Entrepreneurship is talked about so much in the media and in support programs that the term has come to be applied to every commercial activity. But the concept has a more precise scientific meaning, shaped by a century of research in economics and management. In this chapter we start by defining the concept and its schools of thought, then distinguish the entrepreneurial venture from others, present the types of entrepreneurship and their role in the economy, and end with the features of the entrepreneurial ecosystem in Saudi Arabia.
After studying this chapter, you should be able to:
The Arabic word for entrepreneurship, riyada, comes from al-ra'id: the scout who rides ahead of the tribe to find water and pasture before everyone moves. That old meaning brings us close to the modern concept. The scout goes where others have not gone, bears the hardship and uncertainty of exploring, and comes back with something that benefits the group. The English word comes from the French verb entreprendre, "to undertake" or "to take something on."
Definitions of entrepreneurship vary in the scholarly literature because people look at it from different angles. Economists look at its effect on markets, management scholars at how resources are organized, and psychologists at the person who does it. Yet these definitions meet at one core, which we can put this way:
Let us take this definition apart, because every word in it carries meaning:
You do not need to memorize many theories, but knowing three main schools of thought helps explain why we talk about entrepreneurship the way we do.
The Austrian economist Joseph Schumpeter was among the first to place the entrepreneur at the heart of economic theory, in The Theory of Economic Development (1934 in its English translation). Schumpeter argued that economies do not develop through the accumulation of capital alone, but through people who bring "new combinations" to the market. He named five forms: a new product, a new method of production, a new market, a new source of raw materials, or a new organization of an industry.
Schumpeter also coined a famous idea, creative destruction: every successful innovation pushes aside what came before it. When smartphones with good cameras spread, sales of compact digital cameras fell; when streaming services appeared, video and disc rentals declined. This destruction hurts the old firms, but it is "creative" because it moves the economy to a better level of service.
Peter Drucker, one of the leading management thinkers of the twentieth century, moved entrepreneurship from a mysterious trait to a systematic practice. In Innovation and Entrepreneurship (1985) he describes the entrepreneur as someone who "always searches for change, responds to it, and exploits it as an opportunity." Drucker's most important contribution is that entrepreneurship is not limited to small new businesses: a hospital, a university or a government agency can be entrepreneurial if it manages innovation systematically. We will return in Chapter 3 to the seven sources of opportunity he identified.
In 2000, Scott Shane and S. Venkataraman published an influential article proposing that the subject of entrepreneurship research is the opportunity: how it is discovered, evaluated and exploited, and by whom. The focus shifted from "Who is the entrepreneur?" to "How does a particular person meet a particular opportunity?" This view is useful for students, because it means entrepreneurship does not require an extraordinary personality. It requires an eye that notices opportunities and the ability to move toward them.
Many people confuse entrepreneurship with owning any business. In fact, the difference lies neither in the size of the venture nor in its type, but in two things: the degree of innovation (does the venture offer new value or a better way?) and the ambition to grow (does it seek to expand, or is it content with its size?).
| Dimension | Traditional business | Entrepreneurial venture |
|---|---|---|
| Starting point | A known model, proven in the market | A problem or opportunity that is poorly served |
| Innovation | Low: repeats what exists | Medium to high: offers something different |
| Risk and uncertainty | Lower, because the market and demand are known | Higher, because the model itself needs proof |
| Growth | Linear and gradual | Aims for fast, scalable growth |
| Example | A neighborhood grocery selling what other groceries sell | A platform that connects neighborhood groceries with residents and delivers orders within an hour |
A real-world example makes this clearer. Someone opens a café serving the same coffee in the same way on a street that already has ten cafés. This is a legitimate and useful business, but it is not entrepreneurship in the precise sense. Someone else notices that staff at the nearby hospital work night shifts and cannot find good coffee after midnight, so they set up a pre-ordered coffee delivery service for night shifts. This is closer to entrepreneurship, because it starts from an unserved need and offers a different solution.
When we hear the word "entrepreneurship," we usually picture an app or a tech company. But entrepreneurship is much broader than that, and it can be classified by goal and by the nature of growth:
A venture set up by one person or a few partners as a stable source of income, serving a limited local community: a repair workshop, a home kitchen, a small training center. Its owner does not necessarily seek large-scale expansion, but stability and quality of service. It is entrepreneurial when it offers something different in its local market.
A venture searching for a business model that can be repeated and grown very fast, serving thousands or millions of customers without its costs multiplying at the same rate. Startups usually rely on technology, need outside investment, and accept high risk in exchange for the chance of a large return. Steve Blank defines a startup as "a temporary organization in search of a repeatable and scalable business model": it is in a phase of searching and testing, not of executing a known plan.
A venture whose first goal is to solve a social or environmental problem, such as employing people with disabilities, reducing food waste or educating underserved groups. It differs from charity in that it seeks financial sustainability: it earns enough from its activity to cover its costs and keep going, rather than relying entirely on donations. Profit here is a means, not an end.
Entrepreneurship practiced from inside an existing organization, public or private. The intrapreneur notices a problem in the organization's work, proposes a new solution and leads it through to implementation: a nurse who proposes a system that reduces medication errors, a teacher who develops a way to follow up with struggling students, or a government employee who automates a paper-based procedure. This type is the closest to most students after graduation, which is why we say this course is for everyone.
Ventures owned and run by a family and passed between generations. Many of the large companies in Saudi Arabia and the Gulf began as a small shop. The entrepreneurial challenge here is renewal: how does the new generation preserve what the previous one built and develop it to fit a changing market?
Ventures based entirely or mostly online: e-commerce stores, content creation, apps and remotely delivered services. Their advantage is a relatively low cost of starting and the ability to reach customers beyond the city limits. But competition is fierce, because entry is easy for everyone.
Governments, universities and organizations care about entrepreneurship because it plays roles that large companies cannot play alone:
Saudi Vision 2030 made small and medium enterprises a central pillar of economic transformation, with a stated target of raising their contribution to GDP from about 20% to 35%. To get there, an entrepreneurial ecosystem has taken shape over recent years: a network of organizations that complement one another in supporting a venture from idea to growth. Its main components include:
| Organization | Its role in the ecosystem |
|---|---|
| Small and Medium Enterprises General Authority (Monsha'at) | The regulator and supporter of the sector: training and mentoring programs, incubators and accelerators, entrepreneur service centers, and initiatives that simplify procedures. |
| Social Development Bank | Finances startups and freelance work, with preparation programs before financing. |
| Kafalah program | Guarantees part of the financing that banks give small enterprises, lowering the bank's risk and making loans easier to obtain. |
| Saudi Venture Capital Company and Jada Fund of Funds | Invest in venture capital and private equity funds, which in turn finance startups. |
| Incubators and accelerators | Programs that host ventures in their early stages, offering mentoring, space and networks, and sometimes early funding. |
| University entrepreneurship centers | The nearest starting point for students: competitions, workshops, mentoring and links to the ecosystem. |
These organizations work as a chain. A student may start with an idea in a university competition, then join an incubator that helps build a prototype, then receive early funding from a government program or an investor, and then grow and attract larger investment.
The answers are on the Answers to Self-Assessment Questions page. On the interactive course page you can answer and check these questions directly, with practical tools linked to the chapter.
Think of an organization you will work in after graduating. What is one entrepreneurial initiative you could offer as an employee?