Unit-1

Entrepreneurship
Introduction
Entrepreneurship is one of the four mainstream economic factors: land, labour, capital
and entrepreneurship. The word which is derived from 17 th century French entreprendre,
refers to individuals who were undertakers, meaning those who undertook the risk of
new enterprise. They were contractors who bore the risk of profit or loss, and many
early entrepreneurs were soldiers of fortune, adventurers, builders, merchants etc. Earlier
references to the entreprendeur in the 14th century spoke about tax contractorsindividuals who paid a fixed sum of money to a government for the license to collect
taxes in their region.
Economics and Entrepreneurship
Richard Cantillon, a French economist in his book Essai sur la nature du commerce en
general described an entrepreneur as a person who pays a certain price for a product to
resell it at an uncertain price, thereby making decisions about obtaining and using
resources while consequently assuming the risk of enterprise.
Adam Smith spoke of the enterpriser in Wealth of Nations in 1776 as an individual
who undertook the formation of an organization for commercial purposes. He viewed the
entrepreneur as a person with unusual foresight who could recognize potential demand
for goods and services.
French economist Jean Baptiste Say, in his A treatise on Political Economy, 1803
described an entrepreneur as one who possessed certain arts and skills of creating new
economic enterprises. Says entrepreneur influenced society by creating new enterprises
and was influenced by society to recognize needs and fulfill them through management
of resources.
In 1848, British economist John Stuart Mill elaborated on the necessity of
entrepreneurship in private enterprise. The term entrepreneur became common as a
description of business founders, and the fourth factor of economic endeavor.
According to Carl Mengers view (Principles of Economics, 1871) economic change
arises from an individuals awareness and understanding of circumstances. The
entrepreneur becomes the change agent who transforms resources into useful goods and
services, often creating the circumstances that lead to industrial growth.
Joseph Schumpeter (1934) described entrepreneurship as a force of creative destruction
whereby established ways of doing things are destroyed by the creation of new and better
ways to get things done. He described entrepreneurship as a process and entrepreneurs
are innovators who use the process to shatter the status quo through new considerations
of resources and new methods of commerce.
Definitions
Entrepreneurship is the dynamic process of creating incremental wealth. This wealth is
created by individuals who assume the major risk in terms of equity, time, and/ or career

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commitment of providing value for some product or service. The product or service may
or may not be new or unique but value must somehow be infused by the entrepreneur by
securing and allocating the necessary skills and resources. Robert Ronstadt
In the words of A.H.Cole, entrepreneurship is the purposeful activity of an individual or
group of associated individuals, undertaken to initiate, maintain, or organize a profitoriented business unit for the production or distribution of economic goods and services.
Higgins defines the term as Entrepreneurship is meant the function of seeing investment
and production opportunity, organizing an enterprise to undertake a new production
process, raising capital, hiring labour, arranging for the supply of raw materials and
selecting top managers for the day-to-day operation of the enterprise.
According to Peter Drucker, Entrepreneurship is a process of gathering and using
resources that must be allocated to opportunities rather than to problems.
Entrepreneurship essentially consists in doing things that are not generally done in the
ordinary course of business routine. Schumpeter
Entrepreneurship involves doing things in a new and better way. Entrepreneurial role
calls for decision making under uncertainty. Mc Clelland
The New Encyclopedia Britannica considers an entrepreneur as an individual who bears
the risk of operating a business in the face of uncertainty about the future conditions.
In other words, entrepreneurship means the function of creating something new,
organizing and coordinating and undertaking risk and handling economic uncertainty.
Entrepreneur or owner manager
Entrepreneurs take existing resources and redeploy them, often in a creative way, to give
them greater economic value. They are agents of change, innovators of new products,
methods, or markets. They are more involved in looking for and exploiting new
opportunities. They are less concerned with managing what exists in the most efficient
manner. Owner managers may or may not be entrepreneurs. They own and manage a
small enterprise.
Similarities
1. Both managers and entrepreneur are answerable for producing results
2. Both have to produce results through people working with them though they deal with
different sets of people.
3. Both are decision makers but the decisions are different as their tasks vary.
4. Both have to operate under constraints.

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Differences
Managers
Short term and medium term results
Usually handle people oriented to day-today management
Operational and administrative decisions
The constraints are usually organizational,
i.e. those within the organization.
The principles are more oriented towards
internal administration and control like
delegation, accountability, responsibility,
planning etc.

Entrepreneurs
Long term and very long term results
Deal with people who can conceptualize
with aggregate perspectives- strategists.
Mostly strategic decisions
Constraints are usually environmental
which lie outside an organization.
The principles are with reference to macro
social aspects like social responsibility,
equal opportunity employment, ethical
advertising practices etc.

Entrepreneurial traits
A successful entrepreneur must be a person with the following traits:
1. Mental ability
Mental ability consists of intelligence and creative thinking. An entrepreneur must
be reasonably intelligent and should have creative thinking and must be able to engage in
the analysis of various problems and situations in order to deal with them.
2. Clear objectives
An entrepreneur should have a clear objective as to the exact nature of the
business, the nature of the goods to be produced and subsidiary activities to be
undertaken.
3. Business secrecy
An entrepreneur must be able to guard business secrets. Leakage of business
secrets to trade competitions is a serious matter which should be carefully guarded
against by an entrepreneur.
4. Human relation ability
An entrepreneur must establish good relation with his customers to establish
relations that will encourage them to continue on patronize his business. He must also
maintain good relations with his employees if he is to motivate them to perform their jobs
at a high level of efficiency. An entrepreneur who maintains good human relations with
customers, employees, suppliers, creditors and the community is more likely to succeed
in business.
5. Communication ability
It is the ability to communicate effectively. Good communication also means that
both the sender and the receiver understand each other and are being understood.
6. Technical knowledge
An entrepreneur must have a reasonable level of technical knowledge. It is one
ability that most people are able to acquire if they try hard enough.

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Robert D. Hisrich has identified a few more capabilities or personal

characteristics that an entrepreneur should possess. According to him, the entrepreneur
must have an adequate commitment, motivation and skills to start and build a business.
Some key characteristics of successful entrepreneur are;
1. Motivator: An entrepreneur must build a team, keep it motivated, and provide an
environment for industrial growth and career development.
2. Self confidence: Entrepreneurs must have belief in themselves and the ability to
achieve their goals
3. Long term commitment: An entrepreneur must be committed to the project with a
time horizon of five to seven years.
4. High energy level: Success of an entrepreneur demands the ability to work long
hours for sustained periods of time.
5. Persistent problem-solver: An entrepreneur must have an intense desire to
complete a task or solve a problem. Creativity is an essential ingredient.
6. Initiative: An entrepreneur must have initiative accepting personal responsibility
for actions, and make good use of resources.
7. Goal setter: An entrepreneur must be able to set challenging but realistic goals.
8. Moderate risk taker: An entrepreneur must be a moderate risk taker and learn
from many failures.
Motivation for starting a business
The reason for small firm formation can be divided between pull and push
influences.
Pull influences
Some individuals are attracted towards small business ownership by positive
motives such as specific idea which they are convinced with work.
1. Desire for independence
This features in several research studies as the key motivator. The Bolton report
singled out the need to gain and keep independence as a distinguishing feature of small
business owner-managers. A study of female entrepreneurs in Britain found that women
were motivated particularly by the need for autonomy.
2. Desire to exploit an opportunity
Opportunities according to Drucker are of three kinds: additive, complementary,
and breakthrough. Additive opportunities are those opportunities which enable the
decision maker to better utilize the existing resources without in any way involving a
change in the character of business. Complementary opportunities involve the
introduction of new ideas and as such lead to a certain amount of change in the existing
structure. Breakthrough opportunities involve fundamental changes in both the structure
and character of business.
3. Turning previous work experience into business
Many new entrepreneurs seek fulfillment by spending more time involved in a
hobby, or part of their work that they particularly enjoy.

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4. Financial incentive
The rewards of starting a business can be high, and are well-publicized by those
selling how to information to entrepreneurs. The promise of long term financial
independence can be clearly be a motive in starting a new firm.
Push influences
These factors include;
1. Community attitude
This has proved a considerable push into entrepreneurship particularly when
accompanied by acceptance in a locality where other employment possibilities are low.
2. Unemployment
Job insecurity and employment varies in significance by region, and by prevailing
economic climate. A study reported that 25% of business founders in the late 1970s were
pushed in this way, while later research showed a figure of 50% when unemployment
nationally was much higher.
3. Disagreement with the previous employer
Uncomfortable relations at work have also pushed new entrants into small
business. Many people considering an opportunity or having a desire for independence
still need some form of push to help them make their decision.
P.N Sharma has identified two sets of motivating factors for entrepreneurs;
1. Internal factors
2. External factors
1. Internal factors include:
a) Educational background
b) Occupational experience
c) Desire to work independently
d) Desire to branch out to manufacturing
e) Family background
These factors generate an inclination to adopt entrepreneurial activity.
2. The external factors include:
a) Assistance from government
b) Assistance from financial institutions
c) Availability of raw materials/technology
d) Other factors- demand for the particular product, utilization of excess money earned
from contractual business, started manufacturing to facilitate trading etc.
Among the external motivating factors assistance from financial institutions and
assistance from government emerged as the most significant factors. These factors are not
the prime motivators but play the role of contributing factors in the implementation of
entrepreneurial idea.

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Success factors for entrepreneurs

Several success factors are apparent from research on innovation and entrepreneurship.
1. The entrepreneurial team:
An entrepreneurial team is headed by an individual who provides the critical
profile of success. This focal entrepreneur typically has an above average education, with
about 35% of technical entrepreneurs holding graduate degrees. Most entrepreneurs
started their business when they were in their 30s, and they had solid job experience.
Nearly two-thirds of those studied in the United States had attempted a new venture
before, and fewer Canadians had made an earlier attempt.
Most technical entrepreneurs tend to start businesses closely related to what they
did in previous career positions. Those in non-technical areas often leverage their
experience in marketing, merchandising, or a professional area such as insurance or
finance. They will also have well-developed social and business relationships, and
therefore have a strong formulation for building a team or support network.
2. Venture products or services
Incremental expansion of products and services also tends to stay within the
bounds of positive cash flow. Products tend to have strong profit potential with high
initial margins rather than small margins that require a substantial volume of sales to
meet profit objectives. Service businesses retain good margins by effective cost controls
and well monitored overheads. Entrepreneurs must assure themselves of a niche for their
services. Successful entrepreneurs should stick to the knitting by concentrating initially
on one product or services, making it successful before diversifying.
3. Markets and timings
Successful entrepreneurs tend to have a clear vision of both existing and potential
customers. A crucial aspect of planning is to have a well documented forecast of sales
based on sensible projections at each of incremental growth. An entrepreneur will not
convince investors that a venture is viable without valid market research.
Market potential is influenced by timings of new products or services. Timing
pertains to when products or services are introduced, how they are priced, how they are
distributed, and how they are promoted.
4. Business ideology
A business ideology is defined as a system of beliefs about how one conducts an
enterprise. These beliefs include a commitment to providing customers with value, the
ability to take calculated risks, the determination to grow and to control the fate of the
business, the propensity to elicit cooperation among team members, and the perspective
of creating wealth realistically.
Kinds of entrepreneurship
The entrepreneurs in business are broadly classified according to;
1. The types of business
2. Use of professional skill
3. Motivation
4. Growth and
5. Stages of development

Entrepreneurship

1. According to type of business

Entrepreneurs are found in various types of business occupations of varying size.
We may broadly classify them as follows;
a) Business entrepreneurs:
Business entrepreneurs are individuals who conceive an idea for a new product or
service and then create a business to materialize their idea into reality. They tap both
production and marketing resources in their search to develop a new business
opportunity. They may set up a big establishment or a small business unit. They are called
small business entrepreneurs when found in small business units such as printing press,
textile processing house, advertising agency, readymade garments, or confectionary.
b) Trading entrepreneur:
Trading entrepreneur is one who undertakes trading activities and is not
concerned with the manufacturing work. He identifies potential markets, stimulates
demand for his product line and creates a desire and interest among buyers to go in for
his product. He is engaged in both domestic and overseas trade.
c) Industrial entrepreneur:
Industrial entrepreneur is essentially a manufacturer who identifies the potential
needs of customers and tailors product or service to meet the marketing needs. He is
product oriented man who starts in an industrial unit because of the possibility of making
some new product. The entrepreneur has the ability to convert economic resources and
technology into a considerably profitable venture.
d) Corporate entrepreneur:
Corporate entrepreneur is a person who demonstrates his innovative skill in
organizing and managing a corporate undertaking. A corporate undertaking is a form of
business organization which is registered under some statute or act which gives it a
separate legal entity.
e) Agricultural entrepreneur:
Agricultural entrepreneurs are those entrepreneurs who undertake such
agricultural activities as raising and marketing of crops, fertilizers, and other inputs of
agriculture.
2. According to the use of technology
The application of new technology in various sectors of the national economy is
essential for the future growth of business.
a) Technical entrepreneur:
A technical entrepreneur is essentially an entrepreneur of craftsman type. He
develops new and improved quality of goods because of his craftsmanship. He
concentrates more on production than marketing. He demonstrates his innovative
capabilities in production of goods and rendering services.
b) Non-technical entrepreneur:
Non-technical entrepreneurs are those who are not concerned with the technical
aspects of the product in which they deal. They are concerned only with developing
alternative marketing and distribution strategies to promote their business.
c) Professional entrepreneur:

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Professional entrepreneur is a person who is interested in establishing a business

but does not have interest in managing or operating it once it is established. A
professional entrepreneur sells out the running business and starts another venture with
the sales proceeds.
3. According to motivation
Motivation is the force that influences the efforts of the entrepreneur to achieve
his objectives. An entrepreneur is motivated to achieve or prove his excellence in job
performance.
a) Pure entrepreneur:
A pure entrepreneur is an individual who is motivated by psychological or
economic rewards. He undertakes an entrepreneurial activity for his personal satisfaction
in work, ego or status.
b) Induced entrepreneur:
Induced entrepreneur is one who is induced to take up an entrepreneurial task due
to the policy measure of the government that provides assistance, incentives, concessions,
and necessary overhead facilities to start a venture.
c) Motivated entrepreneur:
New entrepreneurs are motivated by the desire for self-fulfillment. They come
into being because of the possibility of making and marketing some new product for the
use of consumers.
d) Spontaneous entrepreneur:
These entrepreneurs start their business out of their natural talents. They are
persons with initiative, boldness and confidence in their ability which motivate them to
undertake entrepreneurial activity.
4. According to growth
The development of a new venture has greater chances of success. The
entrepreneur enters a new and open field of business. The customer approval to the new
product gives them psychological satisfaction and enormous profit.
a) Growth entrepreneur:
Growth entrepreneurs are those who necessarily take up a high growth industry.
These entrepreneurs choose an industry which has sustained growth prospects.
b) Super growth entrepreneur:
Super growth entrepreneurs are those who have shown enormous growth of
performance in their venture. The growth performance is identified by the liquidity of
funds, profitability and gearing.
5. According to the stages of development
a) First generation entrepreneur:
A first generation entrepreneur is one who starts an industrial unit by means of an
innovative skill. He is essentially an innovator, combining different techniques to produce
a marketable product or service.

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b) Modern entrepreneur:
A modern entrepreneur is one who undertakes those ventures which go well along
with the changing demand in the market. They undertake those ventures which suit the
current marketing needs.
c) Classical entrepreneur:
A classical entrepreneur is one who is concerned with the customers and
marketing needs through the development of self supporting ventures.
In a study of American agriculture, Danhof has classified entrepreneurs in the
following categories:
1. Innovative entrepreneurs:
Innovative entrepreneurship is characterized by aggressive assemblage of
information and the analysis of results derived from sound combination of factors.
2. Adaptive or imitative entrepreneurs:
These kinds of entrepreneurs are ready to adopt successful innovations created by
innovative entrepreneurs. Instead of innovating the changes themselves, they just imitate
the technology and techniques innovated by others.
3. Fabian entrepreneurs:
Entrepreneurs of this type are very cautious and skeptical while practicing any
change. They have neither the will to introduce new changes nor the desire to adopt new
methods innovated by the most enterprising entrepreneurs.
4. Drone entrepreneurs:
Drone entrepreneurship is characterized by a refusal to adopt and use
opportunities to make changes in production. Such entrepreneur may even suffer losses
but they do not make changes in production methods.
Women enterprises
The number of women enterprises in USA, has risen dramatically during the last
two decades. Newspapers and business magazines frequently feature women as
successful entrepreneurs. Between 1982 and 1987, the number of women-owned
businesses increased by 57.4%, with receipts of these businesses rising by 81.2%. A study
by economist David Birch, released in 1992, reported that women owned 28 percent of
the business in U.S. and that they owned 10% of the countrys workers. Womens
business ownership has been expanding much more rapidly than mens business
ownership, but women are expanding from a smaller base of ownership.
Functions of an entrepreneur
Peter Kilby identified thirteen functions of an entrepreneur, which included some
of the managerial functions also. Kilby has classified the functions into four groups;
1. Exchange relationship
a) Perceiving market opportunities
b) Gaining command over scarce resources
c) Purchasing inputs
d) Marketing of the products and responding to competition.

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2. Political administration
e) Dealing with the public bureaucracy (concessions, licenses, taxes)
f) Managing human relations within the firm
g) Managing customer and supplier relations.
3. Management control
h) Managing finance
i) Managing production (control of written records, supervision, coordinating input flows
with orders, maintenance)
4. Technology
j) Acquiring and overseeing assembly of the factory
k) Industrial engineering (minimising inputs with a given production process)
l) Upgrading process and product quality, and
m) Introducing new production techniques and products.
Kilby has suggested that in the strict sense entrepreneur will perform only first
two functions listed above and for other remaining eleven functions, he will employ
experts in the related lines. Kilby also suggested that these functions may vary according
to the size, type and setting of an enterprise and could be augmented through training and
education.
Arthur H. Cole has described the following functions of an entrepreneur:
1. The determination of those objectives of the enterprise and the change of those
objectives as conditions required.
2. The development of an organization including efficient relations with the
subordinates and all employees.
3. Securing adequate financial resource, the relations with existing and potential
investors.
4. The requisition of efficient technological equipment and the revision of it.
5. The development of a market for the products and the devising of new products to
meet or anticipate consumers demand.
6. The maintenance of good relations with public authorities and with society at
large.

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Entrepreneurship