ENTREPRENEURSHIP

CHAPTER 1: ENTREPRENEURSHIP & ENTREPRENEURSHIP

MANAGEMENT

1.3 FACTORS INFLUENCING ENTREPRENEUR & ENTREPRENEUSHIP

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FACTORS INFLUENCING ENTREPRENEUR

What makes an entrepreneur create a successful new business? Researchers, sociologists,

economists have been exploring several avenues – characteristics of an entrepreneur, life-
path circumstances of an individual, environmental factors & finally they examined the
desirability & feasibility of becoming an entrepreneur which also affects the decision to
engage in entrepreneurship. Following three basic factors are mainly responsible for an
individual’s desirability & feasibility of becoming an entrepreneur.
• Personal Characteristics
• Life-Path Circumstance
• Environmental Factors

Personal Characteristics

One fascinating question surrounding entrepreneurship is whether entrepreneurs possess

Personal Characteristics
personality traits & background experience that sets them apart from others.

(a) Personality Characteristics – Given Perception

the variety of businesses New that
entrepreneurs have created, identifying characteristics Venture
Of Desirabilitythat entrepreneurs have in
common is a formidable task. Search has yielded &only a few common personality
Life-Path Circumstances
Feasibility
characteristics.

Psychologist David C McClelland has argued that entrepreneurs tend to have high
need for achievement (nAch). Such individual gravitate towards situations in which
Environmental Factors
they can achieve results through their own efforts, pursue moderately difficult goals &
receive immediate feedback on how they are doing. Though high nAch is found in
performing managers, salespersons, professionals etc, it remains the most significant
ingredient in entrepreneurial success.

Another characteristic that has been found in entrepreneurs is an internal locus of

control. Such people tend to have belief that that they control their fate largely
through their own efforts. This kind of belief guides other high performer managers,
professionals, salespersons etc. also.

One characteristic that sets entrepreneurs apart from managers etc. is high
tolerance for ambiguity, ability to continue functioning effectively & persist even
when situations are highly uncertain. Since entrepreneurship involves starting new
organizations, a great deal of uncertainty is frequently experienced. Manager may not
have the same degree of tolerance for ambiguities & uncertainties.

(b) Background Characteristics - Inquiries into child hood family environment have
considered factors like, birth order of the child & parent’s occupation. First born or the
only child is considered to have greater share of parent’s time leading to increased self
confidence.

On the other hand, there is considerable evidence that entrepreneurs tend to have self
employed fathers & quite a few time self employed mothers also or jointly owned
business. Having one or both parents as business owners provides a salient incentive
for potential entrepreneur.

Education & level of awareness is another important factor. Though entrepreneurs may
be less educated than managers or professional, they have accumulated good
knowledge about the type of enterprise they intend to start. It is seen that female
entrepreneurs generally have high level of education.

Common range of age for entrepreneurs is between 25 – 40 years. This is not rigid
though; entrepreneurs below 25 years & up to the age of 55 years have also
endeavoured to start new ventures.

Work history & related experience is a significant factor in initiating a new venture. It
has been observed that in a new venture, one of the founders had worked in the same
industry for long enough to gain adequate experience & expertise in the field. Creating
new venture seems to be easier after the first one. This is the corridor principle
which says that the process of beginning a new venture helps entrepreneurs visualize
other opportunities that they could not envision or take advantage of until they started
the initial venture. Understandably individuals who start their entrepreneurship at
lower age are better placed to exploit the corridor principle because of their potentially
longer career.

Understandably individuals who start their entrepreneurship at lower age are better
placed to exploit the corridor principle because of their potentially longer career.
Life-Path Circumstances

Several types of experiences or life-paths increase the probability of an individual take up

entrepreneurship. Major factors are discussed as follows: -

(a) Unsatisfactory Work Environment – This fosters discontent in the worker &
impels him to think about leaving & starting a new venture. Reasons for
discontentment in current job may be lack of job satisfaction or not pulling on well with
the management or even lack of potential for growth in the company as the worker
assesses himself.

(b) Negative Displacement – Negative displacement or disruption occurs when

circumstances in the life of a person cause him to make major changes in his life-style.
These situations could include being fired from the job or downsized, getting a divorce,
losing lifetime partner, emigrating to another country, natural calamities forcing
displacement etc. These circumstances may prove to be catalyst for an entrepreneur.

(c) Career Transition – These are the circumstances in which a person moves from
one career-related activity to another activity. Such situation could be acquiring a
professional qualification, retiring from regular service, finishing a major project,
grown up children leave home & become independent relieving parents of their
responsibilities etc.

(d) Positive-Pull Influencers – Positive-pull influencers are individuals such as

mentors, investors, customers or potential partners who urge an individual to start a
new venture. There are numerous examples on this account.

Favourable Environmental Conditions

A number of environmental conditions appear to influence entrepreneurs. Generally, they

deal with the basic perquisites of running a business, such as adequate financing,
technical skilled labour force, accessibility of suppliers, accessibility of customers or new
market, easy availability of land, transportation & support services.

Other indirect conditions those who provide support may be presence of incubator
organizations, government influences, experienced entrepreneurs, support network,
proximity of universities, attitude of the population & their living conditions etc. Incubator
organizations are those whose purpose is to nurture new ventures in their early stages by
providing space, stimulation, support & a variety of basic services at reasonable charges.

Support networks typically important to entrepreneurs are moral-support network and

professional-support network. Moral support network would include family members &
friends who provide continuous encouragement, understanding & even assistance
whenever needed. Professional support network encompasses cooperative relationship
with experts who provide advice & counsel that help an entrepreneur function effectively.
This type of network would include business associates, professional associations,
personal affiliations such as sports activities, civic groups, school/college alumni group
etc.

Perception of Desirability & Feasibility

When all above mentioned factors & circumstances act positively on an individual in
providing him encouragement towards entrepreneurship, he increasingly perceives
entrepreneurship as desirable. However, with perceived desirability potential entrepreneur
must also make a dispassionate assessment of the feasibility of creating the new
enterprise. While personal characteristics & life-path circumstances play a major role in
making this judgment, environmental conditions are a critical aspect of feasibility
assessment.

Entrepreneurship Stimulants

A variety of factors have helped to stimulate entrepreneurial activities & encourage

economic development in our country. Some of these stimulants are: -

(a) Increasing focus on capital formation, making capital available to the

entrepreneur to start the new enterprise.
(b) The environment to transform scientific & technical development in to
economically viable projects.
(c) Supportive government policies & programs.
(d) Availability of sufficient training facilities.
(e) Collaborative relationship between business & research efforts & easy
transferability of technology to the market place.
(f) Endeavour to create ideal climate for innovation & the entrepreneurial activities.

FACTORS AFFECTING ENTREPRENEURIAL GROWTH

Entrepreneurship has opened avenues of great scope in Indian economy. Our national
economy is most suited to the growth of small business enterprises. Small business units
offer a more convenient means of nurturing & developing entrepreneurship by providing
the means of entry into business for new entrepreneurial talents. Small scale industries
are labour intensive & play an important role in solving the problem of unemployment.
These industries provide industrial experience & serve as training ground for a large
number of entrepreneurs.

However, in spite of favourable policies, governmental support, change in attitude of the

society, the growth of entrepreneurship in India suffers due to certain factors inherent in
our social system.

Growth of entrepreneurship in any country or region is generally affected by following

factors:
(a) Economic Factors – Economic factors those affect the growth of
entrepreneurship in developing countries are: -

(i) Infrastructural Facilities – Profitable innovations require certain basic

facilities & services like uninterrupted power supply, reliable &
dependable transport system, good communications, easy availability of
technical & economic information, supportive political & bureaucratic
environment & many other requirements connected with the type of
venture an entrepreneur wants to set up. Easy availability of these
facilities & services reduce the cost of production & encourage
entrepreneurs to invest their efforts & capital in new ventures.
(ii) Availability of Capital – Reduction in cost & maximizing output are the
twin objectives of all innovators. Therefore, innovations tend to be
capital intensive. In cases where capital equipment & raw material is not
easily available, cost of procurement & transportation will require much
higher capital investment which may act as a discouraging factor for an
entrepreneur.
(iii) Market Risks – Lack of adequate market for newly introduced product,
creating awareness among local population, fluid nature of demand are
few factors that an entrepreneur has to keep in mind before launching
any new product or service.
(iv) Availability of Skilled Labour – Though labour may be available
aplenty, skilled labour to undertake specialized jobs may be in short
supply. Elaborate selection process for new recruits, training programs
for selected workmen are cost intensive & impinge adversely on
investment.

(b) Social factors – Social factors go a long way in encouraging entrepreneurs. A

society that is rational thinking – where decisions regarding resource use are
based on empirical facts & critical scientific standards – has more favourable
environment for entrepreneurial growth. It would be non-rational if decisions
regarding use of capital, hiring of labour, designing of product etc. are based on
customs, traditions & transcendental powers. Such circumstances discourage
entrepreneurs.

Social set up in some countries are not very encouraging for entrepreneurship.
Education, research, training etc. are not given adequate importance & attention;
appointments to responsible positions are made not on the basis of competence but by
narrow parochial & caste considerations, there is therefore no vertical mobility of
labour. Process of hiring skilled & even non-skilled labour also has skewed
considerations of caste, region, affiliation to political parties & not the competence,
aptitude, skill etc.

(c) Cultural Factors – Entrepreneur growth requires proper motives like profit
making, acquisition of prestige, attainment of social status etc. Ambitious &
talented men would take risks & innovate if motives are strong enough. The
 strength of motives depends on the culture of the society. If society is
economically & monetarily oriented, entrepreneurship would be appreciated. In
societies where economic & monetary considerations are less significant, people
look for opportunities of attaining social distinction by non-economic means.
Talented people with good organizational skills opt for non-economic methods to
achieve recognition.

(d) Personality Factors – In less developed countries, the entrepreneur is looked

upon with suspicion. Public opinion gets biased against entrepreneur as only a
profit maker & exploiter. This greatly affects the personality of the entrepreneur
& his motivation & aspirations to progress & expand further. If public opinion is
not very favourable to entrepreneurs, it tends to favour direct state activities in
economy. Once state start playing pivotal role in achieving economic progress, it
imposes restrictions on entrepreneurs’ initiatives.

(e) Psychological & Sociological Factors – These two factors need to be

considered together.

(i) Need Achievement – According to McClelland ‘need achievement’

(nAch) is a social motive to excel that tends to characterize successful
entrepreneur especially when reinforced by cultural factors. It has been
observed that some societies tend to produce larger percentage of
people with higher nAch than other societies. People with high nAch like
to take risks & these risks stimulate them to greater efforts. McClelland
suggested that nAch is conditioned more by social & cultural
reinforcement rather other factors.
(ii) Psychosocial Factor – Many sociologists & researchers have theorized
on psychological & sociological roots of entrepreneurship. A few of the
opinions are enumerated below: -
• Everett Hazen - Entrepreneurship is the psychological consequences of
social change, radical loss of status of a social group.
• Cole - Besides wealth, entrepreneurs seek power, prestige, security &
service to society.
• Stepanek - Entrepreneurs look for independence, self esteem, power &
status in society.
• Evans - Managing entrepreneurs look for security, innovating
entrepreneurs are interested in excitement & controlling entrepreneurs
want power & authority.
• Rostow – first generation of entrepreneurs seek wealth, second generation
prestige & third generation looks for art & beauty.
• Thomas Begley & David Boyd - Entrepreneur attitude based on
psychological considerations has five dimensions.
- Need Achievement is the first dimension.
- Second dimension is “Locus of Control”.
- Willingness to take risks is the third dimension.
- Tolerance for ambiguity is the fourth one.
- Fifth dimension is what psychologists call “Type A” behaviour. It is
chronic incessant struggle to achieve more & more in less & less.