bobsleigh run, a miniature railway, a pitch and putt golf
course, a natural history centre, go-kart tracks, assault courses, a restaurant and various shops
(Johnstone et al., 1990, p. 18). This entrepreneurial venture is an example of a straightforward
entrepreneurship and not so much an example of on-farm diversification. It is an example of how
seeing and seizing the opportunity are vital ingredients of entrepreneurial success.

Let me turn now to illustrations related to social entrepreneurship, to examples of when people
have changed things, acting in the interest of their communities while playing the same role as an
individual entrepreneur. East Cleveland Training and Enterprise Group from Loftus, Small
Industries Groups in Somerset and Antur Teifi from West Wales, are all real examples of social
entrepreneurship. The East Cleveland Training and Enterprise Group began as a group of four
people in Loftus who were angry and frustrated at the lack of action by statutory bodies to tackle
the area's unemployment (Johnstone et al., 1990, p. 107). The Group developed a large
programme of activities, such as employment training, youth training, initiating the
establishment of a training and enterprise centre, improving environmental and property
acquisition to benefit the community. The Small Industries Group Somerset, West Somerset,
started with the objective of helping to create local jobs. The founding group consisted of a dairy
farmer, a sub-postmaster, an insurance broker, a lecturer, a youth worker and the manager of a
field studies centre (Johnstone et al., 1990, p. 109). For ten years the Group greatly fostered the
development of the community and contributed to the change of attitudes of farmers as well as
local communities, to favour self employment and business expansion. Antur Teifi, from the
Teifi Valley, the enterprise agency, was started by a group of local volunteers who were
concerned with the high level of unemployment and unbalanced structure of the local population
(Johnstone, et al., 1990, p. 109). The group set the objectives as follows: to identify and support
community initiatives, to establish new permanent jobs and to initiate activities to prevent the
area's economic and cultural decline. The group has more than achieved these objectives.

Among the case studies presented here, there is no woman's name. Too often their names are not
specifically mentioned, although the evidence shows that there are many activities in rural areas
pursued by female entrepreneurs such as: trade, food processing, handicrafts, production of basic
consumer articles, catering, running tourist establishments, and bed and breakfast arrangements.
However, compared to male entrepreneurs, female entrepreneurs in rural areas still tend to be
limited to what have traditionally been viewed as women's activities. Also the scale of their
entrepreneurial operation tends to be smaller when compared with male entrepreneurs.

Although agriculture today still provides income to rural communities, rural development is
increasingly linked to enterprise development. Since national economies are more and more
globalized and competition is intensifying at an unprecedented pace, affecting not only industry
but any economic activity including agriculture, it is not surprising that rural entrepreneurship is
gaining in its importance as a force of economic change that must take place if many rural
communities are to survive. However, entrepreneurship demands an enabling environment in
order to flourish.

Environment conducive to entrepreneurship

Behind each of the success stories of rural entrepreneurship there is usually some sort of
institutional support. Besides individual or group entrepreneurial initiative the enabling
environment supporting these initiatives is of utmost importance.

The creation of such an environment starts already at the national level with the foundation
policies for macro-economic stability and for well-defined property rights as well as international
orientation. Protection of the domestic economy hinders instead of fosters entrepreneurship.
National agricultural policies such as price subsidies to guarantee minimum farm incomes and
the keeping of land in production when over-production already exists are definitely counter-
productive to entrepreneurship. The long run solution for sustainable agricultural development is
only one, i.e.' competitive agriculture. While prices can set the direction, entrepreneurs who will
meet the challenge of increasingly demanding international markets and who will find profitable
alternative uses of land, alternative business opportunities and so on are needed. Therefore,
policies and programmes targeted more specifically at the development and channelling of
entrepreneurial talent, are needed. Policies to increase the supply of entrepreneurs, policies
developing the market for other inputs into successful entrepreneurship, policies for increasing
the effectiveness of entrepreneurs and policies for increasing demand for entrepreneurship can
significantly speed up entrepreneurial activities at national, regional and community levels.

The policies and programmes targeted specifically to the development of entrepreneurship do not
differ much with respect to location. From the perspective of the process of entrepreneurship,
whether the location is urban, semi-rural or rural, is not important in itself. For example, the
needs of a would be entrepreneur or an existing small business do not differ much from those in
an urban area. To realise their entrepreneurial ideas or to grow and sustain in business, they all
need access to capital, labour, markets and good management skills. What differs is the
availability of markets for other inputs.

The inputs into an entrepreneurial process, capital, management, technology, buildings,

communications and transportation infrastructure, distribution channels and skilled labour, tend
to be easier to find in urban areas. Professional advice is also hard to come by. Consequently,
entrepreneurial behaviour, the ability to spot unconventional market opportunities, is most
lacking in those rural areas where it is most needed i.e., where the scarcity of 'these other inputs'
is the highest.

These are the reasons why rural entrepreneurship is more likely to flourish in those rural areas
where the two approaches to rural development, the 'bottom up. and the 'top down', complement
each other. Developing entrepreneurs requires a much more complex approach to rural
development than is many times the case in practice. It requires not only the development of
local entrepreneurial capabilities but also a coherent regional/local strategy. Evidence shows that
where this is the case, individual and social entrepreneurship play an important role in rural
economic, social and community development. The top down approach gains effectiveness when
it is tailored to the local environment that it intends to support. The second prerequisite for its
success is that ownership of the initiative remains in the hands of members of the local
community. The regional development agencies that fit both criteria can contribute much to rural
development through entrepreneurship.

Other institutions that can make a difference to rural development based on entrepreneurship are
agricultural extension services. However, to be able to act in this direction, they too must be
entrepreneurially minded. They must see agricultural activities as one of many possible activities
that contribute to rural development. They must seek new entrepreneurial uses of land and
support local initiative in this respect. While tradition is important it is nevertheless dangerous to
be over-occupied with the past, otherwise the rural community may turn into a nostalgia-driven
society. Networking between different agencies involved in the promotion of rural development
through entrepreneurship, by pooling together different sources and skills, by reaching a greater
number of would be entrepreneurs and by assisting a greater number of local entrepreneurial
initiatives, can have a much more positive effect on rural development than when each agency is
working on its own.

Entrepreneurship in rural areas can benefit a lot from the so called strategic development
alliances, i.e., partnership among governments or nonprofit seeking organizations, universities
and the private sector.

To summarise, policy implications for rural entrepreneurship development are:

· sound national economic policy with respect to agriculture, including recognition of the
vital contribution of entrepreneurship to rural economic development;

· policies and special programmes for the development and channelling of entrepreneurial
talent;
 · entrepreneurial thinking about rural development, not only by farmers but also by
everyone and every rural development organization; and

· institutions supporting the development of rural entrepreneurship as well as strategic

development alliances.

Women entrepreneurs

Is there still a need to talk specifically about women entrepreneurs. on top of everything that has
been already said'? Yes and no. No, because all that has been said about entrepreneurship is
directly applicable to women, the concept, characteristics, sources' etc. Women entrepreneurs, as
research demonstrates, may do things differently. For example, in comparison to male
entrepreneurs, women tend to work more in teams, are less self-centred and personal ego to them
is less important than success of the organization or business idea they are pursuing.

However, there is no difference in characteristics such as achievement, autonomy, aggression,

independence and benevolence between female and male entrepreneurs (Hisrich and Brush,
1984). Also, no differences were found in risk taking propensity of male and female
entrepreneurs. However, we do need to talk explicitly about women entrepreneurs. It should be
stressed that rural women can encounter many constraints when trying to take part in the
transformation process. Rural areas tend to be more traditional in regard to the gender issue. In
rural areas, the gender issue is usually a much stronger hindering factor to potential female
entrepreneurs than it is in urban areas, their self-esteem and managerial skills being lower when
compared to urban women and access to external financial resources more difficult than in urban
areas. Therefore, special programmes of assistance (technical and financial) to overcome these
constraints should be developed and designed to meet the needs of rural women in order to be
able to take an active part in entrepreneurial restructuring of their communities, to start to
develop their own ventures, to expand their already existing businesses, or to function as social
entrepreneurs since their number today is still below the potential one. To this end, based on my
own experience as well as on the experiences of so many entrepreneurial women I have met
across the world in my profession and in business, I very much agree with

Juliana Schwager-Jebbink's comment (1991, p. 37): "Nowadays, reflecting on the phenomenon

of the successful female manager read entrepreneur), it is the individuality which must stand out
and there are no general recipes to be presented. After my years as President of the Swiss
Federation of Business and Professional Women, going all over the country and abroad to speak
on development programmes for women, I firmly believe that quotas, positive discrimination and
equal opportunity' politics do not help the female manager (read entrepreneur): it is she herself
who must do the managing of her life. This is true for all of Europe... "

This belief is the one for which we as trainers are responsible to bring to rural women in addition
to trying to put in place all factors crucial for rural women to enter into entrepreneurial activities.
Without it, entrepreneurial opportunities will not be seen, they will be lost and then the role of
women in rural development will be much below their potential.

References
Byrd, W.A. (1987). 'Entrepreneurship, capital and ownership'. Washington, D.C. The World
Bank. Mimeo.

Hisrich, R.D. and, C. Brush (1984) 'The Women Entrepreneurs: Management Skills and
Business Problems'. Journal of Small Business Management, 22, pp. 30-37.

Johonstone, W.D., C. Nicholson, M.K. Stone and R.E. Taylor (1990). Community Work,
Billings Book Plan, Worcester, Great Britain.

Jones, L. and I. Sakong (1980). Government, Business and Entrepreneurship in Economic

Development: Korean Case, Cambridge, MA: Harvard University Press, pp. 190-207.

Petrin, T. (1990). 'The Potential of Entrepreneurship to Create Income and New Jobs for Rural
Women and Families', paper presented at the Fifth Session of the FAO/ECA Working Party on
Women and the Agricultural Family in Rural Development, Prague, 2-5 October.

Petrin, T. (1991). 'Is Entrepreneurship Possible in Public Enterprises'?' in J. Prokopenko and I.

Pavlin (eds.), Entrepreneurship Development in Public Enterprises, ILO, Geneva and
International Center for Public Enterprises in Developing Countries, Ljubljana, pp. 7-33.

Petrin, T. (1992). 'Partnership and Institution Building as Factors in Rural Development', paper
presented at the Sixth Session of the FAO/ECA Working Party on Women and the Agricultural
Family in Rural Development, Innsbruck, Austria, 13-16 October.

Schwager-Jebbink, J. (1991), Views From the Top, Management Education and Development
for Women Conference, Henley Management College, 5 October.

Stevenson, H.H, et al. (1985). New Business Ventures and The Entrepreneur. Homewood, IL:
Irwin.

Timmons, J.A. (1989). The Entrepreneurial Mind. Andover: Brick House.

Twaalfhoven, B.W.M. and N. V. Indivers (1993). 'The Role of Dynamic Entrepreneurs' in

Dynamic Entrepreneurship in Eastern Europe, D.F. Abell and T. Koellermeier (eds), Delwel
Publisher, The Hague, 1993, pp. 7-13.

Tyson, L., T. Petrin and H. Rogers (1994). 'Promoting Entrepreneurship in Central and Eastern
Europe', Small Business Economics 6, pp. 1-20.

Weber, M. (1987). The Protestant Ethic and the Spirit of Capitalism, Unwin, London (orig.
published 1930).

Entrepreneurship in the development of a rural area1

1
Keynote paper presented at the Fourth FAO/REU International Rural Development Summer
School, Mikkeli, Finland, 16-20 September 1991.
M.D. Johnsrud

US Department of Agriculture, Extension Service, North Dakota, U.S.A.

On 5 August 1991, Soichiro Honda died at the age of 84. At the time of his death, Mr. Honda,
who retired from Honda Motor Company in 1973, held the title of Supreme Advisor. In reading
his obituary at the time I was beginning to think about what I wanted to discuss in this paper, it
struck me that Mr. Honda's life had a lot to say about the real 'entrepreneur'.

Honda was the son of a blacksmith and saw his first car as an 8 year old boy when a Model-T
Ford rumbled into his home town in central Japan.

Honda's biography quotes him as saying the following in recalling his first encounter with an
automobile:

"It was the first car I saw. What a thrill. Oil dropped when it came to a halt. How nice the smell
was. I put down my nose to the ground like a dog and sniffed it. I smeared my hands with the oil
and deeply inhaled the smell. It was then I dreamed of manufacturing a car myself some day."

Honda started as a successful mechanic, founded a piston ring manufacturing concern while
attending school and then started what later became Honda Motor Company. Originally it
attached recycled engines to bicycles, a popular mode of transportation in the years following
World War II. His first motorcycle called 'Dream' was introduced in 1949.

Honda is said to have been more at home on the factory floor than in the boardroom, preferring
overalls to business suits. He placed great faith in the young technicians of his many factories
and laboratories. He often wore wild colours, explaining that unless inventors and artists "have
the courage and determination to break with established ideas, they cannot expect to do a good
job."

Soichiro Honda was an entrepreneur. Too often we confuse entrepreneurship with business or
doing business. The two simply are not the same, as John J. Kao of the Harvard Business School
points out in his recent book titled The Entrepreneurial Organization.

He says that entrepreneurship has nothing to do with the setting. Simply stated, entrepreneurship
is the process of opportunity recognition and implementation. It often begins with a vision or
idea for a product or process coupled with a passion or zeal to make that idea a reality. Yes,
entrepreneurship is fundamentally less about technical skills than about people and their
passions.

Successful entrepreneurship is hard work carried out in an unpredictable environment. It requires

a blend of calculation and luck laced with the ever present possibility of failure. Emerging
industries in some ways resemble a casino where a range of bets are placed on different
strategies, people and approaches.
Just as Honda placed great faith in his young technicians, successful entrepreneurs understand
that the three principles of entrepreneurship are people, people, people. Entrepreneurs find
leverage through others to amplify their visions. They manage effectively in dealing with the
ambiguity and uncertainty that surround the creation of an idea and the organizational vehicle
developed around it. In short, they are risk takers.

While a little later I will briefly discuss some of the approaches we are trying in the U.S.A. to
encourage entrepreneurship in rural areas, I will focus most of my remarks on finding and
motivating entrepreneurs encouraging risktaking and embracing change.

In finding entrepreneurs and seeking out opportunities for entrepreneurship, we have to take care
not to make unfounded assumptions based on conventional wisdom. While I will talk about
patterns that tend to distinguish the mind set and behaviour of entrepreneurs from others, much
of what runs into an entrepreneurial success is unpredictable.

For example, some thought Albert Einstein was mentally retarded and fit for little, simply
because he never combed his hair or wore socks. You cannot tell an entrepreneur by the way he
or she dresses.

Colonel Sanders, founder of Kentucky Fried Chicken, was judged to be too old to start a
business. Entrepreneurship is possible at any age.

The Wright Brothers knew no one had ever flown before, but they did it anyway. Entrepreneurs
frequently make what seems impossible, possible.

Florence Chadwick knew other swimmers had died crossing the English channel. Entrepreneurs
may flirt with danger to achieve their visions.

Henry Ford faced a lack of demand for his autos. Entrepreneurs must often create the demand for
their products and/or services.

Finally David was considered too young, unskilled and poorly equipped to face Goliath.
Entrepreneurship is a lot more about inner drive than outward trappings and appearances.

The point is that entrepreneurship is usually about very determined people, people who make
their own circumstances and breaks and succeed.

If entrepreneurship is fundamentally about people and ideas, what is business'? To quote Kao
again, he simply stated, a business is an organization that has customers. To stay in business, an
entrepreneur has to match that idea or dream with what a customer thinks he or she wants, and
again this requires understanding people.

Michael Porter in his book Competitive Strategy states that new or evolving businesses must
make a wide range of critical organizational choices that will determine their competitive fate. If
they make the right choices, they can create barriers to competitors. Porter says these barriers
against competition come less from the need to command massive resources than from:
 · the ability to bear risk;

· being creative technologically; and

· making forward-looking decisions to attract people to work.

Risk taking

Peter Drucker once said that "People who do not take risks generally make about two big
mistakes a year. People who do take risks generally make about two big mistakes a year''.
Sometimes not taking a risk is a risk.

For example, the 1 7th century Dutch were the vigorous economic and social innovators of their
time. But within only a hundred years they were overtaken by the English. Why'? Because a risk
averse, fearful attitude settled over Holland. Those who had accumulated fortunes in the years of
prosperity attended exclusively to keeping them. Politics turned ugly. Public spirit disintegrated.
The Dutch became slow to adopt new advances in shipbuilding, weaving, fishing, mapmaking
and navigation. They clung to the established order, threatened by new ways of doing things.
They refused to risk rearranging the safety of the present and thus missed the chance to have the
talents, skills and organizational arrangements on line when they were needed.

No society or business can thrive today without taking risks and adjusting to change. Tom Peters,
in Thriving on Chaos states: "Every variable is up for grabs... we are meeting the challenge with
inflexible factories, inflexible systems, inflexible front-line people, and worst of all, inflexible
managers who still yearn for a bygone era when presiding over the opening of a new plant was
the most strenuous chore to be performed. Today, loving change, tumult, even chaos is a
prerequisite for survival, let alone successes".

Peters argues that organizations must be structured for change, not stability. That managers must
take greater risks, get better at seeing the whole picture, listen, listen, listen, trust people to
innovate and insist on absolute integrity.

So what prevents people from taking risks? In short the answer is FEAR. Fear of failure, fear of
rejection, fear of conflict, fear of uncertainty, fear of losing control, power or status.

Risk aversion may be one of the most vexing problems you face in attempting to promote rural
entrepreneurship. There are strategies that can be used to encourage greater risk taking
particularly by addressing people's fears.

Other strategies can also be used to help limit real risk, with franchising pre-eminent among
them. In the U.S.A. franchise-format businesses have more than doubled in the past ten years.
There are currently more than 2200 franchisers in more than seventy industries. Risks are
minimised for franchisee-entrepreneurs with only a 5% discontinuance rate in the first year
compared with a 30-50% rate of small business failures in the first year in the U.S.A.
Franchising is increasingly viewed as a middle ground for those who want to start a business, but
also want the security of attachment to a business already established in the market place and
providing detailed operating procedures to follow. In the U.S.A., self-employment has tripled
during the past fifteen years with women accounting for most of the growth.

Change and uncertainty

There is an old Chinese curse that says, "May you live in interesting times". Interesting times are
the curse and the blessing of an entrepreneurial firm and it is the true entrepreneur who can
handle the sources of uncertainty that come with the territory without falling apart.

First, the business opportunity itself is surrounded with uncertainty questions to be answered
about market size, pricing, viability of the original idea, customer response and product/service
in a reasonable length of time.

He or she must be able to lead, manage, identify, prioritise, execute and most importantly, make
decisions.

An entrepreneur must be more like a bamboo plant able to sway in any wind without breaking
versus a rigid tree that can easily be toppled by a sudden storm.

There are no magic formulas or tried and true approaches that are guaranteed to work.

Most experts agree that not everyone is suited for the entrepreneurial task, but nearly all
successful entrepreneurs:

· cope well or even thrive on uncertainty;

· are creative problem solvers;

· have strong human and organizational skills; and

· understand the relationships between organization, strategies and environment.

Entrepreneurs must also expect to put in long hours more like five to nine, rather than nine to
five and be patient with the complex, diverse task at hand.

Determination and discipline to see the job through separate entrepreneurial successes from
failures. I mentioned Honda's lifetime dedication to implementing his boyhood dream. It took
Noah Webster thirty-six years to develop his dictionary. Cyrus Field endured nearly thirteen
years of toil and thity ocean voyages before successfully laying the Atlantic cable. Ray Kroc,
founder of McDonald's hamburger chain, had the discipline to automate every step of the
preparation process for his burgers and fries.

Decision-making

Making decisions is a criterion for success. In my experience, a person who cannot reach a
decision promptly once he has all the necessary information, cannot be depended upon to carry
through on decisions made. There is often a linkage between deciding and acting to carry
through. Not making a decision can be a bad decision.

Dwight Eisenhower had a difficult time deciding on the best moment for the D Day attack.
Finally he is quoted as saying, "No matter what the weather looks like, we have to go ahead now.
Waiting any longer could be even more dangerous. So let's move it".

The point here is that people who can judge when a decision needs to be made and make it are
far more likely to succeed in entrepreneurial ventures.

The other trick is deciding not on the basis of the past or present, but making the right decision
for future, as yet unknown, circumstances.

Entrepreneurship in rural areas

To recap then, I have tried to review some of the most basic characteristics noted in the lives of
successful entrepreneurs:

· they can orchestrate people, strategies and technologies to fit changing environments;

· they are usually creative risk-takers;

· they thrive on change and cope well with uncertainty;

· they are determined and disciplined in implementing their visions and ideas; and

· they enjoy deciding and make forward looking decisions.

In encouraging entrepreneurship in rural areas, seeking leadership with these characteristics is

essential. While training can help people improve in some of these areas, we should not be naive
about what adult training can or cannot accomplish.

A more long-range but perhaps more promising educational approach is to encourage

development of these entrepreneurial characteristics in young people. Putting in place local
opportunities, before young people seek 'better' possibilities in cities and towns, could change the
future of some of these areas.

When I look at our rural development efforts in the U.S.A., I can be quite critical. I think we
have done a lot for general process type community development that has not resulted in a real
economic pay-off. There are, of course, national policy and financing barriers that have also
played a role. However, I do believe that more targeted and focused programmes directed toward
real entrepreneurship could become a more viable possibility today, particularly with new
communication technologies.

In the U.S.A., many of our potential rural entrepreneurs leave these areas for a variety of reasons,
from greater opportunities elsewhere to more amenities available in cities.
We do know if the situation could be different. Let me use a case example from my home state
of North Dakota.

In 1974 David and Michael Ortner opened D & M Computing? Inc., in Fargo, North Dakota.
They did a modest business in servicing computers. Today, after bouncing back and forth across
the Red River between Fargo' North Dakota and Moorhead, Minnesota, at least twice, D & M
Computing is doing pioneering work in robotics and automation. They have customers world-
wide and sales of more than US$2 million in 199().

Last year the Greater Minnesota Corporation granted US$99 000 to the twenty-five employee
firm to fund development of a new system for analysing data from automated blood particle
counters to assist in diagnosing blood diseases; The firm also gets statistical research assistance
from Moorhead State University and medical research help from Case Western Reserve
University in Cleveland, Ohio.

Ortner, 42 years, got into the robotics business after he bought a robotic arm for an incapacitated
friend that did not work properly. He redesigned its electronics. His work so impressed the
company that sold the arms that eventually Ortner took over assembly of the firm's robots. When
the company went out of business, Ortner stepped in putting together an assembly line in his
mother's Fargo home.

Or, take the case of Byron Bowman of Kennedy, Minnesota, a town of about 500 people located
in Northwest Minnesota. Bowman industries produces an innovative type of water filter and
provides jobs for twelve people. Bowman got into the business, making a rapid transition from
farming to manufacturing, after an investor friend of his who holds the patent on the filter
decided to bring the manufacturing to Kennedy.

In Wisconsin, the Rural Economy Development Programme is another example of a programme

designed to target promising entrepreneurial ventures assisting with loans and grants for
feasibility studies, market research and other business services.

Some of the recent awards went to rural businesses offering recycling services and containers;
marketing compressed alfalfa products; selling cut flowers; manufacturing organic yoghurt;
restoring native plants; distributing wholesale pizza products; maintaining and repairing micro-
electronic equipment; producing neon signs and display items for retail and service industries;
growing and marketing shiitake and oyster mushrooms; and manufacturing a new type of
energy-efficient horticultural lighting developed jointly with the University of Wisconsin.

In Kansas, the Co-operative Extension staff are working to bring venture capital investments to
rural areas in manufacturing, wholesaling and distribution operations.

Within the U.S. Department of Agriculture (USDA), we are implementing a Presidential

initiative in rural development and co-operating in the establishment of a new Rural
Development Administration. It is too early to know the full scope of funding and operations.
We anticipate, however, that the Co-operative Extension System will continue to have a major
role in providing information and education to rural entrepreneurs and that our staff may play a
broker role in assisting rural-based businesses to link with appropriate public and private sources
of financing and strategic planning.

We also have a national initiative in U.S.A. International Marketing that is assisting rural
communities to better understand the global market place and begin to use computer intelligence
from the U.S.A. and other countries to start businesses and market products from rural areas.

For a number of years USDA has supported Rural Development Centres in various locations in
the U.S.A. In July, at the request of our Users Advisory Board, we undertook a full scale review
of the activities and accomplishments of these centres. The review panel recommended that each
of these centres needed a strategic plan and that they should broaden their vision but sharpen
their focus. The panel recommended improved scanning of the regional environment to
accomplish the broader vision and improve the priority setting mechanisms to assure that
resources are targeted to the points most likely to make a difference.

The panel also said that the centres needed a broader base, more links to their constituencies, the
universities and other Federal Government entities. They encouraged expanding the governing
boards to get closer to the customer, the stakeholders and the formation of new alliances and
partnerships with organizations such as community colleges.

Finally, we think that the entire Co-operative Extension System can strengthen its
entrepreneurial efforts in rural areas by linking with others. We are forming a new strategic
relationship with the National Association of Counties in the area of Aging Population and
Aging Infrastructure. We will be using satellite communication technology, as well as traditional
educational delivery methods, to engage local planning groups in coping with these two
important areas.

Conclusion

In conclusion, let me just say that finding, encouraging and motivating entrepreneurs in rural
areas is not an easy proposition. However, to the real entrepreneur looking on the dark side of the
situation is fatal. Optimism is the heart and soul of the entrepreneur. While strategic planning,
feasibility and market studies and analysis are necessary parts of new business start-ups, very
few real entrepreneurs, the famous and not so famous, waited for a printout to see whether they
should launch their new idea. I know that we in the U.S. Co-operative Extension System are
going to have to change some of the ways we currently do business to be really useful to rural-
based entrepreneurship. We are going to have to be more entrepreneurial ourselves.

I have been asking our rural development staff some tough questions about what we are doing,
because I think the environment has changed and we must change with it. We cannot be like the
frog. You can put a frog in a pot of hot water and that frog will not notice the temperature rise. I
think we must all guard against this tendency, we cannot ignore the changes occurring in our
environment. If we do, we shall wake up and find out that we have been boiled.

Let me end with a story of a rural entrepreneur from another part of the world, Victor Chumak.
In a little more than two years, Chumak, described as a bull-like man whose flair for work is
surpassed only by his remarkable command of Russian profanity, has pulled together a virtual
agricultural empire. He has 1600 acres, 1 00 head of cattle, twelve tractors, two harvesters and
three trucks. He has taken on four young families as partners and built a house for each of them.

His achievement and maniacal dedication shatter the stereotype of Soviet passivity. This is a man
who made eighty trips to Moscow to beg, plead and badger government ministries for
equipment. Just three years ago there were fewer than 1000 private farmers in the USSR. Now
there are more than 50 000.

Let me end with a quotation from Chumak: "I have this dream and I want to see it come true.
And I will not give up. To achieve a goal you have got to be a gambler, you have got to be
certain you can do it. As soon as you start hesitating, doubting yourself, you'd better just give up.
I am always sure of myself and people. I am sure we'll make if".

These are the words of entrepreneurship, dreams, determination, willingness to take risks. Those
of us in the business of identifying and 'developing' entrepreneurs in rural areas must build our
programmes upon these human traits associated with successful change.

Conclusions

Economic development in general requires more than just a proper macro economic
environment. In addition it demands institutional framework conducive to economic
development, practical mechanisms for risk taking and risk sharing in the early and most
uncertain stages of entrepreneurial ventures and an organizational system conducive to growing
new and existing businesses. It takes cross-institutional networking. The role of public policy is
therefore to continually find ways to implement critical success factors of economic
development. Economic development of rural areas cannot be an exception in this respect.

The experiences in partnership and institution building presented in this paper lead to the
following policy recommendation:

Community leadership, in order to accelerate rural development, must continuously seek new
innovative approaches to economic development and must promote proper institution building
and partnership in view of those mechanisms that communities could use to leverage resources in
order to help potential entrepreneurs and existing companies to grow, as well as to create more
choices for entrepreneurs.

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